N.Y. Comp. Codes R. & Regs. Tit. 11 § 178.5 - Internal controls and reporting
(a) Before engaging in derivative
transactions, an insurer shall establish adequate internal control procedures
to deal with derivatives, which shall include but not be limited to:
(1) systems or processes for periodic
valuation of derivative transactions including mechanisms for compensating for
any lack of independence in valuing trading positions;
(2) systems or processes for determining
whether a derivative instrument used for hedging has been effective;
(3) credit risk management systems or
processes for over-the-counter derivative transactions that measure credit risk
exposure using the counterparty exposure amount and clearly articulated
policies for the establishment of collateral arrangements with
counterparties;
(4) a determination
of whether the insurer has adequate professional personnel, technical expertise
and systems to implement and control investment practices involving
derivatives;
(5) systems or
processes for regular reports to management, segregation of duties and internal
review procedures; and
(6) systems
or procedures for conducting initial and ongoing legal review of derivative
transactions including assessments of contract enforceability.
(b) As set forth in section
1410(b)(5) of the
Insurance Law, an insurer engaging in derivative transactions shall be required
to include, as part of the evaluation of accounting procedures and internal
controls required to be filed pursuant to section
307 of the Insurance Law, a statement
describing the assessment by the independent certified public accountant of the
internal controls relative to derivative transactions. The purpose of this Part
of the evaluation is to assess the adequacy of the internal controls relative
to the derivative transactions being conducted by the insurer. Such an
assessment shall be made whether or not the derivative transactions are
material in relation to the insurer's financial statements. The independent
certified public accountant shall issue a report regarding internal controls
relative to derivative transactions, whether or not deficiencies in internal
controls would lead to a "reportable condition", as that term is used in
auditing standards adhered to by certified public accountants. An assessment in
the form of an "agreed upon procedures engagement" or an "attestation
engagement", as those terms are used in auditing standards adhered to by
certified public accountants, may be used to meet this requirement. If an
"agreed upon procedures engagement" is performed, the procedures used shall be
those that management and the independent certified public accountant determine
are appropriate to meet the purpose of the assessment as set forth
above.
Notes
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