{"formats":[{"name":"JSON","format":"json","url":"\/downloads\/2025\/code-json\/38.2-1428.json"},{"name":"Plain Text","format":"text","url":"\/downloads\/2025\/code-text\/38.2-1428.txt"},{"name":"XML","format":"xml","url":"\/downloads\/2025\/code-xml\/38.2-1428.xml"},{"name":"HTML","format":"html","url":"\/downloads\/2025\/code-html\/38.2-1428.html"}],"law_id":69711,"edition_id":1,"section_id":69711,"structure_id":14741,"section_number":"38.2-1428","catch_line":"Derivative instruments","history":"1983, c. 457, \u00a7 38.1-217.31; 1985, c. 36; 1986, c. 562; 2001, c. 387; 2011, c. 198.","full_text":"A\n\nA domestic insurer may engage in derivative transactions under this section subject to the following general conditions:1\n\nA domestic insurer may use derivative instruments under this section to engage in hedging transactions and replication transactions.2\n\nEach domestic insurer utilizing derivative instruments shall establish written guidelines with respect to derivative transactions stating the insurer’s objectives for engaging in derivative transactions and derivative strategies, permissible derivative strategies and the relationship of those strategies to the insurer’s operations, and such other details as the Commission may from time to time require. The insurer’s board of directors or committee thereof charged with the responsibility of overseeing investments shall approve the written guidelines and any amendment thereto and shall establish a procedure to determine, at least annually, that all derivative transactions were made in accordance with such guidelines. The guidelines established pursuant to this section, and any amendment thereto, shall be submitted to the Commission for prior approval. The Commission shall, in writing, either approve the guidelines or amendment, request any additional information needed to approve the guidelines or amendment, or deny the guidelines or amendment within (i) 90 days of receipt of the guidelines or (ii) 60 days of receipt of any amendment; otherwise the guidelines or amendment shall be deemed approved.3\n\nThe Commission may adopt reasonable rules and regulations for derivative transactions including, but not limited to, rules and regulations that impose financial solvency standards, valuation standards, and reporting requirements.B\n\nA domestic insurer may enter into hedging transactions if:1\n\nThe domestic insurer is able to demonstrate to the Commission the intended hedging characteristics and the ongoing effectiveness of the derivative transaction or combination of the transactions through cash flow testing or other appropriate analyses; and2\n\nAs a result of and after giving effect to the hedging transaction:\n\t\t\t\ta. The aggregate statement value of options, caps, floors, and warrants not attached to another financial instrument purchased and used in hedging transactions then engaged in by the domestic insurer does not exceed 7.5 percent of its admitted assets;\n\t\t\t\tb. The aggregate statement value of options, caps, and floors written in hedging transactions then engaged in by the domestic insurer does not exceed 3 percent of its admitted assets; and\n\t\t\t\tc. The aggregate potential exposure of collars, swaps, forwards, and futures used in hedging transactions then engaged in by the domestic insurer does not exceed 6.5 percent of its admitted assets.C\n\nA domestic insurer may enter into replication transactions if the asset being replicated shall comply with all of the provisions and limitations specified in this article with respect to investments by the insurer, as if such replicated asset constituted a direct investment by the insurer in the asset being replicated. The aggregate statement value of all assets being replicated shall not exceed 10 percent of the insurer’s admitted assets.D\n\nThe counterparty exposure amount under a derivative instrument entered into pursuant to this section shall be deemed an obligation of a business entity to which the insurer is exposed to credit risk for the purpose of determining compliance with the limitations of §§ 38.2-1411.2 and 38.2-1413.E\n\nPursuant to rules promulgated under § 38.2-223, the Commission may approve additional transactions involving the use of derivative instruments in excess of the limits set forth in this section or for other risk management purposes.","order_by":null,"text":{"0":{"id":252009,"text":"A domestic insurer may engage in derivative transactions under this section subject to the following general conditions:","type":"section","prefixes":["A"],"prefix":"A","entire_prefix":"A","prefix_anchor":"A","level":1,"next_prefix":"A1"},"1":{"id":252010,"text":"A domestic insurer may use derivative instruments under this section to engage in hedging transactions and replication transactions.","type":"section","prefixes":["A","1"],"prefix":"1","entire_prefix":"A1","prefix_anchor":"A1","level":2,"prior_prefix":"A","next_prefix":"A2"},"2":{"id":252011,"text":"Each domestic insurer utilizing derivative instruments shall establish written guidelines with respect to derivative transactions stating the insurer’s objectives for engaging in derivative transactions and derivative strategies, permissible derivative strategies and the relationship of those strategies to the insurer’s operations, and such other details as the Commission may from time to time require. The insurer’s board of directors or committee thereof charged with the responsibility of overseeing investments shall approve the written guidelines and any amendment thereto and shall establish a procedure to determine, at least annually, that all derivative transactions were made in accordance with such guidelines. The guidelines established pursuant to this section, and any amendment thereto, shall be submitted to the Commission for prior approval. The Commission shall, in writing, either approve the guidelines or amendment, request any additional information needed to approve the guidelines or amendment, or deny the guidelines or amendment within (i) 90 days of receipt of the guidelines or (ii) 60 days of receipt of any amendment; otherwise the guidelines or amendment shall be deemed approved.","type":"section","prefixes":["A","2"],"prefix":"2","entire_prefix":"A2","prefix_anchor":"A2","level":2,"prior_prefix":"A1","next_prefix":"A3"},"3":{"id":252012,"text":"The Commission may adopt reasonable rules and regulations for derivative transactions including, but not limited to, rules and regulations that impose financial solvency standards, valuation standards, and reporting requirements.","type":"section","prefixes":["A","3"],"prefix":"3","entire_prefix":"A3","prefix_anchor":"A3","level":2,"prior_prefix":"A2","next_prefix":"B"},"4":{"id":252013,"text":"A domestic insurer may enter into hedging transactions if:","type":"section","prefixes":["B"],"prefix":"B","entire_prefix":"B","prefix_anchor":"B","level":1,"prior_prefix":"A3","next_prefix":"B1"},"5":{"id":252014,"text":"The domestic insurer is able to demonstrate to the Commission the intended hedging characteristics and the ongoing effectiveness of the derivative transaction or combination of the transactions through cash flow testing or other appropriate analyses; and","type":"section","prefixes":["B","1"],"prefix":"1","entire_prefix":"B1","prefix_anchor":"B1","level":2,"prior_prefix":"B","next_prefix":"B2"},"6":{"id":252015,"text":"As a result of and after giving effect to the hedging transaction:\n\t\t\t\ta. The aggregate statement value of options, caps, floors, and warrants not attached to another financial instrument purchased and used in hedging transactions then engaged in by the domestic insurer does not exceed 7.5 percent of its admitted assets;\n\t\t\t\tb. The aggregate statement value of options, caps, and floors written in hedging transactions then engaged in by the domestic insurer does not exceed 3 percent of its admitted assets; and\n\t\t\t\tc. The aggregate potential exposure of collars, swaps, forwards, and futures used in hedging transactions then engaged in by the domestic insurer does not exceed 6.5 percent of its admitted assets.","type":"section","prefixes":["B","2"],"prefix":"2","entire_prefix":"B2","prefix_anchor":"B2","level":2,"prior_prefix":"B1","next_prefix":"C"},"7":{"id":252016,"text":"A domestic insurer may enter into replication transactions if the asset being replicated shall comply with all of the provisions and limitations specified in this article with respect to investments by the insurer, as if such replicated asset constituted a direct investment by the insurer in the asset being replicated. The aggregate statement value of all assets being replicated shall not exceed 10 percent of the insurer’s admitted assets.","type":"section","prefixes":["C"],"prefix":"C","entire_prefix":"C","prefix_anchor":"C","level":1,"prior_prefix":"B2","next_prefix":"D"},"8":{"id":252017,"text":"The counterparty exposure amount under a derivative instrument entered into pursuant to this section shall be deemed an obligation of a business entity to which the insurer is exposed to credit risk for the purpose of determining compliance with the limitations of §§ 38.2-1411.2 and 38.2-1413.","type":"section","prefixes":["D"],"prefix":"D","entire_prefix":"D","prefix_anchor":"D","level":1,"prior_prefix":"C","next_prefix":"E"},"9":{"id":252018,"text":"Pursuant to rules promulgated under § 38.2-223, the Commission may approve additional transactions involving the use of derivative instruments in excess of the limits set forth in this section or for other risk management purposes.","type":"section","prefixes":["E"],"prefix":"E","entire_prefix":"E","prefix_anchor":"E","level":1,"prior_prefix":"D"}},"ancestry":[{"id":14741,"edition_id":1,"name":"Category 1 Investments","identifier":"2","label":"article","depth":3,"order_by":1,"parent_id":13282,"metadata":{},"date_created":"2026-06-26 03:49:39","date_modified":"2026-06-26 03:49:39","permalink":{"id":211947,"object_type":"structure","relational_id":14741,"identifier":"2","token":"38.2\/14\/2","url":"\/38.2\/14\/2\/","edition_id":1,"permalink":0,"preferred":1}},{"id":13282,"edition_id":1,"name":"Investments","identifier":"14","label":"chapter","depth":2,"order_by":1,"parent_id":12698,"metadata":{},"date_created":"2026-06-26 03:44:34","date_modified":"2026-06-26 03:44:34","permalink":{"id":211887,"object_type":"structure","relational_id":13282,"identifier":"14","token":"38.2\/14","url":"\/38.2\/14\/","edition_id":1,"permalink":0,"preferred":1}},{"id":12698,"edition_id":1,"name":"Insurance","identifier":"38.2","label":"title","depth":1,"order_by":1,"parent_id":null,"metadata":{},"date_created":"2026-06-26 03:43:49","date_modified":"2026-06-26 03:43:49","permalink":{"id":210661,"object_type":"structure","relational_id":12698,"identifier":"38.2","token":"38.2","url":"\/38.2\/","edition_id":1,"permalink":0,"preferred":1}}],"structure_contents":[{"id":78849,"structure_id":14741,"section_number":"38.2-1412","catch_line":"Scope of article","url":"\/38.2-1412\/","token":"38.2\/14\/2\/38.2-1412","metadata":false},{"id":80227,"structure_id":14741,"section_number":"38.2-1413","catch_line":"Investment limits for one obligor, one issue or one loan","url":"\/38.2-1413\/","token":"38.2\/14\/2\/38.2-1413","metadata":false},{"id":81959,"structure_id":14741,"section_number":"38.2-1414","catch_line":"Limits by type of investment","url":"\/38.2-1414\/","token":"38.2\/14\/2\/38.2-1414","metadata":false},{"id":84933,"structure_id":14741,"section_number":"38.2-1415","catch_line":"Obligations of domestic governmental entities","url":"\/38.2-1415\/","token":"38.2\/14\/2\/38.2-1415","metadata":false},{"id":57477,"structure_id":14741,"section_number":"38.2-1416","catch_line":"Canadian governmental obligations","url":"\/38.2-1416\/","token":"38.2\/14\/2\/38.2-1416","metadata":false},{"id":73318,"structure_id":14741,"section_number":"38.2-1417","catch_line":"Canadian corporate obligations","url":"\/38.2-1417\/","token":"38.2\/14\/2\/38.2-1417","metadata":false},{"id":82385,"structure_id":14741,"section_number":"38.2-1418","catch_line":"Obligations of certain international agencies","url":"\/38.2-1418\/","token":"38.2\/14\/2\/38.2-1418","metadata":false},{"id":82955,"structure_id":14741,"section_number":"38.2-1419","catch_line":"Railroad terminal and other securities","url":"\/38.2-1419\/","token":"38.2\/14\/2\/38.2-1419","metadata":false},{"id":87150,"structure_id":14741,"section_number":"38.2-1420","catch_line":"Transportation equipment trust certificates","url":"\/38.2-1420\/","token":"38.2\/14\/2\/38.2-1420","metadata":false},{"id":59466,"structure_id":14741,"section_number":"38.2-1421","catch_line":"Business entity obligations","url":"\/38.2-1421\/","token":"38.2\/14\/2\/38.2-1421","metadata":false},{"id":57257,"structure_id":14741,"section_number":"38.2-1422","catch_line":"Obligations secured by certain leases","url":"\/38.2-1422\/","token":"38.2\/14\/2\/38.2-1422","metadata":false},{"id":56462,"structure_id":14741,"section_number":"38.2-1423","catch_line":"Preferred stocks","url":"\/38.2-1423\/","token":"38.2\/14\/2\/38.2-1423","metadata":false},{"id":75394,"structure_id":14741,"section_number":"38.2-1424","catch_line":"Guaranteed stocks","url":"\/38.2-1424\/","token":"38.2\/14\/2\/38.2-1424","metadata":false},{"id":79550,"structure_id":14741,"section_number":"38.2-1425","catch_line":"Common stock of banks or trust companies","url":"\/38.2-1425\/","token":"38.2\/14\/2\/38.2-1425","metadata":false},{"id":77680,"structure_id":14741,"section_number":"38.2-1426","catch_line":"Application of earnings tests","url":"\/38.2-1426\/","token":"38.2\/14\/2\/38.2-1426","metadata":false},{"id":69831,"structure_id":14741,"section_number":"38.2-1427","catch_line":"Common stock; covered call options","url":"\/38.2-1427\/","token":"38.2\/14\/2\/38.2-1427","metadata":false},{"id":83916,"structure_id":14741,"section_number":"38.2-1427.1","catch_line":"Limited partnerships","url":"\/38.2-1427.1\/","token":"38.2\/14\/2\/38.2-1427.1","metadata":false},{"id":86379,"structure_id":14741,"section_number":"38.2-1427.2","catch_line":"Investment company shares and units of beneficial interest","url":"\/38.2-1427.2\/","token":"38.2\/14\/2\/38.2-1427.2","metadata":false},{"id":74587,"structure_id":14741,"section_number":"38.2-1427.3","catch_line":"Investment authority; subsidiary corporations","url":"\/38.2-1427.3\/","token":"38.2\/14\/2\/38.2-1427.3","metadata":false},{"id":69711,"structure_id":14741,"section_number":"38.2-1428","catch_line":"Derivative instruments","url":"\/38.2-1428\/","token":"38.2\/14\/2\/38.2-1428","metadata":false},{"id":80990,"structure_id":14741,"section_number":"38.2-1429","catch_line":"Lending of securities","url":"\/38.2-1429\/","token":"38.2\/14\/2\/38.2-1429","metadata":false},{"id":86617,"structure_id":14741,"section_number":"38.2-1430","catch_line":"Collateral loans","url":"\/38.2-1430\/","token":"38.2\/14\/2\/38.2-1430","metadata":false},{"id":69205,"structure_id":14741,"section_number":"38.2-1431","catch_line":"Policy loans","url":"\/38.2-1431\/","token":"38.2\/14\/2\/38.2-1431","metadata":false},{"id":74795,"structure_id":14741,"section_number":"38.2-1432","catch_line":"Savings, certificates, etc","url":"\/38.2-1432\/","token":"38.2\/14\/2\/38.2-1432","metadata":false},{"id":79072,"structure_id":14741,"section_number":"38.2-1433","catch_line":"Foreign securities","url":"\/38.2-1433\/","token":"38.2\/14\/2\/38.2-1433","metadata":false},{"id":71966,"structure_id":14741,"section_number":"38.2-1434","catch_line":"Mortgage loans","url":"\/38.2-1434\/","token":"38.2\/14\/2\/38.2-1434","metadata":false},{"id":75123,"structure_id":14741,"section_number":"38.2-1435","catch_line":"Second mortgages; wrap-around mortgages","url":"\/38.2-1435\/","token":"38.2\/14\/2\/38.2-1435","metadata":false},{"id":78317,"structure_id":14741,"section_number":"38.2-1436","catch_line":"Mortgage participations","url":"\/38.2-1436\/","token":"38.2\/14\/2\/38.2-1436","metadata":false},{"id":67740,"structure_id":14741,"section_number":"38.2-1437","catch_line":"Limitations on mortgages","url":"\/38.2-1437\/","token":"38.2\/14\/2\/38.2-1437","metadata":false},{"id":80668,"structure_id":14741,"section_number":"38.2-1437.1","catch_line":"Mortgage pass-through securities","url":"\/38.2-1437.1\/","token":"38.2\/14\/2\/38.2-1437.1","metadata":false},{"id":64298,"structure_id":14741,"section_number":"38.2-1438","catch_line":"Renewals and extensions when value of property decreases","url":"\/38.2-1438\/","token":"38.2\/14\/2\/38.2-1438","metadata":false},{"id":62837,"structure_id":14741,"section_number":"38.2-1439","catch_line":"Chattel mortgages","url":"\/38.2-1439\/","token":"38.2\/14\/2\/38.2-1439","metadata":false},{"id":65110,"structure_id":14741,"section_number":"38.2-1440","catch_line":"Investment in personal property","url":"\/38.2-1440\/","token":"38.2\/14\/2\/38.2-1440","metadata":false},{"id":74841,"structure_id":14741,"section_number":"38.2-1441","catch_line":"Real estate","url":"\/38.2-1441\/","token":"38.2\/14\/2\/38.2-1441","metadata":false},{"id":58210,"structure_id":14741,"section_number":"38.2-1442","catch_line":"Guaranty association obligations","url":"\/38.2-1442\/","token":"38.2\/14\/2\/38.2-1442","metadata":false}],"previous_section":{"id":74587,"structure_id":14741,"section_number":"38.2-1427.3","catch_line":"Investment authority; subsidiary corporations","url":"\/38.2-1427.3\/","token":"38.2\/14\/2\/38.2-1427.3","metadata":false},"next_section":{"id":80990,"structure_id":14741,"section_number":"38.2-1429","catch_line":"Lending of securities","url":"\/38.2-1429\/","token":"38.2\/14\/2\/38.2-1429","metadata":false},"metadata":false,"official_url":"https:\/\/law.lis.virginia.gov\/vacode\/38.2-1428\/","history_text":"

This law was first created in 1983. The record of its establishment is cataloged in chapter 457 of that year\u2019s edition of \u201cActs of Assembly,\u201d the annual state publication listing all changes made to the Code of Virginia in that year. Unfortunately, the 1983 \u201cActs\u201d aren\u2019t available online. It has been modified 4 times. Those modifications are cataloged by \u201cThe Acts of Assembly,\u201d a state publication, by year and chapter. Those modifications that can be read on the General Assembly\u2019s website will be linked accordingly. Those modifications are as follows: in 1985, chapter 36; in 1986, chapter 562; in 2001, chapter 387<\/a>; in 2011, chapter 198<\/a>.<\/p>","references":[{"id":57145,"section_number":"38.2-1401","catch_line":"Definitions","order_by":null,"url":"\/38.2-1401\/"},{"id":87237,"section_number":"38.2-1407","catch_line":"Prohibited investments","order_by":null,"url":"\/38.2-1407\/"},{"id":79072,"section_number":"38.2-1433","catch_line":"Foreign securities","order_by":null,"url":"\/38.2-1433\/"}],"refers_to":[{"id":82699,"section_number":"38.2-1411.2","catch_line":"Investment limits in medium grade and lower grade obligations","order_by":null,"url":"\/38.2-1411.2\/"},{"id":87496,"section_number":"38.2-223","catch_line":"Rules and regulations; orders","order_by":null,"url":"\/38.2-223\/"}],"permalink":{"id":212025,"object_type":"law","relational_id":69711,"identifier":"38.2-1428","token":"38.2\/14\/2\/38.2-1428","url":"\/38.2-1428\/","edition_id":1,"permalink":0,"preferred":1},"url":"\/38.2-1428\/","token":"38.2\/14\/2\/38.2-1428","dublin_core":{"Title":"Derivative instruments","Type":"Text","Format":"text\/html","Identifier":"\u00a7 38.2-1428","Relation":"Code of Virginia"},"html":"\n\t\t\t\t\t\t

A.<\/span> A domestic insurer<\/span> may engage in derivative transactions<\/span> under this section subject to the following general conditions: <\/i><\/a><\/p><\/section>\n\t\t\t\t\t\t

1.<\/span> A domestic insurer<\/span> may use derivative instruments<\/span> under this section to engage in hedging transactions and replication transactions<\/span>. <\/i><\/a><\/p><\/section>\n\t\t\t\t\t\t

2.<\/span> Each domestic insurer<\/span> utilizing derivative instruments<\/span> shall establish written guidelines with respect to derivative transactions<\/span> stating the insurer<\/span>’s objectives for engaging in derivative transactions<\/span> and derivative strategies, permissible derivative strategies and the relationship of those strategies to the insurer<\/span>’s operations, and such other details as the Commission<\/span> may from time to time require. The insurer<\/span>’s board of directors or committee thereof charged with the responsibility of overseeing investments shall approve the written guidelines and any amendment thereto and shall establish a procedure to determine, at least annually, that all derivative transactions<\/span> were made in accordance with such guidelines. The guidelines established pursuant to this section, and any amendment thereto, shall be submitted to the Commission<\/span> for prior approval. The Commission<\/span> shall, in writing, either approve the guidelines or amendment, request any additional information needed to approve the guidelines or amendment, or deny the guidelines or amendment within (i) 90 days of receipt of the guidelines or (ii) 60 days of receipt of any amendment; otherwise the guidelines or amendment shall be deemed approved. <\/i><\/a><\/p><\/section>\n\t\t\t\t\t\t

3.<\/span> The Commission<\/span> may adopt reasonable rules and regulations for derivative transactions<\/span> including, but not limited to, rules and regulations that impose financial solvency standards, valuation standards, and reporting requirements. <\/i><\/a><\/p><\/section>\n\t\t\t\t\t\t

B.<\/span> A domestic insurer<\/span> may enter into hedging transactions if: <\/i><\/a><\/p><\/section>\n\t\t\t\t\t\t

1.<\/span> The domestic insurer<\/span> is able to demonstrate to the Commission<\/span> the intended hedging characteristics and the ongoing effectiveness of the derivative transaction<\/span> or combination of the transactions through cash flow testing or other appropriate analyses; and <\/i><\/a><\/p><\/section>\n\t\t\t\t\t\t

2.<\/span> As a result of and after giving effect to the hedging transaction:\n\t\t\t\ta. The aggregate statement value<\/span> of options<\/span>, caps<\/span>, floors<\/span>, and warrants<\/span> not attached to another financial instrument purchased and used in hedging transactions then engaged in by the domestic insurer<\/span> does not exceed 7.5 percent of its admitted assets<\/span>;\n\t\t\t\tb. The aggregate statement value<\/span> of options<\/span>, caps<\/span>, and floors<\/span> written in hedging transactions then engaged in by the domestic insurer<\/span> does not exceed 3 percent of its admitted assets<\/span>; and\n\t\t\t\tc. The aggregate potential exposure<\/span> of collars<\/span>, swaps<\/span>, forwards<\/span>, and futures<\/span> used in hedging transactions then engaged in by the domestic insurer<\/span> does not exceed 6.5 percent of its admitted assets<\/span>. <\/i><\/a><\/p><\/section>\n\t\t\t\t\t\t

C.<\/span> A domestic insurer<\/span> may enter into replication transactions<\/span> if the asset being replicated shall comply with all of the provisions and limitations specified in this article with respect to investments by the insurer<\/span>, as if such replicated asset constituted a direct investment by the insurer<\/span> in the asset being replicated. The aggregate statement value<\/span> of all assets<\/span> being replicated shall not exceed 10 percent of the insurer<\/span>’s admitted assets<\/span>. <\/i><\/a><\/p><\/section>\n\t\t\t\t\t\t

D.<\/span> The counterparty exposure amount<\/span> under a derivative instrument<\/span> entered into pursuant to this section shall be deemed an obligation<\/span> of a business entity<\/span> to which the insurer<\/span> is exposed to credit risk for the purpose of determining compliance with the limitations of §§ 38.2-1411.2<\/a> and 38.2-1413<\/a>. <\/i><\/a><\/p><\/section>\n\t\t\t\t\t\t

E.<\/span> Pursuant to rules promulgated under § 38.2-223<\/a>, the Commission<\/span> may approve additional transactions involving the use of derivative instruments<\/span> in excess of the limits set forth in this section or for other risk management purposes. <\/i><\/a><\/p><\/section>","plain_text":" CODE OF VIRGINIA\n\nDERIVATIVE INSTRUMENTS (\u00a7 38.2-1428)\n\nA. A domestic insurer may engage in derivative transactions under this section\nsubject to the following general conditions:\n\n 1. A domestic insurer may use derivative instruments under this section to\n engage in hedging transactions and replication transactions.\n\n 2. Each domestic insurer utilizing derivative instruments shall establish\n written guidelines with respect to derivative transactions stating the\n insurer’s objectives for engaging in derivative transactions and\n derivative strategies, permissible derivative strategies and the relationship\n of those strategies to the insurer’s operations, and such other details\n as the Commission may from time to time require. The insurer’s board of\n directors or committee thereof charged with the responsibility of overseeing\n investments shall approve the written guidelines and any amendment thereto and\n shall establish a procedure to determine, at least annually, that all\n derivative transactions were made in accordance with such guidelines. The\n guidelines established pursuant to this section, and any amendment thereto,\n shall be submitted to the Commission for prior approval. The Commission shall,\n in writing, either approve the guidelines or amendment, request any additional\n information needed to approve the guidelines or amendment, or deny the\n guidelines or amendment within (i) 90 days of receipt of the guidelines or\n (ii) 60 days of receipt of any amendment; otherwise the guidelines or\n amendment shall be deemed approved.\n\n 3. The Commission may adopt reasonable rules and regulations for derivative\n transactions including, but not limited to, rules and regulations that impose\n financial solvency standards, valuation standards, and reporting requirements.\n\nB. A domestic insurer may enter into hedging transactions if:\n\n 1. The domestic insurer is able to demonstrate to the Commission the intended\n hedging characteristics and the ongoing effectiveness of the derivative\n transaction or combination of the transactions through cash flow testing or\n other appropriate analyses; and\n\n 2. As a result of and after giving effect to the hedging transaction:\n \t\t\t\ta. The aggregate statement value of options, caps, floors, and warrants\n not attached to another financial instrument purchased and used in hedging\n transactions then engaged in by the domestic insurer does not exceed 7.5\n percent of its admitted assets;\n \t\t\t\tb. The aggregate statement value of options, caps, and floors written in\n hedging transactions then engaged in by the domestic insurer does not exceed 3\n percent of its admitted assets; and\n \t\t\t\tc. The aggregate potential exposure of collars, swaps, forwards, and\n futures used in hedging transactions then engaged in by the domestic insurer\n does not exceed 6.5 percent of its admitted assets.\n\nC. A domestic insurer may enter into replication transactions if the asset being\nreplicated shall comply with all of the provisions and limitations specified in\nthis article with respect to investments by the insurer, as if such replicated\nasset constituted a direct investment by the insurer in the asset being\nreplicated. The aggregate statement value of all assets being replicated shall\nnot exceed 10 percent of the insurer’s admitted assets.\n\nD. The counterparty exposure amount under a derivative instrument entered into\npursuant to this section shall be deemed an obligation of a business entity to\nwhich the insurer is exposed to credit risk for the purpose of determining\ncompliance with the limitations of §§ 38.2-1411.2 and 38.2-1413.\n\nE. Pursuant to rules promulgated under § 38.2-223, the Commission may\napprove additional transactions involving the use of derivative instruments in\nexcess of the limits set forth in this section or for other risk management\npurposes.\n\nHISTORY: 1983, c. 457, \u00a7 38.1-217.31; 1985, c. 36; 1986, c. 562; 2001, c. 387;\n2011, c. 198.","edition":{"id":1,"name":"2025","slug":"2025","date_created":"2026-06-21 22:39:22","date_modified":"2026-06-21 22:39:22","current":1,"order_by":1,"last_import":null}}