(a) Before an insurer enters into a derivative transaction, the insurer's board of directors must approve a derivative use plan as part of the insurer's investment plan otherwise required by law.
(b) The derivative use plan must:
(1) describe investment objectives and risk constraints, such as counterparty exposure amounts;
(2) define permissible transactions, identifying the risks to be hedged and the assets or liabilities being replicated; and
(3) require compliance with the insurer's internal control procedures established under Section 424.206.
Official text of the Texas Insurance Code as published by the Texas Legislative Council.