Common use of Replication Transactions Clause in Contracts

Replication Transactions. Consistent with the requirements of the Securities Valuation Office (“SVO”) of the National Association of Insurance Commissioners (“NAIC”), a “Replication transaction” is defined as a derivative transaction or combination of derivative transactions effected either separately or in conjunction with cash market investments included in the insurer's investment portfolio in order to replicate the investment characteristic of another authorized transaction, investment or instrument and/or operate as a substitute for cash market transactions. In certain circumstances, replication transactions can create an otherwise permissible asset, asset class or group of assets, or provide a more cost-effective means of investing in a given asset, asset class or group of assets. Some replication transactions may replicate only certain desired characteristics of an asset, asset class or group of assets, rather than replicate all of an asset’s characteristics. The Company shall structure its replication transactions properly so that the potential exposure with respect to a replication transaction is directly related to the risks associated with the asset being replicated. Subject to applicable law, the Company may use credit default swaps, total return swaps and any other derivative instruments authorized in Section III C. hereof to replicate assets in which the Company could otherwise make direct investments for the purpose of: (i) customizing risk exposures which would either not be obtainable with direct investments or would only be obtainable at a greater cost; (ii) gaining exposure to markets that it may not be able to access directly as cost effectively; or (iii) otherwise, where replication transactions offer more advantageous risk/reward trade-offs to the Company than direct investments in the cash market.