North Dakota Administrative Code
Title 45 - Insurance, Commissioner of
Article 45-03 - Regulation of Insurance Companies
Chapter 45-03-12 - Investment, Capital, and Surplus Requirements
Section 45-03-12-04 - Securities lending, repurchase, reverse repurchase, and dollar roll transactions

Universal Citation: ND Admin Code ยง 45-03-12-04

Current through Supplement No. 394, October, 2024

An insurer may enter into a securities lending, repurchase, reverse repurchase, and dollar roll transaction with business entities, subject to the following requirements:

1. The insurer's board of directors shall adopt a written plan for engaging in investment practices consistent with the requirements of the written plan in section 45-03-12-05 and which specifies guidelines and objectives to be followed, such as:

a. A description of how cash received will be invested or used for general corporation purposes of the insurer;

b. Operational procedures to manage interest rate risk, counterparty default risk, the conditions under which proceeds from reverse repurchase transactions may be used in the ordinary course of business, and the use of acceptable collateral in a manner that reflects the liquidity needs of the transaction; and

c. The extent to which the insurer may engage in these transactions.

The board shall review and assess the insurer's technical investment and administrative capabilities and expertise before adopting a written plan concerning an investment practice.

2. For purposes of this section, acceptable collateral means:

a. As to securities lending transactions and for the purpose of calculating counterparty exposure amount, cash, cash equivalents, letters of credit, direct obligations of, or securities that are fully guaranteed as to principal and interest by, the government of the United States or any agency of the United States, or by the federal national mortgage association or the federal home loan mortgage corporation;

b. As to repurchase transactions, cash, cash equivalents, and direct obligations of, or securities that are fully guaranteed as to principal and interest by, the government of the United States or an agency of the United States, or by the federal national mortgage association or the federal home loan mortgage corporation; and

c. As to reverse repurchase transactions, cash and cash equivalents.

3. The insurer shall enter into a written agreement for all transactions authorized in this section other than dollar roll transactions. The written agreement shall require that each transaction terminate no more than one year from its inception or upon the earlier demand of the insurer. The agreement shall be with the business entity counterparty, but for securities lending transactions, the agreement may be with an agent acting on behalf of the insurer, if the agent is a primary dealer in United States government securities recognized by the federal reserve bank of New York and if the agreement:

a. Requires the agent to enter into separate agreements with each counterparty that are consistent with the requirements of this section; and

b. Prohibits securities lending transactions under the agreement with the agent or its affiliates.

4. Cash received in a transaction under this section shall be invested in accordance with North Dakota Century Code section 26.1-05-19 and in a manner that recognizes the liquidity needs of the transaction or used by the insurer for its general corporate purposes. For so long as the transaction remains outstanding, the insurer, its agent, or custodian shall maintain, as to acceptable collateral received in a transaction under this section, either physically or through the book entry systems of the federal reserve, depository trust company, or other securities depositories approved by the commissioner:

a. Possession of the acceptable collateral;

b. A perfected security interest in the acceptable collateral; or

c. In the case of a jurisdiction outside of the United States, title to, or rights of a secured creditor to, the acceptable collateral.

5. For purposes of calculations made to determine compliance with this subsection, no effect will be given to the insurer's future obligation to resell securities, in the case of a repurchase transaction, or to repurchase securities, in the case of a reverse repurchase transaction. An insurer shall not enter into a transaction under this section if, as a result of and after giving effect to the transaction:

a. The aggregate amount of securities then loaned, sold to, or purchased from any one business entity counterparty under this section would exceed five percent of its admitted assets. In calculating the amount sold to or purchased from a business entity counterparty under repurchase or reverse repurchase transactions, effect may be given to netting provisions under a master written agreement; or

b. The aggregate amount of all securities then loaned, sold to, or purchased from all business entities under this section would exceed forty percent of its admitted assets.

6. In a dollar roll transaction, the insurer shall receive cash in an amount at least equal to the market value of the securities transferred by the insurer in the transaction as of the transaction date.

7. The amount of collateral required for securities lending, repurchase, and reverse repurchase transactions is the amount required pursuant to the provision of the national association of insurance commissioners accounting practices and procedures manual described in section 45-03-15-01.

8. Securities acquired by an insurer in a repurchase transaction shall not be sold in a reverse repurchase transaction, loaned in a securities lending transaction, or otherwise pledged.

General Authority: NDCC 28-32-02

Law Implemented: NDCC 26.1-05-19

Disclaimer: These regulations may not be the most recent version. North Dakota may have more current or accurate information. We make no warranties or guarantees about the accuracy, completeness, or adequacy of the information contained on this site or the information linked to on the state site. Please check official sources.
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