H.B. No. 2017
AN ACT
relating to a nonsubstantive revision of statutes relating to the
Texas Department of Insurance, the business of insurance, and
certain related businesses, including conforming amendments,
repeals, and penalties.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. TITLE 4, INSURANCE CODE. The Insurance Code is
amended by adding Title 4 to read as follows:
TITLE 4. REGULATION OF SOLVENCY
SUBTITLE A. GENERAL PROVISIONS
CHAPTER 401. AUDITS AND EXAMINATIONS
CHAPTER 402. DISCLOSURE OF MATERIAL TRANSACTIONS
CHAPTER 403. DIVIDENDS
CHAPTER 404. FINANCIAL CONDITION
[Chapters 405-420 reserved for expansion]
SUBTITLE B. RESERVES AND INVESTMENTS
CHAPTER 421. RESERVES IN GENERAL
CHAPTER 422. ASSET PROTECTION ACT
CHAPTER 423. TRANSACTIONS WITH MONEY AND OTHER ASSETS
CHAPTER 424. INVESTMENTS FOR CERTAIN INSURERS
CHAPTER 425. RESERVES AND INVESTMENTS FOR LIFE
INSURANCE COMPANIES AND RELATED ENTITIES
CHAPTER 426. RESERVES FOR WORKERS' COMPENSATION
INSURANCE COMPANIES
CHAPTER 427. SUBORDINATED INDEBTEDNESS
[Chapters 428-440 reserved for expansion]
SUBTITLE C. DELINQUENT INSURERS
CHAPTER 441. SUPERVISION AND CONSERVATORSHIP
CHAPTER 442. LIQUIDATION, REHABILITATION, REORGANIZATION,
OR CONSERVATION OF INSURERS
[Chapters 443-460 reserved for expansion]
SUBTITLE D. GUARANTY ASSOCIATIONS
CHAPTER 461. GENERAL PROVISIONS
CHAPTER 462. TEXAS PROPERTY AND CASUALTY INSURANCE GUARANTY
ASSOCIATION
CHAPTER 463. LIFE, ACCIDENT, HEALTH, AND HOSPITAL SERVICE
INSURANCE GUARANTY ASSOCIATION
[Chapters 464-480 reserved for expansion]
SUBTITLE E. REQUIREMENTS OF OTHER JURISDICTIONS
CHAPTER 481. VOLUNTARY DEPOSITS
[Chapters 482-490 reserved for expansion]
SUBTITLE F. REINSURANCE
CHAPTER 491. GENERAL REINSURANCE REQUIREMENTS
CHAPTER 492. REINSURANCE FOR LIFE, HEALTH, AND ACCIDENT
INSURANCE COMPANIES AND RELATED ENTITIES
CHAPTER 493. REINSURANCE FOR PROPERTY AND CASUALTY INSURERS
CHAPTER 494. REINSURANCE OF AIRCRAFT AND SPACE
EQUIPMENT RISKS
TITLE 4. REGULATION OF SOLVENCY
SUBTITLE A. GENERAL PROVISIONS
CHAPTER 401. AUDITS AND EXAMINATIONS
SUBCHAPTER A. INDEPENDENT AUDIT OF FINANCIAL STATEMENTS
Sec. 401.001. DEFINITIONS
Sec. 401.002. PURPOSE OF SUBCHAPTER
Sec. 401.003. EFFECT OF SUBCHAPTER ON AUTHORITY TO
EXAMINE
Sec. 401.004. FILING AND EXTENSIONS FOR FILING OF
AUDITED FINANCIAL REPORT
Sec. 401.005. ALTERNATIVE FILING FOR CANADIAN OR
BRITISH INSURERS OR HEALTH MAINTENANCE
ORGANIZATIONS
Sec. 401.006. EXEMPTION FOR CERTAIN SMALL INSURERS AND
HEALTH MAINTENANCE ORGANIZATIONS
Sec. 401.007. EXEMPTION FOR CERTAIN FOREIGN OR ALIEN
INSURERS OR HEALTH MAINTENANCE
ORGANIZATIONS
Sec. 401.008. HARDSHIP EXEMPTION
Sec. 401.009. CONTENTS OF AUDITED FINANCIAL REPORT
Sec. 401.010. REQUIREMENTS FOR FINANCIAL STATEMENTS IN
AUDITED FINANCIAL REPORT
Sec. 401.011. QUALIFICATIONS OF ACCOUNTANT; ACCEPTANCE
OF AUDITED FINANCIAL REPORT
Sec. 401.012. HEARING ON ACCOUNTANT QUALIFICATIONS;
REPLACEMENT OF ACCOUNTANT
Sec. 401.013. ACCOUNTANT'S LETTER OF QUALIFICATIONS
Sec. 401.014. REGISTRATION OF ACCOUNTANT
Sec. 401.015. RESIGNATION OR DISMISSAL OF ACCOUNTANT;
STATEMENT CONCERNING DISAGREEMENTS
Sec. 401.016. AUDITED COMBINED OR CONSOLIDATED
FINANCIAL STATEMENTS
Sec. 401.017. NOTICE OF ADVERSE FINANCIAL CONDITION OR
MISSTATEMENT OF FINANCIAL CONDITION
Sec. 401.018. INFORMATION DISCOVERED AFTER DATE OF
AUDITED FINANCIAL REPORT
Sec. 401.019. REPORT ON SIGNIFICANT DEFICIENCIES IN
INTERNAL CONTROL
Sec. 401.020. ACCOUNTANT WORK PAPERS
Sec. 401.021. PENALTY FOR FAILURE TO COMPLY
[Sections 401.022-401.050 reserved for expansion]
SUBCHAPTER B. EXAMINATION OF CARRIERS
Sec. 401.051. DUTY TO EXAMINE CARRIERS
Sec. 401.052. FREQUENCY OF EXAMINATION
Sec. 401.053. EXAMINATION PERIOD
Sec. 401.054. POWERS RELATED TO EXAMINATION
Sec. 401.055. EFFECT OF SUBCHAPTER ON AUTHORITY TO USE
INFORMATION
Sec. 401.056. RULES RELATED TO REPORTS AND HEARINGS
Sec. 401.057. USE OF AUDIT AND WORK PAPERS
Sec. 401.058. CONFIDENTIALITY OF REPORTS AND RELATED
INFORMATION
Sec. 401.059. DETERMINATION OF VALUE
Sec. 401.060. RIGHT TO INFORMATION RELATING TO
DETERMINATION OF VALUE OR MARKET VALUE
Sec. 401.061. DISCIPLINARY ACTION FOR FAILURE TO
COMPLY WITH SUBCHAPTER
Sec. 401.062. STAY OF RULE, ORDER, DECISION, OR
FINDING
[Sections 401.063-401.100 reserved for expansion]
SUBCHAPTER C. EXAMINERS AND ACTUARIES
Sec. 401.101. USE OF DEPARTMENT EXAMINER OR OTHER
QUALIFIED PERSON OR FIRM
Sec. 401.102. LEGISLATIVE INTENT AS TO APPOINTMENT OR
EMPLOYMENT OF EXAMINERS AND ACTUARIES
Sec. 401.103. APPOINTMENT OF EXAMINERS AND ACTUARIES
Sec. 401.104. APPOINTMENT OF EXAMINERS, ACTUARIES, AND
OTHER PERSONS FOR CERTAIN EXAMINATIONS
Sec. 401.105. OATH OF EXAMINERS AND ASSISTANTS
Sec. 401.106. RIGHT OF ACTION ON BOND
[Sections 401.107-401.150 reserved for expansion]
SUBCHAPTER D. EXAMINATION EXPENSES
Sec. 401.151. EXPENSES OF EXAMINATION OF DOMESTIC
INSURER
Sec. 401.152. EXPENSES OF EXAMINATION OF OTHER
INSURERS
Sec. 401.153. REIMBURSEMENT OF EXPENSES OF CERTAIN
PERSONS OR FIRMS
Sec. 401.154. TAX CREDIT AUTHORIZED
Sec. 401.155. ADDITIONAL ASSESSMENTS
Sec. 401.156. DEPOSIT AND USE OF ASSESSMENT AND FEE
[Sections 401.157-401.200 reserved for expansion]
SUBCHAPTER E. CONFIDENTIALITY OF CERTAIN INFORMATION
Sec. 401.201. CONFIDENTIALITY OF EARLY WARNING SYSTEM
INFORMATION
CHAPTER 401. AUDITS AND EXAMINATIONS
SUBCHAPTER A. INDEPENDENT AUDIT OF FINANCIAL STATEMENTS
Sec. 401.001. DEFINITIONS. In this subchapter:
(1) "Accountant" means an independent certified
public accountant or accounting firm that meets the requirements of
Section 401.011.
(2) "Affiliate" has the meaning assigned by Section
823.003.
(3) "Health maintenance organization" means a health
maintenance organization authorized to engage in business in this
state.
(4) "Insurer" means an insurer authorized to engage in
business in this state, including:
(A) a life, health, or accident insurance
company;
(B) a fire and marine insurance company;
(C) a general casualty company;
(D) a title insurance company;
(E) a fraternal benefit society;
(F) a mutual life insurance company;
(G) a local mutual aid association;
(H) a statewide mutual assessment company;
(I) a mutual insurance company other than a
mutual life insurance company;
(J) a farm mutual insurance company;
(K) a county mutual insurance company;
(L) a Lloyd's plan;
(M) a reciprocal or interinsurance exchange;
(N) a group hospital service corporation;
(O) a stipulated premium company; and
(P) a nonprofit legal services corporation.
(5) "Subsidiary" has the meaning assigned by Section
823.003. (V.T.I.C. Art. 1.15A, Secs. 3(1), (2), (5), (6).)
Sec. 401.002. PURPOSE OF SUBCHAPTER. The purpose of this
subchapter is to require an annual audit by an independent
certified public accountant of the financial statements reporting
the financial condition and the results of operations of each
insurer or health maintenance organization. (V.T.I.C. Art. 1.15A,
Sec. 1.)
Sec. 401.003. EFFECT OF SUBCHAPTER ON AUTHORITY TO EXAMINE.
This subchapter does not limit the commissioner's authority to
order or the department's authority to conduct an examination of an
insurer or health maintenance organization under this code or the
commissioner's rules. (V.T.I.C. Art. 1.15A, Sec. 8.)
Sec. 401.004. FILING AND EXTENSIONS FOR FILING OF AUDITED
FINANCIAL REPORT. (a) Unless exempt under Section 401.006,
401.007, or 401.008 and except as otherwise provided by Sections
401.005 and 401.016, an insurer or health maintenance organization
shall:
(1) have an annual audit performed by an accountant;
and
(2) file with the commissioner on or before June 30 an
audited financial report for the preceding calendar year.
(b) The commissioner may require an insurer or health
maintenance organization to file an audited financial report on a
date that precedes June 30. The commissioner must notify the
insurer or health maintenance organization of the filing date not
later than the 90th day before that date.
(c) An insurer or health maintenance organization may
request an extension of the filing date by submitting the request in
writing before the 10th day preceding the filing date. The request
must include sufficient detail for the commissioner to make an
informed decision on the requested extension. The commissioner may
extend the filing date for one or more 30-day periods if the
commissioner determines that there is good cause for the extension
based on a showing by the insurer or health maintenance
organization and the insurer's or health maintenance organization's
accountant of the reasons for requesting the extension. (V.T.I.C.
Art. 1.15A, Secs. 2, 9(a), (b), (c).)
Sec. 401.005. ALTERNATIVE FILING FOR CANADIAN OR BRITISH
INSURERS OR HEALTH MAINTENANCE ORGANIZATIONS. (a) Instead of the
audited financial report required by Section 401.004, an insurer or
health maintenance organization domiciled in Canada or the United
Kingdom may file the insurer's or health maintenance organization's
annual statement of total business on the form filed by the insurer
or health maintenance organization with the appropriate regulatory
authority in the country of domicile. The statement must be audited
by an independent accountant chartered in the country of domicile.
(b) The chartered accountant must be registered with the
commissioner under Section 401.014(a). The registration must be
accompanied by a statement, signed by the accountant, indicating
that the accountant is aware of the requirements of this subchapter
and affirming that the accountant will express the accountant's
opinion in conformity with those requirements. (V.T.I.C. Art.
1.15A, Sec. 10A.)
Sec. 401.006. EXEMPTION FOR CERTAIN SMALL INSURERS AND
HEALTH MAINTENANCE ORGANIZATIONS. (a) An insurer or health
maintenance organization that has less than $1 million in direct
premiums written in this state during a calendar year is exempt from
the requirement to file an audited financial report if the insurer
or health maintenance organization submits an affidavit, made under
oath by one of the insurer's or health maintenance organization's
officers, that specifies the amount of direct premiums written in
this state during that period.
(b) Notwithstanding Subsection (a), the commissioner may
require an insurer or health maintenance organization, other than a
fraternal benefit society that does not have any direct premiums
written in this state for accident and health insurance during a
calendar year, to comply with this subchapter if the commissioner
finds that the insurer's or health maintenance organization's
compliance is necessary for the commissioner to fulfill the
commissioner's statutory responsibilities.
(c) An insurer or health maintenance organization that has
assumed premiums of at least $1 million under reinsurance
agreements is not exempt under Subsection (a). (V.T.I.C. Art.
1.15A, Sec. 4.)
Sec. 401.007. EXEMPTION FOR CERTAIN FOREIGN OR ALIEN
INSURERS OR HEALTH MAINTENANCE ORGANIZATIONS. (a) A foreign or
alien insurer or health maintenance organization that files an
audited financial report in another state in accordance with that
state's requirements for audited financial reports may be exempt
from filing a report under this subchapter if the commissioner
finds that the other state's requirements are substantially similar
to the requirements prescribed by this subchapter.
(b) An insurer or health maintenance organization exempt
under this section shall file with the commissioner a copy of:
(1) the audited financial report, the report on
significant deficiencies in internal controls, and the
accountant's letter of qualifications filed with the other state;
and
(2) any notification of adverse financial conditions
report filed with the other state.
(c) The reports and letter required by Subsection (b)(1)
must be filed in accordance with the filing dates prescribed by
Sections 401.004 and 401.019. The report required by Subsection
(b)(2) must be filed in accordance with the filing date prescribed
by Section 401.017. (V.T.I.C. Art. 1.15A, Sec. 6.)
Sec. 401.008. HARDSHIP EXEMPTION. (a) An insurer or health
maintenance organization that is not eligible for an exemption
under Section 401.006 or 401.007 may apply to the commissioner for a
hardship exemption.
(b) Subject to Subsection (c), the commissioner may grant an
exemption under this section if the commissioner finds, after
reviewing the application, that compliance with this subchapter
would constitute a severe financial or organizational hardship for
the insurer or health maintenance organization. The commissioner
may grant the exemption at any time for one or more specified
periods.
(c) The commissioner may not grant an exemption under this
section if:
(1) the exemption would diminish the department's
ability to monitor the financial condition of the insurer or health
maintenance organization; or
(2) the insurer or health maintenance organization:
(A) during the five-year period preceding the
date the application for the exemption is made:
(i) has been placed under supervision,
conservatorship, or receivership;
(ii) has undergone a change in control, as
described by Section 823.005; or
(iii) has been subject to a significant
number of complaints, as determined by the commissioner;
(B) has been identified by the department as
troubled;
(C) has been or is the subject of a disciplinary
action by the department; or
(D) is not complying with the law or with a rule
adopted by the commissioner. (V.T.I.C. Art. 1.15A, Secs. 7(a),
(b), (c).)
Sec. 401.009. CONTENTS OF AUDITED FINANCIAL REPORT. (a) An
audited financial report required under Section 401.004 must:
(1) describe the financial condition of the insurer or
health maintenance organization as of the end of the most recent
calendar year and the results of the insurer's or health
maintenance organization's operations, changes in financial
position, and changes in capital and surplus for that year;
(2) conform to the statutory accounting practices
prescribed or otherwise permitted by the insurance regulator in the
insurer's or health maintenance organization's state of domicile;
and
(3) include:
(A) the report of an accountant;
(B) a balance sheet that reports admitted assets,
liabilities, capital, and surplus;
(C) a statement of gain or loss from operations;
(D) a statement of cash flows;
(E) a statement of changes in capital and
surplus;
(F) any notes to financial statements;
(G) supplementary data and information,
including any additional data or information required by the
commissioner; and
(H) information required by the department to
conduct the insurer's or health maintenance organization's
examination under Subchapter B.
(b) The notes to financial statements required by
Subsection (a)(3)(F) must include:
(1) a reconciliation of any differences between the
audited statutory financial statements and the annual statements
filed under this code, with a written description of the nature of
those differences;
(2) any notes required by the appropriate National
Association of Insurance Commissioners annual statement
instructions or by generally accepted accounting principles; and
(3) a summary of the ownership of the insurer or health
maintenance organization and that entity's relationship to any
affiliated company.
(c) An insurer or health maintenance organization required
under Section 401.004 to file an audited financial report that does
not retain an independent certified public accountant to perform an
annual audit for the previous year may not be required to include in
the report audited statements of operations, cash flows, or changes
in capital and surplus for the first year. The insurer or health
maintenance organization must include those statements in the
first-year report and label the statements as unaudited. The
insurer or health maintenance organization must include in the
first-year report all other reports described by Section 401.004.
(d) The commissioner shall adopt rules governing the
information to be included in the audited financial report under
Subsection (a)(3)(H). (V.T.I.C. Art. 1.15A, Secs. 10(a), (b), (c),
(e), (f).)
Sec. 401.010. REQUIREMENTS FOR FINANCIAL STATEMENTS IN
AUDITED FINANCIAL REPORT. (a) An accountant must audit the
financial reports provided by an insurer or health maintenance
organization for purposes of an audit under this subchapter. The
accountant who audits the reports must conduct the audit in
accordance with generally accepted auditing standards and must
consider other procedures described in the Financial Condition
Examiner's Handbook adopted by the National Association of
Insurance Commissioners.
(b) The financial statements included in the audited
financial report must be prepared in a form and using language and
groupings substantially the same as those of the relevant sections
of the insurer's or health maintenance organization's annual
statement filed with the commissioner. Beginning in the second
year in which an insurer or health maintenance organization is
required to file an audited financial report, the financial
statements must also be comparative, presenting the amounts as of
December 31 of the reported year and the amounts as of December 31
of the preceding year. (V.T.I.C. Art. 1.15A, Secs. 10(d), 14.)
Sec. 401.011. QUALIFICATIONS OF ACCOUNTANT; ACCEPTANCE OF
AUDITED FINANCIAL REPORT. (a) Except as provided by Subsections
(c) and (d), the commissioner shall accept an audited financial
report from an independent certified public accountant or
accounting firm that:
(1) is a member in good standing of the American
Institute of Certified Public Accountants and is in good standing
with all states in which the accountant or firm is licensed to
practice, as applicable; and
(2) conforms to the American Institute of Certified
Public Accountants Code of Professional Conduct and to the rules of
professional conduct and other rules of the Texas State Board of
Public Accountancy or a similar code.
(b) If the insurer or health maintenance organization is
domiciled in Canada, the commissioner shall accept an audited
financial report from an accountant chartered in Canada. If the
insurer or health maintenance organization is domiciled in Great
Britain, the commissioner shall accept an audited financial report
from an accountant chartered in Great Britain.
(c) A partner or other person responsible for rendering a
report for an insurer or health maintenance organization for seven
consecutive years may not, during the two-year period after that
seventh year, render a report for the insurer or health maintenance
organization or for a subsidiary or affiliate of the insurer or
health maintenance organization that is engaged in the business of
insurance. The commissioner may determine that the limitation
provided by this subsection does not apply to an accountant for a
particular insurer or health maintenance organization if the
insurer or health maintenance organization demonstrates to the
satisfaction of the commissioner that the limitation's application
to the insurer or health maintenance organization would be unfair
because of unusual circumstances. In making the determination, the
commissioner may consider:
(1) the number of partners or individuals the
accountant employs, the expertise of the partners or individuals
the accountant employs, or the number of the accountant's insurance
clients;
(2) the premium volume of the insurer or health
maintenance organization; and
(3) the number of jurisdictions in which the insurer
or health maintenance organization engages in business.
(d) The commissioner may not accept an audited financial
report prepared wholly or partly by an individual who the
commissioner finds:
(1) has been convicted of fraud, bribery, a violation
of the Racketeer Influenced and Corrupt Organizations Act (18
U.S.C. Section 1961 et seq.), or a state or federal criminal offense
involving dishonest conduct;
(2) has violated the insurance laws of this state with
respect to a report filed under this subchapter; or
(3) has demonstrated a pattern or practice of failing
to detect or disclose material information in reports filed under
this subchapter. (V.T.I.C. Art. 1.15A, Secs. 12(a), (b), (c).)
Sec. 401.012. HEARING ON ACCOUNTANT QUALIFICATIONS;
REPLACEMENT OF ACCOUNTANT. The commissioner may hold a hearing to
determine if an accountant is qualified and independent. If, after
considering the evidence presented, the commissioner determines
that an accountant is not qualified and independent for purposes of
expressing an opinion on the financial statements in an audited
financial report filed under this subchapter, the commissioner
shall issue an order directing the insurer or health maintenance
organization to replace the accountant with a qualified and
independent accountant. (V.T.I.C. Art. 1.15A, Secs. 12(d), (e).)
Sec. 401.013. ACCOUNTANT'S LETTER OF QUALIFICATIONS. (a)
The audited financial report required under Section 401.004 must be
accompanied by a letter provided by the accountant who performed
the audit stating:
(1) the accountant's general background and
experience;
(2) the experience of each individual assigned to
prepare the audit in auditing insurers or health maintenance
organizations and whether the individual is an independent
certified public accountant; and
(3) that the accountant:
(A) is properly licensed by an appropriate state
licensing authority, is a member in good standing of the American
Institute of Certified Public Accountants, and is otherwise
qualified under Section 401.011;
(B) is independent from the insurer or health
maintenance organization and conforms to the standards of the
profession contained in the American Institute of Certified Public
Accountants Code of Professional Conduct, the statements of that
institute, and the rules of professional conduct adopted by the
Texas State Board of Public Accountancy, or a similar code;
(C) understands that:
(i) the audited financial report and the
accountant's opinion on the report will be filed in compliance with
this subchapter; and
(ii) the commissioner will rely on the
report and opinion in monitoring and regulating the insurer's or
health maintenance organization's financial position; and
(D) consents to the requirements of Section
401.020 and agrees to make the accountant's work papers available
for review by the department or the department's designee.
(b) Subsection (a)(2) does not prohibit an accountant from
using any staff the accountant considers appropriate if use of that
staff is consistent with generally accepted auditing standards.
(V.T.I.C. Art. 1.15A, Sec. 16A.)
Sec. 401.014. REGISTRATION OF ACCOUNTANT. (a) Not later
than December 31 of the calendar year to be covered by an audited
financial report required by this subchapter, an insurer or health
maintenance organization must register in writing with the
commissioner the name and address of the accountant retained to
prepare the report.
(b) The insurer or health maintenance organization must
include with the registration a statement signed by the accountant:
(1) indicating that the accountant is aware of the
requirements of this subchapter and of the rules of the insurance
department of the insurer's or health maintenance organization's
state of domicile that relate to accounting and financial matters;
and
(2) affirming that the accountant will express the
accountant's opinion on the financial statements in terms of the
statements' conformity to the statutory accounting practices
prescribed or otherwise permitted by the insurance department
described by Subdivision (1) and specifying any exceptions the
accountant believes are appropriate.
(c) The commissioner may not accept an audited financial
report prepared by an accountant who is not registered under this
section.
(d) The commissioner may not accept the registration of a
person who does not qualify under Section 401.011 or does not comply
with the other requirements of this subchapter. (V.T.I.C. Art.
1.15A, Sec. 11.)
Sec. 401.015. RESIGNATION OR DISMISSAL OF ACCOUNTANT;
STATEMENT CONCERNING DISAGREEMENTS. (a) If an accountant who
signed an audited financial report for an insurer or health
maintenance organization resigns as accountant for the insurer or
health maintenance organization or is dismissed by the insurer or
health maintenance organization after the report is filed, the
insurer or health maintenance organization shall notify the
department not later than the fifth business day after the date of
the resignation or dismissal.
(b) Not later than the 10th business day after the date the
insurer or health maintenance organization notifies the department
under Subsection (a), the insurer or health maintenance
organization shall file a written statement with the commissioner
advising the commissioner of any disagreements between the
accountant and the insurer's or health maintenance organization's
personnel responsible for presenting the insurer's or health
maintenance organization's financial statements that:
(1) relate to accounting principles or practices,
financial statement disclosure, or auditing scope or procedures;
(2) occurred during the 24 months preceding the date
of the resignation or dismissal; and
(3) would have caused the accountant to note the
disagreement in connection with the audited financial report if the
disagreement were not resolved to the satisfaction of the
accountant.
(c) The statement required by Subsection (b) must include a
description of disagreements that were resolved to the accountant's
satisfaction and those that were not resolved to the accountant's
satisfaction.
(d) The insurer or health maintenance organization shall
file with the statement required by Subsection (b) a letter signed
by the accountant stating whether the accountant agrees with the
insurer's or health maintenance organization's statement and, if
not, the reasons why the accountant does not agree. If the
accountant fails to provide the letter, the insurer or health
maintenance organization shall file with the commissioner a copy of
a written request to the accountant for the letter. (V.T.I.C. Art.
1.15A, Sec. 12A.)
Sec. 401.016. AUDITED COMBINED OR CONSOLIDATED FINANCIAL
STATEMENTS. (a) An insurer or health maintenance organization
described by Section 401.001(3) or (4) that is required to file an
audited financial report under this subchapter may apply in writing
to the commissioner for approval to file audited combined or
consolidated financial statements instead of separate audited
financial reports if the insurer or health maintenance
organization:
(1) is part of a group of insurers or health
maintenance organizations that uses a pooling arrangement or 100
percent reinsurance agreement that affects the solvency and
integrity of the insurer's or health maintenance organization's
reserves; and
(2) cedes all of the insurer's or health maintenance
organization's direct and assumed business to the pool.
(b) An insurer or health maintenance organization must file
an application under Subsection (a) not later than December 31 of
the calendar year for which the audited combined or consolidated
financial statements are to be filed.
(c) An insurer or health maintenance organization that
receives approval from the commissioner under this section shall
file a columnar combining or consolidating worksheet for the
audited combined or consolidated financial statements that
includes:
(1) the amounts shown on the audited combined or
consolidated financial statements;
(2) the amounts for each insurer or health maintenance
organization stated separately;
(3) the noninsurance operations shown on a combined or
individual basis;
(4) explanations of consolidating and eliminating
entries; and
(5) a reconciliation of any differences between the
amounts shown in the individual insurer or health maintenance
organization columns of the worksheet and comparable amounts shown
on the insurer's or health maintenance organization's annual
statements.
(d) An insurer or health maintenance organization that does
not receive approval from the commissioner to file audited combined
or consolidated financial statements for the insurer or health
maintenance organization and any of the insurer's or health
maintenance organization's subsidiaries or affiliates shall file a
separate audited financial report. (V.T.I.C. Art. 1.15A, Sec. 13.)
Sec. 401.017. NOTICE OF ADVERSE FINANCIAL CONDITION OR
MISSTATEMENT OF FINANCIAL CONDITION. (a) An insurer or health
maintenance organization required to file an audited financial
report under this subchapter shall require the insurer's or health
maintenance organization's accountant to immediately notify the
board of directors of the insurer or health maintenance
organization or the insurer's or health maintenance organization's
audit committee in writing of any determination by that accountant
that:
(1) the insurer or health maintenance organization has
materially misstated the insurer's or health maintenance
organization's financial condition as reported to the commissioner
as of the balance sheet date being audited; or
(2) the insurer or health maintenance organization
does not meet the minimum capital and surplus requirements
prescribed by this code for the insurer or health maintenance
organization as of that date.
(b) An insurer or health maintenance organization that
receives a notice described by Subsection (a) shall:
(1) provide to the commissioner a copy of the notice
not later than the fifth business day after the date the insurer or
health maintenance organization receives the notice; and
(2) provide to the accountant evidence that the notice
was provided to the commissioner.
(c) If the accountant does not receive the evidence required
by Subsection (b)(2) on or before the fifth business day after the
date the accountant notified the insurer or health maintenance
organization under Subsection (a), the accountant shall file with
the commissioner a copy of the accountant's written notice not
later than the 10th business day after the date the accountant
notified the insurer or health maintenance organization.
(d) An accountant is not liable to an insurer or health
maintenance organization or the insurer's or health maintenance
organization's policyholders, shareholders, officers, employees,
directors, creditors, or affiliates for a statement made under this
section if the statement was made in good faith to comply with this
section. (V.T.I.C. Art. 1.15A, Secs. 15(a), (b), (d).)
Sec. 401.018. INFORMATION DISCOVERED AFTER DATE OF AUDITED
FINANCIAL REPORT. If, after the date of an audited financial report
filed under this subchapter, the accountant becomes aware of facts
that might have affected the report, the accountant must take
action as prescribed in Volume 1, AU Section 561, Professional
Standards of the American Institute of Certified Public
Accountants. (V.T.I.C. Art. 1.15A, Sec. 15(c).)
Sec. 401.019. REPORT ON SIGNIFICANT DEFICIENCIES IN
INTERNAL CONTROL. (a) In addition to the audited financial report
required by this subchapter, each insurer or health maintenance
organization shall provide to the commissioner a written report of
significant deficiencies required and prepared by an accountant in
accordance with the Professional Standards of the American
Institute of Certified Public Accountants.
(b) The insurer or health maintenance organization shall
annually file with the commissioner the report required by this
section not later than the 60th day after the date the audited
financial report is filed. The insurer or health maintenance
organization shall also provide a description of remedial actions
taken or proposed to be taken to correct significant deficiencies,
if the actions are not described in the accountant's report.
(c) The report must follow generally the form for
communication of internal control structure matters noted in an
audit described in Statement on Auditing Standard (SAS) No. 60, AU
Section 325, Professional Standards of the American Institute of
Certified Public Accountants. (V.T.I.C. Art. 1.15A, Sec. 16.)
Sec. 401.020. ACCOUNTANT WORK PAPERS. (a) In this
section, "work papers" means the records kept by an accountant of
the procedures followed, the tests performed, the information
obtained, and the conclusions reached that are pertinent to the
accountant's audit of an insurer's or health maintenance
organization's financial statements. The term includes work
programs, analyses, memoranda, letters of confirmation and
representation, abstracts of company documents and schedules, and
commentaries prepared or obtained by the accountant in the course
of auditing the financial statements that support the accountant's
opinion.
(b) An insurer or health maintenance organization required
to file an audited financial report under this subchapter shall
require the insurer's or health maintenance organization's
accountant to make available for review by the department's
examiners the work papers and any record of communications between
the accountant and the insurer or health maintenance organization
relating to the accountant's audit that were prepared in conducting
the audit. The insurer or health maintenance organization shall
require that the accountant retain the work papers and records of
communications until the earlier of:
(1) the date the department files a report on the
examination covering the audit period; or
(2) the seventh anniversary of the date of the last day
of the audit period.
(c) The department may copy and retain the copies of
pertinent work papers when the department's examiners conduct a
review under Subsection (b). The review is considered an
investigation, and work papers obtained during that investigation
may be made confidential by the commissioner, unless the work
papers are admitted as evidence in a hearing before a governmental
agency or in a court. (V.T.I.C. Art. 1.15A, Sec. 17.)
Sec. 401.021. PENALTY FOR FAILURE TO COMPLY. (a) If an
insurer or health maintenance organization fails to comply with
this subchapter, the commissioner shall order that the insurer's or
health maintenance organization's annual audit be performed by a
qualified independent certified public accountant.
(b) The commissioner shall assess against the insurer or
health maintenance organization the cost of auditing the insurer's
or health maintenance organization's financial statement under
this section.
(c) The insurer or health maintenance organization shall
pay to the commissioner the amount of the assessment not later than
the 30th day after the date the commissioner issues the notice of
assessment to the insurer or health maintenance organization.
(d) Money collected under this section shall be deposited to
the credit of the Texas Department of Insurance operating account
for use by the commissioner and the department to pay the expenses
incurred under this subchapter. (V.T.I.C. Art. 1.15A, Sec. 9(d).)
[Sections 401.022-401.050 reserved for expansion]
SUBCHAPTER B. EXAMINATION OF CARRIERS
Sec. 401.051. DUTY TO EXAMINE CARRIERS. (a) The
department or an examiner appointed by the department shall visit
at the carrier's principal office:
(1) each carrier that is organized under the laws of
this state; and
(2) each other carrier that is authorized to engage in
business in this state.
(b) The department or an examiner appointed by the
department may visit the carrier for the purpose of investigating
the carrier's affairs and condition. The department or an examiner
appointed by the department shall examine the carrier's financial
condition and ability to meet the carrier's liabilities and
compliance with the laws of this state that affect the conduct of
the carrier's business.
(c) The department or an examiner appointed by the
department may conduct the visit and examination of a carrier
described by Subsection (a)(2) alone or with representatives of the
insurance supervising departments of other states. (V.T.I.C. Art.
1.15, Sec. 1 (part); Art. 1.19 (part).)
Sec. 401.052. FREQUENCY OF EXAMINATION. (a) The
department shall visit and examine a carrier:
(1) annually during the first three years after the
carrier is organized or incorporated; and
(2) except as provided by Subsection (b), once every
three years after the period described by Subdivision (1), or on a
more frequent basis as the department considers necessary.
(b) If the commissioner determines that the financial
strength of a carrier justifies less frequent examinations than
those required under Subsection (a)(2), the department may conduct
the examination at intervals not less frequent than every five
years. The commissioner shall adopt rules governing the
determination under this subsection of whether the financial
strength of a carrier justifies less frequent examinations.
(V.T.I.C. Art. 1.15, Secs. 1 (part), 10.)
Sec. 401.053. EXAMINATION PERIOD. Unless the department
requests that an examination cover a longer period, the examination
must cover the period beginning on the last day covered by the most
recent examination and ending on December 31 of the year preceding
the year in which the examination is being conducted. (V.T.I.C.
Art. 1.04A (part).)
Sec. 401.054. POWERS RELATED TO EXAMINATION. The
department or the examiner appointed by the department:
(1) has free access, and may require the carrier or the
carrier's agent to provide free access, to all books and papers of
the carrier or the carrier's agent that relate to the carrier's
business and affairs; and
(2) has the authority to summon and examine under
oath, if necessary, an officer, agent, or employee of the carrier or
any other person in relation to the carrier's affairs and
condition. (V.T.I.C. Art. 1.15, Sec. 1 (part); Art. 1.19 (part).)
Sec. 401.055. EFFECT OF SUBCHAPTER ON AUTHORITY TO USE
INFORMATION. This subchapter does not limit the commissioner's
authority to use a final or preliminary examination report, an
examiner's or company's work papers or other documents, or any other
information discovered or developed during an examination in
connection with a legal or regulatory action that the commissioner,
in the commissioner's sole discretion, considers appropriate.
(V.T.I.C. Art. 1.15, Sec. 7.)
Sec. 401.056. RULES RELATED TO REPORTS AND HEARINGS. The
commissioner by rule shall adopt:
(1) procedures governing the filing and adoption of an
examination report;
(2) procedures governing a hearing to be held under
this subchapter; and
(3) guidelines governing an order issued under this
subchapter. (V.T.I.C. Art. 1.15, Sec. 6.)
Sec. 401.057. USE OF AUDIT AND WORK PAPERS. (a) In this
section, "work papers" has the meaning assigned by Section
401.020(a).
(b) In conducting an examination under this subchapter, the
department shall use audits and work papers that the carrier makes
available to the department and that are prepared by an accountant
or accounting firm meeting the qualifications of Section 401.011.
The department may conduct a separate audit of the carrier if
necessary. Work papers developed in the audit shall be maintained
in the manner provided by Sections 401.020(b) and (c).
(c) The carrier shall provide the department with:
(1) the work papers of an accountant or accounting
firm or the carrier; and
(2) a record of any communications between the
accountant or accounting firm and the carrier that relate to an
audit.
(d) The accountant or accounting firm shall deliver the
information described by Subsection (c) to the examiner. The
examiner shall retain the information during the department's
examination of the carrier.
(e) Information obtained under this section is confidential
and may not be disclosed to the public except when introduced as
evidence in a hearing. (V.T.I.C. Art. 1.15, Sec. 8.)
Sec. 401.058. CONFIDENTIALITY OF REPORTS AND RELATED
INFORMATION. (a) A final or preliminary examination report and
any information obtained during an examination are confidential and
are not subject to disclosure under Chapter 552, Government Code.
(b) Subsection (a) applies if the examined carrier is under
supervision or conservatorship. Subsection (a) does not apply to
an examination conducted in connection with a liquidation or
receivership under this code or another insurance law of this
state. (V.T.I.C. Art. 1.15, Sec. 9.)
Sec. 401.059. DETERMINATION OF VALUE. In determining the
value or market value of an investment in or on real estate or an
improvement to real estate by a carrier authorized to engage in
business in this state, the department, in administering this code,
may consider any factor or matter that the department considers
proper and material, including:
(1) an appraisal by a real estate board or other
qualified person;
(2) an affidavit by another person familiar with those
values;
(3) a tax valuation;
(4) the cost of acquisition after deducting for
depreciation and obsolescence;
(5) the cost of replacement;
(6) sales of other comparable property;
(7) enhancement in value from any cause;
(8) income received or to be received; and
(9) any improvements made. (V.T.I.C. Art. 1.15, Sec.
2.)
Sec. 401.060. RIGHT TO INFORMATION RELATING TO
DETERMINATION OF VALUE OR MARKET VALUE. (a) If the department
determines the value or market value of an insurer's investment in
or on real estate or an improvement to real estate, the insurer is
entitled to make a written request for a written finding by the
commissioner in relation to that determination.
(b) Not later than the 10th day after the date the
commissioner receives a request under Subsection (a), the
commissioner shall enter a written order or finding that:
(1) states separately the department's findings on
each factor or matter on which the department relied in making the
determination; and
(2) includes the name and address of each person who
provided evidence relating to a factor or matter on which the
department relied in making the determination.
(c) The commissioner shall provide to the insurer that
requested a written finding under this section a copy of the finding
or order. (V.T.I.C. Art. 1.15, Sec. 3.)
Sec. 401.061. DISCIPLINARY ACTION FOR FAILURE TO COMPLY
WITH SUBCHAPTER. A carrier is subject to disciplinary action under
Chapter 82 if the carrier or the carrier's agent fails or refuses to
comply with:
(1) this subchapter or a rule adopted under this
subchapter; or
(2) a request by the department or an appointed
examiner to be examined or to provide information requested as part
of an examination. (V.T.I.C. Art. 1.15, Sec. 5.)
Sec. 401.062. STAY OF RULE, ORDER, DECISION, OR
FINDING. The filing of a petition under Subchapter D, Chapter 36,
for judicial review of a rule, order, decision, or finding of the
commissioner or department under this subchapter operates as a stay
of the rule, order, decision, or finding until the court directs
otherwise. (V.T.I.C. Art. 1.15, Sec. 4.)
[Sections 401.063-401.100 reserved for expansion]
SUBCHAPTER C. EXAMINERS AND ACTUARIES
Sec. 401.101. USE OF DEPARTMENT EXAMINER OR OTHER QUALIFIED
PERSON OR FIRM. The department may use a salaried department
examiner or may appoint a qualified person or firm to perform an
examination of an insurance organization as provided by law or to
assist in the performance of an examination. (V.T.I.C. Art. 1.04A
(part).)
Sec. 401.102. LEGISLATIVE INTENT AS TO APPOINTMENT OR
EMPLOYMENT OF EXAMINERS AND ACTUARIES. (a) The legislature
recognizes that experienced, highly qualified examiners and
actuaries are necessary for the department to effectively monitor
and regulate the solvency of insurers in this state. It is the
intent of the legislature that the department, in appointing or
employing an examiner or actuary, select a person who:
(1) has substantial experience in financial matters
relating to insurance or other areas of financial activity that are
compatible with the business of insurance; and
(2) is recognized for the outstanding quality of the
person's work in relation to areas of responsibility typically
assigned to an examiner or actuary in the insurance field.
(b) The legislature pledges to provide to the department the
necessary funding to implement this section and to support the
department in the department's efforts to attract the highly
qualified persons necessary to fulfill regulatory responsibilities
relating to insurer solvency assigned to those persons under the
insurance laws of this state. (V.T.I.C. Art. 1.17A.)
Sec. 401.103. APPOINTMENT OF EXAMINERS AND ACTUARIES. (a)
The department shall appoint:
(1) a chief examiner and the number of assistant
examiners the department considers necessary to conduct
examinations of insurance companies, corporations, and
associations at the expense of the insurance company, corporation,
or association as provided by law; and
(2) the number of actuaries the department considers
necessary to:
(A) advise the department in connection with the
performance of the department's duties; and
(B) otherwise aid and counsel the department in
connection with the examinations.
(b) The department may increase or decrease the number of
examiners or actuaries as needed for examination duties. (V.T.I.C.
Art. 1.17 (part).)
Sec. 401.104. APPOINTMENT OF EXAMINERS, ACTUARIES, AND
OTHER PERSONS FOR CERTAIN EXAMINATIONS. (a) The department may
commission a department actuary, the chief examiner, another
department examiner or employee, or any other person to conduct or
assist in the examination of a company that is not organized under
the laws of this state.
(b) The department may compensate a person described by
Subsection (a). If the department compensates the person, the
person may not receive any other compensation while the person is
assigned to the examination.
(c) Except as provided by this section and Section 401.152,
a department actuary or examiner may not continue to serve in that
capacity if the person directly or indirectly accepts employment or
compensation for a service rendered or to be rendered from any
insurance company for any reason. (V.T.I.C. Art. 1.17 (part).)
Sec. 401.105. OATH OF EXAMINERS AND ASSISTANTS. Before
entering into the duties of appointment as an examiner or assistant
examiner, an individual must take and file in the office of the
secretary of state an oath to:
(1) support the constitution of this state;
(2) faithfully conduct the individual's duties of
office;
(3) make fair and impartial examinations;
(4) not accept, directly or indirectly, as a gift or
emolument any pay for the discharge of the individual's duty, other
than the compensation to which the individual is entitled by law;
and
(5) not reveal the condition of a corporation, firm,
or person or any information secured while examining a corporation,
firm, or person to anyone other than:
(A) the department or an authorized
representative of the department; or
(B) as required when testifying in an
administrative hearing under this code or another insurance law of
this state or in court. (V.T.I.C. Art. 1.18 (part).)
Sec. 401.106. RIGHT OF ACTION ON BOND. If an examiner or
assistant examiner knowingly makes a false report or gives any
information in violation of law that relates to an examination of a
corporation, firm, or person, the corporation, firm, or person has
a right of action on a bond authorized under Chapter 653, Government
Code, for the entity's injuries in a suit brought in the name of the
state at the relation of the entity. (V.T.I.C. Art. 1.18 (part).)
[Sections 401.107-401.150 reserved for expansion]
SUBCHAPTER D. EXAMINATION EXPENSES
Sec. 401.151. EXPENSES OF EXAMINATION OF DOMESTIC INSURER.
(a) A domestic insurer examined on behalf of this state by the
department or under the department's authority shall pay the
expenses of the examination in an amount the commissioner certifies
as just and reasonable.
(b) The department shall collect an assessment at the time
of the examination to cover all expenses attributable directly to
that examination, including:
(1) the salaries and expenses of department employees;
and
(2) expenses described by Section 803.007.
(c) The department shall also impose an annual assessment on
domestic insurers in an amount sufficient to meet all other
expenses and disbursements necessary to comply with the laws of
this state relating to the examination of insurers.
(d) In determining the amount of the assessment under
Subsection (c), the department:
(1) shall consider:
(A) the insurer's annual premium receipts or
admitted assets, or both, that are not attributable to 90 percent of
pension plan contracts as defined by Section 818(a), Internal
Revenue Code of 1986; or
(B) the total amount of the insurer's insurance
in force; and
(2) may not consider insurance premiums for insurance
contracted for by a state or federal governmental entity to provide
welfare benefits to designated welfare recipients or contracted for
in accordance with or in furtherance of Title 2, Human Resources
Code, or the federal Social Security Act (42 U.S.C. Section 301 et
seq.).
(e) The amount of all examination and evaluation fees paid
to the state by an insurer in each taxable year shall be allowed as a
credit on the amount of premium taxes due under this subchapter.
(V.T.I.C. Art. 1.16, Secs. (a), (b) (part); Art. 1.19 (part).)
Sec. 401.152. EXPENSES OF EXAMINATION OF OTHER INSURERS.
(a) An insurer not organized under the laws of this state shall
reimburse the department for the salary and expenses of each
examiner participating in an examination of the insurer and for
other department expenses that are properly allocable to the
department's participation in the examination.
(b) An insurer shall pay the expenses under this section
regardless of whether the examination is made only by the
department or jointly with the insurance supervisory authority of
another state.
(c) The insurer shall pay the expenses directly to the
department on presentation of an itemized written statement from
the commissioner.
(d) The commissioner shall determine the salary of an
examiner participating in an examination of an insurer's books or
records located in another state based on the salary rate
recommended by the National Association of Insurance Commissioners
or the examiner's regular salary rate.
(e) The limitations provided by Sections 803.007(1) and
(2)(B) for a domestic company apply to a foreign insurer. (V.T.I.C.
Art. 1.16, Secs. (b) (part), (f) (part).)
Sec. 401.153. REIMBURSEMENT OF EXPENSES OF CERTAIN PERSONS
OR FIRMS. (a) A person or firm appointed by the department to
examine an insurer or to assist in the insurer's examination shall
be paid for those services at the usual and customary rates charged
for those services. The insurer being examined shall pay the fee
for those services.
(b) The commissioner may disapprove the payment of a fee
under Subsection (a) if the fee is excessive in relation to the
services actually performed. (V.T.I.C. Art. 1.04A (part).)
Sec. 401.154. TAX CREDIT AUTHORIZED. An insurer is
entitled to a credit on the amount of premium or other taxes to be
paid by the insurer for all examination fees paid under Section
401.153. The insurer may take the credit for the taxable year
during which the examination fees are paid and may take the credit
to the same extent the insurer may take a credit for examination
fees paid when a salaried department examiner conducts the
examination. (V.T.I.C. Art. 1.04A (part).)
Sec. 401.155. ADDITIONAL ASSESSMENTS. (a) The department
shall impose additional assessments against insurers on a pro rata
basis as necessary to:
(1) cover all expenses and disbursements required by
law; and
(2) comply with this subchapter and Sections 401.103,
401.104, 401.105, and 401.106.
(b) The department shall use any surplus resulting from an
assessment under this section to reduce the amount of subsequent
assessments. (V.T.I.C. Art. 1.16, Sec. (e).)
Sec. 401.156. DEPOSIT AND USE OF ASSESSMENT AND FEE. (a)
The department shall deposit an assessment or fee collected under
this subchapter to the credit of the Texas Department of Insurance
operating account.
(b) Money deposited under this section shall be used to pay
the salaries and expenses of actuaries and examiners and all other
expenses relating to examinations of insurers. (V.T.I.C. Art.
1.16, Secs. (d) (part), (f) (part).)
[Sections 401.157-401.200 reserved for expansion]
SUBCHAPTER E. CONFIDENTIALITY OF CERTAIN INFORMATION
Sec. 401.201. CONFIDENTIALITY OF EARLY WARNING SYSTEM
INFORMATION. Information relating to the financial solvency of an
organization regulated by the department under this code or another
insurance law of this state that is obtained by the department's
early warning system is confidential and is not subject to
disclosure under Chapter 552, Government Code. (V.T.I.C. Art. 1.15B.)
CHAPTER 402. DISCLOSURE OF MATERIAL TRANSACTIONS
SUBCHAPTER A. GENERAL PROVISIONS
Sec. 402.001. APPLICABILITY OF CHAPTER
Sec. 402.002. GENERAL REPORTING REQUIREMENTS
Sec. 402.003. EXCEPTIONS TO REPORTING REQUIREMENTS
Sec. 402.004. REPORT MADE ON NONCONSOLIDATED BASIS
Sec. 402.005. CONFIDENTIALITY OF REPORT
[Sections 402.006-402.050 reserved for expansion]
SUBCHAPTER B. ACQUISITION AND DISPOSITION OF ASSETS
Sec. 402.051. ACQUISITIONS AND DISPOSITIONS CONSIDERED
MATERIAL
Sec. 402.052. ACQUISITIONS AND DISPOSITIONS SUBJECT TO
CHAPTER
Sec. 402.053. CONTENT OF REPORT CONCERNING MATERIAL
ACQUISITIONS AND DISPOSITIONS
[Sections 402.054-402.100 reserved for expansion]
SUBCHAPTER C. NONRENEWAL, CANCELLATION, AND REVISION
OF CEDED REINSURANCE AGREEMENTS
Sec. 402.101. NONRENEWALS, CANCELLATIONS, AND
REVISIONS CONSIDERED MATERIAL
Sec. 402.102. CONDITIONS UNDER WHICH REPORT CONCERNING
NONRENEWAL, CANCELLATION, OR REVISION
REQUIRED
Sec. 402.103. CONDITIONS UNDER WHICH REPORT CONCERNING
NONRENEWAL, CANCELLATION, OR REVISION
NOT REQUIRED
Sec. 402.104. CONTENT OF REPORT CONCERNING MATERIAL
NONRENEWALS, CANCELLATIONS, AND
REVISIONS
CHAPTER 402. DISCLOSURE OF MATERIAL TRANSACTIONS
SUBCHAPTER A. GENERAL PROVISIONS
Sec. 402.001. APPLICABILITY OF CHAPTER. (a) Except as
provided by Subsection (b), this chapter applies to:
(1) each of the following domestic or commercially
domiciled insurers:
(A) a capital stock insurance company;
(B) a mutual insurance company;
(C) a title insurance company;
(D) a fraternal benefit society;
(E) a Lloyd's plan;
(F) a reciprocal or interinsurance exchange;
(G) a group hospital service corporation or a
nonprofit hospital, medical, or dental service corporation;
(H) a risk retention group; and
(I) a nonprofit legal services corporation; and
(2) a domestic or commercially domiciled health
maintenance organization.
(b) This chapter does not apply to a domestic insurer that
engages in the business of insurance only in this state or to a
domestic health maintenance organization that engages in the
business of a health maintenance organization only in this state
until the insurer or health maintenance organization is authorized
to engage in the business of insurance or the business of a health
maintenance organization, as applicable, in another state.
(V.T.I.C. Art. 21.49-8, Sec. 1.)
Sec. 402.002. GENERAL REPORTING REQUIREMENTS. (a) An
insurer or health maintenance organization shall file with the
department a report, including any necessary exhibit or other
attachment, that discloses:
(1) the material acquisition or disposition of assets;
or
(2) the material nonrenewal, cancellation, or
revision of a ceded reinsurance agreement.
(b) The insurer or health maintenance organization shall
file the report required under Subsection (a) not later than the
15th day after the last day of the calendar month in which any
transaction for which a report is required occurs. (V.T.I.C.
Art. 21.49-8, Secs. 2(a) (part), (b), (c).)
Sec. 402.003. EXCEPTIONS TO REPORTING REQUIREMENTS. An
insurer or health maintenance organization is not required to file
a report under Section 402.002 if:
(1) the acquisition or disposition of assets or the
nonrenewal, cancellation, or revision of a ceded reinsurance
agreement is not material; or
(2) the insurer's or health maintenance organization's
material acquisition or disposition of assets or material
nonrenewal, cancellation, or revision of a ceded reinsurance
agreement has been submitted to the commissioner for review,
approval, or information under another provision of this code or
another law, regulation, or requirement. (V.T.I.C. Art. 21.49-8,
Secs. 2(a) (part), 3(a) (part), 4(a) (part).)
Sec. 402.004. REPORT MADE ON NONCONSOLIDATED BASIS. (a) An
insurer or health maintenance organization shall report each
material acquisition or disposition and each material nonrenewal,
cancellation, or revision of a ceded reinsurance agreement on a
nonconsolidated basis unless the insurer or health maintenance
organization:
(1) is part of a consolidated group of insurers or
health maintenance organizations that uses a pooling arrangement or
a 100 percent reinsurance agreement that affects the solvency and
integrity of the insurer's or health maintenance organization's
reserves; and
(2) has ceded substantially all of the insurer's or
health maintenance organization's direct and assumed business to
the pooling arrangement.
(b) For purposes of Subsection (a), an insurer or health
maintenance organization is considered to have ceded substantially
all of the insurer's or health maintenance organization's direct
and assumed business to a pooling arrangement if:
(1) the insurer or health maintenance organization
has, during a calendar year, less than $1 million total direct and
assumed written premiums that are not subject to a pooling
arrangement; and
(2) the net income of the business that is not subject
to the pooling arrangement represents less than five percent of the
insurer's or health maintenance organization's capital and surplus.
(V.T.I.C. Art. 21.49-8, Secs. 3(e), (f), 4(f), (g).)
Sec. 402.005. CONFIDENTIALITY OF REPORT. (a) A report
obtained by or disclosed to the commissioner under this chapter is
confidential and is not subject to a subpoena, other than a grand
jury subpoena.
(b) The report may not be disclosed by the commissioner, the
National Association of Insurance Commissioners, or any other
person without the prior written consent of the affected insurer or
health maintenance organization unless the commissioner, after
providing notice and an opportunity for a hearing to the affected
insurer or health maintenance organization, determines that the
interest of shareholders, holders of policies or evidences of
coverage, or the public will be served by publishing the report. If
the commissioner makes that determination, the department may:
(1) disclose the report to the public; and
(2) publish any part of the report in a manner the
commissioner considers appropriate.
(c) The report may be disclosed to the insurance department
of another state or another authorized governmental agency without
complying with Subsection (b). (V.T.I.C. Article 21.49-8, Sec.
2(d).)
[Sections 402.006-402.050 reserved for expansion]
SUBCHAPTER B. ACQUISITION AND DISPOSITION OF ASSETS
Sec. 402.051. ACQUISITIONS AND DISPOSITIONS CONSIDERED
MATERIAL. For purposes of this chapter, an acquisition, or the
aggregate of a series of related acquisitions during a 30-day
period, or a disposition, or the aggregate of a series of related
dispositions during a 30-day period, is material if it:
(1) is not recurring;
(2) is not in the ordinary course of business; and
(3) involves more than five percent of the reporting
insurer's or health maintenance organization's total admitted
assets as reported in the insurer's or health maintenance
organization's most recent statutory statement filed with the
department. (V.T.I.C. Art. 21.49-8, Sec. 3(a) (part).)
Sec. 402.052. ACQUISITIONS AND DISPOSITIONS SUBJECT TO
CHAPTER. (a) An asset acquisition subject to this chapter
includes a purchase, lease, exchange, merger, consolidation,
succession, or other acquisition of assets, except the construction
or development of real property by or for the reporting insurer or
health maintenance organization or the acquisition of materials for
that purpose.
(b) An asset disposition subject to this chapter includes a
sale, lease, exchange, merger, consolidation, mortgage,
hypothecation, assignment, whether for the benefit of a creditor or
otherwise, abandonment, destruction, or other disposition of
assets. (V.T.I.C. Art. 21.49-8, Secs. 3(b), (c).)
Sec. 402.053. CONTENT OF REPORT CONCERNING MATERIAL
ACQUISITIONS AND DISPOSITIONS. In a report of a material
acquisition or disposition of assets under Section 402.002, an
insurer or health maintenance organization shall disclose:
(1) the date of the transaction;
(2) the manner of acquisition or disposition;
(3) a description of the assets involved;
(4) the nature and amount of the consideration given
or received;
(5) the purpose of the transaction;
(6) the manner by which the amount of consideration
was determined;
(7) the gain or loss recognized or realized as a result
of the transaction; and
(8) the name of each person from whom the assets were
acquired or to whom they were disposed. (V.T.I.C. Art. 21.49-8,
Sec. 3(d).)
[Sections 402.054-402.100 reserved for expansion]
SUBCHAPTER C. NONRENEWAL, CANCELLATION, AND REVISION
OF CEDED REINSURANCE AGREEMENTS
Sec. 402.101. NONRENEWALS, CANCELLATIONS, AND REVISIONS
CONSIDERED MATERIAL. For purposes of this chapter, a nonrenewal,
cancellation, or revision of a ceded reinsurance agreement is
material if, on an annual basis, as reported in an insurer's or
health maintenance organization's most recent statutory statement
filed with the department, the nonrenewal, cancellation, or
revision affects:
(1) for property and casualty business, including
accident and health business when written as property and casualty
business, more than 50 percent of the insurer's or health
maintenance organization's ceded written premium; or
(2) for life, annuity, and accident and health
business, more than 50 percent of the total reserve credit taken for
business ceded by the insurer or health maintenance organization.
(V.T.I.C. Art. 21.49-8, Sec. 4(a) (part).)
Sec. 402.102. CONDITIONS UNDER WHICH REPORT CONCERNING
NONRENEWAL, CANCELLATION, OR REVISION REQUIRED. Except as
provided by Section 402.103, an insurer or health maintenance
organization shall file a report of a material nonrenewal,
cancellation, or revision of ceded reinsurance under Section
402.002, without regard to which party initiated the nonrenewal,
cancellation, or revision, if:
(1) the entire cession has been canceled, nonrenewed,
or revised, and ceded indemnity and loss adjustment expense
reserves after the nonrenewal, cancellation, or revision represent
less than 50 percent of the comparable reserves that would have been
ceded had the nonrenewal, cancellation, or revision not occurred;
(2) an authorized or accredited reinsurer has been
replaced by an unauthorized reinsurer on an existing cession, and
the result of the revision affects more than 10 percent of the
cession; or
(3) a collateral requirement previously established
for an unauthorized reinsurer has been reduced, in that the
requirement to collateralize incurred but unreported claim
reserves has been waived for at least one unauthorized reinsurer
newly participating in an existing cession, and the result of the
revision affects more than 10 percent of the cession. (V.T.I.C.
Art. 21.49-8, Secs. 4(c), (d).)
Sec. 402.103. CONDITIONS UNDER WHICH REPORT CONCERNING
NONRENEWAL, CANCELLATION, OR REVISION NOT REQUIRED. An insurer or
health maintenance organization is not required to file a report
under Section 402.002 if the insurer's or health maintenance
organization's ceded written premium of the total reserve credit
taken for business ceded is, on an annual basis, less than an amount
equal to:
(1) 10 percent of direct and assumed written premiums;
or
(2) 10 percent of the statutory reserve requirement
before a cession. (V.T.I.C. Art. 21.49-8, Sec. 4(b).)
Sec. 402.104. CONTENT OF REPORT CONCERNING MATERIAL
NONRENEWALS, CANCELLATIONS, AND REVISIONS. In a report of a
material nonrenewal, cancellation, or revision of a ceded
reinsurance agreement under Section 402.002, an insurer or health
maintenance organization shall disclose:
(1) the effective date of the nonrenewal,
cancellation, or revision;
(2) a description of the transaction that identifies
the initiator of the transaction;
(3) the purpose of the transaction; and
(4) if applicable, the identity of each replacement reinsurer. (V.T.I.C. Art. 21.49-8, Sec. 4(e).)
CHAPTER 403. DIVIDENDS
SUBCHAPTER A. PAYMENT OF DIVIDENDS
Sec. 403.001. LIMITATION ON DIVIDENDS
Sec. 403.002. DIVIDENDS TO POLICYHOLDERS IN COMMERCIAL
LINES
[Sections 403.003-403.050 reserved for expansion]
SUBCHAPTER B. ESTIMATE OF PROFITS
Sec. 403.051. ESTIMATE OF PROFITS
Sec. 403.052. ESTIMATE OF PROFITS OF CERTAIN INSURERS
Sec. 403.053. ACQUIRED EARNED SURPLUS
[Sections 403.054-403.100 reserved for expansion]
SUBCHAPTER C. PENALTIES
Sec. 403.101. PENALTIES
Sec. 403.102. PENALTIES FOR CERTAIN INSURERS
CHAPTER 403. DIVIDENDS
SUBCHAPTER A. PAYMENT OF DIVIDENDS
Sec. 403.001. LIMITATION ON DIVIDENDS. An insurer
organized under the laws of this state, including a life, health,
fire, marine, or inland marine insurance company, may not pay a
dividend except from surplus profits arising from the insurer's
business. (V.T.I.C. Arts. 21.31 (part), 21.32 (part).)
Sec. 403.002. DIVIDENDS TO POLICYHOLDERS IN COMMERCIAL
LINES. (a) An insurer may pay to a commercial policyholder or
group of commercial policyholders a dividend that covers more than
one class or line of commercial business only:
(1) after the insurer establishes on an aggregate
basis adequate loss reserves for the classes or lines of commercial
insurance included within the dividend; and
(2) if the insurer has sufficient surplus from which
to pay the dividend.
(b) Not later than the 15th day before an insurer pays a
dividend described by Subsection (a), the insurer shall file with
the department notice of the insurer's intent to pay the dividend.
(c) The classes or lines of commercial business for which
dividends are authorized under this section include any commercial
class or line of commercial business regulated by Title 10 or
Chapter 5.
(d) An insurer's limitation of a dividend on one or more
classes or lines of commercial business to a group of commercial
policyholders is not unfair discrimination if the group:
(1) has clearly identifiable underwriting
characteristics; or
(2) is an association or group of business entities
engaged in similar undertakings. (V.T.I.C. Art. 5.41-2.)
[Sections 403.003-403.050 reserved for expansion]
SUBCHAPTER B. ESTIMATE OF PROFITS
Sec. 403.051. ESTIMATE OF PROFITS. An insurer organized
under the laws of this state may not include the following in the
estimate of the insurer's profits for the purpose of paying
dividends under Section 403.001:
(1) the reserve on all unexpired risks computed in the
manner provided by this code;
(2) the amount of all unpaid losses, whether adjusted
or unadjusted; and
(3) all other debts due and payable, or to become due
and payable, by the insurer. (V.T.I.C. Art. 21.31 (part).)
Sec. 403.052. ESTIMATE OF PROFITS OF CERTAIN INSURERS. A
life, health, fire, marine, or inland marine insurance company
organized under the laws of this state may not include the following
in the estimate of the company's profits for the purpose of paying
dividends under Section 403.001:
(1) the reserve on all unexpired risks computed in the
manner provided by this code;
(2) the amount of all unpaid losses, whether adjusted
or unadjusted;
(3) each amount due the company on bonds, mortgages,
stocks, or book-accounts on which no part of the principal or
interest has been paid during the year preceding the estimate of
profits and for which:
(A) a suit for foreclosure or collection has not
been commenced; or
(B) a judgment obtained in a suit for foreclosure
or collection has remained unsatisfied for a period of more than two
years and no interest has been paid on the judgment; and
(4) if no interest has been paid on a judgment
described by Subdivision (3)(B), any interest that is due or
accrued on the judgment and remains unpaid. (V.T.I.C. Art. 21.32
(part).)
Sec. 403.053. ACQUIRED EARNED SURPLUS. (a) This section
applies only to:
(1) a stock domestic insurance company authorized to
engage in the business of life, accident, or health insurance in
this state;
(2) a stock foreign or alien life, health, or accident
insurance company;
(3) a stock insurance company authorized to engage in
the business of property, casualty, or fire insurance; and
(4) a domestic Lloyd's plan, reciprocal or
interinsurance exchange, or title insurance company.
(b) In determining the amount of "surplus profits arising
from the insurer's business" or "earned surplus" for the purpose of
paying dividends to shareholders, the insurer may include the
acquired earned surplus of an insurance subsidiary acquired by the
insurer to the extent that:
(1) the inclusion is permitted by an order of the
commissioner made in accordance with commissioner rules; and
(2) the earned surplus of the acquired subsidiary on
the date of acquisition that exists on the date of the
commissioner's order is not otherwise reflected in the insurer's
earned surplus. (V.T.I.C. Art. 21.32A.)
[Sections 403.054-403.100 reserved for expansion]
SUBCHAPTER C. PENALTIES
Sec. 403.101. PENALTIES. (a) The department may revoke
the charter of an insurer organized under the laws of this state
that pays a dividend in violation of Sections 403.001 and 403.051.
If the department revokes an insurer's charter under this
subsection, the department shall immediately revoke the insurer's
certificate of authority.
(b) Not later than the 10th day before the date on which the
department intends to revoke an insurer's certificate of authority
under this section, the department shall give the insurer written
notice of the department's intent. The notice must include the
specific reasons for the revocation. (V.T.I.C. Art. 21.31 (part).)
Sec. 403.102. PENALTIES FOR CERTAIN INSURERS. The
department may revoke the charter of a life, health, fire, marine,
or inland marine insurance company organized under the laws of this
state that pays a dividend in violation of Sections 403.001 and
403.052. If the department revokes a company's charter under this
section, the department shall immediately revoke the company's certificate of authority. (V.T.I.C. Art. 21.32 (part).)
CHAPTER 404. FINANCIAL CONDITION
SUBCHAPTER A. HAZARDOUS FINANCIAL CONDITION
Sec. 404.001. DEFINITION
Sec. 404.002. APPLICABILITY OF SUBCHAPTER
Sec. 404.003. ORDER TO REMEDY CONDITION
Sec. 404.004. CONSTRUCTION WITH LAW RELATING TO
CAPITAL AND SURPLUS
Sec. 404.005. STANDARDS AND CRITERIA FOR EARLY WARNING
Sec. 404.006. AGREEMENT WITH ANOTHER JURISDICTION
[Sections 404.007-404.050 reserved for expansion]
SUBCHAPTER B. IMPAIRMENT OF STOCK OR SURPLUS
Sec. 404.051. IMPAIRMENT PROHIBITED
Sec. 404.052. DETERMINATION OF IMPAIRMENT
Sec. 404.053. REMEDY FOR IMPAIRMENT
CHAPTER 404. FINANCIAL CONDITION
SUBCHAPTER A. HAZARDOUS FINANCIAL CONDITION
Sec. 404.001. DEFINITION. In this subchapter, "insurer"
includes:
(1) a capital stock insurance company;
(2) a reciprocal or interinsurance exchange;
(3) a Lloyd's plan;
(4) a fraternal benefit society;
(5) a mutual company, including a mutual assessment
company;
(6) a statewide mutual assessment company;
(7) a local mutual aid association;
(8) a burial association;
(9) a county mutual insurance company;
(10) a farm mutual insurance company;
(11) a fidelity, guaranty, or surety company;
(12) a title insurance company;
(13) a stipulated premium company;
(14) a group hospital service corporation;
(15) a health maintenance organization;
(16) a risk retention group; and
(17) any other organization or person engaged in the
business of insurance. (V.T.I.C. Art. 1.32, Sec. 1(a) (part).)
Sec. 404.002. APPLICABILITY OF SUBCHAPTER. This subchapter
applies to a person or organization engaged in the business of
insurance without regard to whether the person or organization is
listed in Section 404.001, unless another statute specifically
cites this subchapter and exempts the person or organization from
this subchapter. (V.T.I.C. Art. 1.32, Sec. 1(a) (part).)
Sec. 404.003. ORDER TO REMEDY CONDITION. (a) If the
financial condition of an insurer, when reviewed as provided by
Subsection (b), indicates a condition that might make the insurer's
continued operation hazardous to the insurer's policyholders or
creditors or to the public, the commissioner may, after notice and
hearing, order the insurer to take action reasonably necessary to
remedy the condition.
(b) The insurer's financial condition must be reviewed
under Subsection (a) in conjunction with one or more of the
following:
(1) the kinds and nature of risks insured;
(2) the loss experience and ownership of the insurer;
(3) the ratio of total annual premium and net
investment income to commission expenses, general insurance
expenses, policy benefits paid, and required policy reserve
increases;
(4) the insurer's method of operation, affiliations,
or investments;
(5) any contracts that lead or may lead to contingent
liability; or
(6) agreements in respect to guaranty and surety.
(c) In an order issued under Subsection (a), the
commissioner may take any action the commissioner considers
reasonably necessary to remedy the condition described by
Subsection (a), including:
(1) requiring an insurer to:
(A) reduce the total amount of present and
potential liability for policy benefits by reinsurance;
(B) reduce the volume of new business accepted;
(C) suspend or limit writing new business for a
period;
(D) reduce general insurance and commission
expenses by specified methods; or
(E) increase the insurer's capital and surplus by
contribution; or
(2) suspending or canceling the insurer's certificate
of authority.
(d) The commissioner may use the remedies available under
Subsection (c) in conjunction with the provisions of Chapter 83 if
the commissioner determines that the financial condition of the
insurer is hazardous and can be reasonably expected to cause
significant and imminent harm to the insurer's policyholders or the
public. (V.T.I.C. Art. 1.32, Sec. 2.)
Sec. 404.004. CONSTRUCTION WITH LAW RELATING TO CAPITAL AND
SURPLUS. The commissioner's authority under Section 404.003 to
require an increase in an insurer's capital and surplus by
contribution, and any capital and surplus requirements imposed by
the commissioner under that section, prevail over:
(1) the capital and surplus requirements of:
(A) Sections 822.054, 822.201-822.203, 822.205,
822.210-822.212, 841.054, 841.201, 841.204, 841.205, 841.207,
884.206, 884.308, and 884.309; and
(B) Subchapter G, Chapter 841;
(2) any other provision of this code or other law
establishing capital and surplus requirements for insurers; and
(3) any rule adopted under a law described by
Subdivision (1) or (2). (V.T.I.C. Art. 1.32, Sec. 2A.)
Sec. 404.005. STANDARDS AND CRITERIA FOR EARLY
WARNING. (a) The commissioner by rule may:
(1) establish uniform standards and criteria for early
warning that the continued operation of an insurer might be
hazardous to the insurer's policyholders or creditors or to the
public; and
(2) establish standards for evaluating the financial
condition of an insurer.
(b) Standards established by the commissioner under this
section must be consistent with the purposes of Section 404.003.
(V.T.I.C. Art. 1.32, Sec. 3.)
Sec. 404.006. AGREEMENT WITH ANOTHER JURISDICTION. The
commissioner may enter into an agreement with the insurance
regulatory authority of another jurisdiction concerning the
management, volume of business, expenses of operation, plans for
reinsurance, rehabilitation, or reorganization, and method of
operations of, and type of risks to be insured by, an insurer that
is:
(1) licensed in the other jurisdiction; and
(2) considered to be in a hazardous financial
condition or in need of a specific remedy that may be imposed by the
commissioner and the insurance regulatory authority of the other
jurisdiction. (V.T.I.C. Art. 1.32, Sec. 4.)
[Sections 404.007-404.050 reserved for expansion]
SUBCHAPTER B. IMPAIRMENT OF STOCK OR SURPLUS
Sec. 404.051. IMPAIRMENT PROHIBITED. (a) The impairment
of the capital stock of a stock insurance company is prohibited.
(b) Impairment of the following surpluses in excess of that
provided by Section 404.053 is prohibited:
(1) the surplus of a stock insurance company; or
(2) the minimum required aggregate surplus of a:
(A) mutual company;
(B) Lloyd's plan; or
(C) reciprocal or interinsurance exchange.
(V.T.I.C. Art. 1.10, Sec. 5 (part).)
Sec. 404.052. DETERMINATION OF IMPAIRMENT. (a) When
determining under this subchapter whether the surplus or the
minimum required aggregate surplus of an insurer is impaired, the
commissioner shall charge against the insurer:
(1) the reinsurance reserve required by the laws of
this state; and
(2) all other debts and claims against the insurer.
(b) This section does not apply to a life insurance company.
(V.T.I.C. Art. 1.10, Sec. 5 (part).)
Sec. 404.053. REMEDY FOR IMPAIRMENT. (a) The
commissioner shall order an insurer to remedy an impairment of the
insurer's surplus, aggregate surplus, or aggregate of guaranty fund
and surplus, as applicable, by bringing the surplus to an
acceptable level specified by the commissioner, or to cease
engaging in business in this state, if the commissioner determines
that:
(1) the surplus required by Section 822.054, 822.202,
822.203, 822.205, 822.210, 822.211, or 822.212 of a stock insurance
company engaged in the kind of insurance business described by the
company's certificate of authority:
(A) is impaired by more than 50 percent; or
(B) is less than the minimum level of surplus
required by risk-based capital and surplus rules adopted by the
commissioner; or
(2) the required aggregate of guaranty fund and
surplus of a Lloyd's plan, or the required aggregate surplus of a
reciprocal or interinsurance exchange or of a mutual company, other
than a life insurance company, engaged in the kind of insurance
business described by the insurer's certificate of authority:
(A) is impaired by more than 25 percent; or
(B) is less than the minimum level of surplus
required by risk-based capital and surplus rules adopted by the
commissioner.
(b) After issuing an order described by Subsection (a), the
commissioner shall immediately institute any proceeding necessary
to determine what further actions the commissioner will take in
relation to the matter. (V.T.I.C. Art. 1.10, Sec. 5 (part).)
[Chapters 405-420 reserved for expansion]
SUBTITLE B. RESERVES AND INVESTMENTS
CHAPTER 421. RESERVES IN GENERAL
Sec. 421.001. RESERVES REQUIRED
Sec. 421.002. CERTIFICATES FROM OTHER STATES
CHAPTER 421. RESERVES IN GENERAL
Sec. 421.001. RESERVES REQUIRED. (a) An insurer shall
maintain reserves in an amount estimated in the aggregate to
provide for the payment of all losses or claims for which the
insurer may be liable and that are:
(1) incurred on or before the date of statement,
whether reported or unreported; and
(2) unpaid as of the date of statement.
(b) In addition to the reserves required by Subsection (a),
an insurer shall maintain reserves in an amount estimated to
provide for the expenses of adjustment or settlement of the losses
or claims described by that subsection.
(c) The commissioner shall adopt each current formula
recommended by the National Association of Insurance Commissioners
for establishing reserves for each line of insurance. Each insurer
writing a line of insurance to which a formula adopted under this
subsection applies shall establish reserves in compliance with that
formula. (V.T.I.C. Art. 21.39.)
Sec. 421.002. CERTIFICATES FROM OTHER STATES. In
computing the reserve liability of an insurer, the commissioner may
accept the certificate of the officer of another state charged with
the duty of supervising the insurer if:
(1) the insurer is organized under the laws of the
other state; and
(2) the certificate shows that the reserve liability
has been computed in accordance with Section 421.001. (V.T.I.C. Art. 21.40.)
CHAPTER 422. ASSET PROTECTION ACT
SUBCHAPTER A. GENERAL PROVISIONS
Sec. 422.001. SHORT TITLE
Sec. 422.002. PURPOSES
Sec. 422.003. DEFINITIONS
Sec. 422.004. APPLICABILITY OF CHAPTER
Sec. 422.005. EXEMPTIONS
Sec. 422.006. CONFLICT WITH OTHER LAW
[Sections 422.007-422.050 reserved for expansion]
SUBCHAPTER B. ENCUMBRANCE OF ASSETS
Sec. 422.051. RESTRICTIONS ON ENCUMBRANCE OF ASSETS
Sec. 422.052. REPORT TO COMMISSIONER
Sec. 422.053. CLAIMANT LIEN ON CERTAIN ASSETS
Sec. 422.054. PREFERENTIAL CLAIMS ON LIQUIDATION
CHAPTER 422. ASSET PROTECTION ACT
SUBCHAPTER A. GENERAL PROVISIONS
Sec. 422.001. SHORT TITLE. This chapter may be cited as
the Asset Protection Act. (V.T.I.C. Art. 21.39-A, Sec. 1.)
Sec. 422.002. PURPOSES. (a) The purposes of this chapter
are to:
(1) require an insurer to maintain unencumbered assets
in an amount equal to the insurer's reserve liabilities;
(2) provide preferential claims against assets in
favor of an owner, beneficiary, assignee, certificate holder, or
third-party beneficiary of an insurance policy; and
(3) prevent the pledge or encumbrance of assets in
excess of certain amounts without a prior written order of the
commissioner.
(b) This chapter and the powers granted and functions
authorized by this chapter shall be exercised to accomplish the
purposes of this chapter. (V.T.I.C. Art. 21.39-A, Secs. 2, 6
(part).)
Sec. 422.003. DEFINITIONS. In this chapter:
(1) "Asset" means any property in which an insurer
owns a legal or equitable interest.
(2) "Claimant" means an owner, beneficiary, assignee,
certificate holder, or third-party beneficiary of an insurance
benefit or right arising from the coverage of an insurance policy to
which this chapter applies.
(3) "Reserve assets" means the assets of an insurer
that are authorized investments for policy reserves under this
code.
(4) "Reserve liabilities" means the liabilities that
an insurer is required under this code to establish for all of the
insurer's outstanding insurance policies. (V.T.I.C. Art. 21.39-A,
Sec. 4.)
Sec. 422.004. APPLICABILITY OF CHAPTER. This chapter
applies to:
(1) the following domestic insurers:
(A) a stock life, health, or accident insurance
company;
(B) a mutual life, health, or accident insurance
company;
(C) a stock fire or casualty insurance company;
(D) a mutual fire or casualty insurance company;
(E) a title insurance company;
(F) a mutual assessment company;
(G) a local mutual aid association;
(H) a local mutual burial association;
(I) a statewide mutual assessment company;
(J) a stipulated premium company;
(K) a fraternal benefit society;
(L) a group hospital service corporation;
(M) a county mutual insurance company;
(N) a Lloyd's plan;
(O) a reciprocal or interinsurance exchange;
(P) a farm mutual insurance company; and
(Q) a mortgage guaranty insurer; and
(2) all kinds of insurance written by an insurer to
which this chapter applies. (V.T.I.C. Art. 21.39-A, Sec. 3
(part).)
Sec. 422.005. EXEMPTIONS. (a) This chapter does not
apply to:
(1) variable contracts for which separate accounts are
required to be maintained;
(2) a reinsurance agreement or any trust account
related to the reinsurance agreement if the agreement and trust
account meet the requirements of Chapter 492 or 493;
(3) an assessment-as-needed company or insurance
coverage written by an assessment-as-needed company;
(4) an insurer while:
(A) the insurer is subject to a conservatorship
order issued by the commissioner; or
(B) a court-appointed receiver is in charge of
the insurer's affairs; or
(5) an insurer's reserve assets that are held,
deposited, pledged, or otherwise encumbered to secure, offset,
protect, or meet the insurer's reserve liabilities established in a
reinsurance agreement under which the insurer reinsures the
insurance policy liabilities of a ceding insurer if:
(A) the ceding insurer and the reinsurer are
authorized to engage in business in this state; and
(B) in accordance with a written agreement
between the ceding insurer and the reinsurer, reserve assets
substantially equal to the reserve liabilities the reinsurer must
establish on the reinsured business are:
(i) deposited by or withheld from the
reinsurer and held in the custody of the ceding insurer, or
deposited and held in a trust account with a state or national bank
domiciled in this state, as security for the payment of the
reinsurer's obligations under the reinsurance agreement;
(ii) held subject to withdrawal by the
ceding insurer; and
(iii) held under the separate or joint
control of the ceding insurer.
(b) Notwithstanding this section, the commissioner may
examine any asset, reinsurance agreement, or deposit arrangement
described by Subsection (a)(5) at any time, in accordance with the
commissioner's authority under this code to examine an insurer.
(V.T.I.C. Art. 21.39-A, Secs. 3 (part), 3A.)
Sec. 422.006. CONFLICT WITH OTHER LAW. If this chapter
conflicts with another law relating to the subject matter or
application of this chapter, this chapter controls. (V.T.I.C.
Art. 21.39-A, Sec. 6 (part).)
[Sections 422.007-422.050 reserved for expansion]
SUBCHAPTER B. ENCUMBRANCE OF ASSETS
Sec. 422.051. RESTRICTIONS ON ENCUMBRANCE OF
ASSETS. (a) An insurer shall at all times maintain unencumbered
assets in an amount equal to the insurer's reserve liabilities.
(b) An insurer may not pledge or otherwise encumber:
(1) the insurer's assets in an amount that exceeds the
amount of the insurer's capital and surplus; or
(2) more than 10 percent of the insurer's reserve
assets.
(c) Notwithstanding any other provision of this section, on
application made to the commissioner, the commissioner may issue a
written order approving the pledge or encumbrance of an insurer's
asset in any amount if the commissioner determines that the pledge
or encumbrance will not adversely affect the insurer's solvency.
(V.T.I.C. Art. 21.39-A, Sec. 5 (part).)
Sec. 422.052. REPORT TO COMMISSIONER. (a) Not later than
the 10th day after the date an insurer pledges or otherwise
encumbers an asset, the insurer shall report in writing to the
commissioner:
(1) the amount and identity of the pledged or
encumbered asset; and
(2) the terms of the transaction.
(b) Annually, or more often as required by the commissioner,
the insurer shall file with the commissioner a statement sworn to by
the insurer's chief executive officer that:
(1) title to assets that equal the amount of the
insurer's reserve liabilities and that are not pledged or otherwise
encumbered is vested in the insurer;
(2) the only assets of the insurer that are pledged or
otherwise encumbered are those identified and reported in the sworn
statement, and no other assets of the insurer are pledged or
otherwise encumbered; and
(3) the terms of the transaction pledging or otherwise
encumbering the assets are those reported in the sworn statement.
(V.T.I.C. Art. 21.39-A, Sec. 5 (part).)
Sec. 422.053. CLAIMANT LIEN ON CERTAIN ASSETS. (a) A
person, corporation, association, or other legal entity that
accepts as security for an insurer's debt or other obligation a
pledge or encumbrance of an asset of the insurer that is not made in
accordance with this chapter is considered to have accepted the
asset subject to a superior, preferential, and automatically
perfected lien in favor of a claimant of the insurer.
(b) Subsection (a) does not apply to an asset of an insurer
in conservatorship or receivership if the commissioner in the
conservatorship proceeding, or the court in which the receivership
is pending, approves the pledge or encumbrance of the asset.
(V.T.I.C. Art. 21.39-A, Sec. 5 (part).)
Sec. 422.054. PREFERENTIAL CLAIMS ON LIQUIDATION. If an
insurer is involuntarily or voluntarily liquidated, a claimant of
the insurer has a prior and preferential claim against all assets of
the insurer other than the assets that have been pledged or
encumbered in accordance with this chapter. All claimants have
equal status, and their prior and preferential claim is superior to
any claim or cause of action against the insurer by any other
person, corporation, association, or legal entity. (V.T.I.C. Art. 21.39-A, Sec. 5 (part).)
CHAPTER 423. TRANSACTIONS WITH MONEY AND OTHER ASSETS
SUBCHAPTER A. GENERAL PROVISIONS
Sec. 423.001. APPLICABILITY OF CHAPTER
Sec. 423.002. AMBIGUITIES AND CONFLICTS WITH OTHER LAW
Sec. 423.003. RULES
[Sections 423.004-423.050 reserved for expansion]
SUBCHAPTER B. TRANSACTIONS WITH MONEY
Sec. 423.051. DEPOSIT AND INVESTMENT OF MONEY
Sec. 423.052. MONEY HELD IN POOLING ACCOUNT
Sec. 423.053. AUTHORITY TO DEPOSIT MONEY IN ACCOUNT OF
REINSURER
[Sections 423.054-423.100 reserved for expansion]
SUBCHAPTER C. TRANSACTIONS WITH OTHER ASSETS
Sec. 423.101. DEFINITION
Sec. 423.102. DEPOSIT AND HOLDING OF SECURITIES
Sec. 423.103. SECURITIES HELD UNDER CUSTODIAL OR TRUST
AGREEMENT
Sec. 423.104. PROOF OF OWNERSHIP OF SECURITIES
Sec. 423.105. MANDATORY DEPOSIT OF SECURITIES;
COMMISSIONER CONTROL
Sec. 423.106. REQUIRED EVIDENCE FOR SECURITIES
Sec. 423.107. ASSETS DEPOSITED WITH CLEARING
CORPORATION
Sec. 423.108. LIMITATION ON ASSETS DEPOSITED WITH
CLEARING CORPORATION
CHAPTER 423. TRANSACTIONS WITH MONEY AND OTHER ASSETS
SUBCHAPTER A. GENERAL PROVISIONS
Sec. 423.001. APPLICABILITY OF CHAPTER. (a) This chapter
applies to a domestic insurer regulated under this code, including:
(1) a stock company;
(2) a reciprocal or interinsurance exchange;
(3) a Lloyd's plan;
(4) a fraternal benefit society;
(5) a stipulated premium company;
(6) a mutual insurance company of any kind, including:
(A) a statewide mutual assessment company;
(B) a local mutual aid association;
(C) a burial association;
(D) a county mutual insurance company; and
(E) a farm mutual insurance company; and
(7) any other organization or person engaged in the
business of insurance.
(b) A provision of this code limiting the regulation of an
insurer under this code does not limit the application of this
chapter, except that this chapter does not apply to an insurer that
is exempted from its application by another statute that cites this
chapter. (V.T.I.C. Art. 21.39-B, Sec. 4 (part).)
Sec. 423.002. AMBIGUITIES AND CONFLICTS WITH OTHER
LAW. This chapter controls to the extent of an ambiguity or a
conflict between this chapter and another provision of this code.
(V.T.I.C. Art. 21.39-B, Sec. 4 (part).)
Sec. 423.003. RULES. The commissioner may adopt rules
necessary to implement this chapter. (V.T.I.C. Art. 21.39-B, Sec.
3.)
[Sections 423.004-423.050 reserved for expansion]
SUBCHAPTER B. TRANSACTIONS WITH MONEY
Sec. 423.051. DEPOSIT AND INVESTMENT OF MONEY. A director,
member of a committee, officer, or clerk of a domestic insurer who
has the duty to handle or invest the insurer's money may not:
(1) invest the money other than in the corporate name
of the insurer, except as provided by Section 423.102;
(2) deposit the money unless the deposit is:
(A) in the corporate name of the insurer;
(B) in a pooling account with one or more
affiliates, as described by Section 823.003; or
(C) in accordance with a reinsurance agreement;
(3) borrow the insurer's money;
(4) have any interest in a loan, pledge, security, or
property of the insurer, except as a stockholder; or
(5) take or receive for the individual's use a fee,
brokerage, commission, gift, or other consideration for, or on
account of, a loan made by or on behalf of the insurer. (V.T.I.C.
Art. 21.39-B, Sec. 1 (part).)
Sec. 423.052. MONEY HELD IN POOLING ACCOUNT. (a) Only a
domestic insurer and an affiliate, as described by Section 823.003,
may hold money in a pooling account.
(b) The accounting and operating records and books of the
insurer and affiliate must be adequately detailed to identify
specific insurance policies and policyholders with the money from
premiums received by the insurer that issues the policies.
(V.T.I.C. Art. 21.39-B, Sec. 2 (part).)
Sec. 423.053. AUTHORITY TO DEPOSIT MONEY IN ACCOUNT OF
REINSURER. A reinsurance agreement between a domestic insurer and
an affiliate, as described by Section 823.003, must specifically
authorize the deposit of money from premiums to the account of the
affiliate that assumes the reinsurance. (V.T.I.C. Art. 21.39-B,
Sec. 2 (part).)
[Sections 423.054-423.100 reserved for expansion]
SUBCHAPTER C. TRANSACTIONS WITH OTHER ASSETS
Sec. 423.101. DEFINITION. In this subchapter, "clearing
corporation" means:
(1) a clearing corporation as defined by Section
8.102(a), Business & Commerce Code; or
(2) a clearance system that:
(A) is organized or operating under the laws of
at least one foreign country;
(B) provides for book-entry settlement and
custody of internationally traded securities; and
(C) has been organized and in operation for not
less than 15 consecutive years. (V.T.I.C. Art. 21.39-B, Sec.
5(b).)
Sec. 423.102. DEPOSIT AND HOLDING OF SECURITIES. (a) A
domestic insurer that has securities held in or purchased for the
insurer's general account or separate accounts may deposit the
securities or arrange through an agent, broker, or dealer for
deposit of the securities with a clearing corporation or in the
Federal Reserve book-entry system.
(b) If securities are deposited directly with a clearing
corporation or deposited indirectly through a participating
custodian bank, certificates representing securities of the same
class of the same issuer may be merged and held in bulk, in the name
of a nominee of the clearing corporation, with any other securities
deposited with the clearing corporation by any person, regardless
of the ownership of the securities.
(c) Certificates under Subsection (b) that represent
securities of small denominations may be merged into one or more
certificates of larger denominations.
(d) The records of an agent, broker, dealer, or member bank
through which an insurer holds securities in the Federal Reserve
book-entry system and the records of a custodian bank through which
an insurer holds securities with a clearing corporation must show
that the securities are held for the insurer and show the accounts
for which the securities are held.
(e) A bank must enter into a custodial agreement with an
insurer to be eligible to act as a participating custodian bank for
the insurer under this section. (V.T.I.C. Art. 21.39-B, Sec. 5(a)
(part).)
Sec. 423.103. SECURITIES HELD UNDER CUSTODIAL OR TRUST
AGREEMENT. A domestic insurer's securities that are held under a
custodial agreement or trust agreement with a bank, Federal Home
Loan Bank, or trust company may be issued in the name of a nominee of
the bank, Federal Home Loan Bank, or trust company only if the bank,
Federal Home Loan Bank, or trust company:
(1) has corporate trust powers;
(2) is authorized to act as a custodian or trustee;
(3) is organized under the laws of the United States or
any state of the United States; and
(4) meets one of the following requirements:
(A) is a member of the Federal Reserve System;
(B) is a member of or is eligible to receive
deposits that are insured by the Federal Deposit Insurance
Corporation;
(C) maintains an account with a Federal Reserve
Bank and is subject to supervision and examination by the Board of
Governors of the Federal Reserve System; or
(D) is subject to supervision and examination by
the Federal Housing Finance Board. (V.T.I.C. Art. 21.39-B, Sec. 1
(part).)
Sec. 423.104. PROOF OF OWNERSHIP OF SECURITIES. (a) A
domestic insurer may demonstrate ownership of a security through a
definitive certificate or in accordance with rules adopted under
this section.
(b) The commissioner shall adopt rules under which a
domestic insurer may demonstrate ownership of an uncertificated
security, as defined by Section 8.102(a), Business & Commerce Code,
consistent with common practices of securities exchanges and
markets. The rules must establish:
(1) standards for the types of uncertificated
securities the insurer may hold;
(2) the manner in which the insurer may demonstrate
ownership of the security; and
(3) adequate financial safeguards relating to the
ownership of uncertificated securities. (V.T.I.C. Art. 21.39-B,
Secs. 5(a) (part), 6.)
Sec. 423.105. MANDATORY DEPOSIT OF SECURITIES;
COMMISSIONER CONTROL. (a) An insurer that is required to deposit
securities as a condition of engaging in the business of insurance
in this state may deposit the securities with a clearing
corporation or in the Federal Reserve book-entry system.
(b) Securities under Subsection (a) are under the
commissioner's control and may not be withdrawn by the insurer
without the commissioner's approval. (V.T.I.C. Art. 21.39-B, Sec.
5(c) (part).)
Sec. 423.106. REQUIRED EVIDENCE FOR SECURITIES. (a) An
insurer that deposits securities under Section 423.105 shall
provide evidence to the commissioner to establish that:
(1) the securities are recorded in an account in the
name of:
(A) the participating custodian bank or member
bank through which the insurer deposits the securities with a
clearing corporation or in the Federal Reserve book-entry system;
or
(B) the insurer, if the insurer makes the deposit
directly with the clearing corporation as a direct participant; and
(2) the records of the participating custodian bank,
direct participant, or member bank and of the clearing corporation
show that the securities are under the commissioner's control.
(b) Evidence under Subsection (a)(1) must be issued, as
applicable, by:
(1) the participating custodian bank;
(2) the member bank; or
(3) the insurer, when the insurer makes the deposit
directly with the clearing corporation as a direct participant.
(V.T.I.C. Art. 21.39-B, Sec. 5(c) (part).)
Sec. 423.107. ASSETS DEPOSITED WITH CLEARING CORPORATION.
A domestic insurer may deposit assets with a clearing corporation
only if:
(1) the insurer is a member of an insurance holding
company system that has assets of at least $5 billion, as shown by
annual statements of member insurers for the preceding year;
(2) the insurer uses the clearing corporation only as
a depository for investments in internationally traded securities;
(3) the insurer's total investment in internationally
traded securities under Subdivision (2) does not exceed the
insurer's policyholders' surplus; and
(4) the insurer does not use securities deposited with
the clearing corporation as security for reinsurance. (V.T.I.C.
Art. 21.39-B, Sec. 5(e).)
Sec. 423.108. LIMITATION ON ASSETS DEPOSITED WITH CLEARING
CORPORATION. The commissioner by rule may adopt a reasonable limit
on the percentage of a domestic insurer's assets that may be
deposited with a clearing corporation. The limit may not exceed
five percent of the insurer's total assets, as shown by the
insurer's annual statement filed with the department for the year
preceding the year for which the limit is adopted. (V.T.I.C. Art. 21.39-B, Sec. 5(d).)
CHAPTER 424. INVESTMENTS FOR CERTAIN INSURERS
SUBCHAPTER A. GENERAL PROVISIONS
Sec. 424.001. DEFINITIONS
Sec. 424.002. INAPPLICABILITY OF CERTAIN LAW
[Sections 424.003-424.050 reserved for expansion]
SUBCHAPTER B. INVESTMENT OF FUNDS IN EXCESS
OF MINIMUM CAPITAL AND SURPLUS
Sec. 424.051. GENERAL INVESTMENT AUTHORITY SPECIFIED
BY LAW
Sec. 424.052. ADDITIONAL GENERAL INVESTMENT AUTHORITY
Sec. 424.053. LIMITATION AS TO SINGLE ISSUER OR
BORROWER
Sec. 424.054. APPLICABILITY OF PERCENTAGE
AUTHORIZATIONS AND LIMITATIONS
Sec. 424.055. WAIVER BY COMMISSIONER OF QUANTITATIVE
LIMITATIONS
Sec. 424.056. WRITTEN INVESTMENT PLAN
Sec. 424.057. INVESTMENT RECORDS
Sec. 424.058. AUTHORIZED INVESTMENTS: FORM OF MINIMUM
CAPITAL AND SURPLUS
Sec. 424.059. AUTHORIZED INVESTMENTS: GOVERNMENT
OBLIGATIONS
Sec. 424.060. AUTHORIZED INVESTMENTS: STOCK OF
NATIONAL OR STATE BANK
Sec. 424.061. AUTHORIZED INVESTMENTS: DEPOSITS IN
CERTAIN FINANCIAL INSTITUTIONS
Sec. 424.062. AUTHORIZED INVESTMENTS: CERTAIN
OBLIGATIONS OF PARTNERSHIP OR
CORPORATION
Sec. 424.063. AUTHORIZED INVESTMENTS: MUTUAL FUNDS
Sec. 424.064. AUTHORIZED INVESTMENTS: REAL PROPERTY
Sec. 424.065. ACTING AS REAL ESTATE BROKER OR
SALESPERSON PROHIBITED
Sec. 424.066. AUTHORIZED INVESTMENTS: OBLIGATIONS
SECURED BY REAL PROPERTY LOANS
Sec. 424.067. AUTHORIZED INVESTMENTS: TRANSPORTATION
EQUIPMENT
Sec. 424.068. AUTHORIZED INVESTMENTS: INVESTMENT IN
FOREIGN JURISDICTION
Sec. 424.069. AUTHORIZED INVESTMENTS: CERTAIN LOANS
Sec. 424.070. AUTHORIZED INVESTMENTS: OBLIGATIONS OF
LOCAL GOVERNMENTAL ENTITIES
Sec. 424.071. AUTHORIZED INVESTMENTS: THE UNIVERSITY
OF TEXAS
Sec. 424.072. AUTHORIZED INVESTMENTS: BONDS ISSUED,
ASSUMED, OR GUARANTEED IN
INTERNATIONAL MARKET
Sec. 424.073. AUTHORIZED INVESTMENTS: INSURER ENGAGED
IN BUSINESS IN FOREIGN COUNTRY
Sec. 424.074. OTHER SPECIFICALLY AUTHORIZED
INVESTMENTS
[Sections 424.075-424.100 reserved for expansion]
SUBCHAPTER C. INVESTMENT POOLS
Sec. 424.101. DEFINITIONS
Sec. 424.102. AUTHORITY TO INVEST IN POOL
Sec. 424.103. INVESTMENT POOL REQUIREMENTS AND
QUALIFICATIONS
Sec. 424.104. AUTHORIZED INVESTMENTS FOR SHORT-TERM
INVESTMENT POOL
Sec. 424.105. SHORT-TERM INVESTMENT POOL: CERTAIN
SHORT-TERM OBLIGATIONS
Sec. 424.106. SHORT-TERM INVESTMENT POOL: CERTAIN
MONEY MARKET FUNDS
Sec. 424.107. AUTHORIZED INVESTMENTS FOR AUTHORIZED
INVESTMENT POOL; LIMITATION
Sec. 424.108. GENERAL INSURER INVESTMENT LIMITATIONS
Sec. 424.109. DESIGNATION OF POOL MANAGER;
QUALIFICATIONS
Sec. 424.110. POOL MANAGER TO MAINTAIN ASSETS; CUSTODY
AGREEMENT
Sec. 424.111. POOLING AGREEMENT PROVISIONS
Sec. 424.112. WITHDRAWALS AND DISTRIBUTIONS
Sec. 424.113. INVESTMENT POOL RECORDS
Sec. 424.114. INSPECTION OF RECORDS
Sec. 424.115. REPORTS OF TRANSACTIONS BETWEEN POOL AND
PARTICIPANT
[Sections 424.116-424.150 reserved for expansion]
SUBCHAPTER D. DOLLAR ROLL, REPURCHASE, REVERSE REPURCHASE,
AND SECURITIES LENDING TRANSACTIONS
Sec. 424.151. DEFINITIONS
Sec. 424.152. TRANSACTIONS AUTHORIZED
Sec. 424.153. PERIOD OF TRANSACTION
Sec. 424.154. CASH REQUIREMENTS
Sec. 424.155. COLLATERAL REQUIREMENTS
Sec. 424.156. PERCENTAGE LIMITATIONS
Sec. 424.157. RULES
[Sections 424.158-424.200 reserved for expansion]
SUBCHAPTER E. RISK CONTROL TRANSACTIONS
Sec. 424.201. DEFINITIONS
Sec. 424.202. RISK CONTROL TRANSACTIONS AUTHORIZED
Sec. 424.203. NOTICE OF INTENT TO ENGAGE IN RISK
CONTROL TRANSACTIONS REQUIRED
Sec. 424.204. TRADING REQUIREMENTS FOR DERIVATIVE
INSTRUMENTS
Sec. 424.205. DERIVATIVE USE PLAN
Sec. 424.206. INTERNAL CONTROL PROCEDURES
Sec. 424.207. ABILITY TO DEMONSTRATE HEDGING
CHARACTERISTICS AND EFFECTIVENESS
Sec. 424.208. OFFSETTING TRANSACTIONS
Sec. 424.209. INCLUSION OF COUNTERPARTY EXPOSURE
AMOUNTS
Sec. 424.210. OVERSIGHT BY COMMISSIONER
Sec. 424.211. AUTHORITY TO ENTER INTO HEDGING
TRANSACTION
Sec. 424.212. AUTHORITY TO ENTER INTO INCOME
GENERATION TRANSACTION
Sec. 424.213. LIMITATION ON SALE OF CALL OPTION ON
ASSETS
Sec. 424.214. LIMITATION ON SALE OF PUT OPTION ON
ASSETS
Sec. 424.215. LIMITATION ON SALE OF CALL OPTION ON
DERIVATIVE INSTRUMENT
Sec. 424.216. LIMITATION ON SALE OF CAP OR FLOOR
Sec. 424.217. AUTHORITY TO ENTER REPLICATION
TRANSACTION
Sec. 424.218. RULES
CHAPTER 424. INVESTMENTS FOR CERTAIN INSURERS
SUBCHAPTER A. GENERAL PROVISIONS
Sec. 424.001. DEFINITIONS. In this chapter:
(1) "Insurer" means any insurer organized under the
laws of this state other than an insurer writing life, health, and
accident insurance.
(2) "Minimum capital and surplus" means the minimum
amount of capital stock and minimum amount of surplus required of an
insurer under Section 822.054 or 822.210.
(3) "Securities valuation office" means the
Securities Valuation Office of the National Association of
Insurance Commissioners. (V.T.I.C. Art. 2.10, Sec. (e) (part);
Art. 2.10-5, Sec. 1(10).)
Sec. 424.002. INAPPLICABILITY OF CERTAIN LAW. The
definition of "state" assigned by Section 311.005, Government Code,
does not apply to this chapter. (New.)
[Sections 424.003-424.050 reserved for expansion]
SUBCHAPTER B. INVESTMENT OF FUNDS IN EXCESS
OF MINIMUM CAPITAL AND SURPLUS
Sec. 424.051. GENERAL INVESTMENT AUTHORITY SPECIFIED BY
LAW. An insurer may not invest the insurer's funds in excess of
minimum capital and surplus, except that an insurer may invest as
otherwise authorized by this code. (V.T.I.C. Art. 2.10, Sec. (e)
(part).)
Sec. 424.052. ADDITIONAL GENERAL INVESTMENT AUTHORITY. An
insurer may make investments that are not otherwise authorized by
this chapter or otherwise authorized by this code for the insurer
if:
(1) the investment is not specifically prohibited by
law and does not exceed the limits prescribed by this code;
(2) the amount of a single investment under this
section does not exceed five percent of the insurer's capital and
surplus in excess of the insurer's minimum capital and surplus; and
(3) the aggregate amount of all investments made by
the insurer under this section does not exceed five percent of the
insurer's assets. (V.T.I.C. Art. 2.10-1, Sec. (2).)
Sec. 424.053. LIMITATION AS TO SINGLE ISSUER OR BORROWER.
(a) Notwithstanding Sections 424.051, 424.056-424.071, and
424.074, the aggregate amount of an insurer's investments in all or
any type of securities, loans, obligations, or evidences of
indebtedness of a single issuer or borrower, other than investments
described by Subsection (c), may not exceed five percent of the
insurer's total assets.
(b) For purposes of this section, a single issuer or
borrower includes:
(1) the issuer's or borrower's majority-owned
subsidiaries;
(2) the issuer's or borrower's parent; or
(3) the majority-owned subsidiaries of the issuer's or
borrower's parent.
(c) This section does not apply to:
(1) an authorized investment that:
(A) is a direct obligation of or guaranteed by
the full faith and credit of the United States, this state, or a
political subdivision of this state; or
(B) is insured by an agency of the United States
or this state; or
(2) an investment described by Section 424.061 or
424.063. (V.T.I.C. Art. 2.10, Sec. (g) (part).)
Sec. 424.054. APPLICABILITY OF PERCENTAGE AUTHORIZATIONS
AND LIMITATIONS. (a) The percentage authorizations and
limitations established by Sections 424.051, 424.053-424.071, and
424.074 apply only at the time an investment is originally acquired
or a transaction is entered into and do not apply to the insurer or
the investment or transaction after that time.
(b) An investment, once qualified under a law described by
Subsection (a), remains qualified notwithstanding any refinancing,
restructuring, or modification of the investment, except that an
insurer may not refinance, restructure, or modify an investment
solely to circumvent the requirements or limitations of a law
described by Subsection (a). (V.T.I.C. Art. 2.10, Sec. (f).)
Sec. 424.055. WAIVER BY COMMISSIONER OF QUANTITATIVE
LIMITATIONS. (a) Notwithstanding Sections 424.051,
424.056-424.071, and 424.074, the commissioner may waive a
quantitative limitation on any investment authorized by those laws
if:
(1) the insurer seeks the waiver before making the
investment;
(2) a hearing is held to determine whether the waiver
should be granted;
(3) the applicant seeking the waiver establishes that
unreasonable or unnecessary loss or harm will result to the insurer
if the commissioner denies the waiver;
(4) the excess investment will not have a material
adverse effect on the insurer; and
(5) the size of the investment is reasonable in
relation to the insurer's assets, capital, surplus, and
liabilities.
(b) The commissioner's waiver must be in writing and may
treat the resulting excess investment as a nonadmitted asset.
(V.T.I.C. Art. 2.10, Sec. (g) (part).)
Sec. 424.056. WRITTEN INVESTMENT PLAN. (a) Each insurer's
board of directors, or, if the insurer does not have a board of
directors, the corresponding authority designated by the insurer's
charter, bylaws, or plan of operation, shall adopt a written
investment plan consistent with the requirements of:
(1) this chapter;
(2) Sections 822.204, 822.209, 861.258, and 862.002;
and
(3) other statutes governing investments by the
insurer.
(b) The investment plan must:
(1) specify the diversification of the insurer's
investments designed to reduce the risk of large losses, by:
(A) broad categories, such as bonds and real
property loans;
(B) kinds, such as government obligations,
obligations of business entities, mortgage-backed securities, and
real property loans on office, retail, industrial, or residential
properties;
(C) quality;
(D) maturity;
(E) type of industry; and
(F) geographical areas, as to both domestic and
foreign investments;
(2) balance safety of principal with yield and growth;
(3) seek a reasonable relationship of assets and
liabilities as to term and nature; and
(4) be appropriate considering the capital and surplus
and the business conducted by the insurer.
(c) At least annually, the board of directors or
corresponding authority shall review the adequacy of the investment
plan and the implementation of the plan.
(d) An insurer shall maintain the insurer's investment plan
in the insurer's principal office and provide the plan to the
commissioner or the commissioner's designee on request. The
commissioner or the commissioner's designee shall maintain the plan
as a privileged and confidential document. The plan is not subject
to public disclosure. (V.T.I.C. Art. 2.10, Secs. (a), (b), (c).)
Sec. 424.057. INVESTMENT RECORDS. An insurer shall
maintain investment records covering each transaction. The insurer
must be able to demonstrate at all times to the department that the
insurer's investments are within the limitations imposed by the
statutes listed in Section 424.056(a). (V.T.I.C. Art. 2.10, Sec.
(d).)
Sec. 424.058. AUTHORIZED INVESTMENTS: FORM OF MINIMUM
CAPITAL AND SURPLUS. An insurer may invest the insurer's funds in
excess of minimum capital and surplus in any manner authorized by
Section 822.204 for investment of the insurer's minimum capital and
surplus. (V.T.I.C. Art. 2.10, Sec. (e) (part).)
Sec. 424.059. AUTHORIZED INVESTMENTS: GOVERNMENT
OBLIGATIONS. An insurer may invest the insurer's funds in excess of
minimum capital and surplus in a bond or other evidence of
indebtedness of any state or of Canada or a province of Canada that:
(1) is issued by the authority of law; and
(2) at the time of purchase:
(A) bears interest; and
(B) is not in default as to principal or
interest. (V.T.I.C. Art. 2.10, Sec. (e) (part).)
Sec. 424.060. AUTHORIZED INVESTMENTS: STOCK OF NATIONAL OR
STATE BANK. (a) An insurer may invest the insurer's funds in
excess of minimum capital and surplus in the stock of:
(1) a national bank; or
(2) a state bank of this state whose deposits are
insured by the Federal Deposit Insurance Corporation.
(b) Notwithstanding Subsection (a)(2):
(1) not more than 35 percent of the total outstanding
stock of a single state bank may be purchased by a single insurer;
and
(2) if an insurer has invested the insurer's funds in
35 percent of a state bank's stock under this section, no other
insurer may invest funds in the bank's remaining stock. (V.T.I.C.
Art. 2.10, Sec. (e) (part).)
Sec. 424.061. AUTHORIZED INVESTMENTS: DEPOSITS IN CERTAIN
FINANCIAL INSTITUTIONS. (a) Subject to this section, an insurer
may invest in any type of savings deposit, time deposit,
certificate of deposit, NOW account, or money market account in a
solvent bank, savings and loan association, or credit union that is
organized under the laws of the United States or a state, or in a
branch of one of those financial institutions.
(b) An investment under this section must be made in
accordance with the laws or regulations applicable to the bank,
savings and loan association, or credit union.
(c) The amount of an insurer's deposits in a single bank,
savings and loan association, or credit union may not exceed the
greater of:
(1) 20 percent of the insurer's capital and surplus;
(2) the amount of federal or state deposit insurance
coverage that applies to the deposits; or
(3) 10 percent of the amount of capital, surplus, and
undivided profits of the financial institution receiving the
deposits. (V.T.I.C. Art. 2.10, Sec. (e) (part).)
Sec. 424.062. AUTHORIZED INVESTMENTS: CERTAIN OBLIGATIONS
OF PARTNERSHIP OR CORPORATION. (a) Except as provided by this
section, an insurer may invest the insurer's funds in excess of
minimum capital and surplus in a stock, bond, debenture, bill of
exchange, evidence of indebtedness, other commercial note or bill,
or security of any partnership or dividend-paying corporation that:
(1) is incorporated under the laws of the United
States, this state, another state, Canada, or a province of Canada;
(2) is solvent at the time of the investment; and
(3) has not defaulted in the payment of any of the
partnership's or corporation's obligations during the five years
preceding the date of the investment.
(b) Except as provided by Subsection (d), an insurer may
invest the insurer's funds in excess of minimum capital and
surplus, and all reserves required by law, in a stock, bond, or
debenture of any solvent corporation that is incorporated under the
laws of the United States, this state, another state, Canada, or a
province of Canada.
(c) Funds invested under Subsection (a) may not be invested
in the stock of an oil, manufacturing, or mercantile corporation
unless the corporation has, at the time of the investment:
(1) a net worth of at least $250,000, if the
corporation is organized under the laws of this state; or
(2) a combined capital, surplus, and undivided profits
of at least $2.5 million, if the corporation is not organized under
the laws of this state.
(d) An insurer may not invest the insurer's funds in:
(1) the insurer's own stock or in any stock on account
of which the holders or owners of the stock may be liable for an
assessment other than taxes; or
(2) any stock, bond, or other security issued by a
corporation with respect to which a majority of the stock having
voting powers is directly or indirectly owned by or for the benefit
of an officer or director of the insurer, unless the insurer has
been in continuous operation for at least five years. (V.T.I.C.
Art. 2.10, Sec. (e) (part).)
Sec. 424.063. AUTHORIZED INVESTMENTS: MUTUAL FUNDS. An
insurer may invest the insurer's funds in excess of minimum capital
and surplus in shares of a mutual fund engaged in business under the
Investment Company Act of 1940 (15 U.S.C. Section 80a-1 et seq.), as
amended, if:
(1) the mutual fund is solvent and has at least $1
million of net assets as of the date of the mutual fund's latest
annual or more recent certified audited financial statement; and
(2) the amount of the insurer's investment in a single
mutual fund does not exceed 15 percent of the insurer's capital and
surplus. (V.T.I.C. Art. 2.10, Sec. (e) (part).)
Sec. 424.064. AUTHORIZED INVESTMENTS: REAL PROPERTY. (a)
Subject to this section, an insurer may invest the insurer's funds
in excess of minimum capital and surplus in real property to the
extent authorized by other provisions of this code.
(b) An insurer with admitted assets of more than $500
million may own investment real property other than real property
authorized by another provision of this code, or participations in
that other investment real property, if the property is materially
enhanced in value by:
(1) the construction of durable, permanent-type
buildings and other improvements that cost an amount at least equal
to the cost of the real property, excluding buildings and
improvements at the time the property is acquired; or
(2) the construction, commenced before the second
anniversary of the date the real property is acquired, of buildings
and improvements described by Subdivision (1).
(c) The amount invested by an insurer in a single investment
real property and improvements, or in any interest in real property
and improvements, may not exceed five percent of the insurer's
admitted assets in excess of $500 million. The total amount
invested by an insurer in investment real property and improvements
may not exceed 15 percent of the insurer's admitted assets in excess
of $500 million.
(d) Except as provided by Section 862.002, an insurer may
not own, develop, or hold an equity interest in any residential
property or subdivision, single or multiunit family dwelling
property, or undeveloped real property to subdivide for or develop
residential, single or multiunit family dwellings.
(e) The investment authority granted by this section is in
addition to and separate from the investment authority granted by
Section 862.002, except that an insurer may not invest in any real
property that, when added to properties acquired by the insurer
under Section 862.002, would exceed the limitations prescribed by
that section.
(f) An insurer's admitted assets are determined from the
insurer's annual statements that are made as of the December 31 that
precedes the date of the determination and are filed with the
department as required by law. The value of any investment made
under this section is subject to the appraisal requirement of
Section 862.002. (V.T.I.C. Art. 2.10, Sec. (e) (part).)
Sec. 424.065. ACTING AS REAL ESTATE BROKER OR SALESPERSON
PROHIBITED. An insurer defined in Section 822.001 or 822.201 or
another insurer specifically made subject to Sections 424.051,
424.053-424.071, and 424.074 may not engage in the business of a
broker or salesperson as defined by Chapter 1101, Occupations Code,
except that the insurer may hold, improve, maintain, manage, rent,
lease, sell, exchange, or convey any of the real property interests
legally owned as investments under this code. (V.T.I.C. Art. 2.10,
Sec. (e) (part).)
Sec. 424.066. AUTHORIZED INVESTMENTS: OBLIGATIONS SECURED
BY REAL PROPERTY LOANS. (a) Subject to this section, an insurer
may invest the insurer's funds in excess of minimum capital and
surplus in a bond, note, or evidence of indebtedness, or a
participation in a bond, note, or evidence of indebtedness, that is
secured by a valid first lien on real property or a leasehold estate
in real property located in the United States or in any state,
commonwealth, territory, or possession of the United States.
(b) The amount of an obligation secured by a first lien on
real property or a leasehold estate in real property may exceed 90
percent of the value of the real property or leasehold estate only
if:
(1) the amount does not exceed 100 percent of the value
of the real property or leasehold estate and the insurer or one or
more wholly owned subsidiaries of the insurer owns, in the
aggregate, a 10 percent or greater equity interest in the real
property or leasehold estate;
(2) the amount does not exceed 95 percent of the value
of the real property and:
(A) the property contains only a dwelling
designed exclusively for occupancy by not more than four families
for residential purposes; and
(B) the portion of the unpaid balance of the
obligation that exceeds 90 percent of the value of the real property
is guaranteed or insured by a mortgage guaranty insurer authorized
to engage in business in this state; or
(3) the amount exceeds 90 percent of the value of the
real property only to the extent the obligation is insured or
guaranteed by:
(A) this state;
(B) the United States;
(C) the Federal Housing Administration under the
National Housing Act (12 U.S.C. Section 1701 et seq.), as amended;
or
(D) any other agency or instrumentality of the
United States.
(c) The term of an obligation secured by a first lien on a
leasehold estate in real property and improvements located on the
property may not exceed a period equal to four-fifths of the
unexpired term of the leasehold estate, and the obligation must
fully amortize during that period. The term of the leasehold estate
may not expire sooner than the 10th anniversary of the expiration
date of the term of the obligation.
(d) An obligation secured by a first lien on a leasehold
estate in real property and improvements located on the property
must be payable in equal monthly, quarterly, semiannual, or annual
payments of principal plus accrued interest to the date of the
principal payment.
(e) An insurer's investment in a single obligation under
this section may not exceed 10 percent of the insurer's capital and
surplus. An insurer's aggregate investments under this section may
not exceed 30 percent of the insurer's assets. (V.T.I.C. Art. 2.10,
Sec. (e) (part).)
Sec. 424.067. AUTHORIZED INVESTMENTS: TRANSPORTATION
EQUIPMENT. An insurer may invest the insurer's funds in excess of
minimum capital and surplus in:
(1) an adequately secured equipment trust obligation,
certificate, or other instrument evidencing an interest in
transportation equipment wholly or partly located in the United
States; and
(2) a right to receive determined portions of rental,
purchase, or other fixed obligatory payments for the use or
purchase of the equipment. (V.T.I.C. Art. 2.10, Sec. (e) (part).)
Sec. 424.068. AUTHORIZED INVESTMENTS: INVESTMENT IN
FOREIGN JURISDICTION. (a) In addition to the investments in Canada
authorized by Sections 424.051, 424.058-424.071, and 424.074 and
subject to this section, an insurer may invest the insurer's funds
in excess of minimum capital and surplus in an investment in a
foreign commonwealth, territory, or possession of the United
States, a foreign country other than Canada, or a foreign security
originating in one of those commonwealths, territories,
possessions, or countries, if:
(1) the investment is similar to investments the
insurer is authorized by Sections 424.051, 424.058-424.071, and
424.074 to make within the United States or Canada; and
(2) if a debt obligation, the investment is rated one
or two by the securities valuation office.
(b) The aggregate amount of an insurer's investments under
Sections 424.051, 424.058-424.071, and 424.074 in a single foreign
jurisdiction may not exceed:
(1) as to a foreign jurisdiction that is given a
sovereign debt rating of one by the securities valuation office, 10
percent of the insurer's admitted assets; or
(2) as to any other foreign jurisdiction, five percent
of the insurer's admitted assets.
(c) The amount of investments made under this section may
not exceed the sum of:
(1) the amounts authorized by Section 424.073; and
(2) 20 percent of the insurer's assets.
(d) The combined total of the amount of investments made
under this section, the amount of similar investments made within
the United States and Canada, and any amounts of investments
authorized by Section 424.073 may not exceed any limitation
prescribed by Sections 424.051, 424.058-424.071, and 424.074.
(V.T.I.C. Art. 2.10, Sec. (e) (part).)
Sec. 424.069. AUTHORIZED INVESTMENTS: CERTAIN LOANS. An
insurer may invest the insurer's funds in excess of minimum capital
and surplus in a loan on the pledge of any mortgage, stock, bond, or
other evidence of indebtedness acceptable as an investment under
Sections 424.051, 424.053-424.071, and 424.074, if the current
value of the mortgage, stock, bond, or other evidence of
indebtedness is at least 25 percent more than the amount of the
loan. (V.T.I.C. Art. 2.10, Sec. (e) (part).)
Sec. 424.070. AUTHORIZED INVESTMENTS: OBLIGATIONS OF LOCAL
GOVERNMENTAL ENTITIES. (a) Subject to this section, an insurer may
invest the insurer's funds in excess of minimum capital and surplus
in a bond or other interest-bearing evidence of indebtedness of a:
(1) county or subdivision of a county;
(2) municipality;
(3) road district;
(4) turnpike district or authority;
(5) water district;
(6) school district;
(7) sanitary or navigation district; or
(8) municipally owned revenue water system, sewer
system, or electric utility company with respect to which the
municipality has appropriated, pledged, or otherwise provided for
special revenues to meet the principal and interest payments of the
bond or other evidence of indebtedness.
(b) A bond or other evidence of indebtedness of a navigation
district is an authorized investment under this section only if:
(1) the navigation district is located wholly or
partly in a county that has a population of at least 100,000; and
(2) the interest due on the bond or other evidence of
indebtedness has never been in default. (V.T.I.C. Art. 2.10, Sec.
(e) (part).)
Sec. 424.071. AUTHORIZED INVESTMENTS: THE UNIVERSITY OF
TEXAS. An insurer may invest the insurer's funds in excess of
minimum capital and surplus in an interest-bearing note or bond of
The University of Texas issued under the laws of this state.
(V.T.I.C. Art. 2.10, Sec. (e) (part).)
Sec. 424.072. AUTHORIZED INVESTMENTS: BONDS ISSUED,
ASSUMED, OR GUARANTEED IN INTERNATIONAL MARKET. An insurer may
invest the insurer's funds in excess of minimum capital and surplus
in bonds issued, assumed, or guaranteed by any of the following
international financial institutions in which the United States is
a member:
(1) the Inter-American Development Bank;
(2) the International Bank for Reconstruction and
Development (the World Bank);
(3) the African Development Bank;
(4) the Asian Development Bank; or
(5) the International Finance Corporation. (V.T.I.C.
Art. 2.10-1, Sec. (1).)
Sec. 424.073. AUTHORIZED INVESTMENTS: INSURER ENGAGED IN
BUSINESS IN FOREIGN COUNTRY. (a) Subject to this section, an
insurer authorized by the law of a foreign country to engage in a
line of insurance in which the insurer is authorized to engage in
this state may invest in foreign securities originating in the
foreign country of the same kind as the domestic securities
originating in the United States in which the insurer is authorized
to invest under Sections 424.051, 424.053-424.071, and 424.074.
(b) The aggregate amount of an insurer's investments made
under this section in a single country may not exceed by more than
10 percent at any time the lesser of:
(1) the amount of funds required by the law of the
foreign country to be maintained in securities originating in that
country; or
(2) the amount of total unearned premium reserves,
reinsurance reserves, loss reserves, and any other liabilities
required by the law of this state to be carried by the insurer that
are directly attributable to the particular insurance policies or
contracts on residents or property located in the foreign country.
(c) This section does not authorize an insurer to invest in
a foreign security originating in a foreign country with respect to
which the president of the United States or other federal authority
has refused to exercise the authority to issue guarantees on
projects in the country to citizens or corporations of the United
States against loss by reason of inconvertibility of currency,
expropriation, confiscation, war, revolution, or insurrection
because the foreign country has failed to enter into arrangements
for the security of American property as required by the president
or other federal authority for the issuance of those guarantees.
(V.T.I.C. Art. 2.10-2.)
Sec. 424.074. OTHER SPECIFICALLY AUTHORIZED INVESTMENTS.
An insurer may invest the insurer's funds in excess of minimum
capital and surplus in:
(1) a savings account as authorized by Chapter 65,
Finance Code;
(2) a bond or other indebtedness as authorized by
Sections 435.045 and 435.046, Government Code;
(3) a bond issued under Subchapter B, Chapter 1505,
Government Code;
(4) a bond as authorized by Subchapter B, Chapter 284,
Transportation Code;
(5) a municipal bond issued under Sections 51.038 and
51.039, Water Code;
(6) an insured account or evidence of indebtedness as
authorized by Section 1, Chapter 160, General Laws, Acts of the 43rd
Legislature, Regular Session, 1933 (Article 842a, Vernon's Texas
Civil Statutes);
(7) an insured or guaranteed obligation as authorized
by Chapter 230, Acts of the 49th Legislature, Regular Session, 1945
(Article 842a-1, Vernon's Texas Civil Statutes);
(8) a bond issued under Section 1, Chapter 1, page 427,
General Laws, Acts of the 46th Legislature, Regular Session, 1939
(Article 1269k-1, Vernon's Texas Civil Statutes);
(9) a bond as authorized by Section 24, Chapter 110,
Acts of the 51st Legislature, Regular Session, 1949 (Article
8280-133, Vernon's Texas Civil Statutes);
(10) a bond as authorized by Section 19, Chapter 340,
Acts of the 51st Legislature, Regular Session, 1949 (Article
8280-137, Vernon's Texas Civil Statutes);
(11) a bond as authorized by Section 10, Chapter 398,
Acts of the 51st Legislature, Regular Session, 1949 (Article
8280-138, Vernon's Texas Civil Statutes);
(12) a bond as authorized by Section 18, Chapter 465,
Acts of the 51st Legislature, Regular Session, 1949 (Article
8280-139, Vernon's Texas Civil Statutes); or
(13) another investment specifically authorized by
law. (V.T.I.C. Art. 2.10, Sec. (e) (part).)
[Sections 424.075-424.100 reserved for expansion]
SUBCHAPTER C. INVESTMENT POOLS
Sec. 424.101. DEFINITIONS. In this subchapter:
(1) "Business entity" means an association,
corporation, joint stock company, joint venture, limited liability
company, mutual fund trust, partnership, or other similar form of
business organization, regardless of whether organized for profit.
(2) "Obligation" means:
(A) a bond, note, debenture, trust certificate,
including an equipment certificate, or production payment;
(B) a negotiable bank certificate of deposit,
bankers' acceptance, credit tenant loan, or other loan secured by
financing net leases; or
(C) any other evidence of indebtedness for the
payment of money or participation certificates or other evidences
of an interest in an obligation otherwise described by this
subdivision, whether constituting a general obligation of the
issuer or payable only out of certain revenues or certain funds
pledged or otherwise dedicated for payment.
(3) "Qualified bank" means a national bank, state
bank, or trust company that:
(A) is at all times adequately capitalized as
determined by the standards adopted by the United States banking
regulators; and
(B) is either a member of the Federal Reserve
System or regulated by state banking laws.
(4) "Repurchase transaction," "reverse repurchase
transaction," and "securities lending transaction" have the
meanings assigned by Section 424.151. (V.T.I.C. Art. 2.10-5, Secs.
1(1), (5), (6), (7), (8), (9).)
Sec. 424.102. AUTHORITY TO INVEST IN POOL. An insurer may
acquire investments and participate in an investment pool that is
qualified under Section 424.103(b) and the investments of which are
limited to investments authorized for:
(1) a short-term investment pool under Section
424.104; or
(2) an authorized investment pool under Section
424.107. (V.T.I.C. Art. 2.10-5, Sec. 2.)
Sec. 424.103. INVESTMENT POOL REQUIREMENTS AND
QUALIFICATIONS. (a) An investment pool must be a business entity.
(b) To be qualified, an investment pool must:
(1) have a written pooling agreement and a pool
manager that comply with the requirements of this subchapter; and
(2) comply with Subsection (c).
(c) The investment pool may not:
(1) acquire securities issued, assumed, guaranteed,
or insured by the investing insurer or an affiliate of the investing
insurer;
(2) borrow or incur indebtedness for borrowed money,
except for securities lending and reverse repurchase transactions
that meet the requirements of this subchapter; or
(3) permit the aggregate value of securities loaned or
sold to, purchased from, or invested in a single business entity at
the time of the loan, sale, purchase, or investment to exceed 10
percent of the pool's total assets. (V.T.I.C. Art. 2.10-5, Secs.
5(a), (b), (c), 6(a).)
Sec. 424.104. AUTHORIZED INVESTMENTS FOR SHORT-TERM
INVESTMENT POOL. A short-term investment pool may contain only:
(1) obligations described by Section 424.105;
(2) money market funds described by Section 424.106;
or
(3) repurchase, reverse repurchase, and securities
lending transactions that meet the requirements of Subchapter D.
(V.T.I.C. Art. 2.10-5, Sec. 3(a) (part).)
Sec. 424.105. SHORT-TERM INVESTMENT POOL: CERTAIN
SHORT-TERM OBLIGATIONS. (a) Obligations contained in a short-term
investment pool must meet the requirements of this section.
(b) The obligations must:
(1) have a rating by the securities valuation office
of one or two, or an equivalent rating issued by a nationally
recognized statistical rating organization recognized by the
securities valuation office; or
(2) be issued by an issuer with outstanding
obligations that have a rating described by Subdivision (1).
(c) The obligations must have:
(1) a remaining maturity of 397 days or less or a put
that:
(A) entitles the holder to receive the principal
amount of the obligation; and
(B) may be exercised through maturity at
specified intervals not exceeding 397 days; or
(2) a remaining maturity of three years or less and a
floating interest rate that resets at least quarterly on the basis
of a current short-term index and is not subject to a maximum limit,
if the obligations do not have an interest rate that varies
inversely to market interest rate changes.
(d) For purposes of this section, a current short-term index
is:
(1) a federal funds rate;
(2) the prime rate;
(3) the rate for treasury bills;
(4) the London InterBank Offered Rate; or
(5) the rate for commercial paper. (V.T.I.C. Art.
2.10-5, Secs. 3(a) (part), (b), (c).)
Sec. 424.106. SHORT-TERM INVESTMENT POOL: CERTAIN MONEY
MARKET FUNDS. A short-term investment pool may contain a money
market fund as described by 17 C.F.R. Section 270.2a-7 under the
Investment Company Act of 1940 (15 U.S.C. Section 80a-1 et seq.), as
amended, that is:
(1) a government money market fund that at all times:
(A) invests only in obligations issued,
guaranteed, or insured by the United States or collateralized
repurchase agreements composed of those obligations; and
(B) qualifies for investment without a reserve
under the Purposes and Procedures Manual of the securities
valuation office or a successor publication; or
(2) a class one money market fund that at all times
qualifies for investment using the bond class one reserve factor
described by the Purposes and Procedures Manual of the securities
valuation office. (V.T.I.C. Art. 2.10-5, Secs. 1(2), (3), (4),
3(a) (part).)
Sec. 424.107. AUTHORIZED INVESTMENTS FOR AUTHORIZED
INVESTMENT POOL; LIMITATION. (a) An authorized investment pool
may contain only investments that a participating insurer is
authorized to acquire by provisions of this code other than this
subchapter.
(b) The insurer's total of proportionate ownership
interests in a single authorized investment held by an authorized
investment pool and the insurer's direct investments in that
authorized investment may not exceed the limit prescribed by the
applicable authorizing provision.
(c) In addition to the limitation described by Subsection
(b), an insurer is subject to the limitations described by Section
424.108. (V.T.I.C. Art. 2.10-5, Sec. 4.)
Sec. 424.108. GENERAL INSURER INVESTMENT LIMITATIONS. An
insurer may not acquire an investment in an investment pool if, as a
result of and after making the investment, the aggregate amount of
investments held by the insurer under this subchapter at the time of
the investment:
(1) in a single investment pool would exceed 10
percent of the insurer's admitted assets;
(2) in all investment pools investing in investments
authorized under Section 424.107 would exceed 25 percent of the
insurer's admitted assets; or
(3) in all investment pools would exceed 35 percent of
the insurer's admitted assets. (V.T.I.C. Art. 2.10-5, Sec. 6(c).)
Sec. 424.109. DESIGNATION OF POOL MANAGER; QUALIFICATIONS.
(a) The pooling agreement for an investment pool must designate a
pool manager.
(b) The pool manager must be organized under the laws of the
United States or a state and must be:
(1) the investing insurer, an affiliated insurer, or a
business entity affiliated with the insurer;
(2) a qualified bank;
(3) a business entity registered under the Investment
Advisers Act of 1940 (15 U.S.C. Section 80b-1 et seq.), as amended;
(4) the attorney-in-fact of a reciprocal or
interinsurance exchange; or
(5) the United States manager or an affiliate or
subsidiary of the United States manager of a United States branch of
an alien insurer. (V.T.I.C. Art. 2.10-5, Sec. 5(d).)
Sec. 424.110. POOL MANAGER TO MAINTAIN ASSETS; CUSTODY
AGREEMENT. (a) The pool manager shall maintain the assets of the
investment pool in one or more accounts, in the name of or on behalf
of the pool, under a custody agreement with a qualified bank.
(b) The custody agreement must:
(1) state and recognize the claims and rights of each
participant;
(2) acknowledge that the investment pool's underlying
assets are held solely for the benefit of each participant in
proportion to the aggregate amount of the participant's investments
in the pool; and
(3) contain an agreement that the pool's underlying
assets may not be commingled with the general assets of the
custodian qualified bank or any other person. (V.T.I.C. Art.
2.10-5, Sec. 5(f).)
Sec. 424.111. POOLING AGREEMENT PROVISIONS. The pooling
agreement for an investment pool must provide that:
(1) 100 percent of the ownership interests in the pool
must at all times be held by:
(A) an insurer and the insurer's affiliated
insurers;
(B) for a pool investing solely in investments
authorized under Section 424.104, the insurer and the insurer's
subsidiaries and affiliates or any pension or profit-sharing plan
of the insurer and the insurer's subsidiaries and affiliates; or
(C) for a United States branch of an alien
insurer, subsidiaries or affiliates of the insurer's United States
manager;
(2) the pool's underlying assets are held solely for
the benefit of each participant and may not be commingled with the
general assets of the pool manager or any other person;
(3) each participant owns an undivided interest in the
pool's underlying assets in proportion to the aggregate amount of
the participant's interest in the pool; and
(4) a pool participant or, if a pool participant is
insolvent, bankrupt, or in receivership, the participant's
trustee, receiver, conservator, or other successor-in-interest may
withdraw all or any portion of the participant's investment from
the pool under the terms of the pooling agreement. (V.T.I.C. Art.
2.10-5, Sec. 5(g).)
Sec. 424.112. WITHDRAWALS AND DISTRIBUTIONS. (a) A pool
participant must be able to make withdrawals on demand without
penalty or other assessment on any business day, and settlement of
funds must occur within a reasonable and customary period that does
not exceed five business days after a withdrawal.
(b) The pooling agreement must provide that the pool manager
shall make a distribution to a pool participant, at the manager's
discretion:
(1) in cash in an amount equal to the fair market value
at the time of the distribution of the participant's pro rata share
of each of the pool's underlying assets;
(2) in kind in an amount equal to a pro rata share of
each underlying asset; or
(3) in a combination of cash and in-kind distributions
in an amount equal to a pro rata share of each underlying asset.
(c) A distribution under Subsection (b) must be computed
after subtracting all the investment pool's applicable fees and
expenses. (V.T.I.C. Art. 2.10-5, Secs. 6(d), (e), (f).)
Sec. 424.113. INVESTMENT POOL RECORDS. The pool manager
shall compile and maintain:
(1) detailed accounting records that show:
(A) the cash receipts and disbursements
reflecting each pool participant's proportionate investment in the
investment pool; and
(B) a complete description of all the pool's
underlying assets, including the amount, interest rate, and
maturity date, if any, of each of those assets and other appropriate
designations; and
(2) other records that, on a daily basis, allow third
parties to verify each participant's investment in the pool.
(V.T.I.C. Art. 2.10-5, Sec. 5(e).)
Sec. 424.114. INSPECTION OF RECORDS. The pool manager
shall make records of the investment pool available for inspection
by the commissioner. (V.T.I.C. Art. 2.10-5, Sec. 6(g).)
Sec. 424.115. REPORTS OF TRANSACTIONS BETWEEN POOL AND
PARTICIPANT. (a) A transaction between an investment pool and a
pool participant is not subject to Subchapter C, Chapter 823,
except that before entering into a pool, an insurer subject to
Chapter 823 shall give the commissioner the written notice required
under Section 823.103.
(b) The investment pool's investment activities and the
transactions between the pool and a pool participant must be
reported in the registration statement required by Subchapter B,
Chapter 823. (V.T.I.C. Art. 2.10-5, Sec. 6(b).)
[Sections 424.116-424.150 reserved for expansion]
SUBCHAPTER D. DOLLAR ROLL, REPURCHASE, REVERSE REPURCHASE,
AND SECURITIES LENDING TRANSACTIONS
Sec. 424.151. DEFINITIONS. In this subchapter:
(1) "Dollar roll transaction" means two simultaneous
transactions with settlement dates not more than 96 days apart, in
one of which an insurer sells to a business entity, and in the other
of which the insurer is obligated to purchase from the same business
entity, substantially similar securities that are:
(A) mortgage-backed securities issued, assumed,
or guaranteed by the Government National Mortgage Association, the
Federal National Mortgage Association, the Federal Home Loan
Mortgage Corporation, or a successor to one of those organizations;
or
(B) other mortgage-backed securities referred to
in 15 U.S.C. Section 77r-1 et seq., as amended.
(2) "Repurchase transaction" means a transaction in
which an insurer purchases securities from a business entity that
is obligated to repurchase the purchased securities or equivalent
securities from the insurer at a specified price, either within a
specified period or on demand.
(3) "Reverse repurchase transaction" means a
transaction in which an insurer sells securities to a business
entity and is obligated to repurchase the sold securities or
equivalent securities from the business entity at a specified
price, either within a specified period or on demand.
(4) "Securities lending transaction" means a
transaction in which an insurer lends securities to a business
entity that is obligated to return the loaned securities or
equivalent securities to the insurer, either within a specified
period or on demand. (V.T.I.C. Art. 2.10-3A, Sec. 1.)
Sec. 424.152. TRANSACTIONS AUTHORIZED. An insurer may
engage in dollar roll, repurchase, reverse repurchase, and
securities lending transactions as provided by this subchapter.
(V.T.I.C. Art. 2.10-3A, Sec. 2(a).)
Sec. 424.153. PERIOD OF TRANSACTION. An insurer must enter
into a written agreement for each transaction under this
subchapter, other than a dollar roll transaction. The agreement
must require that the transaction terminate on or before the first
anniversary of the transaction's inception. (V.T.I.C. Art.
2.10-3A, Sec. 2(b).)
Sec. 424.154. CASH REQUIREMENTS. With respect to cash
received in a transaction under this subchapter, an insurer shall:
(1) invest the cash in accordance with this subchapter
and in a manner that recognizes the liquidity needs of the
transaction; or
(2) use the cash for the insurer's general corporate
purposes. (V.T.I.C. Art. 2.10-3A, Sec. 3(a).)
Sec. 424.155. COLLATERAL REQUIREMENTS. (a) While a
transaction under this subchapter is outstanding, the insurer or
the insurer's agent or custodian shall maintain, as to acceptable
collateral received in the transaction, either physically or
through the book-entry system of the Federal Reserve, Depository
Trust Company, Participants Trust Company, or another securities
depository approved by the commissioner:
(1) possession of the collateral;
(2) a perfected security interest in the collateral;
or
(3) in the case of a jurisdiction outside of the United
States, title to, or the rights of a secured creditor to, the
collateral.
(b) The amount of collateral required for repurchase,
reverse repurchase, and securities lending transactions is the
amount required under the Purposes and Procedures Manual of the
securities valuation office or a successor publication. (V.T.I.C.
Art. 2.10-3A, Secs. 3(b), (e).)
Sec. 424.156. PERCENTAGE LIMITATIONS. (a) An insurer may
not enter into a transaction under this subchapter if, as a result
of and after making the transaction, the aggregate amount of
securities loaned or sold to or purchased from:
(1) a single business entity counterparty under this
subchapter would exceed five percent of the insurer's assets; or
(2) all business entities under this subchapter would
exceed 40 percent of the insurer's assets.
(b) In computing the amount sold to or purchased from a
business entity counterparty under a repurchase or reverse
repurchase transaction, effect may be given to netting provisions
under a master written agreement. (V.T.I.C. Art. 2.10-3A, Secs.
3(c), (d).)
Sec. 424.157. RULES. The commissioner may adopt reasonable
rules and issue reasonable orders as necessary to implement this
subchapter. (V.T.I.C. Art. 2.10-3A, Sec. 3(f).)
[Sections 424.158-424.200 reserved for expansion]
SUBCHAPTER E. RISK CONTROL TRANSACTIONS
Sec. 424.201. DEFINITIONS. In this subchapter:
(1) "Acceptable collateral" means:
(A) cash;
(B) cash equivalents;
(C) letters of credit and direct obligations; or
(D) securities that are fully guaranteed as to
principal and interest by the United States.
(2) "Business entity" includes an association, bank,
corporation, joint stock company, joint tenancy, joint venture,
limited liability company, mutual fund, partnership, sole
proprietorship, trust, or other similar form of business
organization, regardless of whether organized for profit.
(3) "Cap" means an agreement obligating the seller to
make payments to the buyer, with each payment based on the amount by
which a reference price or level or the performance or value of one
or more underlying interests exceeds a predetermined number that is
sometimes called the strike rate or strike price.
(4) "Cash equivalent" means an investment or security
that is short-term, highly rated, highly liquid, and readily
marketable. The term includes a money market fund described by
Section 424.106. For purposes of this subdivision, an investment
or security is:
(A) short-term if it has a remaining term to
maturity of one year or less; and
(B) highly rated if it has:
(i) a rating of "P-1" by Moody's Investors
Service, Inc.;
(ii) a rating of "A-1" by the Standard and
Poor's Division of the McGraw Hill Companies, Inc.; or
(iii) an equivalent rating by a nationally
recognized statistical rating organization recognized by the
securities valuation office.
(5) "Collar" means an agreement to receive payments as
the buyer of a cap, floor, or option and to make payments as the
seller of a different cap, floor, or option.
(6)(A) "Counterparty exposure amount" means:
(i) for an over-the-counter derivative
instrument not entered into under a written master agreement that
provides for netting of payments owed by the respective parties,
the market value of the over-the-counter derivative instrument, if
the liquidation of the derivative instrument would result in a
final cash payment to the insurer, or zero, if the liquidation of
the derivative instrument would not result in a final cash payment
to the insurer; or
(ii) for an over-the-counter derivative
instrument entered into under a written master agreement that
provides for netting of payments owed by the respective parties and
for which the counterparty's domiciliary jurisdiction is within the
United States or a foreign jurisdiction listed in the Purposes and
Procedures Manual of the securities valuation office as eligible
for netting, the greater of zero or the net sum payable to the
insurer in connection with all derivative instruments subject to
the written master agreement on the liquidation of the instruments
in the event of the counterparty's default under the master
agreement, if there is no condition precedent to the counterparty's
obligation to make the payment and if there is no setoff of amounts
payable under another instrument or agreement.
(B) For purposes of this subdivision, market
value or the net sum payable, as applicable, must be determined at
the end of the most recent quarter of the insurer's fiscal year and
must be reduced by the market value of acceptable collateral held by
the insurer or a custodian on the insurer's behalf.
(7) "Derivative instrument":
(A) means an agreement, option, or instrument, or
a series or combination of agreements, options, or instruments:
(i) to make or take delivery of, or assume
or relinquish, a specified amount of one or more underlying
interests, or to make a cash settlement instead of making or taking
delivery of, or assuming or relinquishing, a specified amount of an
underlying interest; or
(ii) that has a price, performance, value,
or cash flow based primarily on the actual or expected price, yield,
level, performance, value, or cash flow of one or more underlying
interests;
(B) includes an option, a warrant not otherwise
permitted to be held by the insurer under this subchapter, a cap, a
floor, a collar, a swap, a swaption, a forward, a future, any other
substantially similar agreement, option, or instrument, and a
series or combination of those agreements, options, or instruments;
and
(C) does not include a collateralized mortgage
obligation, another asset-backed security, a principal-protected
structured security, a floating rate security, an instrument that
an insurer would otherwise be authorized to invest in or receive
under a provision of this subchapter other than this subdivision,
or a debt obligation of the insurer.
(8) "Derivative transaction" means a transaction
involving the use of one or more derivative instruments. The term
does not include a dollar roll transaction, repurchase transaction,
reverse repurchase transaction, or securities lending transaction.
(9) "Floor" means an agreement obligating the seller
to make payments to the buyer, each of which is based on the amount
by which a predetermined number that is sometimes called the floor
price or floor rate exceeds a reference level, performance, price,
or value of one or more underlying interests.
(10) "Forward" means an agreement to make or take
delivery in the future of one or more underlying interests, or to
effect a cash settlement, based on the actual or expected level,
performance, price, or value of those interests. The term does not
include a future or a spot transaction effected within a customary
settlement period, a when-issued purchase, or another similar cash
market transaction.
(11) "Future" means an agreement traded on a futures
exchange to make or take delivery of one or more underlying
interests, or to effect a cash settlement, based on the actual or
expected level, performance, price, or value of those interests.
(12) "Futures exchange" means a foreign or domestic
exchange, contract market, or board of trade on which trading in
futures is conducted and that, in the United States, is authorized
to conduct that trading by the Commodity Futures Trading Commission
or a successor to that agency.
(13) "Hedging transaction" means a derivative
transaction entered into and maintained to manage, with respect to
an asset, liability, or portfolio of assets or liabilities, that an
insurer has acquired or incurred or anticipates acquiring or
incurring:
(A) the risk of a change in value, yield, price,
cash flow, or quantity; or
(B) the currency exchange rate risk.
(14) "Income generation transaction" means a
derivative transaction entered into to generate income. The term
does not include a hedging transaction or a replication
transaction.
(15) "Market value" means the price for a security or
derivative instrument obtained from a generally recognized source,
the most recent quotation from a generally recognized source, or if
a generally recognized source does not exist, the price determined
under the terms of the instrument or in good faith by the insurer,
as can be reasonably demonstrated to the commissioner on request,
plus the amount of accrued but unpaid income on the security or
instrument to the extent that amount is not included in the price as
of the date the security or instrument is valued.
(16) "Option" means an agreement giving the buyer the
right to buy or receive, referred to as a "call option," to sell or
deliver, referred to as a "put option," to enter into, extend, or
terminate, or to effect a cash settlement based on the actual or
expected level, performance, price, spread, or value of, one or
more underlying interests.
(17) "Over-the-counter derivative instrument" means a
derivative instrument entered into with a business entity in a
manner other than through a securities exchange or futures exchange
or cleared through a qualified clearinghouse.
(18) "Potential exposure" means:
(A) as to a futures position, the amount of
initial margin required for that position; or
(B) as to a swap, collar, or forward, one-half of
one percent multiplied by the notional amount multiplied by the
square root of the remaining years to maturity.
(19) "Qualified clearinghouse" means a clearinghouse
that:
(A) is subject to the rules of a securities
exchange or a futures exchange; and
(B) provides clearing services, including acting
as a counterparty to each of the parties to a transaction in a
manner that eliminates the parties' credit risk to each other.
(20) "Replication transaction" means a derivative
transaction or a combination of derivative transactions effected
separately or in conjunction with cash market investments included
in the insurer's investment portfolio to replicate the risks and
returns of another authorized transaction, investment, or
instrument or to operate as a substitute for cash market
transactions. The term does not include a hedging transaction.
(21) "Securities exchange" means:
(A) an exchange registered as a national
securities exchange or a securities market registered under the
Securities Exchange Act of 1934 (15 U.S.C. Section 78a et seq.), as
amended;
(B) the Private Offerings, Resales and Trading
through Automated Linkages system; or
(C) a designated offshore securities market as
defined by 17 C.F.R. Section 230.902, as amended.
(22) "Swap" means an agreement to exchange or to net
payments at one or more times based on the actual or expected price,
yield, level, performance, or value of one or more underlying
interests.
(23) "Swaption" means an option to purchase or sell a
swap at a given price and time or at a series of prices and times.
The term does not include a swap with an embedded option.
(24) "Underlying interest" means an asset, liability,
or other interest underlying a derivative instrument or a
combination of those assets, liabilities, or interests. The term
includes a security, currency, rate, index, commodity, or
derivative instrument.
(25) "Warrant" means an instrument under which the
holder has the right to purchase or sell the underlying interest at
a given price and time or at a series of prices and times stated in
the warrant. (V.T.I.C. Art. 2.10-4, Sec. 1.)
Sec. 424.202. RISK CONTROL TRANSACTIONS AUTHORIZED. (a)
Except as provided by Subsection (b), an insurer may engage in a
risk control transaction authorized by this subchapter to:
(1) protect the insurer's assets against the risk of
changing asset values or interest rates;
(2) reduce risk; and
(3) generate income.
(b) An insurer with a statutory net capital and surplus as
determined by the insurer's most recent financial statement
required to be filed with the department that is less than the
minimum amount of capital and surplus required for a new charter and
certificate of authority for the same type of insurer may not engage
in a transaction authorized under this subchapter. (V.T.I.C. Art.
2.10-4, Secs. 2(a), 8(b), (c).)
Sec. 424.203. NOTICE OF INTENT TO ENGAGE IN RISK CONTROL
TRANSACTIONS REQUIRED. (a) Before an insurer with a statutory net
capital and surplus of less than $10 million engages in a
transaction authorized under this subchapter, the insurer shall
file a written notice with the commissioner describing:
(1) the need to engage in the transaction;
(2) the lack of acceptable alternatives; and
(3) the insurer's plan to engage in the transaction.
(b) If the commissioner does not issue an order prohibiting
an insurer who files a notice under Subsection (a) from engaging in
the transaction on or before the 90th day after the date the
commissioner receives the notice, the insurer may engage in the
transaction described in the notice.
(c) For purposes of this section, an insurer's net capital
and surplus are determined by the insurer's most recent financial
statement required to be filed with the department. (V.T.I.C. Art.
2.10-4, Secs. 8(a), (c).)
Sec. 424.204. TRADING REQUIREMENTS FOR DERIVATIVE
INSTRUMENTS. Each derivative instrument must be:
(1) traded on a securities exchange;
(2) entered into with, or guaranteed by, a business
entity;
(3) issued or written by, or entered into with, the
issuer of the underlying interest on which the derivative
instrument is based; or
(4) in the case of futures, traded through a broker who
is:
(A) registered as a futures commission merchant
under the Commodity Exchange Act (7 U.S.C. Section 1 et seq.), as
amended; or
(B) exempt from that registration under 17 C.F.R.
Section 30.10, adopted under the Commodity Exchange Act (7 U.S.C.
Section 1 et seq.), as amended. (V.T.I.C. Art. 2.10-4, Sec. 6.)
Sec. 424.205. DERIVATIVE USE PLAN. (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. (V.T.I.C.
Art. 2.10-4, Sec. 2(b).)
Sec. 424.206. INTERNAL CONTROL PROCEDURES. An insurer that
enters into a derivative transaction shall establish written
internal control procedures that require:
(1) a quarterly report to the board of directors that
reviews:
(A) each derivative transaction entered into,
outstanding, or closed out;
(B) the results and effectiveness of the
derivatives program; and
(C) the credit risk exposure to each counterparty
for over-the-counter derivative transactions based on the
counterparty exposure amount;
(2) a system for determining whether hedging or
replication strategies used by the insurer have been effective;
(3) a system of reports, at least as frequent as
monthly, to the insurer's management, that include:
(A) a description of each derivative transaction
entered into, outstanding, or closed out during the period since
the last report;
(B) the purpose of each outstanding derivative
transaction;
(C) a performance review of the derivative
instrument program; and
(D) the counterparty exposure amount for each
over-the-counter derivative transaction;
(4) a written authorization that identifies the
responsibilities and limitations of authority of each person
authorized to effect and maintain derivative transactions; and
(5) appropriate documentation for each transaction,
including:
(A) the purpose of the transaction;
(B) the assets or liabilities to which the
transaction relates;
(C) the specific derivative instrument used in
the transaction;
(D) for an over-the-counter derivative
transaction, the name of the counterparty and the counterparty
exposure amount; and
(E) for an exchange-traded derivative
instrument, the name of the exchange and the name of the firm that
handled the transaction. (V.T.I.C. Art. 2.10-4, Sec. 2(c).)
Sec. 424.207. ABILITY TO DEMONSTRATE HEDGING
CHARACTERISTICS AND EFFECTIVENESS. An insurer must be able to
demonstrate to the commissioner on request the intended hedging
characteristics and continuing effectiveness of a derivative
transaction or combination of transactions through:
(1) cash flow testing;
(2) duration analysis; or
(3) other appropriate analysis. (V.T.I.C. Art.
2.10-4, Sec. 2(d).)
Sec. 424.208. OFFSETTING TRANSACTIONS. (a) Subject to
this section, an insurer may purchase or sell one or more derivative
instruments to wholly or partly offset a derivative instrument
previously purchased or sold, without regard to the quantitative
limitations of this subchapter.
(b) An offsetting transaction under this section must use
the same type of derivative instrument as the derivative instrument
being offset. (V.T.I.C. Art. 2.10-4, Sec. 2(f).)
Sec. 424.209. INCLUSION OF COUNTERPARTY EXPOSURE AMOUNTS.
The insurer shall include all counterparty exposure amounts in
determining compliance with the limitations of this subchapter.
(V.T.I.C. Art. 2.10-4, Sec. 2(e).)
Sec. 424.210. OVERSIGHT BY COMMISSIONER. (a) Not later
than the 10th day before the date an insurer is scheduled to enter
into an initial hedging transaction, the insurer shall notify the
commissioner in writing that:
(1) the insurer's board of directors has adopted an
investment plan that authorizes hedging transactions; and
(2) each hedging transaction will comply with this
subchapter.
(b) If a hedging transaction does not comply with this
subchapter or if continuing the transaction may create a hazardous
financial condition for the insurer that affects the insurer's
policyholders or creditors or the public, the commissioner may,
after notice and an opportunity for a hearing, order the insurer to
take action that the commissioner determines is reasonably
necessary to:
(1) remedy a hazardous financial condition; or
(2) prevent an impending hazardous financial
condition from occurring. (V.T.I.C. Art. 2.10-4, Secs. 3(a), (d).)
Sec. 424.211. AUTHORITY TO ENTER INTO HEDGING TRANSACTION.
After providing notice under Section 424.210, an insurer may enter
into a hedging transaction under this subchapter if as a result of
and after making the transaction:
(1) the aggregate statement value of all outstanding
caps, floors, options, swaptions, and warrants not attached to
another financial instrument purchased by the insurer under this
subchapter, other than a collar, does not exceed 7.5 percent of the
insurer's assets;
(2) the aggregate statement value of all outstanding
caps, floors, options, swaptions, and warrants written by the
insurer under this subchapter, other than a collar, does not exceed
three percent of the insurer's assets; and
(3) the aggregate potential exposure of all
outstanding collars, forwards, futures, and swaps entered into or
acquired by the insurer under this subchapter does not exceed 6.5
percent of the insurer's assets. (V.T.I.C. Art. 2.10-4, Sec.
3(c).)
Sec. 424.212. AUTHORITY TO ENTER INTO INCOME GENERATION
TRANSACTION. An insurer may enter into an income generation
transaction only if:
(1) as a result of and after making the transaction,
the sum of the following amounts does not exceed 10 percent of the
insurer's assets:
(A) the aggregate statement value of admitted
assets that at the time of the transaction are subject to call or
that generate the cash flows for payments the insurer is required to
make under caps and floors sold by the insurer and that at the time
of the transaction are outstanding under this subchapter;
(B) the statement value of admitted assets
underlying derivative instruments that at the time of the
transaction are subject to calls sold by the insurer and
outstanding under this subchapter; and
(C) the purchase price of assets subject to puts
that at the time of the transaction are outstanding under this
subchapter; and
(2) the transaction is a sale of:
(A) a call option on assets that meets the
requirements of Section 424.213;
(B) a put option on assets that meets the
requirements of Section 424.214;
(C) a call option on a derivative instrument,
including a swaption, that meets the requirements of Section
424.215; or
(D) a cap or floor that meets the requirements of
Section 424.216. (V.T.I.C. Art. 2.10-4, Secs. 4(a), (b), (c).)
Sec. 424.213. LIMITATION ON SALE OF CALL OPTION ON
ASSETS. If an income generation transaction is a sale of a call
option on assets, the insurer must, during the entire period the
option is outstanding, hold, or have a currently exercisable right
to acquire, the underlying assets. (V.T.I.C. Art. 2.10-4, Sec.
4(d).)
Sec. 424.214. LIMITATION ON SALE OF PUT OPTION ON
ASSETS. (a) If an income generation transaction is a sale of a
put option on assets, the insurer must:
(1) during the entire period the option is
outstanding, hold sufficient cash, cash equivalents, or interests
in a short-term investment pool to purchase the underlying assets
on exercise of the option; and
(2) have the ability to hold the underlying assets in
the insurer's portfolio.
(b) If during the entire period the put option is
outstanding the total market value of all put options sold by the
insurer exceeds two percent of the insurer's assets, the insurer
shall set aside, under a custodial or escrow agreement, cash or cash
equivalents that have a market value equal to the amount of the
insurer's put option obligations in excess of two percent of the
insurer's assets. (V.T.I.C. Art. 2.10-4, Sec. 4(e).)
Sec. 424.215. LIMITATION ON SALE OF CALL OPTION ON
DERIVATIVE INSTRUMENT. If an income generation transaction is a
sale of a call option on a derivative instrument, including a
swaption, the insurer must:
(1) during the entire period the call option is
outstanding, hold, or have a currently exercisable right to
acquire, assets generating the cash flow necessary to make any
payment for which the insurer is liable under the underlying
derivative instrument; and
(2) have the ability to enter into the underlying
derivative transaction for the insurer's portfolio. (V.T.I.C. Art.
2.10-4, Sec. 4(f).)
Sec. 424.216. LIMITATION ON SALE OF CAP OR FLOOR. If an
income generation transaction is a sale of a cap or a floor, the
insurer must, during the entire period the cap or floor is
outstanding, hold, or have a currently exercisable right to
acquire, assets generating the cash flow necessary to make any
payment for which the insurer is liable under the cap or floor.
(V.T.I.C. Art. 2.10-4, Sec. 4(g).)
Sec. 424.217. AUTHORITY TO ENTER REPLICATION
TRANSACTION. (a) An insurer may enter into a replication
transaction only with the prior written approval of the
commissioner.
(b) To be eligible for approval by the commissioner:
(1) the insurer must be otherwise authorized to invest
the insurer's funds under this chapter in the asset being
replicated; and
(2) the asset being replicated must be subject to all
the provisions of this subchapter relating to the making of the
transaction by the insurer with respect to that kind of asset as if
the transaction constituted a direct investment by the insurer in
the replicated asset.
(c) The commissioner may adopt rules regarding replication
transactions as necessary to implement this section. (V.T.I.C.
Art. 2.10-4, Sec. 5.)
Sec. 424.218. RULES. The commissioner may adopt rules
consistent with this subchapter that prescribe reasonable limits,
standards, and guidelines for:
(1) the risk control transactions authorized under
this subchapter; and
(2) plans related to those transactions. (V.T.I.C. Art. 2.10-4, Sec. 7.)
CHAPTER 425. RESERVES AND INVESTMENTS FOR LIFE INSURANCE
COMPANIES AND RELATED ENTITIES
SUBCHAPTER A. GENERAL PROVISIONS
Sec. 425.001. SECURITIES IN AMOUNT OF RESERVES
REQUIRED
Sec. 425.002. CERTAIN INSURERS: DEPOSIT OF
SECURITIES, MONEY, OR PROPERTY IN
AMOUNT OF LEGAL RESERVES
Sec. 425.003. CERTAIN INSURERS: REQUIRED DEPOSITS OF
SECURITIES; ADDITIONAL DEPOSITS AND
WITHDRAWALS
Sec. 425.004. RECORDS OF SECURITIES DEPOSITED WITH
DEPARTMENT; REPORT OF VALUE
Sec. 425.005. DEPARTMENT DUTIES REGARDING DEPOSITED
SECURITIES; INSURANCE COMPANY ACCESS
Sec. 425.006. ADDITIONAL RESERVES REQUIRED:
SUBSTANDARD OR EXTRA HAZARDOUS
POLICIES
Sec. 425.007. SUBSCRIPTION TO OR UNDERWRITING PURCHASE
OR SALE OF SECURITIES OR PROPERTY
PROHIBITED; CONTROL OF DISPOSITION OF
PROPERTY
Sec. 425.008. AUTHORIZED INVESTMENTS FOR FOREIGN
COMPANIES
Sec. 425.009. STUDENT LOANS
[Sections 425.010-425.050 reserved for expansion]
SUBCHAPTER B. STANDARD VALUATION LAW
Sec. 425.051. SHORT TITLE
Sec. 425.052. DEFINITIONS
Sec. 425.053. ANNUAL VALUATION OF RESERVES
Sec. 425.054. ACTUARIAL OPINION REQUIRED
Sec. 425.055. SUPPORTING MEMORANDUM FOR ACTUARIAL
OPINION
Sec. 425.056. LIMITATION ON LIABILITY FOR ACTUARIAL
OPINION
Sec. 425.057. DISCIPLINARY ACTION: COMPANY OR PERSON
CERTIFYING OPINION
Sec. 425.058. VALUATION OF POLICY OR CONTRACT:
GENERAL RULE
Sec. 425.059. VALUATION OF CERTAIN ANNUITIES AND PURE
ENDOWMENT CONTRACTS
Sec. 425.060. APPLICABILITY OF CALENDAR YEAR STATUTORY
VALUATION INTEREST RATES
Sec. 425.061. COMPUTATION OF CALENDAR YEAR STATUTORY
VALUATION INTEREST RATE: GENERAL RULE
Sec. 425.062. WEIGHTING FACTORS
Sec. 425.063. REFERENCE INTEREST RATE
Sec. 425.064. COMMISSIONERS RESERVE VALUATION METHOD
Sec. 425.065. COMMISSIONERS ANNUITY RESERVE VALUATION
METHOD
Sec. 425.066. MINIMUM AGGREGATE RESERVES
Sec. 425.067. OPTIONAL RESERVE COMPUTATIONS
Sec. 425.068. RESERVE COMPUTATION: GROSS PREMIUM
CHARGED LESS THAN VALUATION NET
PREMIUM
Sec. 425.069. RESERVE COMPUTATION: INDETERMINATE
PREMIUM PLANS AND CERTAIN OTHER PLANS
Sec. 425.070. COMPUTATION OF RESERVE FOR CERTAIN
POLICIES BY CALENDAR YEAR OF ISSUE
[Sections 425.071-425.100 reserved for expansion]
SUBCHAPTER C. AUTHORIZED INVESTMENTS AND TRANSACTIONS FOR CAPITAL
STOCK LIFE, HEALTH, AND ACCIDENT INSURERS
Sec. 425.101. DEFINITIONS
Sec. 425.102. INAPPLICABILITY OF CERTAIN LAW
Sec. 425.103. APPLICABILITY OF SUBCHAPTER
Sec. 425.104. PURPOSE
Sec. 425.105. WRITTEN INVESTMENT PLAN
Sec. 425.106. INVESTMENT RECORDS; DEMONSTRATION OF
COMPLIANCE
Sec. 425.107. COMMUNITY INVESTMENT REPORT
Sec. 425.108. AUTHORIZED INVESTMENTS AND TRANSACTIONS
IN GENERAL
Sec. 425.109. AUTHORIZED INVESTMENTS: GOVERNMENT
OBLIGATIONS
Sec. 425.110. AUTHORIZED INVESTMENTS: OBLIGATIONS OF
AND OTHER INVESTMENTS IN BUSINESS
ENTITIES
Sec. 425.111. AUTHORIZED INVESTMENTS: BONDS ISSUED,
ASSUMED, OR GUARANTEED IN
INTERNATIONAL MARKET
Sec. 425.112. AUTHORIZED INVESTMENTS: POLICY LOANS
Sec. 425.113. AUTHORIZED INVESTMENTS: DEPOSITS IN
CERTAIN FINANCIAL INSTITUTIONS
Sec. 425.114. AUTHORIZED INVESTMENTS: INSURANCE
COMPANY INVESTMENT POOLS
Sec. 425.115. AUTHORIZED INVESTMENTS: EQUITY
INTERESTS
Sec. 425.116. AUTHORIZED INVESTMENTS: PREFERRED STOCK
Sec. 425.117. AUTHORIZED INVESTMENTS: COLLATERAL
LOANS
Sec. 425.118. AUTHORIZED INVESTMENTS: OBLIGATIONS
SECURED BY REAL PROPERTY LOANS
Sec. 425.119. AUTHORIZED INVESTMENTS: REAL PROPERTY
Sec. 425.120. AUTHORIZED INVESTMENTS: OIL, GAS, AND
MINERALS
Sec. 425.121. AUTHORIZED INVESTMENTS: SECURITIES
LENDING, REPURCHASE, REVERSE
REPURCHASE, AND DOLLAR ROLL
TRANSACTIONS
Sec. 425.122. AUTHORIZED INVESTMENTS: PREMIUM LOANS
Sec. 425.123. AUTHORIZED INVESTMENTS: MONEY MARKET
FUNDS
Sec. 425.124. AUTHORIZED INVESTMENTS: RISK CONTROL
TRANSACTIONS
Sec. 425.125. RISK CONTROL TRANSACTIONS: DEFINITIONS
Sec. 425.126. RISK CONTROL TRANSACTIONS: DERIVATIVE
USE PLAN
Sec. 425.127. RISK CONTROL TRANSACTIONS: INTERNAL
CONTROL PROCEDURES
Sec. 425.128. RISK CONTROL TRANSACTIONS: OVERSIGHT BY
COMMISSIONER
Sec. 425.129. RISK CONTROL TRANSACTIONS: LIMITATIONS
ON INCOME GENERATION TRANSACTIONS
Sec. 425.130. RISK CONTROL TRANSACTIONS: LIMITATIONS
ON REPLICATION TRANSACTIONS
Sec. 425.131. RISK CONTROL TRANSACTIONS: TRADING
REQUIREMENTS
Sec. 425.132. RISK CONTROL TRANSACTIONS: OFFSETTING
TRANSACTIONS
[Sections 425.133-425.150 reserved for expansion]
Sec. 425.151. AUTHORIZED INVESTMENTS: FOREIGN
COUNTRIES AND UNITED STATES
TERRITORIES
Sec. 425.152. AUTHORIZED INVESTMENTS: INVESTMENTS NOT
OTHERWISE SPECIFIED OR PROHIBITED;
INVESTMENTS AUTHORIZED BY OTHER LAW
Sec. 425.153. AUTHORIZED INVESTMENTS: CERTAIN
PREVIOUSLY AUTHORIZED INVESTMENTS
Sec. 425.154. APPLICABILITY OF PERCENTAGE
AUTHORIZATIONS AND LIMITATIONS
Sec. 425.155. QUALIFICATION OF INVESTMENTS
Sec. 425.156. DISTRIBUTIONS, REINSURANCE, AND MERGER
Sec. 425.157. AGGREGATE DIVERSIFICATION REQUIREMENTS
Sec. 425.158. WAIVER BY COMMISSIONER OF QUANTITATIVE
LIMITATIONS
Sec. 425.159. ACCOUNTING PROVISIONS
Sec. 425.160. INVESTMENTS OF CEDING INSURERS
Sec. 425.161. ACTING AS REAL ESTATE BROKER OR
SALESPERSON PROHIBITED
Sec. 425.162. RULES
[Sections 425.163-425.200 reserved for expansion]
SUBCHAPTER D. AUTHORIZED INVESTMENTS AND TRANSACTIONS FOR OTHER
LIFE, HEALTH, AND ACCIDENT INSURERS
Sec. 425.201. DEFINITION
Sec. 425.202. APPLICABILITY OF SUBCHAPTER
Sec. 425.203. LIMITATION ON FUNDS AND OTHER ASSETS
Sec. 425.204. APPROVAL OF INVESTMENTS AND LOANS
REQUIRED
Sec. 425.205. AUTHORIZED INVESTMENTS FOR ALL FUNDS:
GOVERNMENT BONDS
Sec. 425.206. AUTHORIZED INVESTMENTS FOR ALL FUNDS:
CORPORATE BONDS, NOTES, AND DEBENTURES
Sec. 425.207. AUTHORIZED INVESTMENTS FOR ALL FUNDS:
SHARES OF SAVINGS AND LOAN
ASSOCIATIONS
Sec. 425.208. AUTHORIZED INVESTMENTS FOR ALL FUNDS:
BANK AND BANK HOLDING COMPANY STOCKS
Sec. 425.209. AUTHORIZED INVESTMENTS FOR ALL FUNDS:
DEBENTURES OF PUBLIC UTILITY
CORPORATIONS
Sec. 425.210. AUTHORIZED INVESTMENTS FOR ALL FUNDS:
PREFERRED STOCK OF PUBLIC UTILITY
CORPORATIONS
Sec. 425.211. AUTHORIZED INVESTMENTS FOR ALL FUNDS:
BONDS ISSUED, ASSUMED, OR GUARANTEED
IN INTERNATIONAL MARKET
Sec. 425.212. AUTHORIZED INVESTMENTS FOR ALL FUNDS:
SECURITIES OR INVESTMENTS AUTHORIZED
OR DESCRIBED BY SPECIFIC STATUTORY
PROVISION
Sec. 425.213. AUTHORIZED INVESTMENTS FOR ALL FUNDS:
OTHER SECURITIES SPECIFICALLY
AUTHORIZED BY LAW
Sec. 425.214. AUTHORIZED INVESTMENTS FOR ALL FUNDS:
LOANS SECURED BY REAL PROPERTY
Sec. 425.215. AUTHORIZED INVESTMENTS FOR ALL FUNDS:
LOANS SECURED BY CERTAIN COLLATERAL
SECURED BY REAL PROPERTY
Sec. 425.216. AUTHORIZED INVESTMENTS FOR ALL FUNDS:
POLICY LOANS
Sec. 425.217. AUTHORIZED INVESTMENTS FOR ALL FUNDS:
LOANS SECURED BY CERTAIN SECURITIES
Sec. 425.218. AUTHORIZED INVESTMENTS FOR ALL FUNDS:
SECURITIES NOT OTHERWISE SPECIFIED
Sec. 425.219. AUTHORIZED INVESTMENTS FOR POLICY
RESERVES AND SURPLUS: BONDS OF
CERTAIN WATER CONTROL AND IMPROVEMENT
DISTRICTS
Sec. 425.220. AUTHORIZED INVESTMENTS FOR CAPITAL,
SURPLUS, AND CONTINGENCY FUNDS:
CAPITAL STOCK, BONDS, AND OTHER
CORPORATE OBLIGATIONS
Sec. 425.221. AUTHORIZED INVESTMENTS FOR CAPITAL,
SURPLUS, AND CONTINGENCY FUNDS: BONDS
OR NOTES OF EDUCATIONAL OR RELIGIOUS
CORPORATIONS
Sec. 425.222. AUTHORIZED INVESTMENTS FOR CAPITAL,
SURPLUS, AND CONTINGENCY FUNDS: LIFE
INCOME INTERESTS IN QUALIFIED TRUSTS
Sec. 425.223. AUTHORIZED INVESTMENTS FOR CAPITAL,
SURPLUS, AND CONTINGENCY FUNDS:
CAPITAL STOCK OF REINSURER
Sec. 425.224. AUTHORIZED INVESTMENTS FOR CAPITAL,
SURPLUS, AND CONTINGENCY FUNDS: LOANS
SECURED BY CORPORATE STOCK
Sec. 425.225. INVESTMENT IN FOREIGN SECURITIES
Sec. 425.226. INVESTMENT IN STOCK SUBJECT TO
ASSESSMENT PROHIBITED
Sec. 425.227. CERTAIN INVESTMENT POWERS NOT A
RESTRICTION
Sec. 425.228. INVESTMENTS OF CEDING INSURER
Sec. 425.229. AUTHORIZED INVESTMENTS: REAL ESTATE FOR
INSURER'S OFFICES
Sec. 425.230. AUTHORIZED INVESTMENTS: OIL, GAS, AND
MINERALS
Sec. 425.231. AUTHORIZED INVESTMENTS: REAL PROPERTY
ACQUIRED UNDER CERTAIN CIRCUMSTANCES
Sec. 425.232. AUTHORIZED INVESTMENTS: IMPROVED
INCOME-PRODUCING REAL PROPERTY
CHAPTER 425. RESERVES AND INVESTMENTS FOR LIFE INSURANCE
COMPANIES AND RELATED ENTITIES
SUBCHAPTER A. GENERAL PROVISIONS
Sec. 425.001. SECURITIES IN AMOUNT OF RESERVES
REQUIRED. The commissioner, after determining the amount of the
reserves required on all of a life insurance company's policies in
force, shall ensure that the company has at least that amount in
securities of the class and character required by the law of this
state, after all debts and claims against the company and the
minimum capital required by Chapter 841 or 982, as applicable, have
been provided for. (V.T.I.C. Art. 3.32.)
Sec. 425.002. CERTAIN INSURERS: DEPOSIT OF SECURITIES,
MONEY, OR PROPERTY IN AMOUNT OF LEGAL RESERVES. (a) Except as
provided by Subsection (b), a life insurance company incorporated
under the laws of this state may deposit with the department, for
the common benefit of all the holders of the company's policies and
annuity contracts and in an amount equal to the legal reserve on all
the company's outstanding policies and contracts in force,
securities of the character in which the law of this state permits
the company to invest, or against which the law of this state
permits the company to loan, the company's capital, surplus, or
reserves.
(b) A life insurance company may not make a new deposit of
securities after August 28, 1961, except to the extent expressly
required by Section 425.003.
(c) For purposes of this section, securities may be
physically delivered to the department without being accompanied by
a written transfer of a lien securing the securities. A life
insurance company may deposit registered or unregistered United
States government securities under this section.
(d) A life insurance company may deposit lawful money of the
United States instead of all or part of the securities described by
Subsection (a). A company may, for the purposes of the deposit
described by Subsection (a), convey to the department in trust the
real property in which any part of the company's reserve is lawfully
invested. If the company conveys the property, the department
shall hold the title to the property in trust until the company
deposits with the department securities to take the place of the
property, at which time the department shall reconvey the property
to the company.
(e) The department may have any securities or real property
appraised and valued before the securities or real property may be
deposited with or conveyed to the department under this section.
The life insurance company shall pay the reasonable expense of the
appraisal or valuation.
(f) For purposes of state, county, and municipal taxation,
the situs of the deposited securities is the municipality and
county in which the life insurance company's charter requires the
principal business office of the company making the deposit to be
located. (V.T.I.C. Art. 3.16, Secs. 1 (part), 2, 3.)
Sec. 425.003. CERTAIN INSURERS: REQUIRED DEPOSITS OF
SECURITIES; ADDITIONAL DEPOSITS AND WITHDRAWALS. (a) A life
insurance company that, before August 28, 1961, issued or assumed
the obligations of policies or annuity contracts that were
registered as provided by Article 3.18, as that article existed
before August 28, 1961, shall have on deposit with the department
securities of the character described by Section 425.002 in an
amount equal to or greater than the aggregate net value of the
company's outstanding registered policies and annuity contracts in
force.
(b) To comply with Subsection (a), a life insurance company
shall periodically make additional deposits of securities in
amounts of not less than $5,000. A company whose deposits exceed
the aggregate net value of the company's outstanding registered
policies and annuity contracts in force may periodically withdraw
the excess in amounts of not less than $5,000. A company may at any
time withdraw any of the company's deposited securities by
depositing in their place securities of equal value to the
securities replaced and of a character authorized by this chapter.
(c) A life insurance company may at any time collect the
interest, rents, and other income from the company's securities on
deposit.
(d) The net value of each policy or annuity contract subject
to this section is the policy's or contract's value according to the
standard prescribed by state law when the first premium on the
policy or contract is paid, minus the amount of any liens the life
insurance company has against the policy or contract not to exceed
the policy's or contract's value.
(e) The department shall hold a life insurance company's
securities on deposit with the department under this section in
trust for the benefit of all holders of the company's outstanding
policies and annuity contracts that were registered as provided by
Article 3.18, as that article existed before August 28, 1961.
(f) A life insurance company that has outstanding
registered policies or annuity contracts in force may not reinsure
all or any part of that outstanding business, other than in a
company authorized to engage in business in this state. (V.T.I.C.
Art. 3.16, Sec. 1 (part); Art. 3.17.)
Sec. 425.004. RECORDS OF SECURITIES DEPOSITED WITH
DEPARTMENT; REPORT OF VALUE. Each life insurance company that is
required by Section 425.003 to have securities on deposit with the
department shall:
(1) keep records of:
(A) all of the company's outstanding registered
policies and annuity contracts in force; and
(B) the net value of those policies and
contracts; and
(2) not later than the 15th day after the last day of
each calendar month, file with the department a report stating
whether the value of the company's securities on deposit is equal to
or greater than the aggregate net value of the company's registered
policies and annuity contracts outstanding and in force at the end
of the preceding calendar month. (V.T.I.C. Art. 3.18, Secs. 2, 3.)
Sec. 425.005. DEPARTMENT DUTIES REGARDING DEPOSITED
SECURITIES; INSURANCE COMPANY ACCESS. (a) The department shall
keep securities deposited by a life insurance company under
Sections 425.002 and 425.003 in a secure safe-deposit, fireproof
box or vault in the municipality of, or a municipality near the
location of, the company's home office.
(b) The life insurance company's officers may, in
accordance with reasonable rules adopted by the commissioner, have
access to the securities to detach interest coupons, credit
payment, and exchange securities as provided by Section 425.003.
(V.T.I.C. Art. 3.18, Sec. 4.)
Sec. 425.006. ADDITIONAL RESERVES REQUIRED: SUBSTANDARD OR
EXTRA HAZARDOUS POLICIES. (a) If a life insurance company engaged
in business under the laws of this state has written or assumed
risks that are substandard or extra hazardous and has charged more
for the policies under which those risks are written or assumed than
the company's published premium rates, the commissioner shall, in
valuing those policies, compute and charge extra reserves on the
policies as necessary because of the extra hazard assumed and the
extra premium charged.
(b) If the commissioner determines, after notice and
hearing, that a particular risk or class of risks is substandard or
extra hazardous, a life insurance company may not, after the
determination is made, write or assume the particular risk or class
of risks unless the company charges an extra premium as necessary
because of the extra hazard assumed. (V.T.I.C. Art. 3.29.)
Sec. 425.007. SUBSCRIPTION TO OR UNDERWRITING PURCHASE OR
SALE OF SECURITIES OR PROPERTY PROHIBITED; CONTROL OF DISPOSITION
OF PROPERTY. (a) A life insurance company organized under the laws
of this state may not:
(1) subscribe to, or participate in, any underwriting
of the purchase or sale of securities or property;
(2) enter into a transaction described by Subdivision
(1) for a purpose described by Subdivision (1);
(3) sell on account of the company jointly with any
other person, firm, or corporation; or
(4) enter into any agreement to withhold from sale any
of the company's property.
(b) The disposition of the life insurance company's
property must be at all times within the control of the company's
board of directors. (V.T.I.C. Art. 3.39a.)
Sec. 425.008. AUTHORIZED INVESTMENTS FOR FOREIGN
COMPANIES. A foreign company shall invest the company's assets in:
(1) securities or property of the same classes in
which the law of this state permits a domestic insurance company to
invest; or
(2) securities permitted by other law of this state
and approved by the commissioner as being of substantially the same
grade as securities or property in which a domestic insurance
company is permitted to invest. (V.T.I.C. Art. 3.41.)
Sec. 425.009. STUDENT LOANS. A foreign or domestic life
insurance company may make loans to a student enrolled in an
institution of higher education if the principal amount of the loan
is insured by:
(1) the federal government under the Higher Education
Act of 1965 (Pub. L. No. 89-329), as amended; or
(2) the Texas Guaranteed Student Loan Corporation
under Chapter 57, Education Code. (V.T.I.C. Art. 3.41a.)
[Sections 425.010-425.050 reserved for expansion]
SUBCHAPTER B. STANDARD VALUATION LAW
Sec. 425.051. SHORT TITLE. This subchapter may be cited as
the Standard Valuation Law. (V.T.I.C. Art. 3.28, Sec. 1.)
Sec. 425.052. DEFINITIONS. (a) In this subchapter,
"reserves" means reserve liabilities.
(b) As used in this subchapter:
(1) an "issue year basis" of valuation means a
valuation basis under which the interest rate used to determine the
minimum valuation standard for the entire duration of the annuity
or guaranteed interest contract is the calendar year valuation
interest rate for the year of issue or year of purchase of the
annuity or guaranteed interest contract; and
(2) a "change in fund basis" of valuation means a
valuation basis under which the interest rate used to determine the
minimum valuation standard applicable to each change in the fund
held under the annuity or guaranteed interest contract is the
calendar year valuation interest rate for the year of the change in
the fund. (V.T.I.C. Art. 3.28, Secs. 2 (part), 5(c) (part).)
Sec. 425.053. ANNUAL VALUATION OF RESERVES. (a) The
department shall annually value or have valued the reserves for all
outstanding life insurance policies and annuity and pure endowment
contracts of each life insurance company engaged in business in
this state. The department may certify the amount of those
reserves, specifying the mortality table or tables, rate or rates
of interest, and methods, including the net level premium method or
another method, used in computing those reserves.
(b) In computing reserves under Subsection (a), the
department may use group methods and approximate averages for
fractions of a year or otherwise.
(c) Instead of valuing the reserves as required by
Subsection (a) for a foreign or alien company, the department may
accept any valuation made by or for the insurance supervisory
official of another state or jurisdiction if:
(1) the valuation complies with the minimum standard
provided by this subchapter; and
(2) the official accepts as sufficient and valid for
all legal purposes a certificate of valuation made by the
department that states the valuation was made in a specified manner
according to which the aggregate reserves would be at least as large
as they would be if computed in the manner prescribed by the law of
that state or jurisdiction. (V.T.I.C. Art. 3.28, Sec. 2 (part).)
Sec. 425.054. ACTUARIAL OPINION REQUIRED. (a) For
purposes of this section, "qualified actuary" means:
(1) a qualified actuary, as that term is defined by
Section 802.002; or
(2) a person who, before September 1, 1993, satisfied
the requirements of the former State Board of Insurance to submit an
opinion under former Section 2A(a)(1), Article 3.28.
(b) In conjunction with the annual statement and in addition
to other information required by this subchapter, each life
insurance company engaged in business in this state shall annually
submit to the department the opinion of a qualified actuary as to
whether the reserves and related actuarial items held in support of
the policies and contracts specified by commissioner rule:
(1) are computed appropriately;
(2) are based on assumptions that satisfy contractual
provisions;
(3) are consistent with prior reported amounts; and
(4) comply with applicable laws of this state.
(c) The commissioner by rule shall specify the requirements
of an actuarial opinion under Subsection (b), including any matters
considered necessary to the opinion's scope.
(d) The opinion required by this section must:
(1) apply to all of the life insurance company's
business in force, including individual and group health insurance
plans; and
(2) be in the form and contain the substance specified
by commissioner rule and be acceptable to the commissioner.
(e) The commissioner may accept as an opinion required to be
submitted under Subsection (b) by a foreign or alien company the
opinion filed by that company with the insurance supervisory
official of another state if the commissioner determines that the
opinion filed in the other state reasonably meets the requirements
applicable to a company domiciled in this state.
(f) Except as exempted by or as otherwise provided by
commissioner rule, a life insurance company shall include in the
opinion required by Subsection (b) an opinion that states whether
the reserves and related actuarial items held in support of the
policies and contracts specified by commissioner rule adequately
provide for the company's obligations under the policies and
contracts, including the benefits under and expenses associated
with the policies and contracts.
(g) In making the opinion under Subsection (f), the reserves
and related actuarial items are considered in light of the assets
held by the life insurance company with respect to the reserves and
related actuarial items, including:
(1) the investment earnings on the assets; and
(2) the considerations anticipated to be received and
retained under the policies and contracts.
(h) The person who certifies the opinion required by
Subsection (b) must make the opinion required by Subsection (f).
(i) Rules adopted under this section may exempt life
insurance companies that would be exempt from the requirements of
this section under the most recently adopted regulation by the
National Association of Insurance Commissioners entitled "Model
Actuarial Opinion and Memorandum Regulation," or a successor to
that regulation, if the commissioner considers the exemption
appropriate. (V.T.I.C. Art. 3.28, Secs. 2A(a)(1), (2), (3), (b).)
Sec. 425.055. SUPPORTING MEMORANDUM FOR ACTUARIAL OPINION.
(a) A memorandum that, in form and substance, complies with the
commissioner's rules shall be prepared to support each actuarial
opinion required by Section 425.054.
(b) The commissioner may engage an actuary or other
financial specialist as defined by commissioner rule if:
(1) a life insurance company does not provide a
supporting memorandum at the request of the commissioner in the
time specified by rule; or
(2) the company provides a supporting memorandum, but
the commissioner determines that the supporting memorandum does not
meet the standards prescribed by rule or is otherwise unacceptable
to the commissioner.
(c) The actuary or other financial specialist under
Subsection (b) shall:
(1) review the actuarial opinion and the basis for the
opinion; and
(2) prepare the supporting memorandum.
(d) A life insurance company is responsible for the expense
of the actuary or other financial specialist under Subsection (b).
(V.T.I.C. Art. 3.28, Secs. 2A(a)(6), (7).)
Sec. 425.056. LIMITATION ON LIABILITY FOR ACTUARIAL
OPINION. (a) Except in cases of fraud or wilful misconduct or as
provided by Subsection (b), a person who certifies an opinion under
Section 425.054 is not liable for damages to a person, other than
the life insurance company covered by the opinion, for an act,
error, omission, decision, or other conduct with respect to the
person's opinion.
(b) Subsection (a) does not apply to an administrative
penalty imposed under Chapter 84. (V.T.I.C. Art. 3.28, Sec.
2A(a)(4).)
Sec. 425.057. DISCIPLINARY ACTION: COMPANY OR PERSON
CERTIFYING OPINION. A company or person that certifies an opinion
under Section 425.054 and that violates Section 425.054 or 425.055
or rules adopted under those sections is subject to disciplinary
action under Chapter 82. (V.T.I.C. Art. 3.28, Sec. 2A(a)(5).)
Sec. 425.058. VALUATION OF POLICY OR CONTRACT: GENERAL
RULE. (a) Except as otherwise provided by Section 425.059,
425.060, 425.061, 425.062, or 425.063, the minimum standard for the
valuation of an outstanding life insurance policy or annuity or
pure endowment contract issued by a life insurance company on or
after the date on which Chapter 1105 applies to policies issued by
the company, as determined under Section 1105.002(a) or (b), is the
commissioners reserve valuation method described by Sections
425.064, 425.065, and 425.068, computed using the table prescribed
by this section and with interest at 3-1/2 percent or at the
following rate, if applicable:
(1) in the case of a policy or contract issued on or
after June 14, 1973, and before August 29, 1977, other than an
annuity or pure endowment contract, four percent;
(2) in the case of a single premium life insurance
policy issued on or after August 29, 1977, 5-1/2 percent; or
(3) in the case of a life insurance policy issued on or
after August 29, 1977, other than a single premium life insurance
policy, 4-1/2 percent.
(b) Except as provided by Subsection (c), for an ordinary
life insurance policy issued on the standard basis, excluding any
disability or accidental death benefits in the policy, the
applicable table is the Commissioners 1941 Standard Ordinary
Mortality Table, if the policy was issued before the date on which
Section 1105.152 would apply to the policy, as determined under
Section 1105.152(a) or (b), or the Commissioners 1958 Standard
Ordinary Mortality Table, if Section 1105.152 applies to the
policy. For a policy that is issued to insure a female risk:
(1) a modified net premium or present value for a
policy issued before August 29, 1977, may be computed according to
an age not more than three years younger than the insured's actual
age; and
(2) a modified net premium or present value for a
policy issued on or after August 29, 1977, may be computed according
to an age not more than six years younger than the insured's actual
age.
(c) For an ordinary life insurance policy issued on the
standard basis, excluding any disability or accidental death
benefits in the policy, and to which Subchapter B, Chapter 1105,
applies, the applicable table is:
(1) the Commissioners 1980 Standard Ordinary
Mortality Table;
(2) at the insurer's option for one or more specified
life insurance plans, the Commissioners 1980 Standard Ordinary
Mortality Table with Ten-Year Select Mortality Factors; or
(3) any ordinary mortality table adopted after 1980 by
the National Association of Insurance Commissioners that is
approved by commissioner rule for use in determining the minimum
standard valuation for a policy to which this subdivision applies.
(d) For an industrial life insurance policy issued on the
standard basis, excluding any disability or accidental death
benefits in the policy, the applicable table is:
(1) the 1941 Standard Industrial Mortality Table, if
the policy was issued before the date on which Section 1105.153
would apply to the policy as determined under Section 1105.153(a)
or (b); or
(2) if Section 1105.153 applies to the policy:
(A) the Commissioners 1961 Standard Industrial
Mortality Table; or
(B) any industrial mortality table adopted after
1980 by the National Association of Insurance Commissioners that is
approved by commissioner rule for use in determining the minimum
standard of valuation for a policy to which this subdivision
applies.
(e) For an individual annuity or pure endowment contract,
excluding any disability or accidental death benefits in the
policy, the applicable table is the 1937 Standard Annuity Mortality
Table, or at the insurer's option, the Annuity Mortality Table for
1949, Ultimate, or a modification of either table that is approved
by the commissioner.
(f) For a group annuity or pure endowment contract,
excluding any disability or accidental death benefits in the
policy, the applicable table is:
(1) the Group Annuity Mortality Table for 1951;
(2) a modification of that table approved by the
commissioner; or
(3) at the insurance company's option, a table or a
modification of a table prescribed for an individual annuity or
pure endowment contract by Subsection (e).
(g) For total and permanent disability benefits in or
supplementary to an ordinary policy or contract, the applicable
tables are:
(1) for a policy or contract issued on or after January
1, 1966:
(A) the tables of Period 2 disablement rates and
the 1930 to 1950 termination rates of the 1952 Disability Study of
the Society of Actuaries, with due regard to the type of benefit; or
(B) any table of disablement rates and
termination rates adopted after 1980 by the National Association of
Insurance Commissioners that are approved by commissioner rule for
use in determining the minimum standard of valuation for a policy to
which this subdivision applies;
(2) for a policy or contract issued on or after January
1, 1961, and before January 1, 1966:
(A) a table described by Subdivision (1); or
(B) at the insurance company's option, the Class
(3) Disability Table (1926); or
(3) for a policy issued before January 1, 1961, the
Class (3) Disability Table (1926).
(h) A table described by Subsection (g) must, for an active
life, be combined with a mortality table permitted for computing
the reserves for a life insurance policy.
(i) For accidental death benefits in or supplementary to a
policy, the applicable table is:
(1) for a policy issued on or after January 1, 1966:
(A) the 1959 Accidental Death Benefits Table; or
(B) any accidental death benefits table adopted
after 1980 by the National Association of Insurance Commissioners
that is approved by commissioner rule for use in determining the
minimum standard of valuation for a policy to which this
subdivision applies;
(2) for a policy issued on or after January 1, 1961,
and before January 1, 1966:
(A) a table described by Subdivision (1); or
(B) at the insurance company's option, the
Inter-Company Double Indemnity Mortality Table; or
(3) for a policy issued before January 1, 1961, the
Inter-Company Double Indemnity Mortality Table.
(j) A table described by Subsection (i) must be combined
with a mortality table permitted for computing the reserves for a
life insurance policy.
(k) For group life insurance, life insurance issued on the
substandard basis and other special benefits, the applicable table
is a table approved by the commissioner.
(l) Notwithstanding any other law, the minimum reserve
requirements applicable to a policy issued under Chapter 1153 are
met if, in the aggregate, the reserves are maintained at 100 percent
of the 1980 Commissioner's Standard Ordinary Mortality Table, with
interest that does not exceed 5.5 percent. This subsection expires
September 1, 2013. (V.T.I.C. Art. 3.28, Secs. 3 (part), (a), (b),
(c), (d), (e), (f), (g), (h).)
Sec. 425.059. VALUATION OF CERTAIN ANNUITIES AND PURE
ENDOWMENT CONTRACTS. (a) This section applies to an individual
annuity or pure endowment contract issued on or after January 1,
1979, and an annuity or pure endowment purchased on or after January
1, 1979, under a group annuity or pure endowment contract. This
section also applies to an annuity or pure endowment contract
issued by an insurer after the date specified in a written notice:
(1) that was filed with the State Board of Insurance
after June 14, 1973, but before January 1, 1979; and
(2) under which the insurance company filing the
notice elected to comply before January 1, 1979, with former
Section 4, Article 3.28, with respect to individual or group
annuities and pure endowment contracts as specified by the company
in the notice.
(b) Except as provided by Section 425.060, 425.061,
425.062, or 425.063, the minimum standard for the valuation of an
individual or group annuity or pure endowment contract, excluding
any disability or accidental death benefits in the contract, is the
commissioners reserve valuation method described by Sections
425.064 and 425.065, computed using the table prescribed by this
section and with interest at the following interest rate, as
applicable:
(1) for an individual annuity or pure endowment
contract issued before August 29, 1977, other than an individual
single premium immediate annuity contract, four percent;
(2) for an individual single premium immediate annuity
contract issued before August 29, 1977, six percent;
(3) for an individual annuity or pure endowment
contract issued on or after August 29, 1977, other than an
individual single premium immediate annuity contract or an
individual single premium deferred annuity or pure endowment
contract, 4-1/2 percent;
(4) for an individual single premium immediate annuity
contract issued on or after August 29, 1977, 7-1/2 percent;
(5) for an individual single premium deferred annuity
or pure endowment contract issued on or after August 29, 1977, 5-1/2
percent;
(6) for an annuity or pure endowment purchased before
August 29, 1977, under a group annuity or pure endowment contract,
six percent; or
(7) for an annuity or pure endowment purchased on or
after August 29, 1977, under a group annuity or pure endowment
contract, 7-1/2 percent.
(c) For an individual annuity or pure endowment contract
issued before August 29, 1977, the applicable table is:
(1) the 1971 Individual Annuity Mortality Table; or
(2) a modification of that table approved by the
commissioner.
(d) For an individual annuity or pure endowment contract
issued on or after August 29, 1977, including an individual single
premium immediate annuity contract, the applicable table is:
(1) the 1971 Individual Annuity Mortality Table;
(2) an individual annuity mortality table adopted
after 1980 by the National Association of Insurance Commissioners
that is approved by the commissioner by rule for use in determining
the minimum standard of valuation for a specified type of contract
to which this subsection applies; or
(3) a modification of one of those tables approved by
the commissioner.
(e) For an annuity or pure endowment purchased before August
29, 1977, under a group annuity or pure endowment contract, the
applicable table is:
(1) the 1971 Group Annuity Mortality Table; or
(2) a modification of that table approved by the
commissioner.
(f) For an annuity or pure endowment purchased on or after
August 29, 1977, under a group annuity or pure endowment contract,
the applicable table is:
(1) the 1971 Group Annuity Mortality Table;
(2) a group annuity mortality table adopted after 1980
by the National Association of Insurance Commissioners that is
approved by the commissioner by rule for use in determining the
minimum standard of valuation for an annuity or pure endowment to
which this subsection applies; or
(3) a modification of one of those tables approved by
the commissioner. (V.T.I.C. Art. 3.28, Sec. 4.)
Sec. 425.060. APPLICABILITY OF CALENDAR YEAR STATUTORY
VALUATION INTEREST RATES. The calendar year statutory valuation
interest rates as defined by Sections 425.061, 425.062, and 425.063
are the interest rates used in determining the minimum standard for
the valuation of:
(1) a life insurance policy to which Subchapter B,
Chapter 1105, applies;
(2) an individual annuity or pure endowment contract
issued on or after January 1, 1982;
(3) an annuity or pure endowment purchased on or after
January 1, 1982, under a group annuity or pure endowment contract;
or
(4) the net increase, if any, in a calendar year after
January 1, 1982, in amounts held under a guaranteed interest
contract. (V.T.I.C. Art. 3.28, Sec. 5(a).)
Sec. 425.061. COMPUTATION OF CALENDAR YEAR STATUTORY
VALUATION INTEREST RATE: GENERAL RULE. (a) For purposes of
Subsection (b):
(1) R1 is the lesser of R or .09;
(2) R2 is the greater of R or .09;
(3) R is the reference interest rate determined under
Section 425.063; and
(4) W is the weighting factor determined under Section
425.062.
(b) The calendar year statutory valuation interest rate
("I") is determined as provided by this section, with the results
rounded to the nearest one-quarter of one percent:
(1) for life insurance:
I = .03 + W(R1 - .03) + (W/2)(R2 - .09); and
(2) for a single premium immediate annuity or annuity
benefits involving life contingencies arising from another annuity
with a cash settlement option or from a guaranteed interest
contract with a cash settlement option, or for an annuity or
guaranteed interest contract without a cash settlement option, or
for an annuity or guaranteed interest contract with a cash
settlement option that is valued on a change in fund basis:
I = .03 + W(R - .03).
(c) For an annuity or guaranteed interest contract with a
cash settlement option that is valued on an issue year basis, other
than an annuity or contract described by Subsection (b)(2):
(1) the formula prescribed by Subsection (b)(1)
applies to an annuity or guaranteed interest contract with a
guarantee duration determined under Section 425.062(f) greater
than 10 years; and
(2) the formula prescribed by Subsection (b)(2)
applies to an annuity or guaranteed interest contract with a
guarantee duration determined under Section 425.062(f) of 10 years
or less.
(d) Notwithstanding Subsections (b) and (c), if the
calendar year statutory valuation interest rate for a life
insurance policy issued in a calendar year as determined under
Subsection (b) or (c), as applicable, would differ from the
corresponding actual rate for similar policies issued in the
preceding calendar year by less than one-half of one percent, the
calendar year statutory valuation interest rate for the policy is
the corresponding actual rate for the preceding calendar year. For
purposes of this subsection, the calendar year statutory valuation
interest rate for a life insurance policy issued in a calendar year
is determined for 1980 using the reference interest rate defined
for 1979, and is determined for each subsequent calendar year
regardless of whether Subchapter B, Chapter 1105, applies to the
policy. (V.T.I.C. Art. 3.28, Sec. 5(b).)
Sec. 425.062. WEIGHTING FACTORS. (a) This section
prescribes the weighting factors referred to in the formulas
prescribed by Section 425.061.
(b) The weighting factor for a life insurance policy is
determined by the following table: Guarantee Duration (Years) Weighting Factor
10 or less .50
More than 10, but not more than 20 .45
More than 20 .35
(c) For purposes of Subsection (b), the guarantee duration
is the maximum number of years the life insurance can remain in
force on a basis guaranteed in the policy or under options to
convert to life insurance plans with premium rates or nonforfeiture
values, or both, that are guaranteed in the original policy.
(d) The weighting factor for a single premium immediate
annuity or for annuity benefits involving life contingencies
arising from another annuity with a cash settlement option or from a
guaranteed interest contract with a cash settlement option is .80.
(e) The weighting factor for an annuity or a guaranteed
interest contract, other than an annuity or contract to which
Subsection (d) applies, is determined by the following tables:
(1) For an annuity or guaranteed interest contract
that is valued on an issue year basis: Guarantee Duration (Years) Weighting Factor for Plan Type
A B C
5 or less: .80 .60 .50
More than 5, but not more
than 10: .75 .60 .50
More than 10, but not more
than 20: .65 .50 .45
More than 20: .45 .35 .35
(2) For an annuity or guaranteed interest contract
that is valued on a change in fund basis, the factors prescribed by
Subdivision (1) increased by:
Plan Type
A B C
.15 .25 .05
(3) For an annuity or guaranteed interest contract
that is valued on an issue year basis that does not guarantee
interest on considerations received more than one year after issue
or purchase, other than an annuity or contract that does not have a
cash settlement option, or an annuity or guaranteed interest
contract that is valued on a change in fund basis that does not
guarantee interest rates on considerations received more than 12
months after the valuation date, the factors prescribed by
Subdivision (1) or determined under Subdivision (2), as
appropriate, increased by:
Plan Type
A B C
.05 .05 .05
(f) For purposes of Subsection (e):
(1) for an annuity or guaranteed interest contract
with a cash settlement option, the guarantee duration is the number
of years for which the contract guarantees interest rates greater
than the calendar year statutory valuation interest rate for life
insurance policies with guarantee duration greater than 20 years;
and
(2) for an annuity or guaranteed interest contract
without a cash settlement option, the guarantee duration is the
number of years from the issue or purchase date to the date annuity
benefits are scheduled to begin.
(g) For purposes of Subsection (e):
(1) a policy is a "Plan Type A" policy if:
(A) the policyholder may withdraw funds at any
time, but only:
(i) with an adjustment to reflect changes
in interest rates or asset values after the insurance company
receives the funds;
(ii) without an adjustment described by
Subparagraph (i), provided that the withdrawal is in installments
over five years or more; or
(iii) as an immediate life annuity; or
(B) the policyholder is not permitted to withdraw
funds at any time;
(2) a policy is a "Plan Type B" policy if:
(A) before the expiration of the interest rate
guarantee:
(i) the policyholder may withdraw funds,
but only:
(a) with an adjustment to reflect
changes in interest rates or asset values after the insurance
company receives the funds; or
(b) without an adjustment described
by Subsubparagraph (a), provided that the withdrawal is in
installments over five years or more; or
(ii) the policyholder is not permitted to
withdraw funds; and
(B) on the expiration of the interest rate
guarantee, the policyholder may withdraw funds in a single sum or in
installments over less than five years, without an adjustment
described by Paragraph (A)(i); and
(3) a policy is a "Plan Type C" policy if the
policyholder may withdraw funds before the expiration of the
interest rate guarantee in a single sum or in installments over less
than five years:
(A) without an adjustment to reflect changes in
interest rates or asset values after the insurance company receives
the funds; or
(B) subject only to a fixed surrender charge that
is a percentage of the fund stipulated in the contract.
(h) An insurance company may elect to value an annuity or
guaranteed interest contract with a cash settlement option on an
issue year basis or on a change in fund basis. A company must value
an annuity or guaranteed interest contract without a cash
settlement option on an issue year basis. (V.T.I.C. Art. 3.28, Sec.
5(c) (part).)
Sec. 425.063. REFERENCE INTEREST RATE. (a) In this
section, "Moody's Corporate Bond Yield Average" means the Moody's
Corporate Bond Yield Average--Monthly Average Corporates, as
published by Moody's Investors Service, Inc.
(b) Except as provided by Subsection (g), the reference
interest rate for purposes of Section 425.061 is determined as
provided by Subsections (c)-(f).
(c) The reference interest rate for a life insurance policy
is the lesser of the average over a period of 36 months or the
average over a period of 12 months, ending on June 30 of the
calendar year preceding the year of issue, of the Moody's Corporate
Bond Yield Average.
(d) The reference interest rate is the average over a period
of 12 months, ending on June 30 of the calendar year of issue or year
of purchase, of the Moody's Corporate Bond Yield Average for:
(1) a single premium immediate annuity or annuity
benefits involving life contingencies arising from another annuity
with a cash settlement option or from a guaranteed interest
contract with a cash settlement option;
(2) an annuity or guaranteed interest contract with a
cash settlement option, other than an annuity or contract described
by Subdivision (1), that is valued on an issue year basis and has a
guarantee duration as determined under Section 425.062(f) of 10
years or less; or
(3) an annuity or guaranteed interest contract without
a cash settlement option.
(e) The reference interest rate is the lesser of the average
over a period of 36 months or the average over a period of 12 months,
ending on June 30 of the calendar year of issue or purchase, of the
Moody's Corporate Bond Yield Average for an annuity or guaranteed
interest contract with a cash settlement option, other than an
annuity or contract described by Subsection (d)(1), that is valued
on an issue year basis and has a guarantee duration as determined
under Section 425.062(f) greater than 10 years.
(f) The reference interest rate is the average over a period
of 12 months, ending on June 30 of the calendar year of the change in
the fund, of the Moody's Corporate Bond Yield Average, for an
annuity or guaranteed interest contract with a cash settlement
option, other than an annuity or contract described by Subsection
(d)(1), that is valued on a change in fund basis.
(g) At least annually, the commissioner shall:
(1) determine whether the reference interest rates
prescribed by Subsections (c), (d), (e), and (f) continue to be a
reasonably accurate approximation of the average yield achieved
from purchases in the United States in publicly quoted markets of
investment grade fixed term and fixed interest corporate
obligations for the periods referenced in Subsection (c), (d), (e),
or (f), as applicable; and
(2) if the commissioner determines that a reference
interest rate prescribed by Subsection (c), (d), (e), or (f) is not
a reasonably accurate approximation of the average yield described
by Subdivision (1), adopt rules in the manner prescribed by
Chapters 2001 and 2002, Government Code, to prescribe an
alternative method of determining a reference interest rate, as
appropriate, that is a reasonably accurate approximation of that
average yield. (V.T.I.C. Art. 3.28, Secs. 5(d), (e).)
Sec. 425.064. COMMISSIONERS RESERVE VALUATION METHOD. (a)
Except as otherwise provided by Sections 425.065 and 425.068 and
subject to Subsection (b), for the life insurance and endowment
benefits of a policy that provides for a uniform amount of insurance
and that requires the payment of uniform premiums, the reserve
according to the commissioners reserve valuation method is the
difference, if greater than zero, of the present value on the date
of valuation of those future guaranteed benefits, minus the present
value on that date of any future modified net premiums for a policy
described by this subsection. The modified net premiums for a
policy described by this subsection are a uniform percentage of the
respective contract premiums for those benefits, so that the
present value on the policy's issue date of all the modified net
premiums is equal to the sum of:
(1) the present value on that date of those benefits;
and
(2) the difference, if greater than zero, between:
(A) a net level annual premium equal to the
present value on the policy's issue date of the benefits provided
for after the first policy year, divided by the present value on the
policy's issue date of an annuity of one per year, payable on the
first policy anniversary and on each subsequent policy anniversary
on which a premium becomes due; and
(B) a net one-year term premium for the benefits
provided for in the first policy year.
(b) A net level annual premium under Subsection (a)(2)(A)
may not exceed the net level annual premium on the 19-year premium
whole life plan for insurance of the same amount at an age that is
one year older than the age on the policy's issue date.
(c) This subsection applies only to a life insurance policy
issued on or after January 1, 1985, for which the contract premium
for the first policy year exceeds the contract premium for the
second year, for which a comparable additional benefit is not
provided in the first year for the excess premium, and that provides
an endowment benefit, a cash surrender value, or a combination of an
endowment benefit and cash surrender value, in an amount greater
than the excess premium. For purposes of this subsection, the
"assumed ending date" is the first policy anniversary on which the
sum of any endowment benefit and any cash surrender value available
on that date is greater than the excess premium. The reserve
according to the commissioners reserve valuation method for a
policy to which this subsection applies as of any policy
anniversary occurring on or before the assumed ending date is,
except as otherwise provided by Section 425.068, the greater of:
(1) the reserve as of the policy anniversary computed
as prescribed by Subsection (a); or
(2) the reserve as of the policy anniversary computed
as prescribed by Subsection (a) but with:
(A) the value prescribed by Subsection (a)(2)(A)
reduced by 15 percent of the amount of the excess first-year
premium;
(B) each present value of a benefit or premium
determined without reference to a premium or benefit provided under
the policy after the assumed ending date;
(C) the policy assumed to mature on the assumed
ending date as an endowment; and
(D) the cash surrender value provided on the
assumed ending date considered to be an endowment benefit.
(d) In making the comparison required by Subsection (c), the
mortality tables and interest bases described by Sections 425.058,
425.061, 425.062, and 425.063 must be used.
(e) Reserves according to the commissioners reserve
valuation method for the following policies, contracts, and
benefits must be computed by a method consistent with the
principles of this section:
(1) a life insurance policy that provides for a
varying amount of insurance or that requires the payment of varying
premiums;
(2) a group annuity or pure endowment contract
purchased under a retirement or deferred compensation plan
established or maintained by an employer, including a partnership
or sole proprietorship, by an employee organization, or by both,
other than a plan providing individual retirement accounts or
individual retirement annuities under Section 408, Internal
Revenue Code of 1986, and that section's subsequent amendments;
(3) disability or accidental death benefits in a
policy or contract; and
(4) all other benefits, other than life insurance and
endowment benefits in a life insurance policy or benefits provided
by any other annuity or pure endowment contract. (V.T.I.C.
Art. 3.28, Sec. 6.)
Sec. 425.065. COMMISSIONERS ANNUITY RESERVE VALUATION
METHOD. (a) This section applies to an annuity or pure endowment
contract other than a group annuity or pure endowment contract
purchased under a retirement or deferred compensation plan
established or maintained by an employer, including a partnership
or sole proprietorship, by an employee organization, or by both,
other than a plan providing individual retirement accounts or
individual retirement annuities under Section 408, Internal
Revenue Code of 1986, and that section's subsequent amendments.
(b) Reserves according to the commissioners annuity reserve
method for benefits under an annuity or pure endowment contract,
excluding any disability or accidental death benefits in the
contract, are the greatest of the respective excesses of the
present values on the valuation date of the future guaranteed
benefits under the contract at the end of each respective contract
year, including guaranteed nonforfeiture benefits, minus the
present value on the valuation date of any future valuation
considerations derived from future gross considerations that are
required by the contract terms and that become payable before the
end of the respective contract year. The future guaranteed
benefits must be determined by using the mortality table, if any,
and the interest rate or rates specified in the contract for
determining guaranteed benefits. The valuation considerations are
the portions of the respective gross considerations applied under
the contract terms to determine nonforfeiture values. (V.T.I.C.
Art. 3.28, Sec. 7.)
Sec. 425.066. MINIMUM AGGREGATE RESERVES. (a) An
insurance company's aggregate reserves for all life insurance
policies, excluding disability or accidental death benefits,
issued by the company on or after the date on which Chapter 1105
applies to policies issued by the company, as determined under
Section 1105.002(a) or (b), may not be less than the aggregate
reserves computed in accordance with the methods prescribed by
Sections 425.064, 425.065, 425.068, and 425.069 and the mortality
table or tables and interest rate or rates used in computing
nonforfeiture benefits for those policies.
(b) The aggregate reserves of an insurance company to which
this section applies for all policies, contracts, and benefits may
not be less than the aggregate reserves determined to be necessary
to issue a favorable opinion under Section 425.054. (V.T.I.C.
Art. 3.28, Secs. 8, 8A.)
Sec. 425.067. OPTIONAL RESERVE COMPUTATIONS. (a) Reserves
for a policy or contract issued by a life insurance company before
the date on which Chapter 1105 would apply to the policy or
contract, as determined under Section 1105.002(a) or (b), may be
computed, at the company's option, according to any standard that
produces greater aggregate reserves for all those policies and
contracts than the minimum reserves required by the laws applicable
to those policies and contracts immediately before that date.
(b) Reserves for any category, as established by the
commissioner, of policies, contracts, or benefits issued by a life
insurance company on or after the date on which Chapter 1105 applies
to policies, contracts, or benefits issued by the company, as
determined under Section 1105.002(a) or (b), may be computed, at
the company's option, according to any standard that produces
greater aggregate reserves for the category than the minimum
aggregate reserves computed according to the standard provided by
this subchapter, but the interest rate or rates used for those
policies and contracts, other than annuity and pure endowment
contracts, may not be higher than the corresponding interest rate
or rates used in computing any nonforfeiture benefits provided in
those policies or contracts.
(c) An insurance company that has adopted a standard of
valuation that produces greater minimum aggregate reserves than the
aggregate reserves computed according to the standard provided by
this subchapter may, with the commissioner's approval, adopt any
lower standard of valuation that produces aggregate reserves at
least equal to the minimum aggregate reserves computed according to
the standard provided by this subchapter.
(d) For purposes of this section, the holding of additional
reserves previously determined to be necessary to issue a favorable
opinion under Section 425.054 may not be considered to be the
adoption of a higher standard of valuation. (V.T.I.C. Art. 3.28,
Secs. 9, 9A.)
Sec. 425.068. RESERVE COMPUTATION: GROSS PREMIUM CHARGED
LESS THAN VALUATION NET PREMIUM. (a) If in a contract year the
gross premium charged by a life insurance company on a policy or
contract is less than the valuation net premium for the policy or
contract computed by the method used in computing the reserve on the
policy or contract but using the minimum valuation mortality
standards and interest rate, the minimum reserve required for the
policy or contract is the greater of:
(1) the reserve computed according to the mortality
table, interest rate, and method actually used for the policy or
contract; or
(2) the reserve computed by the method actually used
for the policy or contract but using the minimum valuation
mortality standards and interest rate and replacing the valuation
net premium with the actual gross premium in each contract year for
which the valuation net premium exceeds the actual gross premium.
(b) The minimum valuation mortality standards and interest
rate under Subsection (a) are the standards and rate provided by
Sections 425.058, 425.061, 425.062, and 425.063.
(c) This subsection applies only to a life insurance policy
issued on or after January 1, 1985, for which the gross premium for
the first policy year exceeds the gross premium for the second
policy year, for which a comparable additional benefit is not
provided in the first year for the excess premium, and that provides
an endowment benefit, a cash surrender value, or a combination of an
endowment benefit and cash surrender value, in an amount greater
than the excess premium. For a policy to which this subsection
applies, Subsections (a) and (b) shall be applied as if the method
actually used in computing the reserve for the policy were the
method described in Section 425.064, ignoring Section 425.064(c).
The minimum reserve at each policy anniversary is the greater of:
(1) the minimum reserve computed in accordance with
Section 425.064, including Section 425.064(c); or
(2) the minimum reserve computed in accordance with
this section. (V.T.I.C. Art. 3.28, Sec. 10.)
Sec. 425.069. RESERVE COMPUTATION: INDETERMINATE PREMIUM
PLANS AND CERTAIN OTHER PLANS. (a) For a life insurance plan that
provides for future premium determination, the amounts of which are
to be determined by the insurance company based on estimates of
future experience, or a life insurance plan or annuity for which the
minimum reserves cannot be determined by the methods described by
Sections 425.064, 425.065, and 425.068, the reserves held must:
(1) be appropriate in relation to the benefits and the
pattern of premiums for the plan; and
(2) be computed by a method that is consistent with the
principles of this subchapter, as determined by commissioner rule.
(b) Notwithstanding any other provision of state law, the
commissioner must affirmatively approve a policy, contract, or
certificate that provides life insurance under a plan described by
Subsection (a) before the policy, contract, or certificate may be
marketed, issued, delivered, or used in this state. (V.T.I.C.
Art. 3.28, Sec. 11.)
Sec. 425.070. COMPUTATION OF RESERVE FOR CERTAIN POLICIES
BY CALENDAR YEAR OF ISSUE. (a) The reserve for a policy or
contract issued by a life insurance company before the date on which
Chapter 1105 would apply to the policy or contract, as determined
under Section 1105.002(a) or (b), must be computed in accordance
with the terms of the policy or contract and this section.
(b) For a policy issued before January 1, 1910, the
computation must be based on the American Experience Table of
Mortality and 4-1/2 percent annual interest.
(c) For a policy issued on or after January 1, 1910, and
before January 1, 1948, the computation must be based on:
(1) the Actuaries or Combined Experience Table of
Mortality and four percent annual interest, if the interest rate
guaranteed in the policy is four percent annually or higher; or
(2) the American Experience Table of Mortality and
the lower rate specified in the policy, if the policy was issued on
a reserve basis of an interest rate lower than four percent
annually.
(d) For a policy issued on or after January 1, 1948, the
computation must be based on the mortality table and interest rate
specified in the policy, provided that:
(1) the specified interest rate may not exceed 3-1/2
percent annually;
(2) the specified table for a policy, other than an
industrial life insurance policy, is the American Experience Table
of Mortality, the American Men Ultimate Table of Mortality, the
Commissioners 1941 Standard Ordinary Mortality Table, or, for a
policy issued after December 31, 1959, the Commissioners 1958
Standard Ordinary Mortality Table; and
(3) the specified table for an industrial life
insurance policy is the American Experience Table of Mortality, the
Standard Industrial Mortality Table, the Sub-Standard Industrial
Mortality Table, the 1941 Standard Industrial Mortality Table, or
the 1941 Sub-Standard Industrial Mortality Table, or, for a policy
issued after December 31, 1963, the Commissioners 1961 Standard
Industrial Mortality Table.
(e) For a policy, other than an industrial life insurance
policy, issued after December 31, 1959, to insure a female risk, the
computation must be based on any mortality table and interest rate
permitted under Subsection (d) and specified in the policy but may,
at the insurance company's option, be based on an age not more than
three years younger than the insured's actual age.
(f) Except as otherwise provided by Section 425.059 for
coverage purchased under a group annuity or pure endowment contract
to which that section applies, for a policy issued on a substandard
risk, an annuity contract, or a contract or policy for disability
benefits or accidental death benefits, the computation must be
based on the standards and methods adopted by the insurance company
and approved by the commissioner.
(g) For a group insurance policy issued before May 15, 1947,
the computation must be based on the American Men Ultimate Table of
Mortality with interest at the rate of three percent or 3-1/2
percent annually as provided by the policy. The reserve value of a
group insurance policy issued on or after May 15, 1947, and before
January 1, 1961, must be computed on the basis of either the
American Men Ultimate Table of Mortality or the Commissioners 1941
Standard Ordinary Mortality Table with interest at a rate not to
exceed 3-1/2 percent annually as provided by the policy. For a
group insurance policy issued on or after January 1, 1961, the
computation must be based on an interest rate not to exceed 3-1/2
percent annually and the mortality table adopted by the insurance
company with the commissioner's approval. (V.T.I.C. Art. 3.28,
Secs. 3 (part), 12.)
[Sections 425.071-425.100 reserved for expansion]
SUBCHAPTER C. AUTHORIZED INVESTMENTS AND TRANSACTIONS FOR CAPITAL
STOCK LIFE, HEALTH, AND ACCIDENT INSURERS
Sec. 425.101. DEFINITIONS. In this subchapter:
(1) "Assets" means the statutory accounting admitted
assets of an insurance company. The term includes lawful money of
the United States, whether in the form of cash or demand deposits in
solvent banks, savings and loan associations, credit unions, and
branches of those entities, organized under the laws of the United
States or a state of the United States, if held in accordance with
the laws or regulations applicable to those entities. The term does
not include the company's separate accounts that are subject to
Chapter 1152.
(2) "Securities valuation office" means the
Securities Valuation Office of the National Association of
Insurance Commissioners. (V.T.I.C. Art. 3.33, Sec. 7(a); New.)
Sec. 425.102. INAPPLICABILITY OF CERTAIN LAW. The
definition of "state" assigned by Section 311.005, Government Code,
does not apply to this subchapter. (New.)
Sec. 425.103. APPLICABILITY OF SUBCHAPTER. (a) This
subchapter and rules adopted to interpret and implement this
subchapter apply to all domestic insurance companies as defined in
Section 841.001 and to other insurance companies specifically made
subject to this subchapter, including a stipulated premium company
that elects under Section 884.311 to be governed by this
subchapter.
(b) Subchapter D does not apply to an insurance company to
which this subchapter applies.
(c) This subchapter does not limit or restrict investments
in or transactions with or within subsidiaries and affiliates made
under Chapter 823. (V.T.I.C. Art. 3.33, Sec. 1 (part).)
Sec. 425.104. PURPOSE. The purpose of this subchapter is
to protect and further the interests of insureds, insurance
companies, creditors, and the public by providing standards for
development and administration of plans for investment of insurance
companies' assets. (V.T.I.C. Art. 3.33, Sec. 2.)
Sec. 425.105. WRITTEN INVESTMENT PLAN. (a) Each
insurance company's board of directors or, if the company does not
have a board of directors, the corresponding authority designated
by the company's charter, bylaws, or plan of operation, shall adopt
a written investment plan consistent with this subchapter.
(b) The investment plan must:
(1) specify the diversification of the insurance
company's investments, so as to reduce the risk of large losses, by:
(A) broad categories, such as bonds and real
property loans;
(B) kinds, such as government obligations,
obligations of business entities, mortgage-backed securities, and
real property loans on office, retail, industrial, or residential
properties;
(C) quality;
(D) maturity;
(E) industry; and
(F) geographical areas, as to both domestic and
foreign investments;
(2) balance safety of principal with yield and growth;
(3) seek a reasonable relationship of assets and
liabilities as to term and nature; and
(4) be appropriate considering the capital and surplus
and the business conducted by the company.
(c) At least annually, the board of directors or
corresponding authority shall review the adequacy of the investment
plan and the implementation of the plan.
(d) An insurance company shall maintain the company's
investment plan in the company's principal office and provide the
plan to the commissioner or the commissioner's designee on request.
The commissioner or the commissioner's designee shall maintain the
plan as a privileged and confidential document. The plan is not
subject to public disclosure. (V.T.I.C. Art. 3.33, Secs. 3(a), (b)
(part).)
Sec. 425.106. INVESTMENT RECORDS; DEMONSTRATION OF
COMPLIANCE. An insurance company shall maintain investment records
covering each transaction. The company must be able to demonstrate
at all times that the company's investments are within the
limitations imposed by this subchapter. (V.T.I.C. Art. 3.33, Sec.
3(b) (part).)
Sec. 425.107. COMMUNITY INVESTMENT REPORT. (a) The
department shall, after consulting with the insurance industry of
this state and the office of public insurance counsel, develop a
report of insurance industry community investments in this state.
(b) The commissioner may request, and an insurance company
shall provide, information necessary to complete the report
required by this section.
(c) The department shall provide the report required by this
section to the legislature not later than December 1 of each
even-numbered year. (V.T.I.C. Art. 3.33, Sec. 3A.)
Sec. 425.108. AUTHORIZED INVESTMENTS AND TRANSACTIONS IN
GENERAL. (a) Subject to the limitations and restrictions imposed
by this subchapter, and, unless otherwise specified, based on the
insurance company's capital, surplus, and admitted assets as
reported in the company's most recently filed statutory financial
statement, the investments and transactions described by this
subchapter and Subchapter F, Chapter 823, are authorized
investments and transactions for a company subject to this
subchapter.
(b) An insurance company may not make an investment or enter
into a transaction that is not authorized by this subchapter or
Subchapter F, Chapter 823. (V.T.I.C. Art. 3.33, Sec. 4 (part).)
Sec. 425.109. AUTHORIZED INVESTMENTS: GOVERNMENT
OBLIGATIONS. (a) An insurance company may invest in:
(1) a bond, evidence of indebtedness, or other
obligation of the United States;
(2) a bond, evidence of indebtedness, or other
obligation guaranteed as to principal and interest by the full
faith and credit of the United States;
(3) a bond, evidence of indebtedness, or other
obligation of an agency or instrumentality of the United States
government; and
(4) subject to Subsections (b) and (c), a bond,
evidence of indebtedness, or other obligation of a governmental
unit in the United States, Canada, or any province or municipality
of Canada, or of an instrumentality of one of those governmental
units.
(b) An insurance company may not invest in a bond, evidence
of indebtedness, or other obligation under Subsection (a)(4) if the
governmental unit or instrumentality is in default in the payment
of principal of or interest on any of the governmental unit's or
instrumentality's obligations.
(c) An insurance company's investments in the obligations
of a single governmental unit or instrumentality under Subsection
(a)(4) may not exceed 20 percent of the company's capital and
surplus. (V.T.I.C. Art. 3.33, Secs. 4(a), (b).)
Sec. 425.110. AUTHORIZED INVESTMENTS: OBLIGATIONS OF AND
OTHER INVESTMENTS IN BUSINESS ENTITIES. (a) In this section:
(1) "Business entity" includes a sole proprietorship,
corporation, association, general or limited partnership, limited
liability company, joint-stock company, joint venture, trust, or
other form of business organization, regardless of whether
organized for profit, that is organized under the laws of the United
States, another state, Canada, or any district, province, or
territory of Canada.
(2) "Counterparty exposure amount" has the meaning
assigned by Section 425.125.
(b) Subject to this section, an insurance company may invest
in an obligation, including a bond or evidence of indebtedness, a
participation in a bond or evidence of indebtedness, or an
asset-backed security, that is issued, assumed, guaranteed, or
insured by a business entity.
(c) An insurance company's investments in the obligations
or counterparty exposure amounts of a single business entity rated
by the securities valuation office may not exceed 20 percent of the
company's statutory capital and surplus.
(d) An insurance company may not invest in an obligation,
counterparty exposure amount, or preferred stock of a business
entity if, after making the investment:
(1) the aggregate amount of those investments then
held by the company that are rated 3, 4, 5, or 6 by the securities
valuation office would exceed 20 percent of the company's assets;
(2) the aggregate amount of those investments then
held by the company that are rated 4, 5, or 6 by the securities
valuation office would exceed 10 percent of the company's assets;
(3) the aggregate amount of those investments then
held by the company that are rated 5 or 6 by the securities
valuation office would exceed three percent of the company's
assets; or
(4) the aggregate amount of those investments then
held by the company that are rated 6 by the securities valuation
office would exceed one percent of the company's assets.
(e) If an insurance company attains or exceeds the limit of
a rating category referred to in Subsection (d), the company is not
precluded from acquiring investments in other rating categories
subject to the specific and multiple category limits applicable to
those investments.
(f) Notwithstanding Subsections (c)-(e), an insurance
company may invest in an additional obligation of a business entity
in which the company holds one or more obligations if the investment
is made to protect an investment previously made in that business
entity. Obligations invested in under this subsection may not
exceed one-half percent of the company's assets.
(g) This section does not prohibit an insurance company from
investing in an obligation as a result of a restructuring of an
already held obligation or preferred stock that is rated 3, 4, 5, or
6 by the securities valuation office.
(h) An insurance company shall include all counterparty
exposure amounts in determining compliance with the limitations of
this section. (V.T.I.C. Art. 3.33, Secs. 4(c), (u)(5).)
Sec. 425.111. AUTHORIZED INVESTMENTS: BONDS ISSUED,
ASSUMED, OR GUARANTEED IN INTERNATIONAL MARKET. (a) Subject to
this section, an insurance company may invest in bonds issued,
assumed, or guaranteed by:
(1) the Inter-American Development Bank;
(2) the International Bank for Reconstruction and
Development (the World Bank);
(3) the Asian Development Bank;
(4) the State of Israel;
(5) the African Development Bank; and
(6) the International Finance Corporation.
(b) An insurance company's investments in the bonds of a
single entity under this section may not exceed 20 percent of the
company's capital and surplus.
(c) The aggregate of all investments made by an insurance
company under this section may not exceed 20 percent of the
company's assets. (V.T.I.C. Art. 3.33, Sec. 4(d).)
Sec. 425.112. AUTHORIZED INVESTMENTS: POLICY LOANS. An
insurance company may invest in loans on the security of the
company's own policies in an amount that does not exceed the amount
of the reserve values of those policies. (V.T.I.C. Art. 3.33, Sec.
4(e).)
Sec. 425.113. AUTHORIZED INVESTMENTS: DEPOSITS IN CERTAIN
FINANCIAL INSTITUTIONS. (a) Subject to this section, an insurance
company may invest in any type of savings deposit, time deposit,
certificate of deposit, NOW account, or money market account in a
solvent bank, savings and loan association, or credit union that is
organized under the laws of the United States or a state, or in a
branch of one of those financial institutions.
(b) An investment under this section must be made in
accordance with the laws or regulations applicable to the bank,
savings and loan association, or credit union.
(c) The amount of an insurance company's deposits in a
single bank, savings and loan association, or credit union may not
exceed the greater of:
(1) 20 percent of the company's capital and surplus;
(2) the amount of federal or state deposit insurance
coverage that applies to the deposits; or
(3) 10 percent of the amount of capital, surplus, and
undivided profits of the financial institution receiving the
deposits. (V.T.I.C. Art. 3.33, Sec. 4(f).)
Sec. 425.114. AUTHORIZED INVESTMENTS: INSURANCE COMPANY
INVESTMENT POOLS. (a) In this section, "affiliate" means, with
respect to a person, another person that, directly or indirectly
through one or more intermediaries, controls, is controlled by, or
is under common control with the person.
(b) Subject to Subsections (c)-(g), an insurance company
may acquire investments in an investment pool that invests only in:
(1) obligations that have a rating by the securities
valuation office of one or two, or an equivalent rating issued by a
nationally recognized statistical rating organization recognized
by the securities valuation office, or that are issued by an issuer
with outstanding obligations that have a securities valuation
office one or two rating or an equivalent rating described by this
subdivision, and that:
(A) have a remaining maturity of 397 days or less
or a put that:
(i) entitles the holder to receive the
principal amount of the obligation; and
(ii) may be exercised through maturity at
specified intervals not exceeding 397 days; or
(B) have a remaining maturity of three years or
less and a floating interest rate that resets at least quarterly on
the basis of a current short-term index (federal funds, prime rate,
treasury bills, London InterBank Offered Rate, or commercial paper)
and is not subject to a maximum limit, if the obligations do not
have an interest rate that varies inversely to market interest rate
changes;
(2) securities lending, repurchase, and reverse
repurchase transactions that meet the requirements of Section
425.121 and any applicable department rules;
(3) money market funds as authorized by Section
425.123, except that a short-term investment pool may not acquire
investments in a single business entity that exceed 10 percent of
the total assets of the pool; or
(4) investments that an insurance company may make
under this subchapter, if:
(A) the company's proportionate interest in the
amount invested in those investments does not exceed the limits of
this subchapter; and
(B) the aggregate amount of the company's
investments in all investment pools under this subdivision does not
exceed 25 percent of the company's assets.
(c) An insurance company may not acquire an investment in an
investment pool under Subsection (b) if, after making the
investment, the aggregate amount of the company's investments in
all investment pools would exceed 35 percent of the company's
assets.
(d) For an investment in an investment pool to be qualified
under this section, the pool may not:
(1) acquire securities issued, assumed, guaranteed,
or insured by an investing insurer or an affiliate of the investing
insurance company; or
(2) borrow or incur an indebtedness for borrowed
money, except for securities lending and reverse repurchase
transactions.
(e) For an investment pool to be qualified under this
section:
(1) the pool manager must:
(A) be organized under the laws of the United
States or a state and designated as the pool manager in a pooling
agreement; or
(B) be:
(i) the investing insurance company, an
affiliated insurance company, a business entity affiliated with the
investing company, a custodian bank, a business entity registered
under the Investment Advisers Act of 1940 (15 U.S.C. Section 80b-1
et seq.), as amended;
(ii) in the case of a reciprocal or
interinsurance exchange, the exchange's attorney-in-fact; or
(iii) in the case of a United States branch
of an alien insurance company, the United States manager or an
affiliate or subsidiary of the United States manager;
(2) the pool manager or an entity designated by the
pool manager of the type described by Subdivision (1)(B) must
maintain:
(A) detailed accounting records showing:
(i) the cash receipts and disbursements
reflecting each participant's proportionate investment in the
pool; and
(ii) a complete description of all the
pool's underlying assets, including the amount, interest rate,
maturity date, if any, and other appropriate designations; and
(B) other records that, on a daily basis, allow a
third party to verify each participant's investments in the pool;
and
(3) the assets of the pool must be held in one or more
accounts, in the name or on behalf of the pool, at the principal
office of the pool manager or under a custody agreement or trust
agreement with a custodian bank, provided that the agreement:
(A) states and recognizes the claims and rights
of each participant;
(B) acknowledges that the pool's underlying
assets are held solely for the benefit of each participant in
proportion to the aggregate amount of the participant's investments
in the pool; and
(C) contains an agreement that the pool's
underlying assets may not be commingled with the general assets of
the custodian bank or any other person.
(f) The pooling agreement for each investment pool must be
in writing and must provide that:
(1) 100 percent of the interests in the pool must be
held at all times by the insurance company, the company's
subsidiaries or affiliates, or, in the case of a United States
branch of an alien insurance company, the affiliates or
subsidiaries of the United States manager, and any unaffiliated
insurance company;
(2) the pool's underlying assets may not be commingled
with the general assets of the pool manager or any other person;
(3) in proportion to the aggregate amount of each pool
participant's interest in the pool:
(A) each participant owns an undivided interest
in the pool's underlying assets; and
(B) the pool's underlying assets are held solely
for the benefit of each participant;
(4) a participant, or, in the event of the
participant's insolvency, bankruptcy, or receivership, the
participant's trustee, receiver, conservator, or other successor
in interest, may withdraw all or part of the participant's
investment from the pool under the terms of the pooling agreement;
(5) a withdrawal may be made on demand without penalty
or other assessment on any business day, and settlement of funds
must occur within a reasonable and customary period after the
withdrawal, except that:
(A) in the case of publicly traded securities,
the settlement period may not exceed five business days; and
(B) in the case of securities and investments
other than publicly traded securities, the settlement period may
not exceed 10 business days;
(6) the amount of a distribution under Subdivision (5)
must be computed after subtracting all the pool's applicable fees
and expenses;
(7) the pool manager shall distribute to a
participant, at the manager's discretion:
(A) in cash, an amount that represents the fair
market value of the participant's pro rata share of each of the
pool's underlying assets;
(B) in kind, an amount that represents a pro rata
share of each underlying asset; or
(C) in a combination of cash and in-kind
distributions, an amount that represents a pro rata share in each
underlying asset; and
(8) the pool manager shall make the records of the pool
available for inspection by the commissioner.
(g) An investment in an investment pool is not considered to
be an affiliate transaction under Subchapter C, Chapter 823, but
each pooling agreement is subject to the standards of Section
823.101 and the reporting requirements of Section 823.052.
(V.T.I.C. Art. 3.33, Sec. 4(g).)
Sec. 425.115. AUTHORIZED INVESTMENTS: EQUITY INTERESTS.
(a) In this section, "business entity" means a real estate
investment trust, corporation, limited liability company,
association, limited partnership, joint venture, mutual fund,
trust, joint tenancy, or other similar form of business
organization, regardless of whether organized for profit.
(b) Subject to this section, an insurance company may invest
in an equity interest, including common stock, an equity investment
in an investment company other than a money market fund described by
Section 425.123, a real estate investment trust, a limited
partnership interest, a warrant, another right to acquire an equity
interest that is created by the person that owns or would issue the
equity in which the interest is acquired, and an equity interest in
a business entity that is organized under the laws of the United
States, a state of the United States, Canada, or a province or
territory of Canada.
(c) If a market value from a generally recognized source is
not available for an equity interest, the business entity or other
investment in which the interest is acquired must be subject to:
(1) an annual audit by an independent certified public
accountant; or
(2) another method of valuation acceptable to the
commissioner.
(d) An insurance company may not invest in a partnership as
a general partner except through an investment subsidiary.
(e) An insurance company's investments under this section
in a single business entity, other than a money market fund
described by Section 425.123, may not exceed 15 percent of the
company's capital and surplus.
(f) The aggregate amount of an insurance company's
investments under this section may not exceed 25 percent of the
company's assets. (V.T.I.C. Art. 3.33, Sec. 4(h).)
Sec. 425.116. AUTHORIZED INVESTMENTS: PREFERRED STOCK.
(a) Subject to this section, an insurance company may invest in
preferred stock of a business entity, as defined by Section
425.110.
(b) An insurance company may invest in preferred stock only
if:
(1) the stock is rated by the securities valuation
office; and
(2) the sum of the company's aggregate investment in
preferred stock rated 3, 4, 5, or 6 and the company's investments
under Section 425.110(d) does not exceed the limitations specified
by Section 425.110(d).
(c) An insurance company's investments in the preferred
stock of a single business entity may not exceed 20 percent of the
company's capital and surplus.
(d) The aggregate amount of an insurance company's
investments in preferred stock as to which there is not a sinking
fund for the redemption and retirement of the stock that meets the
standards established by the National Association of Insurance
Commissioners may not exceed 10 percent of the company's assets.
(e) The aggregate amount of an insurance company's
investments under this section may not exceed 40 percent of the
company's assets. (V.T.I.C. Art. 3.33, Sec. 4(i).)
Sec. 425.117. AUTHORIZED INVESTMENTS: COLLATERAL LOANS.
(a) Subject to this section, an insurance company may invest in a
collateral loan secured by:
(1) a first lien on an asset; or
(2) a valid and perfected first security interest in
an asset.
(b) The amount of a loan invested in under this section may
not exceed 80 percent of the value of the collateral asset at any
time during the duration of the loan.
(c) The asset used as collateral for a loan under this
section must be an asset, other than real property described by
Section 425.119, in which the insurance company is authorized by
this subchapter to directly invest. (V.T.I.C. Art. 3.33, Sec.
4(j).)
Sec. 425.118. AUTHORIZED INVESTMENTS: OBLIGATIONS SECURED
BY REAL PROPERTY LOANS. (a) Subject to this section, an insurance
company may invest in a note, an evidence of indebtedness, or a
participation in a note or evidence of indebtedness that is secured
by a valid first lien on real property or a leasehold estate in real
property located in the United States.
(b) The amount of an obligation secured by a first lien on
real property or a leasehold estate in real property may exceed 90
percent of the value of the real property or leasehold estate only
if:
(1) the amount does not exceed 100 percent of the value
of the real property or leasehold estate and the insurance company
or one or more wholly owned subsidiaries of the company owns, in the
aggregate, a 10 percent or greater equity interest in the real
property or leasehold estate;
(2) the amount does not exceed 95 percent of the value
of the real property or leasehold estate and:
(A) the property contains only a dwelling
designed exclusively for occupancy by not more than four families
for residential purposes; and
(B) the portion of the unpaid balance of the
obligation that exceeds 90 percent of the value of the property or
leasehold estate is guaranteed or insured by a mortgage guaranty
insurer authorized to engage in business in this state; or
(3) the amount exceeds 90 percent of the value of the
real property or leasehold estate only to the extent the obligation
is insured or guaranteed by:
(A) the United States;
(B) the Federal Housing Administration under the
National Housing Act (12 U.S.C. Section 1701 et seq.), as amended;
or
(C) this state.
(c) The term of an obligation secured by a first lien on a
leasehold estate in real property may not, as of the date the
obligation is acquired, exceed a period equal to four-fifths of the
unexpired term of the leasehold estate, and the obligation must
fully amortize during that period. The term of the leasehold estate
may not expire sooner than the 10th anniversary of the expiration
date of the term of the obligation.
(d) An obligation secured by a first lien on a leasehold
estate in real property must be payable in one or more installments
of an amount or amounts sufficient to ensure that, at any time after
the expiration of two-thirds of the original term of the
obligation, the principal balance on the obligation is not greater
than the principal balance would have been if the obligation had
been amortized over the original term of the obligation in equal
monthly, quarterly, semiannual, or annual payments of principal and
interest.
(e) If any part of the value of buildings is to be included
in the value of real property or a leasehold estate in real property
to secure an obligation under this section:
(1) the buildings must be covered by adequate property
insurance, including fire and extended coverage insurance, issued
by:
(A) an insurer authorized to engage in business
in this state; or
(B) an insurer recognized as acceptable to issue
that coverage by the insurance regulatory official of the state in
which the real property is located;
(2) the amount of insurance provided by one or more
policies may not be less than the lesser of:
(A) the unpaid balance of the obligation; or
(B) the insurable value of the buildings; and
(3) the loss clause under each policy must be payable
to the insurance company as the company's interest may appear.
(f) To the extent that a note, evidence of indebtedness, or
participation in a note or evidence of indebtedness under this
section represents an equity interest in the underlying real
property:
(1) the value of that equity interest must be
determined at the time the note, evidence of indebtedness, or
participation is executed; and
(2) the portion of the obligation that represents an
equity interest in the property must be designated as an investment
subject to Section 425.119(c).
(g) An insurance company's investment in a single
obligation under this section may not exceed 25 percent of the
company's capital and surplus.
(h) An insurance company may purchase a first lien on real
property after the origination of the lien if:
(1) the first lien is insured by a mortgagee's title
policy issued to the original mortgagee that contains a provision
that inures the policy to the use and benefit of the owners of the
evidence of indebtedness indicated in the policy and to any
subsequent owners of that evidence of indebtedness; and
(2) the company maintains evidence of an assignment or
other transfer of the first lien on real property to the company.
(i) For purposes of Subsection (h)(2), an assignment or
other transfer to the insurance company that is duly recorded in the
county in which the real property is located is presumed to create
legal ownership of the first lien by the company. (V.T.I.C.
Art. 3.33, Sec. 4(k).)
Sec. 425.119. AUTHORIZED INVESTMENTS: REAL PROPERTY. (a)
Subject to this section, an insurance company may invest in a real
property fee simple or leasehold estate located in the United
States.
(b) An insurance company may invest in home and branch
office real property or a participation in home or branch office
real property. At least 30 percent of the available space in a
building used as a home or branch office must be occupied for the
business purposes of the company and the company's affiliates. A
company's aggregate investment in home and branch office real
property may not exceed 20 percent of the company's assets.
(c) An insurance company may invest in real property other
than home and branch office real property or participations in home
and branch office real property. A company's investment under this
subsection in a single piece of property or in an interest in a
single piece of property, including improvements, fixtures, and
equipment relating to the property, may not exceed five percent of
the company's assets.
(d) Investment real property held under Subsection (b) or
(c) must be materially enhanced in value by:
(1) the construction of durable, permanent-type
buildings and other improvements that cost an amount at least equal
to the cost of the real property, excluding buildings and
improvements at the time the real property is acquired; or
(2) the construction, commenced before the second
anniversary of the date the real property is acquired, of buildings
and improvements described by Subdivision (1).
(e) The admissible asset value of each investment in real
property under Subsection (b) or (c) is subject to review and
approval by the commissioner. The commissioner may, at the time the
investment is made or any time the insurance company is being
examined, have the investment appraised by an appraiser appointed
by the commissioner. The company shall pay the reasonable expense
of the appraisal. The expense of the appraisal is considered to be
a part of the expense of examination of the company unless the
company applies for the appraisal to be made. A company may not
increase the valuation of real property described by Subsection (b)
or (c) unless:
(1) the company applies for the increase in valuation;
and
(2) the commissioner approves the increase.
(f) Except as provided by Subsection (g), an insurance
company may not own, develop, or hold an equity interest in any
residential property or subdivision, single or multiunit family
dwelling property, or undeveloped real property to subdivide for or
develop residential or single or multiunit family dwellings.
(g) An insurance company may invest in other real property
acquired:
(1) in good faith to secure a loan previously
contracted for, or for money due;
(2) in satisfaction of a debt previously contracted
for in the course of the company's dealings; or
(3) by purchase at a sale under a judgment or decree of
a court or under a mortgage or other lien held by the company.
(h) Regardless of the manner in which an insurance company
acquires real property under this section, on the sale of the
property, the company may retain indefinitely the fee title to the
mineral estate or any portion of the mineral estate. (V.T.I.C.
Art. 3.33, Sec. 4(l).)
Sec. 425.120. AUTHORIZED INVESTMENTS: OIL, GAS, AND
MINERALS. (a) In this section:
(1) "Producing" means producing oil, gas, or other
minerals in paying quantities. A well that has been shut in is
considered to be producing oil, gas, or other minerals in paying
quantities if shut-in royalties are being paid.
(2) "Production payment" means a right to oil, gas, or
other minerals in place or as produced that entitles the owner of
the right to a specified fraction of production until the owner
receives a specified amount of money, or a specified number of units
of oil, gas, or other minerals.
(3) "Royalty" or "overriding royalty" means a right to
oil, gas, and other minerals in place or as produced that entitles
the owner of the right to a specified fraction of production without
limitation to a specified amount of money or a specified number of
units of oil, gas, or other minerals.
(b) Subject to this section, in addition to and without
limitation on the purposes for which real property may be acquired,
secured, held, or retained under other provisions of this
subchapter, an insurance company may secure, hold, retain, and
convey production payments, producing royalties, and producing
overriding royalties, or participations in production payments,
producing royalties, or producing overriding royalties as an
investment for the production of income.
(c) An insurance company may not carry an asset described by
Subsection (b) in an amount that exceeds 90 percent of the appraised
value of the asset.
(d) A single investment under this section may not exceed 10
percent of the amount of the insurance company's capital and
surplus that exceeds the statutory minimum capital and surplus
applicable to the company.
(e) The aggregate amount of an insurance company's
investments under this section may not exceed 10 percent of the
company's assets as of December 31 preceding the date of the
investment. (V.T.I.C. Art. 3.33, Sec. 4(m).)
Sec. 425.121. AUTHORIZED INVESTMENTS: SECURITIES LENDING,
REPURCHASE, REVERSE REPURCHASE, AND DOLLAR ROLL TRANSACTIONS. (a)
In this section:
(1) "Dollar roll transaction" means two simultaneous
transactions with settlement dates not more than 96 days apart, in
one of which an insurance company sells to a business entity, and in
the other of which the company is obligated to purchase from the
same business entity, substantially similar securities that are:
(A) mortgage-backed securities issued, assumed,
or guaranteed by the Government National Mortgage Association, the
Federal National Mortgage Association, the Federal Home Loan
Mortgage Corporation, or a successor to one of those organizations;
or
(B) other mortgage-backed securities referred to
in 15 U.S.C. Section 77r-1, as amended.
(2) "Repurchase transaction" means a transaction in
which an insurance company purchases securities from a business
entity that is obligated to repurchase the purchased securities or
equivalent securities from the company at a specified price, either
within a specified period or on demand.
(3) "Reverse repurchase transaction" means a
transaction in which an insurance company sells securities to a
business entity and is obligated to repurchase the sold securities
or equivalent securities from the business entity at a specified
price, either within a specified period or on demand.
(4) "Securities lending transaction" means a
transaction in which an insurance company lends securities to a
business entity that is obligated to return the loaned securities
or equivalent securities to the company, either within a specified
period or on demand.
(b) Subject to this section, an insurance company may engage
in securities lending, repurchase, reverse repurchase, and dollar
roll transactions.
(c) An insurance company must enter into a written agreement
for each transaction under this section, other than a dollar roll
transaction. The agreement must require that the transaction
terminate on or before the first anniversary of the transaction's
inception.
(d) With respect to cash received in a transaction under
this section, an insurance company shall:
(1) invest the cash in accordance with this subchapter
and in a manner that recognizes the liquidity needs of the
transaction; or
(2) use the cash for the company's general corporate
purposes.
(e) While a transaction under this section is outstanding,
the insurance company or the company's agent or custodian shall
maintain, as to acceptable collateral received in the transaction,
either physically or through the book-entry system of the Federal
Reserve, Depository Trust Company, Participants Trust Company, or
another securities depository approved by the commissioner:
(1) possession of the collateral;
(2) a perfected security interest in the collateral;
or
(3) in the case of a jurisdiction outside of the United
States, title to, or rights of a secured creditor to, the
collateral.
(f) The limitations of Sections 425.110 and 425.157(b) do
not apply to the business entity counterparty exposure created by a
transaction under this section. An insurance company may not enter
into a transaction under this section if, as a result of and after
making the transaction:
(1) the aggregate amount of securities loaned or sold
to or purchased from any one business entity counterparty under
this section would exceed five percent of the company's assets; or
(2) the aggregate amount of all securities loaned or
sold to or purchased from all business entities under this section
would exceed 40 percent of the company's assets.
(g) For purposes of Subsection (f)(1), in computing the
amount sold to or purchased from a business entity counterparty
under a repurchase or reverse repurchase transaction, effect may be
given to netting provisions under a master written agreement.
(h) The amount of collateral required for securities
lending, repurchase, and reverse repurchase transactions is the
amount required under the Purposes and Procedures Manual of the
securities valuation office or a successor publication. (V.T.I.C.
Art. 3.33, Secs. 4(q)(a), (b), (c), (d), (e).)
Sec. 425.122. AUTHORIZED INVESTMENTS: PREMIUM LOANS. (a)
Subject to Subsection (b), an insurance company may make loans to
finance the payment of premiums for the company's own insurance
policies or annuity contracts.
(b) The amount of a loan under this section may not exceed
the sum of:
(1) the available cash value of the insurance policy
or annuity contract for which the premium loan is made; and
(2) the amount of any escrowed commissions payable
relating to the insurance policy or annuity contract. (V.T.I.C.
Art. 3.33, Sec. 4(r).)
Sec. 425.123. AUTHORIZED INVESTMENTS: MONEY MARKET FUNDS.
(a) An insurance company may invest in a money market fund as
described by 17 C.F.R. Section 270.2a-7 under the Investment
Company Act of 1940 (15 U.S.C. Section 80a-1 et seq.), that is:
(1) a government money market fund that:
(A) invests only in obligations issued,
guaranteed, or insured by the United States government or
collateralized repurchase agreements composed of these
obligations; and
(B) qualifies for investment without a reserve
under the Purposes and Procedures Manual of the securities
valuation office or a successor publication; or
(2) a class one money market fund that qualifies for
investment using the bond class one reserve factor described by the
Purposes and Procedures Manual of the securities valuation office
or a successor publication.
(b) For purposes of complying with Section 425.115, a money
market fund that qualifies for listing in the categories prescribed
by Subsection (a) must conform to the Purposes and Procedures
Manual of the securities valuation office or a successor
publication. (V.T.I.C. Art. 3.33, Sec. 4(s).)
Sec. 425.124. AUTHORIZED INVESTMENTS: RISK CONTROL
TRANSACTIONS. Subject to Sections 425.126-425.132, an insurance
company may use derivative instruments, as defined by Section
425.125, to engage in hedging transactions, replication
transactions, and income generation transactions, as those terms
are defined by Section 425.125. (V.T.I.C. Art. 3.33, Sec. 4(u)
(part).)
Sec. 425.125. RISK CONTROL TRANSACTIONS: DEFINITIONS. In
Sections 425.124-425.132:
(1) "Acceptable collateral" means cash, cash
equivalents, letters of credit, and direct obligations, or
securities that are fully guaranteed as to principal and interest
by the United States government.
(2) "Business entity" includes a sole proprietorship,
corporation, limited liability company, association, partnership,
joint stock company, joint venture, mutual fund, bank, trust, joint
tenancy, or other similar form of business organization, regardless
of whether organized for profit.
(3) "Cap" means an agreement obligating the seller to
make payments to the buyer, with each payment based on the amount by
which a reference price or level or the performance or value of one
or more underlying interests exceeds a predetermined number that is
sometimes called the strike rate or strike price.
(4) "Cash equivalent" means an investment or security
that is short-term, highly rated, highly liquid, and readily
marketable. The term includes a money market fund described by
Section 425.123. For purposes of this subdivision, an investment
or security is:
(A) short-term if it has a remaining term to
maturity of one year or less; and
(B) highly rated if it has:
(i) a rating of "P-1" by Moody's Investors
Service, Inc.;
(ii) a rating of "A-1" by the Standard and
Poor's Division of the McGraw Hill Companies, Inc.; or
(iii) an equivalent rating by a nationally
recognized statistical rating organization recognized by the
securities valuation office.
(5) "Collar" means an agreement to receive payments as
the buyer of an option, cap, or floor and to make payments as the
seller of a different option, cap, or floor.
(6)(A) "Counterparty exposure amount" means:
(i) for an over-the-counter derivative
instrument not entered into under a written master agreement that
provides for netting of payments owed by the respective parties,
the market value of the over-the-counter derivative instrument, if
the liquidation of the derivative instrument would result in a
final cash payment to the insurer, or zero, if the liquidation of
the derivative instrument would not result in a final cash payment
to the insurance company; or
(ii) for an over-the-counter derivative
instrument entered into under a written master agreement that
provides for netting of payments owed by the respective parties,
and for which the counterparty's domiciliary jurisdiction is within
the United States or a jurisdiction outside the United States that
is listed in the Purposes and Procedures Manual of the securities
valuation office as eligible for netting, the greater of zero or the
net sum payable to the company in connection with all derivative
instruments subject to the written master agreement on the
liquidation of the instruments in the event of the counterparty's
default under the master agreement, if there is no condition
precedent to the counterparty's obligation to make the payment and
if there is no setoff of amounts payable under another instrument or
agreement.
(B) For purposes of this subdivision, market
value or the net sum payable, as applicable, must be determined at
the end of the most recent quarter of the insurance company's fiscal
year and must be reduced by the market value of acceptable
collateral held by the company or a custodian on the company's
behalf.
(7) "Derivative instrument":
(A) means an agreement, option, or instrument, or
a series or combinations of agreements, options, or instruments:
(i) to make or take delivery of, or assume
or relinquish, a specified amount of one or more underlying
interests, or to make a cash settlement instead of making or taking
delivery of, or assuming or relinquishing, a specified amount of an
underlying instrument; or
(ii) that has a price, performance, value,
or cash flow based primarily on the actual or expected price, yield,
level, performance, value, or cash flow of one or more underlying
interests;
(B) includes an option, a warrant not otherwise
permitted to be held by the insurance company under this
subchapter, a cap, a floor, a collar, a swap, a swaption, a forward,
a future, any other substantially similar agreement, option, or
instrument, and a series or combination of those agreements,
options, or instruments; and
(C) does not include a collateralized mortgage
obligation, another asset-backed security, a principal-protected
structured security, a floating rate security, an instrument that a
company would otherwise be authorized to invest in or receive under
a provision of this subchapter other than Sections 425.124-425.132,
or a debt obligation of the company.
(8) "Derivative transaction" means a transaction
involving the use of one or more derivative instruments. The term
does not include a dollar roll transaction, repurchase transaction,
reverse repurchase transaction, or securities lending transaction.
(9) "Floor" means an agreement obligating the seller
to make payments to the buyer, each of which is based on the amount
by which a predetermined number that is sometimes called the floor
rate or floor price exceeds a reference price, level, performance,
or value of one or more underlying interests.
(10) "Forward" means an agreement to make or take
delivery in the future of one or more underlying interests, or to
effect a cash settlement, based on the actual or expected price,
level, performance, or value of those interests. The term does not
include a future, a spot transaction effected within a customary
settlement period, a when-issued purchase, or another similar cash
market transaction.
(11) "Future" means an agreement traded on a futures
exchange to make or take delivery of one or more underlying
interests, or to effect a cash settlement based on the actual or
expected price, level, performance, or value of those interests.
(12) "Futures exchange" means a foreign or domestic
exchange, contract market, or board of trade on which trading in
futures is conducted and that, in the United States, is authorized
to conduct that trading by the Commodity Futures Trading Commission
or a successor to that agency.
(13) "Hedging transaction" means a derivative
transaction entered into and maintained to manage, with respect to
an asset, liability, or portfolio of assets or liabilities, that an
insurance company has acquired or incurred or anticipates acquiring
or incurring:
(A) the risk of a change in value, yield, price,
cash flow, or quantity; or
(B) the currency exchange rate risk.
(14) "Income generation transaction" means a
derivative transaction entered into to generate income. The term
does not include a hedging transaction or a replication
transaction.
(15) "Market value" means the price for a security or
derivative instrument obtained from a generally recognized source,
the most recent quotation from a generally recognized source, or if
a generally recognized source does not exist, the price determined
under the terms of the instrument or in good faith by the insurance
company, as can be reasonably demonstrated to the commissioner on
request, plus the amount of accrued but unpaid income on the
security or instrument to the extent that amount is not included in
the price as of the date the security or instrument is valued.
(16) "Option" means an agreement giving the buyer the
right to buy or receive, referred to as a "call option," to sell or
deliver, referred to as a "put option," to enter into, extend, or
terminate, or to effect a cash settlement based on the actual or
expected price, spread, level, performance, or value of, one or
more underlying interests.
(17) "Over-the-counter derivative instrument" means a
derivative instrument entered into with a business entity in a
manner other than through a securities exchange or futures exchange
or cleared through a qualified clearinghouse.
(18) "Potential exposure" means:
(A) as to a futures position, the amount of
initial margin required for that position; or
(B) as to a swap, collar, or forward, one-half of
one percent multiplied by the notional amount multiplied by the
square root of the remaining years to maturity.
(19) "Qualified clearinghouse" means a clearinghouse
that:
(A) is subject to the rules of a securities
exchange or a futures exchange; and
(B) provides clearing services, including acting
as a counterparty to each of the parties to a transaction in a
manner that eliminates the parties' credit risk to each other.
(20) "Replication transaction" means a derivative
transaction or a combination of derivative transactions effected
separately or in conjunction with cash market investments included
in the insurance company's investment portfolio to replicate the
risks and returns of another authorized transaction, investment, or
instrument, or to operate as a substitute for cash market
transactions. The term does not include a hedging transaction.
(21) "Securities exchange" means:
(A) an exchange registered as a national
securities exchange or a securities market registered under the
Securities Exchange Act of 1934 (15 U.S.C. Section 78a et seq.), as
amended;
(B) the Private Offerings, Resales and Trading
through Automated Linkages system; or
(C) a designated offshore securities market as
defined by 17 C.F.R. Section 230.902, as amended.
(22) "Swap" means an agreement to exchange or to net
payments at one or more times based on the actual or expected price,
yield, level, performance, or value of one or more underlying
interests.
(23) "Swaption" means an option to purchase or sell a
swap at a given price and time or at a series of prices and times.
The term does not include a swap with an embedded option.
(24) "Underlying interest" means an asset, liability,
or other interest underlying a derivative instrument or a
combination of those assets, liabilities, or other interests. The
term includes a security, currency, rate, index, commodity, or
derivative instrument.
(25) "Warrant" means an instrument that gives the
holder the right to purchase or sell the underlying interest at a
given price and time or at a series of prices and times outlined in
the warrant agreement. (V.T.I.C. Art. 3.33, Sec. 4(u)(1).)
Sec. 425.126. RISK CONTROL TRANSACTIONS: DERIVATIVE USE
PLAN. (a) Before an insurance company enters into a derivative
transaction, the company's board of directors must approve a
derivative use plan as part of the investment plan required by
Section 425.105.
(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 or the assets or liabilities being replicated;
and
(3) require compliance with internal control
procedures. (V.T.I.C. Art. 3.33, Sec. 4(u)(2).)
Sec. 425.127. RISK CONTROL TRANSACTIONS: INTERNAL CONTROL
PROCEDURES. An insurance company that enters into a derivative
transaction shall establish written internal control procedures
that provide for:
(1) a quarterly report to the board of directors that
reviews:
(A) each derivative transaction entered into,
outstanding, or closed out;
(B) the results and effectiveness of the
derivatives program; and
(C) the credit risk exposure to each counterparty
for over-the-counter derivative transactions based on the
counterparty exposure amount;
(2) a system for determining whether hedging or
replication strategies used have been effective;
(3) a system of regular reports, at least monthly, to
management that include:
(A) a description of each derivative transaction
entered into, outstanding, or closed out during the period since
the last report;
(B) the purpose of each outstanding derivative
transaction;
(C) a performance review of the derivative
instrument program; and
(D) the counterparty exposure amount for each
over-the-counter derivative transaction;
(4) a written authorization that identifies the
responsibilities and limitations of authority of each person
authorized to effect and maintain derivative transactions; and
(5) appropriate documentation for each transaction,
including:
(A) the purpose of the transaction;
(B) the assets or liabilities to which the
transaction relates;
(C) the specific derivative instrument used in
the transaction;
(D) for an over-the-counter derivative
transaction, the name of the counterparty and the counterparty
exposure amount; and
(E) for an exchange-traded derivative
instrument, the name of the exchange and the name of the firm that
handled the transaction. (V.T.I.C. Art. 3.33, Sec. 4(u)(3).)
Sec. 425.128. RISK CONTROL TRANSACTIONS: OVERSIGHT BY
COMMISSIONER. (a) An insurance company must be able to demonstrate
to the commissioner on request the intended hedging characteristics
and continuing effectiveness of a derivative transaction or
combination of transactions through:
(1) cash flow testing;
(2) duration analysis; or
(3) other appropriate analysis.
(b) Ten days before entering into an initial hedging
transaction, an insurance company shall notify the commissioner in
writing that:
(1) the company's board of directors has adopted an
investment plan that authorizes hedging transactions; and
(2) each hedging transaction will comply with Sections
425.124-425.132.
(c) After providing the notice under Subsection (b), the
insurance company may enter into a hedging transaction under
Section 425.124 if as a result of and after making the transaction:
(1) the aggregate statement value of all outstanding
options other than collars, and of all caps, floors, swaptions, and
warrants under Sections 425.124-425.132 not attached to another
financial instrument purchased by the company does not exceed 7.5
percent of the company's assets;
(2) the aggregate statement value of all outstanding
options other than collars, and of all caps, floors, swaptions, and
warrants written by the company under Sections 425.124-425.132 does
not exceed three percent of the company's assets; and
(3) the aggregate potential exposure of all
outstanding collars, swaps, forwards, and futures entered into or
acquired by the company under Sections 425.124-425.132 does not
exceed 6.5 percent of the company's assets.
(d) If the hedging transaction does not comply with Sections
425.124-425.132, or if continuing the transaction may create a
hazardous financial condition for the insurance company that
affects the company's policyholders or creditors or the public, the
commissioner may, after notice and an opportunity for a hearing,
order the company to take action reasonably necessary to:
(1) remedy a hazardous financial condition; or
(2) prevent an impending hazardous financial
condition from occurring. (V.T.I.C. Art. 3.33, Secs. 4(u)(4),
4(u)(6)(a) (part), (b).)
Sec. 425.129. RISK CONTROL TRANSACTIONS: LIMITATIONS ON
INCOME GENERATION TRANSACTIONS. An insurance company may enter
into an income generation transaction only if:
(1) as a result of and after making the transaction,
the sum of the following amounts does not exceed 10 percent of the
company's assets:
(A) the aggregate statement value of admitted
assets that at the time of the transaction are subject to call or
that generate the cash flows for payments the company is required to
make under caps and floors sold by the company and that at the time
of the transaction are outstanding under Sections 425.124-425.132;
(B) the statement value of admitted assets
underlying derivative instruments that at the time of the
transaction are subject to calls sold by the company and
outstanding under those sections; and
(C) the purchase price of assets subject to puts
that at the time of the transaction are outstanding under those
sections; and
(2) the transaction is one of the following types, is
covered in the manner specified by this subdivision, and meets the
other requirements of this subdivision:
(A) a sale of a call option on assets, if during
the entire period the option is outstanding, the company holds, or
has a currently exercisable right to acquire, the underlying
assets;
(B) a sale of a put option on assets, if:
(i) during the entire period the option is
outstanding, the company holds sufficient cash, cash equivalents,
or interests in a short-term investment pool to purchase the
underlying assets on exercise of the option;
(ii) the company has the ability to hold the
underlying assets in the company's portfolio; and
(iii) during the entire period the option
is outstanding, when the total market value of all put options sold
by the company exceeds two percent of the company's assets, the
company sets aside, under a custodial or escrow agreement, cash or
cash equivalents that have a market value equal to the amount of the
company's put option obligations in excess of two percent of the
company's assets;
(C) a sale of a call option on a derivative
instrument, including a swaption, if:
(i) during the entire period the call
option is outstanding, the company holds, or has a currently
exercisable right to acquire, assets generating the cash flow to
make any payment for which the company is liable under the
underlying derivative instrument; and
(ii) the company has the ability to enter
into the underlying derivative transaction for the company's
portfolio; and
(D) a sale of a cap or floor, if during the entire
period the cap or floor is outstanding, the company holds, or has a
currently exercisable right to acquire, assets generating the cash
flow to make any payment for which the company is liable under the
cap or floor. (V.T.I.C. Art. 3.33, Sec. 4(u)(7).)
Sec. 425.130. RISK CONTROL TRANSACTIONS: LIMITATIONS ON
REPLICATION TRANSACTIONS. (a) An insurance company may enter into
a replication transaction only with the prior written approval of
the commissioner, and only if:
(1) the company would otherwise be authorized to
invest the company's funds under this subchapter in the asset being
replicated; and
(2) the asset being replicated is subject to all the
provisions of this subchapter relating to the making of investments
by the company in that type of asset as if the transaction
constituted a direct investment by the company in the replicated
asset.
(b) The commissioner may adopt fair and reasonable rules
regarding replication transactions to implement this section.
(V.T.I.C. Art. 3.33, Sec. 4(u)(8).)
Sec. 425.131. RISK CONTROL TRANSACTIONS: TRADING
REQUIREMENTS. For purposes of Sections 425.124-425.132, each
derivative instrument must be:
(1) traded on a securities exchange;
(2) entered into with, or guaranteed by, a business
entity;
(3) issued or written by, or entered into with, the
issuer of the underlying interest on which the derivative
instrument is based; or
(4) in the case of futures, traded through a broker
that is:
(A) registered as a futures commission merchant
under the Commodity Exchange Act (7 U.S.C. Section 1 et seq.); or
(B) exempt from that registration under 17 C.F.R.
Section 30.10, adopted under the Commodity Exchange Act. (V.T.I.C.
Art. 3.33, Sec. 4(u)(10).)
Sec. 425.132. RISK CONTROL TRANSACTIONS: OFFSETTING
TRANSACTIONS. (a) Subject to this section, an insurance company
may purchase or sell one or more derivative instruments to wholly or
partly offset a derivative instrument previously purchased or sold,
without regard to the quantitative limitations of Sections
425.124-425.131.
(b) An offsetting transaction under this section must use
the same type of derivative instrument as the derivative instrument
being offset. (V.T.I.C. Art. 3.33, Sec. 4(u)(9).)
[Sections 425.133-425.150 reserved for expansion]
Sec. 425.151. AUTHORIZED INVESTMENTS: FOREIGN COUNTRIES
AND UNITED STATES TERRITORIES. (a) In addition to the investments
within Canada authorized by this subchapter and subject to this
section, an insurance company may make investments within another
foreign country or a commonwealth, territory, or possession of the
United States.
(b) An investment made under this section must be
substantially the same type as an investment authorized to be made
within the United States or Canada by this subchapter.
(c) The sum of the amount of investments made under this
section and the amount of similar investments made within the
United States and Canada may not exceed any limitation imposed by
Sections 425.109-425.121, 425.124-425.132, and 425.152.
(d) The aggregate amount of an insurance company's
investments under this section may not exceed the sum of:
(1) the amount of the company's reserves attributable
to insurance business in force in foreign countries, if any, and any
additional investments required by a foreign country as a condition
of engaging in business in that country; and
(2) 20 percent of the company's assets.
(e) An insurance company may not invest more than 10 percent
of the company's assets in investments denominated in foreign
currency that are not hedged under Sections 425.124-425.132.
(V.T.I.C. Art. 3.33, Sec. 4(n).)
Sec. 425.152. AUTHORIZED INVESTMENTS: INVESTMENTS NOT
OTHERWISE SPECIFIED OR PROHIBITED; INVESTMENTS AUTHORIZED BY OTHER
LAW. (a) Subject to this section, an insurance company may make an
investment that is not otherwise authorized by this subchapter and
that is not specifically prohibited by statute, including any
portion of an investment that exceeds the limits imposed by
Sections 425.109-425.121, 425.124-425.132, and 425.151.
(b) If any aggregate or individual investment limitation
imposed by Sections 425.109-425.121, 425.124-425.132, and 425.151
is exceeded, the excess portion of the investment is considered to
be an investment under Subsection (a).
(c) The insurance company has the burden of establishing the
value of an investment made under Subsection (a).
(d) The amount of a single investment made by an insurance
company under Subsection (a) may not exceed 10 percent of the
company's capital and surplus in excess of the statutory minimum
capital and surplus applicable to that company.
(e) The aggregate amount of an insurance company's
investments under Subsection (a) may not exceed the lesser of:
(1) five percent of the company's assets; or
(2) the amount of the company's capital and surplus
that exceeds the amount of statutory minimum capital and surplus
applicable to that company.
(f) An insurance company may invest in any investment
authorized for an insurance company that is subject to this
subchapter by a provision of this code other than this subchapter or
by another law of this state. (V.T.I.C. Art. 3.33, Secs. 4(o), (p)
(part).)
Sec. 425.153. AUTHORIZED INVESTMENTS: CERTAIN PREVIOUSLY
AUTHORIZED INVESTMENTS. (a) An insurance company may continue to
hold an investment held by the company on January 1, 1986, that does
not conform to the requirements of the investments authorized by
Sections 425.109-425.120, 425.151, and 425.152 if the investment
was legally authorized at the time the investment was made or
acquired or that the company was authorized to hold immediately
before January 1, 1986.
(b) An investment described by Subsection (a) is considered
an authorized investment of the insurance company. A company shall
dispose of the investment at the investment's maturity date, if
any, or within the time prescribed by the law under which the
investment was acquired, if any.
(c) This section does not alter the legal or accounting
status of an investment described by Subsection (a). (V.T.I.C.
Art. 3.33, Sec. 4(p) (part).)
Sec. 425.154. APPLICABILITY OF PERCENTAGE AUTHORIZATIONS
AND LIMITATIONS. The percentage authorizations and limitations
established by this subchapter apply only at the time an investment
is originally acquired or a transaction is entered into and do not
apply to the insurance company or the investment or transaction
after that time, except as provided by Section 425.155. (V.T.I.C.
Art. 3.33, Sec. 4(t) (part).)
Sec. 425.155. QUALIFICATION OF INVESTMENTS. (a) The
qualification or disqualification of an investment under one
section of this subchapter does not prevent the investment from
qualifying, wholly or partly, under another section of this
subchapter. An investment authorized by more than one section may
be held under the authorizing section elected by the insurance
company.
(b) An investment or transaction qualified under any
section of this subchapter at the time the insurance company
acquired the investment or entered into the transaction continues
to be qualified under that section.
(c) An insurance company may elect to transfer at any time
the qualification of an investment, wholly or partly, to the
authority of any section of this subchapter under which the
investment qualifies at the time of the transfer, regardless of
whether the investment originally qualified under that section.
(d) An investment, once qualified under this subchapter,
remains qualified notwithstanding any refinancing, restructuring,
or modification of the investment, except that an insurance company
may not refinance, restructure, or modify an investment to
circumvent the requirements of this subchapter. (V.T.I.C.
Art. 3.33, Secs. 4(t) (part), (w).)
Sec. 425.156. DISTRIBUTIONS, REINSURANCE, AND MERGER. (a)
This subchapter does not prohibit an insurance company from
acquiring additional obligations, securities, or other assets
received as a dividend or as a distribution of assets.
(b) This subchapter does not apply to securities,
obligations, or other assets accepted incident to the workout,
adjustment, restructuring, or similar realization of any kind of
previously authorized investment or transaction if the insurance
company's board of directors or a committee appointed by the board
of directors determines that acceptance of the securities,
obligations, or other assets is in the company's best interests.
(c) This subchapter does not apply to assets acquired under
a lawful agreement of bulk reinsurance, merger, or consolidation if
the assets were legal and authorized investments for the ceding,
merged, or consolidated insurance company.
(d) An obligation, security, or other asset acquired as
permitted by this section is not required to be qualified under any
other section of this subchapter. (V.T.I.C. Art. 3.33, Sec. 4(v).)
Sec. 425.157. AGGREGATE DIVERSIFICATION REQUIREMENTS. (a)
This section takes precedence over Sections 425.109-425.120,
425.122-425.153, and 425.155(a), (b), and (c).
(b) An insurance company's investments in all or any types
of securities, loans, obligations, or evidences of indebtedness of
a single issuer or borrower, including the issuer's or borrower's
majority-owned subsidiaries or parent and the majority-owned
subsidiaries of the issuer's or borrower's parent, may not, in the
aggregate, exceed five percent of the company's assets. This
subsection does not apply to:
(1) authorized investments that:
(A) are direct obligations of, or are guaranteed
by the full faith and credit of, the United States, this state, or a
political subdivision of this state; or
(B) are insured by an agency of the United States
or this state; or
(2) an investment provided for by Section 425.112 or
425.113.
(c) Except as otherwise provided by this subsection, an
insurance company's aggregate investment in real property under
Sections 425.119, 425.120, 425.152, and 425.153 may not exceed
33-1/3 percent of the company's assets. If a company acquires real
property under Section 425.119(g) and that acquisition causes the
company's aggregate real estate investment to exceed the limitation
imposed by this subsection, the company shall, on or before the 10th
anniversary of the date the real property is acquired, dispose of a
sufficient amount of real property to comply with the applicable
limitation. A company that does not dispose of excess real property
as required by this subsection may not admit as an asset the value
of the real property that exceeds the applicable limitation.
(d) If an insurance company's real property acquisitions
exceed the limitation imposed by Subsection (c), the company may
not acquire additional real property under Section 425.119(b) or
(c) or 425.120, 425.152, or 425.153 until the company disposes of
the excess real property as specified by Subsection (c). (V.T.I.C.
Art. 3.33, Sec. 5.)
Sec. 425.158. WAIVER BY COMMISSIONER OF QUANTITATIVE
LIMITATIONS. (a) The commissioner may waive a quantitative
limitation on any investment authorized by Sections
425.109-425.132 and 425.151-425.156 if:
(1) the insurer seeks the waiver before making the
investment;
(2) a hearing is held to determine whether the waiver
should be granted;
(3) the applicant seeking the waiver establishes that
unreasonable or unnecessary loss or harm will result to the company
if the commissioner denies the waiver;
(4) the excess investment will not have a material
adverse effect on the company; and
(5) the size of the investment is reasonable in
relation to the company's assets, capital, surplus, and
liabilities.
(b) The commissioner's waiver must be in writing and may
treat the resulting excess investment as a nonadmitted asset.
(V.T.I.C. Art. 3.33, Sec. 6.)
Sec. 425.159. ACCOUNTING PROVISIONS. (a) Each insurance
company shall maintain reasonable, adequate, and accurate evidence
of the company's ownership of the company's assets and investments.
(b) An insurance company shall evidence the company's
ownership of governmental or corporate securities as provided by
Sections 423.101, 423.102, 423.104(a), 423.105, 423.106, 423.107,
and 423.108.
(c) An insurance company shall hold investments, other than
investments made as a participation in a partnership or joint
venture, only in the company's own name or as otherwise provided by
Chapter 423. (V.T.I.C. Art. 3.33, Secs. 7(b), (c), (d).)
Sec. 425.160. INVESTMENTS OF CEDING INSURERS. (a) Subject
to this section, if a domestic insurance company assumes and
reinsures the business of and takes over the assets of another
domestic insurance company or a foreign company, all assets or
investments of the ceding company that were authorized as proper
assets or investments for the funds of that company and taken over
by the assuming company are considered valid assets or investments
of the assuming company under the laws of this state.
(b) The commissioner must approve assets or investments
described by Subsection (a) and the terms on which those assets or
investments are taken over. The commissioner may require the
assuming insurance company to reasonably dispose of any of those
assets or investments that do not otherwise meet the requirements
of this subchapter within a period that will minimize any financial
loss or other hardship caused by disposing of the asset or
investment. (V.T.I.C. Art. 3.33, Sec. 8.)
Sec. 425.161. ACTING AS REAL ESTATE BROKER OR SALESPERSON
PROHIBITED. A domestic insurance company or another insurance
company specifically made subject to this subchapter may not engage
in the business of a broker or salesperson as defined by Chapter
1101, Occupations Code, except that the company may hold, improve,
maintain, manage, rent, lease, sell, exchange, or convey any of the
real property interests owned as investments under Sections
425.109-425.132 and 425.151-425.153. (V.T.I.C. Art. 3.33, Sec.
10.)
Sec. 425.162. RULES. The commissioner may adopt rules,
minimum standards, or limitations that are fair and reasonable as
appropriate to supplement and implement this subchapter. (V.T.I.C.
Art. 3.33, Sec. 9.)
[Sections 425.163-425.200 reserved for expansion]
SUBCHAPTER D. AUTHORIZED INVESTMENTS AND TRANSACTIONS FOR OTHER
LIFE, HEALTH, AND ACCIDENT INSURERS
Sec. 425.201. DEFINITION. In this subchapter,
"contingency funds" means an insurer's contingency funds over and
above the amount of the insurer's policy reserves. (New.)
Sec. 425.202. APPLICABILITY OF SUBCHAPTER. This subchapter
applies only to an insurer organized under Chapter 881, 884, 885,
886, 887, or 2551, except as specifically provided by those
chapters. (V.T.I.C. Art. 3.33, Sec. 1 (part).)
Sec. 425.203. LIMITATION ON FUNDS AND OTHER ASSETS. (a) An
insurer may not use the insurer's funds to make an investment or
loan that is not authorized by this subchapter.
(b) An insurer may not secure, hold, or convey real property
except as authorized by this subchapter. (V.T.I.C. Art. 3.39,
Parts I (part), II (part); Art. 3.40 (part).)
Sec. 425.204. APPROVAL OF INVESTMENTS AND LOANS REQUIRED.
(a) An insurer may not make an investment unless the investment has
been authorized by the insurer's board of directors or by a
committee responsible for supervising investments.
(b) An insurer may not make a loan other than a policy loan
unless the loan has been authorized by the insurer's board of
directors or by a committee responsible for supervising loans.
(V.T.I.C. Art. 3.39, Part I, Sec. F, Para. 2; Part II, Sec. A, Para.
7.)
Sec. 425.205. AUTHORIZED INVESTMENTS FOR ALL FUNDS:
GOVERNMENT BONDS. (a) Subject to this section, an insurer may
invest any of the insurer's funds and accumulations in:
(1) a bond, treasury bill, note, or certificate of
indebtedness of the United States or any other obligation or
security fully guaranteed as to principal and interest by the full
faith and credit of the United States;
(2) a bond of Canada or a province or municipality of
Canada;
(3) a bond of a state, county, or municipality of the
United States;
(4) a bond or interest-bearing warrant issued by a
county, municipality, school district, or other subdivision that
is:
(A) organized under the laws of a state of the
United States; and
(B) authorized to issue the bond or warrant under
the constitution and laws of that state;
(5) a bond or interest-bearing warrant issued by an
educational institution that is:
(A) organized under the laws of a state of the
United States; and
(B) authorized to issue the bond or warrant under
the constitution and laws of that state;
(6) a bond or warrant, including a revenue or special
obligation, of an educational institution located in a state of the
United States;
(7) a bond or warrant payable from designated revenues
of a municipality, county, drainage district, road district, or
other civil administration, agency, authority, instrumentality, or
subdivision that is:
(A) organized under the laws of a state of the
United States; and
(B) authorized to issue the bond or warrant under
the constitution and laws of that state;
(8) a paving certificate or other certificate or
evidence of indebtedness issued by a municipality in a state of the
United States and secured by a first lien on real estate; and
(9) a bond issued under the Farm Credit Act of 1971 (12
U.S.C. Section 2001 et seq.) that is issued against and secured by
promissory notes or obligations, the payment of which is secured by
mortgage, deed of trust, or other valid lien on unencumbered real
property located in this state.
(b) An insurer may invest in a bond or warrant described by
Subsection (a)(4) or (5) only if the issuer of the bond or warrant
has made legal provision to impose a tax to meet the obligation.
(c) An insurer may invest in a bond or warrant described by
Subsection (a)(6) only if the special revenue or income to meet the
principal and interest payments as they accrue on the obligation
has been appropriated, pledged, or otherwise provided by the
educational institution.
(d) An insurer may invest in a bond or warrant described by
Subsection (a)(7) only if special revenue or income to meet the
principal and interest payments as they accrue on the obligation
has been appropriated, pledged, or otherwise provided by the
municipality or other entity. (V.T.I.C. Art. 3.39, Part I (part),
Sec. A, Paras. 1, 2, 3, 4, 5, 6, 7, 8, 9.)
Sec. 425.206. AUTHORIZED INVESTMENTS FOR ALL FUNDS:
CORPORATE BONDS, NOTES, AND DEBENTURES. (a) Subject to Subsection
(e), an insurer may invest any of the insurer's funds and
accumulations in a first mortgage bond or first lien note on real or
personal property of:
(1) a solvent corporation that has not defaulted in
the payment of any debt during the five years preceding the
investment;
(2) a solvent corporation that has not been in
existence for five consecutive years but whose first mortgage bonds
or first lien notes on real or personal property are fully
guaranteed by a solvent corporation that has not defaulted in the
payment of any debt during the five years preceding the investment;
(3) a solvent corporation that has not been in
existence for five consecutive years but whose first mortgage bonds
or first lien notes on real or personal property are secured by
leases or other contracts executed by a solvent corporation that
has not defaulted in the payment of any debt during the five years
preceding the investment, if the required rentals or other required
payments under the leases or other contracts are sufficient in all
circumstances to pay interest and principal when due on the bonds or
notes; or
(4) a solvent corporation that has not been in
existence for five consecutive years preceding the investment, if:
(A) the corporation has succeeded to the business
and assets and has assumed the liabilities of another corporation;
and
(B) neither the successor corporation or the
corporation succeeded has defaulted in the payment of any debt
during the five years preceding the investment.
(b) Subject to Subsection (e), an insurer may invest any of
the insurer's funds and accumulations in a note or debenture of a
corporation with a net worth of at least $5 million if:
(1) a prior lien in excess of 10 percent of the net
worth of the corporation does not exist against the real or personal
property of the corporation at the time the note or debenture is
issued; and
(2) under the provisions of the indenture providing
for the issuance of the note or debenture, a prior lien that exceeds
10 percent of the net worth of the corporation cannot be created
against the real or personal property of the corporation at the time
the note or debenture is issued.
(c) Subject to Subsection (e), an insurer may invest any of
the insurer's funds and accumulations in a note or debenture of a
solvent corporation that has not been in existence for five
consecutive years if:
(1) a prior lien does not exist against the real or
personal property of the corporation at the time the note or
debenture is issued;
(2) under the provisions of the indenture providing
for the issuance of the note or debenture, a prior lien cannot be
created against the real or personal property of the corporation at
the time the note or debenture is issued; and
(3) the note or debenture is:
(A) secured by a lease or other contract executed
by a solvent corporation that has a net worth of at least $5 million
and has not defaulted in the payment of any debt during the five
years preceding the investment, if the required rentals or other
required payments under the lease or other contract are sufficient
in all circumstances to pay interest and principal when due on the
bond or note; or
(B) fully guaranteed by a corporation described
by Paragraph (A).
(d) Subject to Subsection (e), an insurer may invest any of
the insurer's funds and accumulations in a bond, bill of exchange,
or other commercial note or bill of:
(1) a solvent corporation that has not defaulted in
the payment of any debt during the five years preceding the
investment; or
(2) a solvent corporation that has not been in
existence for the five years preceding the investment, if:
(A) the corporation has succeeded to the business
and assets and has assumed the liabilities of another corporation;
(B) neither the successor corporation or the
corporation succeeded has defaulted in the payment of any debt
during the five years preceding the investment;
(C) the corporation has a net worth of at least
$50 million; and
(D) the corporation does not have long-term
indebtedness that exceeds the corporation's net worth, as evidenced
by the corporation's latest published financial statements or other
financial data available to the public.
(e) The amount of an insurer's investments in the bonds,
notes, debentures, or other obligations of any one corporation may
not exceed five percent of the insurer's admitted assets.
(V.T.I.C. Art. 3.39, Part I, Sec. A, Para. 10.)
Sec. 425.207. AUTHORIZED INVESTMENTS FOR ALL FUNDS: SHARES
OF SAVINGS AND LOAN ASSOCIATIONS. (a) Subject to this section, an
insurer may invest any of the insurer's funds and accumulations in a
share, stock, share or savings account, or investment certificate
of a savings and loan association engaged in business in this state
that is qualified to participate in insurance issued by the Federal
Deposit Insurance Corporation.
(b) An insurer's investment in a savings and loan
association may not exceed 20 percent of the savings and loan
association's total assets. (V.T.I.C. Art. 3.39, Part I, Sec. A,
Para. 11.)
Sec. 425.208. AUTHORIZED INVESTMENTS FOR ALL FUNDS: BANK
AND BANK HOLDING COMPANY STOCKS. (a) Subject to this section, an
insurer may invest any of the insurer's funds and accumulations in:
(1) the stock of a state or national bank that is a
member of the Federal Deposit Insurance Corporation; and
(2) the stock of a bank holding company as defined by
the Bank Holding Company Act of 1956 (12 U.S.C. Section 1841 et
seq.), as amended by the Bank Holding Company Act Amendments of 1970
(12 U.S.C. Section 1841 et seq. and Section 1971 et seq.).
(b) An insurer's investment in the stock of a bank or bank
holding company may not exceed:
(1) 20 percent of the total outstanding shares of the
stock of the bank or bank holding company; or
(2) 10 percent of the insurer's admitted assets.
(V.T.I.C. Art. 3.39, Part I, Sec. A, Para. 12.)
Sec. 425.209. AUTHORIZED INVESTMENTS FOR ALL FUNDS:
DEBENTURES OF PUBLIC UTILITY CORPORATIONS. (a) Subject to this
section, an insurer may invest any of the insurer's funds and
accumulations in:
(1) a debenture of a solvent public utility
corporation that:
(A) has not defaulted in the payment of any debt
during the five years preceding the investment; and
(B) has not failed in any one of the five years
preceding the investment to have earned, after taxes, including
income taxes, and after deducting proper charges for replacements,
depreciation, and obsolescence, an amount applicable to interest on
the corporation's outstanding indebtedness equal to at least two
times the amount of interest due for that year, or, in the case of
issuance of new debentures, the earnings applicable to interest are
equal to at least two times the amount of annual interest on the
corporation's obligations after giving effect to the new financing;
or
(2) a debenture of a solvent public utility
corporation that has not been in existence for the five years
preceding the investment, if:
(A) the corporation has succeeded to the business
and assets and has assumed the liabilities of another public
utility corporation;
(B) neither the successor corporation or the
corporation succeeded has defaulted in the payment of any debt
during the five years preceding the investment; and
(C) neither the successor corporation or the
corporation succeeded have failed in any one of the five years
preceding the investment to have earned, after taxes, including
income taxes, and after deducting proper charges for replacements,
depreciation, and obsolescence, an amount applicable to interest on
the corporation's outstanding indebtedness equal to at least two
times the amount of interest due for that year, or in the case of
issuance of new debentures, the earnings applicable to interest are
equal to at least two times the amount of annual interest on the
corporation's obligations after giving effect to the new financing.
(b) The amount of an insurer's investment in debentures
under this section may not exceed five percent of the insurer's
admitted assets. (V.T.I.C. Art. 3.39, Part I, Sec. A, Para. 13.)
Sec. 425.210. AUTHORIZED INVESTMENTS FOR ALL FUNDS:
PREFERRED STOCK OF PUBLIC UTILITY CORPORATIONS. (a) Subject to
this section, an insurer may invest any of the insurer's funds and
accumulations in:
(1) preferred stock of a solvent public utility
corporation, the bonds and debentures of which are authorized
investments for the insurer, and that:
(A) has not defaulted in the payment of any debt
during the five years preceding the investment; and
(B) has not failed in any one of the five years
preceding the investment to have earned an amount applicable to the
dividends on the preferred stock equal to at least three times the
amount of dividends due in that year, or, in the case of issuance of
new preferred stock, the earnings applicable to dividends are equal
to at least three times the amount of the annual dividend
requirements after giving effect to the new financing; or
(2) a solvent public utility corporation, the bonds
and debentures of which are authorized investments for the insurer,
and that has not been in existence for the five years preceding the
investment, if:
(A) the corporation has succeeded to the business
and assets and has assumed the liabilities of another public
utility corporation;
(B) neither the successor corporation or the
corporation succeeded has defaulted in the payment of any debt
during the five years preceding the investment; and
(C) neither the successor corporation or the
corporation succeeded have failed in any one of the five years
preceding the investment to have earned an amount applicable to the
dividends on the preferred stock equal to at least three times the
amount of dividends due in that year, or, in the case of issuance of
new preferred stock, the earnings applicable to dividends are equal
to at least three times the amount of the annual dividend
requirements after giving effect to the new financing.
(b) Preferred stock purchased under this section must be of
an issue entitled to first claim on the net earnings of the public
utility corporation, after deducting the amount necessary to
service any outstanding bonds and debentures.
(c) The amount of an insurer's investment in preferred stock
under this section may not exceed 2-1/2 percent of the insurer's
admitted assets. (V.T.I.C. Art. 3.39, Part I, Sec. A, Para. 14.)
Sec. 425.211. AUTHORIZED INVESTMENTS FOR ALL FUNDS: BONDS
ISSUED, ASSUMED, OR GUARANTEED IN INTERNATIONAL MARKET. An insurer
may invest any of the insurer's funds and accumulations in bonds
issued, assumed, or guaranteed by:
(1) the Inter-American Development Bank;
(2) the International Bank for Reconstruction and
Development (the World Bank);
(3) the African Development Bank;
(4) the Asian Development Bank;
(5) the International Finance Corporation; and
(6) the State of Israel. (V.T.I.C. Art. 3.39, Part I,
Sec. A, Para. 15A.)
Sec. 425.212. AUTHORIZED INVESTMENTS FOR ALL FUNDS:
SECURITIES OR INVESTMENTS AUTHORIZED OR DESCRIBED BY SPECIFIC
STATUTORY PROVISION. An insurer may invest any of the insurer's
funds and accumulations in a security or investment authorized or
described by:
(1) Section 65.013, Finance Code;
(2) Sections 435.041-435.047, Government Code;
(3) Subchapter B, Chapter 1505, Government Code;
(4) Chapter 284, Transportation Code;
(5) Section 51.039 or 60.104, Water Code;
(6) Chapter 160, General Laws, Acts of the 43rd
Legislature, Regular Session, 1933 (Article 842a, Vernon's Texas
Civil Statutes);
(7) Chapter 230, Acts of the 49th Legislature, Regular
Session, 1945 (Article 842a-1, Vernon's Texas Civil Statutes);
(8) Chapter 110, Acts of the 51st Legislature, Regular
Session, 1949 (Article 8280-133, Vernon's Texas Civil Statutes);
(9) Chapter 340, Acts of the 51st Legislature, Regular
Session, 1949 (Article 8280-137, Vernon's Texas Civil Statutes);
(10) Chapter 398, Acts of the 51st Legislature,
Regular Session, 1949 (Article 8280-138, Vernon's Texas Civil
Statutes); or
(11) Chapter 465, Acts of the 51st Legislature,
Regular Session, 1949 (Article 8280-139, Vernon's Texas Civil
Statutes). (V.T.I.C. Art. 3.39, Part I, Sec. A, Para. 16.)
Sec. 425.213. AUTHORIZED INVESTMENTS FOR ALL FUNDS: OTHER
SECURITIES SPECIFICALLY AUTHORIZED BY LAW. An insurer may invest
any of the insurer's funds and accumulations in:
(1) an adequately secured equipment trust obligation
or certificate or another adequately secured instrument
evidencing:
(A) an interest in transportation equipment that
is located wholly or partly within the United States; and
(B) a right to receive determined portions of
rental, purchase, or other fixed obligatory payments for the use or
purchase of the transportation equipment; and
(2) any other security as specifically authorized by
law. (V.T.I.C. Art. 3.39, Part I, Sec. A, Para. 17.)
Sec. 425.214. AUTHORIZED INVESTMENTS FOR ALL FUNDS: LOANS
SECURED BY REAL PROPERTY. (a) Subject to this section, an insurer
may loan any of the insurer's funds and accumulations and take as
collateral a first lien on real property to which the title is
valid.
(b) The amount of a loan secured by a first lien on real
property may exceed 75 percent of the property value only if:
(1) the amount does not exceed 90 percent of the
property value and the property contains only a dwelling designed
exclusively for occupancy by not more than four families for
residential purposes; or
(2) the amount does not exceed 95 percent of the
property value and:
(A) the property contains only a dwelling
designed exclusively for occupancy by not more than four families
for residential purposes; and
(B) the portion of the unpaid balance of the loan
that exceeds 80 percent of the property value is guaranteed or
insured by a mortgage guaranty insurer authorized to engage in
business in this state.
(c) An insurer may not originate a loan that exceeds 75
percent of the value of the real property securing the loan.
(d) The aggregate amount of an insurer's loans secured by
first liens on real property to any one corporation, company,
partnership, individual, or any affiliated person or group may not
exceed 10 percent of the insurer's admitted assets. The amount of
any single loan secured by a first lien on real property may not
exceed five percent of the insurer's admitted assets.
(e) The limitations imposed by Subsections (b)-(d) do not
apply to a first lien on real property if the commissioner finds
that:
(1) the making or acquiring of the lien is beneficial
to and protects the interest of the insurer; and
(2) no substantial damage to the insurer's
policyholders and creditors appears probable from the taking or
acquiring of the lien.
(f) Subject to Subsections (g)-(j), an insurer may loan any
of the insurer's funds and accumulations and take as collateral a
first lien on a leasehold estate in:
(1) real property to which the title is valid; and
(2) improvements located on the property to which the
title is valid.
(g) The term of a loan secured by first lien on a leasehold
estate in real property may not, as of the date the loan is made,
exceed a period equal to four-fifths of the unexpired term of the
leasehold estate. The term of the leasehold estate may not expire
sooner than the 10th anniversary of the expiration of the term of
the loan.
(h) A loan secured by a first lien on a leasehold estate in
real property must be payable in equal monthly, quarterly,
semiannual, or annual installments on principal and interest during
a period not to exceed four-fifths of the unexpired term, as of the
date the loan is made, of the leasehold estate.
(i) The restrictions imposed by this section on the value of
the real property securing a loan compared to the amount of the
loan, and on the duration of a loan secured by a leasehold estate in
real property, do not apply to a loan if:
(1) the entire amount of the indebtedness is insured
or guaranteed in any manner by:
(A) the United States;
(B) the Federal Housing Administration under the
National Housing Act (12 U.S.C. Section 1701 et seq.), as amended;
or
(C) this state; or
(2) the difference between the entire amount of the
indebtedness and the portion of the loan insured or guaranteed by an
entity described by Subdivision (1) does not exceed the amount of a
loan permitted by the applicable restriction.
(j) If any part of the value of buildings is to be included
in the value of real property or leasehold estate in real property
to attain the minimum authorized value of the security for a loan
under this section:
(1) the buildings must be insured against loss by fire
by:
(A) an insurer authorized to engage in business
in the state in which the real property is located; or
(B) a company recognized as acceptable for that
purpose by the insurance regulatory official of the state in which
the real property is located;
(2) the amount of insurance coverage may not be less
than 50 percent of the value of the buildings, except that the
insurance coverage is not required to exceed the outstanding
balance owed to the insurer if the outstanding balance of the loan
is less than 50 percent of the value of the buildings; and
(3) the loss clause under the insurance must be
payable to the insurer. (V.T.I.C. Art. 3.39, Part II (part), Sec.
A, Paras. 1, 2, 6, 8.)
Sec. 425.215. AUTHORIZED INVESTMENTS FOR ALL FUNDS: LOANS
SECURED BY CERTAIN COLLATERAL SECURED BY REAL PROPERTY. An insurer
may loan any of the insurer's funds and accumulations and take as
collateral an obligation secured by a first lien on real property or
a leasehold estate that is eligible to secure a loan under Section
425.214. (V.T.I.C. Art. 3.39, Part II, Sec. A, Para. 3.)
Sec. 425.216. AUTHORIZED INVESTMENTS FOR ALL FUNDS: POLICY
LOANS. (a) Subject to Subsection (b), an insurer may loan any of
the insurer's funds and accumulations and take as collateral an
insurance policy issued by the insurer.
(b) A loan on a policy under this section may not exceed the
reserve value of the policy. (V.T.I.C. Art. 3.39, Part II, Sec. A,
Para. 4.)
Sec. 425.217. AUTHORIZED INVESTMENTS FOR ALL FUNDS: LOANS
SECURED BY CERTAIN SECURITIES. An insurer may loan any of the
insurer's funds and accumulations and take as collateral for the
loan any security described by Sections 425.205-425.213 and 425.218
in which the insurer may invest any of the insurer's funds and
accumulations. (V.T.I.C. Art. 3.39, Part II, Sec. A, Para. 5.)
Sec. 425.218. AUTHORIZED INVESTMENTS FOR ALL FUNDS:
SECURITIES NOT OTHERWISE SPECIFIED. (a) Notwithstanding any
express or implied prohibitions, and subject to this section, an
insurer may invest any of the insurer's funds and accumulations in
an investment that does not otherwise qualify under any other
provision of this chapter.
(b) The amount of any one investment by an insurer under
this section may not exceed one percent of the insurer's admitted
assets.
(c) The aggregate amount of investments by an insurer under
this section may not exceed the lesser of:
(1) five percent of the insurer's admitted assets; or
(2) the amount of the insurer's capital and surplus in
excess of $200,000 as shown on the last annual statement filed by
the insurer with the department before the date the investment is
acquired.
(d) Except as provided by another law of this state, this
section does not authorize an insurer to invest any of the insurer's
funds or accumulations in real property. (V.T.I.C. Art. 3.39, Part
I, Sec. A, Para. 15.)
Sec. 425.219. AUTHORIZED INVESTMENTS FOR POLICY RESERVES
AND SURPLUS: BONDS OF CERTAIN WATER CONTROL AND IMPROVEMENT
DISTRICTS. An insurer may invest the insurer's policy reserves and
surplus over and above the insurer's capital in municipal bonds
issued under Section 51.039, Water Code. (V.T.I.C. Art. 3.39, Part
I, Sec. B.)
Sec. 425.220. AUTHORIZED INVESTMENTS FOR CAPITAL, SURPLUS,
AND CONTINGENCY FUNDS: CAPITAL STOCK, BONDS, AND OTHER CORPORATE
OBLIGATIONS. (a) Subject to this section and Section 425.226, an
insurer may invest the insurer's capital, surplus, and contingency
funds in the capital stock, bonds, bills of exchange, or other
commercial notes or bills and securities of:
(1) a solvent corporation that has not defaulted in
the payment of any debt during the five years preceding the
investment; or
(2) a solvent corporation that has not been in
existence for the five years preceding the investment, if:
(A) the corporation has succeeded to the business
and assets and has assumed the liabilities of another corporation;
and
(B) neither the successor corporation nor the
corporation succeeded has defaulted in the payment of any debt
during the five years preceding the investment.
(b) An insurer may not invest in the stock of:
(1) a manufacturing corporation with a net worth of
less than $25,000; or
(2) an oil corporation with a net worth of less than
$500,000.
(c) Except as provided by Subsection (d), an insurer's
investment in the insurer's own capital stock or in the stock of a
single corporation may not be in an amount exceeding 10 percent of
the amount of the insurer's capital, surplus, and contingency
funds.
(d) An insurer may own, and the insurer may invest not more
than 25 percent of the insurer's capital, surplus, and contingency
funds in, the capital stock of a single fire and casualty insurance
company if that investment gives the insurer a majority of the
outstanding stock of the fire and casualty insurance company.
(e) In addition to the investments authorized by this
section and subject to Section 425.226, an insurer may invest in the
capital stock, bonds, and other obligations of one or more solvent
corporations that portion of the insurer's surplus funds that
exceeds the greater of:
(1) 10 percent of the insurer's admitted assets, as
determined from the insurer's latest annual statement on file with
the department; or
(2) the minimum capital and surplus requirements for
incorporating a life insurance company under Chapter 841.
(V.T.I.C. Art. 3.39, Part I, Sec. C, Paras. 1, 3.)
Sec. 425.221. AUTHORIZED INVESTMENTS FOR CAPITAL, SURPLUS,
AND CONTINGENCY FUNDS: BONDS OR NOTES OF EDUCATIONAL OR RELIGIOUS
CORPORATIONS. Subject to Section 425.226, an insurer may invest
the insurer's capital, surplus, and contingency funds in a bond or
note of an educational or religious corporation that has provided
for the payment of a sufficient amount of the first weekly or
monthly revenues of the corporation to an interest and sinking fund
account in a bank or trust company as an independent paying agent.
(V.T.I.C. Art. 3.39, Part I, Sec. C, Para. 2.)
Sec. 425.222. AUTHORIZED INVESTMENTS FOR CAPITAL, SURPLUS,
AND CONTINGENCY FUNDS: LIFE INCOME INTERESTS IN QUALIFIED TRUSTS.
(a) Subject to this section, an insurer may invest the insurer's
capital, surplus, and contingency funds in a life income interest
in a qualified irrevocable express testamentary trust.
(b) For purposes of this section, a trust is a qualified
trust if:
(1) each fee simple recipient of any part of the corpus
of the trust:
(A) is a public charity, church, educational
institution, or scientific institution;
(B) is located in this state; and
(C) is recognized by the United States Internal
Revenue Service as exempt from payment of income taxes;
(2) the corpus of the trust is wholly or partly
composed of interests in real estate, stocks, bonds, debentures,
and other securities of an aggregate total value of at least $5
million; and
(3) the corpus of the trust produces annual income of
at least $100,000.
(c) An insurer's life income interest in a qualified trust
may not exceed 10 percent of the insurer's admitted assets.
(d) Before an insurer may acquire a life income interest in
a qualified trust, the insurer must present evidence satisfactory
to the commissioner that shows:
(1) the interest is subject to transfer and is
recognized as transferable;
(2) the interest is capable of reasonable valuation;
(3) a market for the sale of the interest exists; and
(4) the interest is supported by life insurance in:
(A) an amount not less than the admitted value of
the interest; and
(B) a form approved by the commissioner.
(e) In valuing a life income interest in a qualified trust
on the insurer's books, the insurer may value the interest only on
the basis of the lesser of:
(1) the recognized market established in accordance
with Subsection (d)(3); or
(2) the ratio that the fractional life income interest
in the income of the trust bears to the total market value of the
properties held by the trust that are of a type of property an
insurer may lawfully acquire under the investment statutes of this
state. (V.T.I.C. Art. 3.39, Part I, Sec. C, Para. 4.)
Sec. 425.223. AUTHORIZED INVESTMENTS FOR CAPITAL, SURPLUS,
AND CONTINGENCY FUNDS: CAPITAL STOCK OF REINSURER. (a) Subject to
Subsection (b), an insurer may invest the insurer's capital,
surplus, and contingency funds in not more than 20 percent of the
capital stock of any other insurance company organized under
Chapter 841 whose principal business is the reinsurance, either
wholly or partly, of risks ceded to that insurer by other life
insurance companies.
(b) The aggregate amount of an insurer's investments under
this section may not exceed 10 percent of the insurer's capital,
surplus, and contingency funds.
(c) The investment authorized by this section may be made by
purchase of stock issued and outstanding or by subscription to and
payment for the increase in the capital stock of the reinsurer.
(V.T.I.C. Art. 3.39, Part I, Sec. D.)
Sec. 425.224. AUTHORIZED INVESTMENTS FOR CAPITAL, SURPLUS,
AND CONTINGENCY FUNDS: LOANS SECURED BY CORPORATE STOCK. (a)
Subject to this section, an insurer may loan the insurer's capital,
surplus, and contingency funds and take as collateral the capital
stock, bonds, bills of exchange, or other commercial notes or bills
or the securities of:
(1) a solvent corporation that has not defaulted in
the payment of any debt during the five years preceding the
investment; or
(2) a solvent corporation that has not been in
existence for the five years preceding the investment, if:
(A) the corporation has succeeded to the business
and assets and has assumed the liabilities of another corporation;
and
(B) neither the successor corporation nor the
corporation succeeded has defaulted in the payment of any debt
during the five years preceding the investment.
(b) Subject to this section, an insurer may loan the
insurer's capital, surplus, and contingency funds and take as
collateral the bonds or notes of an educational or religious
corporation that has provided for the payment of a sufficient
amount of the first weekly or monthly revenues of the corporation to
an interest and sinking fund account in a bank or trust company as
an independent paying agent.
(c) The market value of the stock, bills of exchange, other
commercial notes or bills, or securities must be at all times during
the continuance of the loan at least 50 percent more than the amount
loaned on the securities or obligations.
(d) An insurer may not take as collateral for any loan:
(1) the insurer's capital stock;
(2) the stock of a single corporation in an amount that
exceeds 10 percent of the amount of the insurer's own capital,
surplus, and contingency funds;
(3) the stock of a manufacturing corporation with a
net worth of less than $25,000;
(4) the stock of an oil corporation with a net worth of
less than $500,000; or
(5) any stock, the holder or owner of which is or may
become liable for any assessment other than taxes. (V.T.I.C.
Art. 3.39, Part II, Sec. B.)
Sec. 425.225. INVESTMENT IN FOREIGN SECURITIES. (a) An
insurer authorized to engage in business in a foreign country may
invest in securities of that country that are the same kind of
securities as those in the United States in which an insurer is
authorized by this subchapter to invest.
(b) The aggregate amount of an insurer's investments under
this section may not exceed the amount of the insurer's reserves on
the business in force in the foreign country. (V.T.I.C. Art. 3.39,
Part I, Sec. F, Para. 1.)
Sec. 425.226. INVESTMENT IN STOCK SUBJECT TO ASSESSMENT
PROHIBITED. An insurer may not invest any of the insurer's funds in
a stock, the holder or owner of which is or may become liable for any
assessment other than taxes. (V.T.I.C. Art. 3.39, Part I, Sec. F,
Para. 4.)
Sec. 425.227. CERTAIN INVESTMENT POWERS NOT A RESTRICTION.
The investment powers granted by Sections 425.207 and 425.208 may
not be construed as restricting the powers granted by Sections
425.220 and 425.221. (V.T.I.C. Art. 3.39, Part I, Sec. F, Para. 5.)
Sec. 425.228. INVESTMENTS OF CEDING INSURER. (a) Subject
to this section, if a domestic insurer assumes the business and
takes over the assets of another domestic or a foreign insurer, all
investments of the ceding insurer that were authorized, when made,
by the laws of the state in which the ceding insurer was organized
as proper securities for investment of the funds of an insurer and
that are taken over by the assuming insurer are considered to be
valid securities of the assuming insurer under the laws of this
state.
(b) The commissioner must approve investments described by
Subsection (a) and the terms on which those investments are taken
over. The commissioner may require the assuming insurer to dispose
of any of the investments on notice the commissioner considers
reasonable. (V.T.I.C. Art. 3.39, Part I, Sec. F, Para. 3.)
Sec. 425.229. AUTHORIZED INVESTMENTS: REAL ESTATE FOR
INSURER'S OFFICES. (a) Subject to this section, an insurer may
secure, hold, and convey the following real property:
(1) one building site and office building for the
insurer's accommodation in the transaction of the insurer's
business and for lease;
(2) branch office buildings in this state and
elsewhere within the United States in which the insurer is
authorized to engage in business as necessary for the insurer's
convenient accommodation in the transaction of the insurer's
business and for lease; and
(3) parking facilities adjacent to or in the vicinity
of each office building owned by the insurer as reasonably
necessary for the insurer and the building tenants.
(b) An office building described by Subsection (a)(1) may be
on ground on which the insurer owns a lease the term of which
expires not sooner than the 50th anniversary of the date the insurer
acquires the lease. The insurer must own, or be entitled to the use
of, all the improvements on the leased ground. The value of the
improvements must be at least equal to the value of the ground and
at least 20 times the annual average ground rentals payable under
the lease. The office building must have an annual average net
rental of at least twice the annual ground rental. The insurer must
be liable for and shall pay all state and local taxes imposed
against the ground and improvements. For purposes of taxation, the
ground and improvements are considered to be real property owned by
the insurer. The commissioner must approve the acquisition of an
office building on leased ground before the insurer makes the
investment.
(c) The insurer must use at least 50 percent of the space in
each branch office building under Subsection (a)(2) that is
available for occupancy for business purposes for the transaction
of the insurer's business and not for lease to others.
(d) An insurer may make an investment under Subsection
(a)(2) or (3) only in a municipality that has a population of 15,000
or more.
(e) An insurer may not make an investment under this section
if, after making the investment, the insurer's aggregate
investments under this section would exceed 33-1/3 percent of the
insurer's admitted assets as of December 31 preceding the date of
the investment, except that an insurer's aggregate investments
under this section may be increased to an amount not to exceed 50
percent of the insurer's admitted assets if the commissioner
approves the investment in advance, and the investment may be
further increased if the additional increase is paid for only from
surplus funds and is not included as an admitted asset of the
insurer.
(f) The value of each investment under this section is
subject to the approval of the commissioner. The commissioner may,
at the time the investment is made or any time when an examination
of the insurer is being made, have an investment under this section
appraised by an appraiser appointed or approved by the
commissioner. The insurer shall pay the reasonable expense of the
appraisal. The expense of the appraisal is considered to be an
expense of the examination of the insurer. An insurer may not make
any increase in the valuation of real property described by
Subsection (a) unless the increase in valuation is approved by the
commissioner, subject to the conditions imposed by Subsection (e).
(V.T.I.C. Art. 3.40 (part).)
Sec. 425.230. AUTHORIZED INVESTMENTS: OIL, GAS, AND
MINERALS. (a) In this section and Section 425.231:
(1) "Producing" means producing oil, gas, or other
minerals in paying quantities. A well that has been shut in is
considered to be producing oil, gas, or other minerals in paying
quantities if shut-in royalties are being paid.
(2) "Production payment" means a right to oil, gas, or
other minerals in place or as produced that entitles the owner of
the right to a specified fraction of production until the owner
receives a specified amount of money, or a specified number of units
of oil, gas, or other minerals.
(3) "Royalty" or "overriding royalty" means a right to
oil, gas, and other minerals in place or as produced that entitles
the owner of the right to a specified fraction of production without
limitation to a specified amount of money or a specified number of
units of oil, gas, or other minerals.
(b) Subject to this section, in addition to and without
limitation on the purposes for which real property may be acquired,
secured, held, or retained under Section 425.229 or 425.231, an
insurer may secure, hold, retain, and convey production payments,
producing royalties, and producing overriding royalties as an
investment for the production of income.
(c) The aggregate amount of an insurer's investments under
this section, plus the aggregate amount of the insurer's
investments in home office and branch office properties under
Section 425.229, may not exceed the total amount permitted by and is
subject to all of the limitations imposed by Sections 425.229(e)
and (f). For purposes of this subsection, an investment in
production payments, producing royalties, or producing overriding
royalties is considered to be an investment in property described
by Section 425.229.
(d) For the purposes of Section 425.229(f), the
commissioner may establish a value of a production payment,
producing royalty, or producing overriding royalty as the maximum
amount that the insurer purchasing the production payment,
producing royalty, or producing overriding royalty could loan
against a first lien on the production payment, producing royalty,
or producing overriding royalty under Sections 425.214(f)-(h).
(e) An insurer may not make an investment in production
payments, producing royalties, or producing overriding royalties
solely for the production of income if, after making the
investment, the insurer's total investment at cost in the
production payments, producing royalties, or producing overriding
royalties would exceed 10 percent of the insurer's admitted assets
as of December 31 preceding the date of the investment.
(f) If production in paying quantities from a royalty
interest or overriding royalty interest held by an insurer ends,
the insurer shall sell and dispose of the royalty or overriding
royalty not later than the second anniversary of the date the
production ends, unless:
(1) production in paying quantities has resumed; or
(2) the insurer obtains from the commissioner a
certificate stating that the insurer's interests will suffer
materially by the forced sale of the interest.
(g) The commissioner shall state in a certificate under
Subsection (f)(2) the amount of time by which the period for sale is
extended under that subsection. (V.T.I.C. Art. 3.40 (part).)
Sec. 425.231. AUTHORIZED INVESTMENTS: REAL PROPERTY
ACQUIRED UNDER CERTAIN CIRCUMSTANCES. (a) Subject to this
section, an insurer may secure, hold, and convey the following real
property:
(1) real property acquired in good faith as security
for a loan previously contracted or for money due;
(2) real property conveyed to the insurer to satisfy a
debt previously contracted in the course of the insurer's dealings;
and
(3) real property purchased at a sale under a
judgment, court decree, or mortgage or other lien held by the
insurer.
(b) An insurer shall sell and dispose of all property
described by Subsection (a) that is not necessary for the insurer's
accommodation in the convenient transaction of the insurer's
business, other than an interest in minerals or royalties reserved
on the sale of land acquired under Subsection (a) or an interest in
producing royalties or producing overriding royalties otherwise
acquired, not later than the fifth anniversary of:
(1) the date the insurer acquires title to the
property; or
(2) the date the property ceases to be necessary for
the accommodation of the insurer's business.
(c) An insurer may hold property acquired under Subsection
(a) for a period longer than that specified by Subsection (b) if the
insurer obtains a certificate from the commissioner stating that
the insurer's interests will suffer materially by the forced sale
of the property. The commissioner shall state in the certificate
the amount of time by which the period for sale is extended under
this subsection. (V.T.I.C. Art. 3.40 (part).)
Sec. 425.232. AUTHORIZED INVESTMENTS: IMPROVED
INCOME-PRODUCING REAL PROPERTY. (a) In this section, "improved
income-producing real property" includes all commercial and
industrial real property, a substantial portion of which has been
materially enhanced in value by the construction of durable,
permanent-type buildings and other improvements costing an amount
at least equal to the value of the real property, excluding the
buildings and improvements, that is held or acquired by purchase,
lease, or otherwise for the production of income. The term does not
include agricultural, horticultural, farm and ranch, or
residential property, or single or multiunit family dwelling
property.
(b) Notwithstanding Sections 425.229, 425.230, and 425.231,
subject to this section, a domestic insurer may:
(1) invest any of the insurer's funds and
accumulations in improved income-producing real property or any
interest in improved income-producing real property; and
(2) hold, improve, maintain, manage, lease, sell, or
convey improved income-producing real property or an interest in
improved income-producing real property.
(c) The aggregate amount of an insurer's investments in all
income-producing real property, including improvements, may not
exceed 15 percent of the insurer's admitted assets. The amount of
an insurer's investment in a single piece of improved
income-producing real property, including improvements, may not
exceed five percent of the insurer's admitted assets. For purposes
of this subsection, an insurer's admitted assets are determined
from the insurer's annual statement as of the preceding December 31
and filed with the department as required by law. Section
425.229(f) applies to the value of any investment made under this
section.
(d) The investment authority granted by this section is in
addition to that granted by Sections 425.229, 425.230, and 425.231,
except that an insurer may not make an investment in improved
income-producing real property that, when added to the insurer's
investments under Section 425.229, would exceed the limitations
imposed by Section 425.229(e).
(e) This section does not permit an insurer to purchase
undeveloped real property for the purpose of development or subdivision. (V.T.I.C. Art. 3.40-1, Secs. 1, 3.)
CHAPTER 426. RESERVES FOR WORKERS' COMPENSATION
INSURANCE COMPANIES
Sec. 426.001. RESERVES REQUIRED
Sec. 426.002. COMPUTATION OF RESERVES
Sec. 426.003. MAINTENANCE OF RESERVES; NOTICE OF
NONCOMPLIANCE
CHAPTER 426. RESERVES FOR WORKERS' COMPENSATION
INSURANCE COMPANIES
Sec. 426.001. RESERVES REQUIRED. A workers' compensation
insurance company engaged in business in this state shall maintain
reserves in an amount estimated in the aggregate to provide for the
payment of all losses and claims incurred, whether reported or
unreported. The company may not maintain reserves in an amount that
is greater than reasonably necessary for that purpose. (V.T.I.C.
Art. 5.61, Sec. (a) (part).)
Sec. 426.002. COMPUTATION OF RESERVES. Reserves required
by Section 426.001 must be computed in accordance with any rules
adopted by the commissioner to adequately protect insureds, secure
the solvency of the workers' compensation insurance company, and
prevent unreasonably large reserves. (V.T.I.C. Art. 5.61, Sec. (a)
(part).)
Sec. 426.003. MAINTENANCE OF RESERVES; NOTICE OF
NONCOMPLIANCE. (a) If a workers' compensation insurance
company's reserves are determined under this chapter to be:
(1) inadequate, the commissioner shall notify the
company and require the company to establish and maintain
reasonable additional reserves; or
(2) unreasonably large, the commissioner shall notify
the company and require the company to reduce the amount of reserves
to a reasonable amount.
(b) Not later than the 60th day after the date of
notification of noncompliance under Subsection (a), the company
shall:
(1) restore compliance as required by Subsection (a);
and
(2) file a statement of restored compliance,
accompanied by any documentation required by the commissioner. (V.T.I.C. Art. 5.61, Secs. (b), (c).)
CHAPTER 427. SUBORDINATED INDEBTEDNESS
SUBCHAPTER A. GENERAL PROVISIONS
Sec. 427.001. APPLICABILITY OF CHAPTER
Sec. 427.002. RULES
[Sections 427.003-427.050 reserved for expansion]
SUBCHAPTER B. LOAN, ADVANCE, AND OTHER INDEBTEDNESS
Sec. 427.051. LOAN OR ADVANCE PERMITTED
Sec. 427.052. SUBORDINATED LIABILITY PERMITTED
Sec. 427.053. APPROVAL OF AGREEMENT REQUIRED
Sec. 427.054. LIABILITY
Sec. 427.055. PAYMENT OF PRINCIPAL OR INTEREST ON
CERTAIN LIABILITIES
CHAPTER 427. SUBORDINATED INDEBTEDNESS
SUBCHAPTER A. GENERAL PROVISIONS
Sec. 427.001. APPLICABILITY OF CHAPTER. This chapter
applies to an insurer or health maintenance organization as defined
by Section 401.001. (V.T.I.C. Art. 1.39, Sec. (a).)
Sec. 427.002. RULES. The commissioner shall adopt rules
necessary to implement this chapter. (V.T.I.C. Art. 1.39, Sec.
(f).)
[Sections 427.003-427.050 reserved for expansion]
SUBCHAPTER B. LOAN, ADVANCE, AND OTHER INDEBTEDNESS
Sec. 427.051. LOAN OR ADVANCE PERMITTED. An insurer or
health maintenance organization may obtain a loan or an advance,
repayable with interest, of:
(1) cash;
(2) cash equivalents; or
(3) other assets that have a readily determinable
value and are satisfactory to the commissioner. (V.T.I.C.
Art. 1.39, Sec. (b) (part).)
Sec. 427.052. SUBORDINATED LIABILITY PERMITTED. (a) An
insurer or health maintenance organization may assume a
subordinated liability for repayment of a loan or advance described
by Section 427.051 and payment of interest on the loan or advance if
the insurer or health maintenance organization and the creditor
execute a written agreement stating that the creditor may be paid
only out of that portion of the insurer's or health maintenance
organization's surplus that exceeds the greater of:
(1) a minimum surplus amount set in the agreement; or
(2) a minimum surplus amount of $500,000.
(b) The department or commissioner may not require the
agreement to provide a minimum surplus amount that is different
from the amount described by this section. (V.T.I.C. Art. 1.39,
Sec. (b) (part).)
Sec. 427.053. APPROVAL OF AGREEMENT REQUIRED. (a) An
insurer or health maintenance organization must submit the written
agreement under Section 427.052 to the commissioner for approval of
the form and content of the agreement.
(b) The commissioner must approve or disapprove the
agreement not later than the 30th day after the date the insurer or
health maintenance organization submits the agreement. If the
commissioner fails to act as required by this subsection, the
agreement is considered approved.
(c) An insurer or health maintenance organization may
assume a subordinated liability only after the commissioner has
approved the agreement under this chapter or Subchapter C, Chapter
823. (V.T.I.C. Art. 1.39, Sec. (e) (part).)
Sec. 427.054. LIABILITY. (a) A loan or advance made under
this chapter, including any interest accruing on the loan or
advance, is a legal liability of the insurer or health maintenance
organization, and a liability with respect to the insurer's or
health maintenance organization's financial statement, only to the
extent provided by the terms of the loan or advance agreement.
(b) Notwithstanding Subsection (a), if the loan or advance
agreement provides for a sinking fund out of which the loan or
advance is to be repaid, the loan or advance is a legal liability of
the insurer or health maintenance organization, and a liability
with respect to the insurer's or health maintenance organization's
financial statement, only to the extent of the amounts accumulated
and held in the sinking fund. By agreement of the parties, any
portion of the amounts accumulated in the sinking fund may be
returned to the surplus of the insurer or health maintenance
organization at any time and any amount returned may not be a legal
liability of the insurer or health maintenance organization or a
liability with respect to the insurer's or health maintenance
organization's financial statement. (V.T.I.C. Art. 1.39, Secs.
(c), (d).)
Sec. 427.055. PAYMENT OF PRINCIPAL OR INTEREST ON CERTAIN
LIABILITIES. (a) An insurer or health maintenance organization
may not pay principal or interest on a subordinated liability
assumed under Section 427.052 or Subchapter C, Chapter 823, on or
after September 1, 1995, unless:
(1) the payment complies with a schedule of payments
contained in the agreement approved by the commissioner in
accordance with Section 427.052 or Subchapter C, Chapter 823; or
(2) if the payment does not comply with the schedule of
payments contained in the agreement or the agreement does not
contain a payment schedule, the insurer or health maintenance
organization provides written notice to the commissioner not later
than the 15th day before the scheduled payment date.
(b) A loan, debenture, revenue bond, or advance agreement
issued to an insurer or health maintenance organization before
September 1, 1995, and any subsequent payment of principal or
interest on the indebtedness are governed by the law in effect on
the date of issuance. (V.T.I.C. Art. 1.39, Sec. (e) (part).)
[Chapters 428-440 reserved for expansion]
SUBTITLE C. DELINQUENT INSURERS
CHAPTER 441. SUPERVISION AND CONSERVATORSHIP
SUBCHAPTER A. GENERAL PROVISIONS
Sec. 441.001. FINDINGS AND PURPOSE
Sec. 441.002. DEFINITION
Sec. 441.003. APPLICABILITY OF AND COMPLIANCE WITH
CHAPTER
Sec. 441.004. ACTIONS OF COMMISSIONER
Sec. 441.005. RULES; AUTHORITY FOR ADMINISTRATIVE
ACTION
Sec. 441.006. RULES AND PROCEDURES FOR MERGER OF
INSURERS
Sec. 441.007. CONFLICT WITH OTHER LAWS
Sec. 441.008. INAPPLICABILITY OF CERTAIN
ADMINISTRATIVE PROCEDURE PROVISIONS
[Sections 441.009-441.050 reserved for expansion]
SUBCHAPTER B. DETERMINATION AND NOTICE
Sec. 441.051. CIRCUMSTANCES CONSTITUTING INSOLVENCY OR
DELINQUENCY
Sec. 441.052. CIRCUMSTANCES CONSTITUTING INSURER
EXCEEDING POWERS
Sec. 441.053. NOTICE TO INSURER
[Sections 441.054-441.100 reserved for expansion]
SUBCHAPTER C. SUPERVISION
Sec. 441.101. APPOINTMENT OF SUPERVISOR
Sec. 441.102. TIME FOR COMPLIANCE WITH REQUIREMENTS OF
SUPERVISION
Sec. 441.103. PAYMENT OF CLAIMS
Sec. 441.104. PROHIBITED ACTS DURING SUPERVISION
Sec. 441.105. HEARING ON SUPERVISION; TERMINATION BY
CONSERVATION OR RELEASE
[Sections 441.106-441.150 reserved for expansion]
SUBCHAPTER D. CONSERVATORSHIP
Sec. 441.151. APPOINTMENT OF CONSERVATOR
Sec. 441.152. NOTICE OF CONSERVATORSHIP
Sec. 441.153. POWERS AND DUTIES OF CONSERVATOR
Sec. 441.154. PAYMENT OF CLAIMS
Sec. 441.155. REINSURANCE DURING CONSERVATORSHIP
Sec. 441.156. HEARINGS DURING CONSERVATORSHIP
Sec. 441.157. IMMUNITY
Sec. 441.158. VENUE
Sec. 441.159. DURATION OF CONSERVATORSHIP
Sec. 441.160. RETURN TO MANAGEMENT
[Sections 441.161-441.200 reserved for expansion]
SUBCHAPTER E. PROVISIONS APPLYING TO SUPERVISION AND
CONSERVATORSHIP
Sec. 441.201. CONFIDENTIALITY
Sec. 441.202. COSTS OF SUPERVISION AND CONSERVATORSHIP
Sec. 441.203. COLLECTION OF FEES FROM REHABILITATED
INSURER
Sec. 441.204. REVIEW AND STAY OF CERTAIN ACTS OF
SUPERVISOR OR CONSERVATOR
Sec. 441.205. APPEAL OF CERTAIN ORDERS
Sec. 441.206. EX PARTE MEETING WITH COMMISSIONER
Sec. 441.207. INSURER EMPLOYEES DURING SUPERVISION OR
CONSERVATORSHIP
[Sections 441.208-441.250 reserved for expansion]
SUBCHAPTER F. OUT-OF-STATE INSURERS
Sec. 441.251. APPLICABILITY
Sec. 441.252. APPOINTMENT OF ANCILLARY SUPERVISOR OR
CONSERVATOR
Sec. 441.253. POWERS AND DUTIES OF ANCILLARY
SUPERVISOR OR CONSERVATOR
Sec. 441.254. FAILURE TO COMPLY WITH REQUIREMENTS OF
SUPERVISION
Sec. 441.255. REFERRAL FOR REMEDIAL ACTION
[Sections 441.256-441.300 reserved for expansion]
SUBCHAPTER G. POWERS AND DUTIES OF ATTORNEY GENERAL
Sec. 441.301. REMEDIAL ACTION BY ATTORNEY GENERAL
Sec. 441.302. FORFEITURE AND CANCELLATION OF CHARTER
ON CONCLUSION OF BUSINESS
[Sections 441.303-441.350 reserved for expansion]
SUBCHAPTER H. AGENTS OF RECORD FOR CERTAIN INSUREDS
Sec. 441.351. AGENTS OF RECORD
CHAPTER 441. SUPERVISION AND CONSERVATORSHIP
SUBCHAPTER A. GENERAL PROVISIONS
Sec. 441.001. FINDINGS AND PURPOSE. (a) An insurer
delinquency, or the state's inability to properly proceed in a
threatened delinquency, directly or indirectly affects other
insurers by creating a lack of public confidence in insurance and
insurers. Insurer delinquencies destroy public confidence in the
state's ability to regulate insurers. The harmful results of
insurer delinquencies, including those described by this
subsection, are properly minimized by laws designed to protect and
assist insureds, creditors, and owners.
(b) Placing an insurer in receivership often destroys or
diminishes, or is likely to destroy or diminish, the value of the
insurer's assets, including:
(1) the insurer's insurance account or in-force
business;
(2) the insurer as a going concern; and
(3) the insurer's agency force.
(c) The value of the assets described by Subsection (b)
should be preserved if the circumstances of the insurer's financial
condition warrant an attempt to rehabilitate or conserve the
insurer and the rehabilitation or conservation is otherwise
feasible.
(d) It is a proper concern of this state and proper policy to
attempt to correct or remedy insurer misconduct, ineptness, or
misfortune.
(e) The purpose of this chapter is to:
(1) provide for the rehabilitation and conservation of
insurers by authorizing and requiring supervision and
conservatorship by the commissioner;
(2) authorize action to determine whether an attempt
should be made to rehabilitate and conserve an insurer;
(3) avoid, if possible and feasible, the necessity of
placing an insurer under temporary or permanent receivership;
(4) provide for the protection of an insurer's assets
pending determination of whether the insurer may be successfully
rehabilitated; and
(5) alleviate concerns regarding insurance and
insurers.
(f) Rehabilitation of an insurer might not be accomplished
in every case, but this chapter facilitates and directs an attempt
to rehabilitate an insurer without immediate resort to the harsher
remedy of receivership. If receivership becomes necessary, the
preliminary supervision and conservatorship may prevent a
dissipation of assets, which will benefit policyholders,
creditors, and owners.
(g) For the reasons stated by this section, the substance
and procedures of this chapter are the public policy of this state
and are necessary to the public welfare. That policy and welfare
require the availability of this chapter and the application of
this chapter if circumstances warrant.
(h) This chapter provides, in conjunction with other law, a
generally ordered sequence, and provides for review at each step,
of supervision, concurrent conservatorship and rehabilitation,
including reinsurance, and cessation of the conservatorship by
rehabilitation or by receivership and liquidation if at any time
that cessation is indicated or determined to be appropriate.
(V.T.I.C. Art. 21.28-A, Sec. 1 (part).)
Sec. 441.002. DEFINITION. In this chapter, unless the
purposes of this chapter clearly require or the context clearly
indicates another meaning, "insurer" means a person, organization,
or company, regardless of whether the person or entity is
authorized or admitted, that engages in the business of insurance
or that acts as a principal or agent of a person, organization, or
company engaged in the business of insurance. The term includes a
stock insurance company, reciprocal or interinsurance exchange,
Lloyd's plan, fraternal benefit society, stipulated premium
company, title insurance company, and mutual insurance company of
any kind, including a statewide mutual assessment company, local
mutual aid association, burial association, county mutual
insurance company, and farm mutual insurance company. (V.T.I.C.
Art. 21.28-A, Secs. 2 (part), (a).)
Sec. 441.003. APPLICABILITY OF AND COMPLIANCE WITH
CHAPTER. Compliance with this chapter is a condition of engaging
in the business of insurance in this state. This chapter applies
to, and is a consequence of, any other transaction with respect to
an insurer or insurance. (V.T.I.C. Art. 21.28-A, Sec. 1 (part).)
Sec. 441.004. ACTIONS OF COMMISSIONER. (a) In the event of
an insurer's delinquency or suspected delinquency, the
commissioner, in the commissioner's administrative discretion, may
act under this chapter, another applicable law, or a combination of
this chapter and another applicable law.
(b) If the commissioner determines to act under this chapter
or is directed by a court to act under this chapter, the
commissioner shall comply with the requirements of this chapter.
(V.T.I.C. Art. 21.28-A, Secs. 10, 12(a) (part).)
Sec. 441.005. RULES; AUTHORITY FOR ADMINISTRATIVE ACTION.
(a) The commissioner may:
(1) adopt reasonable rules as necessary to implement
and supplement this chapter and the purposes of this chapter; and
(2) take any administrative action required by the
findings of Section 441.001.
(b) The authority granted by this section may be inferred
from the context of this chapter. (V.T.I.C. Art. 21.28-A, Secs. 1
(part), 11.)
Sec. 441.006. RULES AND PROCEDURES FOR MERGER OF INSURERS.
(a) The commissioner shall adopt rules that encourage the merger of
insurers in weak financial condition with insurers in strong
financial condition in cases in which rehabilitation or
conservation of an insurer would be inefficient or impracticable.
(b) The rules and procedures for conservatorship may not be
used unless the rules and procedures adopted to promote the merger
of insurers in weak financial condition are followed. (V.T.I.C.
Art. 21.28-A, Sec. 1 (part).)
Sec. 441.007. CONFLICT WITH OTHER LAWS. If this chapter
conflicts with any other law, this chapter prevails. (V.T.I.C.
Art. 21.28-A, Sec. 12(a) (part).)
Sec. 441.008. INAPPLICABILITY OF CERTAIN ADMINISTRATIVE
PROCEDURE PROVISIONS. Section 2001.062, Government Code, does not
apply to a hearing conducted under this chapter. (V.T.I.C. Art.
21.28-A, Sec. 3 (part).)
[Sections 441.009-441.050 reserved for expansion]
SUBCHAPTER B. DETERMINATION AND NOTICE
Sec. 441.051. CIRCUMSTANCES CONSTITUTING INSOLVENCY OR
DELINQUENCY. For the purposes of this chapter, the circumstances
in which an insurer is considered insolvent, delinquent, or
threatened with delinquency include circumstances in which the
insurer:
(1) has required surplus, capital, or capital stock
that is impaired to an extent prohibited by law;
(2) continues to write new business when the insurer
does not have the surplus, capital, or capital stock that is
required by law to write new business;
(3) conducts the insurer's business fraudulently; or
(4) attempts to dissolve or liquidate without first
having made provisions satisfactory to the commissioner for
liabilities arising from insurance policies issued by the insurer.
(V.T.I.C. Art. 21.28-A, Secs. 2 (part), (b).)
Sec. 441.052. CIRCUMSTANCES CONSTITUTING INSURER EXCEEDING
POWERS. For the purposes of this chapter, the circumstances in
which an insurer is considered to have exceeded the insurer's
powers include circumstances in which the insurer:
(1) refuses to permit the commissioner, the
commissioner's deputy, or an examiner appointed by the department
to examine the insurer's books, papers, accounts, records, or
affairs;
(2) is organized in this state and removes from the
state books, papers, accounts, or records that are necessary to
examine the insurer;
(3) fails to promptly answer inquiries authorized by
Section 38.001;
(4) fails to comply with an order of the commissioner
to remedy, within the time prescribed by law, a prohibited
deficiency in the insurer's capital, capital stock, or surplus;
(5) without obtaining the commissioner's prior written
approval:
(A) totally reinsures the insurer's entire
outstanding business; or
(B) merges or consolidates substantially all of
the insurer's property or business with another insurer;
(6) continues to write business after the insurer's
certificate of authority has been revoked or suspended; or
(7) is in a condition that makes the insurer's
continuation in business hazardous to the public or to the
insurer's policyholders or certificate holders. (V.T.I.C. Art.
21.28-A, Secs. 2 (part), (c).)
Sec. 441.053. NOTICE TO INSURER. (a) If at any time the
commissioner determines that an insurer is insolvent, has exceeded
the insurer's powers, or has otherwise failed to comply with the
law, the commissioner shall:
(1) notify the insurer of that determination;
(2) provide to the insurer a written list of the
commissioner's requirements to abate the conditions on which that
determination was based; and
(3) if the commissioner determines that the insurer
requires supervision, notify the insurer that the insurer is under
the commissioner's supervision and that the commissioner is
invoking this chapter.
(b) The commissioner may provide the notice and information
to an insurer that agrees to supervision.
(c) The insurer shall comply with the commissioner's
requirements. (V.T.I.C. Art. 21.28-A, Secs. 2 (part), (d) (part),
3 (part).)
[Sections 441.054-441.100 reserved for expansion]
SUBCHAPTER C. SUPERVISION
Sec. 441.101. APPOINTMENT OF SUPERVISOR. The commissioner
may appoint a supervisor to supervise an insurer. (V.T.I.C. Art.
21.28-A, Sec. 4(a) (part).)
Sec. 441.102. TIME FOR COMPLIANCE WITH REQUIREMENTS OF
SUPERVISION. An insurer under supervision must comply with the
commissioner's requirements under Section 441.053 not later than
the 180th day after the date of the commissioner's notice of
supervision. (V.T.I.C. Art. 21.28-A, Sec. 3 (part).)
Sec. 441.103. PAYMENT OF CLAIMS. An insurer under
supervision shall continue to pay claims under an insurance policy
according to the terms of the policy. (V.T.I.C. Art. 21.28-A, Sec.
3 (part).)
Sec. 441.104. PROHIBITED ACTS DURING SUPERVISION. During
supervision, the commissioner may prohibit the insurer from taking
any of the following actions without the prior approval of the
commissioner or supervisor:
(1) disposing of, conveying, or encumbering any of the
insurer's assets or business in force;
(2) withdrawing money from the insurer's bank
accounts;
(3) lending or investing the insurer's money;
(4) transferring the insurer's property;
(5) incurring a debt, obligation, or liability;
(6) merging or consolidating with another company;
(7) entering into a new reinsurance contract or
treaty;
(8) terminating, surrendering, forfeiting,
converting, or lapsing an insurance policy, except for nonpayment
of premiums due; or
(9) releasing, paying, or refunding premium deposits,
accrued cash or loan values, unearned premiums, or other reserves
on an insurance policy. (V.T.I.C. Art. 21.28-A, Sec. 4(a) (part).)
Sec. 441.105. HEARING ON SUPERVISION; TERMINATION BY
CONSERVATION OR RELEASE. (a) On the commissioner's own motion or
the motion of a party of record, a hearing may be scheduled relating
to an insurer under supervision after at least 10 days' written
notice to each party of record. Notice may be waived by the parties
of record.
(b) The commissioner shall place the insurer in
conservatorship if, after the hearing, it is determined that the
insurer:
(1) failed to comply with the commissioner's
requirements;
(2) has not been rehabilitated;
(3) is insolvent; or
(4) appears to have exceeded the insurer's powers.
(c) The commissioner may release the insurer from
supervision if, after the hearing, it is determined that the
insurer:
(1) has been rehabilitated; or
(2) is no longer in a condition that makes the
insurer's continuation in business hazardous to the public or to
the insurer's policyholders or certificate holders. (V.T.I.C. Art.
21.28-A, Sec. 3 (part).)
[Sections 441.106-441.150 reserved for expansion]
SUBCHAPTER D. CONSERVATORSHIP
Sec. 441.151. APPOINTMENT OF CONSERVATOR. (a) The
commissioner may appoint a conservator for an insurer:
(1) if:
(A) after notice and opportunity for hearing, it
is determined that the insurer:
(i) is insolvent;
(ii) appears to have exceeded the insurer's
powers; or
(iii) has failed to comply with any
requirement of the commissioner; or
(B) the insurer agrees to the appointment of a
conservator; and
(2) if it is determined that supervision is inadequate
to rehabilitate the insurer.
(b) The commissioner may appoint a conservator. (V.T.I.C.
Art. 21.28-A, Secs. 2 (part), (d) (part), 5 (part).)
Sec. 441.152. NOTICE OF CONSERVATORSHIP. (a) Not later
than the seventh day after the date the commissioner enters an order
appointing a conservator for an insurer as provided by Section
441.151 or Subchapter F, the commissioner shall publish notice of
the conservatorship in at least one newspaper of general
circulation in each county with a population of at least 100,000.
(b) The notice must include:
(1) the name of the insurer placed in conservatorship;
(2) the date the insurer was placed in conservatorship
in this state;
(3) the reasons for placing the insurer in
conservatorship;
(4) any action with respect to the insurer that is
available to a policyholder; and
(5) any requirement with which a policyholder must
comply. (V.T.I.C. Art. 21.28-A, Sec. 5A.)
Sec. 441.153. POWERS AND DUTIES OF CONSERVATOR. (a) The
conservator appointed for an insurer under Section 441.151 shall
immediately take charge of the insurer and all of the insurer's
property, books, records, and effects, conduct the insurer's
business, and act to remove the causes and conditions that made the
conservatorship order necessary, as directed by the commissioner.
(b) During the conservatorship, the conservator shall
provide reports to the commissioner as required by the commissioner
and may:
(1) take all necessary measures in the conservator's
own name as conservator to preserve, protect, or recover any asset
or property of the insurer, including a claim or cause of action
that the insurer may assert; and
(2) file a suit, or prosecute and defend a suit filed
by or against the insurer, as the conservator considers necessary
to protect all of the interested parties or any property affected by
the suit. (V.T.I.C. Art. 21.28-A, Sec. 5 (part).)
Sec. 441.154. PAYMENT OF CLAIMS. An insurer under
conservatorship shall continue to pay claims under an insurance
policy according to the terms of the policy. (V.T.I.C. Art.
21.28-A, Sec. 9 (part).)
Sec. 441.155. REINSURANCE DURING CONSERVATORSHIP. (a) If
during a conservatorship it appears that the interest of the
insurer's policyholders or certificate holders is best protected by
reinsuring the policies or certificates, the conservator may, with
the approval of or at the direction of the commissioner:
(1) reinsure all or part of the insurer's policies or
certificates with a solvent insurer authorized to engage in
business in this state; and
(2) to the extent that the insurer has reserves
attributable to the reinsured policies or certificates, transfer to
the reinsurer reserves in an amount sufficient to reinsure the
policies or certificates.
(b) A transfer of reserves under this section may not be
considered a preference of a creditor. (V.T.I.C. Art. 21.28-A,
Sec. 5 (part).)
Sec. 441.156. HEARINGS DURING CONSERVATORSHIP. (a) On
the commissioner's own motion or the motion of a party of record, a
hearing relating to an insurer in conservatorship may be scheduled
after at least 10 days' written notice to each party of record.
(b) The notice required by this section may be waived by the
parties of record. (V.T.I.C. Art. 21.28-A, Sec. 5 (part).)
Sec. 441.157. IMMUNITY. A conservator and the
conservator's agents and employees are not liable, and a cause of
action does not arise against the conservator or an agent or
employee, for an action taken or not taken by the conservator,
agent, or employee in connection with the adjustment, negotiation,
or settlement of a claim. (V.T.I.C. Art. 21.28-A, Sec. 5 (part).)
Sec. 441.158. VENUE. (a) A suit against an insurer in
conservatorship or against the conservator may be filed only in
Travis County unless the cause of action is based on the terms of an
insurance policy issued by the insurer.
(b) A conservator appointed under this chapter may file suit
in Travis County against any person to preserve, protect, or
recover any asset or property of the insurer, including a claim or
cause of action that may be asserted by the insurer. (V.T.I.C. Art.
21.28-A, Sec. 8.)
Sec. 441.159. DURATION OF CONSERVATORSHIP. (a) Except as
provided by Subsection (b), a conservator appointed under this
chapter shall complete the conservator's duties as required by this
chapter not later than the 90th day after the date of appointment.
(b) If the commissioner issues written findings that there
is a substantial likelihood of rehabilitation of the insurer in
conservatorship, the commissioner may extend the conservatorship
for additional successive 30-day periods. The total period of
extensions may not exceed 180 consecutive days. A hearing is not
required before the commissioner issues the findings. (V.T.I.C.
Art. 21.28-A, Sec. 9 (part).)
Sec. 441.160. RETURN TO MANAGEMENT. An insurer that is
rehabilitated shall be returned to management or placed under new
management under reasonable conditions that best tend to prevent
defeat of the purposes of the conservatorship. (V.T.I.C. Art.
21.28-A, Sec. 9 (part).)
[Sections 441.161-441.200 reserved for expansion]
SUBCHAPTER E. PROVISIONS APPLYING TO SUPERVISION AND
CONSERVATORSHIP
Sec. 441.201. CONFIDENTIALITY. (a) Hearings and orders,
notices, correspondence, reports, records, and other information
in the department's possession relating to the supervision or
conservatorship of an insurer are confidential during the
supervision or conservatorship. On termination of the supervision
or conservatorship, the information in the department's custody
that relates to the supervision or conservatorship is public
information.
(b) This section does not prohibit access by the department
to hearings or orders, notices, correspondence, reports, records,
or other information.
(c) The provisions of Chapter 2001, Government Code,
relating to discovery apply to the parties of record in a proceeding
under this chapter.
(d) The commissioner may open a proceeding under this
chapter or disclose information that is confidential under this
section to a department, agency, or instrumentality of this state,
another state, or the United States if the commissioner determines
that opening the proceeding or disclosing the information is
necessary or proper to enforce the laws of this state, another
state, or the United States.
(e) An officer or employee of the department is not liable
for a release of information that is confidential under this
section unless it is shown that the release was accomplished with
actual malice.
(f) This section does not apply to information:
(1) if the insurer's insureds are not protected by
Chapter 462, 463, or 2602, or substantially similar statutes; or
(2) on the appointment by a court of a receiver for the
insurer. (V.T.I.C. Art. 21.28-A, Sec. 3A.)
Sec. 441.202. COSTS OF SUPERVISION AND CONSERVATORSHIP.
The commissioner shall determine the costs related to services
provided by a supervisor or conservator under this chapter.
Subject to Section 442.551, the costs shall be charged against the
insurer's assets and paid as determined by the commissioner.
(V.T.I.C. Art. 21.28-A, Sec. 5 (part).)
Sec. 441.203. COLLECTION OF FEES FROM REHABILITATED
INSURER. (a) The commissioner may collect fees from an insurer
described by Section 82.002 that is successfully rehabilitated by
the commissioner. The fees must be in amounts sufficient to cover
the cost of rehabilitating the insurer, but may not exceed that
cost.
(b) The department may use fees collected under this section
only for the rehabilitation of the insurer from which the fees are
collected.
(c) Fees collected under this section shall be deposited in
and expended through the Texas Department of Insurance operating
account.
(d) The commissioner may determine the terms of the
collection or repayment of the fees. (V.T.I.C. Art. 21.28-A, Secs.
17(a) (part), (b).)
Sec. 441.204. REVIEW AND STAY OF CERTAIN ACTS OF SUPERVISOR
OR CONSERVATOR. (a) An insurer under supervision or
conservatorship may request the commissioner or, in the
commissioner's absence, the commissioner's appointed deputy to
review an action taken or proposed to be taken by the supervisor or
conservator.
(b) A request for review under this section must specify the
manner in which the action is believed to not be in the insurer's
best interests.
(c) A request for review under this section stays the
specified action pending review by the commissioner or the
commissioner's deputy. (V.T.I.C. Art. 21.28-A, Sec. 7 (part).)
Sec. 441.205. APPEAL OF CERTAIN ORDERS. The following
orders of the commissioner may be appealed under Subchapter D,
Chapter 36:
(1) an order appointing a supervisor and providing
that the insurer may not engage in certain acts as provided by
Section 441.104;
(2) an order appointing a conservator; and
(3) an order following the review under Section
441.204 of an action of a supervisor or conservator. (V.T.I.C. Art.
21.28-A, Sec. 7 (part).)
Sec. 441.206. EX PARTE MEETING WITH COMMISSIONER.
Notwithstanding any other law, the commissioner may, at the time of
any proceeding or while a proceeding is pending under this chapter,
meet with a supervisor or conservator appointed under this chapter
and with the attorney or other representative of the supervisor or
conservator, without another person present, to implement the
commissioner's duties under this chapter or for the supervisor or
conservator to implement that person's duties under this chapter.
(V.T.I.C. Art. 21.28-A, Sec. 12(b).)
Sec. 441.207. INSURER EMPLOYEES DURING SUPERVISION OR
CONSERVATORSHIP. (a) Notwithstanding any other provision of this
chapter, an insurer may employ an attorney, actuary, and accountant
of the insurer's choice to assist the insurer during supervision.
The supervisor shall authorize payment from the insurer for the
reasonable fees and expenses of the attorney, actuary, or
accountant.
(b) The supervisor, conservator, or commissioner shall, to
the maximum extent possible, use the insurer's employees instead of
outside consultants, actuaries, attorneys, accountants, and other
personnel or department employees to minimize the expense of
rehabilitation or the necessity of fees to cover the cost of
rehabilitation. (V.T.I.C. Art. 21.28-A, Secs. 13, 17(a) (part).)
[Sections 441.208-441.250 reserved for expansion]
SUBCHAPTER F. OUT-OF-STATE INSURERS
Sec. 441.251. APPLICABILITY. This chapter applies to an
insurer engaged in the business of insurance in this state but not
domiciled in this state, regardless of whether the insurer is
authorized to engage in the business of insurance in this state.
(V.T.I.C. Art. 21.28-A, Sec. 6 (part).)
Sec. 441.252. APPOINTMENT OF ANCILLARY SUPERVISOR OR
CONSERVATOR. (a) The commissioner may appoint an ancillary
supervisor or ancillary conservator for the assets located in this
state of an insurer described by Section 441.251 in the same manner
as the commissioner appoints a supervisor or conservator for an
insurer domiciled in this state as provided by this chapter if:
(1) the commissioner makes a determination described
by Section 441.053 with regard to the insurer;
(2) the commissioner determines that the insurer does
not have the minimum surplus, capital, or capital stock required by
this code for similar domestic insurers; or
(3) the insurer agrees to the appointment.
(b) Subject to Section 441.205, the commissioner may
immediately, without prior notice and hearing, appoint an ancillary
conservator for the assets, property, books, and records located in
this state of an insurer described by Section 441.251 if a
conservator, rehabilitator, receiver, liquidator, or equivalent
official is appointed in the state in which the insurer is
domiciled. (V.T.I.C. Art. 21.28-A, Secs. 2 (part), (d), 6 (part).)
Sec. 441.253. POWERS AND DUTIES OF ANCILLARY SUPERVISOR OR
CONSERVATOR. (a) An ancillary supervisor or ancillary conservator
appointed under this subchapter has all the powers provided by
Sections 441.153 and 441.155 with respect to the insurer's assets,
property, books, and records located in this state.
(b) An ancillary conservator appointed under this
subchapter may:
(1) reinsure all or part of the insurer's policies or
certificates in this state with a solvent insurer authorized to
engage in business in this state; and
(2) transfer to the reinsurer as reserves any assets
in the ancillary conservator's possession in an amount sufficient
to reinsure the policies or certificates.
(c) A transfer of assets under this section is not
considered a preference of a creditor. (V.T.I.C. Art. 21.28-A,
Sec. 6 (part).)
Sec. 441.254. FAILURE TO COMPLY WITH REQUIREMENTS OF
SUPERVISION. The failure of an insurer described by Section
441.251 to comply during supervision with the requirements of
Section 441.104 with respect to any asset or policy located in this
state is grounds for the immediate revocation of the insurer's
certificate of authority to engage in business in this state and for
the immediate appointment of an ancillary conservator to take
charge of the insurer's assets located in this state. (V.T.I.C.
Art. 21.28-A, Sec. 6 (part).)
Sec. 441.255. REFERRAL FOR REMEDIAL ACTION. The
commissioner may refer an insurer described by Section 441.251 to
the attorney general for remedial action, including application for
appointment of a receiver under Chapter 442, on any grounds on which
an insurer domiciled in this state may be referred to the attorney
general for remedial action. The commissioner may refer the
insurer at any time, and action against the insurer in the insurer's
state of domicile is not a prerequisite. (V.T.I.C. Art. 21.28-A,
Sec. 6 (part).)
[Sections 441.256-441.300 reserved for expansion]
SUBCHAPTER G. POWERS AND DUTIES OF ATTORNEY GENERAL
Sec. 441.301. REMEDIAL ACTION BY ATTORNEY GENERAL. (a) The
commissioner may, at any time and regardless of whether an insurer
is under supervision or conservatorship, determine that the insurer
is not in a condition to continue business in the interest of the
insurer's policyholders or certificate holders. The commissioner
shall give notice of that determination to the attorney general.
(b) On receipt of notice under Subsection (a), the attorney
general shall file suit in the nature of quo warranto in a court in
Travis County to:
(1) forfeit the insurer's charter; or
(2) require the insurer to comply with the law or prove
to the commissioner that the insurer is solvent, and satisfy the
requirement that the insurer's condition does not make the
continuation of the insurer's business hazardous to the public or
to the insurer's policyholders or certificate holders.
(c) The commissioner may at any time refer an insurer to the
attorney general for the purpose of taking any remedial action,
including applying for the appointment of a receiver under Chapter
442.
(d) Supervision or conservatorship of the insurer is not
required before the attorney general may take remedial action under
this section. (V.T.I.C. Art. 21.28-A, Sec. 5 (part).)
Sec. 441.302. FORFEITURE AND CANCELLATION OF CHARTER ON
CONCLUSION OF BUSINESS. (a) Once all an insurer's policies are
reinsured or terminated and the insurer's affairs are concluded as
provided by this chapter, the commissioner shall report that fact
to the attorney general. On receipt of the report, the attorney
general shall take action necessary to forfeit or cancel the
insurer's charter.
(b) The commissioner shall report to the attorney general
the commissioner's approval of the merger or consolidation of an
insurer with another insurer or the reinsurance of the insurer's
policies. On receipt of the report, the attorney general shall take
action to forfeit or cancel the insurer's charter in the manner
provided for the forfeiture or cancellation of the charter of an
insurer that is totally reinsured or liquidated. (V.T.I.C. Art.
21.28-A, Sec. 5 (part).)
[Sections 441.303-441.350 reserved for expansion]
SUBCHAPTER H. AGENTS OF RECORD FOR CERTAIN INSUREDS
Sec. 441.351. AGENTS OF RECORD. (a) Unless otherwise
prohibited, the supervisor, conservator, or receiver of an insurer
shall provide to the insured's agent of record a copy of each
communication provided to an insured if, in the judgment of the
supervisor, conservator, or receiver, providing the copy will serve
to materially protect the interests of policyholders. The
supervisor, conservator, or receiver may also request the
assistance of any statewide association of insurance agents in
providing to the association's members information that, in the
judgment of the supervisor, conservator, or receiver, may serve to
materially protect policyholders' interests.
(b) If the supervisor, conservator, or receiver sells a
delinquent insurer's policies to another insurer, the purchaser
shall:
(1) recognize the pecuniary interest of the agent of
record in the policies being sold, regardless of whether the
purchaser customarily conducts the purchaser's business through
insurance agents;
(2) conduct the purchaser's business with the insured
through the agent of record; and
(3) provide to the agent of record a written limited
agency contract providing the terms that apply to the conduct of
their business together.
(c) A limited agency contract provided under Subsection (b)
must provide a level of commission that is reasonable, adequate,
and nonconfiscatory.
(d) This subchapter does not prohibit the agent of record
from renewing with another insurer an insurance policy purchased by
an insurer from a delinquent insurer.
(e) This section does not apply to:
(1) a life, accident, or health insurance policy or
contract delivered or issued for delivery by an insurer that is
subject to any provision of a law specified in Section 841.002 or
any provision of Chapter 882, 884, 887, 888, or 982;
(2) a contract or certificate delivered or issued for
delivery by a group hospital service corporation organized under
Chapter 842; or
(3) a contract or evidence of coverage delivered or
issued for delivery by a health maintenance organization operating
under a certificate of authority issued under Chapter 843. (V.T.I.C. Art. 21.28-A, Sec. 4A.)
CHAPTER 442. LIQUIDATION, REHABILITATION, REORGANIZATION, OR
CONSERVATION OF INSURERS
SUBCHAPTER A. GENERAL PROVISIONS
Sec. 442.001. DEFINITIONS
Sec. 442.002. LIQUIDATION OVERSIGHT DIVISION EMPLOYEES
Sec. 442.003. OVERSIGHT OF SPECIAL DEPUTY RECEIVERS
AND GUARANTY ASSOCIATIONS
Sec. 442.004. CONFLICT WITH OTHER LAW
[Sections 442.005-442.050 reserved for expansion]
SUBCHAPTER B. GENERAL PROVISIONS REGARDING RECEIVER
Sec. 442.051. RECEIVER
Sec. 442.052. APPOINTMENT OF SPECIAL DEPUTY RECEIVER
Sec. 442.053. PERFORMANCE BOND REQUIRED
Sec. 442.054. POWERS OF SPECIAL DEPUTY RECEIVER
Sec. 442.055. RECEIVER CONSIDERED TO ACT ON BEHALF OF
RECEIVERSHIP ESTATE
Sec. 442.056. IMMUNITY
[Sections 442.057-442.100 reserved for expansion]
SUBCHAPTER C. CONDUCT OF DELINQUENCY PROCEEDINGS: GENERAL
PROVISIONS
Sec. 442.101. VENUE
Sec. 442.102. RIGHTS AND LIABILITIES ESTABLISHED AS OF
DATE DELINQUENCY PROCEEDING BEGINS
Sec. 442.103. TITLE TO ASSETS; PRIORITY OF RECEIVER'S
RIGHTS
Sec. 442.104. DUTY OF RECEIVER TO TAKE POSSESSION OF
ASSETS; INVENTORY
Sec. 442.105. AUTHORITY TO REQUIRE BOND TO PROTECT
ASSETS
Sec. 442.106. DELIVERY OF PROPERTY AND RECORDS TO
RECEIVER
Sec. 442.107. DUTY OF RECEIVER TO CONDUCT INSURER'S
BUSINESS
Sec. 442.108. DISPOSAL OF PROPERTY; SETTLING OF CLAIMS
Sec. 442.109. BORROWING ON PLEDGE OF ASSETS
Sec. 442.110. DEPOSITORIES; ACCOUNTING
Sec. 442.111. REPORTS ON STATUS OF PROCEEDING
Sec. 442.112. BUSINESS PLAN REPORTS; OTHER PERIODIC
REPORTS
Sec. 442.113. REPORT TO INSURANCE FRAUD UNIT
Sec. 442.114. PAYMENT OF LIQUIDATION EXPENSES;
OBJECTION
Sec. 442.115. INJUNCTIONS AND OTHER ORDERS
Sec. 442.116. EFFECT OF INJUNCTION OR ORDER: DENIAL
OF CLAIMS AND OTHER DEMANDS
Sec. 442.117. OTHER PENDING ACTIONS; IMMUNITY
Sec. 442.118. EXTENSION OF TIME FOR PLEADING;
INAPPLICABILITY OF CERTAIN LAWS
Sec. 442.119. EXCLUSIVE JURISDICTION OF OTHER ACTIONS
[Sections 442.120-442.150 reserved for expansion]
SUBCHAPTER D. GENERAL SUBPOENA POWERS; WITNESSES
AND PRODUCTION OF RECORDS
Sec. 442.151. SUBPOENA AUTHORITY
Sec. 442.152. SERVICE OF SUBPOENA
Sec. 442.153. ENFORCEMENT OF SUBPOENA
Sec. 442.154. COMPENSATION FOR ATTENDANCE
Sec. 442.155. USE AS EVIDENCE
Sec. 442.156. PROTECTIVE ORDERS
[Sections 442.157-442.200 reserved for expansion]
SUBCHAPTER E. CLAIMS AGAINST RECEIVERSHIP ESTATE
Sec. 442.201. PROOF OF CLAIM REQUIRED; DEADLINE
Sec. 442.202. FORM AND CONTENT OF PROOF OF CLAIM
Sec. 442.203. UNLIQUIDATED OR UNDETERMINED CLAIM OR
DEMAND
Sec. 442.204. THIRD-PARTY CLAIMS AND DEMANDS
Sec. 442.205. OFFSETS
Sec. 442.206. APPROVAL OR REJECTION OF CLAIM
Sec. 442.207. APPEAL OF RECEIVER'S REJECTION OF CLAIM
Sec. 442.208. OBJECTION TO CLAIM BY INTERESTED PARTY
Sec. 442.209. REFERRAL OF CLAIM TO GUARANTY
ASSOCIATION
Sec. 442.210. WORKERS' COMPENSATION CLAIMS
[Sections 442.211-442.250 reserved for expansion]
SUBCHAPTER F. VOIDABLE TRANSFERS OR LIENS
Sec. 442.251. CERTAIN TRANSFERS OR LIENS VOIDABLE
Sec. 442.252. PERSONAL LIABILITY FOR VOIDABLE TRANSFER
OR LIEN
Sec. 442.253. AVOIDANCE OF TRANSFER OR LIEN; RECOVERY
OF PROPERTY
[Sections 442.254-442.300 reserved for expansion]
SUBCHAPTER G. ASSESSMENTS
Sec. 442.301. APPLICATION FOR ASSESSMENT
Sec. 442.302. LEVY
Sec. 442.303. COLLECTION
Sec. 442.304. SUBCHAPTER NOT EXCLUSIVE
[Sections 442.305-442.350 reserved for expansion]
SUBCHAPTER H. REINSURANCE
Sec. 442.351. REINSURER'S LIABILITY
Sec. 442.352. NOTICE OF CLAIM TO REINSURER;
INTERPOSITION OF DEFENSE
[Sections 442.353-442.400 reserved for expansion]
SUBCHAPTER I. RECORDS AND OTHER INFORMATION
Sec. 442.401. USE OF RECORDS AND OTHER INFORMATION AS
EVIDENCE
Sec. 442.402. CERTIFICATES BY RECEIVER
Sec. 442.403. MAINTENANCE OF RECORDS
Sec. 442.404. DISPOSAL OF RECORDS
Sec. 442.405. INAPPLICABILITY OF PUBLIC INFORMATION
LAW
[Sections 442.406-442.450 reserved for expansion]
SUBCHAPTER J. AUDITS
Sec. 442.451. AUDITS OR INVESTIGATIONS OF RECEIVER,
SPECIAL DEPUTY RECEIVER, OR GUARANTY
ASSOCIATION
Sec. 442.452. PLAN AND REPORT REGARDING AUDIT OF
RECEIVER
Sec. 442.453. COURT-ORDERED AUDIT
[Sections 442.454-442.500 reserved for expansion]
SUBCHAPTER K. DISTRIBUTION OF ASSETS: EARLY ACCESS
Sec. 442.501. APPLICATION FOR APPROVAL OF PROPOSAL TO
DISTRIBUTE ASSETS
Sec. 442.502. CONTENTS OF PROPOSAL TO DISTRIBUTE
ASSETS
Sec. 442.503. NOTICE OF APPLICATION
[Sections 442.504-442.550 reserved for expansion]
SUBCHAPTER L. DISTRIBUTION OF ASSETS
Sec. 442.551. PRIORITY OF CLAIMS FOR DISTRIBUTION OF
ASSETS
Sec. 442.552. PAYMENT OF WAGES OF EMPLOYEES OF INSURER
SUBJECT TO TEMPORARY RESTRAINING ORDER
Sec. 442.553. PAYMENT OF WAGES OF EMPLOYEES OF INSURER
SUBJECT TO TEMPORARY INJUNCTION
Sec. 442.554. SECURED CREDITOR
Sec. 442.555. DIVIDEND PAYMENTS
Sec. 442.556. CLAIMANTS OF OTHER STATES OR FOREIGN
COUNTRIES
Sec. 442.557. SETOFF OF DIVIDEND AMOUNT
Sec. 442.558. CLAIMS UNDER SEPARATE ACCOUNTS
ESTABLISHED BY DOMESTIC LIFE INSURANCE
COMPANIES
Sec. 442.559. INTEREST
[Sections 442.560-442.600 reserved for expansion]
SUBCHAPTER M. UNCLAIMED ASSETS
Sec. 442.601. DELIVERY OF UNCLAIMED MONEY TO
DEPARTMENT
Sec. 442.602. RECOVERY OF UNCLAIMED MONEY BY OWNER
Sec. 442.603. APPLICATION FOR DECLARATION OF
ABANDONMENT OF MONEY; NOTICE
Sec. 442.604. HEARING ON APPLICATION FOR DECLARATION
OF ABANDONMENT OF MONEY; JUDGMENT
Sec. 442.605. USE OF CERTAIN UNLIQUIDATED ASSETS;
DEPOSIT OF PROCEEDS IN TRUST
Sec. 442.606. APPLICATION FOR DECLARATION OF
ABANDONMENT OF PROCEEDS IN TRUST;
NOTICE AND HEARING
Sec. 442.607. USE OF ABANDONED MONEY
[Sections 442.608-442.650 reserved for expansion]
SUBCHAPTER N. TRANSFER OR DISPOSAL OF EXCESS ASSETS
Sec. 442.651. TRANSFER OF REMAINING ASSETS OF STOCK
INSURANCE COMPANY TO AGENT
Sec. 442.652. DISPOSAL OF REMAINING ASSETS OF INSURER
OTHER THAN STOCK INSURANCE COMPANY
Sec. 442.653. TRANSFER OF REMAINING ASSETS OF INSURER
TO GUARANTY ASSOCIATION
[Sections 442.654-442.700 reserved for expansion]
SUBCHAPTER O. DURATION AND REOPENING OF RECEIVERSHIP
Sec. 442.701. LIMITATION ON DURATION OF RECEIVERSHIP
Sec. 442.702. REOPENING OF RECEIVERSHIP
[Sections 442.703-442.750 reserved for expansion]
SUBCHAPTER P. ANCILLARY DELINQUENCY PROCEEDINGS
Sec. 442.751. APPOINTMENT OF ANCILLARY RECEIVER
Sec. 442.752. POWERS AND DUTIES OF ANCILLARY RECEIVER
Sec. 442.753. COORDINATION WITH RECEIVER IN OTHER
STATE
Sec. 442.754. APPLICABILITY OF CHAPTER TO ANCILLARY
DELINQUENCY PROCEEDINGS
[Sections 442.755-442.800 reserved for expansion]
SUBCHAPTER Q. AGENCY CONTRACTS WITH CERTAIN INSURERS
Sec. 442.801. REQUIRED CONTRACT PROVISION
Sec. 442.802. DISPOSITION OF PREMIUMS
Sec. 442.803. EFFECT OF SUBCHAPTER ON ACTION BY
RECEIVER AGAINST AGENT
Sec. 442.804. AGENT NOT RECEIVER'S AGENT
CHAPTER 442. LIQUIDATION, REHABILITATION, REORGANIZATION, OR
CONSERVATION OF INSURERS
SUBCHAPTER A. GENERAL PROVISIONS
Sec. 442.001. DEFINITIONS. (a) In this chapter:
(1) "Assets" means all property, whether specifically
mortgaged, pledged, deposited, or otherwise encumbered for the
security or benefit of specified persons or a limited class or
classes of persons. The term includes all deposits and funds of a
special or trust nature.
(2) "Delinquency proceeding" means a proceeding
initiated in a court of this state against an insurer to liquidate,
rehabilitate, reorganize, or conserve the insurer.
(3) "Insurer" means any organization, corporation, or
person that engages in the business of insurance, other than an
organization, corporation, or person that is specifically made
exempt from the application of this chapter by another statute that
references this chapter. The term includes:
(A) a capital stock company;
(B) a reciprocal or interinsurance exchange;
(C) a Lloyd's plan;
(D) a fraternal benefit society;
(E) a mutual or mutual assessment company of any
kind, including:
(i) a statewide mutual assessment company;
(ii) a local mutual aid association;
(iii) a burial association;
(iv) a county mutual insurance company; and
(v) a farm mutual insurance company; and
(F) a fidelity, guaranty, or surety company.
(4) "Person" means an individual, association,
corporation, partnership, or other private legal entity.
(5) "Receiver" means a person appointed to act as
receiver under Section 442.051. The term includes the commissioner
or a person appointed by the commissioner to act as special deputy
receiver.
(b) For purposes of this chapter, "court" means the court in
which a delinquency proceeding is pending, unless the context
clearly indicates otherwise. (V.T.I.C. Art. 21.28, Secs. 1(a)
(part), (b), (c), (d), (f), (g); New.)
Sec. 442.002. LIQUIDATION OVERSIGHT DIVISION EMPLOYEES.
The employees of the commissioner acting as receiver are employees
of the department for the purposes of:
(1) reporting payroll information to the uniform
statewide accounting system; and
(2) submitting vouchers to the comptroller for the
payment of the employees' salaries. (V.T.I.C. Art. 21.28, Sec.
12A(b).)
Sec. 442.003. OVERSIGHT OF SPECIAL DEPUTY RECEIVERS AND
GUARANTY ASSOCIATIONS. The commissioner shall oversee special
deputy receivers and guaranty associations. (V.T.I.C. Art. 21.28,
Sec. 2(a) (part).)
Sec. 442.004. CONFLICT WITH OTHER LAW. If this chapter
conflicts with any other law, this chapter prevails. (V.T.I.C.
Art. 21.28, Secs. 12A(a-1) (part), 16 (part).)
[Sections 442.005-442.050 reserved for expansion]
SUBCHAPTER B. GENERAL PROVISIONS REGARDING RECEIVER
Sec. 442.051. RECEIVER. If, under a law of this state, a
court of competent jurisdiction finds that a receiver should take
charge of the assets of an insurer domiciled in this state, the
commissioner or a person appointed as a special deputy receiver by
the commissioner under a contract shall act as receiver. (V.T.I.C.
Art. 21.28, Sec. 2(a) (part).)
Sec. 442.052. APPOINTMENT OF SPECIAL DEPUTY RECEIVER. (a)
The commissioner may appoint, set the compensation of, and contract
with one or more qualified special deputy receivers to act for the
commissioner under this code.
(b) The commissioner shall:
(1) specify requirements for the position of special
deputy receiver; and
(2) use a competitive bidding process to select
special deputy receivers.
(c) In making an appointment under this section, the
commissioner shall attempt to reflect the ethnic, racial, and
geographic diversity of the state.
(d) A special deputy receiver serves at the pleasure of the
commissioner. (V.T.I.C. Art. 21.28, Secs. 2(a) (part), 12(b)
(part), (h) (part).)
Sec. 442.053. PERFORMANCE BOND REQUIRED. A special deputy
receiver must file with the commissioner a bond that is:
(1) in an amount established by the commissioner;
(2) payable to the commissioner for the benefit of
injured parties; and
(3) conditioned on:
(A) the faithful performance of the special
deputy receiver's duties; and
(B) the proper accounting for all money and
property received or administered by the special deputy receiver.
(V.T.I.C. Art. 21.28, Sec. 12(a).)
Sec. 442.054. POWERS OF SPECIAL DEPUTY RECEIVER. (a)
Unless restricted by the commissioner, a special deputy receiver
has all the powers of a receiver granted under this code and may
perform any act on behalf of the commissioner as receiver.
(b) If expressly authorized by the commissioner, a special
deputy receiver may employ employees and agents, legal counsel,
actuaries, accountants, appraisers, consultants, and other
personnel the special deputy receiver considers necessary to assist
in the performance of the receiver's duties. The expenses of
employing those persons are expenses of the receivership payable
out of money or other assets of the insurer. (V.T.I.C. Art. 21.28,
Secs. 12(b) (part), (h) (part).)
Sec. 442.055. RECEIVER CONSIDERED TO ACT ON BEHALF OF
RECEIVERSHIP ESTATE. (a) In performing the duties of receiver
under this chapter, the commissioner, a special deputy receiver, or
an agent or employee of the commissioner or special deputy receiver
is considered to act on behalf of the receivership estate.
(b) Chapter 105, Civil Practice and Remedies Code, does not
apply to an action taken under this chapter. (V.T.I.C. Art. 21.28,
Sec. 2(l).)
Sec. 442.056. IMMUNITY. (a) The following persons are not
liable, and a cause of action does not arise against any of the
following persons, for a good faith action or failure to act in
exercising powers and performing duties under this chapter:
(1) the commissioner or an agent or employee of the
commissioner; or
(2) a special deputy receiver or an agent or employee
of the special deputy receiver.
(b) The attorney general shall defend an action to which
Subsection (a) applies that is brought against a person described
by that subsection, including an action brought after the
defendant's service with the commissioner, a special deputy
receiver, or the department has terminated, or after the close of
the receivership out of which the action arises. This subsection
does not require the attorney general to defend a person with
respect to an issue other than the applicability or effect of the
immunity provided by Subsection (a). (V.T.I.C. Art. 21.28, Secs.
2(j), (k).)
[Sections 442.057-442.100 reserved for expansion]
SUBCHAPTER C. CONDUCT OF DELINQUENCY PROCEEDINGS: GENERAL
PROVISIONS
Sec. 442.101. VENUE. Exclusive venue of delinquency
proceedings is in Travis County. (V.T.I.C. Art. 21.28, Sec. 2(i).)
Sec. 442.102. RIGHTS AND LIABILITIES ESTABLISHED AS OF DATE
DELINQUENCY PROCEEDING BEGINS. Except as otherwise directed by the
court or expressly provided by this chapter, the rights and
liabilities of an insurer that is the subject of a delinquency
proceeding and of all other persons interested in the insurer's
estate, including the insurer's creditors, policyholders, members,
officers, directors, shareholders, and agents, are fixed as of the
date of the commencement of the delinquency proceeding, subject to
the provisions of Subchapter E relating to the rights of claimants
holding unliquidated or undetermined claims or demands. (V.T.I.C.
Art. 21.28, Sec. 2(c).)
Sec. 442.103. TITLE TO ASSETS; PRIORITY OF RECEIVER'S
RIGHTS. (a) The assets of an insurer that is the subject of a
delinquency proceeding are in the custody of the court as of the
date of the commencement of the proceeding.
(b) The receiver is vested by operation of law with the
title to all of the insurer's property, contracts, and rights of
action, wherever located, as of the date a court order is entered
directing possession to be taken. The title of the receiver relates
back to the date of the commencement of the delinquency proceeding
unless the court provides otherwise.
(c) A contractual lien or statutory landlord's lien under
Chapter 54, Property Code, that arises after the date of the
commencement of the delinquency proceeding is secondary and
inferior to the rights of the receiver.
(d) The filing or recording of an order described by
Subsection (b) in any record office of the state provides the same
notice as would be provided by a deed, bill of sale, or other
evidence of title filed or recorded by the insurer. (V.T.I.C. Art.
21.28, Sec. 2(b).)
Sec. 442.104. DUTY OF RECEIVER TO TAKE POSSESSION OF
ASSETS; INVENTORY. (a) The receiver shall promptly take
possession of the assets of an insurer that is the subject of a
delinquency proceeding and, as the court directs, manage those
assets in the person's own name as receiver or in the name of the
insurer.
(b) The receiver is responsible for all assets coming into
the receiver's possession.
(c) The receiver shall promptly prepare, in duplicate, an
inventory of the insurer's assets. The receiver shall file one copy
of the inventory with the department and one copy in the office of
the clerk of the court. The copies of the inventory are open for
inspection. (V.T.I.C. Art. 21.28, Secs. 2(a) (part), (d) (part),
(f).)
Sec. 442.105. AUTHORITY TO REQUIRE BOND TO PROTECT ASSETS.
The court may require:
(1) the receiver to provide one or more bonds; and
(2) if considered desirable by the court for the
protection of the assets, a special deputy receiver or other
assistant or employee appointed under this chapter to provide one
or more bonds. (V.T.I.C. Art. 21.28, Sec. 2(d) (part).)
Sec. 442.106. DELIVERY OF PROPERTY AND RECORDS TO RECEIVER.
(a) The officers, directors, shareholders, members, trustees,
managing general agents, agents, administrators, claims adjusters,
managers, attorneys-in-fact, and associate, deputy, or substitute
attorneys-in-fact of a delinquent insurer shall immediately
deliver to the receiver, without cost to the receiver, all
property, books, records, accounts, documents, and other writings
of the delinquent insurer or that relate to the business of the
delinquent insurer.
(b) If by contract or otherwise any property, book, record,
account, document, or other writing is owned by a person described
by Subsection (a), the owner shall copy the item and deliver the
copy to the receiver. The owner shall retain the original until
notification that the item is no longer required in the
administration of the insurer's estate or until another time as the
court, after notice and hearing, directs. A copy is considered to
be a record of the delinquent insurer under Subchapter I. (V.T.I.C.
Art. 21.28, Sec. 4(e).)
Sec. 442.107. DUTY OF RECEIVER TO CONDUCT INSURER'S
BUSINESS. (a) On taking possession of the assets of a delinquent
insurer, the receiver shall, subject to the direction of the court,
immediately begin conducting the insurer's business or taking any
steps necessary to conserve the assets and protect the rights of
policyholders and claimants for the purpose of liquidating,
rehabilitating, reinsuring, reorganizing, or conserving the
affairs of the insurer.
(b) Notwithstanding the requirements of Subsection (a) or
the terms of any insurance contract issued by a delinquent insurer,
the receiver is not required to defend any action against an insured
of a delinquent insurer. (V.T.I.C. Art. 21.28, Sec. 2(e).)
Sec. 442.108. DISPOSAL OF PROPERTY; SETTLING OF CLAIMS.
(a) Except as provided by Subsection (b), the receiver may, subject
to the approval of the court:
(1) sell or otherwise dispose of all or part of the
property of an insurer against whom a delinquency proceeding has
been brought; and
(2) sell or compound all doubtful or uncollectible
debts, or claims owed by or to the insurer, including claims based
on an assessment levied against a member of a mutual insurer, a
reciprocal or interinsurance exchange, or a Lloyd's plan.
(b) Without obtaining the approval of the court, the
receiver may compromise or compound a debt or claim described by
Subsection (a)(2) or sell an item of the insurer's property on terms
the receiver considers to be in the best interest of the insurer if
the amount of the debt or claim or the value of the item of property
does not exceed $10,000, excluding interest.
(c) The receiver may, subject to the approval of the court,
sell, agree to sell, or offer to sell any assets of the insurer to
creditors of the insurer who seek to participate in the purchase of
the assets, to be paid for wholly or partly out of dividends payable
to those creditors. On application of the receiver, the court may
designate representatives to act for those creditors in purchasing,
holding, or otherwise managing those assets, and the receiver may,
subject to the approval of the court, advance the expenses of those
representatives against the security of the claims of those
creditors.
(d) The receiver may, subject to the approval of the court
and the commissioner, as required by this code, sell or otherwise
dispose of the charter or certificate of authority of the insurer
separately from the outstanding liabilities of the insurer.
(V.T.I.C. Art. 21.28, Sec. 2(g).)
Sec. 442.109. BORROWING ON PLEDGE OF ASSETS. (a) To
facilitate the rehabilitation, liquidation, conservation, or
dissolution of an insurer under this chapter, the receiver may,
subject to the approval of the court:
(1) borrow money;
(2) execute, acknowledge, and deliver a note or other
evidence of indebtedness for the loan;
(3) secure the repayment of the loan by the mortgage,
pledge, assignment, or transfer in trust of any or all of the
insurer's property; and
(4) take any other action necessary and proper to
obtain and provide for the repayment of the loan.
(b) The receiver is not under any obligation in the person's
personal capacity or official capacity as receiver to repay any
loan made under this section. (V.T.I.C. Art. 21.28, Sec. 15.)
Sec. 442.110. DEPOSITORIES; ACCOUNTING. (a) Except as
otherwise provided by this section, the receiver shall promptly
deposit all money collected into the Texas Treasury Safekeeping
Trust Company in accordance with procedures established by the
comptroller.
(b) If determined advantageous by the receiver in the
receiver's sound financial judgment, the receiver may deposit the
money in one or more banks or savings and loan associations in this
state insured by a federal agency that provides for deposit
insurance. If the amount deposited exceeds the maximum amount
insured by the appropriate federal agency, the receiver shall,
without the need for court approval, enter into any contracts and
require any security the receiver considers proper to safeguard the
deposit.
(c) The receiver shall account for all money collected or
realized from the assets of each insurer for which the receiver has
been appointed separately from all other money. (V.T.I.C. Art.
21.28, Sec. 2(h).)
Sec. 442.111. REPORTS ON STATUS OF PROCEEDING. The
receiver shall:
(1) file with the department on the department's
request reports showing the operation, receipts, expenditures, and
general condition of any insurer of which the receiver is in charge
at that time;
(2) on request, file a copy of a report described by
Subdivision (1) with the court in which the receivership proceeding
is pending; and
(3) file a final report regarding each insurer that
has been liquidated or handled that:
(A) shows and fully explains all receipts and
expenditures; and
(B) accurately states the disposition of all of
the insurer's assets. (V.T.I.C. Art. 21.28, Sec. 12(c).)
Sec. 442.112. BUSINESS PLAN REPORTS; OTHER PERIODIC
REPORTS. (a) A special deputy receiver shall submit a monthly
written report to the court and the commissioner that states the
special deputy receiver's business plan for the receivership,
including:
(1) the expenses incurred in administering the
receivership during the preceding month and an estimate of those
expenses for the succeeding month;
(2) a cost-benefit analysis of the expenditure of
money other than money spent to pay claims;
(3) a budget of monthly expenses that explains any
variation from the original projection; and
(4) a list of any lawyers or law firms that offered to
represent or represented the special deputy receiver in relation to
the special deputy receiver's duties under this chapter, and any
hours billed or fees paid to a lawyer or law firm that represented
the special deputy receiver.
(b) The special deputy receiver shall submit the business
plan report to the attorney general quarterly, and the attorney
general may make recommendations to the commissioner based on the
report.
(c) In addition to the business plan report, the special
deputy receiver shall submit to the commissioner a monthly report
relating to the special deputy receiver's activities in
administering the receivership.
(d) On written application by the special deputy receiver
and with the approval of the commissioner, the court may suspend the
requirement for monthly reports, or require less frequent reports,
on a showing that the costs of the monthly reports exceed the
benefit derived from those reports. (V.T.I.C. Art. 21.28, Sec.
2(a) (part).)
Sec. 442.113. REPORT TO INSURANCE FRAUD UNIT. A special
deputy receiver shall report to the insurance fraud unit any
information discovered in the administration of a receivership
relating to possible fraudulent, deceptive, or unlawful conduct by
an insurer. (V.T.I.C. Art. 21.28, Sec. 12(i).)
Sec. 442.114. PAYMENT OF LIQUIDATION EXPENSES; OBJECTION.
(a) The commissioner or special deputy receiver shall pay the
compensation of the special deputy receiver and all other expenses
of a liquidation out of the money or other assets of the insurer.
(b) Each month, the receiver shall present to the court an
itemized accounting, sworn to by the receiver, of the expenses. The
court shall approve the accounting unless a party at interest files
an objection on or before the 10th day after the date the accounting
is presented. The objection must specify each item to which the
party objects and the ground for that objection.
(c) The court shall set a hearing on an objection filed
under Subsection (b) and shall notify the parties of the hearing.
The objecting party has the burden of proof to show that an item to
which the party objected is improper, unnecessary, or excessive.
(V.T.I.C. Art. 21.28, Sec. 12(b) (part).)
Sec. 442.115. INJUNCTIONS AND OTHER ORDERS. (a) On
application by the receiver, the receivership court, with or
without notice, may issue:
(1) an injunction restraining the insurer named in the
order, the insurer's officers, directors, shareholders, members,
trustees, agents, employees, policyholders, attorneys, managers,
attorneys-in-fact, including associate, deputy, and substitute
attorneys-in-fact, and all other persons from:
(A) engaging in the insurer's business; or
(B) wasting or disposing of the insurer's
property; or
(2) an order requiring the delivery of the insurer's
assets to the receiver.
(b) At any time during a delinquency proceeding, the
receivership court may issue an injunction or order considered
necessary to prevent:
(1) interference with the receiver or the proceeding;
(2) waste of the insurer's assets;
(3) the initiation or prosecution of an action;
(4) the obtaining of a preference, judgment,
attachment, garnishment, or other lien; or
(5) the making of a levy against the insurer or against
all or part of the insurer's assets. (V.T.I.C. Art. 21.28, Secs.
4(a), (b).)
Sec. 442.116. EFFECT OF INJUNCTION OR ORDER: DENIAL OF
CLAIMS AND OTHER DEMANDS. The receiver for an insurer may deny a
claim, judgment, lien, preference, or demand made or obtained
against the insurer or the receiver after the date of receivership
in derogation of the terms of an injunction or order under Section
442.115 until:
(1) proof of the justness of the claim, judgment,
lien, preference, or demand is made before the receivership court;
and
(2) the court approves the claim, judgment, lien,
preference, or demand. (V.T.I.C. Art. 21.28, Sec. 4(c).)
Sec. 442.117. OTHER PENDING ACTIONS; IMMUNITY. (a) A
judgment or order of a court of this state or of another
jurisdiction in an action pending by or against a delinquent
insurer that is rendered after the commencement of the delinquency
proceeding is not binding on the receiver unless the receiver was
made a party to the action.
(b) A receiver and the receiver's agents and employees are
not liable for, and a cause of action does not arise against the
receiver or the receiver's agents or employees for, an act or
failure to act by the person that relates to the adjustment,
negotiation, or settlement of a claim. (V.T.I.C. Art. 21.28, Sec.
4(f).)
Sec. 442.118. EXTENSION OF TIME FOR PLEADING;
INAPPLICABILITY OF CERTAIN LAWS. (a) The receiver is not required
to plead to any action in which the receiver is a proper plaintiff
or defendant in any court in this state until the first anniversary
of the date the receiver is appointed.
(b) Sections 64.033, 64.052, 64.053, and 64.056, Civil
Practice and Remedies Code, do not apply to an insolvent insurer
being administered under this chapter. (V.T.I.C. Art. 21.28, Sec.
4(g).)
Sec. 442.119. EXCLUSIVE JURISDICTION OF OTHER ACTIONS. The
court of competent jurisdiction of the county in which the
delinquency proceeding is pending has exclusive venue to hear and
determine all actions or proceedings instituted by or against the
insurer or receiver after the commencement of the delinquency
proceeding. (V.T.I.C. Art. 21.28, Sec. 4(h).)
[Sections 442.120-442.150 reserved for expansion]
SUBCHAPTER D. GENERAL SUBPOENA POWERS; WITNESSES
AND PRODUCTION OF RECORDS
Sec. 442.151. SUBPOENA AUTHORITY. The receiver may request
the court to issue ex parte a subpoena to compel the attendance and
testimony of a witness before the receiver and the production of any
book, account, paper, correspondence, or other record relating to a
matter that pertains to the receivership estate. For that purpose:
(1) the court has statewide subpoena power and may
compel attendance of witnesses and production of records before the
receiver at the receiver's offices in Austin; and
(2) the receiver or the receiver's designated
representative may administer oaths, examine witnesses, and
receive evidence. (V.T.I.C. Art. 21.28, Sec. 4(d) (part).)
Sec. 442.152. SERVICE OF SUBPOENA. A subpoena issued under
this subchapter may be served, at the receiver's discretion, by the
receiver, the receiver's authorized agent, a sheriff, or a
constable. The sheriff's or constable's fee for serving the
subpoena is the same as the fee paid the sheriff or constable for
similar services. (V.T.I.C. Art. 21.28, Sec. 4(d) (part).)
Sec. 442.153. ENFORCEMENT OF SUBPOENA. (a) On application
of the receiver in the case of disobedience of a subpoena or the
contumacy of a witness appearing before the receiver or the
receiver's designated representative, the court may issue an order
requiring the person subpoenaed to obey the subpoena, give
evidence, or produce any book, account, paper, correspondence, or
other record relating to the matter in question.
(b) The court may punish as contempt the failure to obey an
order under this section. (V.T.I.C. Art. 21.28, Sec. 4(d) (part).)
Sec. 442.154. COMPENSATION FOR ATTENDANCE. (a) A witness
who is not a party and who is required to appear before the receiver
is entitled to receive:
(1) reimbursement for mileage for traveling to or from
the place where the witness's presence is required, if the place is
more than 25 miles from the witness's place of residence, in the
same amount for each mile as the mileage travel allowance for a
state employee; and
(2) a fee for each day or part of a day the witness is
required to be present as a witness that is equal to the greater of:
(A) $10; or
(B) the per diem travel allowance of a state
employee.
(b) Each disbursement made to pay a fee under Subsection (a)
shall be included and paid in the manner provided for the payment of
other expenses under Sections 442.054, 442.111, and 442.114 and
Subchapter J. (V.T.I.C. Art. 21.28, Sec. 4(d) (part).)
Sec. 442.155. USE AS EVIDENCE. (a) On certification by the
receiver or commissioner under official seal, any book, account,
paper, correspondence, document, or other record produced or
testimony taken under this chapter and held by the receiver is
admissible in evidence in a case without:
(1) prior proof of correctness; or
(2) other proof except the certificate of the receiver
or commissioner that the book, account, paper, correspondence,
document, or other record or the testimony was received from the
person producing the material or testifying.
(b) The certified book, account, paper, correspondence,
document, or other record, or a certified copy of the book, account,
paper, correspondence, document, or other record, is prima facie
evidence of the facts disclosed by that item.
(c) This section does not limit any other provision of this
chapter or any law that provides for the admission or evidentiary
value of evidence. (V.T.I.C. Art. 21.28, Sec. 4(d) (part).)
Sec. 442.156. PROTECTIVE ORDERS. A person served with a
subpoena under this subchapter may file a motion with the court for
a protective order as provided by Rule 192.6, Texas Rules of Civil
Procedure. (V.T.I.C. Art. 21.28, Sec. 4(d) (part).)
[Sections 442.157-442.200 reserved for expansion]
SUBCHAPTER E. CLAIMS AGAINST RECEIVERSHIP ESTATE
Sec. 442.201. PROOF OF CLAIM REQUIRED; DEADLINE. (a) If a
liquidation, rehabilitation, or conservation order has been
entered in a delinquency proceeding, each person who may have a
claim against the insurer as provided by Section 442.551, including
a claimant with a secured claim or a claim based on trust or escrow
funds, must present a proof of claim to the receiver:
(1) at a place specified by the receiver; and
(2) not later than the date specified by the court,
which may not be before the 90th day after the date the order
specifying the date is entered.
(b) The receiver shall notify all persons who may have a
claim against the insurer, as disclosed by the insurer's books and
records, regarding the requirement to present a proof of claim to
the receiver. The notice must:
(1) specify the last day for presenting a proof of
claim; and
(2) be given in a manner determined by the court.
(c) The receiver must receive the required proof of claim
before paying a claim.
(d) If a proof of claim is not presented on or before the
date specified by the court as required by Subsection (a), the claim
may not share in any distribution of the insurer's assets by the
receiver, except that, subject to court approval, the receiver may
accept a claim presented not later than the 90th day after the date
notice is mailed to the person under Subsection (b). (V.T.I.C. Art.
21.28, Secs. 3(a), (b).)
Sec. 442.202. FORM AND CONTENT OF PROOF OF CLAIM. (a) A
proof of claim must be in writing and signed by the claimant and
must include:
(1) a statement of the claim;
(2) a description of the consideration for the claim;
(3) a statement of whether securities are held as
consideration for the claim and, if so, a description of the
securities;
(4) a statement of any right of priority of payment for
the claim or other specific right asserted by the claimant;
(5) a statement of whether a payment has been made on
the claim and, if so, a description of the payment made and the
source of the payment;
(6) a statement that the amount claimed is justly owed
by the insurer to the claimant; and
(7) any other matter that is required by the court in
which the receivership is pending.
(b) A proof of claim must be in a form prescribed by the
receiver, except that the receiver may accept a proof of claim on a
form:
(1) used for proof of claim by the insurer before the
receivership; or
(2) prepared or accepted by a receiver or a guaranty
fund in another state, if the receiver in this state is an ancillary
receiver.
(c) A proof of claim must be made under oath, unless the
receiver waives the oath.
(d) A written instrument on which a claim is based must be
presented with a proof of claim unless lost or destroyed. After the
instrument is presented and until final disposition of the claim,
the receiver may permit the claimant to substitute a copy of the
instrument. If the instrument is lost or destroyed, a statement of
that fact and of the circumstances of the loss or destruction must
be made under oath and presented with the claim.
(e) The receiver may accept from each authorized guaranty
association a single proof of claim combining all claims and
related administrative expenses assigned to that association. A
proof of claim presented by a guaranty association must contain any
other information the receiver requires. (V.T.I.C. Art. 21.28,
Sec. 3(c).)
Sec. 442.203. UNLIQUIDATED OR UNDETERMINED CLAIM OR DEMAND.
(a) A claim based on an unliquidated or undetermined demand must be
presented within the time limit provided by this chapter for
presenting a claim. The claim may not share in any distribution to
claimants until the claim is definitely liquidated, determined, and
allowed. After the claim is liquidated, determined, and allowed,
the claim shares ratably with the claims of the same class in all
subsequent distributions.
(b) For the purposes of this chapter, a claim or demand is
considered unliquidated or undetermined if:
(1) a right of action on the claim or demand accrued as
of the date:
(A) the delinquency proceeding was commenced; or
(B) the insurance policy was canceled, if
applicable; and
(2) the liability on the claim or demand has not been
determined or the amount of the claim or demand has not been
liquidated.
(c) If the receiver is otherwise able to close the
receivership proceeding, the proposed closing is a sufficient
ground to reject any remaining unliquidated or undetermined claim
or demand. The receiver shall notify the claimant of the receiver's
intention to close the proceeding and shall allow liquidation or
determination of those claims during the 60 days after the date of
the notice. If a remaining claim is not liquidated or determined on
or before the 60th day after the date of the notice, the receiver
may reject the claim. (V.T.I.C. Art. 21.28, Sec. 3(d).)
Sec. 442.204. THIRD-PARTY CLAIMS AND DEMANDS. (a) If a
court has entered a liquidation, rehabilitation, or conservation
order in a delinquency proceeding, a person who has a cause of
action against an insured of the insurer under a liability
insurance policy issued by the insurer is entitled to file a claim
with the receiver, regardless of whether the claim is unliquidated
or undetermined.
(b) A claim described by Subsection (a) may be approved if:
(1) it may be reasonably inferred from the proof
presented on the claim that the person would be able to obtain a
judgment on the cause of action against the insured;
(2) the person provides suitable proof that, other
than those already presented, no additional valid claims against
the insurer arising out of the person's cause of action may be made;
and
(3) the total liability of the insurer to all
claimants arising out of the same act of the insured is not greater
than the total liability of the insurer would be if the insurer were
not in liquidation, rehabilitation, or conservation.
(c) A judgment entered against an insured or insurer before
the date of the commencement of the delinquency proceeding may not
be given a priority higher than Class 3 under Section 442.551 unless
the judgment creditor proves to the receiver's satisfaction the
allegations supporting the judgment.
(d) A judgment against an insured taken after the date of
the commencement of a delinquency proceeding with respect to the
insurer may not be considered in the proceeding as evidence of
liability or of the amount of damages. A judgment against an
insured taken by default or by collusion before the commencement of
the delinquency proceeding may not be considered in the proceeding
as conclusive evidence of the liability of the insured on the cause
of action or of the amount of damages to which the person is
entitled. (V.T.I.C. Art. 21.28, Sec. 3(e).)
Sec. 442.205. OFFSETS. (a) Except as provided by
Subsection (b), the receiver shall set off mutual debts and mutual
credits arising out of one or more contracts between the insurer and
another person in connection with a claim or delinquency
proceeding, and the receiver may allow or pay only the balance.
(b) The receiver may not allow an offset in favor of a person
if:
(1) the obligation of the insurer to the person would
not, on the date of the commencement of the delinquency proceeding
or as otherwise provided by Section 442.102, entitle the person to
share as a claimant in the assets of the insurer;
(2) the obligation of the insurer to the person was
purchased by or transferred to the person after the commencement of
the delinquency proceeding or for the purpose of increasing offset
rights;
(3) the obligation of the person is to pay:
(A) an assessment levied against the members of a
mutual insurer, a reciprocal or interinsurance exchange, or a
Lloyd's plan; or
(B) a balance on a subscription to the capital
stock of a stock insurance corporation;
(4) the obligation of the person is as a trustee or
fiduciary; or
(5) the obligation between the person and the insurer
arises from a reinsurance transaction in which the person or the
insurer assumed risks and obligations from the other party and then
ceded to that party substantially the same risks and obligations.
(c) The receiver shall provide a person with an accounting
statement identifying each debt that is due and payable. A person
shall promptly pay to the receiver any amount due and payable to the
insurer against which the person asserts an offset of mutual
credits that may become due and payable from the insurer in the
future. Notwithstanding Subchapter L or any other provision of
this chapter, the receiver shall promptly and fully refund, to the
extent of the person's prior payment, any mutual credits that
become due and payable to the person by the insurer. (V.T.I.C. Art.
21.28, Secs. 3(f), (g).)
Sec. 442.206. APPROVAL OR REJECTION OF CLAIM. (a) The
receiver may approve or reject a claim filed against the insurer.
(b) On a rejection of a claim in whole or in part, the
receiver shall notify the claimant in writing of the rejection.
(V.T.I.C. Art. 21.28, Sec. 3(h) (part).)
Sec. 442.207. APPEAL OF RECEIVER'S REJECTION OF CLAIM. (a)
The receiver's rejection of a claim may be appealed in the court.
The appeal must be brought within three months after the date of
service of notice of the rejection.
(b) If the receiver's action is appealed within the time
prescribed by Subsection (a), review is de novo as if originally
filed in the court and is subject to the rules of procedure and
appeal applicable to civil cases. The appeal is separate from the
delinquency proceeding, and an attempt to appeal the receiver's
action by intervening in the delinquency proceeding does not comply
with this subsection.
(c) If the receiver's action is not appealed within the time
prescribed by Subsection (a), the action is final and not subject to
judicial review. (V.T.I.C. Art. 21.28, Sec. 3(h) (part).)
Sec. 442.208. OBJECTION TO CLAIM BY INTERESTED PARTY. (a)
An interested party may object to a claim not rejected by the
receiver by filing an objection with the receiver.
(b) The receiver shall promptly present the objection to the
court for a determination after notice and hearing. (V.T.I.C. Art.
21.28, Sec. 3(h) (part).)
Sec. 442.209. REFERRAL OF CLAIM TO GUARANTY ASSOCIATION.
Notwithstanding any other provision of this chapter, the receiver
shall refer a claim covered by a guaranty fund created under Chapter
462, 463, or 2602 to the appropriate guaranty association for
processing. (V.T.I.C. Art. 21.28, Sec. 3(i).)
Sec. 442.210. WORKERS' COMPENSATION CLAIMS. (a) The
receiver shall notify the Texas Workers' Compensation Commission
immediately on a finding of insolvency or impairment with regard to
an insurance company that has in force any workers' compensation
coverage in this state.
(b) On receipt of the notice under Subsection (a), the Texas
Workers' Compensation Commission shall submit to the receiver a
list of active cases pending before the commission in which:
(1) the insurance company has accepted liability;
(2) it appears that a bona fide dispute does not exist;
(3) payments were begun before the finding of
insolvency or impairment; and
(4) payment of future or past workers' compensation
benefits is due.
(c) Notwithstanding the other provisions of this
subchapter, the receiver may begin or continue the payment of
claims on cases included in the list submitted under Subsection
(b).
(d) Files and other information delivered by the Texas
Workers' Compensation Commission to the receiver may be delivered
to the Texas Property and Casualty Insurance Guaranty Association.
(e) The Texas Workers' Compensation Commission shall report
to the department any act of a workers' compensation insurance
company that may indicate that the company is financially impaired,
delinquent, or insolvent. (V.T.I.C. Art. 21.28, Secs. 3A(a), (b),
(c), (d) (part), (e).)
[Sections 442.211-442.250 reserved for expansion]
SUBCHAPTER F. VOIDABLE TRANSFERS OR LIENS
Sec. 442.251. CERTAIN TRANSFERS OR LIENS VOIDABLE. A
transfer of or lien on the assets of an insurer is voidable if the
transfer or lien was:
(1) made or created:
(A) within four months before the date of the
commencement of the delinquency proceeding; and
(B) with the intent of giving to a creditor or
enabling the creditor to obtain a greater percentage of the
creditor's debt than is to be given to or obtained by another
creditor of the same class; and
(2) accepted by the creditor having reasonable cause
to believe that a preference described by Subdivision (1)(B) would
occur. (V.T.I.C. Art. 21.28, Sec. 5(a).)
Sec. 442.252. PERSONAL LIABILITY FOR VOIDABLE TRANSFER OR
LIEN. (a) The following persons are personally liable for the
property of the insurer or the benefit of that property received as
a result of a transfer or lien described by Section 442.251:
(1) each director, officer, agent, employee,
shareholder, member, attorney-in-fact, including an associate,
substitute, or deputy attorney-in-fact, underwriter, subscriber,
or other person acting on behalf of the insurer who is concerned in
the transfer or lien; and
(2) each person who, as a result of the transfer or
lien, receives the property of the insurer or the benefit of that
property.
(b) A person who is personally liable under Subsection (a)
shall account to the receiver for the benefit of the creditors of
the insurer. (V.T.I.C. Art. 21.28, Sec. 5(b).)
Sec. 442.253. AVOIDANCE OF TRANSFER OR LIEN; RECOVERY OF
PROPERTY. The receiver may:
(1) avoid a transfer of or lien on the assets of an
insurer that a creditor, shareholder, or member of the insurer
might have avoided; and
(2) recover the transferred property or the value of
that property from the person to whom the property was transferred
or from a person who received the property, unless the transferee or
recipient was a bona fide holder for value before the date of the
commencement of the proceeding. (V.T.I.C. Art. 21.28, Sec. 5(c).)
[Sections 442.254-442.300 reserved for expansion]
SUBCHAPTER G. ASSESSMENTS
Sec. 442.301. APPLICATION FOR ASSESSMENT. (a) Not later
than the fourth anniversary of the date of an order of
rehabilitation or liquidation of a domestic insurer, the receiver
may apply to the court to levy an assessment against the members of
a mutual insurance company, the members of a reciprocal or
interinsurance exchange, or the insureds of a Lloyd's plan who have
been issued an insurance policy that expressly provides that the
policy is subject to assessment.
(b) The application must state:
(1) the reasonable value of the insurer's assets;
(2) the insurer's probable liabilities; and
(3) the probable assessment, if any, necessary to pay
all possible claims and expenses in full, including expenses of
administration and collection. (V.T.I.C. Art. 21.28, Sec. 7(a).)
Sec. 442.302. LEVY. (a) After giving notice in the manner
designated by the court to each member or insured described by
Section 442.301, the court shall consider the application made
under that section and may levy one or more assessments, subject to
Subsection (c).
(b) The assessment or assessments must cover the excess of
the insurer's probable liabilities over the reasonable value of the
insurer's assets, together with the estimated cost of collection
and percentage of uncollectibility of the assessments.
(c) The court may not levy an assessment against a member or
insured with regard to an insurance policy that does not expressly
provide that the policy is subject to assessment. (V.T.I.C. Art.
21.28, Sec. 7(b).)
Sec. 442.303. COLLECTION. After the court enters an order
of assessment under Section 442.302 and after the time for appeal
expires, the receiver shall collect the assessments. The receiver
may bring an action in a court of competent jurisdiction in the
county in which the delinquency proceeding is pending to collect an
assessment. (V.T.I.C. Art. 21.28, Sec. 7(c).)
Sec. 442.304. SUBCHAPTER NOT EXCLUSIVE. The provisions
of this subchapter are in addition to any other remedies for the
levy and collection of assessments. (V.T.I.C. Art. 21.28, Sec.
7(d).)
[Sections 442.305-442.350 reserved for expansion]
SUBCHAPTER H. REINSURANCE
Sec. 442.351. REINSURER'S LIABILITY. (a) If the receiver
has a claim under an insurance policy covered by reinsurance, the
liability of the reinsurer to the receiver under the reinsured
contract may not be reduced because of the delinquency proceeding
against the delinquent insurer, regardless of any contrary
provision in the reinsurance contract, unless:
(1) the reinsurance contract or other written
agreement was entered into before the delinquency proceeding, is
otherwise permitted by law, and specifically provides another payee
of the reinsurance if the ceding insurer becomes insolvent; or
(2) the assuming insurer, with the consent of the
direct insured, has assumed in accordance with an assumption
reinsurance agreement the policy obligations of the ceding insurer:
(A) as direct obligations of the assuming insurer
to the payees under the policy; and
(B) in substitution for the obligations of the
ceding insurer to the payees.
(b) Except as provided by Subsection (a), any reinsurance is
payable to the receiver under a reinsured contract by the assuming
insurer on the basis of:
(1) an approved claim under Section 442.206; and
(2) a claim paid by a guaranty association under
Chapter 462, 463, or 2602 or by the guaranty association of another
state. (V.T.I.C. Art. 21.28, Sec. 10(a).)
Sec. 442.352. NOTICE OF CLAIM TO REINSURER; INTERPOSITION
OF DEFENSE. (a) Within a reasonable time after a claim against
the receiver under an insurance policy covered by reinsurance is
filed in the delinquency proceeding, the receiver shall give
written notice of the pendency of the claim to each affected
reinsurer.
(b) While the claim is pending, an affected reinsurer may,
at the reinsurer's expense, investigate the claim and interpose in
the proceeding in which the claim is to be adjusted any defense the
reinsurer considers available to the delinquent insurer or the
receiver.
(c) Subject to court approval, the expense incurred by an
assuming insurer under Subsection (b) is chargeable against the
delinquent insurer as part of the expense of liquidation to the
extent of a proportionate share of any benefit that may accrue to
the delinquent insurer solely as a result of the defense undertaken
by the assuming insurer. If two or more assuming insurers are
involved in the same claim and a majority in interest elect to
interpose a defense to the claim, the expense shall be apportioned
in accordance with the terms of the reinsurance agreement as if the
expense had been incurred by the ceding insurer. (V.T.I.C. Art.
21.28, Sec. 10(b).)
[Sections 442.353-442.400 reserved for expansion]
SUBCHAPTER I. RECORDS AND OTHER INFORMATION
Sec. 442.401. USE OF RECORDS AND OTHER INFORMATION AS
EVIDENCE. (a) A book, paper, document, or record of a delinquent
insurer received by the receiver and held in the course of the
delinquency proceeding or a certified copy of the book, paper,
document, or record signed and under the official seal of the
commissioner or receiver is admissible in evidence in a case
without proof of correctness or other proof except the certificate
of the commissioner or receiver that the book, paper, document, or
record was received from the custody of the delinquent insurer or
found among the insurer's effects.
(b) The certified original or a certified copy of a book,
paper, document, or record described by this section or Section
442.402 is prima facie evidence of the facts disclosed by the book,
paper, document, or record. (V.T.I.C. Art. 21.28, Secs. 11(a),
(c).)
Sec. 442.402. CERTIFICATES BY RECEIVER. (a) The receiver
may:
(1) certify to the correctness of a book, paper,
document, or record of the receiver's office, including a book,
paper, document, or record described by Section 442.401; and
(2) certify under seal of the commissioner to a fact
contained in a book, paper, document, or record of the department.
(b) A book, paper, document, or record certified as
described by Subsection (a) is admissible in evidence in any case in
which the original would be evidence. (V.T.I.C. Art. 21.28, Sec.
11(b).)
Sec. 442.403. MAINTENANCE OF RECORDS. (a) The receiver
may devise a method for the effective, efficient, and economical
maintenance of the records of the delinquent insurer and of the
receiver's office. The method may include maintaining those
records on any medium approved by the records management division
of the Texas State Library.
(b) A copy of an original record or another record that is
maintained within the scope of this subchapter on a medium approved
by the records management division of the Texas State Library and
that is produced by the receiver or the receiver's authorized
representative under this chapter:
(1) has the same effect as the original record; and
(2) may be used in the same manner as the original
record in a judicial or administrative proceeding in this state.
(c) The receiver may reserve the estate assets for deposit
in an account to be used for the specific purpose of maintenance,
storage, and disposal of records in closed receivership estates.
(V.T.I.C. Art. 21.28, Sec. 11(d).)
Sec. 442.404. DISPOSAL OF RECORDS. On approval by the
court, the receiver may dispose of any records of the delinquent
insurer that are obsolete and unnecessary to the continued
administration of the receivership proceeding. (V.T.I.C. Art.
21.28, Sec. 11(e).)
Sec. 442.405. INAPPLICABILITY OF PUBLIC INFORMATION LAW.
Chapter 552, Government Code, does not apply to any record of a
receivership estate, or to any record of an insurer before the
insurer's receivership, held by the receiver under this chapter.
(V.T.I.C. Art. 21.28, Sec. 11(f).)
[Sections 442.406-442.450 reserved for expansion]
SUBCHAPTER J. AUDITS
Sec. 442.451. AUDITS OR INVESTIGATIONS OF RECEIVER, SPECIAL
DEPUTY RECEIVER, OR GUARANTY ASSOCIATION. (a) The commissioner
shall adopt rules, after submitting the rules to the state auditor
for review and comment, prescribing the audits required for the
receiver, each special deputy receiver, and each guaranty
association established under Chapter 462, 463, or 2602. The rules
must include provisions relating to the scope, frequency, reporting
requirements, and cost of audits.
(b) As determined necessary by the commissioner or the state
auditor to supplement audits conducted under rules adopted under
Subsection (a), the state auditor may conduct audits or
investigations, as defined by Sections 321.0131-321.0136,
Government Code, of the receiver, each special deputy receiver, and
each guaranty association described by Subsection (a). The audited
or investigated entity shall reimburse the state auditor for costs
associated with the audit or investigation. (V.T.I.C. Art. 21.28,
Secs. 12(j), (k).)
Sec. 442.452. PLAN AND REPORT REGARDING AUDIT OF RECEIVER.
(a) The state auditor may conduct an audit of the receiver in
accordance with the audit plan under Chapter 321, Government Code.
The state auditor shall conduct the audit in the manner provided by
that chapter.
(b) The state auditor's report of an audit under this
section may include:
(1) an analysis of:
(A) the overall performance of the receiver;
(B) the receiver's financial operations and
condition;
(C) the receipts and expenditures made in
connection with each audited receivership;
(D) the adequacy of the receiver's bond in
relation to assets, receipts, and expenditures; and
(E) the feasibility of using attorneys employed
by the receiver in all litigation;
(2) the amount of money made available to the receiver
by a guaranty association in connection with each audited
receivership and a detail of the purpose and manner of expenditure
of the money;
(3) the ratio of the total amount of paid claims to the
total costs incurred in connection with each audited receivership;
and
(4) the ratio of the receiver's administrative
expenses to the total costs incurred in connection with each
audited receivership.
(c) The state auditor shall file:
(1) copies of the auditor's report in the manner
required by Section 321.014, Government Code; and
(2) an additional copy of the report with the
department. (V.T.I.C. Art. 21.28, Secs. 12(d), (e), (f).)
Sec. 442.453. COURT-ORDERED AUDIT. (a) A court in which a
receivership action is pending may order an audit of the books and
records of the receiver relating to the receivership. The receiver
shall make the books and records available to the auditor as
required by the court order.
(b) A report of an audit conducted under this section shall
be filed with the department and the appropriate guaranty
association.
(c) The receiver shall pay the expenses of an audit
conducted under this section. (V.T.I.C. Art. 21.28, Sec. 12(g).)
[Sections 442.454-442.500 reserved for expansion]
SUBCHAPTER K. DISTRIBUTION OF ASSETS: EARLY ACCESS
Sec. 442.501. APPLICATION FOR APPROVAL OF PROPOSAL TO
DISTRIBUTE ASSETS. (a) Not later than the 120th day after the
date of the commencement of an insolvency proceeding against an
impaired insurer, the receiver may apply to the court for approval
of a proposal to distribute assets out of marshalled assets as they
become available to a guaranty association or foreign guaranty
association with a Class 1 or Class 2 claim under this chapter.
(b) If the receiver fails to apply for approval within the
period prescribed by Subsection (a), a guaranty association may
apply to the court and request that the receiver submit a proposal
to distribute assets.
(c) If the receiver determines that there are insufficient
assets to distribute, the receiver may file a statement of the
reasons for that determination instead of filing an application
under this section. A statement under this subsection is
considered to be an application by the receiver for purposes of this
section. (V.T.I.C. Art. 21.28, Sec. 7A(a).)
Sec. 442.502. CONTENTS OF PROPOSAL TO DISTRIBUTE
ASSETS. (a) A proposal to distribute assets under Section
442.501 must include provisions for:
(1) reserving amounts sufficient to allow the payment
of Class 1 claims;
(2) to the extent the assets of the insolvent insurer
allow any payment of Class 2 claims, reserving amounts sufficient
to provide equal pro rata distributions to the Class 2 claimants
other than the guaranty associations;
(3) distributing the assets marshalled as of the date
of the proposal and distributing other assets as they become
available;
(4) equitably allocating distributions among guaranty
associations and foreign guaranty associations entitled to
distributions, including providing for:
(A) distributions to the associations in amounts
estimated t