Investment Management Agreement between Prospector Partners, LLC and Symetra Financial Corporation
Prospector Partners, LLC and Symetra Financial Corporation have entered into an agreement effective July 1, 2010, under which Prospector Partners will act as the discretionary investment adviser for specified Symetra investment accounts. Prospector Partners will manage these accounts according to agreed investment guidelines and policies, with authority to make investment decisions and execute trades. Symetra retains responsibility for custodial arrangements and must maintain a minimum account balance. The agreement outlines each party’s responsibilities, including indemnification and limits on liability, and allows for additions or withdrawals from the accounts under certain conditions.
1) | Investment Accounts. The investment account of each Client (each an Investment Account) shall consist of cash and securities in an amount equal to at least $50,000,000 (the Minimum Account Amount), or such other amount as may be agreed to by the Adviser, initially furnished by the Client for investment pursuant to this Agreement, as well as all other assets which become part of each Investment Account as a result of trading therein or additions thereto, except for amounts withdrawn therefrom and paid to the Client. Each Client may make additions to the Investment Account in amounts exceeding $100,000, or in such other amount as may be agreed to by the Adviser; provided that the Adviser shall have received prompt written notice of such additions. Each Client may make withdrawals from its Investment Account in such amounts as it shall determine upon not less than 30 days prior written notice thereof to the Adviser and provided that the withdrawal shall not cause the assets in the Investment Account to fall below the Minimum Account Amount, unless otherwise agreed to by the Adviser. | ||
2) | Services of Adviser. By execution of this Agreement the Adviser accepts appointment as adviser for each Investment Account with full discretion and agrees to supervise and direct the investments of each Investment Account in accordance with the investment objective, policies and restrictions attached hereto as Schedule 1, and as may be modified from time to time (Investment Guidelines). Adviser acknowledges that Clients are bound by state insurance laws regarding permissible investments and Clients own adopted Statement of Investment Policy, including any Addendums, attached hereto as Schedule 2, and as may be modified from time to time, applicable to Clients aggregate investable assets (the Investment Policy). Adviser has read the Investment Policy and understands that Clients Investment Guidelines, to be furnished to Adviser from time to time, will not deviate from the Investment Policy but will only summarize the provisions and limitations applicable to each Investment Account. In the performance of its services, the Adviser will not be liable for any error in judgment or any acts or omissions to act except those resulting from the Advisers gross negligence, willful misconduct or malfeasance. Nothing herein shall in any way constitute a waiver or limitation of any right of any person under the federal securities laws. The Adviser shall have no responsibility whatsoever for the management of any assets of Clients other than such entities Investment Account. |
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3) | Discretionary Authority. Subject to the Investment Guidelines, the Adviser shall have full discretion and authority, without obtaining any prior approval, as the Clients agent and attorney-in-fact: (a) to make all investment decisions in respect of each Investment Account on the Clients behalf and at the sole risk of the Client; (b) to buy, sell, exchange, convert, liquidate or otherwise trade in any stock, bond and other securities or financial instruments in respect of each Investment Account; (c) to place orders with respect to, and to arrange for, any of the foregoing; and (d) in furtherance of the foregoing, to do anything which the Adviser shall deem requisite, appropriate or advisable in connection therewith, including, without limitation, the selection of such brokers, dealers, and others as the Adviser shall determine in its absolute discretion. | ||
4) | Custody. The assets of each Investment Account shall be held in one or more separately identified accounts in the custody of one or more banks, trust companies, brokerage firms or other entities designated by the Client and acceptable to the Adviser. The Adviser will communicate its investment purchase, sale and delivery instructions directly with the party identified by the Client or other qualified depositories. The Client shall be responsible for all custodial arrangements and the payment of all custodial charges and fees, and the Adviser shall have no responsibility or liability with respect to custody arrangements or the acts, omissions or other conduct of the custodians. | ||
5) | Brokerage. When placing orders for the execution of transactions for an Investment Account, the Adviser may allocate all transactions to such brokers or dealers, for execution on such markets, at such prices and commission rates, as are selected by the Adviser in its sole discretion. In selecting brokers or dealers to execute transactions, the Adviser need not solicit competitive bids and does not have an obligation to seek the lowest available commission cost. It is not the Advisers practice to negotiate execution only commission rates, and, in negotiating commission rates, the Adviser shall take into account the financial stability and reputation of brokerage firms and brokerage and research services provided by such brokers. An Investment Account may be deemed to be paying for research provided or paid for by the broker which is included in the commission rate although the Investment Account may not, in any particular instance, be the direct or indirect beneficiary of the research services provided. Research furnished by brokers may include, but is not limited to, written information and analyses concerning specific securities, companies or sectors; market, finance and economic studies and forecasts; financial publications; statistics and pricing services; discussions with research personnel; and software and data bases utilized in the investment management process. Symetra acknowledges on behalf of each Client that since commission rates are generally negotiable, selecting brokers on the basis of considerations which are not limited to applicable commission rates may at times result in higher transaction costs than would otherwise be obtainable. The Adviser is hereby authorized to, and Symetra acknowledges on behalf of each Client that the Adviser may aggregate orders on behalf of each Investment Account with orders on behalf of other clients of the Adviser. In such event, allocation of the securities purchased or sold, as well as expenses incurred in the transaction, shall be made in a manner which the |
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Adviser considers to be the most fair and equitable to all of its clients, including the Clients. |
6) | Representations and Warranties |
a) | Symetra represents, warrants and agrees that: |
i) | it has full legal power and authority to enter into this Agreement; | ||
ii) | the appointment of the Adviser hereunder is permitted by each Clients governing documents and any investment management agreement between Symetra and the Clients to this Agreement and has been duly authorized by all necessary corporate or other action; and | ||
iii) | it will indemnify the Adviser and hold it harmless against any and all losses, costs, claims and liabilities which the Adviser may suffer or incur arising out of any material breach of these representations and warranties of Symetra. |
b) | The Adviser represents, warrants and agrees that: |
i) | it has full legal power and authority to enter into this Agreement; | ||
ii) | it is registered as an investment adviser with the Securities and Exchange Commission pursuant to the Investment Advisers Act of 1940, as amended (the Advisers Act); | ||
iii) | entering into this Agreement has been duly authorized by all necessary action; and | ||
iv) | it will indemnify Symetra and hold it harmless against any and all losses, costs, claims and liabilities which Symetra or any Client may suffer or incur arising out of any material breach of any representations and warranties of the Adviser. |
7) | Reports. The Adviser shall provide Symetra with reports containing the status of the Investment Account at least monthly (i.e. Flash Report), and will provide written advisory report letters on a quarterly basis. All records maintained pursuant to this Agreement shall be subject to examination by Symetra and by persons authorized by it, or by appropriate governmental authorities, at all times upon reasonable notice. The Adviser shall provide copies of trade tickets, custodial reports and other records Symetra reasonably requires for accounting, tax, regulatory, or audit purposes. | ||
8) | Management Fee and Expenses |
a) | The Adviser will be paid a quarterly management fee (the Management Fee) for its investment advisory services provided hereunder, determined in accordance with Exhibit A to this Agreement. During the term of this Agreement, the Management Fee shall be billed and payable in arrears on a quarterly basis within 10 days after the |
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last day of each calendar quarter based upon the value of the Investment Accounts as of the last day of the immediately preceding calendar quarter, and showing that portion of the Management Fee attributable to each Investment Account. The Management Fee shall be pro-rated for any partial quarter. It is understood that, in the event that the Management Fee is to be paid by the custodian out of the Investment Accounts, Symetra or the Clients will provide written authorization to the custodian to pay the Management Fee directly from the Investment Accounts. | |||
b) | Each Investment Account shall be responsible for all expenses incurred directly in connection with transactions effected on behalf of the Investment Account pursuant to this Agreement and shall include: custodial fees; PAM accounting service fees, investment expenses such as commissions; Infomediary transactions fees and other expenses reasonably related to the purchase, sale or transmittal of Investment Account assets (other than research fees and expenses with respect to the Investment Account). |
9) | Confidential Relationship. |
a) | The Parties hereby agree that all of the information provided to Symetra by the Adviser and to the Adviser by Symetra shall be considered proprietary and confidential in nature (hereinafter, the Confidential Information) and, as such, shall not be disclosed or revealed or caused to be disclosed or revealed, in any manner, to any non-party to this Agreement, except: |
i) | as may be required by law or any judicial, regulatory or self-regulatory authority (including without limitation any required filing with the SEC or any state insurance regulator), provided that notice of any such disclosure is at the time sent to the other party, except that no notice will be required for routine SEC or department of insurance filings, | ||
ii) | as either party may consent to specifically in advance in writing; provided, however, that | ||
iii) | any such Confidential Information may be disclosed to each partys officers, directors, employees, consultants, contractors, advisors, and fiduciaries (Representatives) who need to know such information in order to carry out the purpose of the disclosure and so long as they agree to keep it confidential; | ||
iv) | Confidential Information does not include any information which (A) is or subsequently becomes published or available to the public other than by breach of this Agreement, (B) is received by receiving party from a non-party not in breach of any obligation of confidentiality, (C) is independently developed by receiving party, or (D) was in receiving partys possession or known to receiving party before disclosing party disclosed it to receiving party; and | ||
v) | Adviser Confidential Information does not include the identification of Symetra |
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as a Client or a Clients investments as of a given point in time (which is consistent with (iv) (A) above). |
b) | Symetra agrees that: |
i) | Adviser may disclose that Symetra (and each of the Clients) is a client of the Adviser and to the inclusion of Symetra on a list of representative clients of the Adviser or in other marketing materials; | ||
ii) | Adviser shall be permitted to retain copies of all documentation necessary under the Advisers Act to support the track record or otherwise required to be retained under the Advisers Act and related rules, but only for such period as required to be retained; and | ||
iii) | Symetra shall not allow the Confidential Information to be used to purchase, sell, trade or invest in any securities, instruments or other investments owned by the Account without obtaining the prior written consent of the Adviser, unless such consent is impossible or impractical due to an event of force majeure that interferes with Advisers performance under this Agreement; and further acknowledges that: | ||
iv) | the provisions of (b) are reasonable and necessary for the protection of the Adviser and its affiliates, and | ||
v) | the Adviser or its affiliates will be irrevocably damaged if the covenants herein are not specifically enforced and, accordingly, Symetra hereby further agrees that, in addition to any other relief or remedies available to the Adviser, the Adviser shall be entitled to seek and obtain an appropriate injunction or other equitable remedy from a court with proper jurisdiction for the purposes of restraining Symetra from any actual or threatened breach of such covenant, and no bond or security will be required in connection therewith. In any event, Symetra shall be responsible for any breach of this Agreement by any of Symetras Representatives, and Symetra agrees, at its sole expense, to take all reasonable measures (including, without limitation, court proceedings) to restrain its Representatives from prohibited or unauthorized disclosure or use of the Confidential Information or any other breach of the terms of this Agreement. |
c) | Adviser agrees that: |
i) | Symetra shall be permitted to report the Investment Track Record (on a stand-alone basis, as part of its total portfolio return or otherwise) with respect to the Investment Accounts in any internal or external reports of it or its affiliates; and | ||
ii) | Symetra and/or its affiliates will be irrevocably damaged if the covenants herein are not specifically enforced and, accordingly, Adviser hereby further agrees that, in addition to any other relief or remedies available to Symetra, Symetra shall be |
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entitled to seek and obtain an appropriate injunction or other equitable remedy from a court with proper jurisdiction for the purposes of restraining Adviser from any actual or threatened breach of such covenant, and no bond or security will be required in connection therewith. In any event, Adviser shall be responsible for any breach of this Agreement by any of its Representatives, and Adviser agrees, at its sole expense, to take all reasonable measures (including, without limitation, court proceedings) to restrain its Representatives from prohibited or unauthorized disclosure or use of the Confidential Information or any other breach of the terms of this Agreement. |
10) | Non-Assignability. No assignment, as that term is defined in the Advisers Act, of this Agreement shall be made by the Adviser or Symetra without the written consent of the other party. | ||
11) | Directions to the Adviser. All directions by Symetra by or on behalf of the Clients to the Adviser shall be in writing signed by or on behalf of Symetra. The Adviser shall be fully protected in relying upon any such writing which the Adviser believes to be genuine and signed or presented by the proper person or persons, shall be under no duty to make any investigation or inquiry as to any statement contained therein and may accept the same as conclusive evidence of the truth and accuracy of the statements therein contained. | ||
12) | Consultation with Counsel. The Adviser may consult with legal counsel (who may be counsel to Symetra) concerning any question that may arise with reference to its duties under this Agreement, and the opinion of such counsel shall be full and complete protection in respect of any action taken or omitted by the Adviser hereunder in good faith and in accordance with such opinion. | ||
13) | Services to Other Clients. It is understood that the Adviser acts as investment adviser to other clients and may give advice and take action with respect to such clients that differs from the advice given or the action taken with respect to the Investment Accounts. Nothing in this Agreement shall restrict the right of the Adviser, its members, managers, officers, employees or affiliates to perform investment management or advisory services for any other person or entity, and the performance of such service for others shall not be deemed to violate or give rise to any duty or obligation to the Client. | ||
14) | Investment by the Adviser for Its Own Account. Nothing in this Agreement shall limit or restrict the Adviser or any of its members, managers, officers, employees or affiliates from buying, selling or trading any securities for its or their own account or accounts. Symetra on behalf of each Client acknowledges that the Adviser and its members, managers, officers, employees, affiliates and other clients may at any time have, acquire, increase, decrease or dispose of securities which are at or about the same time acquired or disposed of for the account of a Client. The Adviser shall have no obligation to purchase or sell for the Investment Accounts or to recommend for purchase or sale by the Investment Accounts any security that the Adviser or its members, managers, |
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officers, employees or affiliates may purchase or sell for itself or themselves or for any other client. | |||
15) | Proxies. Subject to any other written instructions of Symetra, the Adviser is hereby appointed Symetras agent and attorney-in-fact in its discretion to vote, convert or tender in an exchange or tender offer any securities in the Investment Accounts, to execute proxies, waivers, consents and other instruments with respect to such securities, to endorse, transfer or deliver such securities and to participate in or consent to any plan of reorganization, merger, combination, consolidation, liquidation or similar plan with reference to such securities. | ||
16) | Sarbanes-Oxley Compliance. Symetra is subject to certain regulations (SOX) that require management to assess the effectiveness of its internal controls over financial reporting and state in its annual report whether such internal controls are effective. Because Adviser will perform trading execution functions for Symetras Investment Accounts as described in this Agreement, certain procedures performed by Adviser are relevant to Symetras evaluation of its internal controls. Having acknowledged the foregoing, Adviser agrees to cooperate with Symetra as reasonably necessary to facilitate Symetras ability to comply with its regulatory obligations. | ||
17) | Operational Audits. Upon Symetras request, but no more often than once annually except (a) as necessary for Symetra or Client to respond to any regulatory requirement or inquiry, or (b) as deemed reasonably necessary by Symetra as a result of Symetras good faith belief that Adviser has breached any of its obligations hereunder, Adviser shall allow Symetra and/or any independent third party (Third Party Representatives) selected by Symetra to perform operational audits with respect to Advisers performance of its obligations hereunder. Adviser shall grant Symetra and its Third Party Representatives access to Advisers facilities, personnel, and all books, records and other documents of Adviser related to trade execution it performs for Symetra under this Agreement (not otherwise provided under section 7) (Documentation) as may be required in order for Symetra to ascertain that trades (i) are conducted by authorized personnel, (ii) are completed, and (iii) reconcile to the accounting and custody records of Symetra and its other service providers, and such other facts relative to Advisers performance hereunder. Symetra acknowledges that to the extent such Documentation contains aggregated data for multiple clients of Adviser, Adviser may redact certain information contained in the Documentation as reasonably necessary to meet its confidential obligations to other clients. Adviser shall provide Symetra, or its Third Party Representatives, such information and assistance as requested in order to perform such audits, including access to Advisers personnel to explain the control environment by means of operational walk throughs or other means; provided, however, that the Parties shall endeavor to arrange such assistance in such a way that it does not interfere with Advisers performance of the Agreement. Notwithstanding anything to the contrary in section 17, no amendment to this Agreement shall be required where the Parties mutually agree to change the scope of audits under this section to permit Symetra to comply with SOX and related laws as enacted or amended from time to time. |
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18) | Notices. All notices and instructions with respect to securities transactions or any other matters contemplated by this Agreement shall be deemed duly given when delivered in writing or deposited by first-class mail to the following addresses: (a) if to the Adviser, at its address set forth above, Attention: Peter N. Perugini, CFO, or (b) if to Symetra, at its address set forth above, Attention: Margaret Meister, CFO. The Adviser or the Client may change its address or specify a different manner of addressing itself by giving notice of such change in writing to the other party. | ||
19) | Entire Agreement; Amendment. This Agreement sets forth the entire agreement of the parties with respect to management of the Investment Account and shall not be amended except by an instrument in writing signed by the parties hereto. | ||
20) | Termination. This Agreement shall continue in force from the date hereof for an initial fixed term of three years (initial term), which may be extended by Symetra in its sole discretion for an additional one year (fourth year extension) at/prior to the end of the second year of the initial term, and if so extended, then, again in Symetras sole discretion, for an additional year (fifth year extension) at/prior to the end of the initial term. Notwithstanding the foregoing, during the initial term and any extensions, this Agreement shall be terminable without penalty by Symetra upon written notice to the Adviser at least thirty (30) days prior to the date upon which such termination is to become effective (i) for cause (including material non-performance by the Adviser), (ii) if either John Gillespie or Richard Howard are no-longer affiliated with the Adviser, or (iii) if there is a change in control of the Adviser. Following the end of the initial term and any extensions, this Agreement may be terminated without penalty by either party on 60 days written notice. Each Client shall honor any trades executed but not settled before the date of any termination under this Agreement. The fee for the calendar quarter during which any termination of this Agreement shall occur shall be paid as of the date of termination and prorated if the effective date does not coincide with the end of the quarter. | ||
21) | Governing Law. To the extent that the interpretation or effect of this Agreement shall depend on state law, this Agreement shall be governed by and construed in accordance with the laws of the State of Connecticut. | ||
22) | Effective Date. This Agreement shall become effective on the date first written above. | ||
23) | Receipt of Disclosure Statement. Symetra acknowledges receipt of a copy of Part II of the Advisers Form ADV in compliance with Rule 204-3(b) under the Advisers Act more than 48 hours prior to the date of execution of this Agreement. The Adviser shall annually and without charge, upon request by Symetra, deliver to Symetra the current version of such form or a written document containing at least the information then required to be contained in such form. | ||
24) | Counterparts. This Agreement may be executed in two counterparts, each one of which shall be deemed to be an original. |
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ADVISER: | CLIENT: | |
PROSPECTOR PARTNERS, LLC | SYMETRA FINANCIAL CORPORATION | |
By: /s/ John D. Gillespie | By: /s/ Margaret A. Meister | |
John D. Gillespie | Margaret A. Meister | |
Title: Managing Member | Executive Vice President, Chief Financial Officer | |
Date: June 29, 2010 | Date: 06/29/2010 | |
SYMETRA LIFE INSURANCE COMPANY | ||
By: /s/ Margaret A. Meister | ||
Margaret A. Meister | ||
Executive Vice President, Chief Financial Officer | ||
Date: 06/29/2010 | ||
EFFECTIVE JULY 1, 2010 BETWEEN PROSPECTOR PARTNERS, L.L.C. AND
SYMETRA FINANCIAL CORPORATION
Aggregate Net Assets | Annual Fee | Quarterly Fee | ||||||
Up to $200 million | 100 basis points | 25 basis points | ||||||
(1.00% or 0.0100) | (0.25% or 0.00250) | |||||||
Greater than $200 million | 50 basis points | 12.50 basis points |
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BETWEEN PROSPECTOR PARTNERS, L.L.C. AND SYMETRA FINANCIAL
CORPORATION
1) | The Adviser may not purchase securities on margin, sell short, or enter into derivative transactions in an Investment Account without the written consent of Symetra. | ||
2) | The Adviser may purchase Rule 144A securities provided such securities are judged by the Adviser to be liquid and do not in the aggregate exceed 20% of the market value of each Investment Account. The Adviser shall also be able to purchase securities if such securities are convertible into publicly traded securities. | ||
3) | At least 95% of each Investment Account will consist of securities of companies having a market capitalization of $100 million or greater. | ||
4) | Each Investment Account may include domestic and non-domestic securities (common stocks, bonds, securities that are convertible to common stocks, preferred stocks, warrants and rights to subscribe to common stocks) that are listed on registered exchanges or actively traded in the over-the-counter market. |
5) | Issuers of securities located in countries other than the United States, including emerging market countries, shall not exceed 40% of the market value of each Investment Account. | ||
6) | In terms of diversification, investments shall be allocated with the intent to minimize the risk of large losses to each Investment Account. The maximum total investment in any one security shall be limited to 10% of an Investment Account at the time of purchase, and 25% of the market value of such Investment Account. | ||
7) | If the aggregate investment in an Investment Account of the equity securities of any one company exceeds 5% of that companys outstanding shares of all classes of stock of that issuer, the Adviser will notify Symetra. |
1) | Investment in preferred stock with voting rights plus common stock in the same issuer is limited to 15% of the issuers outstanding shares having voting rights. | ||
2) | Investment is limited to 10% of the outstanding common stock of the same issuer. | ||
3) | No investment in the securities issued by an insolvent corporation is permitted. For purposes of this section 3, insolvent corporation is a corporation for which bankruptcy, receivership, insolvency, reorganization or other similar proceedings have been instituted by or against such corporation under any section or chapter of the United States Bankruptcy Code, as amended, or under any similar laws or statutes of the United States (or any state thereof). |
SFC: 8/24/2004
SLIC and SNLIC: 12/6/2004
FSNLIC: 4/8/2005
Symetra Financial
Illustrative | ||||||||
Maximum | Long-term | |||||||
Asset Type | Allocation | Target* | ||||||
Fixed Income | 100 | % | 96 | % | ||||
Corporate Bonds | 70 | % | 55 | % | ||||
MBS/CMO | 20 | % | 10 | % | ||||
Asset Backed Securities | 15 | % | 12 | % | ||||
CMBS | 12 | % | 7 | % | ||||
Commercial Mortgages | 10 | % | 7 | % | ||||
Other Investment Grade | 10 | % | 2 | % | ||||
Below Investment Grade | 7 | % | 3 | % | ||||
Equity/Alternatives | 5 | % | 4 | % | ||||
Public/Private Equity | 3 | % | 1.5 | % | ||||
Hedge Funds | 3 | % | 1.5 | % | ||||
Real Estate | 2 | % | 0.5 | % | ||||
Other | 2 | % | 0.5 | % | ||||
Cash & short-term purchases | 2 | % | 0 | % |
* | Illustrative long-term targets are based on the 2004 liability mix. |
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Senior | Market Value as a % | Approximate % of | ||||||
Debt Rating | Surplus + AVR | Total Market Value * | ||||||
AAA | 12 | % | 0.7 | % | ||||
AA | 10 | % | 0.6 | % | ||||
A | 8 | % | 0.5 | % | ||||
BBB | 6 | % | 0.4 | % | ||||
BB | 3 | % | 0.2 | % | ||||
< BB | 2 | % | 0.1 | % |
* | As of 12/2003 |
Senior | Market Value as a % | Approximate % of | ||||||
Debt Rating | Surplus + AVR | Total Market Value * | ||||||
Investment Grade | 3 | % | 0.2 | % | ||||
Below Inv. Grade | 1 | % | 0.1 | % |
* | As of 12/2003 |
Market Value as a % | ||||
Type | Surplus + AVR | |||
Single Fund | 5 | % | ||
Single Manager | 10 | % |
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I. POLICY | 1 | |||
II. DERIVATIVE INSTRUMENTS AND STRATEGIES | 1 | |||
A. DERIVATIVE INSTRUMENT DEFINITIONS | 1 | |||
B. EXCHANGE TRADED VERSUS OVER-THE-COUNTER TRANSACTIONS | 2 | |||
C. STRATEGIES | 3 | |||
D. DUTY TO CONSIDER RISKS INHERENT IN DERIVATIVE TRANSACTIONS | 4 | |||
E. RISK/EXPOSURE MEASUREMENT | 5 | |||
III. LIMITATIONS AND PARAMETERS | 5 | |||
A. QUANTITATIVE AND OTHER LIMITATIONS | 5 | |||
B. DOCUMENTATION OF OTC DERIVATIVE TRANSACTIONS | 7 | |||
IV. OVERSIGHT, INTERNAL CONTROL PROCEDURES AND REPORTING | 7 | |||
A. DELEGATION OF RESPONSIBILITY | 7 | |||
B. DAY-TO-DAY RESPONSIBILITY INVESTMENT MANAGER | 8 | |||
C. INTERNAL CONTROL PROCEDURES PROCESS FOR APPROVAL AND MONITORING OF INDIVIDUAL TRANSACTIONS | 8 | |||
D. MANAGEMENT OVERSIGHT OF DERIVATIVES PROGRAM | 10 | |||
E. RECORDS AND DOCUMENTATION | 10 | |||
F. SEPARATION OF TRADING AND SETTLEMENT FUNCTIONS | 11 | |||
G. ACCOUNTING AND FINANCIAL REPORTING | 11 | |||
EXHIBIT A SAMPLE DERIVATIVE TRANSACTION CONTROL SHEET | A-1 | |||
EXHIBIT B LIST OF COMPANIES | B-1 | |||
EXHIBIT C SAMPLE EFFECTIVENESS SUMMARY | C-1 |
II. DERIVATIVE INSTRUMENTS AND STRATEGIES |
A. | Derivative Instrument Definitions. |
1. | The definition according to Generally Accepted Accounting Principles (GAAP):1 | ||
A financial instrument or other contract with all three of the following characteristics: |
- | It has (1) one or more underlyings and (2) one or more notional amounts or payment provisions or both. | ||
- | It requires no initial net investment or an initial net investment that is smaller than would be required for other types of contracts that would be expected to have a similar response to changes in market factors. | ||
- | Its terms require or permit net settlement, it can readily be settled net by a means outside the contract, or it provides for delivery of an asset that puts the recipient in a position not substantially different from net settlement. |
2. | The regulatory definition:2 |
1 | FASB statement No. 133 Accounting for Derivative Instruments and Hedging Activities. | |
2 | Based on the NAICs Derivative Instruments Model Regulation and Statements of Statutory Accounting Principals (SSAPs). |
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(a) | To make or take delivery of, or assume or relinquish, a specified amount of one or more underlying interests, or to make a cash settlement in lieu thereof; or | ||
(b) | That has a price, performance, value or cash flow based primarily upon the actual or expected price, level, performance, value or cash flow of one or more underlying interests. |
B. | Exchange Traded versus Over-the-Counter Transactions. |
3 | These definitions are based in whole or in part on definitions found in Washington state insurance laws as may be amended from time to time. |
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C. | Strategies (All life insurance company strategies will conform to applicable state statutes). |
(a) | The risk of a change in the value, yield, price, cash flow, or quantity of assets or liabilities that the insurer has acquired or incurred or anticipates acquiring or incurring; or | ||
(b) | The currency exchange rate risk or the degree of exposure as to assets or liabilities that the insurer has acquired or incurred or anticipates acquiring or incurring. |
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D. | Duty to Consider Risks Inherent in Derivative Transactions. |
- | $25 million for a counterparty with a AAA rating | ||
- | $20 million for a counterparty with a AA rating |
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- | $15 million for a counterparty with a A rating | ||
- | $5 million for a counterparty with a BBB+ rating | ||
- | $2.5 million for a counterparty with a BBB rating | ||
- | $0 for BBB- and lower |
E. | Risk/Exposure Measurement. |
III. LIMITATIONS AND PARAMETERS |
A. | Quantitative and Other Limitations. |
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(a) | Hedging. |
| The aggregate financial statement value of options, swaptions, caps, floors and warrants not attached to another financial instrument that are purchased by a Company and used in hedging transactions shall not exceed 7.5% of the market value of such Companys invested assets (admitted assets for life insurance companies). | ||
| The aggregate financial statement value of options, swaptions, caps and floors written by a Company for hedging transactions shall not exceed 3% of the market value of the such Companys invested assets (admitted assets for life insurance companies). | ||
| The aggregate potential exposure of collars, swaps, swaptions, forwards and futures used in hedging transactions shall not exceed 6.5% of a Companys invested assets (admitted assets for life insurance companies). |
(b) | Replication. |
| A Company shall aggregate all replicated investment positions with their direct investments as if such Company had invested in the replicated asset directly in determining its compliance with applicable quantitative limitations. | ||
| The aggregate financial statement value of assets being replicated shall not exceed 10% of the market value of a Companys invested assets (admitted assets for life insurance companies). |
(c) | Income Generation. |
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| The aggregate financial statement value of options written by a Company for income generation transactions shall not exceed 1% of the market value of such Companys invested assets (admitted assets for life insurance companies). |
B. | Documentation of OTC Derivative Transactions. |
IV. OVERSIGHT, INTERNAL CONTROL PROCEDURES AND REPORTING |
A. | Delegation of Responsibility. |
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B. | Day-to-Day Responsibility Investment Manager. |
C. | Internal Control Procedures Process for Approval and Monitoring of Individual Transactions. |
| type of derivative instrument(s) to be used; | ||
| type of strategy to be undertaken; | ||
| underlying investment position or other balance sheet or income statement item to which the derivative transaction relates; | ||
| description of the transaction, its purpose and its intended effect, including a precise identification of the risks being hedged or replicated, if applicable; | ||
| identity of the counterparty or, with respect to exchange-traded transactions, the identity of the exchange and the name of the firm that handled the trade; | ||
| notional amount of the transaction; | ||
| consideration for the transaction; | ||
| any additional collateral or other credit support taken or provided; and |
8
| Investment Managers recommendation for the most appropriate method for assessing effectiveness based on acceptable choices provided by a Company in the event hedge accounting is to be used (final determination to be made by a Company for accounting/tax purposes). |
| the Control Sheet is complete; | ||
| the derivative transaction complies with this Plan, including a Companys established quantitative and qualitative limits/parameters; | ||
| the transaction is reasonably expected to perform as intended, as demonstrated through stress testing and other techniques designed to vary market performance and conditions as appropriate; | ||
| the counterparty is included on the Investment Managers list of approved derivative counterparties for such Company; | ||
| Such Company has received a copy of the completed Control Sheet so that it can complete any additional required hedge designation documentation, including the anticipated accounting and tax treatment for such derivative transactions. In the event that the transaction is not of the type where standard language has been provided to the Investment Manager by such Company, a minimum of 1 day prior notice must be given to such Company to allow adequate time to complete the derivative documentation in a timely manner. In all other cases the Control Sheet will be provided to such Company by noon on the transaction date. |
9
D. | Management Oversight of Derivatives Program. |
| outstanding derivative positions and unrealized gains or losses on such positions, if any; | ||
| derivative transactions opened and/or closed during the quarter and realized gains and losses on such transactions, if any; | ||
| a performance review of the derivative transactions; | ||
| an evaluation of the risks and benefits of the derivative transactions, including whether a derivative transaction entered into for hedging purposes continues to be an effective hedging tool; | ||
| an assessment of future or potential risk exposure; | ||
| a review of all counterparty exposure amounts outstanding; | ||
| a valuation of the derivative transactions, including a mechanism for compensating for any lack of independence in valuing trading positions; | ||
| any other reports, documentation or analysis deemed necessary by a Company or the Investment Manager to ascertain whether all derivative transactions have been made in accordance with the delegations, standards, limitations and objectives contained in this Plan. |
E. | Records and Documentation. |
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F. | Separation of Trading and Settlement Functions. |
G. | Accounting and Financial Reporting. |
| The Investment Manager will prepare and provide the Companies, on the trade date, with copies of the completed Control Sheet (see Exhibit A) relating to each derivative transaction. The Companies will use the information on the Control Sheet as part of their hedge designation documentation. The designation documentation supporting the hedge must be formal, be contemporaneous (i.e., prepared at inception of the hedge), identify the hedged item, the hedging instrument, the nature of the hedging relationship (e.g. fair value, cash flow, net investment), the Companies overall risk management objectives and strategy for undertaking the hedge. The Investment Manager will suggest the most appropriate method for determining how hedge effectiveness will be assessed. As part of the Financial Reporting designated documentation, a statement must be included that identifies the hedging transaction for tax purposes. This will be provided by the Companies. | ||
| The designation documentation must include support provided by the Investment Manager (e.g., correlation statistics such as r-squared using statistical analysis or observations of how effectively the hedging instrument achieved the dollar offset with the hedged item in the income statement) for why the hedge is expected to be highly effective at inception and on a go-forward basis. | ||
| To be determined to be a highly effective hedging transaction, such transaction must be measured on a dollar offset approach and recorded within an 80-125% effectiveness range. | ||
| The designation documentation must define and document the method the Companies (provided by the Companies) will use to assess the hedge effectiveness for both prospective considerations and retrospective considerations: either a dollar-offset approach or a regression or other statistical analysis approach. However, when it comes to actually recording the amount of ineffectiveness during a period, the dollar-offset method must be used. | ||
| Investment Manager will provide the Companies with the data supporting the amount of ineffectiveness and the ongoing assessment. |
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| The Companies will prepare a summary similar to Exhibit C summarizing the measurement of hedge effectiveness / ineffectiveness on quarterly basis. See Exhibit C. | ||
| Investment Manager will provide the Companies, when reasonably requested, a quantitative and sensitivity analysis of the hedge transaction and market risk (equity and interest risks) as required in Management Discussion and Analysis. |
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CONTROL SHEET
1. | Describe the derivative transaction, including the purpose (i.e., strategy) for engaging in the derivative transaction and the intended effect. | ||
a. | Describe the underlying investment position or other balance sheet or income statement item to which the derivative transaction relates. | ||
b. | If the derivative transaction is entered into for hedging purposes, describe the precise risk being hedged or replicated. | ||
2. | Indicate the type of derivative instrument(s) used. | ||
3. | Indicate the notional amount of the derivative transaction. | ||
4. | Indicate the consideration paid/received in connection with the derivative transaction. | ||
A-1
5. | Identify the counterparty to the derivative transaction, or, if the derivative instrument is exchange traded, identify the exchange and the brokerage firm that handled the trade. | ||
6. | Describe any collateral or credit support given or received in relation to the derivative transaction that is in addition to collateral required by the standard CSA. | ||
7. | Investment Managers recommendation for most appropriate method for assessing hedge effectiveness from Companies list of approved methods (Companies will make the final determination of the method to be used for accounting/tax purposes) | ||
Authorized Traders signature | ||||
Member of Operations/Compliance Area |
A-2
LIST OF COMPANIES | DATE ADOPTED BY THE BOARD | |
Symetra Life Insurance Company | December 5, 2006 |
B-1
Company reporting date: (Effectiveness must be assessed whenever financial statements or earnings are reported, but at least every 3 months) | ||||||||||||||||
Company Calculation of: | ||||||||||||||||
Hedged Item Fair Value | $ | $ | $ | $ | ||||||||||||
Hedging Instrument Fair Value | $ | $ | $ | $ | ||||||||||||
Retrospective Effectiveness | ||||||||||||||||
Prospective Effectiveness | ||||||||||||||||
For cash flow hedge of a forecasted transaction, is the hedged item still probable of occurring? (yes or no) | ||||||||||||||||
Company performed and documented assessment of hedge effectiveness in accordance with the method defined in the hedge designation documentation? (yes or no) | ||||||||||||||||
Company concluded that hedge meets criteria for hedge accounting? (yes or no) | ||||||||||||||||
Comments/working paper reference |
C-1
Symetra Life Insurance Company
Adopted by the Board of Directors on December 6, 2005, as last amended 1/20/2009
Security | Requirement/Restriction | RCW | ||
General Qualifications: Interest bearing or accruing or dividend or income paying securities that are not in default and not priced above market value. | 100% of securities purchased or acquired must satisfy these requirements. (Limited exceptions may apply.) | 48.13.020 | ||
One Entity: Any combination of investments in or loans upon the security of the obligations, property, and securities of any one person, institution, or municipal corporation. | Limited to 4% of assets without prior consent from OIC. (Limit does not apply to general obligations of the U.S. government or U.S. state governments.) | 48.13.030(1) (See 48.13.273 for limits on medium and lower grade obligations.) | ||
Depository Institutions: Voting securities of a depository institution or any company which controls a depository institution. | Limited to 5% of admitted assets without prior consent from OIC. | 48.13.030(2) | ||
Public Obligations: Bonds or other evidences of debt, not in default as to principal or interest, that are obligations issued, assumed or guaranteed by the U.S. or by any U.S. state or by any U.S. territory or possession, or by the District of Columbia or by any county, city, town, village, municipality or district therein or by any political subdivision thereof or by any civil division or public instrumentality of one or more of the foregoing. | Funds may be invested in public obligations payable (1) from taxes levied or required to be levied upon all taxable property or all taxable income within the jurisdiction of such governmental unit or, (2) from adequate special revenues, but not including any obligation payable solely out of special assessments on properties benefited by local improvements unless adequate security is evidenced. | 48.13.040 | ||
Corporate Obligations: Obligations issued, assumed, or guaranteed by any solvent institution created or existing under the laws of the U.S. or of any state, district or territory thereof, and are qualified under any of the following: (1) Obligations which are secured by adequate collateral security and bear fixed interest. (2) Fixed interest bearing obligations. (3) Adjustment, income or other contingent interest obligations. | Section not applicable to mortgage related investments authorized under RCW 48.13.110. In determining the adequacy of collateral security, not more than 1/3 of the total value of such required collateral shall consist of stock other than stock meeting the requirements of RCW 48.13.080 (preferred or guaranteed stocks). Eligible corporate obligations are subject to issuer earnings requirements under RCW 48.13.050(1), (2) or (3). | 48.13.050 See limits under 48.13.273, for medium and lower grade obligations. See 48.13.060 and .070 for definition of net earnings and application of net earnings test on securities of merged/reorganized institutions. | ||
Preferred or Guaranteed Stocks: Qualified preferred or guaranteed stocks or shares (other than common stock) of solvent U.S. institutions. Stocks or shares are qualified if they meet the requirements of RCW 48.13.080(1)(a) for preferred stocks, or (b) for guaranteed stocks. In addition, as of the date of acquisition, all of the prior obligations and prior preferred stocks of the institution must be eligible investments. | Limited to 10% of assets. Institutions must satisfy net earnings requirements for preferred stock and RCW 48.13.050 for guaranteed stock. Subject to limitations of RCW 48.13.030 (single issuer), investment in preferred stock with voting rights plus common stock in same issuer (other than investment in certain subsidiaries of the insurer) is limited to 15% of issuers outstanding shares having voting rights. | 48.13.080 |
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Security | Requirement/Restriction | RCW | ||
Trustees or Receivers Obligations: Certificates, notes or other obligations issued by trustees or receivers of U.S. institutions which, or the assets of which, are court administered and which are adequately secured as to principal and interest. | Limited to 2% of assets. | 48.13.090 | ||
Equipment Trust Certificates: Equipment trust obligations or certificates which are adequately secured, or in other adequately secured instruments evidencing an interest in transportation equipment wholly or in part within the U.S. and the right to receive determined portions of rental, purchase or other fixed obligatory payments for the use or purchase of such transportation equipment. | Limited to 10% of assets. | 48.13.100 | ||
Mortgages, Deeds of Trust, Mortgage Bonds, Notes, Contracts: (1)(a) Bonds or evidences of debt which are secured by first mortgages or deeds of trust on improved unencumbered real property located in the U.S.; (1)(b) chattel mortgages in connection therewith; (1)(c) the equity of the seller of any such property in the contract for a deed, covering the entire balance due on a bona fide sale of such property. (2) Money mortgages or like securities received upon the sale or exchange of real property acquired pursuant to RCW 48.13.160. (3) Bonds or notes secured by mortgage or trust deed guaranteed or insured by the FHA. (4) Bonds or notes secured by mortgage or trust deed guaranteed or insured as to principal in whole or in part by the VA. (5) Evidences of debt secured by first mortgages or deeds of trust upon leasehold estates, except agricultural leaseholds executed pursuant to RCW 79.11.010. (6) Evidences of debt secured by first mortgages or deeds of trust upon agricultural leasehold estates executed pursuant to RCW 79.11.010. | (1)(b) Chattel mortgages are subject to requirements of RCW 48.13.150. (1)(c) Sellers equity in any one such deed covering the balance due on sale of such property is limited to the greater of $10,000 or the amount permissible under RCW 48.13.030. (5) Leasehold estates must run for at least 15 years beyond the maturity of the loan as made or as extended, in improved real property, be otherwise unencumbered, and the mortgagee must be entitled to be subrogated to all the rights under the leasehold. (6) Agricultural leasehold estates must be otherwise unencumbered, and the mortgagee must be entitled to be subrogated to all the rights under the leasehold. Except for investments made under (3) and (4) and guaranteed by FHA or VA, investments are limited to 75% of the fair value of the property as of the date of investment (80% of market value for certain loans secured by first mortgages on single-family residential buildings). RCW 48.13.120 Exceptions for certain securities received on the sale or exchange of real property acquired under RCW 48.13.160. | 48.13.110 See 48.13.125 for limitation on amortization of loans on one-family dwellings. See 48.13.130 for definition of encumbrance. See 48.13.140 for appraisal of property, insurance requirements and the limit on loans upon the security of any one parcel of real property (the greater of $25,000 or the amount permissible under 48.13.030. See 48.13.265 for limits on investments secured by real estate. | ||
Real Property Owned Home Office Building: (1) insurer home and branch office buildings; (2) real property acquired in satisfaction or on account of loans, mortgages etc. previously owing to the insurer in the course of its business; (3) real property (a) required for convenient transaction of business;(b) acquired by gift or devise; (c) acquired in exchange for real property owned by insurer; (d) acquired through a lawful merger or consolidation with it of another insurer, (e) requisite or desirable for the protection or | (1) OIC approval required if investment in home office etc. exceeds 10% of assets. (3) Investment in real property can include repair, alteration, furnishing, or improvement thereof and is subject to the requirements of RCW 48.13.160(3). See statute for complete description, including when OIC approval may be required. (4) Investment in income producing | 48.13.160 |
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Security | Requirement/Restriction | RCW | ||
enhancement of the value of other real property owned by the insurer; (4) income-producing property. | property is subject to the requirements of RCW 48.13.160(4). See statute for complete description with respect to insurer asset size, capital and surplus, and other conditions for investment that must be met. | |||
Disposal of Real Property Time Limit: Real property acquired by an insurer pursuant to loans, mortgages, liens, judgments, or other debts, or under RCW 48.13.160(3)(a);(b), (c), (d), and (e). | Property acquired under RCW 48.13.160(3)(a) must be disposed of within 5 years of ceasing to be of use in the transaction of business. Property acquired pursuant to loans, mortgages, liens, judgments, or other debts, or under RCW 48.13.160(3)(b), (c), (d), and (e) must be disposed of within 5 years of acquisition, unless OIC approves a longer time. | 48.13.170 | ||
Foreign Securities: Obligations of foreign governments including provinces, counties, municipalities, or similar entities, and obligations and securities of foreign corporations, which have not been in default during the five years next preceding date of acquisition, and if the foreign jurisdiction has a sovereign debt rating of SVO 1. | Limited to 10% of assets. Investment made in any one foreign country is limited to 5% of assets. | 48.13.180 | ||
Policy Loans: Loans to policyholders upon the pledge of the policy as collateral. | Amount of respective loan cannot exceed the legal reserve maintained on the policy. | 48.13.190 | ||
Savings and Share Accounts: Share or savings accounts of savings and loan associations or savings accounts of banks. | Amount deposited in any one institution is limited to amount insured by FSLIC or FDIC. | 48.13.200 | ||
Insurance Stocks: Stocks of U.S. domiciled insurers that also meet the qualifications for stocks under RCW 48.13.220. | Limited to the lesser of 5% of assets or 25% of surplus over its capital stock and other liabilities. Unless a subsidiary, investment is limited to 5% of the voting stock of any one insurer and RCW 48.13.030. | 48.13.210 Note: Limits do not apply to OIC approved mergers and stock dividends on shares already owned. | ||
Limitation on Insurer Loans or Investments (Investment in Non-Insurer Subsidiaries): Common stock, preferred stock, debt obligations, and other securities of one or more subsidiaries as defined in RCW 48.31B.005. | Limited to the lesser of 10% of assets, or 50% of its surplus as regards policyholders. | 48.13.218 Note: Subsidiaries that are insurers, healthcare service providers and HMOs are excluded. | ||
Common Stocks: Common shares of stock in solvent U.S. corporations that qualify as a sound investment. | Must first satisfy requirements of RCW 48.13.260 for investment of capital and reserves. Limited to 50% of surplus over the minimum required surplus. Subject to limitations of RCW 48.13.030 (single issuer), investment is limited to 10% of the outstanding common stock of same issuer (exception for stock of certain subsidiaries of the insurer). | 48.13.220 Note: 90 days notice to OIC is required prior to acquisition of a majority of the total outstanding common shares of any corporation. | ||
Collateral Loans: Loans upon the pledge of securities or evidences of debt eligible for investment. | Limited to 90% of the market value of such collateral pledged, except that loans upon pledges of U.S. government bonds may be equal to the market value of the bonds pledged, subject to the maximums under RCW 48.13.030. | 48.13.230 |
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Security | Requirement/Restriction | RCW | ||
Miscellaneous Investments: Loans or investments not otherwise eligible for investment and not specifically prohibited by RCW 48.13.270 and not described in RCW 48.12.020 (non-allowable assets). | Limited to the lesser of 10% of assets or 50% of surplus over capital and other liabilities. Investment in or loan upon the security of any one entity is limited to the lesser of the limit described above or 1% of assets. [Exceptions require special consent order from OIC.] | 48.13.240 Note: The insurer shall keep a separate record of all miscellaneous investments. | ||
Special Consent Investments: Investments not otherwise eligible, but still qualified under RCW 48.13.020 (general qualifications) and for which advance approval from the OIC is obtained. | The approval from the OIC will specify whether the investment may be credited to required minimum capital or surplus investments, or to investments of reserves. | 48.13.250 | ||
Required Investments for Capital and Reserves: for Capital: Cash or investments eligible under RCW 48.13.040 (public obligations), and mortgage loans on real property located within this state, pursuant to RCW 48.13.110. | Not less than 100% of the investments required for capital and reserves. | 48.13.260 | ||
for Reserves: Cash or premiums in course of collection or investments under RCW 48.13: | ||||
.040 (public obligations), | ||||
.050 (corporate obligations), | ||||
.080 (preferred or guaranteed stocks), | ||||
.090 (trustees or receivers obligations), | ||||
.100 (equipment trust certificates), | ||||
.110 (mortgages, loans and contracts), | ||||
.150 (auxiliary chattel mortgages), | ||||
.160 (real property home office bldg. etc.), | ||||
.180 (foreign securities), | ||||
.190 (policy loans), | ||||
.200 (savings and share accounts), | ||||
.220 (common stocks), | ||||
.230 (collateral loans), | ||||
.250 (special consent investments). | ||||
Investments Secured by Real Estate Amount Restricted: real estate, real estate contracts, and notes, bonds and other evidences of debt secured by mortgage on real estate as described in RCW 48.13.110 and .160. | Limited to 65% of assets-all investments in mortgage-backed securities qualifying under the secondary mortgage market enhancement act of 1984 are included in determining if an insurer has exceeded the 65% limit. | 48.13.265 | ||
Acquisition of Medium and Lower Grade Obligations: Medium obligations are rated 3 by the NAICs securities valuation office. Lower grade obligations are rated 4, 5 or 6 by the NAICs securities valuation office. | Investment in medium and lower grade obligations is limited to 20% of admitted assets. (Limited to 1% in obligations issued, guaranteed, or insured by one institution.) Investment in lower grade obligations is limited to 10% of admitted assets. (Limited to 0.5% in obligations issued, guaranteed, or insured by 1 institution.) Investment in lower grade obligations rated 5 or 6 is limited to 3% of admitted assets. Investment in lower grade obligations rated 6 is limited to 1% of admitted assets. | 48.13.273 Note: If insurer intends to invest more than 2% of admitted assets in medium and lower grade obligations, the BOD must approve a written plan for making those investments. | ||
Obligations Rated by the Securities Valuation Office: Obligations rated 1 or 2 by the NAICs securities valuation office. | Investment subject to the limitations under RCW 48.13.030 (single issuer). | 48.13.275 |
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Security | Requirement/Restriction | RCW | ||
Derivative Transactions: Options, warrants used in hedging transactions and not attached to another financial instrument, caps, floors, collars, swaps, forwards, futures, and any other agreements, options, or instruments substantially similar thereto or any series or combination thereof and any agreements, options, or instruments permitted under rules adopted by the OIC. Income generation transactions: (1) Sales of covered call options on noncallable fixed income securities, callable fixed income securities; (2) Sales of covered call options on equity securities, (3) Sales of covered puts on investments that the insurer is permitted to acquire under Chapter 13, (4) Sales of covered caps or floors. | Aggregate statement value (ASV) of options, caps, floors, and warrants not attached to a financial instrument purchased and used in hedging transactions is limited to 7.5% of admitted assets. (ASV of options, caps, and floors written in hedging transactions is limited to 3% of admitted assets.) The aggregate potential exposure of collars, swaps, forwards, and futures used in hedging transactions is limited to 6.5% of admitted assets. For income generation transactions, the ASV of fixed income assets subject to call or that generate cash flows for payments under the caps or floors, plus the face value of fixed income securities underlying a derivative instrument subject to call, plus the amount of the purchase obligations under the puts, is limited to 10% of admitted assets. (1) Permitted if the option expires by its terms prior to the end of the noncallable period, or derivative instruments based on fixed income securities. (2) Permitted if the insurer holds or can immediately acquire through the exercise of options, warrants, or conversion rights already owned, the equity securities subject to call during the complete term of the call option sold. (3) Permitted if the insurer has escrowed, or entered into a custodian agreement segregating, cash or cash equivalents with a market value equal to the amount of its purchase obligations under the put during the complete term of the put option sold. (4) Permitted if the insurer holds the investments generating the cash flow to make the required payments under the caps or floors during the complete term that the cap or floor is outstanding. | 48.13.285 Note: Permitted only to engage in hedging transactions and certain income generation transactions, not for speculation. Insurer must be able to demonstrate to the OIC the intended hedging characteristics and the ongoing effectiveness of the derivative transaction(s) through cash flow testing or other appropriate analysis. | ||
Prohibited Investments: | 48.13.270 | |||
(1) Issued shares of its own capital stock. | ||||
(2) Securities issued by any corporation if a majority of its stock having voting power is owned directly or indirectly by or for the benefit of any one or more of the insurers officers and directors. | ||||
(3) Any investment or loan ineligible under the provisions of RCW 48.13.030 (single issuer or depository institution). | ||||
(4) Securities issued by any insolvent corporation. | ||||
(5) Obligations contrary to the provisions of RCW 48.13.273 (medium and lower grade obligations). | ||||
(6) Any investment or security found by the OIC to be designed to evade prohibition of the Insurance Code. | ||||
Securities Underwriting, Agreements to Withhold or Repurchase Prohibited: | 48.13.280 | |||
No insurer shall: | ||||
(1) participate in the underwriting of the marketing of securities in advance of their issuance or enter into any transaction for such underwriting for the account of such insurer jointly with any other person; or | ||||
(2) enter into any agreement to withhold from sale any of its property, or to repurchase any property sold by it. |
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Security | Requirement/Restriction | RCW | ||
Disposal of Ineligible Property or Securities: | 48.13.290 | |||
(1) Any ineligible personal property or securities acquired by an insurer may be required to be disposed of within the time not less than six months specified by order of the commissioner, unless before that time it attains the standard of eligibility, if retention of such property or securities would be contrary to the policyholders or public interest in that it tends to substantially lessen competition in the insurance business or threatens impairment of the financial condition of the insurer. | ||||
(2) Any personal property or securities acquired by an insurer contrary to RCW 48.13.270 shall be disposed of forthwith or within any period specified by order of the commissioner. | ||||
(3) Any property or securities ineligible only because of being excess of the amount permitted under Chapter 13 to be invested in the category to which it belongs shall be ineligible only to the extent of such excess. | ||||
Authorization of Investments: | 48.13.340 | |||
No investment, loan, sale or exchange thereof shall, except as to the policy loans of a life insurer, be made unless authorized or approved by the insurers board of directors or by a committee charged by the board of directors or the bylaws with the duty of making such investment, loan, sale or exchange. The minutes of any such committee shall be recorded and reports thereof shall be submitted to the board of directors for approval or disapproval. | ||||
Record of Investments: | 48.13.350 | |||
A written record in permanent form showing the authorization of each investment or loan shall be made and signed by an officer of the insurer or by the chair of such committee authorizing the investment or loan. Records shall contain: | ||||
(a) In the case of loans: the name of the borrower; the location and legal description of the property; a physical description, and the appraised value of the security; the amount of the loan, rate of interest and terms of repayment. | ||||
(b) In the case of securities: the name of the obligor; a description of the security and the record of earnings; the amount invested, the rate of interest or dividend, the maturity and yield based upon the purchase price. | ||||
(c) In the case of real estate: the location and legal description of the property; a physical description and the appraised value; the purchase price and terms. | ||||
(d) In the case of all investments: | ||||
(i) the amount of expenses and commissions if any incurred on account of any investment or loan and by whom and to whom payable if not covered by contracts with mortgage loan representatives or correspondents which are part of the insurers records; | ||||
(ii) the name of any officer or director of the insurer having any direct, indirect, or contingent interest in the securities or loan representing the investment, or in the assets of the person in whose behalf the investment or loan is made, and the nature of such interest. |
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