Section 424.206 - Internal Control Procedures An insurer that enters into a derivative transaction shall establish written internal control procedures that require:
(1) a quarterly report to the board of directors that reviews:(A) each derivative transaction entered into, outstanding, or closed out;(B) the results and effectiveness of the derivatives program; and(C) the credit risk exposure to each counterparty for over-the-counter derivative transactions based on the counterparty exposure amount;(2) a system for determining whether hedging or replication strategies used by the insurer have been effective;(3) a system of reports, at least as frequent as monthly, to the insurer's management, that include: (A) a description of each derivative transaction entered into, outstanding, or closed out during the period since the last report;(B) the purpose of each outstanding derivative transaction;(C) a performance review of the derivative instrument program; and(D) the counterparty exposure amount for each over-the-counter derivative transaction;(4) a written authorization that identifies the responsibilities and limitations of authority of each person authorized to effect and maintain derivative transactions; and(5) appropriate documentation for each transaction, including: (A) the purpose of the transaction;(B) the assets or liabilities to which the transaction relates;(C) the specific derivative instrument used in the transaction;(D) for an over-the-counter derivative transaction, the name of the counterparty and the counterparty exposure amount; and(E) for an exchange-traded derivative instrument, the name of the exchange and the name of the firm that handled the transaction.Added by Acts 2005, 79th Leg., Ch. 727, Sec. 1, eff. 4/1/2007.