2023 Laws of Puerto Rico › TITLE TWENTY-SIX - Insurance (§§ 101 — 10377) › Subtitle 1 - Insurance Generally (§§ 101 — 4513) › Chapter 6B - Investments (§§ 648 — 662) › § 658 - Securities loans, repurchase, inverse repurchase, and dollar roll transactions

An insurer may effect securities loans, repurchase transactions, reverse repurchase transactions, and dollar roll transactions with registered business entities, if:
(1) The Board of Directors of the insurer adopts a written plan consistent with the requirements of the plan described in § 650(1) of this title specifying the guidelines and goals to be followed, including:
(a) A description of how the cash received shall be invested or used for the general corporate purposes of the insurer;
(b) operating procedures to manage the risks associated to interest fluctuations in the market and default by the other party, the conditions under which the product of the inverse repurchase transaction may be used in the regular course of business, and the use of acceptable collateral which reflects the liquidity need of the transaction, and
(c) quantitative limits associated to the percentage of allowed assets of the insurer that may be invested in these transactions.
(2) The insurer shall grant a written agreement for each authorized transaction in this section or a master agreement for a series of transactions, excluding dollar roll type transactions. The written agreement shall require that each transaction is concluded no later than one year from the starting date or before, at the request of the insurer. The agreement must be made with the counterpart business entity in the transaction, but in the case of security loans, the agreement must be made with an agent authorized by the insurer, if the agent is a registered business entity and if the agreement:
(a) Requires the agent to enter into separate agreements with each counterpart consistent with the requirements of this section, and
(b) prohibits securities loans subject to the agreement with the agent or its affiliates.
(3) Any cash received in a transaction under this section shall be invested according to §§ 648–662 of this title, and in a manner in which the liquidity need of the transaction is recognized, or shall be used by the insurer for general corporate purposes. During the period that the transaction remains pending, the insurer, its agent or custodian must maintain the following as acceptable collateral received in a transaction under this section, whether physically or through a book entry in the books of the Federal Reserve, the Depository Trust Company, the Participants Trust Company or other securities depository approved by the Commissioner:
(a) The possession of the acceptable collateral; or
(b) a full lien on the acceptable collateral, or
(c) in the case of jurisdictions outside the United States and Puerto Rico, the title of the acceptable collateral, or the rights as creditor secured by the acceptable collateral.
(4) The limitations of §§ 653 and 659 of this title shall not apply to the risk created by transactions under this section to a counterpart business entity. For purposes of the calculations made to determine compliance with this subsection, no effect shall be given to the obligation of the insurer of reselling futures in the case of a repurchase transaction or repurchasing securities in the case of an inverse repurchase transaction. An insurer may not effect a transaction under this section if, as a result of, and after effecting the transaction:
(a) The sum total of the securities lent, sold or purchased under this section, to the same registered business entity exceeds five percent (5%) of its allowed assets or ten percent (10%) of the capital and surplus, whichever is less. When calculating the amount sold or purchased from the same business entity under a repurchase or inverse repurchase transaction, the net effect may be deemed as provided in the master agreement, or
(b) the total aggregate sum of all the securities loaned, sold, or purchased under this section would exceed forty percent (40%) of its allowed assets, setting forth hereby that for purposes of this calculation, the amount the insurer has invested in mutual funds registered under the Investment Companies Act of Puerto Rico, §§ 661 et seq. of Title 10, shall be subtracted from the total of said admitted assets, in the measure in which said amount is deemed as an investment in Class One Bond Mutual Funds, pursuant to § 648(25) of this title.
(5) When an insurer effects a securities loan transaction, the insurer shall receive acceptable collateral with a market value as of the date of the transaction, at least equivalent to one hundred and two percent (102%) of the market value of the securities lent by the insurer on that date. If at any moment the market value of the acceptable collateral owned by the insurer is less than the market value of the securities lent, the business entity to which the securities were lent shall provide the insurer additional acceptable collateral, the market value of which, together with the market value of every other collateral of the same nature held by the insurer with respect to the transaction is at least equal to one hundred and two percent (102%) of the market value of the securities lent.
(6) When an insurer effects an inverse repurchase transaction (other than a dollar roll type transaction), the insurer shall receive in cash not less than ninety-five percent (95%) of the market value of the securities transferred as acceptable collateral. If at any moment the market value of the collateral transferred by the insurer exceeds ninety-five percent (95%), the counterpart business entity which received the collateral shall be bound to reimburse to the insurer the excess of the collateral originally transferred, in order to maintain the collateral market value-to-cash received margin ratio of ninety-five percent (95%).
(7) In dollar roll type transactions, the insurer shall receive cash in an amount at least equal to the market value of the securities transferred by the insurer as of the date of the transaction.
(8) In repurchase transactions, an insurer shall receive securities as collateral with a market value as of the date of the transaction at least equal to one hundred two percent (102%) of the price paid by the insurer for the securities. If at any moment the market value of the acceptable collateral received by the insurer is less than the value paid by the insurer, the business entity to which the securities were lent must provide the insurer additional acceptable collateral, the market value of which, together with the market value of every other collateral of the same nature received by the insurer with respect to the transaction, is at least equal to one hundred and two percent (102%) of the value paid by the insurer. No securities acquired by an insurer in a reverse repurchase transaction may be sold in a reverse repurchase transaction, or lent in securities loans transactions, or otherwise encumbered.
History —Ins. Code, added as § 6.120 on May 16, 2003, No. 130, § 1.