18 Del. Admin. Code § 404-6.0

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

Section 404-6.0 - Limitations on Income Generation Transactions

6.1 An insurer may enter into the following types of income generation transactions:

6.1.1 Sales of covered call options on (i) non-callable fixed income securities, (ii) callable fixed income securities if the option expires by its terms prior to the end of the non-callable period, (iii) derivative instruments based on fixed income securities, or (iv) equity securities;

6.1.2 Sales of covered put options on investments that the insurer is permitted to acquire under18Del.C.Chapter 13; and

6.1.3 Sales of covered caps or floors.

6.2 For purposes of this Section 6.0, the term "covered" means that an insurer (i) owns or can immediately acquire, through the exercise of options, warrants or conversion rights already owned, the underlying interest in order to fulfill or secure its obligations under a call option it has sold, (ii) holds cash equivalents or segregated cash with a market value equal to the amount required to fulfill its obligations under a put option it has sold, or (iii) holds in its portfolio (A) investments generating the cash flow, or (B) cash equivalents or segregated cash with a market value, in each case, sufficient to make the required payments under a cap or floor it has sold.

6.3 In connection with an insurer's income generation transactions under Section 6.1, the sum total of the following items shall not exceed ten percent (10%) of an insurer's admitted assets:

(i) the aggregate statement value of the equity or fixed income securities that are subject to covered call options, plus (ii) the aggregate statement value of the assets that generate the cash flows or are sufficient to make the required payments under covered caps and floors, plus (iii) the face value of fixed income securities underlying a derivative instrument subject to a covered call option, plus (iv) the aggregate amount of the purchase obligation under covered put options.

6.4 An insurer utilizing income generation transactions must at all times (i) be able to identify on its books and records, without duplication, its ownership of, or right to acquire, the investments, cash or cash equivalents required under Section 6.2 to be held in connection with the income generation transactions authorized under Section 6.1, and (ii) maintain a separate record that (A) lists all of the insurer's outstanding income generation transactions under Section 6.1, and (B) demonstrates how those transactions are "covered" as required under Section 6.2, by the insurer's ownership of, or right to acquire, underlying interests, designated investments, cash or cash equivalents. Such record shall be submitted to the Department upon its request.

18 Del. Admin. Code § 404-6.0

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