(1) Before engaging in a derivative transaction, an insurer shall establish written guidelines, approved by the commissioner, that shall be used for effecting and maintaining derivative transactions. The guidelines shall:
(a) specify the insurer's objectives for engaging in derivative transactions, derivative strategies, and all applicable risk constraints, including credit risk limits;
(b) establish counterparty exposure limits and credit equity standards;
(c) identify permissible derivative transactions and the relationship of those transactions to insurer operations; for example, a precise identification of the risks being hedged by a derivative transaction; and
(d) require compliance with internal control procedures.
(2) An insurer shall have a written methodology for determining whether a derivative instrument used for hedging has been effective.
(3) An insurer shall have written policies and procedures describing the credit risk management process and a credit risk management system for over-the-counter derivative transactions that measures credit risk exposure using the counterparty exposure amount.
(4) An insurer's board of directors shall, in accordance with 33-12-104, MCA:
(a) approve the written guidelines, methodology, polices and procedures, and systems required by this rule;
(b) determine whether the insurer has adequate professional personnel, technical expertise, and systems to implement investment practices involving derivatives;
(c) review whether derivatives transactions have been made in accordance with the approved guidelines, and consistent with the stated objectives; and
(d) take action to correct any deficiencies in internal controls relative to derivative transactions.