(a) Any domestic incorporated insurer having aggregate capital and surplus as of the preceding December 31 of at least twenty-five million dollars ($25,000,000), after investing an amount equal to its required minimum paid-in capital in securities specified in Article 3 (commencing with Section 1170), may purchase insurance futures contracts, purchase call options on insurance futures contracts, and sell put options on insurance futures contracts in bona fide hedging transactions, subject to the limitations set forth in this section. Domestic insurers may sell insurance futures contracts, sell call options on insurance futures contracts, and purchase put options on insurance futures contracts only for the purpose of a closing transaction. No other sales of insurance futures contracts, sales of call options on insurance futures contracts, or purchases of put options on insurance futures contracts are authorized under this section. (b) For purposes of this section, âinsurance futures contractsâ mean contracts based on indices of loss performance of insurance contracts and traded in accordance with the rules and procedures of a board of trade regulated by the Commodity Futures Trading Commission, or any successor agency, and subject to the terms and conditions of the Commodity Exchange Act (7 U.S.C. Sec. 1 et seq.), as amended. For purposes of this section, âput and call options on insurance futures contractsâ mean put or call options, regulated in accordance with the rules of the board of trade on which the options are traded, on insurance futures contracts. (c) No domestic insurer may purchase insurance futures contracts, purchase call options on insurance futures contracts, or sell put options on insurance futures contracts unless the insurance futures contracts are required to be settled in cash within nine months after the end of the loss period underlying the insurance futures contracts, and the relevant type of insurance futures contracts have attained an average daily trading volume of at least 250 contracts and an open interest of 1,000 contracts as reported by the relevant board of trade for the one-month period prior to the insurer initiating the transaction. (d) A transaction will be considered a bona fide hedging transaction only if, upon execution, (1) the insurance futures contract or option is specifically identified with a group of insurance policies issued or reasonably expected to be issued by the insurer in the ordinary course of business and (2) the insurerâs relevant underwriting or insurance-related risk exposures bear a correlation to the risk exposures of the index underlying the insurance futures contracts or options thereon entered into as part of the hedging transaction. For purposes of this section, âcorrelationâ means that the loss experience of the policies hedged is, at the date of purchase of the insurance futures contracts, expected to develop similarly to the loss experience of the policies underlying the insurance futures contract when exposed to similar occurrences and conditions. The insurer shall identify this hedging transaction and the policies and written premiums hedged on its books and records and any insurance futures contract or option position shall be terminated as soon as possible after this correlation does not exist. (e) Notwithstanding other limitations of this section, an insurer may hold open insurance futures contracts and put and call options on insurance futures contracts which do not exceed the equivalent of 75 percent of the insurerâs written premium for each line of business, as designated in the annual statement required by Section 923, being hedged pursuant to this section. For purposes of this subdivision, equivalence shall be based on the par dollar value of the insurance futures contracts and an insurerâs written premium shall be measured based on the loss period reflected in the underlying futures contracts. (f) A domestic insurer shall not enter
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