Sec. 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.
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