18 Del. Admin. Code § 404-5.0

Current through Register Vol. 28, No. 5, November 1, 2024

Section 404-5.0 - Limitations on Hedging Transactions

5.1 An insurer may use derivative instruments for hedging transactions under this regulation if, as a result of and after giving effect to the transaction:

5.1.1 The aggregate statement value of options, swaptions, caps, floors and warrants not attached to another financial instrument purchased and used in hedging transactions does not exceed seven and one half percent (7.5%) of its admitted assets;

5.1.2 The aggregate statement value of options, swaptions, caps and floors written in hedging transactions does not exceed three percent (3%) of its admitted assets; and

5.1.3 The aggregate potential exposure of collars, swaps, forwards and futures used in hedging transactions does not exceed six and one-half percent (6.5%) of its admitted assets.

5.2 Hedging transactions entered into to hedge currency risk of investments denominated in a currency other than United States dollars shall not be included in the above limits.

5.3 An insurer may purchase or sell one or more derivative instruments to offset, in whole or in part, any derivative instrument previously purchased or sold without regard to the above limits.

5.4 If an insurer holds one or more derivative instruments used for hedging transactions that complied with the applicable limit set forth in Section 5.1 of this regulation at the time that they were acquired, but that have subsequently exceeded such limit, the insurer shall provide written notice to the Department, (i) if such limit is exceeded by an amount greater than 1% of admitted assets, within 10 days of exceeding such limit, or (ii) if such limit is exceeded by an amount less than or equal to 1% of admitted assets, within 30 days of exceeding such limit. Derivative instruments used for hedging purposes that were acquired in compliance with this regulation need not be divested by an insurer if they exceed the limits set forth in Section 5.1 of this regulation. In the event that such insurer desires to engage in additional hedging transactions while such limit has been exceeded, the insurer may request a waiver in accordance with Section 12.1 of this regulation. No further hedging transactions subject to such exceeded limit may be entered into without such waiver.

18 Del. Admin. Code § 404-5.0

18 DE Reg. 393 (11/1/2014) (Final)