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 to be at least equal to the claim payments made or to be made by the associations for which the associations could assert a claim against the receiver; and (B) distributions for the pro rata amount of the associations' Class 2 claims if the assets, as they become available for distribution, do not equal or exceed the amount of the claim payments made or to be made by the associations; and (5) with regard to an insolvent insurer writing life or health insurance or annuities, distributing the assets to: (A) a guaranty association or foreign guaranty association covering life or health insurance or annuities; or (B) any other entity or organization reinsuring, assuming, or guaranteeing insurance policies or contracts under the laws creating an association described by Paragraph (A). (b) The proposal to distribute assets must also include provisions that require: (1) the receiver to obtain from each guaranty association described by Subsection (a)(4) an agreement to return to the receiver on request and on approval by the court any previously distributed assets, together with income on the assets, required to pay Class 1 claimants and any federal claimants asserting priority claims; and (2) each guaranty association or foreign guaranty association to make a full report to the receiver, as requested by the receiver but not more frequently than quarterly, accounting for: (A) the assets distributed to the association; (B) all distributions made from those assets; (C) any interest earned by the association on those assets; and (D) any other matter as the court directs. (c) A guaranty association or foreign guaranty association is not required to provide a bond under Subsection (b)(1). (V.T.I.C. Art. 21.28, Secs. 7A(b), (c), (d).) Sec. 442.503. NOTICE OF APPLICATION. (a) The receiver shall give notice of an application for approval of a proposal to distribute assets to a guaranty association or foreign guaranty association in, and to the commissioner of insurance of, each of the states. Notice under this subsection must be deposited in the United States certified mail, first class postage prepaid, at least 30 days before the date the application is submitted to the court. (b) The receiver shall also give notice of the application to reasonably identifiable Class 1 and Class 2 claimants. Notice under this subsection must be given in a manner the court considers appropriate, including notice by publication. (c) The court may act on the application if: (1) notice has been given as provided by this section; and (2) the receiver's proposal to distribute assets complies with this subchapter. (V.T.I.C. Art. 21.28, Sec. 7A(e).)
[Sections 442.504-442.550 reserved for expansion]
SUBCHAPTER L. DISTRIBUTION OF ASSETS
Sec. 442.551. PRIORITY OF CLAIMS FOR DISTRIBUTION OF ASSETS. (a) The priorities provided by this section are established to: (1) provide for the orderly liquidation of a receivership estate; and (2) further the protection of policyholders and persons making claims under insurance policies. (b) The priority of distribution of assets from the insurer's estate must be in accordance with: (1) the distribution plan approved by the court under Subchapter K; and (2) the order of each class as provided by this section. (c) Each claim in each class must be paid in full, or an adequate amount of money must be retained for that payment, before a payment is made for a claim in the next class. (d) Subclasses may not be established within a class. (e) The classes of claims are as follows: (1) Class 1: (A) all of the receiver's, conservator's, and supervisor's costs and expenses of administration, including repayment of any money spent by the receiver under Section 442.607; (B) all of a guaranty association's or foreign guaranty association's costs and expenses of administration related to a receivership estate and all of the expenses of that association in handling claims; and (C) claims of secured creditors to the extent of the value of the security as provided by Section 442.554; (2) Class 2: (A) all claims by policyholders, beneficiaries, and insureds, and liability claims against insureds covered under insurance policies and contracts issued by the insurer; and (B) all claims by a guaranty association or a foreign guaranty association that are payments of proper policyholder claims; (3) Class 3: claims of the federal government that are not included in Class 2; (4) Class 4: all other claims of general creditors not falling within a higher priority under this subchapter, including claims for taxes and debts due a state or local government that are unsecured; and (5) Class 5: claims of surplus or contribution note holders, debenture holders, or holders of similar obligations and proprietary claims of shareholders, members, or other owners according to the terms of the instruments. (f) For the purpose of Subsection (e)(1)(B), attorney's fees incurred by a guaranty association or foreign guaranty association in the defense of an insured under an insurance policy issued by an impaired insurer are an expense incurred in handling a claim. (V.T.I.C. Art. 21.28, Secs. 8(a)(1), (2).) Sec. 442.552. PAYMENT OF WAGES OF EMPLOYEES OF INSURER SUBJECT TO TEMPORARY RESTRAINING ORDER. (a) The receiver shall pay as a Class 1 claim under Section 442.551 wages owed to employees of an insurer against which a temporary restraining order has been issued under this chapter for services rendered during the period covered by the order. (b) The receiver shall pay for services under Subsection (a) at the rate and in the same manner as if paid by the insurer. (V.T.I.C. Art. 21.28, Sec. 6 (part).) Sec. 442.553. PAYMENT OF WAGES OF EMPLOYEES OF INSURER SUBJECT TO TEMPORARY INJUNCTION. (a) The receiver may pay wages owed to employees of an insurer against which a temporary injunction has been issued under this chapter for services rendered after the issuance of the injunction. (b) Payment for services under Subsection (a) is an expense of administration. (V.T.I.C. Art. 21.28, Sec. 6 (part).) Sec. 442.554. SECURED CREDITOR. (a) The owner of a secured claim against an insurer for which a receiver has been appointed in any state may surrender the owner's security and file a claim as a general creditor, or the claim may be discharged by resort to the security. (b) If a claim described by Subsection (a) is discharged by resort to the security, any deficiency shall be treated as a claim against the general assets of the insurer on the same basis as a claim of an unsecured creditor. If the amount of the deficiency was adjudicated in an ancillary delinquency proceeding as provided by Subchapter P or by a court of competent jurisdiction in a proceeding in which the domiciliary receiver was provided with notice and an opportunity for hearing, the amount is conclusive. If the amount was not adjudicated as provided by this subsection, the amount shall be determined in the delinquency proceeding in the domiciliary state. (c) The value of any security held by a secured creditor shall be determined under supervision of the court by: (1) conversion of the security into money according to the terms of the agreement under which the security was delivered to the creditor; or (2) agreement, arbitration, compromise, or litigation between the creditor and the receiver. (V.T.I.C. Art. 21.28, Sec. 8(c).) Sec. 442.555. DIVIDEND PAYMENTS. (a) On the direction and approval of the court and in accordance with the priorities provided by this subchapter, the receiver may make periodic dividend payments, including payments of policyholder claims, to facilitate the rehabilitation, liquidation, conservation, or dissolution of an insurer. (b) The receiver at all times shall reserve sufficient assets to pay the expenses of administration. (V.T.I.C. Art. 21.28, Sec. 8(b).) Sec. 442.556. CLAIMANTS OF OTHER STATES OR FOREIGN COUNTRIES. (a) If a claimant of another state or of a foreign country is entitled to or receives a dividend on the claim out of a statutory deposit or the proceeds of a bond or other asset located in that state or foreign country, the claimant is not entitled to share in the distribution of any additional dividend from the receiver until all other claimants of the same class receive an equal dividend on their claims, regardless of their residence or the location of the acts or contracts on which the claims are based. (b) After the other claimants of the same class receive an equal dividend on their claims, the claimant of the other state or of the foreign country is entitled to share in the distribution of additional dividends by the receiver, along with and in the same manner as all other creditors of the same class, regardless of their residence. (V.T.I.C. Art. 21.28, Sec. 8(e).) Sec. 442.557. SETOFF OF DIVIDEND AMOUNT. On the declaration of a dividend, the receiver shall apply the amount of the dividend against any debt owed to the insurer by the person entitled to the dividend. (V.T.I.C. Art. 21.28, Sec. 8(f).) Sec. 442.558. CLAIMS UNDER SEPARATE ACCOUNTS ESTABLISHED BY DOMESTIC LIFE INSURANCE COMPANIES. (a) Each claim under a separate account established under Chapter 1152 shall be satisfied out of the portion of the assets in the separate account that is equal to the reserves maintained in the account for the applicable contracts. (b) To the extent reserves maintained in a separate account exceed the amounts needed to satisfy claims under the applicable contracts, the excess shall be treated as general assets of the domestic life insurance company. (V.T.I.C. Art. 21.28, Sec. 8(k) (part).) Sec. 442.559. INTEREST. Interest does not accrue on a claim after the date of the commencement of a delinquency proceeding. (V.T.I.C. Art. 21.28, Sec. 8(d).)
[Sections 442.560-442.600 reserved for expansion]
SUBCHAPTER M. UNCLAIMED ASSETS
Sec. 442.601. DELIVERY OF UNCLAIMED MONEY TO DEPARTMENT. (a) Except as provided by Subsection (b), any unclaimed dividend on an approved claim, unclaimed returned assessment, or other unclaimed money that is subject to distribution to a claimant, policyholder, or other person and that remains in the possession of the receiver after payment of the final dividend shall be delivered to the department at the time the receivership is closed. (b) If a final dividend is paid less than 90 days before the date the receivership is closed, the receiver may continue, for a period not to exceed 90 days from the date the receivership is closed, any bank account of the receivership from which any unclaimed dividend might be paid, before the receiver delivers the unclaimed dividend to the department. (c) The department shall deposit the money in trust in an account to be maintained with the comptroller. (V.T.I.C. Art. 21.28, Sec. 8(g).) Sec. 442.602. RECOVERY OF UNCLAIMED MONEY BY OWNER. (a) On receipt of satisfactory written and verified proof of ownership not later than the second anniversary of the date money is deposited with the comptroller under Section 442.601, the department shall certify that fact to the comptroller. (b) On certification under Subsection (a), the comptroller shall issue a warrant drawn on the state treasury for the money in favor of each person entitled to the money. (V.T.I.C. Art. 21.28, Sec. 8(h).) Sec. 442.603. APPLICATION FOR DECLARATION OF ABANDONMENT OF MONEY; NOTICE. (a) After money deposited with the comptroller under Section 442.601 has remained unclaimed for two years, the receiver may initiate an action to declare the money abandoned and that the money is the property of the department by filing in the court of competent jurisdiction in the county in which the delinquency proceeding is or was pending a notice that the receiver intends to declare the money abandoned and claim the money as the property of the department. The action may be for all or part of the money accumulated in any particular receivership. (b) The notice must state: (1) the name of each person entitled to the money; (2) the person's last known address; and (3) the nature or source and amount of the money. (c) On the filing of the notice by the receiver, the court shall set a date for the hearing on the application that is at least 20 days after the date the notice was filed and shall make a notation of the date of the hearing on the notice. (d) A copy of the notice with the judge's notation of the date of the hearing must be posted on the courthouse door for at least 20 days before the date a hearing is held on the application. At least 10 days before the date set for the hearing, notice of the filing of the application must be published in a newspaper of general circulation in the county in which the application is pending. The notice must be addressed to the owners of unclaimed money in the particular receivership involved in the application and must state generally that a hearing will be held on the specified date to declare the money abandoned and that the money is the property of the department. (V.T.I.C. Art. 21.28, Sec. 8(i) (part).) Sec. 442.604. HEARING ON APPLICATION FOR DECLARATION OF ABANDONMENT OF MONEY; JUDGMENT. (a) At a hearing on an application filed under Section 442.603, proof to the satisfaction of the court of the following is prima facie evidence that each person entitled to money deposited with the comptroller under Section 442.601 intends to abandon the money and that the department is the owner of the money: (1) the money, or a check for the money, was sent by the receiver to the last known address of each person entitled to the money; (2) the money, or a check for the money, was returned unclaimed or the check for the money was not cashed; (3) the money was delivered to the department as required by Section 442.601; (4) the money has remained unclaimed for two years; and (5) notice of the filing of the application was published as required by Section 442.603. (b) On a finding by the court under Subsection (a), the court may render judgment accordingly. On receipt of the judgment, the department shall certify that fact to the comptroller. (c) On certification under Subsection (b), the comptroller shall issue a warrant for the money in favor of the department. The department shall promptly deposit the money in accordance with Section 442.110, except that the money derived from one insurer is not required to be kept separate from money derived from another insurer. (V.T.I.C. Art. 21.28, Sec. 8(i) (part).) Sec. 442.605. USE OF CERTAIN UNLIQUIDATED ASSETS; DEPOSIT OF PROCEEDS IN TRUST. (a) Any assets other than cash that remain in the possession of the receiver after payment of the final dividend in a receivership estate may be conveyed, transferred, or assigned to the commissioner to be handled as a trust. (b) The commissioner may convey, transfer, and assign any assets, including causes of action, judgments, and claims, and settle or release causes of action, judgments, claims, and liens on terms and for amounts the commissioner considers to be in the best interest of the trust, regardless of whether the assets have previously or may subsequently come into the commissioner's possession. (c) From proceeds derived from any assets described by Subsection (b), the commissioner or the special deputy receiver shall defray the costs incident to the sale, settlement, release, or other transaction by which the proceeds are obtained and deliver the remainder to the department. The department shall deposit the money in trust in an account to be maintained with the comptroller and to be handled, disposed of, and used as provided by Sections 442.606 and 442.607. (V.T.I.C. Art. 21.28, Sec. 8A (part).) Sec. 442.606. APPLICATION FOR DECLARATION OF ABANDONMENT OF PROCEEDS IN TRUST; NOTICE AND HEARING. (a) On application by the commissioner and after notice and hearing, a court of competent jurisdiction of Travis County may make an order directing disposition of money deposited in a trust account under Section 442.605(c). (b) The notice must be addressed to all persons having an interest, as claimants or otherwise, in the assets of the particular receivership involved in the application and must state: (1) the amount of the money and the receivership from which the money was derived; and (2) generally that a hearing will be held on the specified date to determine the disposition of the money, including a declaration that the money is abandoned and is the property of the department. (c) The notice required by Subsection (a) must be: (1) posted on the courthouse door for at least 20 days before the date the hearing is held; and (2) published at least 10 days before the date set for the hearing in a newspaper of general circulation in Travis County. (d) If the court finds that money derived from a receivership is sufficient to justify the reopening of the receivership and the payment of a dividend, the court may enter an order to that effect. If the money is insufficient for that purpose, the court may declare the money abandoned. (e) A certified copy of a judgment declaring the money abandoned is sufficient authority for the comptroller to issue a warrant for the money in favor of the department. On issuance of the warrant, the department shall promptly deposit the money in accordance with Section 442.110, except that money derived from one insurer is not required to be kept separate from money derived from another insurer. (V.T.I.C. Art. 21.28, Sec. 8A (part).) Sec. 442.607. USE OF ABANDONED MONEY. (a) The receiver, with the consent of the department, may spend money deposited by the department under Sections 442.604 and 442.606 to: (1) pay expenses of the office of the receiver that are not properly chargeable to any one receivership or conservatorship estate; and (2) continue the administration of a receivership or conservatorship by the receiver as receiver or conservator, if the department considers the continuation to be in the best interest of the receivership or conservatorship estate. (b) Any money applied under Subsection (a)(2) to a receivership estate must be repaid from the assets of that estate before the payment of any additional dividends in that receivership, including policyholder claims and other claims. (c) Any money applied under Subsection (a)(2) to a conservatorship estate must be repaid from the assets of that estate before the release of that conservatorship for continued operation. (V.T.I.C. Art. 21.28, Secs. 8(j), 8A (part).)
[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. (a) After the receiver has provided for unclaimed dividends and all of the liabilities of a stock insurance company, the receiver shall call a meeting of the shareholders of the insurer by: (1) publishing notice of the meeting in one or more newspapers in the county in which the principal office of the insurer was located; and (2) giving written notice of the meeting to each shareholder of record at the shareholder's last known address. (b) At the meeting, the shareholders shall appoint one or more agents to take over the liquidation of the insurer for the benefit of the shareholders. Voting privileges are governed by the insurer's bylaws. A majority of the shares must be represented at the agent's appointment. The agent or agents shall execute and file with the court one or more bonds as approved by the court, conditioned on the faithful performance of all the duties of the trust. (c) Under order of the court, the receiver shall transfer and deliver to the agent or agents for continued liquidation under the court's supervision all assets of the insurer remaining in the possession of the receiver. After the transfer and delivery, the receiver and the department, and each employee of the receiver or the department, are discharged from any further liability to the insurer and the creditors and shareholders of the insurer. (d) This section does not permit the insurer to continue engaging in the business of insurance. The charter of the insurer and each certificate of authority or other permit issued under or in connection with the charter are ipso facto revoked by the order of the court directing the receiver to transfer and deliver the remaining assets of the insurer to the agent or agents. (V.T.I.C. Art. 21.28, Sec. 9(a).) Sec. 442.652. DISPOSAL OF REMAINING ASSETS OF INSURER OTHER THAN STOCK INSURANCE COMPANY. After the receiver has provided for unclaimed dividends and all of the liabilities of an insurer other than a stock insurance company, the receiver shall dispose of any remaining assets as directed by the receivership court. (V.T.I.C. Art. 21.28, Sec. 9(b).) Sec. 442.653. TRANSFER OF REMAINING ASSETS OF INSURER TO GUARANTY ASSOCIATION. (a) Notwithstanding any other provision of this chapter, in closing a receivership estate, a special deputy receiver, on approval of the court, may transfer any remaining asset, cause of action asserted on behalf of the impaired insurer, judgment, claim, or lien to the appropriate guaranty association. (b) A transfer under Subsection (a): (1) is not a preference or voidable transfer; and (2) is considered a distribution under Sections 442.551(a)-(d). (c) If the amount realized by the guaranty association is materially greater than the amount loaned by the guaranty association to the receivership estate, the court may order the reopening of the receivership to distribute the excess money. (d) This subchapter does not transfer any liability of an impaired insurer to the guaranty association that would not constitute a claim payable under Chapter 462, 463, or 2602. (V.T.I.C. Art. 21.28, Sec. 9(c).)
[Sections 442.654-442.700 reserved for expansion]
SUBCHAPTER O. DURATION AND REOPENING OF RECEIVERSHIP
Sec. 442.701. LIMITATION ON DURATION OF RECEIVERSHIP. (a) Except as otherwise provided by this section, each receivership or other delinquency proceeding prescribed by this chapter shall be administered in accordance with Section 64.072, Civil Practice and Remedies Code. (b) To the extent the proceeding applies to claims against a workers' compensation insurance policy or a title insurance policy, a receivership or other delinquency proceeding shall be administered continuously for any period necessary to effect the receivership's or proceeding's purposes, and any arbitrary limitation on that period provided by another law of this state with regard to the administration of receiverships or of corporate affairs generally does not apply to the proceeding. (c) Instead of the winding up and distribution of a receivership estate of an insurer without capital stock, the court shall order revival and reinstatement of the charter, certificates of authority or other permits, franchises, and management contracts or other control instruments of the insurer if the insurer's remaining cash on hand and on deposit, less any outstanding enforceable liabilities, exceeds the minimum amount of capital and surplus prescribed for that insurer under Section 822.054, 822.202, 822.210, or 841.054. (V.T.I.C. Art. 21.28, Sec. 9(d).) Sec. 442.702. REOPENING OF RECEIVERSHIP. (a) If after the receivership has been closed by final order of the court the receiver discovers assets not known to the receiver during the receivership, the receiver shall report the receiver's findings to the court. (b) The court may reopen the receivership for continued liquidation if the court finds that the value of the discovered assets justifies the reopening. (V.T.I.C. Art. 21.28, Sec. 9(e).)
[Sections 442.703-442.750 reserved for expansion]
SUBCHAPTER P. ANCILLARY DELINQUENCY PROCEEDINGS
Sec. 442.751. APPOINTMENT OF ANCILLARY RECEIVER. (a) On the petition of the department, a court of competent jurisdiction in this state shall appoint the commissioner as ancillary receiver in this state for an insurer domiciled in another jurisdiction if a receiver should be appointed for that insurer under the laws of this state. (b) The department: (1) may file the petition on the department's own initiative; and (2) shall file the petition if at least 10 residents of this state who have claims against the insurer file one or more petitions in writing with the department requesting the appointment of an ancillary receiver. (V.T.I.C. Art. 21.28, Sec. 13 (part).) Sec. 442.752. POWERS AND DUTIES OF ANCILLARY RECEIVER. (a) The ancillary receiver is entitled to sue for and possess the assets of the insurer in this state and has the same powers and duties with regard to those assets as a receiver of an insurer domiciled in this state. (b) On commencement of the delinquency proceeding in this state, the ancillary receiver is immediately entitled to possession and control of any special or statutory deposits of the insurer that are located in this state. The ancillary receiver may use those deposits: (1) to pay expenses of the administration of the receivership proceeding; and (2) after paying the expenses under Subdivision (1), to pay approved claims against the deposits. (V.T.I.C. Art. 21.28, Sec. 13 (part).) Sec. 442.753. COORDINATION WITH RECEIVER IN OTHER STATE. If a receiver of a delinquent insurer has been appointed both in this state and in another state, the receiver in this state may, under supervision of the receivership court in this state and regardless of whether the receiver in this state is an ancillary receiver, contract with the receiver in the other state to coordinate the administration of the receiverships in the interest of efficiency and economy in any manner consistent with this chapter. (V.T.I.C. Art. 21.28, Sec. 14.) Sec. 442.754. APPLICABILITY OF CHAPTER TO ANCILLARY DELINQUENCY PROCEEDINGS. The conduct of ancillary delinquency proceedings under this subchapter is subject to the other provisions of this chapter. (V.T.I.C. Art. 21.28, Sec. 13 (part).)
[Sections 442.755-442.800 reserved for expansion]
SUBCHAPTER Q. AGENCY CONTRACTS WITH CERTAIN INSURERS
Sec. 442.801. REQUIRED CONTRACT PROVISION. An agency contract entered into on or after August 27, 1973, by an insurer writing fire and casualty insurance in this state must contain, or shall be construed to contain, the following provision: Notwithstanding any other provision of this contract, the obligation of the agent to remit written premiums to the insurer shall be changed on the commencement of a delinquency proceeding as defined by Chapter 442, Insurance Code, as amended. After the commencement of the delinquency proceeding, the obligation of the agent to remit premiums is limited to premiums earned before the cancellation date of insurance policies stated in the order of a court of competent jurisdiction under Chapter 442, Insurance Code, canceling the policies. The agent does not owe and may not be required to remit to the insurer or to the receiver any premiums that are unearned as of the cancellation date stated in the order. (V.T.I.C. Art. 21.11-2, Sec. 1.) Sec. 442.802. DISPOSITION OF PREMIUMS. (a) On or after the cancellation date of insurance policies as stated in the court's order canceling the policies, the agent shall promptly account to the receiver for: (1) all unearned premiums to be returned to the insured or the replacement coverage to be obtained for the insured; and (2) the earned premiums to be paid to the receiver. (b) The agent shall: (1) promptly return to an insured who paid the premiums any unearned premiums in the possession of the agent on the cancellation date of the policy; or (2) with the approval of the insured, use the unearned premiums to purchase new coverage for the insured with a different insurer. (c) The agent shall promptly remit to the receiver any earned premiums in the possession of the agent. (V.T.I.C. Art. 21.11-2, Sec. 2.) Sec. 442.803. EFFECT OF SUBCHAPTER ON ACTION BY RECEIVER AGAINST AGENT. This subchapter does not prejudice a cause of action by the receiver against an agent to recover: (1) unearned premiums that were not returned to policyholders; or (2) earned premiums that were not promptly remitted to the receiver. (V.T.I.C. Art. 21.11-2, Sec. 3.) Sec. 442.804. AGENT NOT RECEIVER'S AGENT. This subchapter does not render the agent an agent of the receiver for earned or unearned premiums. (V.T.I.C. Art. 21.11-2, Sec. 4.)
[Chapters 443-460 reserved for expansion]
SUBTITLE D. GUARANTY ASSOCIATIONS
CHAPTER 461. GENERAL PROVISIONS
Sec. 461.001. APPLICABILITY OF CHAPTER Sec. 461.002. DISCLOSURE OF GUARANTY FUND NONPARTICIPATION Sec. 461.003. FORM OF STATEMENT; PROHIBITION
CHAPTER 461. GENERAL PROVISIONS
Sec. 461.001. APPLICABILITY OF CHAPTER. (a) Except as provided by Subsection (b), this chapter applies to an insurance policy, contract, certificate, evidence of coverage, or application delivered or issued for delivery in this state that is not covered by an insurance guaranty fund or other solvency protection arrangement authorized by this code. (b) This chapter does not apply to: (1) a fidelity, surety, or guaranty bond; or (2) marine insurance as defined by Section 1807.001. (V.T.I.C. Art. 21.28-E, Secs. (a) (part), (c).) Sec. 461.002. DISCLOSURE OF GUARANTY FUND NONPARTICIPATION. (a) Each insurance policy, contract, certificate, evidence of coverage, or application subject to this chapter must include a statement that, if the insurer is unable to fulfill the insurer's contractual obligation under the policy, contract, certificate, or evidence of coverage, the insurer is not covered by an insurance guaranty fund or other solvency protection arrangement. (b) The statement must be in 10-point type and affixed to the first page of the insurance policy, contract, certificate, evidence of coverage, or application. (V.T.I.C. Art. 21.28-E, Sec. (a) (part).) Sec. 461.003. FORM OF STATEMENT; PROHIBITION. (a) The commissioner by rule shall promulgate the statement that an insurer must use to comply with this chapter. (b) An insurer may not include in an insurance policy, contract, certificate, evidence of coverage, or application a statement that does not conform to the appropriate statement prescribed by the commissioner. (V.T.I.C. Art. 21.28-E, Sec. (b).)
CHAPTER 462. TEXAS PROPERTY AND CASUALTY INSURANCE GUARANTY ASSOCIATION
SUBCHAPTER A. GENERAL PROVISIONS
Sec. 462.001. SHORT TITLE Sec. 462.002. PURPOSES Sec. 462.003. CONSTRUCTION Sec. 462.004. GENERAL DEFINITIONS Sec. 462.005. DESCRIPTION OF CONTROL Sec. 462.006. NET DIRECT WRITTEN PREMIUMS Sec. 462.007. APPLICABILITY IN GENERAL; EXCEPTIONS Sec. 462.008. APPLICABILITY TO TEXAS MUTUAL INSURANCE COMPANY Sec. 462.009. APPLICABILITY TO FORMER TEXAS WORKERS' COMPENSATION INSURANCE FACILITY AND SUCCESSOR Sec. 462.010. CONFLICT WITH OTHER LAWS Sec. 462.011. IMMUNITY IN GENERAL Sec. 462.012. IMMUNITY IN RELATION TO CERTAIN REPORTS AND RECOMMENDATIONS Sec. 462.013. IMMUNITY IN RELATION TO CERTAIN NEGOTIATIONS Sec. 462.014. RULES Sec. 462.015. INFORMATION PROVIDED BY OR TO COMMISSIONER Sec. 462.016. PENALTY FOR FAILURE TO PAY ASSESSMENTS OR COMPLY WITH PLAN OF OPERATION Sec. 462.017. APPEALS AND OTHER ACTIONS
[Sections 462.018-462.050 reserved for expansion]
SUBCHAPTER B. GOVERNANCE OF ASSOCIATION
Sec. 462.051. ASSOCIATION AS LEGAL ENTITY; MEMBERSHIP Sec. 462.052. BOARD OF DIRECTORS Sec. 462.053. ELIGIBILITY TO SERVE AS PUBLIC REPRESENTATIVE Sec. 462.054. ELIGIBILITY TO SERVE AS INDUSTRY REPRESENTATIVE Sec. 462.055. TERM; VACANCY Sec. 462.056. REIMBURSEMENT OF BOARD MEMBERS Sec. 462.057. FINANCIAL STATEMENT OF BOARD MEMBER Sec. 462.058. CONFLICT OF INTEREST Sec. 462.059. MEETING BY CONFERENCE CALL
[Sections 462.060-462.100 reserved for expansion]
SUBCHAPTER C. GENERAL POWERS AND DUTIES OF ASSOCIATION
Sec. 462.101. GENERAL POWERS AND DUTIES Sec. 462.102. ASSOCIATION NOT IN PLACE OF IMPAIRED INSURER Sec. 462.103. PLAN OF OPERATION Sec. 462.104. NOTICE TO INSUREDS Sec. 462.105. ACCOUNTS Sec. 462.106. ADMINISTRATIVE EXPENSES Sec. 462.107. EXAMINATION OF ASSOCIATION Sec. 462.108. DEPOSIT OF MONEY Sec. 462.109. DELEGATION OF POWERS AND DUTIES Sec. 462.110. EXEMPTION FROM CERTAIN FEES AND TAXES Sec. 462.111. ACCESS TO RECORDS OF MEMBER INSURER IN RECEIVERSHIP; ACTUARIAL AND OPERATIONAL ANALYSIS Sec. 462.112. BOARD ACCESS TO RECORDS OF IMPAIRED INSURER Sec. 462.113. BOARD REPORT ON CONCLUSION OF INSOLVENCY Sec. 462.114. DUTY OF RECEIVER
[Sections 462.115-462.150 reserved for expansion]
SUBCHAPTER D. ASSESSMENTS IN GENERAL
Sec. 462.151. MAKING OF ASSESSMENT; AMOUNT Sec. 462.152. MAXIMUM TOTAL ASSESSMENT Sec. 462.153. REFUND OF CONTRIBUTION Sec. 462.154. NOTICE OF ASSESSMENT Sec. 462.155. DEFERMENT Sec. 462.156. USE OF ASSESSMENTS Sec. 462.157. TAX CREDIT Sec. 462.158. ADVANCE AS LOAN Sec. 462.159. ESTIMATE OF ADDITIONAL MONEY NEEDED ON IMPAIRMENT OF INSURER Sec. 462.160. ASSESSMENT FOR ADDITIONAL MONEY FOR ACCOUNTS Sec. 462.161. AMOUNT OF ASSESSMENT; PRORATION OF PAYMENT Sec. 462.162. MAXIMUM ASSESSMENT OF INSURER; ADDITIONAL ASSESSMENT AUTHORITY UNDER CERTAIN CIRCUMSTANCES Sec. 462.163. PAYMENT OF ASSESSMENT Sec. 462.164. PARTICIPATION RECEIPTS Sec. 462.165. ACCOUNTING; REPORTS; REFUND Sec. 462.166. USE OF EXCESS MONEY IN ACCOUNT Sec. 462.167. COLLECTION OF ASSESSMENTS Sec. 462.168. EXEMPTION FOR IMPAIRED INSURER
[Sections 462.169-462.200 reserved for expansion]
SUBCHAPTER E. COVERED CLAIMS; CLAIMANTS
Sec. 462.201. COVERED CLAIMS IN GENERAL Sec. 462.202. CLAIM FOR UNEARNED PREMIUMS Sec. 462.203. CERTAIN EXPENSES OF RECEIVERSHIP OR CONSERVATORSHIP ESTATE COVERED Sec. 462.204. AFFILIATE MAY NOT BE CLAIMANT Sec. 462.205. DETERMINATION OF RESIDENCE OF ENTITIES Sec. 462.206. CLAIMS NOT COVERED: PREMIUM UNDER RETROSPECTIVE RATING PLAN Sec. 462.207. CLAIMS NOT COVERED: AMOUNTS DUE CERTAIN ENTITIES Sec. 462.208. CLAIMS NOT COVERED: SUPPLEMENTARY PAYMENT OBLIGATIONS Sec. 462.209. CLAIMS NOT COVERED: PREJUDGMENT OR POSTJUDGMENT INTEREST Sec. 462.210. CLAIMS NOT COVERED: CERTAIN DAMAGES Sec. 462.211. CLAIMS NOT COVERED: LATE FILED CLAIMS Sec. 462.212. NET WORTH EXCLUSION Sec. 462.213. AMOUNT OF INDIVIDUAL COVERED CLAIM; LIMIT Sec. 462.214. CERTAIN SHAREHOLDERS' CLAIMS: LIMIT
[Sections 462.215-462.250 reserved for expansion]
SUBCHAPTER F. NONDUPLICATION OF RECOVERY
Sec. 462.251. EXHAUSTION OF RIGHTS UNDER OTHER POLICY REQUIRED Sec. 462.252. REDUCTION IN AMOUNT OF COVERED CLAIM FOR OTHER POLICY Sec. 462.253. EFFECT ON INSURED OF REDUCTION IN AMOUNT OF COVERED CLAIM Sec. 462.254. RECOVERY FROM MORE THAN ONE GUARANTY ASSOCIATION Sec. 462.255. CERTAIN CLAIMS SUBJECT TO LIEN OR SUBROGATION; LIMIT ON TOTAL RECOVERY
[Sections 462.256-462.300 reserved for expansion]
SUBCHAPTER G. ASSOCIATION POWERS AND DUTIES RELATING TO COVERED CLAIMS
Sec. 462.301. GENERAL POWERS AND DUTIES OF ASSOCIATION IN CONNECTION WITH PAYMENT OF COVERED CLAIMS Sec. 462.302. PAYMENT OF COVERED CLAIMS Sec. 462.303. CERTAIN DETERMINATIONS NOT BINDING Sec. 462.304. SERVICING FACILITY Sec. 462.305. LIMITATION OF ASSOCIATION'S LIABILITY Sec. 462.306. DISCHARGE OF POLICY OBLIGATION Sec. 462.307. ASSIGNMENT OF RIGHTS Sec. 462.308. RECOVERY FROM CERTAIN PERSONS Sec. 462.309. STAY OF PROCEEDINGS; CERTAIN DECISIONS NOT BINDING Sec. 462.310. SETTLEMENT BY ASSOCIATION BINDING; PRIORITY OF CLAIM AND EXPENSES Sec. 462.311. REPORT TO RECEIVER
[Sections 462.312-462.350 reserved for expansion]
SUBCHAPTER H. RELEASE FROM RECEIVERSHIP
Sec. 462.351. ISSUANCE OF POLICIES AFTER RELEASE FROM RECEIVERSHIP
CHAPTER 462. TEXAS PROPERTY AND CASUALTY INSURANCE GUARANTY ASSOCIATION
SUBCHAPTER A. GENERAL PROVISIONS
Sec. 462.001. SHORT TITLE. This chapter may be cited as the Texas Property and Casualty Insurance Guaranty Act. (V.T.I.C. Art. 21.28-C, Sec. 1.) Sec. 462.002. PURPOSES. The purposes of this chapter are to: (1) provide a mechanism for the payment of covered claims under certain insurance policies to avoid excessive delay in payment; (2) avoid financial loss to claimants or policyholders because of an insurer's impairment; (3) assist in the detection and prevention of insurer insolvencies; and (4) provide an association to assess the cost of that protection among insurers. (V.T.I.C. Art. 21.28-C, Sec. 2.) Sec. 462.003. CONSTRUCTION. This chapter shall be liberally construed to implement the purposes of this chapter described by Section 462.002, which shall be used to aid and guide interpretation of this chapter. (V.T.I.C. Art. 21.28-C, Sec. 4.) Sec. 462.004. GENERAL DEFINITIONS. In this chapter: (1) "Affiliate" means a person who, directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with an impaired insurer on December 31 of the year preceding the date the insurer becomes an impaired insurer. (2) "Association" means the Texas Property and Casualty Insurance Guaranty Association. (3) "Board" means the board of directors of the association. (4) "Claimant" means an insured making a first-party claim or a person instituting a liability claim. (5) "Impaired insurer" means a member insurer that is: (A) placed in: (i) temporary or permanent receivership or liquidation under a court order, including a court order of another state, based on a finding of insolvency; or (ii) conservatorship after the commissioner determines that the insurer is insolvent; and (B) designated by the commissioner as an impaired insurer. (6) "Member insurer" means an insurer, including a stock insurance company, a mutual insurance company, a Lloyd's plan, a reciprocal or interinsurance exchange, and a county mutual insurance company, that: (A) writes any kind of insurance to which this chapter applies under Sections 462.007 and 462.008, including reciprocal or interinsurance exchange contracts; and (B) holds a certificate of authority to engage in the business of insurance in this state. (7) "Person" means an individual, corporation, partnership, association, or voluntary organization. (V.T.I.C. Art. 21.28-C, Secs. 5(2), (3), (4), (5) (part), (9), (10), (12).) Sec. 462.005. DESCRIPTION OF CONTROL. (a) For purposes of this chapter, control is the power to direct, or cause the direction of, the management and policies of a person, other than power that results from an official position with the person or a corporate office held by the person. The power may be possessed directly or indirectly by any means, including through the ownership of voting securities or by contract, other than a commercial contract for goods or nonmanagement services. (b) A person is presumed to control another person if the person directly or indirectly owns, controls, holds with the power to vote, or holds proxies representing 10 percent or more of the voting securities of the other person. This presumption may be rebutted by a showing that the person does not in fact control the other person. (V.T.I.C. Art. 21.28-C, Sec. 5(7).) Sec. 462.006. NET DIRECT WRITTEN PREMIUMS. (a) Except as provided by Subsection (b) and subject to Subsection (c), in this chapter, "net direct written premiums" means direct premiums written in this state on insurance policies to which this chapter applies, less return premiums on those policies and dividends paid or credited to policyholders on that direct business. (b) Subject to Subsection (c), for assessing the workers' compensation line of business, the term "net direct written premiums" includes the modified annual premium before the application of a deductible premium credit, less return premiums on those policies and dividends paid or credited to policyholders on that direct business. (c) The term "net direct written premiums" does not include premiums on contracts between insurers or reinsurers. (V.T.I.C. Art. 21.28-C, Sec. 5(11).) Sec. 462.007. APPLICABILITY IN GENERAL; EXCEPTIONS. (a) Except as provided by Subsection (b), this chapter applies to each kind of direct insurance. (b) Except as provided by Subchapter F, this chapter does not apply to: (1) life, annuity, health, or disability insurance; (2) mortgage guaranty, financial guaranty, or other kinds of insurance offering protection against investment risks; (3) a fidelity or surety bond, or any other bonding obligation; (4) credit insurance, vendors' single-interest insurance, collateral protection insurance, or similar insurance protecting a creditor's interest arising out of a creditor-debtor transaction; (5) insurance of warranties or service contracts; (6) title insurance; (7) ocean marine insurance; (8) a transaction or combination of transactions between a person, including an affiliate of the person, and an insurer, including an affiliate of the insurer, that involves the transfer of investment or credit risk unaccompanied by the transfer of insurance risk; or (9) insurance provided by or guaranteed by government. (V.T.I.C. Art. 21.28-C, Sec. 3(a).) Sec. 462.008. APPLICABILITY TO TEXAS MUTUAL INSURANCE COMPANY. (a) This chapter applies to insurance written through the Texas Mutual Insurance Company only as provided by this section. (b) This chapter applies to the Texas Mutual Insurance Company on a prospective basis on and after January 1, 2000. The Texas Mutual Insurance Company is only liable for assessments for a claim with a date of injury that occurs on or after January 1, 2000. The association, with respect to an insolvency of the Texas Mutual Insurance Company, is only liable for a claim with a date of injury that occurs on or after January 1, 2000. (V.T.I.C. Art. 21.28-C, Sec. 3(b).) Sec. 462.009. APPLICABILITY TO FORMER TEXAS WORKERS' COMPENSATION INSURANCE FACILITY AND SUCCESSOR. (a) Notwithstanding any other provision of this chapter, this chapter applies to each insurance policy issued under Article 5.76 or 5.76-2, as those articles existed before their repeal. (b) Notwithstanding any other provision of this chapter, the stock insurance company that resulted from the transfer of the former Texas workers' compensation insurance facility is considered an impaired insurer for purposes of this chapter if any action described by Section 462.004(5) is taken with respect to the company. (c) A claim under an insurance policy described by Subsection (a) is a covered claim for purposes of this chapter if the claim is a covered claim for purposes of Sections 462.201-462.203, 462.205-462.210, 462.213, 462.214, and 462.305 without regard to whether the stock insurance company described by Subsection (b): (1) issued or assumed the policy; or (2) was authorized to engage in business in this state at the time: (A) the policy was written; or (B) the company became an impaired insurer. (d) If a conflict exists between this section and any other statute relating to the former Texas workers' compensation insurance facility or the association, this section controls. (V.T.I.C. Art. 21.28-C, Sec. 26.) Sec. 462.010. CONFLICT WITH OTHER LAWS. (a) Except as provided by Subsection (b), if this chapter conflicts with another statute relating to the association, this chapter controls. (b) This section does not apply to a conflict between this chapter and: (1) Subtitle A, Title 5, Labor Code, except as described by Subsection (c); or (2) Subtitle E, Title 10. (c) This chapter controls with respect to subrogation rights of an insurance carrier under Chapter 417, Labor Code, against an impaired insurer's insured or the association. (V.T.I.C. Art. 21.28-C, Sec. 25.) Sec. 462.011. IMMUNITY IN GENERAL. (a) Liability does not exist and a cause of action does not arise against any of the following persons for any good faith act or omission in performing the person's powers and duties under this chapter: (1) the commissioner or the commissioner's representative; (2) the association or the association's agent or employee; (3) a member insurer; (4) the board; (5) the receiver; or (6) a special deputy receiver or the special deputy receiver's agent or employee. (b) The attorney general shall defend any action to which this section applies that is brought against the commissioner or the commissioner's representative, the association or the association's agent or employee, a member insurer or the insurer's agent or employee, a board member, or a special deputy receiver or the special deputy receiver's agent or employee, including an action instituted after the defendant's service with the association, commissioner, or department has terminated. 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 created by Subsection (a). The attorney general is not required to defend the association or the association's agent or employee, a member insurer or the member insurer's agent or employee, a board member, or a special deputy receiver or the special deputy receiver's agent or employee against an action regarding the disposition of a claim filed with the association under this chapter or any issue other than the applicability or effect of the immunity created by Subsection (a). The association may contract with the attorney general under Chapter 771, Government Code, for legal services not covered by this subsection. (V.T.I.C. Art. 21.28-C, Sec. 16.) Sec. 462.012. IMMUNITY IN RELATION TO CERTAIN REPORTS AND RECOMMENDATIONS. Liability does not exist and a cause of action does not arise against any of the following persons for a statement made in good faith by the person in a report or recommendation made under Section 462.111 or 462.113: (1) the commissioner or the commissioner's representative; (2) the association or the association's agent or employee; (3) a member insurer; or (4) the board. (V.T.I.C. Art. 21.28-C, Sec. 13(c).) Sec. 462.013. IMMUNITY IN RELATION TO CERTAIN NEGOTIATIONS. (a) Liability does not exist and a cause of action does not arise against any of the following persons for an act or omission in the performance of an activity related to the negotiations relating to the privatization of the former Texas workers' compensation facility: (1) the commissioner or the commissioner's representative; (2) the association or the association's agent or employee; (3) a member insurer; or (4) a board member. (b) This section applies to each activity undertaken by a person described by Subsection (a), regardless of the date of the act or omission. (V.T.I.C. Art. 21.28-C, Sec. 27.) Sec. 462.014. RULES. The commissioner shall adopt reasonable rules as necessary to implement and supplement this chapter and this chapter's purposes. (V.T.I.C. Art. 21.28-C, Sec. 23.) Sec. 462.015. INFORMATION PROVIDED BY OR TO COMMISSIONER. (a) The commissioner shall notify the association of the existence of an impaired insurer not later than the third day after the date the commissioner gives notice of the designation of impairment. The association is entitled to a copy of any complaint seeking an order of receivership with a finding of insolvency against a member insurer at the time the complaint is filed with a court. (b) On the board's request, the commissioner shall provide the association with a statement of the net direct written premiums of each member insurer. (V.T.I.C. Art. 21.28-C, Secs. 10(a), (b).) Sec. 462.016. PENALTY FOR FAILURE TO PAY ASSESSMENTS OR COMPLY WITH PLAN OF OPERATION. (a) The commissioner shall suspend or revoke, after notice and hearing, the certificate of authority to engage in the business of insurance in this state of a member insurer that: (1) fails to pay an assessment at the time the assessment is due; or (2) otherwise fails to comply with the plan of operation. (b) As an alternative to action under Subsection (a), the commissioner may assess a fine on a member insurer that fails to pay an assessment at the time the assessment is due. The fine may not exceed the lesser of: (1) five percent of the unpaid assessment per month; or (2) $100 per month. (V.T.I.C. Art. 21.28-C, Sec. 10(d).) Sec. 462.017. APPEALS AND OTHER ACTIONS. (a) A final action or order of the commissioner under this chapter is subject to judicial review by a court. (b) Venue in a suit against the commissioner or association relating to an action or ruling of the commissioner or association under this chapter is in Travis County. The commissioner or association is not required to give an appeal bond in an appeal of a cause of action arising under this chapter. (V.T.I.C. Art. 21.28-C, Secs. 10(f), (g).)
[Sections 462.018-462.050 reserved for expansion]
SUBCHAPTER B. GOVERNANCE OF ASSOCIATION
Sec. 462.051. ASSOCIATION AS LEGAL ENTITY; MEMBERSHIP. (a) The Texas Property and Casualty Insurance Guaranty Association is a nonprofit unincorporated legal entity. (b) The association is composed of all member insurers. A member insurer must remain a member of the association as a condition of engaging in the business of insurance in this state. (V.T.I.C. Art. 21.28-C, Sec. 6 (part).) Sec. 462.052. BOARD OF DIRECTORS. (a) The association's powers are exercised through a board of directors consisting of nine individuals. (b) Member insurers shall select five insurance industry board members, subject to the approval of the commissioner. In approving selections to the board, the commissioner shall consider whether all member insurers are fairly represented. (c) Four board members must be public representatives appointed by the commissioner. (V.T.I.C. Art. 21.28-C, Secs. 6 (part), 7(a) (part), (b).) Sec. 462.053. ELIGIBILITY TO SERVE AS PUBLIC REPRESENTATIVE. A board member who is a public representative may not be: (1) an officer, director, or employee of an insurer, insurance agency, agent, broker, adjuster, or any other business entity regulated by the department; (2) a person required to register with the Texas Ethics Commission under Chapter 305, Government Code, in connection with the person's representation of clients in the field of insurance; or (3) related to a person described by Subdivision (1) or (2) within the second degree of affinity or consanguinity. (V.T.I.C. Art. 21.28-C, Sec. 7(d).) Sec. 462.054. ELIGIBILITY TO SERVE AS INDUSTRY REPRESENTATIVE. To be eligible to serve as an insurance industry board member, an individual must be a full-time employee of a member insurer. (V.T.I.C. Art. 21.28-C, Sec. 7(a) (part).) Sec. 462.055. TERM; VACANCY. (a) A board member serves a term established by the plan of operation. (b) The remaining board members, by majority vote, shall fill a vacancy on the board for the unexpired term, subject to the commissioner's approval. (V.T.I.C. Art. 21.28-C, Sec. 7(a) (part).) Sec. 462.056. REIMBURSEMENT OF BOARD MEMBERS. A board member may be reimbursed from the assets of the association for expenses the board member incurs as a board member. (V.T.I.C. Art. 21.28-C, Sec. 7(c).) Sec. 462.057. FINANCIAL STATEMENT OF BOARD MEMBER. Each board member shall file with the Texas Ethics Commission a financial statement as provided by Subchapter B, Chapter 572, Government Code. (V.T.I.C. Art. 21.28-C, Sec. 7(e).) Sec. 462.058. CONFLICT OF INTEREST. (a) A director of the association or a member insurer or other entity represented by the director may not receive money or another valuable thing directly, indirectly, or through any substantial interest in any other corporation, firm, or business unit for negotiating, procuring, participating in, recommending, or aiding in a reinsurance agreement, merger, or other transaction, including the purchase, sale, or exchange of assets, insurance policies, or property made by the association or the supervisor, conservator, or receiver on behalf of an impaired insurer. (b) The director, member insurer, or entity may not be pecuniarily or contractually interested, as principal, coprincipal, agent, or beneficiary, directly, indirectly, or through any substantial interest in any other corporation, firm, or business unit, in the reinsurance agreement, merger, purchase, sale, exchange, or other transaction. (V.T.I.C. Art. 21.28-C, Sec. 7(f).) Sec. 462.059. MEETING BY CONFERENCE CALL. (a) Notwithstanding Chapter 551, Government Code, the board may hold an open meeting by telephone conference call if immediate action is required and convening of a quorum of the board at a single location is not reasonable or practical. (b) The meeting is subject to the notice requirements that apply to other meetings. (c) The notice of the meeting must specify as the location of the meeting the location at which meetings of the board are usually held, and each part of the meeting that is required to be open to the public must be audible to the public at that location and must be tape recorded. The tape recording shall be made available to the public. (V.T.I.C. Art. 21.28-C, Sec. 8(k).)
[Sections 462.060-462.100 reserved for expansion]
SUBCHAPTER C. GENERAL POWERS AND DUTIES OF ASSOCIATION
Sec. 462.101. GENERAL POWERS AND DUTIES. (a) The association may: (1) employ or retain persons as necessary to handle claims and perform other duties of the association; (2) borrow money necessary to implement this chapter in accordance with the plan of operation; (3) sue or be sued; (4) negotiate and enter into a contract as necessary to implement this chapter; and (5) perform other acts as necessary or proper to implement this chapter. (b) A contract authorized by Subsection (a)(4) includes a lump-sum or structured compromise and settlement agreement with a claimant who has a claim for medical or indemnity benefits for a period of three years or more, other than a settlement or lump-sum payment in violation of Subtitle A, Title 5, Labor Code. (V.T.I.C. Art. 21.28-C, Sec. 8(h) (part).) Sec. 462.102. ASSOCIATION NOT IN PLACE OF IMPAIRED INSURER. In performing the association's statutory obligations under this chapter, the association is not considered: (1) to be engaged in the business of insurance; (2) to have assumed or succeeded to a liability of the impaired insurer; or (3) to otherwise stand in the place of the impaired insurer for any purpose, including for the purpose of determining whether the association is subject to personal jurisdiction of the courts of another state. (V.T.I.C. Art. 21.28-C, Sec. 8(b) (part).) Sec. 462.103. PLAN OF OPERATION. (a) The association shall perform the association's functions under a plan of operation necessary or suitable to ensure the fair, reasonable, and equitable administration of the association. The plan of operation must: (1) be submitted to and approved in writing by the commissioner; (2) establish: (A) procedures under which the powers and duties of the association are performed; (B) procedures for handling assets of the association; (C) the amount and method of reimbursing board members; (D) acceptable forms of proof of covered claims; (E) regular places and times for board meetings; (F) procedures for records to be kept of each financial transaction of the association, the association's agents, and the board; and (G) procedures under which selections for the board are submitted to the commissioner; (3) provide: (A) for the establishment of a claims filing procedure that includes: (i) notice by the association to claimants; (ii) procedures for filing claims seeking recovery from the association; and (iii) a procedure for appealing the denial of claims by the association; and (B) that a member insurer aggrieved by a final action or decision of the association may appeal to the commissioner not later than the 30th day after the date of the action or decision; and (4) contain additional provisions necessary or proper for the execution of the association's powers and duties. (b) The association shall submit to the commissioner any amendment to the plan of operation necessary or suitable to ensure the fair, reasonable, and equitable administration of the association. The amendment takes effect on the commissioner's written approval. (c) If the association does not submit a suitable amendment to the plan of operation, the commissioner after notice and hearing shall adopt reasonable rules as necessary or advisable to implement this chapter. A rule continues in effect until modified by the commissioner or superseded by an amendment submitted by the association and approved by the commissioner. (d) Each member insurer shall comply with the plan of operation. (V.T.I.C. Art. 21.28-C, Secs. 6 (part), 9(a), (b), (c), (d), (f).) Sec. 462.104. NOTICE TO INSUREDS. (a) The commissioner may require that the association notify an impaired insurer's insureds and any other interested parties of: (1) the designation of impairment; and (2) the insureds' and other parties' rights under this chapter. (b) The association shall give notice as the commissioner directs under this section. The association shall mail the notice to the last known address, if available. If sufficient information for notification by mail is not available, notice by publication in a newspaper of general circulation is sufficient notice. (V.T.I.C. Art. 21.28-C, Secs. 8(e), 10(c).) Sec. 462.105. ACCOUNTS. For purposes of administration and assessment, the association is divided into: (1) the workers' compensation insurance account; (2) the automobile insurance account; and (3) the account for all other lines of insurance to which this chapter applies. (V.T.I.C. Art. 21.28-C, Sec. 6 (part).) Sec. 462.106. ADMINISTRATIVE EXPENSES. (a) The association may use money in the administrative account to pay administrative costs and other general expenses of the association. (b) The association may transfer income from investment of the association's money to the administrative account. (c) On notification by the association of the amount of any additional money needed for the administrative account, the association shall assess member insurers in the manner provided by Sections 462.159-462.168 for that money. The commissioner shall consider the net direct written premiums collected in this state for all lines of business covered by this chapter. An assessment for administrative expenses incurred by a supervisor or conservator appointed by the commissioner or a court-appointed receiver for a nonmember of the association or unauthorized insurer operating in this state may not exceed $1 million each calendar year. (V.T.I.C. Art. 21.28-C, Sec. 18(g).) Sec. 462.107. EXAMINATION OF ASSOCIATION. Not later than April 30 of each year, the association shall submit an audited financial statement for the preceding calendar year to the state auditor in a form approved by the state auditor's office. (V.T.I.C. Art. 21.28-C, Sec. 14.) Sec. 462.108. DEPOSIT OF MONEY. The board may deposit the money the association collects into the Texas Treasury Safekeeping Trust Company in accordance with procedures established by the comptroller. The comptroller shall account to the association for the deposited money separately from all other money. (V.T.I.C. Art. 21.28-C, Sec. 8(j).) Sec. 462.109. DELEGATION OF POWERS AND DUTIES. (a) Except as provided by Subsection (b), the plan of operation may provide that, on approval of the board and the commissioner, the association may delegate by contract any or all powers or duties of the association to a corporation or other organization that: (1) performs or will perform in two or more states functions similar to those of the association or the association's equivalent; and (2) provides protection not substantially less favorable and effective than that provided by this chapter. (b) The association may not delegate a power or duty under Section 462.101(a)(2), 462.151, 462.154, 462.155, or 462.302(d) under this section. (c) The association shall: (1) reimburse the corporation or other organization as a servicing facility would be reimbursed; and (2) pay the corporation or other organization for the performance of any other functions of the association. (d) A contract entered into under this section is subject to the performance standards imposed under Section 442.112. (V.T.I.C. Art. 21.28-C, Sec. 9(g).) Sec. 462.110. EXEMPTION FROM CERTAIN FEES AND TAXES. The association is exempt from payment of all fees and of all taxes levied by this state or a subdivision of this state, except taxes levied on real or personal property. (V.T.I.C. Art. 21.28-C, Sec. 15.) Sec. 462.111. ACCESS TO RECORDS OF MEMBER INSURER IN RECEIVERSHIP; ACTUARIAL AND OPERATIONAL ANALYSIS. (a) The association shall have access to the books and records of a member insurer in receivership to determine the extent of the impact on the association if the member becomes impaired. (b) The association may: (1) perform or cause to be performed an actuarial and operational analysis of the member insurer; and (2) prepare a report on matters relating to the impact or potential impact on the association in the event of impairment. (c) A report prepared under Subsection (b) is not a public document. (V.T.I.C. Art. 21.28-C, Sec. 13(a).) Sec. 462.112. BOARD ACCESS TO RECORDS OF IMPAIRED INSURER. The receiver or statutory successor of an impaired insurer covered by this chapter shall give the board or the board's representative: (1) access to the insurer's records as necessary for the board to perform the board's functions under this chapter relating to covered claims; and (2) copies of those records on the board's request and at the board's expense. (V.T.I.C. Art. 21.28-C, Sec. 17(b) (part).) Sec. 462.113. BOARD REPORT ON CONCLUSION OF INSOLVENCY. On the conclusion of the insolvency of a domestic insurer with respect to which the association was obligated to pay covered claims, the board may: (1) prepare a report on the history and causes of the insolvency, based on information available to the association; and (2) submit the report to the commissioner. (V.T.I.C. Art. 21.28-C, Sec. 13(b).) Sec. 462.114. DUTY OF RECEIVER. The receiver shall periodically submit a list of claims to the association or similar organization in another state. (V.T.I.C. Art. 21.28-C, Sec. 9(e).)
[Sections 462.115-462.150 reserved for expansion]
SUBCHAPTER D. ASSESSMENTS IN GENERAL
Sec. 462.151. MAKING OF ASSESSMENT; AMOUNT. (a) The association shall assess member insurers the amount necessary to pay: (1) the association's obligations under Section 462.302 and the expenses of handling covered claims subsequent to an insolvency; and (2) other expenses authorized by this chapter. (b) The assessment of each member insurer must be in the proportion that the net direct written premiums of the insurer for the calendar year preceding the assessment bear to the net direct written premiums of all member insurers for that year. (V.T.I.C. Art. 21.28-C, Sec. 8(c) (part).) Sec. 462.152. MAXIMUM TOTAL ASSESSMENT. (a) The total assessment of a member insurer in a year may not exceed an amount equal to two percent of the insurer's net direct written premiums for the calendar year preceding the assessment. (b) If the maximum assessment and the association's other assets are insufficient in a year to make all necessary payments, the money available shall be prorated and the association shall pay the unpaid portion as soon as money becomes available. (V.T.I.C. Art. 21.28-C, Sec. 8(c) (part).) Sec. 462.153. REFUND OF CONTRIBUTION. The association may refund to the member insurers in proportion to the contribution of each member insurer to the association the amount by which the association's assets exceed the association's liabilities, if at the end of a calendar year the board finds that the assets of the association exceed the liabilities of the association as estimated by the board for the next year. (V.T.I.C. Art. 21.28-C, Sec. 8(h) (part).) Sec. 462.154. NOTICE OF ASSESSMENT. The association shall notify a member insurer of an assessment not later than the 30th day before the date the assessment is due. (V.T.I.C. Art. 21.28-C, Sec. 8(c) (part).) Sec. 462.155. DEFERMENT. (a) The association may defer wholly or partly an assessment of a member insurer that would cause the insurer's financial statement to show amounts of capital or surplus less than the minimum amounts required for a certificate of authority in any jurisdiction in which the insurer is authorized to engage in the business of insurance. (b) The member insurer shall pay the deferred assessment at the time payment will not reduce capital or surplus below required minimums. The payment shall be refunded to or credited against future assessments of any member insurer receiving a larger assessment because of the deferment, as elected by that insurer. (c) During a period of deferment, the member insurer may not pay a dividend to shareholders or policyholders. (V.T.I.C. Art. 21.28-C, Sec. 8(c) (part).) Sec. 462.156. USE OF ASSESSMENTS. (a) The amounts provided under assessments made under this chapter supplement the marshalling of assets by the receiver under Chapter 442 to make payments on the impaired insurer's behalf. (b) This section does not require the receiver to exhaust the assets of the impaired insurer before an assessment is made or before money derived from an assessment may be used to pay covered claims. (V.T.I.C. Art. 21.28-C, Sec. 19.) Sec. 462.157. TAX CREDIT. (a) An insurer is entitled to a credit against the insurer's premium tax under Chapter 221 for the total amount of an assessment paid by the insurer under this chapter. (b) The tax credit may be taken at a rate of 10 percent each year for 10 successive years after the date of assessment. At the option of the insurer, the tax credit may be taken over an additional number of years. (c) The balance of a tax credit not claimed in a particular year may be reflected in the books and records of the insurer as an admitted asset of the insurer for all purposes, including exhibition in an annual statement under Section 862.001. (d) Available credit against premium tax allowed under this section may be transferred or assigned among insurers if: (1) a merger, acquisition, or total assumption of reinsurance among the insurers occurs; or (2) the commissioner by order approves the transfer or assignment. (V.T.I.C. Art. 21.28-C, Sec. 21.) Sec. 462.158. ADVANCE AS LOAN. Money advanced by the association under this chapter is considered a special fund loan to the impaired insurer for payment of covered claims and does not become an asset of the impaired insurer. The loan is repayable to the extent money from the impaired insurer is available. (V.T.I.C. Art. 21.28-C, Sec. 18(f).) Sec. 462.159. ESTIMATE OF ADDITIONAL MONEY NEEDED ON IMPAIRMENT OF INSURER. (a) If the commissioner determines that an insurer has become an impaired insurer, the association shall promptly estimate the amount of additional money, by lines of business, needed to supplement the immediately available assets of the impaired insurer to pay covered claims. (b) The board shall make additional money available as the actual need arises for each impaired insurer. (V.T.I.C. Art. 21.28-C, Sec. 18(a).) Sec. 462.160. ASSESSMENT FOR ADDITIONAL MONEY FOR ACCOUNTS. If the board determines that additional money is needed in any of the three accounts described by Section 462.105, the board shall make assessments as needed to produce the necessary money. (V.T.I.C. Art. 21.28-C, Sec. 18(b) (part).) Sec. 462.161. AMOUNT OF ASSESSMENT; PRORATION OF PAYMENT. (a) The association, in determining the proportionate amount to be paid by individual insurers under an assessment under Section 462.160, shall consider the lines of business written by the impaired insurer and shall assess individual insurers in proportion to the ratio that the total net direct written premiums collected in this state by the insurer for those lines of business bears to the total net direct written premiums collected by all insurers, other than impaired insurers, in this state for those lines of business. (b) The association shall determine the total net direct written premiums of an individual insurer and of all insurers in the state from the insurers' annual statements for the year preceding assessment. (V.T.I.C. Art. 21.28-C, Sec. 18(b) (part).) Sec. 462.162. MAXIMUM ASSESSMENT OF INSURER; ADDITIONAL ASSESSMENT AUTHORITY UNDER CERTAIN CIRCUMSTANCES. (a) Except as otherwise provided by this section, assessments under Section 462.160 during a calendar year may not exceed two percent of each insurer's net direct written premiums for the preceding calendar year in the lines of business for which the assessments are made. (b) In the event of a natural disaster or other catastrophe, the association may apply to the governor, in the manner prescribed by the plan of operation, for authority to assess each member insurer that writes insurance coverage, other than automobile insurance coverage or workers' compensation insurance coverage, an additional amount not to exceed two percent of the insurer's net direct written premiums for the preceding calendar year. (c) If the maximum assessment in a calendar year does not provide an amount sufficient for payment of covered claims of impaired insurers, the association may make assessments in successive calendar years. (V.T.I.C. Art. 21.28-C, Sec. 18(b) (part).) Sec. 462.163. PAYMENT OF ASSESSMENT. An insurer shall pay the amount of an assessment under Section 462.160 or 462.162(b) to the association not later than the 30th day after the date the association gives notice of the assessment. (V.T.I.C. Art. 21.28-C, Sec. 18(c).) Sec. 462.164. PARTICIPATION RECEIPTS. (a) On receipt from a member insurer of payment of an assessment or partial assessment under Section 462.160 or 462.162(b), the association shall provide the insurer with a participation receipt. A participation receipt creates liability against the account described by Section 462.105 for the line or lines of business for which the assessment was made. (b) The account from which an advance is made to an impaired insurer for the payment of covered claims is a general creditor of the impaired insurer for the money advanced. With reference to the remaining balance of an advance not used to pay covered claims, the claim of the account has preference over other general creditors. (V.T.I.C. Art. 21.28-C, Secs. 20(a), (b) (part).) Sec. 462.165. ACCOUNTING; REPORTS; REFUND. (a) The association, with respect to an impaired insurer, shall adopt accounting procedures that reflect the use of all money and shall make a final report of the use of the money to the commissioner. The final report must state any remaining balance from the money advanced to an impaired insurer for the payment of covered claims. (b) The association shall make interim accounting reports as required by the commissioner or requested by the conservator. (c) As soon as practicable after completion of the final report, the association shall refund by line of business the remaining balance of those advances to the association's accounts. (V.T.I.C. Art. 21.28-C, Sec. 20(b) (part).) Sec. 462.166. USE OF EXCESS MONEY IN ACCOUNT. (a) If the association determines that money in the account described by Section 462.164(b) for a line of business exceeds the amount reasonably necessary for efficient future operation under this chapter, the association shall, after deducting any premium tax credit taken under Section 462.157, return the excess money pro rata to the holders of participation receipts: (1) on which an outstanding balance exists; and (2) that were issued for an assessment on the same line of business as the line for which the excess money is found to exist. (b) The association shall transfer an excess amount that exists in the account described by Section 462.164(b) to the comptroller to be deposited to the credit of the general revenue fund if: (1) after a distribution under this section the association finds that an excess amount still exists; or (2) participation receipts on which there is an outstanding balance do not exist. (V.T.I.C. Art. 21.28-C, Sec. 20(c).) Sec. 462.167. COLLECTION OF ASSESSMENTS. (a) The commissioner may collect an assessment on behalf of the association through a suit brought for that purpose. (b) Venue for a suit under this section is in Travis County. (c) Either party to the suit may appeal to an appellate court. The appeal is at once returnable to the appellate court. The appeal has precedence in the appellate court over all causes of a different character pending before the court. (d) The commissioner is not required to give an appeal bond in any cause of action arising under this section. (V.T.I.C. Art. 21.28-C, Sec. 18(d).) Sec. 462.168. EXEMPTION FOR IMPAIRED INSURER. An impaired insurer is exempt from assessment from the date the insurer is designated an impaired insurer until the date the commissioner determines that the insurer is no longer an impaired insurer. (V.T.I.C. Art. 21.28-C, Sec. 18(e).)
[Sections 462.169-462.200 reserved for expansion]
SUBCHAPTER E. COVERED CLAIMS; CLAIMANTS
Sec. 462.201. COVERED CLAIMS IN GENERAL. A claim is a covered claim if: (1) the claim is an unpaid claim; (2) the claim is made under an insurance policy to which this chapter applies that is: (A) issued by an insurer authorized to engage in business in this state; or (B) assumed by an insurer authorized to engage in business in this state that issues an assumption certificate to the insured; (3) the claim arises out of the policy and is within the coverage and applicable limits of the policy; (4) the insurer that issued the policy or assumed the policy under an assumption certificate issued to the insured is an impaired insurer; and (5) the claim: (A) is made by a liability claimant or insured who is a resident of this state at the time of the insured event; or (B) is a first-party claim for damage to property that is permanently located in this state. (V.T.I.C. Art. 21.28-C, Sec. 5(8) (part).) Sec. 462.202. CLAIM FOR UNEARNED PREMIUMS. (a) A claim for unearned premiums is a covered claim. A covered claim for unearned premiums may not exceed $25,000. (b) With respect to a covered claim for unearned premiums, a person has a covered claim under this chapter if the person is a resident of this state at the time: (1) the policy is issued; or (2) the insurer is determined to be an impaired insurer. (V.T.I.C. Art. 21.28-C, Sec. 5(8) (part).) Sec. 462.203. CERTAIN EXPENSES OF RECEIVERSHIP OR CONSERVATORSHIP ESTATE COVERED. An administration expense incurred in processing or paying a claim against a receivership or conservatorship estate is a covered claim if the impaired insurer has insufficient assets to pay the expenses of administering the estate. (V.T.I.C. Art. 21.28-C, Sec. 5(8) (part).) Sec. 462.204. AFFILIATE MAY NOT BE CLAIMANT. A person who is an affiliate of an impaired insurer may not be a claimant of the insurer. (V.T.I.C. Art. 21.28-C, Sec. 5(5) (part).) Sec. 462.205. DETERMINATION OF RESIDENCE OF ENTITIES. A corporation or other entity that is not an individual is considered to be a resident of the state in which the entity's principal place of business is located. (V.T.I.C. Art. 21.28-C, Sec. 5(8) (part).) Sec. 462.206. CLAIMS NOT COVERED: PREMIUM UNDER RETROSPECTIVE RATING PLAN. An amount sought as a return of premium under a retrospective rating plan is not a covered claim. (V.T.I.C. Art. 21.28-C, Sec. 5(8) (part).) Sec. 462.207. CLAIMS NOT COVERED: AMOUNTS DUE CERTAIN ENTITIES. (a) Any amount due any reinsurer, insurer, self-insurer, insurance pool, or underwriting association, as a subrogation recovery, reinsurance recovery, contribution, or indemnification, or otherwise, is not a covered claim. (b) An impaired insurer's insured is not liable, and the reinsurer, insurer, self-insurer, insurance pool, or underwriting association is not entitled to sue or continue a suit against the insured, for a subrogation recovery, reinsurance recovery, contribution, or indemnification to the extent of the applicable liability limits of the insurance policy written and issued to the insured by the insolvent insurer. (V.T.I.C. Art. 21.28-C, Sec. 5(8) (part).) Sec. 462.208. CLAIMS NOT COVERED: SUPPLEMENTARY PAYMENT OBLIGATIONS. A supplementary payment obligation, including an adjustment fee or expense, attorney's fee or expense, court cost, interest or penalty, or interest or bond premium, incurred before an insurer is determined to be an impaired insurer is not a covered claim. (V.T.I.C. Art. 21.28-C, Sec. 5(8) (part).) Sec. 462.209. CLAIMS NOT COVERED: PREJUDGMENT OR POSTJUDGMENT INTEREST. Prejudgment or postjudgment interest that accrues after an insurer is determined to be an impaired insurer is not a covered claim. (V.T.I.C. Art. 21.28-C, Sec. 5(8) (part).) Sec. 462.210. CLAIMS NOT COVERED: CERTAIN DAMAGES. A claim against the insured, insurer, guaranty association, receiver, special deputy receiver, or commissioner for recovery of punitive, exemplary, extracontractual, or bad-faith damages awarded in a court judgment against an insured or insurer is not a covered claim. (V.T.I.C. Art. 21.28-C, Sec. 5(8) (part).) Sec. 462.211. CLAIMS NOT COVERED: LATE FILED CLAIMS. (a) Notwithstanding any other provision of this chapter and except as provided by Subsection (b), a claim filed with the association on a date that is later than 18 months after the date of the order of liquidation is not a covered claim. (b) This section does not apply to a claim for workers' compensation benefits governed by Title 5, Labor Code, and the applicable rules of the Texas Workers' Compensation Commission. (V.T.I.C. Art. 21.28-C, Sec. 8(d) (part).) Sec. 462.212. NET WORTH EXCLUSION. (a) The association is not liable to pay a first-party claim of an insured whose net worth on December 31 of the year preceding the date the insurer becomes an impaired insurer exceeds $50 million. (b) For purposes of this section, an insured's net worth includes the aggregate net worth of the insured and the insured's parent, subsidiary, and affiliated companies, computed on a consolidated basis. (c) This section does not exclude the payment of a covered claim for workers' compensation benefits otherwise payable under this chapter. (V.T.I.C. Art. 21.28-C, Sec. 11A.) Sec. 462.213. AMOUNT OF INDIVIDUAL COVERED CLAIM; LIMIT. (a) Except as provided by Subsection (b) and Section 462.252, an individual covered claim may not exceed $300,000. (b) The association shall pay the full amount of a covered claim arising out of a workers' compensation claim made under a workers' compensation insurance policy. (c) For purposes of this section, an individual covered claim includes any derivative claims by more than one person that arise from the same occurrence. The claims shall be considered collectively as a single claim under this chapter. (V.T.I.C. Art. 21.28-C, Sec. 5(8) (part).) Sec. 462.214. CERTAIN SHAREHOLDERS' CLAIMS: LIMIT. Notwithstanding any other provision of this chapter, the association's liability for shareholder derivative actions or other claims for economic loss incurred by a claimant in the claimant's capacity as a shareholder under an insurance policy placed in force on or after January 1, 1992, is limited to $300,000 for each policy, including defense costs, regardless of the number of claimants under each policy. (V.T.I.C. Art. 21.28-C, Sec. 5(8) (part).)
[Sections 462.215-462.250 reserved for expansion]
SUBCHAPTER F. NONDUPLICATION OF RECOVERY
Sec. 462.251. EXHAUSTION OF RIGHTS UNDER OTHER POLICY REQUIRED. (a) Any person who has a claim under an insurance policy, other than an impaired insurer's policy, and whose claim arises from the same facts, injury, or loss giving rise to a claim against an impaired insurer or the insurer's insured, must first exhaust the person's rights under the insurance policy, including: (1) a claim for benefits under a workers' compensation insurance policy or a claim for indemnity or medical benefits under a health, disability, uninsured motorist, personal injury protection, medical payment, liability, or other insurance policy; and (2) the right to defense under the insurance policy. (b) Subsection (a) applies without regard to whether the insurance policy is issued by a member insurer. (V.T.I.C. Art. 21.28-C, Sec. 12(a) (part).) Sec. 462.252. REDUCTION IN AMOUNT OF COVERED CLAIM FOR OTHER POLICY. (a) Except as provided by Subsection (b), an amount payable as a covered claim under this chapter is reduced by the full applicable limits of another insurance policy described by Section 462.251, and the association shall receive a full credit in the amount of the full applicable limits of the other policy. (b) A covered claim for workers' compensation benefits is subject to reduction only by a third-party liability recovery under Section 417.002, Labor Code. (c) Subject to Section 462.255, the maximum amount payable by the association is the damages incurred by the claimant, less the association's credit or offset under this section, except that the association's liability may not exceed the lesser of: (1) $300,000; or (2) the limits of the insurance policy under which the claim is made. (V.T.I.C. Art. 21.28-C, Sec. 12(a) (part).) Sec. 462.253. EFFECT ON INSURED OF REDUCTION IN AMOUNT OF COVERED CLAIM. To the extent that the association's obligation is reduced by the application of Sections 462.251 and 462.252, the liability of the person insured by the impaired insurer's policy for the claim is reduced in the same amount. (V.T.I.C. Art. 21.28-C, Sec. 12(a) (part).) Sec. 462.254. RECOVERY FROM MORE THAN ONE GUARANTY ASSOCIATION. (a) Except as provided by Subsections (b) and (c), a person who has a claim that may be recovered from more than one insurance guaranty association or the equivalent shall seek recovery first from the association of the insured's residence. (b) A claimant shall seek recovery of a first-party claim for damage to property with a permanent location first from the association of the location of the property. (c) A claimant shall seek recovery of a workers' compensation claim first from the association of the claimant's residence. (d) The association has a credit or offset against the benefits under this chapter in the amount of the claimant's recovery under this section. (e) Subject to Section 462.255, the maximum amount payable by the association is the amount of damages incurred by the claimant, less the credit or offset, except that the association's liability may not exceed $300,000. (V.T.I.C. Art. 21.28-C, Sec. 12(b).) Sec. 462.255. CERTAIN CLAIMS SUBJECT TO LIEN OR SUBROGATION; LIMIT ON TOTAL RECOVERY. (a) Notwithstanding Sections 462.252(c) and 462.254(e), if a claimant is seeking recovery of insurance policy benefits that, had the impaired insurer not been insolvent, would be subject to lien or subrogation by any other insurer, including a workers' compensation insurer or health insurer, regardless of whether the other insurer is impaired, the association's credit or offset is deducted from the lesser of the damages incurred by the claimant or the limits of the policy under which the claim is made. (b) A claimant's recovery under this chapter may not result in a total recovery to the claimant that is greater than the recovery that would have resulted had the impaired insurer not been insolvent. (c) Subject to Sections 462.201-462.203, 462.205-462.210, 462.213, 462.214, and 462.305 of this code and Title 5, Labor Code, a claim for workers' compensation benefits under this chapter may not result in a recovery to the claimant that is less than the recovery that would have resulted had the impaired insurer not been insolvent. (V.T.I.C. Art. 21.28-C, Secs. 12(a-1), (b-1).)
[Sections 462.256-462.300 reserved for expansion]
SUBCHAPTER G. ASSOCIATION POWERS AND DUTIES RELATING TO COVERED CLAIMS
Sec. 462.301. GENERAL POWERS AND DUTIES OF ASSOCIATION IN CONNECTION WITH PAYMENT OF COVERED CLAIMS. (a) The association shall investigate and adjust, compromise, settle, and pay covered claims to the extent of the association's obligation and deny all other claims. (b) The association may review a settlement, release, or judgment to which an impaired insurer or the impaired insurer's insured was a party to determine the extent to which the settlement, release, or judgment may be properly contested. (V.T.I.C. Art. 21.28-C, Sec. 8(d) (part).) Sec. 462.302. PAYMENT OF COVERED CLAIMS. (a) The association shall pay covered claims that exist before the designation of impairment or that arise: (1) not later than the 30th day after the date of the designation of impairment; (2) before the insurance policy expiration date, if that date is not later than the 30th day after the date of the designation of impairment; or (3) before the insured replaces the insurance policy or causes the policy's cancellation, if the insured does so not later than the 30th day after the date of the designation of impairment. (b) The association satisfies the obligation to pay a covered claim by paying the claimant the full amount of a covered claim for benefits. (c) The association's liability is limited to the payment of covered claims. The association is not liable for any other claim or damages against the insured, an impaired insurer, the association, the receiver, the special deputy receiver, the commissioner, or the liquidator, including a claim for: (1) recovery of attorney's fees, prejudgment or postjudgment interest, or penalties; (2) extracontractual damages, multiple damages, or exemplary damages; or (3) any other amount sought in connection with the assertion or prosecution of a claim, without regard to whether the claim is a covered claim, by or on behalf of: (A) an insured or claimant; or (B) a provider of goods or services retained by an insured or claimant. (d) The association shall pay claims in the order the association considers reasonable, including paying as claims are received from the claimants or in groups or categories of claims. (e) This section does not exclude the payment of workers' compensation benefits or other liabilities or penalties authorized by Title 5, Labor Code, arising from the association's processing and paying workers' compensation benefits after the designation of impairment. (V.T.I.C. Art. 21.28-C, Secs. 8(a), (c) (part).) Sec. 462.303. CERTAIN DETERMINATIONS NOT BINDING. (a) The association is not bound by: (1) a judgment taken before the designation of impairment in which an insured under a liability insurance policy or the insurer failed to exhaust all appeals; (2) a judgment taken by default or consent against an insured or the impaired insurer; or (3) a judgment, settlement, or release entered into by the insured or the impaired insurer. (b) A judgment, settlement, or release described by Subsection (a) is not evidence of liability or of damages in connection with a claim brought against the association or another party under this chapter. (V.T.I.C. Art. 21.28-C, Sec. 8(d) (part).) Sec. 462.304. SERVICING FACILITY. (a) The association shall handle claims through the association's employees or through one or more insurers or other persons designated, subject to the approval of the commissioner, as servicing facilities. (b) A member insurer may decline designation as a servicing facility. (c) The association shall: (1) reimburse a servicing facility for: (A) obligations of the association paid by the facility; and (B) expenses incurred by the facility in handling claims for the association; and (2) pay the other expenses of the association authorized by this chapter. (d) The commissioner may revoke the designation of a servicing facility if the commissioner finds that servicing facility is handling claims unsatisfactorily. (V.T.I.C. Art. 21.28-C, Secs. 8(f), (g), 10(e).) Sec. 462.305. LIMITATION OF ASSOCIATION'S LIABILITY. The association is not liable to an insured or liability claimant for the association's failure to settle a liability claim within the limits of a covered claim under this chapter. A claim described by this section for failure to settle a liability claim is not a covered claim. (V.T.I.C. Art. 21.28-C, Sec. 5(8) (part).) Sec. 462.306. DISCHARGE OF POLICY OBLIGATION. (a) The association shall discharge an impaired insurer's policy obligations, including the duty to defend insureds under a liability insurance policy, to the extent that the policy obligation is a covered claim under this chapter. (b) In performing the association's statutory obligations, the association may also enforce a duty imposed on the insured or beneficiary under the terms of an insurance policy within the scope of this chapter. (V.T.I.C. Art. 21.28-C, Sec. 8(b) (part).) Sec. 462.307. ASSIGNMENT OF RIGHTS. (a) A person recovering under this chapter assigns to the association the person's rights: (1) under the insurance policy; and (2) to recover for the occurrence that is the basis of the claim under this chapter under an insurance policy issued by an unimpaired insurer to the extent of the person's recovery from the association. (b) The association may pursue a claim to which the association is subrogated under Subsection (a) in the association's own name or in the name of the person recovering under this chapter. (c) An insured or claimant seeking the protection of this chapter shall cooperate with the association to the same extent as that person would have been required to cooperate with the impaired insurer. (d) Except as provided by Section 462.308, the association does not have a cause of action against the impaired insurer's insured for money the association has paid, other than a cause of action that the impaired insurer would have had if the money had been paid by the impaired insurer. (e) In the case of an impaired insurer operating on a plan with assessment liability, the payment of a claim of the association does not reduce the liability of the insured to the receiver or statutory successor for an unpaid assessment. (V.T.I.C. Art. 21.28-C, Sec. 11(a).) Sec. 462.308. RECOVERY FROM CERTAIN PERSONS. (a) The association is entitled to recover the amount of a covered claim and the cost of defense paid under this chapter from the person on whose behalf the payment was made if the person is: (1) a person: (A) who is an affiliate of the impaired insurer; and (B) whose liability obligations to other persons are satisfied wholly or partly by payment made under this chapter; or (2) an insured: (A) whose net worth on December 31 of the year preceding the date the insurer becomes an impaired insurer exceeds $50 million; and (B) whose obligations under a liability policy or contract of insurance written, issued, and placed in force after January 1, 1992, are satisfied wholly or partly by payment made under this chapter. (b) The association is not entitled to recover under Subsection (a)(2) against an insured who is exempt from federal income tax under Section 501(a), Internal Revenue Code of 1986, by being described by Section 501(c)(3) of that code. (c) For purposes of Subsection (a)(2), an insured's net worth includes the aggregate net worth of the insured and the insured's parent, subsidiary, and affiliated companies, computed on a consolidated basis. (V.T.I.C. Art. 21.28-C, Sec. 11(b).) Sec. 462.309. STAY OF PROCEEDINGS; CERTAIN DECISIONS NOT BINDING. (a) To permit the association to properly defend a pending cause of action, a proceeding in which an impaired insurer is a party or is obligated to defend a party in a court in this state, other than a proceeding directly related to the receivership or instituted by the receiver, is stayed for: (1) a six-month period beginning on the later of the date of the designation of impairment or the date an ancillary proceeding is brought in this state; and (2) a subsequent period as determined by the court, if any. (b) The stay applies to each party to the proceeding and the proceeding is stayed for all purposes. (c) A deadline imposed under the Texas Rules of Civil Procedure or the Texas Rules of Appellate Procedure is tolled during the stay. (d) The court in which the delinquency proceeding is pending has exclusive jurisdiction regarding the application, enforcement, and extension of the stay and may issue an injunction or another similar order to enforce the stay. (e) The commissioner may bring an ancillary delinquency proceeding under Sections 442.751, 442.752, and 442.754 for the limited purpose of determining the application, enforcement, and extension of the stay to an impaired insurer that is not domiciled in this state. (f) With respect to a covered claim arising from a judgment, order, decision, verdict, or finding based on the default of an impaired insurer or an impaired insurer's failure to defend the insured, the association, on the association's own behalf or on behalf of an insured and on application, shall be entitled to: (1) have the court or administrator that made the judgment, order, decision, verdict, or finding set aside the judgment, order, decision, verdict, or finding; and (2) defend the claim on the merits. (V.T.I.C. Art. 21.28-C, Secs. 17(a), (b) (part).) Sec. 462.310. SETTLEMENT BY ASSOCIATION BINDING; PRIORITY OF CLAIM AND EXPENSES. (a) The settlement of a covered claim by the association or a similar organization in another state binds the receiver or statutory successor of an impaired insurer. (b) The court having jurisdiction shall give the covered claim the same priority against assets of the impaired insurer that the claim would have had in the absence of this chapter. (c) The expenses of the association or a similar organization in another state in handling claims have the same priority as the receiver's expenses. (V.T.I.C. Art. 21.28-C, Sec. 11(c).) Sec. 462.311. REPORT TO RECEIVER. The association shall periodically file with the receiver of an impaired insurer a statement of covered claims paid by the association and an estimate of claims anticipated against the association. The statement preserves the rights of the association against the assets of the impaired insurer. (V.T.I.C. Art. 21.28-C, Sec. 11(d).)
[Sections 462.312-462.350 reserved for expansion]
SUBCHAPTER H. RELEASE FROM RECEIVERSHIP
Sec. 462.351. ISSUANCE OF POLICIES AFTER RELEASE FROM RECEIVERSHIP. (a) Except as provided by Subsection (b), an impaired insurer placed in receivership for which money has been advanced under this chapter may not be authorized, on release from receivership, to issue new or renewal insurance policies until the insurer repays the advances to the association. (b) On application of the association and after hearing, the commissioner may permit the insurer to issue new insurance policies in accordance with the insurer's plan of operation for repayment of advances. (c) The commissioner, in approving the plan of operation, may place restrictions on the issuance of new or renewal insurance policies as the commissioner considers necessary to implement the plan. (V.T.I.C. Art. 21.28-C, Sec. 22.)
CHAPTER 463. LIFE, ACCIDENT, HEALTH, AND HOSPITAL
SERVICE INSURANCE GUARANTY ASSOCIATION
SUBCHAPTER A. GENERAL PROVISIONS
Sec. 463.001. SHORT TITLE Sec. 463.002. PURPOSE Sec. 463.003. DEFINITIONS Sec. 463.004. CONSTRUCTION Sec. 463.005. IMMUNITY Sec. 463.006. RULES
[Sections 463.007-463.050 reserved for expansion]
SUBCHAPTER B. GOVERNANCE OF AND PARTICIPATION IN ASSOCIATION
Sec. 463.051. PURPOSE AND REGULATION OF ASSOCIATION Sec. 463.052. REQUIRED PARTICIPATION IN ASSOCIATION Sec. 463.053. BOARD OF DIRECTORS Sec. 463.054. ELIGIBILITY TO SERVE AS PUBLIC REPRESENTATIVE Sec. 463.055. TERM; VACANCY Sec. 463.056. COMPENSATION OF BOARD MEMBERS Sec. 463.057. FINANCIAL STATEMENT OF BOARD MEMBER Sec. 463.058. CONFLICT OF INTEREST
[Sections 463.059-463.100 reserved for expansion]
SUBCHAPTER C. GENERAL POWERS AND DUTIES OF ASSOCIATION
Sec. 463.101. GENERAL POWERS AND DUTIES Sec. 463.102. PLAN OF OPERATION; AMENDMENTS Sec. 463.103. PERSONNEL Sec. 463.104. ASSOCIATION RECORDS Sec. 463.105. ACCOUNTS Sec. 463.106. DELEGATION OF POWERS AND DUTIES Sec. 463.107. EXEMPTION FROM TAXATION Sec. 463.108. DETECTION AND PREVENTION OF IMPAIRMENT AND INSOLVENCY Sec. 463.109. ASSOCIATION APPEARANCE BEFORE COURT; INTERVENTION Sec. 463.110. ANNUAL REPORT Sec. 463.111. BOARD AND ASSOCIATION ADVICE AND ASSISTANCE Sec. 463.112. BOARD ACCESS TO RECORDS Sec. 463.113. BOARD REPORT AT CONCLUSION OF INSOLVENCY Sec. 463.114. SUMMARY DOCUMENT; DISCLAIMER
[Sections 463.115-463.150 reserved for expansion]
SUBCHAPTER D. ASSESSMENTS
Sec. 463.151. MAKING AND PAYMENT OF ASSESSMENT Sec. 463.152. CLASSES OF ASSESSMENTS Sec. 463.153. AMOUNT OF ASSESSMENTS Sec. 463.154. DEFERMENT Sec. 463.155. DEPOSIT OF ASSESSMENTS Sec. 463.156. CERTIFICATE OF CONTRIBUTION Sec. 463.157. REFUNDS Sec. 463.158. USE OF ASSESSMENTS Sec. 463.159. FAILURE TO PAY; COLLECTION BY COMMISSIONER Sec. 463.160. PREMIUM TAX CREDIT FOR CLASS A ASSESSMENT Sec. 463.161. PREMIUM TAX CREDIT FOR CLASS B ASSESSMENT Sec. 463.162. ASSIGNMENT OR TRANSFER OF CREDIT Sec. 463.163. INSURED'S LIABILITY UNDER ASSESSMENT PLAN
[Sections 463.164-463.200 reserved for expansion]
SUBCHAPTER E. COVERAGE PROVIDED BY ASSOCIATION
Sec. 463.201. INSUREDS COVERED Sec. 463.202. POLICIES AND CONTRACTS COVERED Sec. 463.203. POLICIES AND CONTRACTS EXCLUDED Sec. 463.204. OBLIGATIONS EXCLUDED Sec. 463.205. PROTECTION PROVIDED BY OTHER JURISDICTION
[Sections 463.206-463.250 reserved for expansion]
SUBCHAPTER F. POWERS AND DUTIES OF ASSOCIATION RELATING
TO IMPAIRED OR INSOLVENT INSURER
Sec. 463.251. IMPAIRED DOMESTIC INSURER Sec. 463.252. IMPAIRED DOMESTIC, FOREIGN, OR ALIEN INSURER NOT PAYING CLAIMS Sec. 463.253. INSOLVENT INSURER Sec. 463.254. LIFE OR HEALTH INSURANCE POLICIES OR CONTRACTS Sec. 463.255. POLICY OR CONTRACT WITH GUARANTEED INTEREST RATE Sec. 463.256. ALTERNATIVE POLICY Sec. 463.257. IMPOSITION OF LIEN OR MORATORIUM Sec. 463.258. PREMIUM FOR REISSUANCE OF TERMINATED COVERAGE Sec. 463.259. PREMIUM DUE DURING RECEIVERSHIP Sec. 463.260. LIMITS ON AND TERMINATION OF ASSOCIATION OBLIGATION Sec. 463.261. ASSIGNMENT OF RIGHTS
[Sections 463.262-463.300 reserved for expansion]
SUBCHAPTER G. OPERATION OF IMPAIRED OR INSOLVENT INSURER
Sec. 463.301. ISSUANCE OR RENEWAL OF POLICIES FOLLOWING CONSERVATORSHIP OR RECEIVERSHIP Sec. 463.302. DISTRIBUTIONS TO SHAREHOLDERS AND AFFILIATES Sec. 463.303. ASSETS ATTRIBUTABLE TO COVERED POLICIES Sec. 463.304. DISTRIBUTION OF OWNERSHIP RIGHTS OF INSOLVENT INSURER
[Sections 463.305-463.350 reserved for expansion]
SUBCHAPTER H. POWERS AND DUTIES OF COMMISSIONER AND DEPARTMENT
Sec. 463.351. NOTICE OF COMMISSIONER ACTIONS Sec. 463.352. ADVICE FROM BOARD Sec. 463.353. EXAMINATION Sec. 463.354. DEMAND TO CURE IMPAIRMENT Sec. 463.355. FAILURE TO COMPLY WITH PLAN OF OPERATION Sec. 463.356. ASSUMPTION OF POWERS AND DUTIES OF ASSOCIATION Sec. 463.357. NOTIFICATION OF EFFECT OF CHAPTER Sec. 463.358. STATEMENT OF PREMIUMS
[Sections 463.359-463.400 reserved for expansion]
SUBCHAPTER I. APPEALS AND OTHER ACTIONS
Sec. 463.401. APPEAL TO COMMISSIONER Sec. 463.402. VENUE Sec. 463.403. APPEAL BOND Sec. 463.404. STAY OF PROCEEDINGS; CERTAIN DECISIONS NOT BINDING
[Sections 463.405-463.450 reserved for expansion]
SUBCHAPTER J. PROHIBITED PRACTICES
Sec. 463.451. PROHIBITED USE OF PROTECTION PROVIDED BY CHAPTER
CHAPTER 463. LIFE, ACCIDENT, HEALTH, AND HOSPITAL
SERVICE INSURANCE GUARANTY ASSOCIATION
SUBCHAPTER A. GENERAL PROVISIONS
Sec. 463.001. SHORT TITLE. This chapter may be cited as the Life, Accident, Health, and Hospital Service Insurance Guaranty Association Act. (V.T.I.C. Art. 21.28-D, Sec. 1.) Sec. 463.002. PURPOSE. The purpose of this chapter is to protect, subject to certain limitations, a person specified by Section 463.201 against failure in the performance of a contractual obligation under a life, accident, or health insurance policy or annuity contract with respect to which this chapter provides coverage as determined under Subchapter E, because of the impairment or insolvency of the member insurer that issued the policy or contract. (V.T.I.C. Art. 21.28-D, Sec. 2 (part).) Sec. 463.003. DEFINITIONS. In this chapter: (1) "Association" means the Life, Accident, Health, and Hospital Service Insurance Guaranty Association. (2) "Board" means the board of directors of the association. (3) "Contractual obligation" means an obligation under a policy or contract or certificate under a group policy or contract, or part of a policy or contract or certificate, for which coverage is provided under Subchapter E. (4) "Covered policy" means a policy or contract with respect to which this chapter provides coverage as determined under Subchapter E. (5) "Impaired insurer" means a member insurer that: (A) is placed under an order of supervision, liquidation, rehabilitation, or conservation under Chapter 441 or 442 and is designated by the commissioner as an impaired insurer; or (B) is determined in good faith by the commissioner to be unable or potentially unable to fulfill the insurer's contractual obligations. (6) "Insolvent insurer" means a member insurer that: (A) has a minimum free surplus, if a mutual insurance company, or required capital, if a stock insurance company, that is impaired to an extent prohibited by law; and (B) the commissioner designates as an insolvent insurer. (7) "Member insurer" means an insurer that is required to participate in the association under Section 463.052. (8) "Person" means an individual, corporation, partnership, association, or voluntary organization. (9) "Premium" means an amount received on a covered policy, less any premium, consideration, or deposit returned on the policy, and any dividend or experience credit on the policy. The term does not include: (A) an amount received for a part of a policy or contract for which coverage is not provided under Section 463.202, except that assessable premiums may not be reduced because of: (i) an interest limitation provided by Section 463.203(b)(3); or (ii) a limitation provided by Section 463.204 with respect to a single individual, participant, annuitant, or contract holder; (B) premiums in excess of $5 million on an unallocated annuity contract not issued under a governmental retirement plan established under Section 401, 403(b), or 457, Internal Revenue Code of 1986; or (C) premiums received from the state treasury or the United States treasury for insurance for which this state or the United States contracts to: (i) provide welfare benefits to designated welfare recipients; or (ii) implement Title 2, Human Resources Code, or the Social Security Act (42 U.S.C. Section 301 et seq.). (10) "Resident" means a person who resides in this state at the time a member insurer that owes a contractual obligation to the person is determined to be impaired or insolvent. For the purposes of this subdivision: (A) a person is considered to be a resident of only one state; and (B) a person other than an individual is considered to be a resident of the state in which the person's principal place of business is located. (11) "Supplemental contract" means an agreement for the distribution of policy or contract proceeds. (12) "Unallocated annuity contract" means an annuity contract or group annuity certificate that is not issued to and owned by an individual, except to the extent of any annuity benefits guaranteed to an individual by an insurer under the contract or certificate. (V.T.I.C. Art. 21.28-D, Secs. 5(2), (3) (part), (4), (5), (6), (7) (part), (9), (10), (11), (12), (13); New.) Sec. 463.004. CONSTRUCTION. This chapter shall be liberally construed to implement the purpose of this chapter described by Section 463.002. Section 463.002 shall be used to aid and guide interpretation of this chapter. (V.T.I.C. Art. 21.28-D, Sec. 4.) Sec. 463.005. 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 act or omission in exercising powers and performing duties under this chapter: (1) the commissioner or the commissioner's representative; (2) the association or the association's agent or employee; (3) a member insurer or the insurer's agent or employee; (4) a board member; (5) the receiver; and (6) a special deputy receiver or the special deputy receiver's agent or employee. (b) Immunity under Subsection (a) extends to participation in an organization of one or more state associations that have similar purposes and to a similar organization and the organization's agent or employee. (c) The attorney general shall defend any action to which this section applies that is brought against the commissioner or the commissioner's representative, the association or the association's agent or employee, a member insurer or the insurer's agent or employee, a board member, or a special deputy receiver or the special deputy receiver's agent or employee, including an action brought after the defendant's service with the association, commissioner, or department has terminated. 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 created by this section. The attorney general is not required to defend the association or the association's agent or employee, a member insurer or the insurer's agent or employee, a board member, or a special deputy receiver or the special deputy receiver's agent or employee against an action regarding the disposition of a claim filed with the association under this chapter or any issue other than the applicability or effect of the immunity created by this section. The association may contract with the attorney general under Chapter 771, Government Code, for legal services not covered by this subsection. (V.T.I.C. Art. 21.28-D, Sec. 17.) Sec. 463.006. RULES. The commissioner shall adopt reasonable rules as necessary to carry out and supplement this chapter and the purposes of this chapter. (V.T.I.C. Art. 21.28-D, Sec. 21.)
[Sections 463.007-463.050 reserved for expansion]
SUBCHAPTER B. GOVERNANCE OF AND PARTICIPATION IN ASSOCIATION
Sec. 463.051. PURPOSE AND REGULATION OF ASSOCIATION. (a) The Life, Accident, Health, and Hospital Service Insurance Guaranty Association is a nonprofit legal entity existing to pay benefits and continue coverage as provided by this chapter. (b) The association is subject to the applicable provisions of this code and other insurance laws of this state and the immediate supervision of the commissioner. The commissioner may examine and regulate the association in the same manner as an insurer under this code. (V.T.I.C. Art. 21.28-D, Secs. 2 (part), 6(a) (part), (b), 15 (part).) Sec. 463.052. REQUIRED PARTICIPATION IN ASSOCIATION. (a) As a condition of engaging in the business of insurance in this state, an insurer, including a mutual assessment company, a local mutual aid association, a statewide mutual assessment company, and a stipulated premium company authorized to engage in business in this state, shall participate as a member of the association if the insurer holds a certificate of authority to engage in a kind of insurance business in this state with respect to which this chapter provides coverage as determined under Subchapter E. The requirement to participate applies regardless of whether the insurer's certificate of authority in this state is suspended, revoked, not renewed, or voluntarily withdrawn. (b) The following do not participate as member insurers: (1) a health maintenance organization; (2) a fraternal benefit society; (3) a mandatory state pooling plan; (4) a reciprocal or interinsurance exchange; and (5) an entity similar to an entity described by Subdivision (1), (2), (3), or (4). (V.T.I.C. Art. 21.28-D, Secs. 5(7) (part), 6(a) (part).) Sec. 463.053. BOARD OF DIRECTORS. (a) The association's powers are exercised through a board of directors consisting of nine individuals appointed by the commissioner as provided by this section. (b) The commissioner shall appoint three board members from officers or employees of the 50 member insurers having the largest total direct premium income according to the most recent financial statement on file on the date of appointment. (c) To give fair representation to member insurers, the commissioner shall appoint two board members from member insurers other than insurers described by Subsection (b), considering the varying categories of premium income and geographical location. (d) The commissioner shall appoint four board members who are public representatives. (V.T.I.C. Art. 21.28-D, Secs. 6(a) (part), 7(a) (part).) Sec. 463.054. ELIGIBILITY TO SERVE AS PUBLIC REPRESENTATIVE. To be eligible to serve as a public representative, an individual may not: (1) be an officer, director, or employee of an insurer, insurance agency, agent, broker, solicitor, adjuster, or other business entity regulated by the department; (2) be a person required to register under Chapter 305, Government Code; or (3) be related within the second degree by affinity or consanguinity to a person described by Subdivision (1) or (2). (V.T.I.C. Art. 21.28-D, Sec. 7(a) (part).) Sec. 463.055. TERM; VACANCY. (a) Board members serve staggered six-year terms, with the terms of three members expiring each odd-numbered year. A member may be reappointed. (b) A board member shall serve until a successor is appointed. (c) If a board member who is an officer or employee of a member insurer ceases to be an officer or employee of the insurer, the member's office becomes vacant. (d) The commissioner shall appoint an individual to fill a vacancy on the board for the unexpired term. (V.T.I.C. Art. 21.28-D, Sec. 7(a) (part).) Sec. 463.056. COMPENSATION OF BOARD MEMBERS. A board member may not receive compensation from the association for the member's services but may be reimbursed from the association's assets for expenses incurred as a board member. (V.T.I.C. Art. 21.28-D, Sec. 7(c).) Sec. 463.057. FINANCIAL STATEMENT OF BOARD MEMBER. Each board member shall file with the Texas Ethics Commission a financial statement as provided by Subchapter B, Chapter 572, Government Code. (V.T.I.C. Art. 21.28-D, Sec. 7(b).) Sec. 463.058. CONFLICT OF INTEREST. (a) In this section, "transaction on behalf of an impaired insurer" includes a reinsurance agreement, transaction, merger, purchase, sale, contribution, or exchange of assets, insurance policies, or property made by the association or a supervisor, conservator, or receiver on behalf of an impaired insurer. (b) A board member may not: (1) receive money or another thing of value for negotiating, procuring, participating in, recommending, or aiding a transaction on behalf of an impaired insurer; or (2) as a principal, coprincipal, agent, or beneficiary, have a pecuniary interest in a transaction on behalf of an impaired insurer. (c) For the purposes of this section, a board member is considered to receive a thing of value or have a pecuniary interest in a transaction on behalf of an impaired insurer regardless of whether the receipt or interest is direct, indirect, or through a substantial interest in a corporation, firm, or other business unit. (V.T.I.C. Art. 21.28-D, Sec. 7(d).)
[Sections 463.059-463.100 reserved for expansion]
SUBCHAPTER C. GENERAL POWERS AND DUTIES OF ASSOCIATION
Sec. 463.101. GENERAL POWERS AND DUTIES. (a) The association may: (1) enter into contracts as necessary or proper to carry out this chapter and the purposes of this chapter; (2) sue or be sued, including taking: (A) necessary or proper legal action to: (i) recover an unpaid assessment under Subchapter D; or (ii) settle a claim or potential claim against the association; or (B) necessary legal action to avoid payment of an improper claim; (3) borrow money to effect the purposes of this chapter; (4) exercise, for the purposes of this chapter and to the extent approved by the commissioner, the powers of a domestic life, accident, or health insurance company or a group hospital service corporation, except that the association may not issue an insurance policy or annuity contract other than to perform the association's obligations under this chapter; and (5) to further the association's purposes, exercise the association's powers, and perform the association's duties, join an organization of one or more state associations that have similar purposes. (b) If not in default, a note or other evidence of indebtedness of the association is a legal investment for a domestic insurer and may be carried as an admitted asset. (V.T.I.C. Art. 21.28-D, Secs. 8(v) (part), (w).) Sec. 463.102. PLAN OF OPERATION; AMENDMENTS. (a) The association shall perform the association's functions under a plan of operation approved by the commissioner. The plan of operation must: (1) establish: (A) procedures for handling the assets of the association; (B) the amount and method of reimbursing board members under Section 463.056; (C) regular places and times for board meetings, including telephone conference calls; (D) procedures for maintaining records of all financial transactions of the association, the association's agents, and the board; and (E) additional procedures for assessments under Subchapter D; and (2) contain additional provisions necessary or proper for the execution of the association's powers and duties. (b) The association may amend the plan of operation. An amendment must be approved by the commissioner and takes effect on: (1) the date the commissioner approves the amendment; or (2) the 30th day after the date the amendment is submitted to the commissioner for approval, if the commissioner does not approve or disapprove the amendment before the 30th day. (c) Each member insurer shall comply with the plan of operation. (V.T.I.C. Art. 21.28-D, Secs. 6(a) (part), 10(a), (b), (c).) Sec. 463.103. PERSONNEL. The association may employ or retain employees or contractors to handle the association's financial transactions and to perform other functions under this chapter. (V.T.I.C. Art. 21.28-D, Sec. 8(v) (part).) Sec. 463.104. ASSOCIATION RECORDS. (a) The association shall maintain a record of each negotiation or meeting in which the association or the association's representative discusses the association's activities in carrying out the powers and duties under Section 463.101, 463.103, 463.109, or 463.111(c) or Subchapter F. (b) A record under Subsection (a) may be made public only on: (1) termination of a liquidation, rehabilitation, or conservation proceeding involving the impaired or insolvent insurer; (2) termination of the impairment or insolvency of the insurer; or (3) order of a court. (c) This section does not limit the association's duty to report on the association's activities as required by Section 463.110. (V.T.I.C. Art. 21.28-D, Sec. 14(b).) Sec. 463.105. ACCOUNTS. For the purposes of administration and assessment, the association shall maintain: (1) an accident, health, and hospital services insurance account; (2) a life insurance account; (3) an annuity account; and (4) an administrative account. (V.T.I.C. Art. 21.28-D, Sec. 6(a) (part).) Sec. 463.106. DELEGATION OF POWERS AND DUTIES. (a) The plan of operation may provide that, on approval of the board and the commissioner, a power or duty of the association is delegated to a corporation or other organization that: (1) performs in two or more states functions similar to those of the association or the association's equivalent; and (2) provides protection not substantially less favorable and effective than that provided by this chapter. (b) A power or duty under Section 463.261(c) or Subchapter D, other than a duty under Section 463.161(c), may not be delegated under this section. (c) The corporation or other organization to which a power or duty is delegated shall be: (1) reimbursed for a payment made on behalf of the association; and (2) paid for performing any other function of the association. (V.T.I.C. Art. 21.28-D, Sec. 10(d).) Sec. 463.107. EXEMPTION FROM TAXATION. The association is exempt from payment of all fees and all taxes levied by this state or a subdivision of this state, except taxes levied on property. (V.T.I.C. Art. 21.28-D, Sec. 16.) Sec. 463.108. DETECTION AND PREVENTION OF IMPAIRMENT AND INSOLVENCY. On a majority vote, the board: (1) may make recommendations to the commissioner for detecting and preventing insurer insolvencies; and (2) shall notify the commissioner of information indicating that a member insurer may be impaired or insolvent. (V.T.I.C. Art. 21.28-D, Secs. 12(e), (g).) Sec. 463.109. ASSOCIATION APPEARANCE BEFORE COURT; INTERVENTION. (a) The association may appear before a court in this state with jurisdiction over an impaired or insolvent insurer concerning which the association is or may become obligated under this chapter. The association's right to appear applies to: (1) a proposal for reinsuring, modifying, or guaranteeing the insurer's policies or contracts; (2) the determination of the insurer's policies or contracts and contractual obligations; and (3) any other matter germane to the association's powers and duties. (b) The association may appear or intervene before a court in another state with jurisdiction over: (1) an impaired or insolvent insurer concerning which the association is or may become obligated; or (2) a third party against whom the association may have rights through subrogation of the insurer's policyholders. (V.T.I.C. Art. 21.28-D, Sec. 8(s).) Sec. 463.110. ANNUAL REPORT. Not later than the 120th day after the last day of each association fiscal year, the board shall submit to the commissioner: (1) a financial report in a form approved by the commissioner; and (2) a report of the association's activities during the preceding fiscal year. (V.T.I.C. Art. 21.28-D, Sec. 15 (part).) Sec. 463.111. BOARD AND ASSOCIATION ADVICE AND ASSISTANCE. (a) On a majority vote, the board may report and make recommendations to the commissioner on any matter germane to: (1) the solvency, liquidation, rehabilitation, or conservation of a member insurer; or (2) the solvency of an insurer seeking to engage in the business of insurance in this state. (b) A report or recommendation under Subsection (a) is not a public document, and Chapter 552, Government Code, does not apply to the report or recommendation until the insurer that is the subject of the report or recommendation is designated as impaired. (c) On the commissioner's request, the association may assist and advise the commissioner concerning rehabilitation, payment of claims, continuation of coverage, or the performance of other contractual obligations of an impaired or insolvent insurer. (V.T.I.C. Art. 21.28-D, Secs. 8(r), 12(d).) Sec. 463.112. BOARD ACCESS TO RECORDS. The receiver or statutory successor of an impaired insurer shall give the board or a representative of the board: (1) access to the insurer's records as necessary for the board to carry out the board's functions under this chapter relating to covered claims; and (2) copies of those records on the board's request and at the board's expense. (V.T.I.C. Art. 21.28-D, Sec. 18 (part).) Sec. 463.113. BOARD REPORT AT CONCLUSION OF INSOLVENCY. (a) At the conclusion of an insurer insolvency in which the association was obligated to pay a covered claim, the board shall prepare and submit to the commissioner a report containing any information the board possesses concerning the history and causes of the insolvency. (b) The board: (1) shall cooperate with the boards of directors of guaranty associations in other states to prepare a report on the history and causes of the insolvency of a particular insurer; and (2) may adopt by reference a report prepared by any of those associations. (V.T.I.C. Art. 21.28-D, Sec. 12(h).) Sec. 463.114. SUMMARY DOCUMENT; DISCLAIMER. (a) The association shall prepare a summary document describing the general purposes and limitations of this chapter and amend the document as necessary to comply with this chapter. The document must clearly and conspicuously contain on the document's face a disclaimer that: (1) states the name and address of the association and department; (2) warns the policy or contract holder that: (A) the association may not cover the policy; or (B) coverage, if available, is subject to substantial limitations and exclusions and requires continuous residence in this state; (3) states that an insurer and the insurer's agent are prohibited by law from using the association's existence to sell, solicit, or induce the purchase of any kind of insurance; (4) warns the policy or contract holder not to rely on association coverage in selecting an insurer; and (5) provides other information the commissioner prescribes. (b) The association shall submit the document to the commissioner for approval. (c) At the expiration of the 60th day after approval of the document, an insurer may not deliver a policy or contract with respect to which this chapter provides coverage as determined under Subchapter E to a policy or contract holder before a copy of the summary document is delivered to the policy or contract holder. The document must also be available on request of a policyholder. (d) The distribution, delivery, content, or interpretation of a summary document does not guarantee that a policy or contract or a policy or contract holder is provided coverage by this chapter if a member insurer becomes impaired or insolvent. Failure to receive the document does not give an insured or policy, contract, or certificate holder any rights greater than those provided by this chapter. (e) An insurer or agent may not deliver a policy or contract described by Section 463.202 that is excluded from the coverage provided by this chapter by Section 463.203 unless the insurer or agent, either before or in conjunction with delivery, gives the policy or contract holder a separate written notice clearly and conspicuously disclosing that the policy or contract is not covered by the association. (f) The commissioner shall specify by rule the form and content of the disclaimer required by Subsection (a) and the notice required by Subsection (e). (V.T.I.C. Art. 21.28-D, Secs. 19(b), (c), (d).)
[Sections 463.115-463.150 reserved for expansion]
SUBCHAPTER D. ASSESSMENTS
Sec. 463.151. MAKING AND PAYMENT OF ASSESSMENT. (a) The association shall assess member insurers, separately for each account under Section 463.105, in the amounts and at the times the board determines necessary to provide money for the association to exercise the association's powers, perform the association's duties, and carry out the purposes of this chapter. The association may not make an assessment to meet the requirements of the association with respect to an impaired or insolvent insurer until the assessment is necessary to carry out the purposes of this chapter. The board shall classify assessments under Section 463.152 and determine the amount of assessments with reasonable accuracy, recognizing that exact determinations may not always be possible. (b) An assessment is due on the date the association specifies, which may not be earlier than the 30th day after the date the association gives written notice of the assessment to member insurers. Interest accrues on an unpaid amount at a rate of 10 percent beginning on the due date. (c) An insurer whose certificate of authority to engage in business in this state is revoked or surrendered remains liable for any unpaid assessment made before the date of the revocation or surrender. (V.T.I.C. Art. 21.28-D, Secs. 2 (part), 9(a), (g), (l).) Sec. 463.152. CLASSES OF ASSESSMENTS. (a) Assessments are classified as Class A or Class B assessments. (b) Class A assessments are made to pay: (1) the association's administrative costs; (2) administrative expenses that: (A) are properly incurred under this chapter; and (B) relate to an unauthorized insurer or to an entity that is not a member insurer; and (3) other general expenses not related to a particular impaired or insolvent insurer. (c) Class B assessments are made to the extent necessary for the association to carry out the association's powers and duties under Sections 463.101, 463.103, 463.109, and 463.111(c) and Subchapter F with regard to an impaired or insolvent insurer. (V.T.I.C. Art. 21.28-D, Sec. 9(b).) Sec. 463.153. AMOUNT OF ASSESSMENTS. (a) The board shall determine the amount of a Class A assessment for each account under Section 463.105, considering with respect to member insurers one or more of the following as shown by annual statements for the year preceding the date of the assessment: (1) annual premium receipts; (2) admitted assets; or (3) insurance in force. (b) Class B assessments against a member insurer for each account under Section 463.105 shall be made in the proportion that premiums received on all business by the insurer on policies covered by each account bear to the premiums received on all business by all assessed member insurers. The amount of a Class B assessment shall be divided among the separate accounts in the proportion that the premiums on the policies covered by each account were received by the impaired or insolvent insurer from all covered policies during the year preceding the date of the impairment, as shown in the annual statements for the year preceding the date of the assessment. (c) The total amount of assessments on a member insurer for each account under Section 463.105 may not exceed one percent of the insurer's premiums on the policies covered by the account in a single calendar year. If the maximum assessment and the other assets of the association do not provide in a year an amount sufficient to carry out the association's responsibilities, the association shall make necessary additional assessments as soon as this chapter permits. (V.T.I.C. Art. 21.28-D, Secs. 9(c), (d), (f), (h) (part), (i) (part).) Sec. 463.154. DEFERMENT. The association may wholly or partly defer an assessment of a member insurer if the association believes payment of the assessment would endanger the ability of the insurer to fulfill the insurer's contractual obligations. The amount of the assessment that is deferred may be assessed against the other member insurers in a manner consistent with this subchapter. (V.T.I.C. Art. 21.28-D, Secs. 9(h) (part), (i) (part).) Sec. 463.155. DEPOSIT OF ASSESSMENTS. The association may deposit assessments into the Texas Treasury Safekeeping Trust Company in accordance with procedures established by the comptroller. The comptroller shall account to the association for the deposited money separately from all other money. (V.T.I.C. Art. 21.28-D, Sec. 9(n).) Sec. 463.156. CERTIFICATE OF CONTRIBUTION. The association shall issue to each member insurer that pays a Class B assessment a certificate of contribution, in a form the commissioner prescribes, for the amount paid. All outstanding certificates are of equal priority regardless of the amount of the assessment paid or the date the certificate is issued. (V.T.I.C. Art. 21.28-D, Sec. 9(k).) Sec. 463.157. REFUNDS. (a) The board may refund to member insurers the amount by which the association's assets, including any net realized gains and income from investments, exceed the amount the board determines is necessary to carry out the association's obligations regarding that amount during the next year. (b) A refund must be made: (1) by an equitable method established in the plan of operation; and (2) in proportion to the contribution of each member insurer. (c) The board may retain a reasonable amount to provide for the association's continuing expenses and for future losses if refunds are impractical. (V.T.I.C. Art. 21.28-D, Sec. 9(j).) Sec. 463.158. USE OF ASSESSMENTS. Money from assessments supplements the marshalling of an impaired insurer's assets to make payments on the insurer's behalf. (V.T.I.C. Art. 21.28-D, Sec. 9(m).) Sec. 463.159. FAILURE TO PAY; COLLECTION BY COMMISSIONER. On failure of a member insurer to pay an assessment when due, the commissioner may either: (1) suspend or revoke, after notice and hearing, the insurer's certificate of authority to engage in the business of insurance in this state; or (2) levy a forfeiture in an amount not less than $100 each month or more than five percent of the unpaid assessment each month. (V.T.I.C. Art. 21.28-D, Sec. 11(c) (part).) Sec. 463.160. PREMIUM TAX CREDIT FOR CLASS A ASSESSMENT. The amount of a Class A assessment paid by a member insurer shall be allowed as a credit on the amount of premium taxes due in the same manner as a credit is allowed under Section 401.151(e). (V.T.I.C. Art. 21.28-D, Sec. 9(e).) Sec. 463.161. PREMIUM TAX CREDIT FOR CLASS B ASSESSMENT. (a) A member insurer is entitled to show as an admitted asset a certificate of contribution in the form the commissioner approves under Section 463.156. Unless the commissioner requires a longer period, the certificate may be shown at: (1) for the calendar year of issuance, an amount equal to the certificate's original face value approved by the commissioner; and (2) beginning with the year following the calendar year of issuance, an amount equal to the certificate's original face value, reduced by 10 percent a year for each year after the year of issuance, for a period of 10 years. (b) An amount written off during a calendar year under Subsection (a) shall be allowed as a credit against the member insurer's premium tax owed for business engaged in during that year. The insurer is not required to write off in a single year an amount that exceeds the amount of premium tax owed for the business described by this subsection. (c) The association shall pay to the commissioner, and the commissioner shall deliver to the comptroller for deposit to the credit of the general revenue fund, any amount owed as a refund from the association under Section 463.157 that was written off and used for a tax credit under this section. (V.T.I.C. Art. 21.28-D, Secs. 13(a), (b), (c).) Sec. 463.162. ASSIGNMENT OR TRANSFER OF CREDIT. (a) A member insurer may assign or transfer a credit against premium tax to another member insurer if: (1) an acquisition, merger, or total assumption of reinsurance occurs between the insurers; or (2) the commissioner by order approves the assignment or transfer. (b) Not later than the later of November 1 or the 60th day after the date of the assignment or transfer, each member insurer shall: (1) report the assignment or transfer to the comptroller on a form the comptroller prescribes; and (2) include with the report any documents from the commissioner that show approval of the assignment or transfer. (V.T.I.C. Art. 21.28-D, Secs. 13(d), (e).) Sec. 463.163. INSURED'S LIABILITY UNDER ASSESSMENT PLAN. This chapter does not reduce the liability for unpaid assessments of the insureds of an impaired or insolvent insurer operating under a plan with assessment liability. (V.T.I.C. Art. 21.28-D, Sec. 14(a).)
[Sections 463.164-463.200 reserved for expansion]
SUBCHAPTER E. COVERAGE PROVIDED BY ASSOCIATION
Sec. 463.201. INSUREDS COVERED. (a) This chapter provides coverage for a policy described by Section 463.202 to a person who is: (1) subject to Subsection (b), an owner of or certificate holder under a policy or contract specified by Section 463.202, or a contract holder under an unallocated annuity contract; or (2) a beneficiary, assignee, or payee, other than a certificate holder under a group policy or contract who is not a resident, of a person described by Subdivision (1). (b) Coverage under Subsection (a)(1) applies to a person who is not a resident, only if: (1) the insurer that issued the policy or contract is domiciled in this state; (2) the insurer never held a certificate of authority in the state in which the person resides; (3) the state in which the person resides has an association similar to the association; and (4) the person is not eligible for coverage by the association in the state in which the person resides. (V.T.I.C. Art. 21.28-D, Sec. 3(a).) Sec. 463.202. POLICIES AND CONTRACTS COVERED. (a) Except as limited by this chapter, the coverage provided by this chapter to a person specified by Section 463.201 applies with respect to the following policies and contracts issued by a member insurer: (1) a direct, nongroup life, health, accident, annuity, or supplemental policy or contract; (2) a certificate under a direct group policy or contract; (3) a group hospital service contract; and (4) an unallocated annuity contract. (b) The coverage provided by this chapter also applies with respect to all other insurance coverage written by the following entities authorized to engage in business in this state: (1) a mutual assessment company; (2) a local mutual aid association; (3) a statewide mutual assessment company; and (4) a stipulated premium company. (c) For the purposes of this section, an annuity contract or a certificate under a group annuity contract includes: (1) a guaranteed investment contract; (2) a deposit administration contract; (3) an allocated or unallocated funding agreement; (4) a structured settlement agreement; (5) a lottery contract; and (6) an immediate or deferred annuity contract. (V.T.I.C. Art. 21.28-D, Sec. 3(b).) Sec. 463.203. POLICIES AND CONTRACTS EXCLUDED. (a) In this section, "Moody's Corporate Bond Yield Average" means the monthly average corporates as published by Moody's Investors Service, Inc., or any successor to that entity. (b) This chapter does not provide coverage for: (1) any part of a policy or contract not guaranteed by the insurer or under which the risk is borne by the policy or contract holder; (2) a policy or contract of reinsurance, unless an assumption certificate has been issued; (3) any part of a policy or contract to the extent that the rate of interest on which that part is based: (A) as averaged over the period of four years before the date the association became obligated with respect to the policy or contract, exceeds a rate of interest determined by subtracting two percentage points from Moody's Corporate Bond Yield Average averaged for the same four-year period or for a lesser period if the policy or contract was issued less than four years before the date the association became obligated; and (B) on and after the date the association became obligated with respect to the policy or contract, exceeds the rate of interest determined by subtracting three percentage points from Moody's Corporate Bond Yield Average as most recently available; (4) a plan or program of an employer, association, or similar entity to provide life, health, or annuity benefits to the entity's employees or members to the extent that the plan or program is self-funded or uninsured, including benefits payable by an employer, association, or similar entity under: (A) a multiple employer welfare arrangement as defined by Section 3, Employee Retirement Income Security Act of 1974 (29 U.S.C. Section 1002); (B) a minimum premium group insurance plan; (C) a stop-loss group insurance plan; or (D) an administrative services-only contract; (5) any part of a policy or contract to the extent that the part provides dividends or experience rating credits or provides that fees or allowances be paid to any person, including the policy or contract holder, in connection with the service to or administration of the policy or contract; (6) a policy or contract issued in this state by a member insurer at a time the insurer was not authorized to issue the policy or contract in this state; (7) an unallocated annuity contract issued to an employee benefit plan protected under the federal Pension Benefit Guaranty Corporation; (8) any part of an unallocated annuity contract that is not issued to or in connection with a specific employee, a benefit plan for a union or association of individuals, or a governmental lottery; or (9) any part of a financial guarantee, funding agreement, or guaranteed investment contract that: (A) does not contain a mortality guarantee; and (B) is not issued to or in connection with a specific employee, a benefit plan, or a governmental lottery. (V.T.I.C. Art. 21.28-D, Secs. 3(c), 5(8).) Sec. 463.204. OBLIGATIONS EXCLUDED. A contractual obligation does not include: (1) death benefits in an amount in excess of $300,000 or a net cash surrender or net cash withdrawal value in an amount in excess of $100,000 in the aggregate under one or more policies on a single life; (2) an amount in excess of: (A) $100,000 in the aggregate under one or more annuity contracts issued to the same holder of individual annuity policies or to the same annuitant or participant under group annuity policies; or (B) $5 million in unallocated annuity contract benefits with respect to a single contract holder regardless of the number of those contracts; (3) an amount in excess of $200,000 in the aggregate under one or more accident, health, or accident and health insurance policies on a single life; or (4) punitive, exemplary, extracontractual, or bad faith damages, regardless of whether the damages are: (A) agreed to or assumed by an insurer or insured; or (B) imposed by a court. (V.T.I.C. Art. 21.28-D, Sec. 5(3) (part).) Sec. 463.205. PROTECTION PROVIDED BY OTHER JURISDICTION. This chapter does not provide coverage for a resident with respect to an impaired or insolvent insurer domiciled in another jurisdiction if guaranty protection is provided to the resident by the law of that jurisdiction. (V.T.I.C. Art. 21.28-D, Sec. 8(o).)
[Sections 463.206-463.250 reserved for expansion]
SUBCHAPTER F. POWERS AND DUTIES OF ASSOCIATION RELATING
TO IMPAIRED OR INSOLVENT INSURER
Sec. 463.251. IMPAIRED DOMESTIC INSURER. (a) This section applies only to a member insurer that is an impaired domestic insurer. (b) With the commissioner's approval, the association may: (1) guarantee, assume, or reinsure, or cause to be guaranteed, assumed, or reinsured, one or more of the insurer's policies or contracts; (2) provide money, pledges, notes, guarantees, or other means proper to: (A) implement Subdivision (1); and (B) ensure payment of the insurer's contractual obligations until action is taken under Subdivision (1); or (3) loan money to the insurer. (c) In taking action under Subsection (b), the association may impose any condition that: (1) does not impair the insurer's contractual obligations; and (2) is approved by: (A) the commissioner; and (B) the insurer, except in a conservation or rehabilitation ordered by a court. (V.T.I.C. Art. 21.28-D, Sec. 8(a).) Sec. 463.252. IMPAIRED DOMESTIC, FOREIGN, OR ALIEN INSURER NOT PAYING CLAIMS. (a) This section applies only to a member insurer that: (1) is an impaired domestic, foreign, or alien insurer; and (2) is not timely paying claims. (b) Subject to Subsection (d), the association shall: (1) with respect to the insurer, take one or more actions that the association is authorized to take under Section 463.251 with respect to an impaired domestic insurer, subject to the conditions of that section; or (2) provide substitute benefits instead of the insurer's contractual obligations as provided by Subsection (c). (c) A policy or contract owner who claims emergency or hardship may petition for substitute benefits under standards the association proposes and the commissioner approves. Substitute benefits are available only for a health claim, periodic annuity benefit payment, death benefit, supplemental benefit, or cash withdrawal. (d) The association is required to take action under this section only if: (1) the laws of the insurer's state of domicile provide that, until all payments of or on account of the insurer's contractual obligations are made by all guaranty associations and all expenses of the associations and interest on those payments and expenses have been repaid to the associations or a plan of repayment by the insurer has been approved by the associations: (A) the delinquency proceeding may not be dismissed; (B) the insurer and the insurer's assets may not be returned to the control of the insurer's shareholders or private management; and (C) the insurer may not solicit or accept new business or have any suspended or revoked certificate of authority restored; (2) the insurer is a domestic insurer that has been placed under an order of rehabilitation by a court in this state; or (3) the insurer is a foreign or alien insurer and: (A) the insurer has been prohibited from soliciting or accepting new business in this state; (B) the insurer's certificate of authority has been suspended or revoked in this state; and (C) a petition for rehabilitation or liquidation has been filed in a court in the insurer's state of domicile by the insurance official of that state. (V.T.I.C. Art. 21.28-D, Secs. 8(b), (c).) Sec. 463.253. INSOLVENT INSURER. (a) This section applies only to a member insurer that is an insolvent insurer. (b) The association shall provide money, pledges, guarantees, or other means reasonably necessary to discharge the insurer's duties and to: (1) guarantee, assume, or reinsure, or cause to be guaranteed, assumed, or reinsured, the insurer's policies or contracts; or (2) ensure payment of the insurer's contractual obligations. (V.T.I.C. Art. 21.28-D, Sec. 8(d).) Sec. 463.254. LIFE OR HEALTH INSURANCE POLICIES OR CONTRACTS. (a) This section applies only when the association is taking an action under Section 463.252(b)(2) or 463.253 with respect to a life or health insurance policy or contract. (b) The association, in accordance with Subsections (c) and (d), as applicable, shall ensure payment of benefits identical to the benefits that would have been payable under the policy or contract of the insurer, at premiums identical to the premiums that would have been applicable under that policy or contract, except for terms of conversion and renewability. (c) For a group policy or contract, the association shall ensure payment of benefits under Subsection (b) for claims incurred before the later of: (1) the earlier of the next renewal date under the policy or contract or the 45th day after the date the association becomes obligated with respect to the policy or contract; or (2) the 30th day after the date the association becomes obligated with respect to the policy or contract. (d) For an individual policy, the association shall ensure payment of benefits under Subsection (b) for claims incurred before the later of: (1) the earlier of the next renewal date under the policy, if any, or the first anniversary of the date the association becomes obligated with respect to the policy; or (2) the 30th day after the date the association becomes obligated with respect to the policy. (e) The association shall diligently attempt to provide each known insured or group policyholder with notice before the 30th day before the date the benefits are terminated. (f) As provided by Subsections (g)-(i), the association shall make substitute coverage available on an individual basis to: (1) each known insured under an individual policy, or the owner if other than the insured; and (2) each individual who: (A) was formerly insured under a group policy or contract; and (B) is not eligible for replacement group coverage. (g) Substitute coverage is available for an individual policy under Subsection (f) only if the insured or owner was entitled under law or the terminated policy to continue an individual policy in force until a specified age or for a specified period during which the insurer: (1) was not entitled to unilaterally change a provision of the policy; or (2) was entitled only to change a premium by class. (h) Substitute coverage is available for a group policy or contract under Subsection (f) only if the formerly insured individual was entitled under law or the terminated policy or contract to convert group coverage to individual coverage. (i) To provide substitute coverage under Subsection (f), the association may offer to reissue the terminated coverage or issue an alternative policy. The association shall offer the reissued or alternative policy without requiring evidence of insurability. The reissued or alternative policy may not provide for a waiting period or exclusion that would not have applied under the terminated policy. The association may reinsure a reissued or alternative policy. (V.T.I.C. Art. 21.28-D, Secs. 8(e), (f).) Sec. 463.255. POLICY OR CONTRACT WITH GUARANTEED INTEREST RATE. In taking an action under Section 463.252(b)(2) or 463.253 with respect to a policy or contract with a guaranteed minimum interest rate, the association shall ensure the payment or crediting of a rate of interest consistent with Section 463.203(b)(3). (V.T.I.C. Art. 21.28-D, Sec. 8(l).) Sec. 463.256. ALTERNATIVE POLICY. (a) An alternative policy issued by the association must: (1) be approved by the commissioner; (2) provide coverage of a kind that the association determines is similar to the coverage of the policy issued by the impaired or insolvent insurer; (3) contain at least the minimum provisions required by the statutes of this state; and (4) provide benefits that are not unreasonable in relation to the premium charged. (b) The association shall set the premium according to a table of rates the association adopts. The premium: (1) must reflect: (A) the amount of insurance provided; and (B) each insured's age and class of risk; and (2) may not reflect any change in an insured's health occurring after the original policy was most recently underwritten. (c) The association may adopt various kinds of alternative policies to issue at a later date without regard to any particular impairment or insolvency. (V.T.I.C. Art. 21.28-D, Secs. 8(g), (h), (i).) Sec. 463.257. IMPOSITION OF LIEN OR MORATORIUM. To carry out the association's duties under this chapter and with the court's approval, the association may: (1) impose a permanent policy or contract lien in connection with any guarantee, assumption, or reinsurance agreement if the association determines that: (A) the amounts that may be assessed under this chapter are insufficient to ensure full and prompt performance of the association's duties under this chapter; or (B) adverse economic or financial conditions affecting member insurers make imposition of the lien in the public interest; or (2) in addition to any contractual provision for deferral of cash or policy loan value, impose a temporary moratorium or lien on payment of cash values and policy loans or the exercise of any other right to withdraw money held in connection with a policy or contract. (V.T.I.C. Art. 21.28-D, Sec. 8(p).) Sec. 463.258. PREMIUM FOR REISSUANCE OF TERMINATED COVERAGE. If the association reissues terminated coverage at a premium different from the terminated policy's premium, the premium must: (1) reflect the amount of insurance provided and the insured's age and class of risk; and (2) be approved by the commissioner or a court. (V.T.I.C. Art. 21.28-D, Sec. 8(j).) Sec. 463.259. PREMIUM DUE DURING RECEIVERSHIP. After a court enters an order of receivership with respect to an insolvent insurer, a premium due for coverage issued by the insurer is owned by and is payable at the direction of the association. The association is liable for an unearned premium owed to a policy or contract owner that arises after the court enters the order. (V.T.I.C. Art. 21.28-D, Sec. 8(n).) Sec. 463.260. LIMITS ON AND TERMINATION OF ASSOCIATION OBLIGATION. (a) The association is not liable for benefits that exceed the contractual obligations for which the insurer is liable or would have been liable if not impaired or insolvent. (b) The association's obligations with respect to coverage under a policy of an impaired or insolvent insurer or under a reissued or alternative policy terminate on the date the coverage or policy is replaced by another similar policy by the policyholder, the insured, or the association. (c) If a premium is not paid before the 32nd day after the date the premium is due under a guaranteed, assumed, alternative, or reissued policy or contract or substitute coverage, the association's obligations under the policy, contract, or coverage terminate, except with respect to a claim incurred or any net cash surrender value due as provided by this chapter. (V.T.I.C. Art. 21.28-D, Secs. 3(d), 8(k), (m).) Sec. 463.261. ASSIGNMENT OF RIGHTS. (a) A person receiving a benefit under this chapter, including a payment of or on account of a contractual obligation, continuation of coverage, or provision of substitute or alternative coverage, is considered to have assigned to the association the rights under, and any cause of action relating to, the covered policy to the extent of the benefit received. The association may require a payee, policy or contract owner, beneficiary, insured, or annuitant to assign the person's rights and cause of action to the association as a condition of receiving a right or benefit under this chapter. (b) The association's subrogation rights under Subsection (a) have the same priority against the assets of the impaired or insolvent insurer as that held by the person entitled to receive a benefit under this chapter. (c) The association has all common law rights of subrogation and any other equitable or legal remedy that would have been available to the impaired or insolvent insurer or holder of a policy or contract with respect to the policy or contract. (V.T.I.C. Art. 21.28-D, Secs. 8(t), (u).)
[Sections 463.262-463.300 reserved for expansion]
SUBCHAPTER G. OPERATION OF IMPAIRED OR INSOLVENT INSURER
Sec. 463.301. ISSUANCE OR RENEWAL OF POLICIES FOLLOWING CONSERVATORSHIP OR RECEIVERSHIP. (a) If an assessment has been made under this chapter for the insurer or guaranty fees have been provided for the insurer, an impaired insurer placed in conservatorship or receivership may not issue a new or renewal insurance policy on release from the conservatorship or receivership until the insurer has repaid in full the amount of guaranty fees provided by the association. (b) Notwithstanding Subsection (a), on application of the association and after hearing, the commissioner may permit the insurer to issue new policies as provided by a plan of operation by the insurer for repayment. In approving the plan, the commissioner may restrict the issuance of new or renewal policies as necessary to implement the plan. (c) The commissioner shall give 10 days' notice of the hearing to the association. The association and the member insurers that paid assessments in relation to the impaired insurer are entitled to appear at and participate in the hearing. (d) Money recovered against an impaired insurer under this section shall be repaid to the member insurers that paid assessments in relation to the impaired insurer on return of the member insurers' certificates of contribution. (V.T.I.C. Art. 21.28-D, Sec. 14(k).) Sec. 463.302. DISTRIBUTIONS TO SHAREHOLDERS AND AFFILIATES. (a) An impaired or insolvent insurer may not make a distribution to shareholders until the association has recovered the total amount of valid claims for money spent in carrying out the association's powers and performing the association's duties under Section 463.101, 463.103, 463.109, or 463.111(c) or Subchapter F with respect to that insurer, plus interest on that amount. (b) Except as otherwise provided by this section, a receiver appointed under an order of receivership for an insurer domiciled in this state may recover on behalf of the insurer from an affiliate that controlled the insurer the amount of any distribution, other than a stock dividend the insurer paid on the insurer's capital stock, made during the five years preceding the date of the petition for liquidation or rehabilitation. (c) A person who was an affiliate that controlled the insurer when a distribution described by Subsection (b) was paid is liable for the amount of the distribution received. A person who was an affiliate that controlled the insurer when the distribution was declared is liable for the amount of the distribution the affiliate would have received if the distribution had been paid immediately. Two or more persons liable for the same distribution are jointly and severally liable. If a person liable under this subsection is insolvent, all of the affiliates that controlled the insolvent person when the distribution was paid are jointly and severally liable for any resulting deficiency in the amount recovered from the insolvent person. (d) The maximum amount recoverable under Subsections (b) and (c) is the amount needed in excess of all other available assets of the insolvent insurer to pay the insurer's contractual obligations. (e) The receiver may not recover a distribution to shareholders under Subsection (b) if the insurer shows that, at the time the distribution was paid, the distribution was lawful and reasonable and that the insurer did not know and could not reasonably have known that the distribution might adversely affect the ability of the insurer to fulfill the insurer's contractual obligations. (V.T.I.C. Art. 21.28-D, Secs. 14(e), (f), (g), (h), (i), (j).) Sec. 463.303. ASSETS ATTRIBUTABLE TO COVERED POLICIES. (a) For the purposes of this section, assets attributable to covered policies are the proportion of the assets that the reserves that should have been established for the covered policies bear to the reserves that should have been established for all insurance policies written by the impaired or insolvent insurer. (b) To carry out the association's obligations under this chapter, the association is considered a creditor of the impaired or insolvent insurer to the extent of assets attributable to covered policies, less any amount to which the association is entitled as subrogee under Section 463.261. (c) Assets of the impaired or insolvent insurer attributable to covered policies shall be used to continue all covered policies and pay all contractual obligations of the impaired or insolvent insurer as required by this chapter. (V.T.I.C. Art. 21.28-D, Sec. 14(c).) Sec. 463.304. DISTRIBUTION OF OWNERSHIP RIGHTS OF INSOLVENT INSURER. In making an equitable distribution of the ownership rights of an insolvent insurer before the termination of a receivership, the court: (1) shall consider the welfare of the policyholders of the continuing or successor insurer; and (2) may consider the contributions of the respective parties, including the association, the shareholders and policyholders of the insolvent insurer, and any other party with a bona fide interest. (V.T.I.C. Art. 21.28-D, Sec. 14(d).)
[Sections 463.305-463.350 reserved for expansion]
SUBCHAPTER H. POWERS AND DUTIES OF COMMISSIONER AND DEPARTMENT
Sec. 463.351. NOTICE OF COMMISSIONER ACTIONS. (a) The commissioner shall: (1) notify the insurance officials of all the other states, territories of the United States, and the District of Columbia by mail not later than the 30th day after the date the commissioner: (A) revokes or suspends a member insurer's certificate of authority; or (B) issues a formal order requiring a member insurer to: (i) restrict the insurer's premium writing; (ii) withdraw from this state; (iii) reinsure all or part of the insurer's business; (iv) obtain additional contributions to surplus; or (v) increase capital, surplus, or another account for the security of policyholders or creditors; (2) report to the board when the commissioner: (A) takes an action described by Subdivision (1) or receives from another insurance official a report indicating that a similar action has been taken in another state; or (B) has reasonable cause to believe from a completed or continuing examination that a member insurer may be impaired or insolvent; and (3) provide to the board the National Association of Insurance Commissioners Insurance Regulatory Information System ratios and listings of insurers not included in those ratios. (b) A report under Subsection (a)(2)(A) must contain all significant details of the action taken or report received. (c) The board may use information described by this section to carry out the board's duties under this chapter. The board shall keep a report made under this section and the contents of the report confidential until the commissioner or other lawful authority makes the report and the contents public. (V.T.I.C. Art. 21.28-D, Secs. 12(a), (b).) Sec. 463.352. ADVICE FROM BOARD. The commissioner may seek the board's advice and recommendations on a matter affecting the commissioner's duties regarding the financial condition of: (1) a member insurer; or (2) an insurer applying for a certificate of authority to engage in the business of insurance in this state. (V.T.I.C. Art. 21.28-D, Sec. 12(c).) Sec. 463.353. EXAMINATION. (a) The board by majority vote may request the commissioner to order an examination of a member insurer that the board in good faith believes may be impaired or insolvent. The commissioner shall keep the request on file. The request is open for public inspection before release of the examination report to the public. (b) Not later than the 30th day after the date the commissioner receives the request, the commissioner shall begin the examination. The examination may be conducted: (1) as a National Association of Insurance Commissioners examination; or (2) by a person the commissioner designates. (c) The association shall pay the cost of the examination. (d) The commissioner shall notify the board when the examination is completed. The examination report shall be treated in the same manner as other examination reports. The report may not be released to the board before the report is released to the public, except that the commissioner may comply with Section 463.351. (V.T.I.C. Art. 21.28-D, Sec. 12(f).) Sec. 463.354. DEMAND TO CURE IMPAIRMENT. (a) When an impairment is declared and the amount of the impairment is determined, the commissioner shall serve a demand on the impaired insurer to cure the impairment within a reasonable time. (b) Notice of the demand under Subsection (a) to the impaired insurer constitutes notice to any shareholders of the insurer. (c) Failure of the impaired insurer to comply promptly with the demand does not excuse the association from exercising the association's powers and performing the association's duties under this chapter. (V.T.I.C. Art. 21.28-D, Sec. 11(b).) Sec. 463.355. FAILURE TO COMPLY WITH PLAN OF OPERATION. On failure of a member insurer to comply with the plan of operation, the commissioner may suspend or revoke, after notice and hearing, the insurer's certificate of authority to engage in the business of insurance in this state. (V.T.I.C. Art. 21.28-D, Sec. 11(c) (part).) Sec. 463.356. ASSUMPTION OF POWERS AND DUTIES OF ASSOCIATION. The commissioner may assume the powers and duties of the association under this chapter with respect to impaired or insolvent insurers if the association does not within a reasonable period act as provided by: (1) Section 463.252(b)(2); (2) Section 463.253; and (3) Section 463.254. (V.T.I.C. Art. 21.28-D, Sec. 8(q).) Sec. 463.357. NOTIFICATION OF EFFECT OF CHAPTER. The commissioner, as receiver of an impaired insurer, may notify all interested persons of the effect of this chapter. (V.T.I.C. Art. 21.28-D, Sec. 11(e).) Sec. 463.358. STATEMENT OF PREMIUMS. On request, the commissioner shall provide the association with a statement of the premiums in this state and any other appropriate state for each member insurer. (V.T.I.C. Art. 21.28-D, Sec. 11(a).)
[Sections 463.359-463.400 reserved for expansion]
SUBCHAPTER I. APPEALS AND OTHER ACTIONS
Sec. 463.401. APPEAL TO COMMISSIONER. (a) Not later than the 60th day after the date of a final action of the association or the board, a member insurer may appeal the action to the commissioner. (b) A member insurer appealing an assessment shall pay the assessment to the association. The association may use the money to meet the association's obligations while the appeal is pending. If the appeal on the assessment is upheld, the association shall return to the insurer the amount paid in error or in excess of the amount the commissioner determines the insurer was obligated to pay. (V.T.I.C. Art. 21.28-D, Sec. 11(d).) Sec. 463.402. VENUE. Venue for an action against the association under this chapter is in Travis County. (V.T.I.C. Art. 21.28-D, Sec. 20(a).) Sec. 463.403. APPEAL BOND. The association is not required to give an appeal bond in an appeal of a cause of action under this chapter. (V.T.I.C. Art. 21.28-D, Sec. 20(b).) Sec. 463.404. STAY OF PROCEEDINGS; CERTAIN DECISIONS NOT BINDING. (a) To permit the receiver or association to properly defend a pending cause of action, a proceeding in which an impaired insurer is a party or is obligated to defend a party in a court in this state, other than a proceeding directly related to the receivership or brought by the receiver, is stayed for: (1) a six-month period beginning on the later of the date the insurer is designated as impaired or the date an ancillary proceeding is brought in this state; and (2) any subsequent period as determined by the court. (b) If a covered claim arises from a judgment, order, verdict, finding, or other decision based on the default of an impaired insurer or the insurer's failure to defend an insured, the association on the association's behalf or on behalf of the insured may apply to the court or administrator that made the decision to have the decision set aside and is entitled to defend the claim on the merits. (V.T.I.C. Art. 21.28-D, Sec. 18 (part).)
[Sections 463.405-463.450 reserved for expansion]
SUBCHAPTER J. PROHIBITED PRACTICES
Sec. 463.451. PROHIBITED USE OF PROTECTION PROVIDED BY CHAPTER. (a) A person may not make, publish, disseminate, circulate, or place before the public, or directly or indirectly cause to be made, published, disseminated, circulated, or placed before the public, a written or oral advertisement, announcement, or statement that uses the existence of the association to sell, solicit, or induce the purchase of a kind of insurance with respect to which this chapter provides coverage. (b) This section applies to an advertisement, announcement, or statement made, published, disseminated, circulated, or placed before the public: (1) in a newspaper, magazine, or other publication; (2) in a notice, circular, pamphlet, letter, or poster; (3) over a radio or television station; or (4) in any other manner. (c) Except as provided by Section 463.114, the use by a person of the protection provided by this chapter in the sale of insurance is unfair competition and an unfair practice under Chapter 541. (d) This section does not apply to the association or any other entity that does not sell or solicit insurance. (V.T.I.C. Art. 21.28-D, Sec. 19(a).)
[Chapters 464-480 reserved for expansion]
SUBTITLE E. REQUIREMENTS OF OTHER JURISDICTIONS
CHAPTER 481. VOLUNTARY DEPOSITS
Sec. 481.001. DEPOSIT WITH COMPTROLLER Sec. 481.002. APPLICABILITY OF CHAPTER TO CERTAIN DEPOSITS Sec. 481.003. DUTIES OF COMPTROLLER Sec. 481.004. ACCESS TO DEPOSIT Sec. 481.005. SITUS OF DEPOSIT FOR TAX PURPOSES Sec. 481.006. WITHDRAWAL OF DEPOSIT Sec. 481.007. WITHDRAWAL OF DEPOSIT AFTER MERGER, CONSOLIDATION, OR TOTAL REINSURANCE Sec. 481.008. RETURN OF DEPOSIT Sec. 481.009. DELIVERY OF DEPOSIT BY COMPTROLLER
CHAPTER 481. VOLUNTARY DEPOSITS
Sec. 481.001. DEPOSIT WITH COMPTROLLER. (a) An insurer organized and engaged in business under this code that is required by another state, country, or province as a condition of engaging in an insurance business in that state, country, or province to make or maintain a deposit with an officer of any state, country, or province may, at the insurer's discretion, voluntarily deposit with the comptroller cash or securities in an amount that is sufficient to satisfy the conditions of the other state, country, or province. (b) Any securities deposited must be approved by the commissioner as being of a type and character in which the insurer is authorized by law to invest. (V.T.I.C. Art. 1.10, Sec. 17(a) (part).) Sec. 481.002. APPLICABILITY OF CHAPTER TO CERTAIN DEPOSITS. A voluntary deposit held by the comptroller or the department that was made by an insurer in this state before May 8, 1959, to gain admission to another state may, at the insurer's option, be considered to be held under this chapter. (V.T.I.C. Art. 1.10, Sec. 17(b).) Sec. 481.003. DUTIES OF COMPTROLLER. The comptroller shall receive a deposit made by an insurer as described by this chapter and hold it exclusively for the protection of all policyholders or creditors of the insurer, wherever they are located, or for the protection of the insurer's policyholders or creditors in a particular state, country, or province, as designated by the insurer at the time the insurer makes the deposit. (V.T.I.C. Art. 1.10, Sec. 17(a) (part).) Sec. 481.004. ACCESS TO DEPOSIT. In accordance with reasonable rules adopted by the comptroller and the commissioner, the proper officer of an insurer making a deposit as described by this chapter may at a reasonable time: (1) examine the deposit; (2) detach coupons from the securities; and (3) collect interest on the deposit. (V.T.I.C. Art. 1.10, Sec. 17(a) (part).) Sec. 481.005. SITUS OF DEPOSIT FOR TAX PURPOSES. For purposes of state, county, or municipal taxation, the situs of deposited securities is the municipality and county in which the principal business office of the insurer making the deposit is fixed by the insurer's charter. (V.T.I.C. Art. 1.10, Sec. 17(a) (part).) Sec. 481.006. WITHDRAWAL OF DEPOSIT. (a) An insurer that makes a deposit as described by this chapter may, at the insurer's option, withdraw all or part of the deposit if: (1) the insurer first deposits with the comptroller other securities of like class as, and of an amount and value equal to, the securities proposed to be withdrawn; and (2) the withdrawal and substitution are approved by the commissioner. (b) An insurer, without making a substitute deposit under Subsection (a), may not withdraw all or part of a deposit made as described by this chapter for the protection of the insurer's policyholders or creditors in a particular state, country, or province that requires the deposit unless: (1) the insurer files with the commissioner evidence that satisfies the commissioner that the insurer has withdrawn from business and does not have any unsecured liabilities outstanding or potential policyholder liabilities or obligations in the other state, country, or province; and (2) the commissioner approves the withdrawal. (c) An insurer, without making a substitute deposit under Subsection (a), may not withdraw all or part of a deposit made as described by this chapter for the protection of all of the insurer's policyholders or creditors, wherever they are located, unless: (1) the insurer files with the commissioner evidence that satisfies the commissioner that the insurer does not have any unsecured liabilities outstanding or potential policy liabilities or obligations anywhere; and (2) the commissioner approves the withdrawal. (V.T.I.C. Art. 1.10, Sec. 17(a) (part).) Sec. 481.007. WITHDRAWAL OF DEPOSIT AFTER MERGER, CONSOLIDATION, OR TOTAL REINSURANCE. When two or more insurers that have two or more deposits made for identical purposes as described by this chapter or former Article 4739, Revised Statutes, merge, consolidate, or enter into a total reinsurance contract by which the ceding insurer is dissolved and the ceding insurer's assets and liabilities are acquired or assumed by the surviving insurer, the new, surviving, or reinsuring insurer may withdraw all of the deposits, except for the deposit of the greatest amount and value. The new, surviving, or reinsuring insurer must demonstrate that the deposits are duplicated and that the insurer is the owner of the deposits. (V.T.I.C. Art. 1.10, Sec. 17(c).) Sec. 481.008. RETURN OF DEPOSIT. An insurer that has made a deposit as described by this chapter or former Article 4739, Revised Statutes, is entitled to a return of the deposit if the insurer applies for the return of the deposit and demonstrates to the commissioner that the deposit is no longer required under the laws of any state, country, or province in which the insurer sought or gained admission to engage in business based on a certificate of the deposit. (V.T.I.C. Art. 1.10, Sec. 17(d).) Sec. 481.009. DELIVERY OF DEPOSIT BY COMPTROLLER. On being provided a certified copy of the commissioner's order issued under Section 481.007 or 481.008, the comptroller shall release, transfer, and deliver the deposit to the owner of the deposit in accordance with the order. (V.T.I.C. Art. 1.10, Sec. 17(e).)
[Chapters 482-490 reserved for expansion]
SUBTITLE F. REINSURANCE
CHAPTER 491. GENERAL REINSURANCE REQUIREMENTS
SUBCHAPTER A. REINSURANCE
Sec. 491.001. INAPPLICABILITY OF SUBCHAPTER Sec. 491.002. REINSURANCE PERMITTED Sec. 491.003. RISK LIMITATION FOR DOMESTIC OR FOREIGN INSURER Sec. 491.004. RISK LIMITATION FOR ALIEN INSURER Sec. 491.005. COMPLIANCE WITH OTHER LAW
[Sections 491.006-491.050 reserved for expansion]
SUBCHAPTER B. COMPUTATION OF REINSURANCE RESERVE
Sec. 491.051. COMPUTATION OF RESERVE FOR INSURER WITH NO BASIS PRESCRIBED BY LAW Sec. 491.052. COMPUTATION OF REINSURANCE RESERVES FOR CERTAIN INSURERS
CHAPTER 491. GENERAL REINSURANCE REQUIREMENTS
SUBCHAPTER A. REINSURANCE
Sec. 491.001. INAPPLICABILITY OF SUBCHAPTER. This subchapter does not apply to: (1) life insurance; (2) health insurance; (3) annuity contracts; (4) title insurance; (5) workers' compensation insurance; (6) employers' liability insurance coverage; or (7) any policy or kind of coverage for which the maximum possible loss to the insurer is not readily ascertainable on the policy's issuance. (V.T.I.C. Art. 21.72, Sec. 3.) Sec. 491.002. REINSURANCE PERMITTED. An insurer or reinsurer authorized to engage in the business of insurance or reinsurance in this state may reinsure all or part of a single risk in another solvent insurer. (V.T.I.C. Art. 21.72, Sec. 2.) Sec. 491.003. RISK LIMITATION FOR DOMESTIC OR FOREIGN INSURER. An insurer incorporated under the laws of this state, another state, or the United States and authorized to engage in business in this state may not expose itself to a loss or hazard on a single risk in an amount that exceeds 10 percent of the insurer's surplus for policyholders unless the insurer reinsures the excess in another solvent insurer. (V.T.I.C. Art. 21.72, Sec. 1(a).) Sec. 491.004. RISK LIMITATION FOR ALIEN INSURER. An insurer incorporated under the laws of a jurisdiction other than this state, another state, or the United States and authorized to engage in business in this state may not, unless the insurer reinsures the excess in another solvent insurer, expose itself to a loss or hazard on a single risk in an amount that exceeds the sum of: (1) 10 percent of the insurer's deposit with the statutory officer in the state through which the insurer is authorized to engage in business in the United States; and (2) 10 percent of the other surplus for policyholders of the insurer's United States branch. (V.T.I.C. Art. 21.72, Sec. 1(b).) Sec. 491.005. COMPLIANCE WITH OTHER LAW. Reinsurance that is required or permitted by this subchapter must comply with Chapter 493. (V.T.I.C. Art. 21.72, Sec. 4.)
[Sections 491.006-491.050 reserved for expansion]
SUBCHAPTER B. COMPUTATION OF REINSURANCE RESERVE
Sec. 491.051. COMPUTATION OF RESERVE FOR INSURER WITH NO BASIS PRESCRIBED BY LAW. For an insurer engaged in the business of a kind of insurance in this state, for which no basis is prescribed by law, the department shall compute the reinsurance reserve on the basis prescribed by Section 862.102 for an insurer writing fire insurance. (V.T.I.C. Art. 1.10, Sec. 3.) Sec. 491.052. COMPUTATION OF REINSURANCE RESERVES FOR CERTAIN INSURERS. (a) On December 31 of each year, or as soon as practicable after that date, the department shall, in accordance with Section 491.051, compute the reinsurance reserve for all unexpired risks of each insurer organized under the laws of this state or engaged in the business of insurance in this state. (b) This section does not apply to: (1) life insurance; (2) fire insurance; (3) marine insurance; (4) inland marine insurance; (5) lightning insurance; or (6) tornado insurance. (V.T.I.C. Art. 1.10, Sec. 4.)
CHAPTER 492. REINSURANCE FOR LIFE, HEALTH, AND ACCIDENT INSURANCE COMPANIES AND RELATED ENTITIES
SUBCHAPTER A. GENERAL PROVISIONS
Sec. 492.001. DEFINITIONS Sec. 492.002. APPLICABILITY OF CHAPTER Sec. 492.003. RULES
[Sections 492.004-492.050 reserved for expansion]
SUBCHAPTER B. REINSURANCE
Sec. 492.051. REINSURANCE AUTHORIZED Sec. 492.052. LIMITATION ON REINSURANCE OF ENTIRE OUTSTANDING BUSINESS Sec. 492.053. LIMITATION ON REINSURANCE OF RISKS OF INSURER WITH LESS THAN MINIMUM CAPITAL AND SURPLUS Sec. 492.054. FILING OF REINSURANCE SCHEDULES Sec. 492.055. ACCOUNTING FOR REINSURANCE CONTRACTS Sec. 492.056. LIMITATION ON RIGHTS AGAINST REINSURER
[Sections 492.057-492.100 reserved for expansion]
SUBCHAPTER C. CREDIT FOR REINSURANCE
Sec. 492.101. EXCLUSIVE PROCEDURE FOR TAKING CREDIT FOR REINSURANCE Sec. 492.102. CREDIT FOR REINSURANCE GENERALLY Sec. 492.103. ACCREDITED REINSURER Sec. 492.104. CREDIT FOR FUNDS SECURING REINSURANCE OBLIGATIONS Sec. 492.105. ACCEPTABILITY OF CERTAIN LETTERS OF CREDIT Sec. 492.106. CREDIT FOR REINSURANCE: DIRECT PAYMENT ON LIABILITY REQUIRED Sec. 492.107. REQUEST FOR INFORMATION FROM ASSUMING INSURER
[Sections 492.108-492.150 reserved for expansion]
SUBCHAPTER D. REQUIREMENTS FOR TRUST CREDIT ALLOWANCE
Sec. 492.151. APPLICABILITY OF SUBCHAPTER Sec. 492.152. COMPOSITION OF TRUST Sec. 492.153. FORM OF TRUST Sec. 492.154. TERMS OF TRUST Sec. 492.155. REPORTS AND CERTIFICATION Sec. 492.156. CERTAIN TRUSTEED ASSUMING INSURERS: REQUIREMENTS FOR REINSURANCE CONTRACT Sec. 492.157. EXAMINATION OF TRUST AND ASSUMING INSURER
CHAPTER 492. REINSURANCE FOR LIFE, HEALTH, AND ACCIDENT INSURANCE COMPANIES AND RELATED ENTITIES
SUBCHAPTER A. GENERAL PROVISIONS
Sec. 492.001. DEFINITIONS. In this chapter: (1) "Assuming insurer" means an insurer that, under a reinsurance contract, incurs an obligation to a ceding insurer, the performance of which is contingent on the ceding insurer's incurring liability or loss under the ceding insurer's insurance contract with a third person. (2) "Qualified United States financial institution" means an institution that: (A) is organized or, in the case of a United States branch or agency office of a foreign banking organization, licensed, under the laws of the United States or any state of the United States; and (B) is regulated, supervised, and examined by a federal or state authority that has regulatory authority over banks and trust companies. (V.T.I.C. Art. 3.10, Secs. (e) (part), (k).) Sec. 492.002. APPLICABILITY OF CHAPTER. (a) Except as provided by Subsection (b), this chapter applies to: (1) all life, health, and accident insurance companies regulated by the department, including: (A) a stock or mutual life, health, or accident insurance company; (B) a fraternal benefit society; and (C) a nonprofit hospital, medical, or dental service corporation, including a group hospital service corporation operating under Chapter 842; and (2) a health maintenance organization operating under Chapter 843. (b) This chapter does not apply to a ceding insurer domiciled in another state that regulates credit for reinsurance under statutes, rules, or regulations substantially similar in substance or effect to this chapter if the ceding insurer on request provides the commissioner with: (1) evidence of the similarity in the form of those statutes, rules, or regulations; and (2) an interpretation of the statutes, rules, or regulations and the standards used by the state of domicile. (V.T.I.C. Art. 3.10, Sec. (a) (part).) Sec. 492.003. RULES. The commissioner may adopt rules implementing this chapter. (V.T.I.C. Art. 3.10, Sec. (f).)
[Sections 492.004-492.050 reserved for expansion]
SUBCHAPTER B. REINSURANCE
Sec. 492.051. REINSURANCE AUTHORIZED. (a) An insurer authorized to engage in the business of insurance in this state may reinsure in any solvent assuming insurer any risk or part of a risk that both insurers are authorized to assume. (b) A life insurance company authorized to engage in business in this state may provide reinsurance on the same basis as an insurer described by Section 493.051(b). (c) The commissioner may adopt necessary and reasonable rules under Subsection (b) to protect the public interest. (V.T.I.C. Art. 3.10, Sec. (a) (part); Art. 5.75-1, Secs. (l), (m).) Sec. 492.052. LIMITATION ON REINSURANCE OF ENTIRE OUTSTANDING BUSINESS. (a) An insurer may not reinsure the insurer's entire outstanding business in an assuming insurer unless the assuming insurer is authorized to engage in the business of insurance in this state. (b) Before the date of reinsurance: (1) the reinsurance contract must be submitted to the commissioner; and (2) the commissioner must approve the contract as fully protecting the interests of all policyholders. (V.T.I.C. Art. 3.10, Sec. (a) (part).) Sec. 492.053. LIMITATION ON REINSURANCE OF RISKS OF INSURER WITH LESS THAN MINIMUM CAPITAL AND SURPLUS. An insurer operating under Section 841.204 may not reinsure any risk or part of a risk in an insurer that is not authorized to engage in the business of insurance in this state. (V.T.I.C. Art. 3.10, Sec. (a) (part).) Sec. 492.054. FILING OF REINSURANCE SCHEDULES. The commissioner shall require each insurer to file reinsurance schedules: (1) when the insurer makes the insurer's annual report; and (2) at other times as the commissioner directs. (V.T.I.C. Art. 3.10, Sec. (i).) Sec. 492.055. ACCOUNTING FOR REINSURANCE CONTRACTS. (a) An insurer shall account for reinsurance contracts and shall record the contracts in the insurer's financial statements in a manner that accurately reflects the effect of the contracts on the insurer's financial condition. (b) A reinsurance contract may contain a provision allowing the offset of mutual debts and credits between the ceding insurer and the assuming insurer, whether arising out of one or more reinsurance contracts. (c) The commissioner may adopt reasonable rules relating to: (1) the accounting and financial statement requirements of this section and the treatment of reinsurance contracts between insurers, including minimum risk transfer standards, asset debits or credits, reinsurance debits or credits, and reserve debits or credits relating to the transfer of all or any part of an insurer's risks or liabilities by reinsurance contracts; and (2) any contingencies arising from reinsurance contracts. (d) A rule adopted under Subsection (c) after September 1, 1995, applies to: (1) a reinsurance contract entered into on or after the effective date of the rule; and (2) a reinsurance contract that is amended on or after the effective date of the rule. (V.T.I.C. Art. 3.10, Sec. (l).) Sec. 492.056. LIMITATION ON RIGHTS AGAINST REINSURER. A person does not have a right against a reinsurer that is not specifically stated in: (1) the reinsurance contract; or (2) a specific agreement between the reinsurer and the person. (V.T.I.C. Art. 3.10, Sec. (h).)
[Sections 492.057-492.100 reserved for expansion]
SUBCHAPTER C. CREDIT FOR REINSURANCE
Sec. 492.101. EXCLUSIVE PROCEDURE FOR TAKING CREDIT FOR REINSURANCE. A ceding insurer may take a credit for reinsurance, as an asset or as a deduction from liability, only as provided by this chapter. (V.T.I.C. Art. 3.10, Sec. (a) (part).) Sec. 492.102. CREDIT FOR REINSURANCE GENERALLY. (a) A ceding insurer may be allowed credit for reinsurance ceded, as an asset or as a deduction from liability, only if the reinsurance is ceded to an assuming insurer that: (1) is authorized to engage in the business of insurance or reinsurance in this state; (2) is accredited as a reinsurer in this state, as provided by Section 492.103; or (3) subject to Subchapter D, maintains, in a qualified United States financial institution that has been granted the authority to operate with fiduciary powers, a trust fund to pay valid claims of: (A) the assuming insurer's United States policyholders and ceding insurers; and (B) the policyholders' and ceding insurers' assigns and successors in interest. (b) Notwithstanding Subsection (a), a ceding insurer may be allowed credit for reinsurance ceded to an assuming insurer that does not meet the requirements of that subsection, but only with respect to the insurance of risks located in a jurisdiction in which the reinsurance is required by the jurisdiction's law, including regulations, to be ceded to an assuming insurer that does not meet the requirements of that subsection. (V.T.I.C. Art. 3.10, Secs. (b) (part), (e) (part).) Sec. 492.103. ACCREDITED REINSURER. For purposes of Section 492.102(a)(2), an insurer is accredited as a reinsurer in this state if the insurer: (1) submits to this state's jurisdiction; (2) submits to this state's authority to examine the insurer's books and records; (3) is domiciled and authorized to engage in the business of insurance or reinsurance in at least one state or, if the insurer is a United States branch of an alien assuming insurer, is entered through and authorized to engage in the business of insurance or reinsurance in at least one state; (4) annually files with the department a copy of the annual statement the insurer files with the insurance department of the insurer's state of domicile; and (5) maintains a surplus as regards policyholders in an amount of at least $20 million. (V.T.I.C. Art. 3.10, Sec. (b) (part).) Sec. 492.104. CREDIT FOR FUNDS SECURING REINSURANCE OBLIGATIONS. (a) Subject to Subsection (b), any asset or deduction from liability for reinsurance ceded to an assuming insurer that does not meet the requirements of Section 492.102 shall be allowed in an amount that does not exceed the liabilities carried by the ceding insurer and in the amount of funds held by or on behalf of the ceding insurer under a reinsurance contract with the assuming insurer, including funds held in trust for the ceding insurer, as security for the payment of obligations under the contract. (b) The funds held as security: (1) must be held in the United States subject to withdrawal solely by and under the exclusive control of the ceding insurer or, in the case of a trust, held in a qualified United States financial institution that has been granted the authority to operate with fiduciary powers; and (2) may be in the form of: (A) cash; (B) securities that: (i) are readily marketable over a national exchange; (ii) have a maturity date of not later than one year; (iii) are listed by the Securities Valuation Office of the National Association of Insurance Commissioners; and (iv) qualify as admitted assets; (C) subject to Section 492.105, a clean, irrevocable, unconditional letter of credit, issued or confirmed by a qualified United States financial institution that has been determined by the commissioner or the Securities Valuation Office of the National Association of Insurance Commissioners to meet the standards of financial condition and standing that are considered necessary and appropriate to regulate the quality of financial institutions whose letters of credit will be acceptable to the commissioner; or (D) another form of security acceptable to the commissioner. (V.T.I.C. Art. 3.10, Secs. (d) (part), (e) (part).) Sec. 492.105. ACCEPTABILITY OF CERTAIN LETTERS OF CREDIT. A letter of credit issued or confirmed by an institution that meets the standards prescribed by Section 492.104(b)(2)(C) as of the date the letter is issued or confirmed, but later fails to meet those standards, continues to be acceptable as security under Section 492.104 until the earliest of: (1) the letter's expiration; (2) the letter's extension, renewal, modification, or amendment after the date the institution fails to meet those standards; or (3) the expiration of the three-month period after the date the institution fails to meet those standards. (V.T.I.C. Art. 3.10, Sec. (d) (part).) Sec. 492.106. CREDIT FOR REINSURANCE: DIRECT PAYMENT ON LIABILITY REQUIRED. A ceding insurer may not be given credit for reinsurance ceded, as an asset or as a deduction from liability, in an accounting or financial statement unless the reinsurance is payable by the assuming insurer: (1) on the liability of the ceding insurer under the contracts reinsured, without diminution because of the ceding insurer's insolvency; and (2) directly to the ceding insurer or to the ceding insurer's domiciliary liquidator or receiver. (V.T.I.C. Art. 3.10, Sec. (j).) Sec. 492.107. REQUEST FOR INFORMATION FROM ASSUMING INSURER. (a) The commissioner may request that an assuming insurer not meeting the requirements of Section 492.102 file: (1) financial statements certified and audited by an independent certified public accountant; (2) a certified copy of the certificate or letter of authority from the domiciliary jurisdiction; and (3) information on the principals and management of the assuming insurer. (b) If an assuming insurer does not comply with a request under this section, the commissioner may issue a directive prohibiting all authorized insurers from taking credit for business ceded to the assuming insurer after the effective date of the directive. (c) An unauthorized insurer that is included in the most recent quarterly listing published by the International Insurers Department of the National Association of Insurance Commissioners is considered to have complied with a request under this section. (V.T.I.C. Art. 3.10, Sec. (m).)
[Sections 492.108-492.150 reserved for expansion]
SUBCHAPTER D. REQUIREMENTS FOR TRUST CREDIT ALLOWANCE
Sec. 492.151. APPLICABILITY OF SUBCHAPTER. This subchapter applies to a trust that is used to qualify for a reinsurance credit under Section 492.102(a)(3) and to the assuming insurer that maintains the trust fund. (New.) Sec. 492.152. COMPOSITION OF TRUST. (a) If the assuming insurer is a single insurer, the trust must: (1) consist of a trusteed account representing the assuming insurer's liabilities attributable to business written in the United States; and (2) include a trusteed surplus of at least $20 million. (b) If the assuming insurer is a group of insurers that includes an unincorporated individual insurer: (1) the trust must: (A) consist of a trusteed account representing the group's liabilities attributable to business written in the United States; and (B) include a trusteed surplus of at least $100 million; and (2) the group shall make available to the department an annual certification by the group's domiciliary regulator and its independent public accountants of each underwriter's solvency. (V.T.I.C. Art. 3.10, Sec. (b) (part).) Sec. 492.153. FORM OF TRUST. The trust must be established in a form approved by the commissioner. (V.T.I.C. Art. 3.10, Sec. (b) (part).) Sec. 492.154. TERMS OF TRUST. (a) The trust instrument must provide that contested claims are valid and enforceable on the final order of any court in the United States. (b) The trust must vest legal title to the trust's assets in the trustees of the trust for: (1) the trust's United States policyholders and ceding insurers; and (2) the policyholders' and ceding insurers' assigns and successors in interest. (c) The trust must remain in effect as long as the assuming insurer has outstanding obligations under a reinsurance contract subject to the trust. (V.T.I.C. Art. 3.10, Sec. (b) (part).) Sec. 492.155. REPORTS AND CERTIFICATION. (a) Not later than February 28 of each year, the trustees of the trust shall: (1) report to the department in writing, showing the balance of the trust and listing the trust's investments at the end of the preceding year; and (2) certify the date of termination of the trust, if termination is planned, or certify that the trust will not expire before December 31 of the year of the report. (b) To enable the commissioner to determine the sufficiency of the trust fund under Section 492.102(a)(3), the assuming insurer shall report to the department not later than March 1 of each year information substantially the same as the information required to be reported by an authorized insurer on the National Association of Insurance Commissioners' Annual Statement form. (V.T.I.C. Art. 3.10, Sec. (b) (part).) Sec. 492.156. CERTAIN TRUSTEED ASSUMING INSURERS: REQUIREMENTS FOR REINSURANCE CONTRACT. (a) A ceding insurer may not be allowed credit under Section 492.102(a)(3) for reinsurance ceded to an assuming insurer that is not authorized or accredited to engage in the business of insurance or reinsurance in this state unless the assuming insurer agrees in the reinsurance contract: (1) that, if the assuming insurer fails to perform the assuming insurer's obligations under the reinsurance contract, the assuming insurer, at the request of the ceding insurer, will: (A) submit to the jurisdiction of a court in any state of the United States; (B) comply with all requirements necessary to give the court jurisdiction; and (C) abide by the final decision of that court or, if the court's decision is appealed, of the appellate court; and (2) to designate the commissioner or an attorney as an agent for service of process in any action, suit, or proceeding instituted by or on behalf of the ceding insurer. (b) This section is not intended to conflict with or override a provision in a reinsurance contract that requires the parties to arbitrate the parties' disputes. (V.T.I.C. Art. 3.10, Sec. (c).) Sec. 492.157. EXAMINATION OF TRUST AND ASSUMING INSURER. The trust and the assuming insurer are subject to examination as determined by the commissioner. (V.T.I.C. Art. 3.10, Sec. (b) (part).)
CHAPTER 493. REINSURANCE FOR PROPERTY AND
CASUALTY INSURERS
SUBCHAPTER A. GENERAL PROVISIONS
Sec. 493.001. DEFINITIONS Sec. 493.002. APPLICABILITY OF CHAPTER Sec. 493.003. RULES
[Sections 493.004-493.050 reserved for expansion]
SUBCHAPTER B. REINSURANCE
Sec. 493.051. REINSURANCE AUTHORIZED Sec. 493.052. LIMITATION ON REINSURANCE OF ENTIRE OUTSTANDING BUSINESS Sec. 493.053. FILING OF REINSURANCE SCHEDULES Sec. 493.054. ACCOUNTING FOR REINSURANCE CONTRACTS Sec. 493.055. LIMITATION ON RIGHTS AGAINST REINSURER
[Sections 493.056-493.100 reserved for expansion]
SUBCHAPTER C. CREDIT FOR REINSURANCE
Sec. 493.101. EXCLUSIVE PROCEDURE FOR TAKING CREDIT FOR REINSURANCE Sec. 493.102. CREDIT FOR REINSURANCE GENERALLY Sec. 493.103. ACCREDITED REINSURER Sec. 493.104. CREDIT FOR FUNDS SECURING REINSURANCE OBLIGATIONS Sec. 493.105. ACCEPTABILITY OF CERTAIN LETTERS OF CREDIT Sec. 493.106. CREDIT FOR REINSURANCE: DIRECT PAYMENT ON LIABILITY REQUIRED Sec. 493.107. REQUEST FOR INFORMATION FROM ASSUMING INSURER
[Sections 493.108-493.150 reserved for expansion]
SUBCHAPTER D. REQUIREMENTS FOR TRUST CREDIT ALLOWANCE
Sec. 493.151. APPLICABILITY OF SUBCHAPTER Sec. 493.152. COMPOSITION OF TRUST Sec. 493.153. FORM OF TRUST Sec. 493.154. TERMS OF TRUST Sec. 493.155. REPORTS AND CERTIFICATION Sec. 493.156. CERTAIN TRUSTEED ASSUMING INSURERS: REQUIREMENTS FOR REINSURANCE CONTRACT Sec. 493.157. EXAMINATION OF TRUST AND ASSUMING INSURER
CHAPTER 493. REINSURANCE FOR PROPERTY AND
CASUALTY INSURERS
SUBCHAPTER A. GENERAL PROVISIONS
Sec. 493.001. DEFINITIONS. In this chapter: (1) "Assuming insurer" means an insurer that, under a reinsurance contract, incurs an obligation to a ceding insurer, the performance of which is contingent on the ceding insurer incurring liability or loss under the ceding insurer's insurance contract with a third person. (2) "Qualified United States financial institution" means an institution that: (A) is organized or, in the case of a United States branch or agency office of a foreign banking organization, licensed, under the laws of the United States or any state of the United States; and (B) is regulated, supervised, and examined by a federal or state authority that has regulatory authority over banks and trust companies. (V.T.I.C. Art. 5.75-1, Secs. (e)(1) (part), (2) (part), (j).) Sec. 493.002. APPLICABILITY OF CHAPTER. (a) Except as provided by Subsection (b), this chapter applies to all insurers, including: (1) a stock or mutual property and casualty insurance company; (2) a Mexican casualty insurance company; (3) a Lloyd's plan; (4) a reciprocal or interinsurance exchange; (5) a nonprofit legal service corporation; (6) a county mutual insurance company; (7) a farm mutual insurance company; (8) a risk retention group; and (9) any insurer writing a line of insurance regulated by Title 10. (b) This chapter does not apply to a ceding insurer domiciled in another state that regulates credit for reinsurance under statutes, rules, or regulations substantially similar in substance and effect to this chapter if the ceding insurer on request provides the commissioner with: (1) evidence of the similarity in the form of those statutes, rules, or regulations; and (2) an interpretation of the standards used by the state of domicile. (V.T.I.C. Art. 5.75-1, Sec. (a) (part).) Sec. 493.003. RULES. The commissioner may adopt necessary and reasonable rules under this chapter to protect the public interest. (V.T.I.C. Art. 5.75-1, Sec. (m).)
[Sections 493.004-493.050 reserved for expansion]
SUBCHAPTER B. REINSURANCE
Sec. 493.051. REINSURANCE AUTHORIZED. (a) An insurer authorized to engage in the business of insurance in this state may reinsure, in any solvent assuming insurer, any risk or part of a risk that both insurers are authorized by law to assume. (b) An insurer authorized to engage in business in this state that writes any line of insurance regulated by Title 10 may provide reinsurance under this chapter while the insurer is in compliance with law. (V.T.I.C. Art. 5.75-1, Secs. (a) (part), (k).) Sec. 493.052. LIMITATION ON REINSURANCE OF ENTIRE OUTSTANDING BUSINESS. (a) An insurer may not reinsure the insurer's entire outstanding business in an assuming insurer unless the assuming insurer is authorized to engage in the business of insurance in this state. (b) Before the date of reinsurance: (1) the reinsurance contract must be submitted to the commissioner; and (2) the commissioner must approve the contract as fully protecting the interests of all policyholders. (V.T.I.C. Art. 5.75-1, Sec. (a) (part).) Sec. 493.053. FILING OF REINSURANCE SCHEDULES. The commissioner shall require each insurer to file reinsurance schedules: (1) when the insurer makes the insurer's annual report; and (2) at other times as the commissioner directs. (V.T.I.C. Art. 5.75-1, Sec. (h).) Sec. 493.054. ACCOUNTING FOR REINSURANCE CONTRACTS. (a) An insurer shall account for reinsurance contracts and shall record the contracts in the insurer's financial statements in a manner that accurately reflects the effect of the contracts on the insurer's financial condition. (b) A reinsurance contract may contain a provision allowing the offset of mutual debts and credits between the ceding insurer and the assuming insurer, whether arising out of one or more reinsurance contracts. (c) The commissioner may adopt reasonable rules relating to: (1) the accounting and financial statement requirements of this section and the treatment of reinsurance contracts between insurers, including minimum risk transfer standards, asset debits or credits, reinsurance debits or credits, and reserve debits or credits relating to the transfer of all or any part of an insurer's risks or liabilities by reinsurance contracts; and (2) any contingencies arising from reinsurance contracts. (V.T.I.C. Art. 5.75-1, Sec. (n).) Sec. 493.055. LIMITATION ON RIGHTS AGAINST REINSURER. A person does not have a right against a reinsurer that is not specifically stated in: (1) the reinsurance contract; or (2) a specific agreement between the reinsurer and the person. (V.T.I.C. Art. 5.75-1, Sec. (g).)
[Sections 493.056-493.100 reserved for expansion]
SUBCHAPTER C. CREDIT FOR REINSURANCE
Sec. 493.101. EXCLUSIVE PROCEDURE FOR TAKING CREDIT FOR REINSURANCE. A ceding insurer may take a credit for reinsurance, as an asset or as a deduction from liability, only as provided by this chapter. (V.T.I.C. Art. 5.75-1, Sec. (a) (part).) Sec. 493.102. CREDIT FOR REINSURANCE GENERALLY. (a) A ceding insurer may be allowed credit for reinsurance ceded, as an asset or as a deduction from liability, only if the reinsurance is ceded to an assuming insurer that: (1) is authorized to engage in the business of insurance or reinsurance in this state; (2) is accredited as a reinsurer in this state, as provided by Section 493.103; or (3) subject to Subchapter D, maintains, in a qualified United States financial institution that has been granted the authority to operate with fiduciary powers, a trust fund to pay valid claims of: (A) the assuming insurer's United States policyholders and ceding insurers; and (B) the policyholders' and ceding insurers' assigns and successors in interest. (b) Notwithstanding Subsection (a), a ceding insurer may be allowed credit for reinsurance ceded to an assuming insurer that does not meet the requirements of that subsection, but only with respect to the insurance of risks located in a jurisdiction in which the reinsurance is required by the jurisdiction's law, including regulations, to be ceded to an assuming insurer that does not meet the requirements of that subsection. (V.T.I.C. Art. 5.75-1, Secs. (b) (part), (e)(2) (part).) Sec. 493.103. ACCREDITED REINSURER. For purposes of Section 493.102(a)(2), an insurer is accredited as a reinsurer in this state if the insurer: (1) submits to this state's jurisdiction; (2) submits to this state's authority to examine the insurer's books and records; (3) is domiciled and authorized to engage in the business of insurance or reinsurance in at least one state or, if the insurer is a United States branch of an alien assuming insurer, is entered through and authorized to engage in the business of insurance or reinsurance in at least one state; (4) annually files with the department a copy of the annual statement the insurer files with the insurance department of the insurer's state of domicile; and (5) maintains a surplus as regards policyholders in an amount of at least $20 million. (V.T.I.C. Art. 5.75-1, Sec. (b) (part).) Sec. 493.104. CREDIT FOR FUNDS SECURING REINSURANCE OBLIGATIONS. (a) Subject to Subsection (b), any asset or deduction from liability for reinsurance ceded to an assuming insurer that does not meet the requirements of Section 493.102 shall be allowed in an amount that does not exceed the liabilities carried by the ceding insurer and in the amount of funds held by or on behalf of the ceding insurer under a reinsurance contract with the assuming insurer, including funds held in trust for the ceding insurer, as security for the payment of obligations under the contract. (b) The funds held as security: (1) must be held in the United States subject to withdrawal solely by and under the exclusive control of the ceding insurer or, in the case of a trust, held in a qualified United States financial institution that has been granted the authority to operate with fiduciary powers; and (2) may be in the form of: (A) cash; (B) securities that: (i) are readily marketable over a national exchange; (ii) have a maturity date of not later than one year; (iii) are listed by the Securities Valuation Office of the National Association of Insurance Commissioners; and (iv) qualify as admitted assets; (C) subject to Section 493.105, a clean, irrevocable, unconditional letter of credit, issued or confirmed by a qualified United States financial institution that has been determined by the commissioner or the Securities Valuation Office of the National Association of Insurance Commissioners to meet the standards of financial condition and standing that are considered necessary and appropriate to regulate the quality of financial institutions whose letters of credit will be acceptable to the commissioner; or (D) another form of security acceptable to the commissioner. (V.T.I.C. Art. 5.75-1, Secs. (d) (part), (e)(1) (part).) Sec. 493.105. ACCEPTABILITY OF CERTAIN LETTERS OF CREDIT. A letter of credit issued or confirmed by an institution that meets the standards prescribed by Section 493.104(b)(2)(C) as of the date the letter is issued or confirmed, but later fails to meet those standards, continues to be acceptable as security under Section 493.104 until the earliest of: (1) the letter's expiration; (2) the letter's extension, renewal, modification, or amendment after the date the institution fails to meet those standards; or (3) the expiration of the three-month period after the date the institution fails to meet those standards. (V.T.I.C. Art. 5.75-1, Sec. (d) (part).) Sec. 493.106. CREDIT FOR REINSURANCE: DIRECT PAYMENT ON LIABILITY REQUIRED. (a) A ceding insurer may not be given credit for reinsurance ceded, as an asset or as a deduction from liability, in an accounting or financial statement unless the reinsurance is payable by the assuming insurer: (1) on the liability of the ceding insurer under the contracts reinsured, without diminution because of the ceding insurer's insolvency; and (2) directly to the ceding insurer or to the ceding insurer's domiciliary liquidator or receiver. (b) Subsection (a)(2) does not apply if: (1) the reinsurance contract specifically provides that, if the ceding insurer is insolvent, the reinsurance is payable to a payee other than one described by Subsection (a)(2); or (2) the assuming insurer, with the direct insured's consent, has assumed the ceding insurer's policy obligations to the payee as the assuming insurer's direct obligations to the payee under the policy as a substitute for the ceding insurer's obligations. (V.T.I.C. Art. 5.75-1, Sec. (i).) Sec. 493.107. REQUEST FOR INFORMATION FROM ASSUMING INSURER. (a) The commissioner may request that an assuming insurer not meeting the requirements of Section 493.102 file: (1) financial statements certified and audited by an independent certified public accountant; (2) a certified copy of the certificate or letter of authority from the domiciliary jurisdiction; and (3) information on the principals and management of the assuming insurer. (b) If an assuming insurer does not comply with a request under this section, the commissioner may issue a directive prohibiting all authorized insurers from taking credit for business ceded to the assuming insurer after the effective date of the directive. (c) An unauthorized insurer that is included in the most recent quarterly listing published by the International Insurers Department of the National Association of Insurance Commissioners is considered to have complied with a request under this section. (V.T.I.C. Art. 5.75-1, Sec. (o).)
[Sections 493.108-493.150 reserved for expansion]
SUBCHAPTER D. REQUIREMENTS FOR TRUST CREDIT ALLOWANCE
Sec. 493.151. APPLICABILITY OF SUBCHAPTER. This subchapter applies to a trust that is used to qualify for a reinsurance credit under Section 493.102(a)(3) and to the assuming insurer that maintains the trust fund. (New.) Sec. 493.152. COMPOSITION OF TRUST. (a) If the assuming insurer is a single insurer, the trust must: (1) consist of a trusteed account representing the assuming insurer's liabilities attributable to business written in the United States; and (2) include a trusteed surplus of at least $20 million. (b) If the assuming insurer is a group of insurers that includes an unincorporated individual insurer: (1) the trust must: (A) consist of a trusteed account representing the group's liabilities attributable to business written in the United States; and (B) include a trusteed surplus of at least $100 million; and (2) the group shall make available to the department an annual certification by the group's domiciliary regulator and its independent public accountants of each underwriter's solvency. (c) If the assuming insurer is a group of incorporated insurers under common administration that has continuously engaged in the business of insurance for at least three years, is under the supervision of the Department of Trade and Industry of the United Kingdom, and has an aggregate policyholders' surplus of $10 billion: (1) the trust must: (A) consist of a trusteed account representing the group's several liabilities attributable to business written in the United States under reinsurance contracts issued in the name of the group; and (B) include a trusteed surplus of not less than $100 million held jointly for the benefit of United States insurers that have ceded business to any member of the group; and (2) each member of the group shall make available to the department an annual certification by the member's domiciliary regulator and its independent public accountants of each member's solvency. (V.T.I.C. Art. 5.75-1, Sec. (b) (part).) Sec. 493.153. FORM OF TRUST. The trust must be established in a form approved by the commissioner. (V.T.I.C. Art. 5.75-1, Sec. (b) (part).) Sec. 493.154. TERMS OF TRUST. (a) The trust instrument must provide that contested claims are valid and enforceable on the final order of any court in the United States. (b) The trust must vest legal title to the trust's assets in the trustees of the trust for: (1) the trust's United States policyholders and ceding insurers; and (2) the policyholders' and ceding insurers' assigns and successors in interest. (c) The trust must remain in effect as long as the assuming insurer has outstanding obligations under a reinsurance contract subject to the trust. (V.T.I.C. Art. 5.75-1, Sec. (b) (part).) Sec. 493.155. REPORTS AND CERTIFICATION. (a) Not later than February 28 of each year, the trustees of the trust shall: (1) report to the department in writing, showing the balance of the trust and listing the trust's investments at the end of the preceding year; and (2) certify the date of termination of the trust, if termination is planned, or certify that the trust will not expire before December 31 of the year of the report. (b) To enable the commissioner to determine the sufficiency of the trust fund under Section 493.102(a)(3), the assuming insurer shall report to the department not later than March 1 of each year information substantially the same as the information required to be reported by an authorized insurer on the National Association of Insurance Commissioners' Annual Statement form. (V.T.I.C. Art. 5.75-1, Sec. (b) (part).) Sec. 493.156. CERTAIN TRUSTEED ASSUMING INSURERS: REQUIREMENTS FOR REINSURANCE CONTRACT. (a) A ceding insurer may not be allowed credit under Section 493.102(a)(3) for reinsurance ceded to an assuming insurer that is not authorized or accredited to engage in the business of insurance or reinsurance in this state unless the assuming insurer agrees in the reinsurance contract: (1) that, if the assuming insurer fails to perform the assuming insurer's obligations under the reinsurance contract, the assuming insurer, at the request of the ceding insurer, will: (A) submit to the jurisdiction of a court in any state of the United States; (B) comply with all requirements necessary to give the court jurisdiction; and (C) abide by the final decision of that court or, if the court's decision is appealed, of the appellate court; and (2) to designate the commissioner or an attorney as an agent for service of process in any action, suit, or proceeding instituted by or on behalf of the ceding insurer. (b) This section is not intended to conflict with or override a provision in a reinsurance contract that requires the parties to arbitrate the parties' disputes. (V.T.I.C. Art. 5.75-1, Sec. (c).) Sec. 493.157. EXAMINATION OF TRUST AND ASSUMING INSURER. The trust and the assuming insurer are subject to examination as determined by the commissioner. (V.T.I.C. Art. 5.75-1, Sec. (b) (part).)
CHAPTER 494. REINSURANCE OF AIRCRAFT AND SPACE EQUIPMENT RISKS
Sec. 494.001. DEFINITIONS Sec. 494.002. AUTHORITY TO REINSURE Sec. 494.003. REQUIREMENT FOR CEDING INSURER
CHAPTER 494. REINSURANCE OF AIRCRAFT AND SPACE EQUIPMENT RISKS
Sec. 494.001. DEFINITIONS. In this chapter: (1) "Aircraft" means an object that is capable of: (A) moving through the atmosphere, regardless of whether the object is powered or tethered; and (B) lifting the weight of the object and an additional payload. (2) "Space equipment" means a spacecraft, satellite, rocket, or other manmade object that may be: (A) launched from earth into orbit around a celestial body or for space travel; or (B) placed into orbit around a celestial body. (V.T.I.C. Art. 5.75-3, Sec. (a).) Sec. 494.002. AUTHORITY TO REINSURE. (a) A domestic insurance company as defined by Section 841.001, alone or together with another insurer, may reinsure any liability, property, casualty, collision, personal injury, death, or other risk relating to, arising from, or incident to the manufacture, ownership, custody, or operation of an aircraft or any space equipment, subject to any just and reasonable limitation imposed by the commissioner. (b) A limitation imposed by the commissioner must be consistent with the purposes of this chapter. (V.T.I.C. Art. 5.75-3, Sec. (b).) Sec. 494.003. REQUIREMENT FOR CEDING INSURER. To enter into a reinsurance agreement under this chapter, the ceding insurer must be authorized to engage in business in this state. (V.T.I.C. Art. 5.75-3, Sec. (c).) SECTION 2. TITLE 10, INSURANCE CODE. The Insurance Code is amended by adding Title 10 to read as follows:
TITLE 10. PROPERTY AND CASUALTY INSURANCE
SUBTITLE A. GENERAL PROVISIONS
CHAPTER 1801. PROPERTY AND CASUALTY INSURANCE LEGISLATIVE OVERSIGHT COMMITTEE CHAPTER 1802. PROPERTY AND CASUALTY INSURANCE INITIATIVES TASK FORCE CHAPTER 1803. REPORTS OF INSURANCE COVERAGE FOR STATE AGENCIES CHAPTER 1804. RATES AND FORMS FOR NATIONAL DEFENSE PROJECTS CHAPTER 1805. JOINT UNDERWRITING AND ADVISORY ORGANIZATIONS CHAPTER 1806. PROHIBITED PRACTICES AND REBATES RELATED TO POLICIES CHAPTER 1807. APPLICABILITY TO MARINE INSURANCE
[Chapters 1808-1900 reserved for expansion]
SUBTITLE B. LIABILITY INSURANCE FOR PHYSICIANS AND
HEALTH CARE PROVIDERS
CHAPTER 1901. PROFESSIONAL LIABILITY INSURANCE FOR PHYSICIANS AND HEALTH CARE PROVIDERS CHAPTER 1902. CERTAIN LIABILITY COVERAGE FOR PHYSICIANS AND HEALTH CARE PROVIDERS CHAPTER 1903. LOSS CONTROL INFORMATION AND SERVICES
[Chapters 1904-1950 reserved for expansion]
SUBTITLE C. AUTOMOBILE INSURANCE
CHAPTER 1951. GENERAL PROVISIONS: AUTOMOBILE INSURANCE CHAPTER 1952. POLICY PROVISIONS AND FORMS FOR AUTOMOBILE INSURANCE
[Chapters 1953-2000 reserved for expansion]
SUBTITLE D. FIRE INSURANCE AND ALLIED LINES,
INCLUDING RESIDENTIAL PROPERTY INSURANCE
CHAPTER 2001. GENERAL PROVISIONS: FIRE INSURANCE AND ALLIED LINES, INCLUDING RESIDENTIAL PROPERTY INSURANCE CHAPTER 2002. POLICY PROVISIONS AND FORMS FOR FIRE INSURANCE AND ALLIED LINES, INCLUDING RESIDENTIAL PROPERTY INSURANCE CHAPTER 2003. PROCEDURES FOR EVALUATING FIRE LOSS RISK CHAPTER 2004. RESIDENTIAL PROPERTY INSURANCE IN UNDERSERVED AREAS CHAPTER 2005. HOME WARRANTY AND HOME PROTECTION INSURANCE CHAPTER 2006. PREMIUM RATE DISCOUNTS CHAPTER 2007. ASSESSMENT FOR RURAL FIRE PROTECTION
[Chapters 2008-2050 reserved for expansion]
SUBTITLE E. WORKERS' COMPENSATION INSURANCE
CHAPTER 2051. GENERAL PROVISIONS: WORKERS' COMPENSATION INSURANCE CHAPTER 2052. POLICY PROVISIONS AND FORMS FOR WORKERS' COMPENSATION INSURANCE CHAPTER 2053. RATES FOR WORKERS' COMPENSATION INSURANCE CHAPTER 2054. TEXAS MUTUAL INSURANCE COMPANY
[Chapters 2055-2100 reserved for expansion]
SUBTITLE F. OTHER COVERAGE
CHAPTER 2101. COVERAGE FOR AIRCRAFT
[Chapters 2102-2150 reserved for expansion]
SUBTITLE G. POOLS, GROUPS, PLANS, AND SELF-INSURANCE
CHAPTER 2151. TEXAS AUTOMOBILE INSURANCE PLAN ASSOCIATION CHAPTER 2152. GROUP INSURANCE IN UNDERSERVED AREAS CHAPTER 2153. GROUP MARKETING OF AUTOMOBILE INSURANCE FOR PERSONS OVER 55 YEARS OF AGE CHAPTER 2154. VOLUNTEER FIRE DEPARTMENT MOTOR VEHICLE SELF-INSURANCE PROGRAM
[Chapters 2155-2170 reserved for expansion]
CHAPTER 2171. COMMERCIAL GROUP PROPERTY INSURANCE
[Chapters 2172-2200 reserved for expansion]
CHAPTER 2201. RISK RETENTION GROUPS AND PURCHASING GROUPS CHAPTER 2202. JOINT UNDERWRITING CHAPTER 2203. MEDICAL LIABILITY INSURANCE JOINT UNDERWRITING ASSOCIATION CHAPTER 2204. TEXAS INSURANCE EXCHANGE CHAPTER 2205. TEXAS CHILD-CARE FACILITY LIABILITY POOL CHAPTER 2206. RISK MANAGEMENT POOLS FOR CERTAIN EDUCATIONAL ENTITIES CHAPTER 2207. EXCESS LIABILITY POOLS FOR COUNTIES AND CERTAIN EDUCATIONAL ENTITIES CHAPTER 2208. TEXAS PUBLIC ENTITY EXCESS INSURANCE POOL CHAPTER 2209. TEXAS NONPROFIT ORGANIZATIONS LIABILITY POOL CHAPTER 2210. TEXAS WINDSTORM INSURANCE ASSOCIATION CHAPTER 2211. FAIR PLAN CHAPTER 2212. SELF-INSURANCE TRUSTS FOR HEALTH CARE LIABILITY CLAIMS CHAPTER 2213. SELF-INSURANCE TRUSTS FOR BANKS AND SAVINGS AND LOAN ASSOCIATIONS
[Chapters 2214-2250 reserved for expansion]
SUBTITLE H. RATEMAKING IN GENERAL
CHAPTER 2251. RATES CHAPTER 2252. RATE ADMINISTRATION CHAPTER 2253. RATING TERRITORIES CHAPTER 2254. PREMIUM REFUND FOR CERTAIN PERSONAL LINES
[Chapters 2255-2300 reserved for expansion]
SUBTITLE I. POLICY FORMS IN GENERAL
CHAPTER 2301. POLICY FORMS
TITLE 10. PROPERTY AND CASUALTY INSURANCE
SUBTITLE A. GENERAL PROVISIONS
CHAPTER 1801. PROPERTY AND CASUALTY INSURANCE LEGISLATIVE OVERSIGHT COMMITTEE
SUBCHAPTER A. GENERAL PROVISIONS
Sec. 1801.001. DEFINITION Sec. 1801.002. SUNSET PROVISION
[Sections 1801.003-1801.050 reserved for expansion]
SUBCHAPTER B. LEGISLATIVE OVERSIGHT COMMITTEE
Sec. 1801.051. COMPOSITION OF COMMITTEE Sec. 1801.052. MEETINGS Sec. 1801.053. POWERS AND DUTIES OF COMMITTEE Sec. 1801.054. REPORT
CHAPTER 1801. PROPERTY AND CASUALTY INSURANCE LEGISLATIVE OVERSIGHT COMMITTEE
SUBCHAPTER A. GENERAL PROVISIONS
Sec. 1801.001. DEFINITION. In this chapter, "committee" means the property and casualty insurance legislative oversight committee. (V.T.I.C. Art. 21.49-20, Sec. (a).) Sec. 1801.002. SUNSET PROVISION. The committee is subject to Chapter 325, Government Code (Texas Sunset Act). Unless continued in existence as provided by that chapter, the committee is abolished September 1, 2007. (V.T.I.C. Art. 21.49-20, Sec. (d).)
[Sections 1801.003-1801.050 reserved for expansion]
SUBCHAPTER B. LEGISLATIVE OVERSIGHT COMMITTEE
Sec. 1801.051. COMPOSITION OF COMMITTEE. (a) The property and casualty insurance legislative oversight committee is composed of seven members as follows: (1) the chair of the Senate Business and Commerce Committee and the chair of the House Committee on Insurance, who shall serve as joint presiding officers of the committee; (2) two members of the senate appointed by the lieutenant governor; (3) two members of the house of representatives appointed by the speaker of the house of representatives; and (4) the public insurance counsel. (b) An appointed member of the committee serves at the pleasure of the appointing official. (c) In making appointments to the committee, the appointing officials shall attempt to appoint persons who represent the gender composition, minority populations, and geographic regions of this state. (V.T.I.C. Art. 21.49-20, Secs. (b), (c).) Sec. 1801.052. MEETINGS. The committee shall meet with the commissioner at least annually. (V.T.I.C. Art. 21.49-20, Sec. (e) (part).) Sec. 1801.053. POWERS AND DUTIES OF COMMITTEE. (a) The committee shall: (1) receive information about rules proposed by the department relating to property and casualty insurance and may submit comments to the commissioner on the proposed rules; (2) monitor the progress of property and casualty insurance regulation reform, including: (A) the fairness of rates, underwriting guidelines, and rating manuals; (B) the availability of coverage; and (C) the effect of rate rollbacks, credit scoring, and regulation of homeowners and automobile insurance markets; (3) review recommendations for legislation proposed by the department; and (4) review the necessity of having the department periodically examine the market conduct of an insurer or group of insurers, including the insurer's or group's: (A) business practices; (B) performance; and (C) operations. (b) The committee may request reports and other information from the department as necessary to implement this chapter. (V.T.I.C. Art. 21.49-20, Secs. (e) (part), (f).) Sec. 1801.054. REPORT. (a) Not later than November 15 of each even-numbered year, the committee shall report on the committee's activities under Sections 1801.052 and 1801.053(a) to: (1) the governor; (2) the lieutenant governor; and (3) the speaker of the house of representatives. (b) The report must include: (1) an analysis of any problems caused by property and casualty insurance regulation reform; and (2) recommendations of any legislative action necessary to address those problems and to foster stability, availability, and competition within the property and casualty insurance industry. (V.T.I.C. Art. 21.49-20, Sec. (g).)
CHAPTER 1802. PROPERTY AND CASUALTY INSURANCE INITIATIVES TASK FORCE
Sec. 1802.001. PROPERTY AND CASUALTY INSURANCE INITIATIVES TASK FORCE
CHAPTER 1802. PROPERTY AND CASUALTY INSURANCE INITIATIVES TASK FORCE
Sec. 1802.001. PROPERTY AND CASUALTY INSURANCE INITIATIVES TASK FORCE. (a) The commissioner may establish a task force to study the utility and feasibility of instituting various property and casualty insurance initiatives in this state. (b) The initiatives studied may include: (1) possible coordination with: (A) the Texas Economic Development Bank to make certain property and casualty insurance an enterprise zone program under Chapter 2303, Government Code; and (B) Neighborhood Housing Service (NHS) programs to establish voluntary NHS-Insurance Industry Partnerships; (2) possible insurance agent programs to increase minority agency access to standard insurance companies, including minority intern programs with insurance companies; (3) possible tax incentives for insurance written in underserved areas; and (4) a consumer education program designed to increase the ability of consumers to differentiate among different products and providers in the property and casualty insurance market. (V.T.I.C. Art. 21.49B.)
CHAPTER 1803. REPORTS OF INSURANCE COVERAGE FOR STATE AGENCIES
Sec. 1803.001. DEFINITIONS Sec. 1803.002. REPORTING REQUIREMENTS Sec. 1803.003. FAILURE TO REPORT Sec. 1803.004. RULES
CHAPTER 1803. REPORTS OF INSURANCE COVERAGE FOR STATE AGENCIES
Sec. 1803.001. DEFINITIONS. In this chapter: (1) "Insurer" means an insurance company or other entity that is authorized by the department to engage in the business of insurance in this state, including: (A) a reciprocal or interinsurance exchange; (B) a mutual insurance company; (C) a county mutual insurance company; and (D) a Lloyd's plan. (2) "State agency" has the meaning assigned by Section 412.001, Labor Code. (V.T.I.C. Art. 21.49-15A, Secs. 1(1), (3).) Sec. 1803.002. REPORTING REQUIREMENTS. (a) Each insurer that enters into an insurance policy or other contract or agreement with a state agency for the purchase by the state agency of property, casualty, or liability insurance coverage, including a policy, contract, or agreement subject to competitive bidding requirements, shall report to the State Office of Risk Management the intended sale of the insurance coverage. (b) The insurer shall report the intended sale of the insurance coverage not later than the 30th day before the date the sale is scheduled to occur in the manner prescribed by the State Office of Risk Management. (c) The State Office of Risk Management may require an insurer to submit copies of insurance forms, policies, and other relevant information. (V.T.I.C. Art. 21.49-15A, Secs. 2(a), (b), (c).) Sec. 1803.003. FAILURE TO REPORT. An insurer that fails to comply with the reporting requirements of this chapter is subject to sanctions under Chapter 82. (V.T.I.C. Art. 21.49-15A, Sec. 2(e).) Sec. 1803.004. RULES. The State Office of Risk Management shall adopt rules as necessary to implement this chapter. The office shall consult with the commissioner in adopting rules. (V.T.I.C. Art. 21.49-15A, Sec. 2(d).)
CHAPTER 1804. RATES AND FORMS FOR NATIONAL DEFENSE PROJECTS
Sec. 1804.001. APPLICABILITY OF CHAPTER Sec. 1804.002. SPECIAL RATES AND RATING PLANS FOR CASUALTY INSURANCE Sec. 1804.003. SPECIAL RATES AND FORMS FOR MATERIAL DAMAGE INSURANCE
CHAPTER 1804. RATES AND FORMS FOR NATIONAL DEFENSE PROJECTS
Sec. 1804.001. APPLICABILITY OF CHAPTER. This chapter applies only to insurance in relation to a national defense project in this state. (V.T.I.C. Arts. 5.69 (part), 5.70 (part), 5.71 (part).) Sec. 1804.002. SPECIAL RATES AND RATING PLANS FOR CASUALTY INSURANCE. (a) The commissioner may promulgate special rates and special rating plans for workers' compensation insurance, automobile insurance, and other lines of casualty insurance, to apply only to the construction or operation of a national defense project. (b) The commissioner may promulgate the special rates and special rating plans separately for each class of insurance or in combination for all classes of insurance. (c) The commissioner may adopt rules as may be necessary, proper, or advisable to place in effect special rates and special rating plans promulgated under this section. (V.T.I.C. Art. 5.69 (part).) Sec. 1804.003. SPECIAL RATES AND FORMS FOR MATERIAL DAMAGE INSURANCE. (a) The commissioner may promulgate special rates and forms for fire insurance, windstorm insurance, and other kinds of material damage insurance required or used on a national defense project. (b) The commissioner may adopt rules incidental to the business described by Subsection (a) and necessary to place in effect special rates and forms promulgated under this section. (V.T.I.C. Art. 5.70 (part).)
CHAPTER 1805. JOINT UNDERWRITING AND ADVISORY ORGANIZATIONS
SUBCHAPTER A. GENERAL PROVISIONS
Sec. 1805.001. APPLICABILITY OF CHAPTER
[Sections 1805.002-1805.050 reserved for expansion]
SUBCHAPTER B. ADVISORY ORGANIZATIONS
Sec. 1805.051. LICENSE APPLICATION Sec. 1805.052. ISSUANCE OF LICENSE; TERM Sec. 1805.053. INFORMATION REPORTED BY ADVISORY ORGANIZATION Sec. 1805.054. INSURER'S AUTHORITY TO SUBSCRIBE TO ADVISORY ORGANIZATION Sec. 1805.055. SUBMISSION, RECEIPT, AND USE OF INFORMATION BY INSURER Sec. 1805.056. AUDIT Sec. 1805.057. RATE FILING REVIEW Sec. 1805.058. PROHIBITED ACTS Sec. 1805.059. DISCIPLINARY ACTION Sec. 1805.060. SUNSET REVIEW Sec. 1805.061. CONFLICT WITH OTHER LAW
[Sections 1805.062-1805.100 reserved for expansion]
SUBCHAPTER C. EXAMINATIONS
Sec. 1805.101. EXAMINATION AUTHORIZED Sec. 1805.102. EXAMINATION COSTS Sec. 1805.103. OUT-OF-STATE EXAMINATION
[Sections 1805.104-1805.150 reserved for expansion]
SUBCHAPTER D. CERTAIN PRACTICES IN JOINT UNDERWRITING OR JOINT REINSURANCE
Sec. 1805.151. AUTHORITY OF COMMISSIONER
CHAPTER 1805. JOINT UNDERWRITING AND ADVISORY ORGANIZATIONS
SUBCHAPTER A. GENERAL PROVISIONS
Sec. 1805.001. APPLICABILITY OF CHAPTER. This chapter applies to the kinds of insurance and insurers subject to: (1) Section 403.002; (2) Section 941.003 with respect to the application of a law described by Section 941.003(b)(3) or (c); (3) Section 942.003 with respect to the application of a law described by Section 942.003(b)(3) or (c); (4) Subchapter A, B, C, or D, Chapter 5; (5) Subchapter H, Chapter 544; (6) Subchapter A, Chapter 2301; (7) Chapter 252, 253, 254, 255, 426, 1806, 1807, 2001, 2002, 2003, 2004, 2005, 2006, 2051, 2052, 2053, 2171, 2251, or 2252; (8) Subtitle B or C, Title 10; (9) Chapter 406A, Labor Code; or (10) Chapter 2154, Occupations Code. (V.T.I.C. Art. 5.75.)
[Sections 1805.002-1805.050 reserved for expansion]
SUBCHAPTER B. ADVISORY ORGANIZATIONS
Sec. 1805.051. LICENSE APPLICATION. (a) A corporation, unincorporated association, partnership, or individual may file with the commissioner an application for an advisory organization license for the kinds of insurance specified in the application. (b) The applicant must: (1) file with the commissioner: (A) a copy of the applicant's: (i) constitution and bylaws; (ii) article of agreement or association or certificate of incorporation; and (iii) rules governing the applicant's activities as an advisory organization; and (B) a statement of qualifications to act as an advisory organization; and (2) pay a $100 license fee. (V.T.I.C. Art. 5.73, Sec. 4A(b).) Sec. 1805.052. ISSUANCE OF LICENSE; TERM. (a) The commissioner shall issue a license to an applicant the commissioner determines is qualified, without regard to: (1) the state of domicile or residence of the applicant; or (2) the location of the applicant's place of business. (b) The commissioner shall grant or deny a license to an applicant not later than the 60th day after the date the commissioner receives the application. (c) A license issued under this subchapter remains in effect until the commissioner suspends or revokes the license. (V.T.I.C. Art. 5.73, Secs. 4A(d), (e), (f).) Sec. 1805.053. INFORMATION REPORTED BY ADVISORY ORGANIZATION. (a) An advisory organization may file with the commissioner prospective loss costs, supplementary rating information, and policy forms. A filing made by an advisory organization under this section is subject to the provisions of this code or other insurance laws of this state governing rate filings. (b) An advisory organization at least quarterly shall file with the commissioner a list of: (1) each subscriber company engaging in business in this state; and (2) the products or information the subscriber company purchases. (c) On request by the commissioner, an advisory organization shall provide to the department a summary of the actuarial assumptions, trend factors, economic factors, and other criteria used in trending data for companies engaging in business in this state. (V.T.I.C. Art. 5.73, Secs. 4A(a) (part), (g), (h).) Sec. 1805.054. INSURER'S AUTHORITY TO SUBSCRIBE TO ADVISORY ORGANIZATION. An insurer engaging in business in this state may subscribe to an advisory organization. (V.T.I.C. Art. 5.73, Sec. 1 (part).) Sec. 1805.055. SUBMISSION, RECEIPT, AND USE OF INFORMATION BY INSURER. (a) Except as provided by Subsection (b), an insurer may submit to or receive from an advisory organization the following only if the advisory organization holds a license issued under this subchapter: (1) statistical plans; (2) historical data; (3) prospective loss costs; (4) supplementary rating information; (5) policy forms and endorsements; (6) research; (7) rates of individual insurers that are effective at the time the information is submitted or received or that were previously in effect; and (8) performance of inspections. (b) An insurer may not: (1) accept from an advisory organization recommendations for rates; or (2) submit to or receive from an advisory organization recommendations for profit or expenses other than loss adjustment expenses. (c) An insurer that subscribes to an advisory organization may use prospective loss costs, supplementary rating information, and policy forms filed by the advisory organization under Section 1805.053(a) and may incorporate the information into the insurer's filings. (d) Notwithstanding any other law, an insurer that reports data under this subchapter is not relieved of the responsibility of reporting that data directly to the department at the department's request. (V.T.I.C. Art. 5.73, Secs. 1 (part), 2 (part), 4(c), 4A(a) (part), (c).) Sec. 1805.056. AUDIT. (a) The department shall require an annual audit of an advisory organization that provides statistics or other information to the department in a proceeding to set rates. (b) The audit must: (1) be conducted at the expense of the advisory organization under rules adopted by the commissioner; and (2) examine the advisory organization's method of collecting, analyzing, and reporting data to ensure the accuracy of data. (c) The audit may examine source documents within individual companies. (d) Except for individual company information, an audit is public information. (V.T.I.C. Art. 5.73, Sec. 4(a).) Sec. 1805.057. RATE FILING REVIEW. The commissioner may: (1) review the rate filing of an insurer that relies on the prospective loss costs provided by an advisory organization; and (2) require the insurer to provide the insurer's actual data and loss experience in addition to the information provided by the advisory organization. (V.T.I.C. Art. 5.73, Sec. 4B.) Sec. 1805.058. PROHIBITED ACTS. (a) An advisory organization may not compile or distribute recommendations for: (1) rates; or (2) profit or expenses other than loss adjustment expenses. (b) An insurer or advisory organization may not: (1) attempt to monopolize, combine, or conspire with another person to monopolize an insurance market; (2) engage in a boycott, on a concerted basis, of an insurance market; or (3) make an agreement with another insurer, advisory organization, or person if the agreement has the purpose or effect of restraining trade unreasonably or substantially lessening competition in the business of insurance. (V.T.I.C. Art. 5.73, Secs. 2 (part), 3(a), (b).) Sec. 1805.059. DISCIPLINARY ACTION. (a) If, after a hearing, the commissioner determines that the furnishing of specified services by an advisory organization involves an act or practice that is unfair, unreasonable, or otherwise inconsistent with this chapter or other applicable laws of this state, the commissioner may issue a written order: (1) specifying the manner in which the act or practice is unfair, unreasonable, or inconsistent with the applicable law; and (2) requiring the advisory organization to discontinue the act or practice. (b) In addition to any other remedies available at law, the commissioner may impose a sanction authorized under Chapter 82. (V.T.I.C. Art. 5.73, Sec. 3(c).) Sec. 1805.060. SUNSET REVIEW. During the period in which the Sunset Advisory Commission performs its review of the department under Chapter 325, Government Code, the commission shall review the authority granted under this subchapter. (V.T.I.C. Art. 5.73, Sec. 5.) Sec. 1805.061. CONFLICT WITH OTHER LAW. To the extent this subchapter conflicts with Section 2053.052(c), 2053.055, 2053.151, 2053.152, or 2053.153, or Subchapter A or C, Chapter 2053, with respect to the setting of rates for workers' compensation insurance, the referenced provision of Chapter 2053 controls. (V.T.I.C. Art. 5.73, Sec. 6.)
[Sections 1805.062-1805.100 reserved for expansion]
SUBCHAPTER C. EXAMINATIONS
Sec. 1805.101. EXAMINATION AUTHORIZED. (a) As often as the department determines expedient, the department may examine a group, association, or other organization referred to in this chapter, including an advisory organization described by Subchapter B. (b) An officer, manager, agent, or employee of the group, association, or organization may be examined at any time under oath and shall make available any book, record, account, document, or agreement governing the method of operation of the group, association, or organization. (V.T.I.C. Art. 5.73, Sec. 4(b); Art. 5.74 (part).) Sec. 1805.102. EXAMINATION COSTS. The group, association, or other organization shall pay the reasonable costs of an examination under this subchapter on presentation of a detailed account of the costs. (V.T.I.C. Art. 5.74 (part).) Sec. 1805.103. OUT-OF-STATE EXAMINATION. In lieu of an examination under this subchapter, the department may accept the report of an examination made by the insurance supervisory official of another state in accordance with the laws of that state. (V.T.I.C. Art. 5.74 (part).)
[Sections 1805.104-1805.150 reserved for expansion]
SUBCHAPTER D. CERTAIN PRACTICES IN JOINT UNDERWRITING OR JOINT REINSURANCE
Sec. 1805.151. AUTHORITY OF COMMISSIONER. If, after a hearing, the commissioner determines that an activity or practice of a group, association, or other organization of insurers engaging in joint underwriting or joint reinsurance is unfair, unreasonable, or otherwise inconsistent with this chapter or other applicable law, the commissioner may issue a written order: (1) specifying the manner in which the activity or practice is unfair, unreasonable, or inconsistent with the applicable law; and (2) requiring the group, association, or organization to discontinue the activity or practice. (V.T.I.C. Art. 5.72.)
CHAPTER 1806. PROHIBITED PRACTICES AND REBATES RELATED TO POLICIES
SUBCHAPTER A. GENERAL PROVISIONS
Sec. 1806.001. DEFINITION
[Sections 1806.002-1806.050 reserved for expansion]
SUBCHAPTER B. PROVISIONS APPLICABLE TO AUTOMOBILE INSURANCE
Sec. 1806.051. APPLICABILITY OF SUBCHAPTER Sec. 1806.052. CONSTRUCTION OF SUBCHAPTER Sec. 1806.053. DISCRIMINATIONS OR DISTINCTIONS Sec. 1806.054. OTHER PROHIBITED INDUCEMENTS Sec. 1806.055. PROFIT SHARING AUTHORIZED; CERTAIN PROHIBITIONS Sec. 1806.056. PROFIT SHARING BASED ON COMBAT DUTY AUTHORIZED Sec. 1806.057. PROFIT SHARING WITH MEMBERS OF CERTAIN ASSOCIATIONS AUTHORIZED Sec. 1806.058. PARTICIPATING POLICIES
[Sections 1806.059-1806.100 reserved for expansion]
SUBCHAPTER C. PROVISIONS APPLICABLE TO CASUALTY INSURANCE
AND FIDELITY, GUARANTY, AND SURETY BONDS
Sec. 1806.101. DEFINITIONS Sec. 1806.102. APPLICABILITY OF SUBCHAPTER Sec. 1806.103. CONSTRUCTION OF SUBCHAPTER Sec. 1806.104. PROHIBITED ACTS Sec. 1806.105. PROFIT SHARING AUTHORIZED; CERTAIN PROHIBITIONS Sec. 1806.106. PROFIT SHARING WITH CERTAIN ASSOCIATIONS AUTHORIZED Sec. 1806.107. ENFORCEMENT
[Sections 1806.108-1806.150 reserved for expansion]
SUBCHAPTER D. PROVISIONS APPLICABLE TO FIRE INSURANCE
AND ALLIED LINES
Sec. 1806.151. APPLICABILITY OF SUBCHAPTER Sec. 1806.152. CONSTRUCTION OF SUBCHAPTER Sec. 1806.153. UNJUST DISCRIMINATION; REBATES Sec. 1806.154. PROFIT SHARING AUTHORIZED Sec. 1806.155. INSURER LIABILITY ON POLICY ISSUED WITHOUT AUTHORITY Sec. 1806.156. ACCEPTANCE OF REBATE OR OTHER INDUCEMENT; CRIMINAL PENALTY
CHAPTER 1806. PROHIBITED PRACTICES AND REBATES RELATED TO POLICIES
SUBCHAPTER A. GENERAL PROVISIONS
Sec. 1806.001. DEFINITION. In this chapter, "nonprofit business association" means a business association that is a nonprofit corporation exempt from federal income taxation under Section 501(a), Internal Revenue Code of 1986, and its subsequent amendments by being described as an exempt organization by Section 501(c)(6) of that code. (V.T.I.C. Art. 5.08, Sec. (d) (part); Art. 5.20, Sec. (c) (part).)
[Sections 1806.002-1806.050 reserved for expansion]
SUBCHAPTER B. PROVISIONS APPLICABLE TO AUTOMOBILE INSURANCE
Sec. 1806.051. APPLICABILITY OF SUBCHAPTER. This subchapter applies to an insurer writing automobile insurance in this state, including an insurance company, corporation, reciprocal or interinsurance exchange, mutual insurance company, association, Lloyd's plan, or other insurer. (V.T.I.C. Art. 5.01, Sec. (a) (part); Art. 5.08, Sec. (a) (part); Art. 5.09, Sec. (a) (part).) Sec. 1806.052. CONSTRUCTION OF SUBCHAPTER. This subchapter may not be construed to prohibit the modification of rates by a rating plan that is filed in accordance with the requirements of Chapter 2251 or Article 5.13-2, as applicable, that has not been disapproved by the commissioner, and that is designed to encourage the prevention of accidents, and to account for all relevant factors inside and outside this state, including the peculiar hazards and experience of past and prospective individual risks. (V.T.I.C. Art. 5.09, Sec. (a) (part).) Sec. 1806.053. DISCRIMINATIONS OR DISTINCTIONS. Except as provided by Section 1806.056, with respect to business written in this state: (1) an insurer may not discriminate or make a distinction, or permit discrimination or a distinction to be made, among insureds having like hazards with respect to premiums charged for, or dividends or other benefits payable under, an insurance policy; (2) an insurer or an insurer's agent may not make an insurance contract or an agreement relating to that insurance, other than as expressed in the policy; and (3) an insurer or an insurer's agent or other representative may not directly or indirectly pay, allow, or give, or offer to pay, allow, or give, as an inducement to the insured, a rebate payable on the policy or a special favor or advantage in the dividends or other benefits to accrue, or anything of value, not specified in the policy. (V.T.I.C. Art. 5.09, Sec. (a) (part).) Sec. 1806.054. OTHER PROHIBITED INDUCEMENTS. Except as provided by Section 1806.055, 1806.056, or 1806.057, an insurer or an insurer's officer, director, agent, or other representative may not, for the purpose of writing the insurance of an insured, grant to the insured or contract with the insured for a special favor or advantage in dividends or other profits, or commissions or dividends of commissions or profits to accrue on the policy, or compensation or other valuable consideration not specified in the policy, or an inducement not specified in the policy. (V.T.I.C. Art. 5.08, Sec. (a) (part).) Sec. 1806.055. PROFIT SHARING AUTHORIZED; CERTAIN PROHIBITIONS. (a) Section 1806.054 does not prohibit an insurer from sharing earned profits with the insurer's policyholders under a profit sharing agreement contained in the policy if: (1) the insurer shares profits uniformly among those insured under the policy; and (2) the insurer distributes earnings equitably among those insureds under the terms of the policy. (b) An insurer may not: (1) discriminate in the distribution of profits among insureds of the same class; (2) distribute the profit to an insured before the expiration of the policy; or (3) establish a class of insureds for the distribution of profits, except on the commissioner's approval. (c) A violation of this section is unjust discrimination and rebating. (d) The commissioner may revoke the certificate of authority of an insurer that violates this section or the license of an agent who violates this section. (V.T.I.C. Art. 5.08, Sec. (b).) Sec. 1806.056. PROFIT SHARING BASED ON COMBAT DUTY AUTHORIZED. (a) This subchapter does not prohibit an insurer, on approval by the commissioner, from distributing to policyholders who are on active duty in the United States Armed Forces any estimated profits resulting from service by those policyholders in a foreign country in a combat theater of operations after January 1, 1990. (b) An insurer that elects to make distributions under this section must: (1) file a written description of the insurer's distribution program with the commissioner for approval; and (2) notify the commissioner in writing of each distribution made under the program. (c) If the commissioner does not act on the insurer's distribution program on or before the fifth business day after the date the commissioner receives the insurer's description of the program, the distribution program is considered approved. (d) An insurer may distribute estimated profits among policyholders under this section based on: (1) the time served by a policyholder in a combat theater of operations; (2) the location of the policyholder's military service; (3) the duration of the applicable insurance policy; or (4) any other reasonable basis. (V.T.I.C. Art. 5.08, Sec. (c); Art. 5.09, Sec. (b).) Sec. 1806.057. PROFIT SHARING WITH MEMBERS OF CERTAIN ASSOCIATIONS AUTHORIZED. (a) Section 1806.054 does not prohibit an insurer, on approval by the commissioner, from sharing profits with policyholders who are part of a group program established by a nonprofit business association and who participate in the group program because of membership in the association. (b) An insurer that elects to make distributions under this section must: (1) file a written description of the insurer's distribution program with the commissioner for approval; and (2) notify the commissioner in writing of each distribution made under the program. (c) If the commissioner does not act on the insurer's distribution program on or before the fifth business day after the date the commissioner receives the insurer's description of the program, the distribution program is considered approved. (V.T.I.C. Art. 5.08, Sec. (d) (part).) Sec. 1806.058. PARTICIPATING POLICIES. (a) This subchapter, Subtitle C, and Subchapter A, Chapter 5, may not be construed to prohibit: (1) a stock company, mutual insurance company, reciprocal or interinsurance exchange, or Lloyd's plan from operating under this subchapter, Subchapter A, Chapter 5, and Subtitle C; or (2) a stock company, mutual insurance company, reciprocal or interinsurance exchange, or Lloyd's plan from issuing participating policies. (b) A distribution of profits or dividends to insureds may not take effect or be paid until the commissioner approves the distribution. The commissioner may not approve a distribution of profits or dividends until the insurer has provided adequate reserves. The reserves must be computed on the same basis for all classes of insurers operating under this subchapter, Subtitle C, and Subchapter A, Chapter 5. (V.T.I.C. Art. 5.07.)
[Sections 1806.059-1806.100 reserved for expansion]
SUBCHAPTER C. PROVISIONS APPLICABLE TO CASUALTY INSURANCE
AND FIDELITY, GUARANTY, AND SURETY BONDS
Sec. 1806.101. DEFINITIONS. In this subchapter: (1) "Insurance" includes a suretyship. (2) "Policy" includes a bond. (V.T.I.C. Art. 5.20, Sec. (d).) Sec. 1806.102. APPLICABILITY OF SUBCHAPTER. (a) Except as provided by Subsections (b) and (c), this subchapter applies to an insurer, including a corporation, reciprocal or interinsurance exchange, mutual insurance company, association, Lloyd's plan, or other organization, writing casualty insurance or writing fidelity, surety, or guaranty bonds, on risks or operations in this state. (b) This subchapter does not apply to: (1) a farm mutual insurance company or association regulated under Chapter 911; or (2) a county mutual insurance company regulated under Chapter 912. (c) This subchapter does not apply to the writing of: (1) automobile insurance; (2) life, health, or accident insurance; (3) professional liability insurance; (4) reinsurance; (5) aircraft insurance; (6) fraternal benefit insurance; (7) fire insurance; (8) workers' compensation insurance; (9) marine insurance, including noncommercial inland marine insurance and ocean marine insurance; (10) title insurance; (11) explosion insurance, except insurance against loss from personal injury or property damage resulting accidentally from: (A) a steam boiler; (B) a heater or pressure vessel; (C) an electrical device; (D) an engine; or (E) all machinery and appliances used in connection with or in the operation of a boiler, heater, vessel, electrical device, or engine described by Paragraphs (A)-(D); or (12) insurance coverage for any of the following conditions or risks: (A) weather or climatic conditions, including lightning, tornado, windstorm, hail, cyclone, rain, or frost and freeze; (B) earthquake or volcanic eruption; (C) smoke or smudge; (D) excess or deficiency of moisture; (E) flood; (F) the rising water of an ocean or an ocean's tributary; (G) bombardment, invasion, insurrection, riot, civil war or commotion, military or usurped power, or any order of a civil authority made to prevent the spread of a conflagration, epidemic or catastrophe; (H) vandalism or malicious mischief; (I) strike or lockout; (J) water or other fluid or substance resulting from: (i) the breakage or leakage of a sprinkler, pump, or other apparatus erected for extinguishing fire, or a water pipe or other conduit or container; or (ii) casual water entering a building through a leak or opening in the building or by seepage through building walls; or (K) accidental damage to a sprinkler, pump, fire apparatus, pipe, or other conduit or container described by Paragraph (J)(i). (V.T.I.C. Art. 5.13, Secs. (a) (part), (b), (c).) Sec. 1806.103. CONSTRUCTION OF SUBCHAPTER. (a) This subchapter does not limit in any manner the kinds or classes of insurance that an insurer may write under an appropriate statute or the insurer's charter or certificate of authority. (b) This subchapter may not be construed to prohibit the modification of rates by a rating plan that complies with Chapter 2251 or Article 5.13-2, as applicable. (V.T.I.C. Art. 5.13, Sec. (d); Art. 5.20, Sec. (b) (part).) Sec. 1806.104. PROHIBITED ACTS. (a) Except as otherwise provided by this subchapter, an insurer, an insurer's employee, or a broker or agent may not knowingly: (1) issue an insurance policy that is not in accordance with an applicable filing that is filed and in effect under Chapter 2251 or 2301 or Article 5.13-2; or (2) charge, demand, or receive a premium on an insurance policy that is not in accordance with an applicable filing that is filed and in effect under Chapter 2251 or 2301 or Article 5.13-2. (b) Except as provided in an applicable filing that is filed and in effect under Chapter 2251 or 2301 or Article 5.13-2, an insurer, an insurer's employee, or a broker or agent may not directly or indirectly pay, allow, or give, or offer to pay, allow, or give, as an inducement to insurance, or after insurance has been written, a rebate, discount, abatement, credit or reduction of the premium stated in an insurance policy, or a special favor or advantage in the dividends or other benefits to accrue on the policy, or any valuable consideration or inducement, not specified in the policy. (c) An insured named in an insurance policy or an employee of an insured may not knowingly receive or accept, directly or indirectly, a rebate, discount, abatement, credit, or reduction of the premium stated in an insurance policy, or a special favor or advantage or valuable consideration or inducement. (V.T.I.C. Art. 5.20, Sec. (a).) Sec. 1806.105. PROFIT SHARING AUTHORIZED; CERTAIN PROHIBITIONS. (a) This subchapter does not prohibit an insurer from sharing earned profits with the insurer's policyholders in accordance with a profit sharing agreement contained in the policy, provided that any profit sharing under the policy with those insureds must be uniform among the insureds and may consist only of the equitable distribution of earnings among the insureds in accordance with the terms of the policy. (b) An insurer may not: (1) discriminate in the distribution of profits among insureds of the same class; (2) distribute the profit to an insured before the expiration of the policy; or (3) establish a class of insureds for the distribution of profits, except on the commissioner's approval. (c) A distribution of profits or dividends to an insured may not take effect or be distributed until: (1) adequate reserves are provided, as computed on the same basis for all classes of insurers to which this subchapter applies; and (2) the commissioner approves the distribution. (V.T.I.C. Art. 5.20, Sec. (b) (part).) Sec. 1806.106. PROFIT SHARING WITH CERTAIN ASSOCIATIONS AUTHORIZED. (a) This subchapter does not prohibit an insurer, on approval by the commissioner, from sharing profits with policyholders who are part of a group program established by a nonprofit business association and who participate in the group program because of membership in the association. (b) An insurer that elects to make distributions under this section must: (1) file a written description of the insurer's distribution program with the commissioner for approval; and (2) notify the commissioner in writing of each distribution made under the program. (c) If the commissioner does not act on the insurer's distribution program on or before the fifth business day after the date the commissioner receives the insurer's description of the program, the distribution program is considered approved. (V.T.I.C. Art. 5.20, Sec. (c) (part).) Sec. 1806.107. ENFORCEMENT. (a) A violation of this subchapter is unjust discrimination and rebating. (b) The commissioner may revoke the certificate of authority of an insurer that violates this subchapter or the license of an agent who violates this subchapter. (V.T.I.C. Art. 5.20, Sec. (b) (part).)
[Sections 1806.108-1806.150 reserved for expansion]
SUBCHAPTER D. PROVISIONS APPLICABLE TO FIRE INSURANCE
AND ALLIED LINES
Sec. 1806.151. APPLICABILITY OF SUBCHAPTER. (a) Each insurance policy or contract insuring property in this state against loss by fire, including a policy or contract or portion of a policy or contract that insures the shore end of a marine risk against loss by fire, must be issued in accordance with: (1) this subchapter; (2) Section 403.002; (3) Subchapter C, Chapter 5; (4) Subchapter H, Chapter 544; and (5) Chapters 252, 2001, 2002, 2003, 2004, 2005, 2006, and 2171. (b) An insurer issuing an insurance policy or contract described by Subsection (a), including a fire insurance company, marine insurance company, fire and marine insurance company, and fire and tornado insurance company, is governed by the laws described by Subsection (a). (c) This section applies to an insurer or to an insurance policy or contract regardless of: (1) the kind and character of property insured; (2) whether the property is: (A) fixed or movable; (B) stationary or in transit; or (C) consigned or billed for shipment inside or outside the boundaries of this state or to a foreign country; (3) whether the insurer is organized: (A) under the laws of this state, another state, territory, or possession of the United States, or a foreign country; or (B) by authority of the federal government; or (4) the kind of insurer or the name of the insurer issuing the policy or contract. (V.T.I.C. Art. 5.27 (part).) Sec. 1806.152. CONSTRUCTION OF SUBCHAPTER. (a) This subchapter, Subtitle D, and Subchapter C, Chapter 5, may not be construed to deal with the collection of premiums, but each insurer may make rules and regulations the insurer considers just between the insurer and the insurer's agents and policyholders. (b) A bona fide extension of credit may not be construed as discrimination or as a violation of this subchapter. (V.T.I.C. Art. 5.42 (part).) Sec. 1806.153. UNJUST DISCRIMINATION; REBATES. (a) An insurer or an insurer's officer, director, agent, or other representative may not grant or contract for a special favor or advantage in: (1) dividends or other profits to accrue on an insurance policy; (2) commissions in the dividends or other profits to accrue on an insurance policy; (3) commissions or division of commission; or (4) a position, valuable consideration, or inducement not specified in an insurance policy. (b) An insurer may not directly or indirectly give, sell, or purchase or offer to give, sell, or purchase as an inducement to insurance or in connection with insurance: (1) stocks, bonds, or other securities of an insurer or other corporation, partnership, or individual; (2) dividends or profits that have accrued or will accrue on stocks, bonds, or other securities of an insurer or other corporation, partnership, or individual; or (3) anything of value not specified in the policy. (c) An insurer or an insurer's officer, director, agent, or other representative that violates this section has engaged in unjust discrimination. (V.T.I.C. Art. 5.41, Sec. (a) (part).) Sec. 1806.154. PROFIT SHARING AUTHORIZED. (a) Section 1806.153 does not prohibit an insurer from sharing profits with the insurer's policyholders if: (1) a profit sharing agreement is placed on or in the face of the policy; (2) the profit sharing is uniform and does not discriminate among individuals or among classes; and (3) the profit is not distributed to an insured before the expiration of the insurance policy. (b) An insurer or an insurer's officer, director, agent, or other representative that violates this section has engaged in unjust discrimination. (V.T.I.C. Art. 5.41, Sec. (a) (part).) Sec. 1806.155. INSURER LIABILITY ON POLICY ISSUED WITHOUT AUTHORITY. (a) If an insurer or an insurer's agent issues an insurance policy without authority and the policyholder sustains a loss or damage covered under the policy, the insurer is liable to the policyholder under the policy in the same manner and to the same extent as if the insurer had been authorized to issue the policy, although the policy was issued in violation of this code. (b) This section may not be construed to give an insurer the authority to issue an insurance policy or contract other than as provided by this code. (V.T.I.C. Art. 5.41, Sec. (a) (part).) Sec. 1806.156. ACCEPTANCE OF REBATE OR OTHER INDUCEMENT; CRIMINAL PENALTY. (a) A person commits an offense if the person knowingly receives or accepts from an insurer, an insurer's agent, broker, or other representative, or any other person a rebate of premium payable on an insurance policy, or a special favor or advantage in dividends or other financial profits accrued or to accrue on the policy, or any valuable consideration, position or inducement not specified in the policy. (b) An offense under this section is punishable by: (1) a fine of not more than $100; (2) confinement in jail for not more than 90 days; or (3) both a fine and confinement under this subsection. (V.T.I.C. Art. 5.41-1.)
CHAPTER 1807. APPLICABILITY TO MARINE INSURANCE
Sec. 1807.001. DEFINITIONS Sec. 1807.002. INAPPLICABILITY OF CERTAIN LAWS TO MARINE INSURANCE; EXCEPTION
CHAPTER 1807. APPLICABILITY TO MARINE INSURANCE
Sec. 1807.001. DEFINITIONS. In this chapter: (1) "Insurable property and interests" includes: (A) goods, freights, and cargoes; (B) merchandise; (C) effects; (D) disbursements; (E) profits; (F) money, bullion, and precious stones; (G) securities; (H) choses in action; (I) evidences of debt; (J) valuable papers; and (K) bottomry and respondentia interests. (2) "Marine insurance" means: (A) insurance and reinsurance that covers: (i) loss or damage to: (a) a hull, vessel, or craft of any kind, an aid to navigation, a dry dock, or a marine railway, whether complete, under construction, or awaiting construction; or (b) insurable property and interests in respect to, appertaining to, or in connection with a risk or peril of navigation, transit, or transportation: (1) on or under a sea, lake, or river or other water, in the air, or on land in connection with or incident to export, import, or waterborne risks; (2) while being assembled, packed, crated, baled, compressed, or similarly prepared for shipment; (3) while awaiting shipment; or (4) during any delay, storage, or transshipment or reshipment incident to the initial shipment; (ii) a marine builder or repairer risk; (iii) a marine protection or indemnity risk; or (iv) a war risk regarding any insurable property or interest described by this section; and (B) insurance defined as marine insurance by another statute, lawful custom, or rule adopted by the commissioner. (V.T.I.C. Art. 5.53 (part).) Sec. 1807.002. INAPPLICABILITY OF CERTAIN LAWS TO MARINE INSURANCE; EXCEPTION. (a) The following provisions do not apply to marine insurance: (1) Sections 36.002, 37.051, 403.002, 492.051, and 501.159; (2) Subchapter H, Chapter 544; (3) Chapters 5, 252, 253, 493, 494, 1804, 1805, 1806, and 2171; and (4) Subtitles B, C, D, E, F, H, and I. (b) Subsection (a) does not apply to: (1) a farm mutual insurance company operating under Chapter 911; (2) a mutual insurance company engaged in business under Chapter 12, Title 78, Revised Statutes, before that chapter's repeal by Section 18, Chapter 40, Acts of the 41st Legislature, 1st Called Session, 1929, as amended by Section 1, Chapter 60, General Laws, Acts of the 41st Legislature, 2nd Called Session, 1929, that retains the rights and privileges under the repealed law to the extent provided by those sections; or (3) a county mutual insurance company operating under Chapter 912. (V.T.I.C. Arts. 5.53 (part), 5.54 (part).)
[Chapters 1808-1900 reserved for expansion]
SUBTITLE B. LIABILITY INSURANCE FOR PHYSICIANS AND
HEALTH CARE PROVIDERS
CHAPTER 1901. PROFESSIONAL LIABILITY INSURANCE FOR PHYSICIANS AND HEALTH CARE PROVIDERS
SUBCHAPTER A. GENERAL PROVISIONS
Sec. 1901.001. DEFINITIONS Sec. 1901.002. APPLICABILITY OF CHAPTER Sec. 1901.003. APPLICABILITY OF OTHER LAW Sec. 1901.004. ANNUAL REPORTS Sec. 1901.005. RULES
[Sections 1901.006-1901.050 reserved for expansion]
SUBCHAPTER B. RATE STANDARDS
Sec. 1901.051. CONSIDERATIONS IN SETTING RATES Sec. 1901.052. GROUPING OF RISKS Sec. 1901.053. MODIFICATION OF CLASSIFICATION RATES Sec. 1901.054. LIMITATIONS ON RATES Sec. 1901.055. CLAIM SURCHARGE Sec. 1901.056. ABSOLUTE RATES PROHIBITED Sec. 1901.057. CONSIDERATIONS IN APPROVING RATES
[Sections 1901.058-1901.100 reserved for expansion]
SUBCHAPTER C. REVIEW OF RATES
Sec. 1901.101. RECONSIDERATION OF RATES AND PREMIUMS Sec. 1901.102. APPEAL
[Sections 1901.103-1901.150 reserved for expansion]
SUBCHAPTER D. BEST PRACTICES FOR NURSING HOMES
Sec. 1901.151. BEST PRACTICES Sec. 1901.152. CONSIDERATION OF BEST PRACTICES IN SETTING RATES Sec. 1901.153. STANDARD OF CARE FOR CIVIL ACTIONS NOT ESTABLISHED
[Sections 1901.154-1901.200 reserved for expansion]
SUBCHAPTER E. POLICY FORMS
Sec. 1901.201. STANDARDIZED POLICY FORMS; APPROVAL OF OTHER FORMS
[Sections 1901.202-1901.250 reserved for expansion]
SUBCHAPTER F. COVERAGE
Sec. 1901.251. PREMIUM BASIS Sec. 1901.252. COVERAGE FOR EXEMPLARY DAMAGES Sec. 1901.253. NOTICE OF PREMIUM INCREASE, CANCELLATION, OR NONRENEWAL
CHAPTER 1901. PROFESSIONAL LIABILITY INSURANCE FOR PHYSICIANS AND HEALTH CARE PROVIDERS
SUBCHAPTER A. GENERAL PROVISIONS
Sec. 1901.001. DEFINITIONS. In this chapter: (1) "Health care provider" means: (A) a person, partnership, professional association, corporation, facility, or institution, or an officer, employee, or agent of the person or entity acting in the course and scope of authority, employment, or agency, as applicable, if the person or entity is licensed or chartered by this state to provide health care as: (i) a registered nurse; (ii) a hospital; (iii) a dentist; (iv) a podiatrist; (v) a chiropractor; (vi) an optometrist or therapeutic optometrist; (vii) a pharmacist; (viii) a veterinarian; (ix) a not-for-profit kidney dialysis center; (x) a blood bank that is a nonprofit corporation chartered to operate a blood bank and is accredited by the American Association of Blood Banks; (xi) a for-profit or not-for-profit nursing home; or (xii) a for-profit or not-for-profit assisted living facility; or (B) a health care practitioner or facility that the commissioner, in accordance with Section 2203.103(b), determines is eligible for coverage under this chapter. (2) "Hospital" means a public or private institution licensed under Chapter 241 or 577, Health and Safety Code. (3) "Physician" means a person licensed to practice medicine in this state. (V.T.I.C. Art. 5.15-1, Sec. 2.) Sec. 1901.002. APPLICABILITY OF CHAPTER. This chapter applies to: (1) an insurer authorized to write or engaged in writing professional liability insurance for a physician or health care provider; and (2) a rating organization acting on behalf of an insurer described by Subdivision (1). (V.T.I.C. Art. 5.15-1, Sec. 1.) Sec. 1901.003. APPLICABILITY OF OTHER LAW. Chapters 2251 and 2301 and Article 5.13-2 apply to rates and forms for professional liability insurance for physicians and health care providers under this chapter. (V.T.I.C. Art. 5.15-1, Sec. 4(a).) Sec. 1901.004. ANNUAL REPORTS. (a) An insurer that issues professional liability insurance policies covering physicians and health care providers shall file annually with the commissioner a report of: (1) all claims and the amounts of those claims; (2) amounts of claims reserves; (3) investment income of the insurer derived from medical professional liability premiums; (4) information relating to amounts of judgments and settlements paid on claims; and (5) other information required by the commissioner. (b) The commissioner may promulgate a form on which the information under Subsection (a) must be reported. The form must require that the information be reported in an accurate manner and be reasonably calculated to: (1) facilitate interpretation; and (2) protect the confidentiality of the physician or health care provider. (V.T.I.C. Art. 5.15-1, Sec. 5.) Sec. 1901.005. RULES. The commissioner shall establish by rule: (1) criteria that insurers must follow in establishing reconsideration procedures under Section 1901.101; and (2) standards and procedures to be followed in the review of rates and premiums by the commissioner. (V.T.I.C. Art. 5.15-1, Sec. 4B(c).)
[Sections 1901.006-1901.050 reserved for expansion]
SUBCHAPTER B. RATE STANDARDS
Sec. 1901.051. CONSIDERATIONS IN SETTING RATES. (a) In setting rates, an insurer shall consider: (1) past and prospective loss and expense experience for all professional liability insurance for physicians and health care providers written in this state, subject to Subsection (b); (2) a reasonable margin for underwriting profit and contingencies; (3) investment income; and (4) dividends or savings allowed or returned by the insurer to the insurer's policyholders or members. (b) If the department finds that the group or risk to be insured is not of sufficient size to be credible, an insurer must also consider in setting rates past and prospective loss and expense experience for all professional liability insurance for physicians and health care providers written outside this state. (V.T.I.C. Art. 5.15-1, Sec. 3 (part).) Sec. 1901.052. GROUPING OF RISKS. In setting rates, an insurer may group risks by classification, rating schedule, or any other reasonable method. (V.T.I.C. Art. 5.15-1, Sec. 3 (part).) Sec. 1901.053. MODIFICATION OF CLASSIFICATION RATES. (a) An insurer may modify classification rates to produce rates for individual risks in accordance with rating plans that establish standards for measuring variations in hazards or expense provisions. (b) The standards may measure any difference among risks that can be demonstrated to have a probable effect on losses or expenses. (V.T.I.C. Art. 5.15-1, Sec. 3 (part).) Sec. 1901.054. LIMITATIONS ON RATES. (a) Rates set under this chapter may not be excessive or inadequate, as described by this section, or unreasonable or unfairly discriminatory. (b) A rate is not excessive unless: (1) the rate is unreasonably high for the insurance coverage provided; and (2) a reasonable degree of competition does not exist in the area with respect to the classification to which the rate applies. (c) A rate is not inadequate unless the rate is unreasonably low for the insurance coverage provided and: (1) is insufficient to sustain projected losses and expenses; or (2) the use of the rate has or, if continued, will have the effect of destroying competition or creating a monopoly. (V.T.I.C. Art. 5.15-1, Sec. 3 (part).) Sec. 1901.055. CLAIM SURCHARGE. A claim surcharge assessed by an insurer against a physician or health care provider under a professional liability insurance policy may be based only on claims actually paid by an insurer as a result of: (1) a settlement; or (2) an adverse judgment or decision of a court. (V.T.I.C. Art. 5.15-1, Sec. 9.) Sec. 1901.056. ABSOLUTE RATES PROHIBITED. (a) In this section, "absolute rates" means rates, rating plans, or rating classifications that are filed under Chapter 2251 or Article 5.13-2 by an insurer or authorized rating organization and that are required to be used, to the exclusion of all others, by each insurer authorized to write policies. (b) A provision of this chapter, Chapter 2251, or Article 5.13-2 relating to the regulation of rates, rating plans, and rating classifications for professional liability insurance for physicians and health care providers does not: (1) give the commissioner the power to promulgate uniform or absolute rates; or (2) prevent different insurers or organizations authorized to file rates from filing different rates for risks in a given classification or modified rates for individual risks made in accordance with rating plans. (V.T.I.C. Art. 5.15-1, Sec. 4(b).) Sec. 1901.057. CONSIDERATIONS IN APPROVING RATES. In approving rates under this chapter, the commissioner shall consider the impact of risk management courses taken by physicians and health care providers in this state. (V.T.I.C. Art. 5.15-1, Sec. 3 (part).)
[Sections 1901.058-1901.100 reserved for expansion]
SUBCHAPTER C. REVIEW OF RATES
Sec. 1901.101. RECONSIDERATION OF RATES AND PREMIUMS. (a) Each insurer to which this chapter applies shall adopt a procedure for reconsideration of a rate or premium charged a physician or health care provider for professional liability insurance coverage. (b) The procedure must include: (1) an opportunity for a hearing before officers or employees who have responsibility for determining rates and premiums to be charged for professional liability insurance; and (2) a requirement that the insurer reconsider the rate or premium and provide the physician or health care provider a written explanation of the rate or premium being charged. (V.T.I.C. Art. 5.15-1, Sec. 4B(a).) Sec. 1901.102. APPEAL. A physician or health care provider that is not satisfied with a decision under procedures established under Section 1901.101 may appeal to the commissioner for: (1) a review of the rate or premium; and (2) a determination of whether the rate or premium being charged complies with criteria under Sections 1901.051-1901.054 and 1901.057. (V.T.I.C. Art. 5.15-1, Sec. 4B(b).)
[Sections 1901.103-1901.150 reserved for expansion]
SUBCHAPTER D. BEST PRACTICES FOR NURSING HOMES
Sec. 1901.151. BEST PRACTICES. (a) The commissioner shall adopt best practices for risk management and loss control that may be used by for-profit and not-for-profit nursing homes. (b) In developing or amending the best practices, the commissioner shall consult with the Health and Human Services Commission and a task force appointed by the commissioner. (c) The task force must be composed of representatives of: (1) insurers that write professional liability insurance for nursing homes; (2) the Texas Medical Liability Insurance Underwriting Association; (3) nursing homes; and (4) consumers. (V.T.I.C. Art. 5.15-4, Secs. (a), (c).) Sec. 1901.152. CONSIDERATION OF BEST PRACTICES IN SETTING RATES. In setting rates for professional liability insurance applicable to a for-profit or not-for-profit nursing home, an insurer or the Texas Medical Liability Insurance Underwriting Association may consider whether the nursing home adopts and implements the best practices adopted under this subchapter. (V.T.I.C. Art. 5.15-4, Sec. (b).) Sec. 1901.153. STANDARD OF CARE FOR CIVIL ACTIONS NOT ESTABLISHED. The best practices for risk management and loss control adopted under this subchapter do not establish standards of care for nursing homes applicable in a civil action against a nursing home. (V.T.I.C. Art. 5.15-4, Sec. (d).)
[Sections 1901.154-1901.200 reserved for expansion]
SUBCHAPTER E. POLICY FORMS
Sec. 1901.201. STANDARDIZED POLICY FORMS; APPROVAL OF OTHER FORMS. (a) The commissioner shall prescribe standardized policy forms for occurrence, claims-made, and claims-paid professional liability insurance policies for physicians and health care providers. (b) An insurer may not use a form other than a standardized policy form in writing professional liability insurance for physicians and health care providers unless the form has been approved by the commissioner. (c) An insurer writing professional liability insurance for physicians and health care providers may use an endorsement if the endorsement has been filed with and approved by the commissioner. (V.T.I.C. Art. 5.15-1, Sec. 4(c).)
[Sections 1901.202-1901.250 reserved for expansion]
SUBCHAPTER F. COVERAGE
Sec. 1901.251. PREMIUM BASIS. An insurer may not write a professional liability insurance policy under this chapter on less than an annual premium basis. (V.T.I.C. Art. 5.15-1, Sec. 6.) Sec. 1901.252. COVERAGE FOR EXEMPLARY DAMAGES. (a) Except as provided by Subsection (b), a medical professional liability insurance policy issued to or renewed for a physician or health care provider in this state may not include coverage for exemplary damages that may be assessed against the physician or health care provider. (b) The commissioner may approve an endorsement form that provides for coverage for exemplary damages for use on a medical professional liability insurance policy issued to: (1) a hospital; or (2) a for-profit or not-for-profit nursing home or assisted living facility. (V.T.I.C. Art. 5.15-1, Sec. 8.) Sec. 1901.253. NOTICE OF PREMIUM INCREASE, CANCELLATION, OR NONRENEWAL. (a) An insurer that issues a professional liability insurance policy for a physician or health care provider must provide to the insured written notice of at least 90 days if the insurer intends to: (1) increase the premiums on the policy; or (2) cancel or not renew the policy for a reason other than for nonpayment of premiums or because the insured is no longer licensed. (b) If the insurer intends to increase the premiums, the insurer shall state in the notice the amount of the increase. (c) If the insurer intends to cancel or not renew the policy, the insurer shall state in the notice the reason for cancellation or nonrenewal. (d) An insurer may provide notice of cancellation under this section only within the first 90 days from the effective date of the policy. (V.T.I.C. Art. 5.15-1, Sec. 7.)
CHAPTER 1902. CERTAIN LIABILITY COVERAGE FOR PHYSICIANS AND HEALTH CARE PROVIDERS
Sec. 1902.001. DEFINITIONS Sec. 1902.002. COVERAGE FOR PHYSICIANS OR HEALTH CARE PROVIDERS UNDER VENDOR ENDORSEMENTS OR CERTAIN POLICIES Sec. 1902.003. EXCLUSIONS AND LIMITATIONS ON COVERAGE UNDER VENDOR ENDORSEMENTS PROHIBITED
CHAPTER 1902. CERTAIN LIABILITY COVERAGE FOR PHYSICIANS AND HEALTH CARE PROVIDERS
Sec. 1902.001. DEFINITIONS. In this chapter: (1) "Health care provider" has the meaning assigned by Section 1901.001. (2) "Manufacturer" has the meaning assigned by Section 82.001, Civil Practice and Remedies Code. (3) "Physician" has the meaning assigned by Section 1901.001. (New; V.T.I.C. Art. 5.15-1, Sec. 11 (part).) Sec. 1902.002. COVERAGE FOR PHYSICIANS OR HEALTH CARE PROVIDERS UNDER VENDOR ENDORSEMENTS OR CERTAIN POLICIES. A physician or health care provider is considered a vendor for purposes of coverage under a vendor's endorsement or a manufacturer's general liability or products liability policy. (V.T.I.C. Art. 5.15-1, Sec. 11 (part).) Sec. 1902.003. EXCLUSIONS AND LIMITATIONS ON COVERAGE UNDER VENDOR ENDORSEMENTS PROHIBITED. An insurer may not exclude or otherwise limit coverage for physicians or health care providers under a vendor's endorsement issued to a manufacturer. (V.T.I.C. Art. 5.15-1, Sec. 11 (part).)
CHAPTER 1903. LOSS CONTROL INFORMATION AND SERVICES
SUBCHAPTER A. LOSS CONTROL SERVICES FOR PROFESSIONAL LIABILITY INSURANCE FOR HOSPITALS
Sec. 1903.001. DEFINITION Sec. 1903.002. INAPPLICABILITY OF SUBCHAPTER Sec. 1903.003. LOSS CONTROL SERVICES REQUIRED Sec. 1903.004. SANCTIONS Sec. 1903.005. RULES
[Sections 1903.006-1903.050 reserved for expansion]
SUBCHAPTER B. LOSS CONTROL INFORMATION FOR GENERAL AND CERTAIN PROFESSIONAL LIABILITY INSURANCE
Sec. 1903.051. LOSS CONTROL INFORMATION REQUIRED Sec. 1903.052. SANCTIONS Sec. 1903.053. RULES
[Sections 1903.054-1903.100 reserved for expansion]
SUBCHAPTER C. CIVIL PROCEEDINGS
Sec. 1903.101. IMMUNITY FROM LIABILITY Sec. 1903.102. LOSS CONTROL INFORMATION NOT DISCOVERABLE OR ADMISSIBLE
CHAPTER 1903. LOSS CONTROL INFORMATION AND SERVICES
SUBCHAPTER A. LOSS CONTROL SERVICES FOR PROFESSIONAL LIABILITY INSURANCE FOR HOSPITALS
Sec. 1903.001. DEFINITION. In this subchapter, "hospital" means a public or private institution licensed under Chapter 241 or 577, Health and Safety Code. (V.T.I.C. Art. 5.15-2, Sec. (e).) Sec. 1903.002. INAPPLICABILITY OF SUBCHAPTER. This subchapter and Subchapter C do not apply to insurance policies that provide excess coverage issued by the Texas Medical Liability Insurance Underwriting Association under Chapter 2203, or to those policies if the policies are serviced by an insurer acting as a servicing carrier under an agreement entered into between the association and the insurer and approved by the commissioner. (V.T.I.C. Art. 5.15-2, Sec. (f).) Sec. 1903.003. LOSS CONTROL SERVICES REQUIRED. (a) Before writing professional liability insurance for a hospital in this state, an insurer must maintain or provide loss control facilities that: (1) provide loss control services reasonably commensurate with the risks, exposures, and experience of the insured's business; (2) are adequate to provide loss control services required by the nature of the policyholder's operations; and (3) include surveys, recommendations, training programs, consultations, and analyses of accident causes. (b) To provide the facilities required by this section, the insurer may: (1) employ qualified personnel; (2) retain qualified independent contractors; (3) contract with the policyholder to provide qualified loss control personnel and services; or (4) use a combination of methods described by this subsection. (c) Independent contractors and other personnel described by Subsection (b) must have the qualifications of a field safety representative. A field safety representative must be an individual who: (1) holds a: (A) bachelor's degree in science or engineering; (B) bachelor of arts degree in nursing; (C) bachelor of science degree in nursing, pharmacy, or physical therapy; or (D) master's degree in hospital administration; (2) is a licensed engineer; (3) is a certified safety professional; (4) is a certified industrial hygienist; (5) has at least 10 years' experience in occupational safety and health; or (6) has completed a course of training in loss control services approved by the department. (V.T.I.C. Art. 5.15-2, Secs. (a), (b).) Sec. 1903.004. SANCTIONS. (a) If there is evidence that reasonable loss control services are not being maintained or provided by an insurer as required by this subchapter or are not being used by the insurer in a reasonable manner to prevent injury to patients of the insurer's policyholders, the commissioner shall order a hearing to determine whether the insurer is not in compliance with this subchapter. (b) If it is determined that the insurer is not in compliance, the commissioner may impose any sanction authorized by Chapter 82. (V.T.I.C. Art. 5.15-2, Sec. (c).) Sec. 1903.005. RULES. The commissioner may adopt reasonable rules for the enforcement of this subchapter after holding a public hearing on the proposed rules. (V.T.I.C. Art. 5.15-2, Sec. (d).)
[Sections 1903.006-1903.050 reserved for expansion]
SUBCHAPTER B. LOSS CONTROL INFORMATION FOR GENERAL AND CERTAIN PROFESSIONAL LIABILITY INSURANCE
Sec. 1903.051. LOSS CONTROL INFORMATION REQUIRED. (a) Before writing professional liability insurance, including medical professional liability insurance, for insureds other than hospitals or general liability insurance in this state, an insurer must provide to the insurer's policyholders loss control information reasonably commensurate with the risks, exposures, and experience of the insured's business. (b) To provide the information described by Subsection (a) or services, the insurer may: (1) employ qualified personnel; (2) retain qualified independent contractors; (3) contract with the policyholder to provide qualified loss control personnel and services; or (4) use a combination of methods described by this subsection. (V.T.I.C. Art. 5.15-3, Secs. (a), (b).) Sec. 1903.052. SANCTIONS. (a) If there is evidence that reasonable loss control information is not being provided by an insurer as required by this subchapter or is not being used by the insurer in a reasonable manner to reduce losses, the commissioner shall order a hearing to determine whether the insurer is not in compliance with this subchapter. (b) If it is determined that the insurer is not in compliance, the commissioner may impose any sanction authorized by Chapter 82. (V.T.I.C. Art. 5.15-3, Sec. (c).) Sec. 1903.053. RULES. After opportunity for a hearing, the commissioner may adopt reasonable rules for the enforcement of this subchapter. (V.T.I.C. Art. 5.15-3, Sec. (d).)
[Sections 1903.054-1903.100 reserved for expansion]
SUBCHAPTER C. CIVIL PROCEEDINGS
Sec. 1903.101. IMMUNITY FROM LIABILITY. (a) An insurer or an agent or employee of the insurer is not liable, and a cause of action does not arise against the insurer, agent, or employee, for an accident based on an allegation that the accident was caused or could have been prevented by a program, information, inspection, or other activity or service undertaken by the insurer to prevent accidents or to control losses, as applicable, in connection with the operations of the insured. (b) The immunity from liability provided by this section does not affect the liability of an insurer as otherwise provided in an insurance policy. (V.T.I.C. Art. 5.15-2, Sec. (g); Art. 5.15-3, Sec. (e).) Sec. 1903.102. LOSS CONTROL INFORMATION NOT DISCOVERABLE OR ADMISSIBLE. Loss control information provided by an insurer to an insured is not discoverable or admissible as evidence in a civil proceeding. (V.T.I.C. Art. 5.15-2, Sec. (h); Art. 5.15-3, Sec. (f).)
[Chapters 1904-1950 reserved for expansion]
SUBTITLE C. AUTOMOBILE INSURANCE
CHAPTER 1951. GENERAL PROVISIONS: AUTOMOBILE INSURANCE
Sec. 1951.001. RATES FOR AUTOMOBILE INSURANCE Sec. 1951.002. RULES Sec. 1951.003. FORMER MILITARY VEHICLES Sec. 1951.004. CRIMINAL PENALTY
CHAPTER 1951. GENERAL PROVISIONS: AUTOMOBILE INSURANCE
Sec. 1951.001. RATES FOR AUTOMOBILE INSURANCE. Rates for personal and commercial automobile insurance in this state are determined as provided by Chapter 2251 and Article 5.13-2. (V.T.I.C. Art. 5.11, Sec. (c) (part).) Sec. 1951.002. RULES. The commissioner may adopt and enforce reasonable rules necessary to carry out the provisions of this subtitle. (V.T.I.C. Art. 5.10.) Sec. 1951.003. FORMER MILITARY VEHICLES. (a) In this section, "former military vehicle" has the meaning assigned by Section 504.502, Transportation Code. (b) A rating plan that includes a classification applicable to antique, privately owned passenger vehicles that are maintained primarily for use in exhibitions, club activities, parades, or other functions of public interest and that may be used occasionally for other purposes must include in that classification former military vehicles maintained for those uses. (V.T.I.C. Art. 5.01-3.) Sec. 1951.004. CRIMINAL PENALTY. (a) An insurer, or an officer or representative of an insurer, commits an offense if the insurer, officer, or representative violates: (1) Section 1951.001, 1951.002, 1952.051, 1952.052, 1952.053, 1952.054, or 1952.055; (2) Subchapter B, Chapter 1806; (3) Chapter 254; or (4) Article 5.01, 5.02, 5.03, 5.05, 5.06, 5.10, or 5.11. (b) An offense under this section is a misdemeanor punishable by a fine of not less than $100 or more than $500. (V.T.I.C. Art. 5.12-1 (part).)
CHAPTER 1952. POLICY PROVISIONS AND FORMS FOR
AUTOMOBILE INSURANCE
SUBCHAPTER A. GENERAL PROVISIONS
Sec. 1952.001. APPLICABILITY OF CHAPTER
[Sections 1952.002-1952.050 reserved for expansion]
SUBCHAPTER B. POLICY FORMS AND PROVISIONS IN GENERAL
Sec. 1952.051. POLICY FORMS FOR AUTOMOBILE INSURANCE Sec. 1952.052. USE OF PREVIOUSLY APPROVED OR ADOPTED POLICY FORMS AUTHORIZED Sec. 1952.053. WITHDRAWAL OF APPROVAL Sec. 1952.054. REQUIRED DISCLOSURES REGARDING SHORT-TERM POLICIES Sec. 1952.055. CERTIFICATE OF INSURANCE AS SUBSTITUTE FOR INSURANCE POLICY Sec. 1952.056. REQUIRED PROVISION: COVERAGE FOR CERTAIN SPOUSES Sec. 1952.057. PROHIBITED PROVISION: PAYMENT ON CONVICTION FOR DRUG OFFENSE Sec. 1952.058. LOSS CONTROL INFORMATION AND SERVICES REQUIRED
[Sections 1952.059-1952.100 reserved for expansion]
SUBCHAPTER C. UNINSURED OR UNDERINSURED MOTORIST COVERAGE
Sec. 1952.101. UNINSURED OR UNDERINSURED MOTORIST COVERAGE REQUIRED Sec. 1952.102. UNINSURED MOTOR VEHICLE Sec. 1952.103. UNDERINSURED MOTOR VEHICLE Sec. 1952.104. REQUIRED PROVISIONS RELATING TO UNINSURED OR UNDERINSURED MOTORIST COVERAGE Sec. 1952.105. LIABILITY LIMITS Sec. 1952.106. RECOVERY UNDER UNDERINSURED MOTORIST COVERAGE Sec. 1952.107. RECOVERY UNDER COLLISION OR COMBINED COVERAGE Sec. 1952.108. INSURER'S RIGHT OF RECOVERY Sec. 1952.109. BURDEN OF PROOF IN DISPUTE Sec. 1952.110. VENUE
[Sections 1952.111-1952.150 reserved for expansion]
SUBCHAPTER D. PERSONAL INJURY PROTECTION COVERAGE
Sec. 1952.151. PERSONAL INJURY PROTECTION Sec. 1952.152. PERSONAL INJURY PROTECTION COVERAGE REQUIRED Sec. 1952.153. MAXIMUM REQUIRED AMOUNT OF PERSONAL INJURY PROTECTION Sec. 1952.154. LOSS OF INCOME BENEFITS Sec. 1952.155. BENEFITS PAYABLE WITHOUT REGARD TO FAULT OR COLLATERAL SOURCE; EFFECT ON SUBROGATION Sec. 1952.156. PAYMENT OF BENEFITS Sec. 1952.157. ACTION FOR FAILURE TO PAY BENEFITS Sec. 1952.158. EXCLUSION OF BENEFITS Sec. 1952.159. OFFSET AGAINST LIABILITY CLAIM Sec. 1952.160. INAPPLICABILITY TO ACCIDENT OR HEALTH INSURANCE Sec. 1952.161. CERTAIN COVERAGE UNAFFECTED
[Sections 1952.162-1952.200 reserved for expansion]
SUBCHAPTER E. SHORT-TERM LIABILITY INSURANCE FOR
CERTAIN MOTORISTS
Sec. 1952.201. APPLICABILITY OF SUBCHAPTER Sec. 1952.202. DEFINITIONS Sec. 1952.203. SHORT-TERM LIABILITY INSURANCE PROGRAM Sec. 1952.204. AGENT LICENSE REQUIRED Sec. 1952.205. SALE OF SHORT-TERM LIABILITY INSURANCE POLICIES
[Sections 1952.206-1952.250 reserved for expansion]
SUBCHAPTER F. GARAGE INSURANCE
Sec. 1952.251. DEFINITIONS Sec. 1952.252. GARAGE INSURANCE
[Sections 1952.253-1952.300 reserved for expansion]
SUBCHAPTER G. REPAIR OF MOTOR VEHICLES
Sec. 1952.301. LIMITATION ON PARTS, PRODUCTS, OR REPAIR PERSONS OR FACILITIES PROHIBITED Sec. 1952.302. PROHIBITED ACTS IN CONNECTION WITH REPAIR OF MOTOR VEHICLE Sec. 1952.303. CONTRACTS BETWEEN INSURER AND REPAIR PERSON OR FACILITY Sec. 1952.304. PROVISION OF INFORMATION REGARDING REPAIRS Sec. 1952.305. NOTICE OF RIGHTS REGARDING REPAIR OF MOTOR VEHICLE Sec. 1952.306. COMPLAINTS Sec. 1952.307. RULES
CHAPTER 1952. POLICY PROVISIONS AND FORMS FOR
AUTOMOBILE INSURANCE
SUBCHAPTER A. GENERAL PROVISIONS
Sec. 1952.001. APPLICABILITY OF CHAPTER. Except as provided by Section 1952.201, this chapter applies to an insurer writing automobile insurance in this state, including an insurance company, corporation, reciprocal or interinsurance exchange, mutual insurance company, association, Lloyd's plan, or other insurer. (V.T.I.C. Art. 5.01, Sec. (a) (part).)
[Sections 1952.002-1952.050 reserved for expansion]
SUBCHAPTER B. POLICY FORMS AND PROVISIONS IN GENERAL
Sec. 1952.051. POLICY FORMS FOR AUTOMOBILE INSURANCE. Notwithstanding Subsections (1)-(4) and (7), Article 5.06, policy forms and endorsements for automobile insurance in this state are regulated under Chapter 2301 and Article 5.13-2. (V.T.I.C. Art. 5.06, Sec. 12(a).) Sec. 1952.052. USE OF PREVIOUSLY APPROVED OR ADOPTED POLICY FORMS AUTHORIZED. An insurer may continue to use a policy form or endorsement approved or adopted by the commissioner under Article 5.06 before June 11, 2003, on notification in writing to the commissioner that the insurer will continue to use the policy form or endorsement. (V.T.I.C. Art. 5.06, Sec. (12)(b).) Sec. 1952.053. WITHDRAWAL OF APPROVAL. The commissioner may, after notice and hearing, withdraw the commissioner's approval of a policy or endorsement form that was approved by the commissioner under Article 5.06. (V.T.I.C. Art. 5.06, Sec. (8).) Sec. 1952.054. REQUIRED DISCLOSURES REGARDING SHORT-TERM POLICIES. (a) An insurance policy or other document evidencing proof of purchase of a personal automobile insurance policy written for a term of less than 30 days may not be used to obtain an original or renewal driver's license, an automobile registration or license plates, or a motor vehicle inspection certificate. An insurance policy or other document described by this subsection must contain the following statement: TEXAS LAW PROHIBITS USE OF THIS DOCUMENT TO OBTAIN A MOTOR VEHICLE INSPECTION CERTIFICATE, AN ORIGINAL OR RENEWAL DRIVER'S LICENSE, OR AN AUTOMOBILE REGISTRATION OR LICENSE PLATES. (b) Before accepting any premium or fee for a personal automobile insurance policy or binder for a term of less than 30 days, an agent or insurer must make the following written disclosure to the applicant or insured: TEXAS LAW PROHIBITS USE OF THIS POLICY OR BINDER TO OBTAIN A MOTOR VEHICLE INSPECTION CERTIFICATE, AN ORIGINAL OR RENEWAL DRIVER'S LICENSE, OR AN AUTOMOBILE REGISTRATION OR LICENSE PLATES. (V.T.I.C. Art. 5.06, Secs. (9) (part), (10) (part).) Sec. 1952.055. CERTIFICATE OF INSURANCE AS SUBSTITUTE FOR INSURANCE POLICY. (a) An insurer that complies with applicable requirements may issue and deliver a certificate of insurance as a substitute for issuing and delivering an insurance policy adopted or approved by the commissioner. The certificate must: (1) be in the form prescribed by the commissioner; and (2) refer to and identify the policy form for which the certificate is substituted. (b) A certificate under this section represents the insurance policy and, when issued, is evidence that the certificate holder is insured under the identified policy form. The certificate is subject to the same limitations, conditions, coverages, selection of options, and other provisions provided in the policy, and the certificate must show and adequately reference that policy information. The certificate or subsequent attachments to the certificate must refer to all endorsements to the policy. (c) A certificate under this section must be executed in the same manner as though an insurance policy were issued. If an insurer substitutes a certificate for a policy, the insurer shall simultaneously provide the insured receiving the certificate with an outline of coverages in the form and content approved by the commissioner. At the insured's request, the insurer shall provide the insured with a copy of the policy. (d) The commissioner may adopt rules necessary to implement this section, including a rule limiting the application of this section to private passenger automobile insurance policies. (V.T.I.C. Art. 5.06, Secs. (5), (6).) Sec. 1952.056. REQUIRED PROVISION: COVERAGE FOR CERTAIN SPOUSES. A personal automobile insurance policy or any similar policy form adopted or approved by the commissioner under Article 5.06 or filed under Subchapter B, Chapter 2301, that covers liability arising out of ownership, maintenance, or use of a motor vehicle of a spouse who is otherwise insured by the policy must contain a provision to continue coverage for the spouse during a period of separation in contemplation of divorce. (V.T.I.C. Art. 5.06-6.) Sec. 1952.057. PROHIBITED PROVISION: PAYMENT ON CONVICTION FOR DRUG OFFENSE. (a) An insurer may not deliver or issue for delivery in this state an automobile insurance policy that provides payment on final conviction of the named insured for loss for a covered motor vehicle seized by federal or state law enforcement officers as evidence in a case against the named insured under Chapter 481, Health and Safety Code, or under the federal Controlled Substances Act (21 U.S.C. Section 801 et seq.). (b) For purposes of this section, a named insured for: (1) an individual automobile insurance policy is the person named on the declaration page of the policy and the person's spouse; and (2) an automobile insurance policy other than an individual policy is the company or corporation named on the declaration page of the policy and any officer, director, or shareholder of that company or corporation. (V.T.I.C. Art. 5.06-5.) Sec. 1952.058. LOSS CONTROL INFORMATION AND SERVICES REQUIRED. (a) An insurer must provide loss control information as a prerequisite to writing commercial automobile liability insurance in this state. (b) The insurer shall provide to the insurer's policyholders loss control information reasonably commensurate with the risks, exposures, and experience of the insured's business. To provide loss control information or services, the insurer may: (1) employ qualified personnel; (2) retain qualified independent contractors; (3) contract with the policyholder to provide qualified loss control personnel and services; or (4) use a combination of methods described by this subsection. (c) If there is evidence that an insurer is not providing reasonable loss control information or is not using that information in a reasonable manner to reduce losses, the commissioner shall order a hearing to determine whether the insurer is in compliance with this section. If the commissioner determines that the insurer is not in compliance, the commissioner may impose any sanction authorized by Chapter 82. (d) An insurer or an agent or employee of the insurer is not liable, and a cause of action does not arise against the insurer, agent, or employee, for any accident based on the allegation that the accident was caused or could have been prevented by a program, information, inspection, or other activity or service undertaken by the insurer for the prevention of accidents in connection with operations of the insured. The immunity provided by this subsection does not affect the liability of an insurer for compensation or as otherwise provided in an insurance policy. (e) Loss control information an insurer provides to an insured under this section is not subject to discovery and is not admissible as evidence in any civil proceeding. (f) The commissioner, after holding a public hearing on the proposed rules, may adopt reasonable rules for the enforcement of this section. (V.T.I.C. Art. 5.06-4.)
[Sections 1952.059-1952.100 reserved for expansion]
SUBCHAPTER C. UNINSURED OR UNDERINSURED MOTORIST COVERAGE
Sec. 1952.101. UNINSURED OR UNDERINSURED MOTORIST COVERAGE REQUIRED. (a) In this section, "uninsured or underinsured motorist coverage" means the provisions of an automobile liability insurance policy that provide for coverage in at least the limits prescribed by Chapter 601, Transportation Code, that protects insureds who are legally entitled to recover from owners or operators of uninsured or underinsured motor vehicles damages for bodily injury, sickness, disease, or death, or property damage resulting from the ownership, maintenance, or use of any motor vehicle. (b) An insurer may not deliver or issue for delivery in this state an automobile liability insurance policy, including a policy provided through the Texas Automobile Insurance Plan Association under Chapter 2151, that covers liability arising out of the ownership, maintenance, or use of any motor vehicle unless the insurer provides uninsured or underinsured motorist coverage in the policy or supplemental to the policy. (c) The coverage required by this subchapter does not apply if any insured named in the insurance policy rejects the coverage in writing. Unless the named insured requests in writing the coverage required by this subchapter, the insurer is not required to provide that coverage in or supplemental to a renewal insurance policy if the named insured rejected the coverage in connection with an insurance policy previously issued to the insured by the same insurer or by an affiliated insurer. (V.T.I.C. Art. 5.06-1, Sec. (1).) Sec. 1952.102. UNINSURED MOTOR VEHICLE. (a) For purposes of the coverage required by this subchapter, "uninsured motor vehicle," subject to the terms of the coverage, is considered to include an insured motor vehicle as to which the insurer providing liability insurance is unable because of insolvency to make payment with respect to the legal liability of the insured within the limits specified in the insurance. (b) The commissioner may, in the policy forms filed under Subchapter B, Chapter 2301, allow "uninsured motor vehicle" to be defined or, in policy forms adopted under Article 5.06, define "uninsured motor vehicle," to exclude certain motor vehicles whose operators are in fact uninsured. (V.T.I.C. Art. 5.06-1, Secs. (2)(a), (c).) Sec. 1952.103. UNDERINSURED MOTOR VEHICLE. For purposes of the coverage required by this subchapter, "underinsured motor vehicle" means an insured motor vehicle on which there is collectible liability insurance coverage with limits of liability for the owner or operator that were originally lower than, or have been reduced by payment of claims arising from the same accident to, an amount less than the limit of liability stated in the underinsured coverage of the insured's policy. (V.T.I.C. Art. 5.06-1, Sec. (2)(b).) Sec. 1952.104. REQUIRED PROVISIONS RELATING TO UNINSURED OR UNDERINSURED MOTORIST COVERAGE. The portion of a policy form adopted under Article 5.06 or filed as provided by Subchapter B, Chapter 2301, to provide coverage under this subchapter must: (1) provide that, regardless of the number of persons insured, policies or bonds applicable, vehicles involved, or claims made, the total aggregate limit of liability to any one person who sustains bodily injury or property damage as the result of a single occurrence may not exceed the limit of liability for those coverages as stated in the insurance policy and that the total aggregate limit of liability to all claimants, if more than one, may not exceed the total limit of liability per occurrence as stated in the policy; (2) provide for the exclusion of the recovery of damages for bodily injury or property damage, or both, resulting from the intentional acts of the insured; and (3) require that, for the insured to recover under the uninsured motorist coverage if the owner or operator of any motor vehicle that causes bodily injury or property damage to the insured is unknown, actual physical contact must have occurred between the motor vehicle owned or operated by the unknown person and the person or property of the insured. (V.T.I.C. Art. 5.06-1, Sec. (2)(d).) Sec. 1952.105. LIABILITY LIMITS. (a) The limits of liability for bodily injury, sickness, disease, or death must be offered to an insured in the amounts desired by the insured, but not in amounts greater than the limits of liability specified in the bodily injury liability provisions of the insured's policy. (b) Subject to a deductible amount of $250, coverage for property damage must be offered to an insured in the amounts desired by the insured, but not in amounts greater than the limits of liability specified in the property damage liability provisions of the insured's policy. (c) Notwithstanding Subsections (a) and (b), amounts of liability limits for bodily injury, sickness, disease, or death and amounts for coverage for property damage may not be offered in amounts less than those prescribed by Chapter 601, Transportation Code. (V.T.I.C. Art. 5.06-1, Secs. (3), (4)(a).) Sec. 1952.106. RECOVERY UNDER UNDERINSURED MOTORIST COVERAGE. Underinsured motorist coverage must provide for payment to the insured of all amounts that the insured is legally entitled to recover as damages from owners or operators of underinsured motor vehicles because of bodily injury or property damage, not to exceed the limit specified in the insurance policy, and reduced by the amount recovered or recoverable from the insurer of the underinsured motor vehicle. (V.T.I.C. Art. 5.06-1, Sec. (5).) Sec. 1952.107. RECOVERY UNDER COLLISION OR COMBINED COVERAGE. (a) An insured who has collision coverage and uninsured or underinsured property damage liability coverage may recover under the coverage the insured chooses. (b) If neither the collision coverage or the uninsured or underinsured property damage liability coverage is sufficient alone to cover all damage resulting from a single occurrence, the insured may recover under both coverages. If recovering under both coverages, the insured shall designate one coverage as the primary coverage and pay the deductible applicable to that coverage. The primary coverage must be exhausted before any recovery is made under the secondary coverage. (c) If both the primary and secondary coverages are used to pay damages from a single occurrence, the insured may not be required to pay the deductible applicable to the secondary coverage when the amount of the deductible otherwise applicable to the secondary coverage is the same as or less than the amount of the deductible applicable to the primary coverage. If both coverages are used to pay damages from a single occurrence and the amount of the deductible otherwise applicable to the secondary coverage is greater than the amount of the deductible applicable to the primary coverage, the insured shall pay the difference between the amount of the two deductibles with respect to the secondary coverage. (d) The insured may not recover under both the primary and secondary coverages more than the actual damages suffered. (V.T.I.C. Art. 5.06-1, Sec. (4)(b).) Sec. 1952.108. INSURER'S RIGHT OF RECOVERY. (a) An insurer that makes a payment to any person under any coverage required by this subchapter is subject to the terms of that coverage and, to the extent of the payment, is entitled to the proceeds of any settlement or judgment resulting from the exercise of any right of recovery of the person to whom the payment is made against any person or organization legally responsible for the bodily injury, sickness, disease, or death for which the payment is made, including the proceeds recoverable from the assets of an insolvent insurer. (b) If, under an insurance policy issued under this subchapter, an insurer makes a payment as a result of the insolvency of another insurer: (1) the insolvent insurer's insured shall be given credit to the extent of the paying insurer's payment in any judgment obtained against the insured with respect to the insured's legal liability for damages described by Subsection (a); and (2) subject to Subchapter F, Chapter 462, the paying insurer has the right to proceed directly against the insolvent insurer or that insurer's receiver, and in pursuing that right the paying insurer has any rights that the insolvent insurer's insured might otherwise have had if the insured had made the payment. (V.T.I.C. Art. 5.06-1, Sec. (6).) Sec. 1952.109. BURDEN OF PROOF IN DISPUTE. The insurer has the burden of proof in a dispute as to whether a motor vehicle is uninsured. (V.T.I.C. Art. 5.06-1, Sec. (7).) Sec. 1952.110. VENUE. Notwithstanding Section 15.032, Civil Practice and Remedies Code, an action against an insurer in relation to the coverage provided under this subchapter, including an action to enforce that coverage, may be brought only in the county in which: (1) the policyholder or beneficiary instituting the action resided at the time of the accident involving the uninsured or underinsured motor vehicle; or (2) the accident occurred. (V.T.I.C. Art. 5.06-1, Sec. (8).)
[Sections 1952.111-1952.150 reserved for expansion]
SUBCHAPTER D. PERSONAL INJURY PROTECTION COVERAGE
Sec. 1952.151. PERSONAL INJURY PROTECTION. "Personal injury protection" consists of provisions of an automobile liability insurance policy that provide for payment to the named insured in the policy, members of the insured's household, and any authorized operator or passenger of the named insured's motor vehicle, including a guest occupant, of all reasonable expenses that: (1) arise from an accident; (2) are incurred not later than the third anniversary of the date of the accident; and (3) are for: (A) necessary medical, surgical, x-ray, or dental services, including prosthetic devices, and necessary ambulance, hospital, professional nursing, or funeral services; (B) in the case of an income producer, replacement of income lost as the result of the accident; or (C) in the case of a person injured in the accident who was not an income or wage producer at the time of the accident, reimbursement of necessary and reasonable expenses incurred for essential services ordinarily performed by the injured person for care and maintenance of the family or family household. (V.T.I.C. Art. 5.06-3, Sec. (b) (part).) Sec. 1952.152. PERSONAL INJURY PROTECTION COVERAGE REQUIRED. (a) An insurer may not deliver or issue for delivery in this state an automobile liability insurance policy, including a policy provided through the Texas Automobile Insurance Plan Association under Chapter 2151, that covers liability arising out of the ownership, maintenance, or use of any motor vehicle unless the insurer provides personal injury protection coverage in the policy or supplemental to the policy. (b) The coverage required by this subchapter does not apply if any insured named in the insurance policy rejects the coverage in writing. Unless the named insured requests in writing the coverage required by this subchapter, the insurer is not required to provide that coverage in or supplemental to a renewal insurance policy if the named insured rejected the coverage in connection with an insurance policy previously issued to the insured by the same insurer or by an affiliated insurer. (V.T.I.C. Art. 5.06-3, Sec. (a).) Sec. 1952.153. MAXIMUM REQUIRED AMOUNT OF PERSONAL INJURY PROTECTION. This subchapter does not require an insurer to provide personal injury protection coverage in an amount that exceeds $2,500 for all benefits, in the aggregate, for each person. (V.T.I.C. Art. 5.06-3, Sec. (b) (part).) Sec. 1952.154. LOSS OF INCOME BENEFITS. An insurer providing loss of income benefits under coverage required by this subchapter may require that the insured, as a condition of receiving those benefits, provide the insurer with reasonable medical proof of the insured's injury causing loss of income. (V.T.I.C. Art. 5.06-3, Sec. (b) (part).) Sec. 1952.155. BENEFITS PAYABLE WITHOUT REGARD TO FAULT OR COLLATERAL SOURCE; EFFECT ON SUBROGATION. (a) The benefits under coverage required by this subchapter are payable without regard to: (1) the fault or nonfault of the named insured or recipient in causing or contributing to the accident; and (2) any collateral source of medical, hospital, or wage continuation benefits. (b) An insurer paying benefits under coverage required by this subchapter does not have a right of subrogation or claim against any other person or insurer to recover any benefits by reason of the alleged fault of the other person in causing or contributing to the accident. (V.T.I.C. Art. 5.06-3, Sec. (c).) Sec. 1952.156. PAYMENT OF BENEFITS. (a) Subject to the requirements of this section and Section 1952.157, an insurer shall pay benefits under the coverage required by this subchapter periodically as claims for those benefits arise, but not later than the 30th day after the date the insurer receives satisfactory proof of a claim. (b) The coverage required by this subchapter may: (1) prescribe a period of not less than six months after the date of an accident within which the original proof of loss with respect to a claim for benefits must be presented to the insurer; and (2) provide that an insurer may require reasonable medical proof of an alleged recurrence of an injury for which an original claim for benefits was made if a lapse occurs in the period of total disability or in the medical treatment of an injured person who: (A) has received benefits under that coverage; and (B) subsequently claims additional benefits based on the alleged recurrence. (c) The aggregate benefits payable under the coverage required by this subchapter to any person may not exceed the maximum limits prescribed in the insurance policy. (V.T.I.C. Art. 5.06-3, Sec. (d) (part).) Sec. 1952.157. ACTION FOR FAILURE TO PAY BENEFITS. (a) If the insurer fails to pay benefits under the coverage required by this subchapter when due, the person entitled to those benefits may bring an action in contract to recover the benefits. (b) If the insurer is required to pay benefits described by Subsection (a), the person entitled to the benefits is entitled to recover reasonable attorney's fees, a penalty of 12 percent, and interest at the legal rate from the date those amounts became overdue. (V.T.I.C. Art. 5.06-3, Sec. (d) (part).) Sec. 1952.158. EXCLUSION OF BENEFITS. An insurer shall exclude benefits to an insured or the insured's personal representative under the coverage required by this subchapter if the insured's conduct contributed to the injury the insured sustained and that conduct: (1) involved intentionally causing injury to the insured; or (2) occurred while committing a felony or while seeking to elude lawful apprehension or arrest by a law enforcement official. (V.T.I.C. Art. 5.06-3, Sec. (e).) Sec. 1952.159. OFFSET AGAINST LIABILITY CLAIM. (a) If a liability claim is made by a guest or passenger described by Section 1952.151 against the owner or operator of the motor vehicle in which the guest or passenger was riding or against the owner's or operator's liability insurer, the owner or operator of the motor vehicle or the owner's or operator's liability insurer is entitled to an offset, credit, or deduction against any award made to the guest or passenger in an amount equal to the amounts paid by the owner, the operator, or the owner's or operator's automobile liability insurer to the guest or passenger under personal injury protection. (b) This subchapter does not authorize a direct action against a liability insurer if that right does not presently exist at law. (V.T.I.C. Art. 5.06-3, Sec. (h).) Sec. 1952.160. INAPPLICABILITY TO ACCIDENT OR HEALTH INSURANCE. This subchapter applies only to an automobile insurance policy subject to this subtitle or Subchapter A, Chapter 5, and does not apply to any other accident or health insurance policy, regardless of whether the accident or health insurance policy provides indemnity against automobile-connected injuries. (V.T.I.C. Art. 5.06-3, Sec. (f).) Sec. 1952.161. CERTAIN COVERAGE UNAFFECTED. This subchapter does not: (1) affect the offering of medical payments coverage, disability benefits, or accidental death benefits, as presently prescribed by the commissioner; or (2) prevent an insurer from providing benefits broader than the minimum benefits described by this subchapter, subject to the rules prescribed by the commissioner. (V.T.I.C. Art. 5.06-3, Sec. (g).)
[Sections 1952.162-1952.200 reserved for expansion]
SUBCHAPTER E. SHORT-TERM LIABILITY INSURANCE FOR
CERTAIN MOTORISTS
Sec. 1952.201. APPLICABILITY OF SUBCHAPTER. This subchapter applies to an insurer authorized to write automobile insurance in this state, including an insurance company, reciprocal or interinsurance exchange, mutual insurance company, capital stock company, county mutual insurance company, Lloyd's plan, or other entity. (V.T.I.C. Art. 5.01C, Sec. 1(1).) Sec. 1952.202. DEFINITIONS. In this subchapter: (1) "Motor vehicle" means any private passenger vehicle or utility type vehicle that has a gross weight of not more than 25,000 pounds. (2) "Short-term liability insurance policy" means an insurance policy that: (A) provides coverage for at least 24 hours but not for more than one week; (B) meets the requirements of Chapter 601, Transportation Code; (C) covers liability for bodily injury, death, and property damage arising from the use or operation of a motor vehicle; and (D) is not insurance assigned to an authorized insurer by the Texas Automobile Insurance Plan Association under Section 2151.102(a). (V.T.I.C. Art. 5.01C, Secs. 1(2), (3).) Sec. 1952.203. SHORT-TERM LIABILITY INSURANCE PROGRAM. (a) The commissioner by rule may establish a program to provide for the sale of short-term liability insurance policies to nonresident motorists who are visiting this state. (b) The commissioner may negotiate an agreement with any insurer under which the insurer will sell insurance policies described by this section. (V.T.I.C. Art. 5.01C, Sec. 2.) Sec. 1952.204. AGENT LICENSE REQUIRED. A person representing an insurer in selling short-term liability insurance policies under this subchapter must be licensed under Title 13. (V.T.I.C. Art. 5.01C, Sec. 3.) Sec. 1952.205. SALE OF SHORT-TERM LIABILITY INSURANCE POLICIES. An insurer selling short-term liability insurance policies under this subchapter shall use policy forms adopted by the commissioner under Article 5.06 or filed and in effect as provided by Subchapter B, Chapter 2301, as applicable, unless the insurer is exempt from using those forms. (V.T.I.C. Art. 5.01C, Sec. 4.)
[Sections 1952.206-1952.250 reserved for expansion]
SUBCHAPTER F. GARAGE INSURANCE
Sec. 1952.251. DEFINITIONS. In this subchapter: (1) "Garage customer" means a person or organization other than: (A) the named insured under a garage insurance policy; (B) an employee, director, officer, shareholder, partner, or agent of the named insured; or (C) a resident of the same household as: (i) the named insured; or (ii) an employee, director, officer, shareholder, partner, or agent of the named insured. (2) "Garage insurance" means automobile insurance as defined by Article 5.01 issued to a named insured who is engaged in the business of selling, servicing, or repairing motor vehicles as defined by commissioner rule or order. (V.T.I.C. Art. 5.06-2, Sec. (1) (part).) Sec. 1952.252. GARAGE INSURANCE. (a) A garage insurance policy may provide that a garage customer is not an insured under the policy and that the coverage under the policy does not apply to a garage customer except to the extent that any other insurance coverage that is collectible and available to the garage customer is not equal to the minimum financial responsibility limits specified by Chapter 601, Transportation Code. (b) Notwithstanding any provision to the contrary in another insurance policy as to whether the insurance coverage described by Subsection (a) that is provided under that policy is primary, excess, or contingent insurance, or otherwise, the other insurance coverage is the primary insurance as to the garage customer. (c) A garage insurance policy containing a provision described by Subsection (a) may not cover a garage customer except to the extent permitted by this section, notwithstanding the terms of the other insurance policy providing coverage described by Subsection (a). (V.T.I.C. Art. 5.06-2, Secs. (1) (part), (2).)
[Sections 1952.253-1952.300 reserved for expansion]
SUBCHAPTER G. REPAIR OF MOTOR VEHICLES
Sec. 1952.301. LIMITATION ON PARTS, PRODUCTS, OR REPAIR PERSONS OR FACILITIES PROHIBITED. (a) Except as provided by rules adopted by the commissioner, under an automobile insurance policy that is delivered, issued for delivery, or renewed in this state, an insurer may not directly or indirectly limit the insurer's coverage under a policy covering damage to a motor vehicle by: (1) specifying the brand, type, kind, age, vendor, supplier, or condition of parts or products that may be used to repair the vehicle; or (2) limiting the beneficiary of the policy from selecting a repair person or facility to repair damage to the vehicle. (b) In settling a liability claim by a third party against an insured for property damage claimed by the third party, an insurer may not require the third-party claimant to have repairs made by a particular repair person or facility or to use a particular brand, type, kind, age, vendor, supplier, or condition of parts or products. (V.T.I.C. Art. 5.07-1, Secs. (a), (g).) Sec. 1952.302. PROHIBITED ACTS IN CONNECTION WITH REPAIR OF MOTOR VEHICLE. In connection with the repair of damage to a motor vehicle covered under an automobile insurance policy, an insurer, an employee or agent of an insurer, an insurance adjuster, or an entity that employs an insurance adjuster may not: (1) solicit or accept a referral fee or gratuity in exchange for referring a beneficiary or third-party claimant to a repair person or facility to repair the damage; (2) state or suggest, either orally or in writing, to a beneficiary that the beneficiary must use a specific repair person or facility or a repair person or facility identified on a preferred list compiled by an insurer for the damage repair or parts replacement to be covered by the policy; or (3) restrict the right of a beneficiary or third-party claimant to choose a repair person or facility by requiring the beneficiary or third-party claimant to travel an unreasonable distance to repair the damage. (V.T.I.C. Art. 5.07-1, Sec. (b).) Sec. 1952.303. CONTRACTS BETWEEN INSURER AND REPAIR PERSON OR FACILITY. (a) A contract between an insurer and a repair person or facility, including an agreement under which the repair person or facility agrees to extend discounts for parts or labor to the insurer in exchange for referrals by the insurer, may not result in a reduction of coverage under an insured's automobile insurance policy. (b) The commissioner may adopt rules under Chapter 542 with respect to any fraudulent activity of any party to an agreement described by Subsection (a). (V.T.I.C. Art. 5.07-1, Secs. (c), (h).) Sec. 1952.304. PROVISION OF INFORMATION REGARDING REPAIRS. An insurer may not prohibit a repair person or facility from providing a beneficiary or third-party claimant with information that states: (1) the description, manufacturer, or source of the parts used; and (2) the amounts charged to the insurer for the parts and related labor. (V.T.I.C. Art. 5.07-1, Sec. (d).) Sec. 1952.305. NOTICE OF RIGHTS REGARDING REPAIR OF MOTOR VEHICLE. (a) At the time a motor vehicle is presented to an insurer, an insurance adjuster, or other person in connection with a claim for damage repair, the insurer, insurance adjuster, or other person shall provide to the beneficiary or third-party claimant notice of the provisions of this subchapter. (b) The commissioner shall adopt a rule establishing the method or methods insurers must use to comply with the notice provisions of this section. (V.T.I.C. Art. 5.07-1, Sec. (e).) Sec. 1952.306. COMPLAINTS. A beneficiary, third-party claimant, or repair person or facility may submit a written, documented complaint to the department with respect to an alleged violation of this subchapter. (V.T.I.C. Art. 5.07-1, Sec. (f).) Sec. 1952.307. RULES. Rules adopted by the commissioner to implement this subchapter must include requirements that: (1) any limitation described by Section 1952.301(a) be clearly and prominently displayed on the face of the insurance policy or certificate in lieu of an insurance policy; and (2) the insured give written consent to a limitation described by Section 1952.301(a) after the insured is notified orally and in writing of the limitation at the time the insurance policy is purchased. (V.T.I.C. Art. 5.07-1, Sec. (i).)
[Chapters 1953-2000 reserved for expansion]
SUBTITLE D. FIRE INSURANCE AND ALLIED LINES,
INCLUDING RESIDENTIAL PROPERTY INSURANCE
CHAPTER 2001. GENERAL PROVISIONS: FIRE INSURANCE AND ALLIED LINES, INCLUDING RESIDENTIAL PROPERTY INSURANCE
Sec. 2001.001. APPLICABILITY OF SUBTITLE Sec. 2001.002. RATES Sec. 2001.003. AUTHORITY TO REQUIRE SWORN STATEMENTS Sec. 2001.004. AUTHORITY TO INSPECT AND TAKE TESTIMONY REGARDING RECORDS Sec. 2001.005. AUTHORITY TO REQUIRE PROVISION OF DATA Sec. 2001.006. REPORT OF INFORMATION RELATING TO CERTAIN FIRE LOSSES Sec. 2001.007. CRIMINAL PENALTY Sec. 2001.008. IMMUNITY FROM PROSECUTION Sec. 2001.009. LIMITATION ON COMPENSATION AND EXPENSES Sec. 2001.010. PUBLIC GUIDE RELATING TO COMMERCIAL PROPERTY RATING
CHAPTER 2001. GENERAL PROVISIONS: FIRE INSURANCE AND ALLIED LINES, INCLUDING RESIDENTIAL PROPERTY INSURANCE
Sec. 2001.001. APPLICABILITY OF SUBTITLE. (a) Each insurance policy or contract insuring property in this state against loss by fire, including a policy or contract or portion of a policy or contract that insures the shore end of a marine risk against loss by fire, must be issued in accordance with: (1) this chapter; (2) Section 403.002; (3) Subchapter C, Chapter 5; (4) Subchapter H, Chapter 544; (5) Subchapter D, Chapter 1806; and (6) Chapters 252, 2002, 2003, 2004, 2005, 2006, and 2171. (b) An insurer issuing an insurance policy or contract described by Subsection (a), including a fire insurance company, marine insurance company, fire and marine insurance company, and fire and tornado insurance company, is governed by the laws described by Subsection (a). (c) This section applies to an insurer or to an insurance policy or contract regardless of: (1) the kind and character of property insured; (2) whether the property is: (A) fixed or movable; (B) stationary or in transit; or (C) consigned or billed for shipment inside or outside the boundaries of this state or to a foreign country; (3) whether the insurer is organized: (A) under the laws of this state, another state, territory, or possession of the United States, or a foreign country; or (B) by authority of the federal government; or (4) the kind of insurer or the name of the insurer issuing the policy or contract. (V.T.I.C. Art. 5.27 (part).) Sec. 2001.002. RATES. (a) Rates for all lines of insurance subject to a law described by Section 2001.001(a) are determined as provided by Chapter 2251 and Article 5.13-2. (b) The requirement imposed by Subsection (a) does not affect the requirement for the commissioner to conduct inspections of commercial property and prescribe a manual of rules and rating schedules for commercial property under a law described by Section 2001.001(a). (V.T.I.C. Art. 5.25, Sec. (b); Art. 5.28, Sec. (d).) Sec. 2001.003. AUTHORITY TO REQUIRE SWORN STATEMENTS. For an insurer described by Section 2001.001, the department may require from the insurer or a director, officer, representative, or agent of the insurer a sworn statement covering any period that states: (1) the rates and premiums collected for fire insurance on each class of risks and on all property in this state; (2) the causes of fire, if known to the insurer or individual or if the insurer or individual possesses relevant information or data or can obtain the information or data at reasonable expense; and (3) all necessary facts and information to allow the department to determine enforcement and to enforce a law described by Section 2001.001(a). (V.T.I.C. Art. 5.28, Sec. (a) (part).) Sec. 2001.004. AUTHORITY TO INSPECT AND TAKE TESTIMONY REGARDING RECORDS. (a) The commissioner or a person authorized by the commissioner may: (1) visit: (A) a general, local, or other office of an insurer engaged in the business of insurance in this state; (B) the insurer's home office located outside this state, if applicable; and (C) the office of any of the insurer's officers, directors, agents, or other representatives; and (2) require the insurer or an officer, director, agent, or other representative of the insurer to produce for inspection by the commissioner or the commissioner's authorized representative all of the books, records, and papers of the insurer, officer, director, agent, or representative. (b) The commissioner or the commissioner's authorized representative may: (1) examine and make or have made copies of the books, records, and papers described by Subsection (a); and (2) take testimony under oath regarding the books, records, and papers and compel the attendance of witnesses for that purpose. (V.T.I.C. Art. 5.28, Sec. (b).) Sec. 2001.005. AUTHORITY TO REQUIRE PROVISION OF DATA. The department may require: (1) any or all of the fire insurance companies engaged in the business of insurance in this state to jointly or separately provide to the department any data the company or companies possess, including maps, tariffs, inspection reports, and any data affecting fire insurance risks in this state or any part of this state; and (2) any two or more of those companies or any joint agents or representatives of the companies to provide to the department for use in implementing a law described by Section 2001.001(a) any data the companies, agents, or representatives possess. (V.T.I.C. Art. 5.28, Sec. (c).) Sec. 2001.006. REPORT OF INFORMATION RELATING TO CERTAIN FIRE LOSSES. (a) The state fire marshal, a fire marshal of a political subdivision of this state, the chief of a fire department in this state, or a peace officer in this state may request an insurer investigating a fire loss of property in which damages or losses exceed $1,000 to release information in the insurer's possession relating to that loss. The insurer shall release the requested information and cooperate with the official. The requested information may include only: (1) an insurance policy relevant to the fire loss under investigation and any application for a policy; (2) policy premium payment records; (3) the history of the insured's previous claims for fire loss; and (4) material relating to the investigation of the loss, including: (A) statements of any person; (B) proof of loss; or (C) other relevant evidence. (b) This section does not authorize a public official or agency to adopt or require any type of periodic report by an insurer. (c) An insurer that has reason to suspect that a fire loss to the property of a person insured by the insurer was caused by incendiary means and that receives a request for information under Subsection (a) shall: (1) notify the requesting official and provide the official with all relevant material acquired during the insurer's investigation of the fire loss; (2) cooperate with and take any action requested of the insurer by a law enforcement agency; and (3) permit a person ordered by a court to inspect any of the insurer's records relating to the insurance policy and the loss. (d) In the absence of fraud or malice, an insurer or a person who provided information on the insurer's behalf is not liable for damages in a civil action or subject to criminal prosecution for an oral or written statement made or any other action taken that is necessary to supply information required under this section. (e) An official or a department or agency employee who receives information under this section shall maintain the confidentiality of the information until the information is required to be released in a criminal or civil proceeding. (f) An official described by Subsection (a) may be required to testify as to any information in the official's possession regarding the fire loss of property in a civil action in which a person seeks recovery for the loss from an insurer under an insurance policy. (g) A person may not intentionally: (1) refuse to release information requested under Subsection (a); (2) refuse to notify the fire marshal of a fire loss required to be reported under Subsection (c); (3) refuse to provide the fire marshal with relevant information required to be provided under Subsection (c); or (4) fail to maintain the confidentiality of information that is confidential under Subsection (e). (V.T.I.C. Art. 5.46.) Sec. 2001.007. CRIMINAL PENALTY. (a) An officer or director of a fire insurance company described by Section 2001.001, or an agent or person acting on behalf of or employed by a fire insurance company described by Section 2001.001, commits an offense if the officer, director, agent, or person intentionally: (1) performs or causes to be performed, alone or in conjunction with a corporation, company, or person, an act prohibited by a law described by Section 2001.001(a); (2) fails to perform an act required to be performed by a law described by Section 2001.001(a); (3) permits an act prohibited by a law described by Section 2001.001(a); or (4) otherwise violates a law described by Section 2001.001(a). (b) An offense under this section is a misdemeanor punishable by a fine of not less than $300 or more than $1,000. (V.T.I.C. Art. 5.48-1.) Sec. 2001.008. IMMUNITY FROM PROSECUTION. (a) A person is not excused from giving testimony or producing evidence when legally required at the trial of another person charged with violating a law relating to fire insurance on the ground that the testimony or evidence may incriminate the person under the laws of this state. (b) A person may not be prosecuted or subjected to a penalty or forfeiture for or because of a transaction, matter, or thing about which the person testifies or produces evidence under this section. (V.T.I.C. Art. 5.48-2.) Sec. 2001.009. LIMITATION ON COMPENSATION AND EXPENSES. The total amount of necessary compensation for experts, clerical personnel, and other department employees and necessary expenses, including travel expenses, incurred by the department in implementing the laws described by Section 2001.001(a) may not exceed the amount of the assessments on the gross premiums of all fire insurance companies engaged in the business of insurance in this state. (V.T.I.C. Art. 5.51 (part).) Sec. 2001.010. PUBLIC GUIDE RELATING TO COMMERCIAL PROPERTY RATING. (a) In this section, "rating agency" means a public or private legal entity that is authorized to conduct commercial property rating in this state. (b) The commissioner shall make available to the public a generalized guide that: (1) summarizes the procedures used by the department or other rating agency to rate nonresidential commercial buildings in this state; and (2) specifies how different construction elements and techniques used in a building project affect the insurance rating of the completed building. (c) The commissioner may charge a reasonable fee to cover the administrative costs of producing and distributing the guide. (d) The commissioner shall review the information in the guide in January of each odd-numbered year and shall revise the guide as necessary to incorporate any changes that have occurred in the preceding biennium that affect the information. (V.T.I.C. Art. 5.25-1.)
CHAPTER 2002. POLICY PROVISIONS AND FORMS FOR FIRE INSURANCE AND ALLIED LINES, INCLUDING RESIDENTIAL PROPERTY INSURANCE
SUBCHAPTER A. POLICY PROVISIONS
Sec. 2002.001. ENDORSEMENTS REDUCING AMOUNT OF COVERAGE Sec. 2002.002. LIEN ON INSURED PROPERTY Sec. 2002.003. COVERAGES FOR SPOUSES AND FORMER SPOUSES Sec. 2002.004. JEWELRY COVERAGE Sec. 2002.005. COINSURANCE CLAUSES Sec. 2002.006. PROVISIONS GOVERNING CERTAIN CONDITIONS OR RISKS
[Sections 2002.007-2002.050 reserved for expansion]
SUBCHAPTER B. POLICY FORMS
Sec. 2002.051. POLICY FORMS AND ENDORSEMENTS FOR RESIDENTIAL PROPERTY INSURANCE Sec. 2002.052. APPLICABILITY OF OTHER LAW TO RESIDENTIAL PROPERTY INSURANCE
[Sections 2002.053-2002.100 reserved for expansion]
SUBCHAPTER C. ITEMS PROVIDED TO POLICYHOLDER IN CONNECTION WITH INSURANCE POLICY
Sec. 2002.101. RATE ANALYSIS Sec. 2002.102. NOTICE OF RENEWAL
CHAPTER 2002. POLICY PROVISIONS AND FORMS FOR FIRE INSURANCE AND ALLIED LINES, INCLUDING RESIDENTIAL PROPERTY INSURANCE
SUBCHAPTER A. POLICY PROVISIONS
Sec. 2002.001. ENDORSEMENTS REDUCING AMOUNT OF COVERAGE. An insurer may not use an endorsement to a policy form to which Article 5.35, Subchapter B, or Subchapter B, Chapter 2301, applies that reduces the amount of coverage that would otherwise be provided under the policy unless: (1) the insured requests the endorsement; or (2) the insurer provides the policyholder with a written explanation of the change made by the endorsement before the effective date of the change. (V.T.I.C. Art. 5.36.) Sec. 2002.002. LIEN ON INSURED PROPERTY. A provision in an insurance policy issued by an insurer subject to this subtitle or Subchapter C, Chapter 5, is void if the provision states that the encumbrance of the insured property by a lien of any character at the time of or after the policy's issuance renders the policy void. (V.T.I.C. Art. 5.37.) Sec. 2002.003. COVERAGES FOR SPOUSES AND FORMER SPOUSES. A homeowners insurance policy or fire insurance policy promulgated under Article 5.35 or filed and in effect as provided by Subchapter B, Chapter 2301, may not be delivered, issued for delivery, or renewed in this state unless the policy contains the following language: "It is understood and agreed that this policy, subject to all other terms and conditions contained in this policy, when covering residential community property, as defined by state law, shall remain in full force and effect as to the interest of each spouse covered, irrespective of divorce or change of ownership between the spouses unless excluded by endorsement attached to this policy until the expiration of the policy or until canceled in accordance with the terms and conditions of this policy." (V.T.I.C. Art. 5.35-1.) Sec. 2002.004. JEWELRY COVERAGE. (a) In this section, "personal property insurance" means insurance against damage to or loss of tangible personal property, including coverage provided in a homeowners insurance policy, residential fire and allied lines insurance policy, or farm and ranch owners insurance policy. (b) This section applies to each insurer that provides personal property insurance in this state, including a county mutual insurance company, farm mutual insurance company, Lloyd's plan, and reciprocal or interinsurance exchange. (c) An insurer that provides personal property insurance coverage in this state for jewelry may elect to pay either: (1) the stated value of the jewelry item; or (2) the actual cost of replacing the jewelry item with one of like kind and quality. (V.T.I.C. Art. 5.35-2.) Sec. 2002.005. COINSURANCE CLAUSES. (a) Except as otherwise provided by this section, an insurer subject to this subtitle or Subchapter C, Chapter 5, may not issue an insurance policy or contract covering property in this state that contains a clause that: (1) requires the insured to obtain or maintain a larger amount of insurance than expressed in the policy or contract; or (2) in any way provides that the insured is liable as a coinsurer with the insurer issuing the policy or contract for any part of the loss or damage that may be caused by fire to the property described in the policy or contract. (b) A clause described by Subsection (a) is void. (c) A coinsurance clause may be included in an insurance policy written on cotton, grain, or other products in the process of marketing, shipping, storing, or manufacturing. (d) An insured may be given an option to accept an insurance policy or contract that contains a clause described by Subsection (a) covering a class of property other than the property described by Subsection (c), a private dwelling, or a stock of merchandise offered for sale at retail that has a value of less than $10,000, if the insured is allowed a reduction in the premium rate for the policy or contract. A clause to which this subsection applies is valid and binding. The commissioner may promulgate the premium rates that apply to a coinsurance clause under this subsection. (e) The commissioner by order may authorize or require the use of any form of coinsurance clause in connection with an insurance policy that insures against the hazards of tornado, windstorm, and hail on any class of property. The commissioner may adopt rules with reference to: (1) coinsurance clauses authorized or required by this subsection and the use of those clauses; and (2) credits in premium rates for the use of coinsurance clauses authorized or required by this subsection. (V.T.I.C. Art. 5.38.) Sec. 2002.006. PROVISIONS GOVERNING CERTAIN CONDITIONS OR RISKS. (a) This chapter; Sections 403.002, 2001.001-2001.006, 2001.009, and 2001.010; Subchapter H, Chapter 544; Subchapter D, Chapter 1806; Chapters 2003, 2004, 2006, and 2171; and Articles 5.25, 5.25A, 5.25-3, 5.26, 5.27, 5.28, 5.29, 5.30, 5.31, 5.32, 5.34, 5.35, 5.39, 5.40, and 5.41 govern the following in the same manner and to the same extent those provisions govern fire insurance and fire insurance rates: (1) insurance coverage for any of the following conditions or risks: (A) weather or climatic conditions, including lightning, tornado, windstorm, hail, cyclone, rain, or frost and freeze; (B) earthquake or volcanic eruption; (C) smoke or smudge; (D) excess or deficiency of moisture; (E) flood; (F) the rising water of an ocean or an ocean's tributary; (G) bombardment, invasion, insurrection, riot, civil war or commotion, military or usurped power, or any order of a civil authority made to prevent the spread of a conflagration, epidemic or catastrophe; (H) vandalism or malicious mischief; (I) strike or lockout; (J) explosion, as provided by Subsection (b); (K) water or other fluid or substance resulting from: (i) the breakage or leakage of a sprinkler, pump, or other apparatus erected for extinguishing fire, or a water pipe or other conduit or container; or (ii) casual water entering a building through a leak or opening in the building or by seepage through building walls; or (L) accidental damage to a sprinkler, pump, fire apparatus, pipe, or other conduit or container described by Paragraph (K)(i); (2) premium rates in this state for the insurance described by Subdivision (1); and (3) all matters pertaining to the insurance described by Subdivision (1), except as provided by this section with respect to marine insurance as defined by Section 1807.001. (b) In this section: (1) "explosion" includes: (A) the explosion of a pressure vessel, other than a steam boiler of more than 15 pounds pressure, in a building designed and used solely for residential purposes by not more than four families; (B) an explosion of any kind originating outside of an insured building or outside of the building containing the insured property; (C) the explosion of a pressure vessel that does not contain steam or that is not operated with steam coils or steam jets; and (D) an electric disturbance causing or concomitant with an explosion in public service or public utility property; and (2) insurance coverage for explosion does not include coverage for loss of or damage to any property of the insured resulting from the explosion of or injury to: (A) a boiler, heater, or other fired pressure vessel; (B) an unfired pressure vessel; (C) a pipe or container connected with a boiler or vessel described by Paragraph (A) or (B); (D) an engine, turbine, compressor, pump, or wheel; (E) an apparatus generating, transmitting, or using electricity; or (F) any other machinery or apparatus connected with or operated by a boiler, vessel, or machine described by Paragraphs (A)-(E). (c) This section does not apply to: (1) a farm mutual insurance company operating under Chapter 911; (2) a county mutual insurance company operating under Chapter 912; (3) a mutual insurance company engaged in business under Chapter 12, Title 78, Revised Statutes, before that chapter's repeal by Section 18, Chapter 40, Acts of the 41st Legislature, 1st Called Session, 1929, as amended by Section 1, Chapter 60, General Laws, Acts of the 41st Legislature, 2nd Called Session, 1929, that retains the rights and privileges under the repealed law to the extent provided by those sections; (4) the making of inspections or issuance of certificates of inspections on a boiler, apparatus, or machinery described by Subsection (b)(2), whether insured or otherwise; or (5) the insurance of a vessel or craft, its cargo, marine builder's risk, marine protection and indemnity, or another risk commonly insured under a marine insurance policy, as distinguished from an inland marine insurance policy. (V.T.I.C. Art. 5.52, Secs. (a), (c); Art. 5.53 (part); Art. 5.54 (part).)
[Sections 2002.007-2002.050 reserved for expansion]
SUBCHAPTER B. POLICY FORMS
Sec. 2002.051. POLICY FORMS AND ENDORSEMENTS FOR RESIDENTIAL PROPERTY INSURANCE. Notwithstanding Subsections (a)-(j), Article 5.35, policy forms and endorsements for residential property insurance in this state are regulated under Subchapter A, Chapter 2301, and Article 5.13-2. (V.T.I.C. Art. 5.35, Sec. (k)(1), as added Acts 78th Leg., R.S., Ch. 206.) Sec. 2002.052. APPLICABILITY OF OTHER LAW TO RESIDENTIAL PROPERTY INSURANCE. An insurer may continue to use a policy form or endorsement promulgated, approved, or adopted by the commissioner under Article 5.35 before June 11, 2003, on notification in writing to the commissioner that the insurer will continue to use the policy form or endorsement. (V.T.I.C. Art. 5.35, Sec. (k)(2), as added Acts 78th Leg., R.S., Ch. 206.)
[Sections 2002.053-2002.100 reserved for expansion]
SUBCHAPTER C. ITEMS PROVIDED TO POLICYHOLDER IN CONNECTION WITH INSURANCE POLICY
Sec. 2002.101. RATE ANALYSIS. (a) On issuing a fire insurance policy, an insurer engaged in the business of fire insurance in this state shall provide the policyholder with a written analysis of the rate or premium charged for the policy showing the items of charge and credit that determine the rate or premium. (b) Subsection (a) does not apply if the insurer has previously provided the policyholder with an analysis of the rate or premium. (V.T.I.C. Art. 5.30, Sec. (a) (part).) Sec. 2002.102. NOTICE OF RENEWAL. (a) An insurer, including a farm mutual insurance company, county mutual insurance company, Lloyd's plan, or reciprocal or interinsurance exchange, that renews a homeowners insurance policy, fire and residential allied lines insurance policy, farm and ranch owners insurance policy, or farm and ranch insurance policy must provide the policyholder with written notice of any difference between each form of the policy offered to the policyholder on renewal and the form of the policy held immediately before renewal. (b) A notice provided under this section must be written in plain language. (c) The commissioner may adopt rules as necessary to implement this section. (V.T.I.C. Art. 5.45.)
CHAPTER 2003. PROCEDURES FOR EVALUATING FIRE LOSS RISK
SUBCHAPTER A. EVALUATING FIRE LOSS RISK
Sec. 2003.001. FIRE LOSS INFORMATION Sec. 2003.002. FIRE SUPPRESSION RATINGS FOR BORDER MUNICIPALITIES Sec. 2003.003. CREDIT FOR REDUCING FIRE HAZARD Sec. 2003.004. POLICYHOLDER CREDIT FOR REDUCING HAZARD
[Sections 2003.005-2003.050 reserved for expansion]
SUBCHAPTER B. MUNICIPAL FIRE LOSS LISTS
Sec. 2003.051. ANNUAL LIST OF INSURED FIRE LOSSES BY MUNICIPALITY Sec. 2003.052. MUNICIPALITY'S REQUEST FOR LIST; RETURN REPORT Sec. 2003.053. LIST CORRECTIONS; USE Sec. 2003.054. CHARGE FOR LIST AND FIRE RECORD SYSTEM Sec. 2003.055. DEPARTMENT AUTHORITY TO REQUIRE PROVISION OF FIRE LOSS INFORMATION Sec. 2003.056. DISCRETIONARY PROVISION OF LIST
[Sections 2003.057-2003.100 reserved for expansion]
SUBCHAPTER C. VOLUNTARY INSPECTION PROGRAM
Sec. 2003.101. DEFINITIONS Sec. 2003.102. RIGHT TO VOLUNTARY INSPECTION OF PROPERTY CONDITION Sec. 2003.103. PLAN OF OPERATION Sec. 2003.104. ELIGIBLE INSPECTORS Sec. 2003.105. PRESUMPTION OF INSURABILITY Sec. 2003.106. ENFORCEMENT Sec. 2003.107. RULES
CHAPTER 2003. PROCEDURES FOR EVALUATING FIRE LOSS RISK
SUBCHAPTER A. EVALUATING FIRE LOSS RISK
Sec. 2003.001. FIRE LOSS INFORMATION. (a) The department shall ascertain as soon as practicable the annual fire loss in this state. (b) The department shall, in a manner that will aid in determining equitable insurance rates and methods to reduce annual fire loss and insurance rates of this state or subdivisions of this state: (1) obtain, make, and maintain records regarding the annual fire loss in this state; and (2) collect data concerning the annual fire loss as necessary to enable the department to classify: (A) fire losses in this state; (B) the causes of those fire losses; (C) the amount of the premiums collected for fire loss for each class of risk; and (D) the amount paid for the fire losses. (c) The commissioner may designate one or more advisory organizations or other agencies to gather, audit, and compile the fire loss experience of insurers. The insurers shall bear the costs incurred under this subsection. (d) To implement this section, the department may: (1) employ clerical personnel, inspectors, experts, and other assistants; and (2) incur other necessary expenses. (V.T.I.C. Art. 5.25, Sec. (a) (part).) Sec. 2003.002. FIRE SUPPRESSION RATINGS FOR BORDER MUNICIPALITIES. In assigning or evaluating a fire suppression rating for a municipality at or near the border between this state and another state or the United Mexican States, the commissioner shall consider the existence and capabilities of a fire department or volunteer fire department that: (1) serves an adjoining or nearby municipality in the other state or the United Mexican States; and (2) by agreement or by long-standing practice provides fire suppression services to the municipality in this state. (V.T.I.C. Art. 5.25-3 (part).) Sec. 2003.003. CREDIT FOR REDUCING FIRE HAZARD. The commissioner may give a locality, municipality, or other political subdivision credit for: (1) each fire hazard that the locality, municipality, or other political subdivision reduces or removes; (2) additional fire-fighting equipment, increased police protection, or any other equipment or improvement that tends to reduce the fire hazard of the locality, municipality, or other political subdivision; and (3) a good fire record made by the locality, municipality, or other political subdivision. (V.T.I.C. Art. 5.33, Sec. (a).) Sec. 2003.004. POLICYHOLDER CREDIT FOR REDUCING HAZARD. (a) The commissioner may require an insurer to give credit to a policyholder for a hazard that the policyholder reduces or removes. (b) For purposes of this section, the following actions constitute a reduction in hazard by a policyholder: (1) the installation of a new standard fire hydrant approved by the department within the required distance of a risk, as prescribed by the department; or (2) the use of compressed air foam technology in fire-fighting equipment. (c) The insurer shall give credit in the proportion that the hazard is reduced or removed and shall refund to the policyholder the proportional part of the unearned premium charged for the hazard that is reduced or removed. (V.T.I.C. Art. 5.33, Secs. (b), (c), (d).)
[Sections 2003.005-2003.050 reserved for expansion]
SUBCHAPTER B. MUNICIPAL FIRE LOSS LISTS
Sec. 2003.051. ANNUAL LIST OF INSURED FIRE LOSSES BY MUNICIPALITY. (a) The department shall compile for each municipality in this state a list for distribution to the municipality of the insured fire and lightning losses that: (1) exceed $100; and (2) are paid in the municipality for the preceding statistical year under policy forms: (A) adopted or approved by the commissioner and authorized for use by Section 2301.052(b); or (B) filed and in effect as provided by Section 2301.052(a). (b) Each list must include: (1) the name of each person recovering a loss under a policy form described by Subsection (a); (2) the address or location where the loss occurred; and (3) the amount paid by the insurer on the loss. (c) The department shall develop each list from information obtained from insurer reports of individual losses during the statistical year. (V.T.I.C. Art. 5.25-2, Secs. 1, 2.) Sec. 2003.052. MUNICIPALITY'S REQUEST FOR LIST; RETURN REPORT. (a) The department shall provide to a municipality a copy of the list compiled under Section 2003.051 for the municipality on the request of the municipality or the municipality's authorized agent or fire marshal. (b) Each municipality shall investigate the information contained in the list to determine the losses actually occurring within the limits of the municipality. The municipality shall report to the department: (1) a list of the losses that actually occurred within the limits of the municipality; (2) a list of the losses that did not occur within the limits of the municipality; and (3) other evidence essential to establishing the losses occurring in the municipality. (V.T.I.C. Art. 5.25-2, Secs. 3, 4.) Sec. 2003.053. LIST CORRECTIONS; USE. The department shall: (1) make changes that the department considers appropriate to correct the list compiled under Section 2003.051 for a municipality; and (2) use the corrected list to determine the fire record credit or debit for the municipality for the next year. (V.T.I.C. Art. 5.25-2, Sec. 5.) Sec. 2003.054. CHARGE FOR LIST AND FIRE RECORD SYSTEM. The commissioner shall set and collect a charge for compiling and providing a list under this subchapter and as the commissioner considers appropriate for administering the fire record system. (V.T.I.C. Art. 5.25-2, Sec. 6.) Sec. 2003.055. DEPARTMENT AUTHORITY TO REQUIRE PROVISION OF FIRE LOSS INFORMATION. To accumulate statistical information for the control and prevention of fires, the department may require each municipality in this state and each insurer engaged in business in this state to provide to the department a complete and accurate report that lists all fire and lightning losses occurring in this state that are reflected in the municipality's or insurer's records. (V.T.I.C. Art. 5.25-2, Sec. 7.) Sec. 2003.056. DISCRETIONARY PROVISION OF LIST. The department is not required to provide a list compiled under this subchapter if the fire record system is not in effect. (V.T.I.C. Art. 5.25-2, Sec. 8.)
[Sections 2003.057-2003.100 reserved for expansion]
SUBCHAPTER C. VOLUNTARY INSPECTION PROGRAM
Sec. 2003.101. DEFINITIONS. In this subchapter: (1) "Inspection" means a physical inspection of property for which residential property insurance is sought. (2) "Inspection certificate" means a certificate issued under this subchapter by an inspector indicating that the condition of property meets or exceeds minimum standards. (3) "Inspector" means a person authorized by the commissioner to perform inspections under this subchapter. (4) "Minimum standards" means the standards adopted by the commissioner by rule regarding the insurability of property under this subchapter. (5) "Residential property insurance" means insurance against loss to real or tangible personal property at a fixed location that is provided though a homeowners insurance policy, a residential fire and allied lines insurance policy, or a farm and ranch owners insurance policy. (V.T.I.C. Art. 5.33B, Sec. 2.) Sec. 2003.102. RIGHT TO VOLUNTARY INSPECTION OF PROPERTY CONDITION. A person with an insurable interest in real or tangible personal property at a fixed location who desires to purchase residential property insurance may obtain an independent inspection of the condition of the property by an inspector authorized to perform inspections under this subchapter. (V.T.I.C. Art. 5.33B, Sec. 1.) Sec. 2003.103. PLAN OF OPERATION. (a) The commissioner shall adopt a plan of operation for the voluntary inspection program. (b) The plan of operation must include rules and standards for the voluntary inspection program, including: (1) the manner and scope of the inspections to be performed; (2) the contents of the written evaluation report; (3) the form of the inspection certificate to be issued; (4) the term during which an inspection certificate is valid; (5) rules for the certification or licensing of persons authorized to perform inspections under the program; and (6) the fee that may be charged a person requesting an inspection under the program. (V.T.I.C. Art. 5.33B, Sec. 3(a) (part).) Sec. 2003.104. ELIGIBLE INSPECTORS. Persons who may be certified or licensed to perform inspections under this subchapter include: (1) a person licensed to perform real property inspections under Chapter 1102, Occupations Code; and (2) a designated employee or agent of a county or municipality that chooses to establish a voluntary inspection program to inspect residential properties within the territorial limits of the county or municipality. (V.T.I.C. Art. 5.33B, Sec. 3(a) (part).) Sec. 2003.105. PRESUMPTION OF INSURABILITY. (a) The existence of an inspection certificate issued under this subchapter creates a presumption that the condition of the property inspected is adequate for the issuance of residential property insurance. (b) If an inspection certificate is used in whole or in part to determine insurability, an insurer may require as a condition of issuing a residential property insurance policy that the applicant for that insurance provide a written statement that there has not been a material or substantial change to the property condition since the date of the inspection certificate. (c) An insurer who receives an inspection certificate may not use the condition of the property as grounds to refuse to issue or renew residential property insurance unless the insurer: (1) reinspects the property; and (2) specifies the areas of deficiency in the insurer's declination letter. (V.T.I.C. Art. 5.33B, Sec. 4.) Sec. 2003.106. ENFORCEMENT. The commissioner by rule may provide for the use of any disciplinary procedure authorized by this code to: (1) maintain the integrity of the voluntary inspection program; or (2) ensure compliance with this subchapter. (V.T.I.C. Art. 5.33B, Sec. 5.) Sec. 2003.107. RULES. In addition to the plan of operation adopted under Section 2003.103, the commissioner may adopt rules that are appropriate to accomplish the purposes of this subchapter. (V.T.I.C. Art. 5.33B, Sec. 6.)
CHAPTER 2004. RESIDENTIAL PROPERTY INSURANCE IN UNDERSERVED AREAS
Sec. 2004.001. DEFINITION Sec. 2004.002. DESIGNATION OF UNDERSERVED AREAS Sec. 2004.003. AUTHORIZATION FOR ISSUANCE OF INSURANCE Sec. 2004.004. EXCLUSION OF CERTAIN COVERAGE Sec. 2004.005. AVAILABILITY OF COVERAGE Sec. 2004.006. POLICY FORMS Sec. 2004.007. INAPPLICABILITY OF CERTAIN LAWS TO PREMIUMS Sec. 2004.008. RATES
CHAPTER 2004. RESIDENTIAL PROPERTY INSURANCE IN UNDERSERVED AREAS
Sec. 2004.001. DEFINITION. In this chapter, "residential property insurance" means insurance against loss to real or tangible personal property at a fixed location that is provided through a homeowners insurance policy, residential fire and allied lines insurance policy, or farm and ranch owners insurance policy. (V.T.I.C. Art. 5.35-3, Sec. 1(a) (part).) Sec. 2004.002. DESIGNATION OF UNDERSERVED AREAS. (a) The commissioner by rule may designate an area as an underserved area for residential property insurance. (b) In determining which areas to designate as underserved, the commissioner shall consider: (1) whether residential property insurance is not reasonably available to a substantial number of owners of insurable property in the area; and (2) any other relevant factor as determined by the commissioner. (V.T.I.C. Art. 5.35-3, Sec. 1(a) (part).) Sec. 2004.003. AUTHORIZATION FOR ISSUANCE OF INSURANCE. An insurer authorized to write property or casualty insurance in this state, including a Lloyd's plan and a reciprocal or interinsurance exchange, that writes residential property insurance in this state may write that insurance on forms adopted under this chapter. (V.T.I.C. Art. 5.35-3, Sec. 2.) Sec. 2004.004. EXCLUSION OF CERTAIN COVERAGE. Insurance provided under this chapter may not include windstorm and hail insurance coverage for a risk eligible for that coverage under Chapter 2210. (V.T.I.C. Art. 5.35-3, Sec. 1(b).) Sec. 2004.005. AVAILABILITY OF COVERAGE. In a designated underserved area, each insurer described by Section 2004.003 shall provide to the insurer's agents, and the agents shall offer to all insureds, the full range of coverages prescribed under this chapter subject to the insurer's applicable rates and underwriting guidelines. (V.T.I.C. Art. 5.35-3, Sec. 5.) Sec. 2004.006. POLICY FORMS. (a) The commissioner shall adopt policy forms for residential property insurance that are specifically for use in designated underserved areas. The policy forms must include a basic policy covering fire and allied lines perils with endorsements providing additional coverage at the insured's option. (b) An insurer writing insurance in an underserved area may use the policy forms adopted under this chapter. (V.T.I.C. Art. 5.35-3, Sec. 3.) Sec. 2004.007. INAPPLICABILITY OF CERTAIN LAWS TO PREMIUMS. The premium for an insurance policy written under this chapter is not: (1) subject to tax under Chapter 221; and (2) considered net direct premiums under Section 2210.003(7). (V.T.I.C. Art. 5.35-3, Secs. 6, 7.) Sec. 2004.008. RATES. Rates for coverage provided under this chapter are determined according to the provisions of this code applicable to the insurer providing the coverage. (V.T.I.C. Art. 5.35-3, Sec. 4.)
CHAPTER 2005. HOME WARRANTY AND HOME
PROTECTION INSURANCE
Sec. 2005.001. DEFINITIONS Sec. 2005.002. AUTHORIZATION TO WRITE CERTAIN INSURANCE Sec. 2005.003. MANNER OF REGULATION Sec. 2005.004. LIMITS OF COVERAGE
CHAPTER 2005. HOME WARRANTY AND HOME
PROTECTION INSURANCE
Sec. 2005.001. DEFINITIONS. In this chapter: (1) "Home protection insurance" means coverage insuring a purchaser of a home protection service or product against actual property loss. (2) "Home protection service or product" means a service or product used for the protection of residential property, including a service or product provided by a person regulated under Chapter 1702, Occupations Code. (3) "Home warranty insurance" means coverage: (A) insuring performance by a builder of residential property of the builder's warranty obligations to a purchaser of the residential property; or (B) insuring against named defects arising from failure of the builder to construct residential property in accordance with specified construction standards. (V.T.I.C. Art. 5.53-A, Sec. 2.) Sec. 2005.002. AUTHORIZATION TO WRITE CERTAIN INSURANCE. An insurer authorized to engage in the business of fire insurance and allied lines or inland marine insurance may write home warranty insurance or home protection insurance in this state. (V.T.I.C. Art. 5.53-A, Sec. 1(a).) Sec. 2005.003. MANNER OF REGULATION. Home warranty insurance or home protection insurance is not inland marine insurance, but is governed in the same manner and to the same extent as inland marine insurance. (V.T.I.C. Art. 5.53-A, Sec. 1(b).) Sec. 2005.004. LIMITS OF COVERAGE. The amount of coverage under a home protection insurance policy may not exceed $2,000 for any single occurrence. (V.T.I.C. Art. 5.53-A, Sec. 1(c).)
CHAPTER 2006. PREMIUM RATE DISCOUNTS
SUBCHAPTER A. OPTIONAL PREMIUM DISCOUNT FOR USE OF INSULATING CONCRETE FORM SYSTEM
Sec. 2006.001. DEFINITIONS Sec. 2006.002. OPTIONAL PREMIUM DISCOUNT Sec. 2006.003. PROPERTY INSPECTION Sec. 2006.004. PREMIUM DISCOUNT; EXCEPTION Sec. 2006.005. RULES
[Sections 2006.006-2006.050 reserved for expansion]
SUBCHAPTER B. OPTIONAL PREMIUM DISCOUNT FOR CERTAIN RESIDENTIAL PROPERTY INSURANCE POLICIES
Sec. 2006.051. DEFINITIONS Sec. 2006.052. OPTIONAL PREMIUM DISCOUNT Sec. 2006.053. APPROVAL OF ACTUARIALLY JUSTIFIED PREMIUM DISCOUNT Sec. 2006.054. LIMIT ON PREMIUM DISCOUNT Sec. 2006.055. RULES AND GUIDELINES
CHAPTER 2006. PREMIUM RATE DISCOUNTS
SUBCHAPTER A. OPTIONAL PREMIUM DISCOUNT FOR USE OF INSULATING CONCRETE FORM SYSTEM
Sec. 2006.001. DEFINITIONS. In this subchapter: (1) "Applicant" includes: (A) an applicant for new insurance coverage; and (B) a policyholder renewing insurance coverage. (2) "Insulating concrete form system" means a building construction system primarily used to frame exterior walls in which polystyrene foam forms are placed in the walls of a structure under construction and filled with concrete and steel reinforcing material to become a permanent part of the structure. (3) "Insurer" means an insurer authorized to write property and casualty insurance in this state, including: (A) a county mutual insurance company; (B) a farm mutual insurance company; (C) a Lloyd's plan; and (D) a reciprocal or interinsurance exchange. (V.T.I.C. Art. 5.33E, Sec. 1.) Sec. 2006.002. OPTIONAL PREMIUM DISCOUNT. (a) In accordance with the rules adopted by the commissioner under this subchapter, an insurer may grant to an applicant a discount in the applicant's homeowners insurance premiums for insured property on receipt of written verification from the applicant that the property was constructed with an insulating concrete form system. (b) The commissioner by rule shall prescribe the requirements for determining that a structure was constructed with an insulating concrete form system. (c) Verification under this section must comply with the requirements prescribed by the commissioner. (V.T.I.C. Art. 5.33E, Secs. 2, 3(a) (part).) Sec. 2006.003. PROPERTY INSPECTION. (a) If determined necessary by the commissioner, the rules adopted under this subchapter may require an inspection of the property to be insured. (b) The applicant shall pay the costs of a required inspection. (V.T.I.C. Art. 5.33E, Sec. 3(b).) Sec. 2006.004. PREMIUM DISCOUNT; EXCEPTION. (a) The commissioner by rule shall establish the premium discount under this subchapter based on sound actuarial principles. (b) The commissioner may approve a premium discount greater or less than the discount established by rule under Subsection (a) if: (1) the insurer files the proposed discount with the department; and (2) the commissioner determines that the proposed discount is actuarially justified. (V.T.I.C. Art. 5.33E, Sec. 4.) Sec. 2006.005. RULES. The commissioner may adopt rules as necessary to implement this subchapter in addition to other rules adopted under this subchapter. (V.T.I.C. Art. 5.33E, Sec. 3(a)(part).)
[Sections 2006.006-2006.050 reserved for expansion]
SUBCHAPTER B. OPTIONAL PREMIUM DISCOUNT FOR CERTAIN RESIDENTIAL PROPERTY INSURANCE POLICIES
Sec. 2006.051. DEFINITIONS. In this subchapter: (1) "Affiliate" means an entity classified as an affiliate under Section 823.003. (2) "Insurer" means an insurer authorized to write residential property insurance, including: (A) a county mutual insurance company; (B) a farm mutual insurance company; (C) a Lloyd's plan; and (D) a reciprocal or interinsurance exchange. (3) "Residential property insurance" means property or property and casualty insurance covering a dwelling, including: (A) homeowners insurance; (B) residential fire and allied lines insurance; (C) farm and ranch insurance; and (D) farm and ranch owners insurance. (V.T.I.C. Art. 5.43, Sec. (a).) Sec. 2006.052. OPTIONAL PREMIUM DISCOUNT. (a) Except as provided by Section 2006.053, an insurer that issues a residential property insurance policy may: (1) discount the premiums that would otherwise be charged for the policy by not less than three percent if the policyholder: (A) has continuously been a residential property insurance policyholder with the insurer or an affiliate of the insurer; and (B) has not filed a residential property insurance claim during the three years before the effective date of the policy; and (2) increase the amount of the discount by one percent for each subsequent year in which the policyholder: (A) has been a residential property insurance policyholder with the insurer or an affiliate of the insurer; and (B) has not filed a residential property insurance claim. (b) This section applies regardless of whether any of the policies that continuously covered the policyholder was a different kind of residential property insurance policy from the policy eligible for the premium discount. (V.T.I.C. Art. 5.43, Secs. (b), (d).) Sec. 2006.053. APPROVAL OF ACTUARIALLY JUSTIFIED PREMIUM DISCOUNT. The commissioner may approve a premium discount filed with the department that is greater or less than the discount specified by this subchapter if the commissioner determines the discount is actuarially justified. (V.T.I.C. Art. 5.43, Sec. (e) (part).) Sec. 2006.054. LIMIT ON PREMIUM DISCOUNT. An insurer that provides a premium discount under this subchapter is not required to provide the discount in an amount that exceeds 10 percent of the premiums that would otherwise be charged for the residential property insurance policy. (V.T.I.C. Art. 5.43, Sec. (c).) Sec. 2006.055. RULES AND GUIDELINES. (a) The commissioner shall adopt rules as necessary to implement this subchapter. (b) The commissioner by rule shall establish guidelines under which an insurer that provides a premium discount under this subchapter shall determine the appropriate discount based on sound actuarial principles. (V.T.I.C. Art. 5.43, Sec. (e) (part).)
CHAPTER 2007. ASSESSMENT FOR RURAL FIRE PROTECTION
Sec. 2007.001. APPLICABILITY OF CHAPTER Sec. 2007.002. ASSESSMENT Sec. 2007.003. DETERMINATION OF ASSESSMENT Sec. 2007.004. DATES OF ASSESSMENT AND PAYMENT Sec. 2007.005. RECOVERY OF ASSESSMENT Sec. 2007.006. NOTICE TO POLICYHOLDERS Sec. 2007.007. VOLUNTEER FIRE DEPARTMENT ASSISTANCE FUND Sec. 2007.008. RULES; COOPERATION Sec. 2007.009. EXPIRATION OF CHAPTER
CHAPTER 2007. ASSESSMENT FOR RURAL FIRE PROTECTION
Sec. 2007.001. APPLICABILITY OF CHAPTER. This chapter applies only to an insurer that: (1) is authorized to engage in business in this state, including a stock company, mutual insurance company, farm mutual insurance company, county mutual insurance company, Lloyd's plan, and reciprocal or interinsurance exchange; and (2) writes a policy of: (A) homeowners insurance; (B) fire insurance; (C) farm and ranch owners insurance; (D) private passenger automobile physical damage insurance; (E) commercial automobile physical damage insurance; or (F) commercial multiple peril insurance. (V.T.I.C. Art. 5.102, Secs. 1(1), (2) (part), 2.) Sec. 2007.002. ASSESSMENT. The comptroller shall assess against all insurers to which this chapter applies a combined total of $15 million for each 12-month period. (V.T.I.C. Art. 5.102, Sec. 3(a) (part).) Sec. 2007.003. DETERMINATION OF ASSESSMENT. (a) In this section, "net direct premium" means the gross direct premium written and reported by an insurer on annual financial statements on: (1) an insurance policy described by Section 2007.001(2), other than a commercial multiple peril policy; and (2) the nonliability portion of a commercial multiple peril policy. (b) Each insurer shall pay a portion of the assessment in the proportion that the insurer's net direct premiums for the period for which the assessment is made bear to the aggregate net direct premiums written in this state by all insurers for that period. (V.T.I.C. Art. 5.102, Secs. 1(2) (part), 3(a) (part).) Sec. 2007.004. DATES OF ASSESSMENT AND PAYMENT. (a) The comptroller shall assess insurers under this chapter on or before September 1 of each year. (b) An insurer shall pay the amount of the insurer's assessment on or after the 60th day after the date the comptroller assesses the insurer. (V.T.I.C. Art. 5.102, Secs. 3(b), (c).) Sec. 2007.005. RECOVERY OF ASSESSMENT. An insurer may recover an assessment under this chapter by: (1) reflecting the assessment as an expense in a rate filing required under this code; or (2) charging the insurer's policyholders. (V.T.I.C. Art. 5.102, Sec. 3(d).) Sec. 2007.006. NOTICE TO POLICYHOLDERS. (a) An insurer that recovers an assessment by charging the insurer's policyholders under Section 2007.005 shall provide notice to each policyholder regarding the amount of the assessment being recovered. (b) The notice may be included on: (1) a declarations page; (2) a renewal certificate; or (3) a billing statement. (c) The commissioner by rule may adopt a form for providing the notice. (V.T.I.C. Art. 5.102, Sec. 3(e).) Sec. 2007.007. VOLUNTEER FIRE DEPARTMENT ASSISTANCE FUND. The comptroller shall credit assessments collected under this chapter to the volunteer fire department assistance fund created under Section 614.104, Government Code. (V.T.I.C. Art. 5.102, Sec. 3(f).) Sec. 2007.008. RULES; COOPERATION. (a) The comptroller and the commissioner shall adopt rules as necessary to implement this chapter. (b) The comptroller and the department shall cooperate as necessary to implement this chapter. (V.T.I.C. Art. 5.102, Sec. 4.) Sec. 2007.009. EXPIRATION OF CHAPTER. This chapter expires September 1, 2011. (V.T.I.C. Art. 5.102, Sec. 5.)
[Chapters 2008-2050 reserved for expansion]
SUBTITLE E. WORKERS' COMPENSATION INSURANCE
CHAPTER 2051. GENERAL PROVISIONS: WORKERS' COMPENSATION INSURANCE
SUBCHAPTER A. APPLICABILITY AND CONSTRUCTION
Sec. 2051.001. DEFINITION Sec. 2051.002. CONSTRUCTION OF CERTAIN LAWS
[Sections 2051.003-2051.050 reserved for expansion]
SUBCHAPTER B. COMPENSATION AND EXPENSES
Sec. 2051.051. LIMITATION ON COMPENSATION AND EXPENSES
[Sections 2051.052-2051.100 reserved for expansion]
SUBCHAPTER C. POLICYHOLDER DUTIES
Sec. 2051.101. DISCLOSURE BY POLICYHOLDER REQUIRED
[Sections 2051.102-2051.150 reserved for expansion]
SUBCHAPTER D. DUTIES AND PROHIBITED ACTS; ENFORCEMENT
Sec. 2051.151. NOTICE OF CLAIMS INFORMATION TO POLICYHOLDER REQUIRED; ADMINISTRATIVE PENALTY Sec. 2051.152. PROHIBITED ACTS BY PERSON; ADMINISTRATIVE PENALTY Sec. 2051.153. LIABILITY OF POLICYHOLDER FOR ADDITIONAL PREMIUM Sec. 2051.154. PROHIBITED ACT BY INSURER; ADMINISTRATIVE PENALTY Sec. 2051.155. SANCTION OF AGENT REQUIRED Sec. 2051.156. CANCELLATION OF CERTIFICATE OF AUTHORITY REQUIRED Sec. 2051.157. PENALTY FOR CERTAIN VIOLATIONS
[Sections 2051.158-2051.200 reserved for expansion]
SUBCHAPTER E. RULES
Sec. 2051.201. RULEMAKING AUTHORITY: WORKERS' COMPENSATION INSURANCE
CHAPTER 2051. GENERAL PROVISIONS: WORKERS' COMPENSATION INSURANCE
SUBCHAPTER A. APPLICABILITY AND CONSTRUCTION
Sec. 2051.001. DEFINITION. In this chapter, "insurance company" means a stock company, mutual insurance company, reciprocal or interinsurance exchange, or Lloyd's plan authorized to engage in the business of workers' compensation insurance in this state. (V.T.I.C. Art. 5.63.) Sec. 2051.002. CONSTRUCTION OF CERTAIN LAWS. The following shall be construed and applied independently of any other law that relates to insurance rates and forms or prescribes the duties of the commissioner or the department: (1) this chapter; (2) Subchapter D, Chapter 5; (3) Chapter 251, as that chapter relates to workers' compensation insurance; (4) Chapters 255, 426, 2052, and 2053; and (5) Chapter 406A, Labor Code. (V.T.I.C. Art. 5.66 (part).)
[Sections 2051.003-2051.050 reserved for expansion]
SUBCHAPTER B. COMPENSATION AND EXPENSES
Sec. 2051.051. LIMITATION ON COMPENSATION AND EXPENSES. The total amount of necessary compensation of experts, clerical personnel, and other department employees, necessary travel expenses, and other expenses necessarily incurred to implement the purposes of the laws referenced in Sections 2051.002(1), (2), (3), (4), and (5) may not exceed the total amount assessed and collected from insurance companies writing workers' compensation insurance in this state. (V.T.I.C. Art. 5.67 (part).)
[Sections 2051.052-2051.100 reserved for expansion]
SUBCHAPTER C. POLICYHOLDER DUTIES
Sec. 2051.101. DISCLOSURE BY POLICYHOLDER REQUIRED. (a) A policyholder shall fully disclose to the policyholder's insurance company: (1) information concerning the policyholder's ownership, change of ownership, operations, or payroll; and (2) the policyholder's records relating to workers' compensation insurance. (b) The commissioner shall adopt rules necessary to implement this section. (V.T.I.C. Art. 5.65B, Secs. (a), (d).)
[Sections 2051.102-2051.150 reserved for expansion]
SUBCHAPTER D. DUTIES AND PROHIBITED ACTS; ENFORCEMENT
Sec. 2051.151. NOTICE OF CLAIMS INFORMATION TO POLICYHOLDER REQUIRED; ADMINISTRATIVE PENALTY. (a) Except as otherwise provided by Subsection (b), an insurance company that writes workers' compensation insurance in this state shall notify a policyholder of a claim that is filed against the policyholder's policy and, after the initial notice, the company shall notify the policyholder of: (1) any proposal to settle the claim; or (2) on receipt of a written request from the policyholder, any administrative or judicial proceeding relating to the resolution of the claim, including a benefit review conference conducted by the Texas Workers' Compensation Commission. (b) A policyholder may waive the notice required by Subsection (a). (c) An insurance company that writes workers' compensation insurance in this state, on the written request of a policyholder, shall provide to the policyholder: (1) a list of: (A) claims charged against the policy; and (B) payments made and reserves established on each claim; and (2) a statement explaining the effect of claims on premium rates. (d) The insurance company shall provide the information described by Subsection (c) in writing not later than the 30th day after the date the company receives the policyholder's written request for the information. For purposes of this subsection, information is considered to be provided to the policyholder on the date the information is: (1) received by the United States Postal Service; or (2) personally delivered to the policyholder. (e) An insurance company that fails to comply with this section commits a Class D administrative violation under Subtitle A, Title 5, Labor Code. (V.T.I.C. Art. 5.65A.) Sec. 2051.152. PROHIBITED ACTS BY PERSON; ADMINISTRATIVE PENALTY. (a) A person commits an administrative violation if the person: (1) to obtain workers' compensation insurance coverage for the person or another person, intentionally or knowingly: (A) makes a false statement; (B) misrepresents or conceals a material fact; (C) makes a false entry in, fabricates, alters, conceals, or destroys a document; or (D) conspires to commit an act listed in Paragraph (A), (B), or (C); or (2) intentionally and knowingly obtains or maintains: (A) workers' compensation insurance coverage from an insurer that is not authorized to engage in business in this state; or (B) alternative coverage from an insurer in violation of this code. (b) An administrative violation under Subsection (a) is punishable by an administrative penalty not to exceed $5,000 assessed in accordance with the procedures established for an administrative violation under Chapter 415, Labor Code. (c) Each day an administrative violation under Subsection (a)(2) occurs or continues is a separate violation. (V.T.I.C. Art. 5.65C, Secs. (a), (b), (f).) Sec. 2051.153. LIABILITY OF POLICYHOLDER FOR ADDITIONAL PREMIUM. (a) If a policyholder commits an administrative violation under Section 2051.152 and obtains workers' compensation insurance coverage at a premium that is less than the premium that would have been charged if the policyholder had not committed the administrative violation, the policyholder is liable to the insurer for: (1) the difference between the premium due and the premium actually charged; and (2) reasonable interest and attorney's fees. (b) For the purposes of this section, "insurer" includes the Texas Mutual Insurance Company. (V.T.I.C. Art. 5.65C, Sec. (d).) Sec. 2051.154. PROHIBITED ACT BY INSURER; ADMINISTRATIVE PENALTY. (a) An insurer commits an administrative violation if the insurer directly or indirectly requires a person to apply for or purchase an insurance policy, other than a workers' compensation insurance policy, as a condition of issuing a workers' compensation insurance policy. (b) An insurer that violates this section is subject to administrative penalties under Chapter 84. (V.T.I.C. Art. 5.65C, Sec. (e).) Sec. 2051.155. SANCTION OF AGENT REQUIRED. The commissioner shall impose a sanction in accordance with Chapter 82 against an agent who commits an administrative violation under Section 2051.152 or 2051.154. (V.T.I.C. Art. 5.65C, Sec. (c).) Sec. 2051.156. CANCELLATION OF CERTIFICATE OF AUTHORITY REQUIRED. The commissioner shall cancel an insurance company's certificate of authority to engage in the business of workers' compensation insurance in this state on a second conviction of an officer or representative of the company for violating a provision of a law referenced in Section 2051.002(1), (2), (3), (4), or (5) relating to that business. (V.T.I.C. Art. 5.64.) Sec. 2051.157. PENALTY FOR CERTAIN VIOLATIONS. An officer or other representative of an insurance company is subject to a fine of not less than $100 or more than $500 if the officer or other representative violates any provision of the following relating to the company's business: (1) Subchapter A or B; (2) Section 2051.156 or 2051.201; (3) Chapter 426 or 2052; (4) Subchapter A, C, or D, Chapter 2053; (5) Section 2053.051, 2053.052, 2053.053, or 2053.055; or (6) Article 5.66. (V.T.I.C. Art. 5.68-1.)
[Sections 2051.158-2051.200 reserved for expansion]
SUBCHAPTER E. RULES
Sec. 2051.201. RULEMAKING AUTHORITY: WORKERS' COMPENSATION INSURANCE. The commissioner may adopt and enforce all reasonable rules as are necessary to carry out the provisions of a law referenced in Section 2051.002(1), (2), (3), (4), or (5). (V.T.I.C. Art. 5.62.)
CHAPTER 2052. POLICY PROVISIONS AND FORMS FOR WORKERS'
COMPENSATION INSURANCE
Sec. 2052.001. DEFINITION Sec. 2052.002. STANDARD POLICY FORMS AND UNIFORM POLICY; EXCEPTIONS Sec. 2052.003. AGREEMENT REQUIRED TO BE CONTAINED IN APPLICATION AND POLICY Sec. 2052.004. POLICYHOLDER DIVIDENDS
CHAPTER 2052. POLICY PROVISIONS AND FORMS FOR WORKERS'
COMPENSATION INSURANCE
Sec. 2052.001. DEFINITION. In this chapter, "insurance company" means a stock company, mutual insurance company, reciprocal or interinsurance exchange, or Lloyd's plan authorized to engage in the business of workers' compensation insurance in this state. (V.T.I.C. Art. 5.63.) Sec. 2052.002. STANDARD POLICY FORMS AND UNIFORM POLICY; EXCEPTIONS. (a) The commissioner shall prescribe standard policy forms and a uniform policy for workers' compensation insurance. (b) In writing workers' compensation insurance in this state, an insurance company may not use a form other than one prescribed under this section unless the form is an endorsement: (1) appropriate to the company's plan of operation; and (2) submitted to and approved by the department. (V.T.I.C. Arts. 5.56 (part), 5.57 (part).) Sec. 2052.003. AGREEMENT REQUIRED TO BE CONTAINED IN APPLICATION AND POLICY. (a) A contract or other agreement with respect to workers' compensation insurance coverage that is not contained in the application and policy required by this chapter violates this subtitle and is void. (b) An insurance company that uses a contract or other agreement described by Subsection (a) engages in conduct that constitutes sufficient grounds for the revocation of the company's certificate of authority to write workers' compensation insurance in this state. (V.T.I.C. Art. 5.57 (part).) Sec. 2052.004. POLICYHOLDER DIVIDENDS. (a) Subject to Subsections (b) and (c), this subtitle and Article 5.66 may not be construed to prohibit an insurance company, including the Texas Mutual Insurance Company, from issuing participating policies. (b) A policyholder dividend under a workers' compensation insurance policy: (1) does not take effect until approved by the department; and (2) may not be approved by the department until the insurance company provides adequate reserves. (c) For purposes of Subsection (b), reserves must be computed on the same basis for all classes of insurance companies operating under this subtitle and Article 5.66. (V.T.I.C. Art. 5.60, Sec. (c).)
CHAPTER 2053. RATES FOR WORKERS' COMPENSATION INSURANCE
SUBCHAPTER A. RATE FILINGS
Sec. 2053.001. DEFINITIONS Sec. 2053.002. RATE STANDARDS Sec. 2053.003. RATE FILING AND SUPPORTING INFORMATION Sec. 2053.004. PUBLIC INSPECTION OF INFORMATION Sec. 2053.005. EFFECTIVE DATE OF RATE; HEARING Sec. 2053.006. DISAPPROVAL OF RATE FILING; HEARING Sec. 2053.007. DISAPPROVAL OF RATE; HEARING Sec. 2053.008. EFFECT OF DISAPPROVAL ORDER Sec. 2053.009. GRIEVANCE Sec. 2053.010. ADMINISTRATIVE PENALTY
[Sections 2053.011-2053.050 reserved for expansion]
SUBCHAPTER B. RATE ADMINISTRATION
Sec. 2053.051. HAZARD CLASSIFICATION SYSTEM Sec. 2053.052. EXPERIENCE RATING PLAN Sec. 2053.053. USE OF HAZARD CLASSIFICATIONS REQUIRED Sec. 2053.054. USE OF INCURRED CLAIMS EXPERIENCE IN FUTURE RATINGS REQUIRED Sec. 2053.055. RATE ADJUSTMENT
[Sections 2053.056-2053.100 reserved for expansion]
SUBCHAPTER C. STATISTICAL PLANS; AGENT
Sec. 2053.101. STATISTICAL PLANS FOR REPORTING LOSS EXPERIENCE AND OTHER DATA Sec. 2053.102. TREATMENT OF PAYMENTS UNDER STATISTICAL PLAN Sec. 2053.103. STATISTICAL AGENT
[Sections 2053.104-2053.150 reserved for expansion]
SUBCHAPTER D. REPORTING REQUIREMENTS AND EXCHANGE OF INFORMATION
Sec. 2053.151. WORKERS' COMPENSATION CLAIMS REPORTS AND INFORMATION Sec. 2053.152. UPDATE AND TRANSMISSION OF CLAIMS REPORTS Sec. 2053.153. EXCHANGE OF INFORMATION AND CONSULTATION WITH OTHERS Sec. 2053.154. LOSS STATEMENT AND PAYROLL REPORT
[Sections 2053.155-2053.200 reserved for expansion]
SUBCHAPTER E. OPTIONAL DEDUCTIBLE PLANS
Sec. 2053.201. DEFINITION Sec. 2053.202. ESTABLISHMENT OF OPTIONAL DEDUCTIBLE PLANS Sec. 2053.203. PAYMENT OF CLAIMS; REIMBURSEMENT Sec. 2053.204. RATE REDUCTION Sec. 2053.205. PROHIBITED CONDUCT Sec. 2053.206. VIOLATION OF SUBCHAPTER
[Sections 2053.207-2053.250 reserved for expansion]
SUBCHAPTER F. PREMIUM INCENTIVES AND SURCHARGE
FOR SMALL EMPLOYERS
Sec. 2053.251. DEFINITIONS Sec. 2053.252. PLAN FOR PREMIUM DISCOUNT AND SURCHARGE Sec. 2053.253. ELIGIBILITY FOR PREMIUM DISCOUNT Sec. 2053.254. ASSESSMENT OF PREMIUM SURCHARGE Sec. 2053.255. MAXIMUM DISCOUNT AND ASSESSMENT Sec. 2053.256. DISCOUNTS AND SURCHARGES NOT CUMULATIVE
CHAPTER 2053. RATES FOR WORKERS' COMPENSATION INSURANCE
SUBCHAPTER A. RATE FILINGS
Sec. 2053.001. DEFINITIONS. In this subchapter: (1) "Filer" means an insurance company that files rates, prospective loss costs, or supplementary rating information under this subchapter. (2) "Insurance company" means a person authorized to engage in the business of workers' compensation insurance in this state. The term includes the Texas Mutual Insurance Company. (3) "Prospective loss cost" means that portion of a rate that: (A) does not include a provision for expenses or profit, other than loss adjustment expenses; and (B) is based on historical aggregate losses and loss adjustment expenses projected by development to the ultimate value of those losses and expenses and projected through trending to a future point in time. (4) "Rate" means the cost of workers' compensation insurance per exposure unit, whether expressed as a single number or as a prospective loss cost, adjusted to account for the treatment of expenses, profit, and individual insurance company variation in loss experience, before applying individual risk variations based on loss or expense considerations. The term does not include a minimum premium. (5) "Supplementary rating information" means any manual, rating plan or schedule, plan of rules, rating rule, classification system, territory code or description, or other similar information required to determine the applicable premium for an insured. The term includes increased limits factors, classification relativities, deductible relativities, and other similar factors and relativities. (6) "Supporting information" means: (A) the experience and judgment of the filer and the experience or information of other insurance companies; (B) the interpretation of any other information on which the filer relied; (C) a description of methods used in making a rate; and (D) any other information the department requires to be filed. (V.T.I.C. Art. 5.55, Secs. 1(1), (2), (3), (4), (6), (7).) Sec. 2053.002. RATE STANDARDS. (a) In setting rates, an insurance company shall consider: (1) past and prospective loss cost experience; (2) operation expenses; (3) investment income; (4) a reasonable margin for profit and contingencies; and (5) any other relevant factor. (b) A rate may not be excessive, inadequate, or unfairly discriminatory. (c) An insurance company may: (1) group risks by classification to establish rates and minimum premiums; and (2) modify classification rates to produce rates for individual risks in accordance with rating plans that establish standards for measuring variations in those risks on the basis of any factor listed in Subsection (a). (d) In setting rates that apply only to policyholders in this state, an insurance company shall use available premium, loss, claim, and exposure information from this state to the full extent that the information is actuarially credible. The insurance company may use experience from outside this state as necessary to supplement information from this state that is not actuarially credible. (V.T.I.C. Art. 5.55, Secs. 2(b), (c), (d), (e).) Sec. 2053.003. RATE FILING AND SUPPORTING INFORMATION. (a) Each insurance company shall file with the department all rates, supplementary rating information, and reasonable and pertinent supporting information for risks written in this state. (b) An insurance company may not make a filing described by Subsection (a) more frequently than once every six months. (V.T.I.C. Art. 5.55, Sec. 3(a) (part).) Sec. 2053.004. PUBLIC INSPECTION OF INFORMATION. Each filing made, including any supporting information filed, under this subchapter is open to public inspection as of the date the filing is made. (V.T.I.C. Art. 5.55, Sec. 4.) Sec. 2053.005. EFFECTIVE DATE OF RATE; HEARING. (a) A filer shall designate the date a rate proposed in a filing made under Section 2053.003 is to take effect. Subject to Subsections (b)-(d), the rate does not take effect until the department receives all necessary information required for the filing. (b) A filing made under Section 2053.003 takes effect on the date designated by the filer under Subsection (a) unless the department, not later than the 30th day after the date the department receives the filing, notifies the filer that the filing is missing specific required information. The filer must provide the missing information not later than the 30th day after the date the filer is notified under this subsection. (c) If the filer in good faith believes that information requested under Subsection (b) has already been provided to the department, the filer may request a hearing. The commissioner shall hold the hearing not later than the 30th day after the date the department receives the request for a hearing. (d) The commissioner shall issue an order not later than the 30th day after the date of the hearing under Subsection (c). If the commissioner determines that the filing is still missing required information, the commissioner shall specify in the order the information that is missing. (V.T.I.C. Art. 5.55, Secs. 3(a) (part), (b).) Sec. 2053.006. DISAPPROVAL OF RATE FILING; HEARING. (a) The commissioner shall disapprove a rate filing made under Section 2053.003 if the commissioner determines that the filing does not meet the standards established under this subchapter. (b) If the commissioner disapproves a rate filing, the commissioner shall issue an order specifying in what respects the filing fails to meet the requirements of this subchapter. (c) A filer whose rate filing is disapproved is entitled to a hearing on written request made to the department not later than the 30th day after the date the order disapproving the filing takes effect. (V.T.I.C. Art. 5.55, Sec. 5.) Sec. 2053.007. DISAPPROVAL OF RATE; HEARING. (a) The commissioner may issue an order after a hearing disapproving a rate that is in effect. The commissioner must provide the insurance company that filed the rate written notice of the hearing not later than the 10th day before the date of the hearing. (b) The commissioner shall issue an order disapproving a rate under Subsection (a) not later than the 15th day after the close of the hearing. The order must: (1) specify in what respects the rate fails to meet the requirements of this subchapter; and (2) state the date further use of the rate is prohibited. (c) An order issued under this section does not affect an insurance policy made or issued in accordance with this code before the expiration of the period stated in the order. (V.T.I.C. Art. 5.55, Sec. 6.) Sec. 2053.008. EFFECT OF DISAPPROVAL ORDER. (a) If a workers' compensation insurance policy is issued and the commissioner subsequently disapproves the rate or filing that governs the premium charged on the policy, the policyholder may: (1) continue the policy at the original rate; (2) cancel the policy without penalty; or (3) enter into an agreement with the insurance company issuing the policy to amend the policy to reflect the premium that would have been charged based on the insurance company's most recently approved rate. (b) An amendment under Subsection (a)(3) may not take effect before the date further use of the rate is prohibited under an order issued under Section 2053.007. (V.T.I.C. Art. 5.55, Sec. 7(a).) Sec. 2053.009. GRIEVANCE. (a) The office of public insurance counsel or an insured who is aggrieved with respect to a filing made under Section 2053.003 that is in effect may apply to the department in writing for a hearing on the filing. The application must specify the grounds for the applicant's grievance. (b) The commissioner shall hold a hearing on an application filed under Subsection (a) not later than the 30th day after the date the department receives the application if the department determines that: (1) the application is made in good faith; (2) the applicant would be aggrieved as alleged if the grounds specified in the application were established; and (3) the grounds specified in the application otherwise justify holding the hearing. (c) The department shall provide written notice of a hearing under Subsection (b) to the applicant and to each insurance company that made the filing not later than the 10th day before the date of the hearing. The notice must specify: (1) which of the grounds specified in the application are in question; and (2) whether the insurance company's entire filing will be considered at the hearing or whether the hearing is limited to consideration of the grounds specified in the application. (d) If, after the hearing, the commissioner determines that the filing does not meet the requirements of this subchapter, the commissioner shall issue an order specifying: (1) in what respects the filing fails to meet those requirements; (2) the date the filing is no longer in effect, which must be within a reasonable period that is not less than 60 days after the date the order is issued; and (3) whether the order applies with respect to all insureds affected by the filing or only with respect to the applicant, if the applicant was an aggrieved insured. (e) The department shall send copies of the order issued under Subsection (d) to the applicant and each affected insurance company. (f) An order issued under Subsection (d) does not affect an insurance policy or contract made or issued before the expiration of the period stated in the order. (V.T.I.C. Art. 5.55, Secs. 3(c), (d).) Sec. 2053.010. ADMINISTRATIVE PENALTY. (a) The commissioner may assess an administrative penalty against an insurance company if the commissioner determines, based on a pattern of charges for premiums, that the company is consistently overcharging or undercharging the company's policyholders for workers' compensation insurance. (b) An administrative penalty under this section must be: (1) assessed in accordance with Section 415.021, Labor Code; and (2) set by the commissioner in an amount reasonable and necessary to deter overcharging or undercharging of policyholders. (V.T.I.C. Art. 5.55, Sec. 7(b).)
[Sections 2053.011-2053.050 reserved for expansion]
SUBCHAPTER B. RATE ADMINISTRATION
Sec. 2053.051. HAZARD CLASSIFICATION SYSTEM. (a) For workers' compensation insurance, the department shall: (1) determine hazards by class; and (2) establish classification relativities applicable to an employer's payroll in each of the classes at levels adequate to the risks to which the relativities apply. (b) The classification relativities established under Subsection (a)(2): (1) must be designed to encourage safety; (2) may be territorially based; and (3) may reflect a difference in losses between employers of high wage earners and employers of low wage earners within the same class. (c) The department shall revise the classification system at least once every five years. (V.T.I.C. Art. 5.60, Secs. (a), (d) (part).) Sec. 2053.052. EXPERIENCE RATING PLAN. (a) The commissioner shall adopt a uniform experience rating plan for workers' compensation insurance. The plan must: (1) encourage accident prevention; and (2) account for: (A) the peculiar hazard and experience of individual risks, past and prospective, inside and outside this state; and (B) any other relevant factor. (b) The commissioner shall revise the rating plan at least once every five years. (c) The commissioner may adopt reasonable rules and plans requiring the interchange of loss experience necessary for the application of the rating plan. (V.T.I.C. Art. 5.58, Sec. (h); Art. 5.60, Secs. (b), (d) (part).) Sec. 2053.053. USE OF HAZARD CLASSIFICATIONS REQUIRED. A stock company, mutual insurance company, reciprocal or interinsurance exchange, or Lloyd's plan authorized to engage in the business of workers' compensation insurance in this state may not use hazard classifications other than the classifications established by the department. (V.T.I.C. Arts. 5.56 (part), 5.63.) Sec. 2053.054. USE OF INCURRED CLAIMS EXPERIENCE IN FUTURE RATINGS REQUIRED. (a) Regardless of a change in a policyholder's ownership, control, management, or operations, incurred claims experience must be used in future ratings to ensure that an employer does not evade an unfavorable or high-cost experience. (b) On application by an affected party, the department may modify a rating under Subsection (a) on proof that a change in a policyholder's management or operations is clearly designed to result in a probable reduction of the insured's loss experience. (c) The commissioner shall adopt rules necessary to implement this section. (V.T.I.C. Art. 5.65B, Secs. (a) (part), (b), (c), (d).) Sec. 2053.055. RATE ADJUSTMENT. If the commissioner determines that an insurance company's rates do not meet with the standards imposed by Section 2053.002, the commissioner may order the insurance company to adjust the rates to meet those standards. An insurance company may appeal an order under this section in accordance with Subchapter D, Chapter 36. (V.T.I.C. Art. 5.58, Sec. (a) (part).)
[Sections 2053.056-2053.100 reserved for expansion]
SUBCHAPTER C. STATISTICAL PLANS; AGENT
Sec. 2053.101. STATISTICAL PLANS FOR REPORTING LOSS EXPERIENCE AND OTHER DATA. The commissioner shall develop and may periodically modify reasonable statistical plans for workers' compensation insurance to be used by each insurance company in recording and reporting the insurance company's loss experience and other data required by the department, so that the total loss and expense experience of all insurance companies is made available at least annually in the form and detail necessary to assist in determining whether an insurance company's rates meet the standards imposed under Section 2053.002. (V.T.I.C. Art. 5.58, Sec. (a) (part).) Sec. 2053.102. TREATMENT OF PAYMENTS UNDER STATISTICAL PLAN. A statistical plan developed under Section 2053.101 must require the following payments to be reported separately and not to be considered as a loss or expense for purposes of computing a premium rate modifier or surcharge of an insured: (1) a direct payment made by an insurance company to influence public policy; and (2) any amount paid by an insurance company: (A) as damages in an action against the insurance company for malice or bad faith; or (B) as a fine or penalty. (V.T.I.C. Art. 5.58, Sec. (e).) Sec. 2053.103. STATISTICAL AGENT. (a) The commissioner may designate or contract with a qualified organization to serve as the statistical agent for the commissioner under this subchapter as provided by Subchapter E, Chapter 38. (b) The statistical agent may provide to one or more advisory organizations any information provided by the agent to the commissioner under this subchapter. (V.T.I.C. Art. 5.58, Sec. (a) (part).)
[Sections 2053.104-2053.150 reserved for expansion]
SUBCHAPTER D. REPORTING REQUIREMENTS AND EXCHANGE OF INFORMATION
Sec. 2053.151. WORKERS' COMPENSATION CLAIMS REPORTS AND INFORMATION. (a) The following information must be reported on each workers' compensation claim: (1) the hazard classification of the affected employee; (2) the date of injury; (3) the social security number of the claimant; (4) the severity classification of the claim, including separate classifications for: (A) claims in which death benefits are paid; (B) claims in which lifetime income benefits are paid; (C) claims in which only temporary income benefits are paid; (D) claims in which impairment income benefits are paid; (E) claims in which supplemental income benefits are paid; and (F) claims in which only medical benefits are paid; (5) the amount paid in periodic payments; (6) the amount paid in lump-sum payments; (7) the amount paid for: (A) temporary income benefits; (B) impairment income benefits; (C) supplemental income benefits; and (D) death and burial benefits; (8) the total amount paid for: (A) income, death, or burial benefits; and (B) medical benefits; (9) the total amount of incurred losses for: (A) income, death, or burial benefits; and (B) medical benefits; (10) the amount paid to: (A) doctors and other health care providers; and (B) hospitals and other health care facilities; and (11) other information required by the commissioner. (b) For purposes of Subsection (a), the commissioner shall establish standards and procedures for categorizing insurance and medical benefits required to be reported on each workers' compensation claim. In establishing the standards, the commissioner shall consult with the Texas Workers' Compensation Commission to ensure that the data collection methodology will yield data necessary for research and medical cost containment efforts. (c) The commissioner may allow the information required by Subsection (a) to be reported in the aggregate for each risk for claims in which benefit payments are less than $5,000. The commissioner may adjust the $5,000 threshold for aggregate reporting to account for inflationary changes. (d) A person may not distribute or otherwise disclose a social security number or any other information collected under Subsection (a) that would disclose the identity of a claimant. (V.T.I.C. Art. 5.58, Secs. (b), (c), (d), (g).) Sec. 2053.152. UPDATE AND TRANSMISSION OF CLAIMS REPORTS. (a) An insurance company, in accordance with the filing requirements of a statistical plan developed under Section 2053.101, shall update and transmit to the commissioner or the commissioner's statistical agent a claims report filed under Section 2053.151. (b) Each insurance company that writes at least one-half of one percent of the workers' compensation insurance in this state shall report the company's data in a compatible electronic format prescribed by the commissioner. The commissioner shall take necessary measures to ensure the accuracy of the data and the adequacy of the electronic format for the data. (V.T.I.C. Art. 5.58, Sec. (f).) Sec. 2053.153. EXCHANGE OF INFORMATION AND CONSULTATION WITH OTHERS. To further the uniform administration of rating laws relating to workers' compensation insurance, the commissioner and each insurance company may: (1) exchange information and experience data with the National Association of Insurance Commissioners and with insurance supervisory officials, insurance companies, and advisory organizations in other states; and (2) consult and cooperate with a person or entity described by Subdivision (1) with respect to ratemaking and the application of rating systems. (V.T.I.C. Art. 5.58, Sec. (i).) Sec. 2053.154. LOSS STATEMENT AND PAYROLL REPORT. (a) For purposes of this section, "insurance company" means a stock company, mutual insurance company, reciprocal or interinsurance exchange, or Lloyd's plan authorized to engage in the business of workers' compensation insurance in this state. The term includes the Texas Mutual Insurance Company. (b) The department may require an insurance company to submit a sworn statement or report showing: (1) the payroll reported to the insurance company; (2) incurred losses by classification; and (3) other information the department determines may be necessary to implement the department's duties. (c) The department shall prescribe the necessary forms for a statement or report required by Subsection (b) with consideration of the methods and forms used for similar purposes in other states so that uniformity of statistics will not be affected. (V.T.I.C. Arts. 5.59, 5.63.)
[Sections 2053.155-2053.200 reserved for expansion]
SUBCHAPTER E. OPTIONAL DEDUCTIBLE PLANS
Sec. 2053.201. DEFINITION. In this subchapter, "insurance company" means a stock company, mutual insurance company, reciprocal or interinsurance exchange, or Lloyd's plan authorized to engage in the business of workers' compensation insurance in this state. (V.T.I.C. Art. 5.63.) Sec. 2053.202. ESTABLISHMENT OF OPTIONAL DEDUCTIBLE PLANS. (a) The department shall require each insurance company writing workers' compensation insurance in this state to offer at least three optional deductible plans adopted under this section that allow a policyholder to self-insure for the amount of the deductible. (b) The commissioner by rule shall allow an employer to enter into an agreement with an insurer for a negotiated deductible that exceeds the highest deductible available under a plan described by Subsection (a). (V.T.I.C. Art. 5.55C, Secs. (a), (b).) Sec. 2053.203. PAYMENT OF CLAIMS; REIMBURSEMENT. (a) An insurance company issuing a deductible policy under this subchapter shall service all claims that arise during the policy period, including those claims payable, wholly or partly, from the deductible amount. (b) A deductible policy must provide that: (1) the insurance company issuing the policy shall pay all benefits that are payable from the deductible amount; and (2) the policyholder shall make reimbursements periodically, rather than at the time claim costs are incurred. (c) The commissioner shall adopt rules to provide for adequate security for reimbursement of the amount paid by an insurance company that is payable from the deductible amount. (V.T.I.C. Art. 5.55C, Secs. (d), (e).) Sec. 2053.204. RATE REDUCTION. (a) The department shall perform an actuarial analysis to determine the amount of rate reduction applicable to a deductible policy under this subchapter as compared to a standard workers' compensation insurance policy without a deductible. (b) In years subsequent to the year in which the actuarial analysis described by Subsection (a) is performed, the department shall determine the amount of rate reduction according to rating procedures adopted by the commissioner. (c) When establishing procedures for the computation of experience modifiers, the commissioner may allow the exclusion of any claim amount paid under a deductible by an employer. (V.T.I.C. Art. 5.55C, Sec. (c).) Sec. 2053.205. PROHIBITED CONDUCT. A person who is employed by a policyholder who self-insures the deductible amount as provided by this subchapter may not be required to pay any portion of the deductible amount or be harassed, discharged, or otherwise discriminated against because the person, in good faith: (1) is considering initiating or has initiated a workers' compensation claim; (2) has retained a representative to represent the person regarding a claim; (3) has testified or will testify at an administrative or judicial proceeding under Subtitle A, Title 5, Labor Code; (4) has reported a hazardous working condition or hazardous practice to the Texas Workers' Compensation Commission; or (5) has taken or is considering taking any other action that may result in a requirement that the policyholder pay a deductible amount through a self-insurance plan. (V.T.I.C. Art. 5.55C, Secs. (f), (g)(1).) Sec. 2053.206. VIOLATION OF SUBCHAPTER. (a) A person commits a Class A administrative violation under Subtitle A, Title 5, Labor Code, if the person engages in conduct that violates this subchapter. (b) Liability for damages for a violation of this subchapter is determined exclusively under Subtitle A, Title 5, Labor Code. (V.T.I.C. Art. 5.55C, Secs. (g)(2), (h).)
[Sections 2053.207-2053.250 reserved for expansion]
SUBCHAPTER F. PREMIUM INCENTIVES AND SURCHARGE
FOR SMALL EMPLOYERS
Sec. 2053.251. DEFINITIONS. In this subchapter: (1) "Insurance company" means a stock company, mutual insurance company, reciprocal or interinsurance exchange, or Lloyd's plan authorized to engage in the business of workers' compensation insurance in this state. (2) "Premium" means workers' compensation insurance premium. (3) "Small employer" means an employer: (A) who is not experience-rated by the department for workers' compensation insurance purposes; and (B) whose annual premium is less than $5,000. (V.T.I.C. Art. 5.55B, Sec. (a); Art. 5.63; New.) Sec. 2053.252. PLAN FOR PREMIUM DISCOUNT AND SURCHARGE. The commissioner shall adopt a plan under which each insurance company writing workers' compensation insurance in this state shall: (1) grant a premium discount to a small employer who qualifies for a discount under this subchapter; and (2) assess a surcharge as provided by Section 2053.254. (V.T.I.C. Art. 5.55B, Sec. (b) (part).) Sec. 2053.253. ELIGIBILITY FOR PREMIUM DISCOUNT. (a) A small employer who has not experienced a compensable employee lost-time injury during the most recent one-year period for which statistics are available shall receive a discount of 10 percent on the amount of the employer's premium. (b) A small employer who has not experienced a compensable employee lost-time injury during the most recent two-year period for which statistics are available shall receive a discount of 15 percent on the amount of the employer's premium. (c) A small employer who has experienced one or more compensable employee lost-time injuries during the most recent one-year period for which statistics are available is not eligible for a discount on the amount of the employer's premium. (V.T.I.C. Art. 5.55B, Secs. (c), (d), (e).) Sec. 2053.254. ASSESSMENT OF PREMIUM SURCHARGE. A small employer who has experienced two or more compensable employee lost-time injuries during the most recent one-year period for which statistics are available shall be assessed a surcharge of 10 percent on the amount of the employer's premium. (V.T.I.C. Art. 5.55B, Secs. (b) (part), (f).) Sec. 2053.255. MAXIMUM DISCOUNT AND ASSESSMENT. For any annual premium, a small employer may not: (1) receive a discount of more than 15 percent; or (2) be required to pay a surcharge of more than 10 percent. (V.T.I.C. Art. 5.55B, Sec. (g) (part).) Sec. 2053.256. DISCOUNTS AND SURCHARGES NOT CUMULATIVE. (a) The discounts and surcharges established under this subchapter are not cumulative. (b) A small employer is entitled to receive the discount under this subchapter in addition to any lesser deviation in the rate used to write an insurance policy under Sections 2053.051 and 2053.052(a) and (b). (V.T.I.C. Art. 5.55B, Sec. (g) (part).)
CHAPTER 2054. TEXAS MUTUAL INSURANCE COMPANY
SUBCHAPTER A. GENERAL PROVISIONS
Sec. 2054.001. DEFINITIONS Sec. 2054.002. REFERENCE TO TEXAS WORKERS' COMPENSATION INSURANCE FUND Sec. 2054.003. OPERATION AS DOMESTIC MUTUAL INSURANCE COMPANY Sec. 2054.004. INSURANCE COMPANY UNDER TEXAS WORKERS' COMPENSATION ACT Sec. 2054.005. APPLICABILITY OF CODE Sec. 2054.006. AUTHORITY OF COMMISSIONER AND DEPARTMENT Sec. 2054.007. APPLICABILITY OF OPEN MEETINGS LAW Sec. 2054.008. APPLICABILITY OF PUBLIC INFORMATION LAW Sec. 2054.009. CONFLICTS WITH CERTAIN INSURANCE LAWS
[Sections 2054.010-2054.050 reserved for expansion]
SUBCHAPTER B. BOARD OF DIRECTORS
Sec. 2054.051. BOARD OF DIRECTORS; COMPOSITION Sec. 2054.052. QUALIFICATIONS Sec. 2054.053. PRESIDING OFFICER; OTHER OFFICERS Sec. 2054.054. TERMS Sec. 2054.055. VACANCIES Sec. 2054.056. GROUNDS FOR REMOVAL Sec. 2054.057. PROCEDURES FOR REMOVAL Sec. 2054.058. COMMITTEES AND SUBCOMMITTEES Sec. 2054.059. MEETINGS Sec. 2054.060. QUORUM Sec. 2054.061. COMPENSATION
[Sections 2054.062-2054.100 reserved for expansion]
SUBCHAPTER C. MANAGEMENT OF COMPANY
Sec. 2054.101. GENERAL POWERS OF BOARD Sec. 2054.102. GENERAL DUTIES OF BOARD RELATING TO WORKERS' COMPENSATION INSURANCE Sec. 2054.103. APPOINTMENT OF PRESIDENT Sec. 2054.104. APPOINTMENT OF INTERNAL AUDITOR Sec. 2054.105. PERSONAL LIABILITY OF BOARD MEMBERS, OFFICERS, AND EMPLOYEES Sec. 2054.106. PRINCIPAL OFFICE Sec. 2054.107. CERTAIN RELATIONSHIPS WITH OTHER INSURERS PROHIBITED Sec. 2054.108. PROGRAM AND FACILITY ACCESSIBILITY
[Sections 2054.109-2054.150 reserved for expansion]
SUBCHAPTER D. OPERATION OF COMPANY; FINANCIAL ADMINISTRATION
Sec. 2054.151. PURPOSES OF COMPANY Sec. 2054.152. PAYMENT OF TAXES, FEES, AND OTHER CHARGES Sec. 2054.153. MEMBERSHIP IN TEXAS PROPERTY AND CASUALTY INSURANCE GUARANTY ASSOCIATION Sec. 2054.154. COMPANY ASSETS; STATE LIABILITY Sec. 2054.155. REQUIRED RESERVES Sec. 2054.156. RATIO OF CERTAIN PREMIUMS TO SURPLUS Sec. 2054.157. DISSOLUTION PROHIBITED
[Sections 2054.158-2054.200 reserved for expansion]
SUBCHAPTER E. EXAMINATIONS, REPORTS, AND FILINGS
Sec. 2054.201. EXAMINATION BY DEPARTMENT Sec. 2054.202. PROVIDING INFORMATION TO LEGISLATURE Sec. 2054.203. ANNUAL ACCOUNTING OF MONEY RECEIVED AND DISBURSED Sec. 2054.204. ANNUAL STATEMENTS Sec. 2054.205. PUBLICATION AND FILING OF AUDITED REPORT Sec. 2054.206. ADDITIONAL REPORTS Sec. 2054.207. PERIODIC REPORTS TO BOARD
[Sections 2054.208-2054.250 reserved for expansion]
SUBCHAPTER F. GENERAL POWERS AND DUTIES RELATING TO INSURANCE
Sec. 2054.251. RATEMAKING AUTHORITY Sec. 2054.252. AMOUNTS OF RATES Sec. 2054.253. MULTITIERED PREMIUM SYSTEMS Sec. 2054.254. CASH DIVIDENDS; CREDIT ON RENEWAL PREMIUM Sec. 2054.255. APPOINTMENT OF AGENT NOT REQUIRED Sec. 2054.256. WORK PRODUCT INFORMATION Sec. 2054.257. PAYMENT OF COMMISSION TO AGENT
[Sections 2054.258-2054.300 reserved for expansion]
SUBCHAPTER G. ISSUANCE OF COVERAGE
Sec. 2054.301. APPLICATION FOR COVERAGE Sec. 2054.302. POLICY FORMS Sec. 2054.303. DENIAL OF COVERAGE BASED ON CREDIT RISK Sec. 2054.304. CANCELLATION AND NONRENEWAL
[Sections 2054.305-2054.350 reserved for expansion]
SUBCHAPTER H. COMPANY AS INSURER OF LAST RESORT
Sec. 2054.351. INSURER OF LAST RESORT Sec. 2054.352. REQUIRED DECLINATION OF CERTAIN RISKS Sec. 2054.353. REQUIRED INSURANCE OF CERTAIN COMMONLY OWNED OR CONTROLLED ENTITIES Sec. 2054.354. DEVELOPMENT AND PUBLICATION OF CERTAIN INFORMATION
[Sections 2054.355-2054.400 reserved for expansion]
SUBCHAPTER I. APPEALS
Sec. 2054.401. APPEAL OF CERTAIN ACTIONS AND DECISIONS Sec. 2054.402. REVIEW OF BOARD DECISION BY COMMISSIONER Sec. 2054.403. APPEAL OF COMMISSIONER'S DECISION
[Sections 2054.404-2054.450 reserved for expansion]
SUBCHAPTER J. CONTROL OF FRAUD AND OTHER VIOLATIONS
Sec. 2054.451. IDENTIFICATION AND INVESTIGATION PROGRAM FOR FRAUD AND OTHER VIOLATIONS Sec. 2054.452. INVESTIGATIONS; COORDINATION WITH COMMISSION Sec. 2054.453. RESTITUTION PAYABLE TO COMPANY Sec. 2054.454. DEPOSIT AND USE OF PENALTIES COLLECTED BY COMMISSION Sec. 2054.455. FUNDING AGREEMENTS FOR CRIMINAL PROSECUTIONS Sec. 2054.456. IMMUNITY FOR CERTAIN ACTIONS
[Sections 2054.457-2054.500 reserved for expansion]
SUBCHAPTER K. ACCIDENT PREVENTION
Sec. 2054.501. DEFINITION Sec. 2054.502. REQUIREMENTS FOR PREVENTION OF INJURIES Sec. 2054.503. GROUNDS FOR CANCELLATION OR DENIAL OF COVERAGE Sec. 2054.504. SAFETY CONSULTATION FOR CERTAIN INSUREDS Sec. 2054.505. SAFETY CONSULTATION PROCEDURES Sec. 2054.506. SAFETY CONSULTANT REPORT Sec. 2054.507. ACCIDENT PREVENTION PLAN Sec. 2054.508. ACCIDENT INVESTIGATIONS; OTHER MONITORING Sec. 2054.509. FOLLOW-UP INSPECTION Sec. 2054.510. CANCELLATION OF COVERAGE BY COMPANY; IMPOSITION OF ADMINISTRATIVE PENALTY Sec. 2054.511. CONTINUING COMPLIANCE WITH SUBCHAPTER Sec. 2054.512. FEES FOR SERVICES Sec. 2054.513. ENFORCEMENT OF SUBCHAPTER
[Sections 2054.514-2054.550 reserved for expansion]
SUBCHAPTER L. PUBLIC INTEREST INFORMATION AND COMPLAINT PROCEDURES
Sec. 2054.551. PUBLIC INTEREST INFORMATION Sec. 2054.552. COMPLAINTS Sec. 2054.553. COMPLAINT RECORD
CHAPTER 2054. TEXAS MUTUAL INSURANCE COMPANY
SUBCHAPTER A. GENERAL PROVISIONS
Sec. 2054.001. DEFINITIONS. In this chapter: (1) "Board" means the board of directors of the company. (2) "Commission" means the Texas Workers' Compensation Commission. (3) "Company" means the Texas Mutual Insurance Company. (4) "Workers' compensation insurance" means insurance for a risk under: (A) Subtitle A, Title 5, Labor Code; (B) Chapter 504, Labor Code; (C) the Longshore and Harbor Workers' Compensation Act (33 U.S.C. Section 901 et seq.); (D) the Federal Mine Safety and Health Act of 1977 (30 U.S.C. Section 801 et seq.); (E) the Defense Base Act (42 U.S.C. Sections 1651-1654); (F) the federal Employers' Liability Act (45 U.S.C. Section 51 et seq.); (G) the Nonappropriated Fund Instrumentalities Act (5 U.S.C. Sections 8171-8173); (H) the Outer Continental Shelf Lands Act (43 U.S.C. Section 1331 et seq.); or (I) the Merchant Marine Act of 1920 (46 App. U.S.C. Section 861 et seq.). (V.T.I.C. Art. 5.76-3, Secs. 1(1), (2), (3), (5).) Sec. 2054.002. REFERENCE TO TEXAS WORKERS' COMPENSATION INSURANCE FUND. A reference in state law to the Texas Workers' Compensation Insurance Fund means the Texas Mutual Insurance Company. (V.T.I.C. Art. 5.76-3, Sec. 2(a) (part).) Sec. 2054.003. OPERATION AS DOMESTIC MUTUAL INSURANCE COMPANY. (a) The company operates as a domestic mutual insurance company under Chapter 883. The company is subject to that chapter, but is not subject to Chapter 826. (b) The company: (1) has the legal rights of a mutual insurance company operating under Chapter 883 and of an individual in this state; and (2) may bring a suit in the company's own name without any procedural prerequisites to the exercise of that power. (c) The company is not a state agency. (V.T.I.C. Art. 5.76-3, Secs. 2(a) (part), (b) (part), (h), 21(c).) Sec. 2054.004. INSURANCE COMPANY UNDER TEXAS WORKERS' COMPENSATION ACT. The company is an insurance company for purposes of Subtitle A, Title 5, Labor Code. (V.T.I.C. Art. 5.76-3, Sec. 21(a).) Sec. 2054.005. APPLICABILITY OF CODE. The company is subject to this code. (V.T.I.C. Art. 5.76-3, Sec. 18(c) (part).) Sec. 2054.006. AUTHORITY OF COMMISSIONER AND DEPARTMENT. (a) The commissioner may regulate the company to the same extent that the commissioner may regulate a mutual insurance company. (b) The company is subject to the jurisdiction of the commissioner and department in the same manner as a private insurance company. (V.T.I.C. Art. 5.76-3, Secs. 18(c) (part), 21(b).) Sec. 2054.007. APPLICABILITY OF OPEN MEETINGS LAW. (a) Except as otherwise provided by Subsection (b), Chapter 551, Government Code, applies to the company. (b) The board may hold closed meetings to consider: (1) information relating to claims, rates, or the company's underwriting guidelines; or (2) other information that would give advantage to a competitor or bidder. (V.T.I.C. Art. 5.76-3, Sec. 2(d) (part).) Sec. 2054.008. APPLICABILITY OF PUBLIC INFORMATION LAW. (a) In this section, "investigation file" means information the company compiles or maintains with respect to a company investigation authorized by law. (b) To the extent consistent with this section, Chapter 552, Government Code, applies to the company. (c) The board may refuse to disclose: (1) information relating to claims, rates, or the company's underwriting guidelines; or (2) other information that would give advantage to a competitor or bidder. (d) Except as provided by Subsection (e), a company investigation file: (1) is confidential and not subject to required disclosure under Chapter 552, Government Code; and (2) may be disclosed only: (A) in a criminal proceeding; (B) in a hearing conducted by the commission; (C) on a judicial determination of good cause; or (D) to a governmental agency, political subdivision, or regulatory body if the disclosure is necessary or proper for the enforcement of a law of this state, another state, or the United States. (e) Disclosure of information in an investigation file that is contained in or derived from a claim file, an employer injury report, or an occupational disease report is governed by any confidentiality provision applicable to that information. (V.T.I.C. Art. 5.76-3, Secs. 2(d) (part), 10.) Sec. 2054.009. CONFLICTS WITH CERTAIN INSURANCE LAWS. To the extent of a conflict between this chapter and Chapter 883 or another law of this state applicable to a nonlife mutual insurance company, this chapter prevails. (V.T.I.C. Art. 5.76-3, Sec. 2(b) (part).)
[Sections 2054.010-2054.050 reserved for expansion]
SUBCHAPTER B. BOARD OF DIRECTORS
Sec. 2054.051. BOARD OF DIRECTORS; COMPOSITION. (a) The company is governed by a board composed of nine members. (b) The governor, with the advice and consent of the senate, shall appoint five board members. The company's policyholders shall elect the remaining members. (V.T.I.C. Art. 5.76-3, Sec. 3(a) (part).) Sec. 2054.052. QUALIFICATIONS. (a) Each board member must be a resident of this state. (b) An individual may not serve as a board member if the individual, another individual related to the individual within the second degree by consanguinity or affinity, or another individual residing in the same household with the individual: (1) is registered or licensed under this code or is required to be registered or licensed under this code; (2) is employed by or acts as a consultant to a person registered or licensed under this code or required to be registered or licensed under this code; (3) owns, controls, has a financial interest in, or participates in the management of an organization registered or licensed under this code or required to be registered or licensed under this code; (4) receives a substantial tangible benefit from the company or the department; or (5) is an officer, employee, or consultant of an association in the field of insurance. (c) Subsection (b) does not prohibit an individual from serving as a board member if the individual is only a policyholder or a consumer of insurance or insurance products. (d) An individual who is ineligible to serve on the board under Subsection (b) may not serve as a board member until the first anniversary of the date the condition that makes the individual ineligible ends. (V.T.I.C. Art. 5.76-3, Secs. 3(a) (part), (d), (h), (i).) Sec. 2054.053. PRESIDING OFFICER; OTHER OFFICERS. (a) The governor shall designate a board member as the presiding officer to serve in that capacity at the pleasure of the governor. (b) The board members shall elect annually any other officers the board considers necessary to perform the board's duties. (V.T.I.C. Art. 5.76-3, Sec. 3(k) (part).) Sec. 2054.054. TERMS. (a) Board members serve staggered six-year terms, with the terms of three members expiring July 1 of each odd-numbered year. (b) A board member whose term has expired shall continue to serve until the member's successor is appointed by the governor or is elected by the company's policyholders, as applicable. (V.T.I.C. Art. 5.76-3, Sec. 3(b).) Sec. 2054.055. VACANCIES. (a) The governor shall fill a vacancy in the appointed board members by appointment with the advice and consent of the senate. (b) A vacancy in the elected board members shall be filled as provided by the company's bylaws. (c) If a vacancy occurs before the date the vacating member's term expires, the successor member shall be appointed or elected for a term that expires on the same date as the vacating member's term. (V.T.I.C. Art. 5.76-3, Sec. 3(c).) Sec. 2054.056. GROUNDS FOR REMOVAL. (a) It is a ground for removal from the board if a member: (1) does not have at the time of appointment or election the qualifications required by Section 2054.052; (2) does not maintain during service on the board the qualifications required by Section 2054.052; (3) cannot because of illness or disability discharge the member's duties for a substantial part of the term for which the member is appointed or elected; or (4) is absent from more than half of the regularly scheduled board meetings that the member is eligible to attend during a calendar year. (b) The validity of a board action is not affected by the fact that it is taken when a ground for removal of a board member exists. (V.T.I.C. Art. 5.76-3, Secs. 3(e), (f).) Sec. 2054.057. PROCEDURES FOR REMOVAL. (a) If the president of the company has knowledge that a potential ground for removal of a board member exists, the president shall notify the presiding officer of the board of the potential ground. (b) If the potential ground for removal involves an appointed board member, the presiding officer shall notify the governor and the attorney general that a potential ground for removal exists. (c) If the potential ground for removal involves the presiding officer, the president shall notify the next highest board officer, who shall notify the governor and the attorney general that a potential ground for removal exists. (d) If the potential ground for removal involves an elected board member, the board shall act on the potential ground for removal as provided by the company's bylaws. (V.T.I.C. Art. 5.76-3, Sec. 3(g).) Sec. 2054.058. COMMITTEES AND SUBCOMMITTEES. The board may create committees and subcommittees. (V.T.I.C. Art. 5.76-3, Sec. 3(k) (part).) Sec. 2054.059. MEETINGS. (a) The board shall hold a meeting at least once each calendar quarter, at other times at the call of the presiding officer, and at times established by the company's bylaws. (b) A special meeting may be called by any two board members on two days' notice. (V.T.I.C. Art. 5.76-3, Sec. 3(l).) Sec. 2054.060. QUORUM. Five board members constitute a quorum. (V.T.I.C. Art. 5.76-3, Sec. 3(m).) Sec. 2054.061. COMPENSATION. A board member is entitled to receive: (1) fees for service on the board commensurate with industry standards; and (2) actual and necessary travel expenses and any other expense incurred in performing the member's duties. (V.T.I.C. Art. 5.76-3, Sec. 3(j).)
[Sections 2054.062-2054.100 reserved for expansion]
SUBCHAPTER C. MANAGEMENT OF COMPANY
Sec. 2054.101. GENERAL POWERS OF BOARD. The board has full authority over the company and may: (1) perform any act necessary or convenient to administer the company or in connection with the company's insurance business; and (2) function in all aspects as the governing body of a domestic mutual insurance company. (V.T.I.C. Art. 5.76-3, Sec. 4(a) (part).) Sec. 2054.102. GENERAL DUTIES OF BOARD RELATING TO WORKERS' COMPENSATION INSURANCE. The board shall: (1) provide for engaging in the business of workers' compensation insurance and for the delivery in this state of workers' compensation insurance to the same extent as any other insurance company engaging in the business of workers' compensation insurance in this state; (2) propose rates for workers' compensation insurance issued by the company; and (3) exercise any other authority necessary to engage in the business of workers' compensation insurance. (V.T.I.C. Art. 5.76-3, Sec. 4(a) (part).) Sec. 2054.103. APPOINTMENT OF PRESIDENT. (a) The board shall appoint a president who serves at the pleasure of the board. (b) The president must have proven successful experience as an executive at the general management level in the business of insurance. (c) The president shall receive compensation as set by the board. (V.T.I.C. Art. 5.76-3, Sec. 4(d).) Sec. 2054.104. APPOINTMENT OF INTERNAL AUDITOR. The board shall appoint an internal auditor who serves at the pleasure of the board. (V.T.I.C. Art. 5.76-3, Sec. 4(c).) Sec. 2054.105. PERSONAL LIABILITY OF BOARD MEMBERS, OFFICERS, AND EMPLOYEES. In connection with the administration, management, or conduct of the company, the company's business, or a related matter, a board member, the president, or an officer or employee of the company is not personally liable in the individual's private capacity for an act performed or a contract or other obligation entered into or undertaken in the individual's official capacity in good faith and without intent to defraud. (V.T.I.C. Art. 5.76-3, Sec. 6.) Sec. 2054.106. PRINCIPAL OFFICE. The board shall maintain the company's principal office in Travis County. (V.T.I.C. Art. 5.76-3, Sec. 3(n).) Sec. 2054.107. CERTAIN RELATIONSHIPS WITH OTHER INSURERS PROHIBITED. The company may not have: (1) an affiliate, spin-off, or subsidiary that writes a line of insurance other than workers' compensation insurance; or (2) interlocking boards of directors with an insurer that writes a line of insurance other than workers' compensation insurance. (V.T.I.C. Art. 5.76-3, Sec. 4(b).) Sec. 2054.108. PROGRAM AND FACILITY ACCESSIBILITY. (a) The company shall comply with federal and state laws that relate to program and facility accessibility. (b) The president shall prepare and maintain a written plan that describes the manner in which an individual who does not speak English can be provided reasonable access to the company's programs and services. (c) The board shall develop and implement policies that provide the public with a reasonable opportunity to appear before the board and to speak on any issue under the company's jurisdiction. (V.T.I.C. Art. 5.76-3, Secs. 19(c), (d).)
[Sections 2054.109-2054.150 reserved for expansion]
SUBCHAPTER D. OPERATION OF COMPANY; FINANCIAL ADMINISTRATION
Sec. 2054.151. PURPOSES OF COMPANY. The company shall: (1) serve as a competitive force in the marketplace; (2) guarantee the availability of workers' compensation insurance in this state; and (3) serve as an insurer of last resort as provided by Subchapter H. (V.T.I.C. Art. 5.76-3, Sec. 2(c).) Sec. 2054.152. PAYMENT OF TAXES, FEES, AND OTHER CHARGES. The company shall pay the following in the same manner as a domestic mutual insurance company authorized to engage in the business of insurance and to write workers' compensation insurance in this state: (1) taxes, including maintenance and premium taxes; (2) fees; and (3) payments due in lieu of taxes. (V.T.I.C. Art. 5.76-3, Secs. 11(a), (b).) Sec. 2054.153. MEMBERSHIP IN TEXAS PROPERTY AND CASUALTY INSURANCE GUARANTY ASSOCIATION. (a) In this section, "association" means the Texas Property and Casualty Insurance Guaranty Association. (b) The company is: (1) a member of and protected by the association; and (2) subject to assessment under Chapter 462. (c) Notwithstanding Subsection (b), the company is liable only for an assessment by the association regarding a claim with a date of injury occurring on or after January 1, 2000, and the association, with respect to an insolvency of the company, is liable only for a claim with a date of injury occurring on or after that date. (V.T.I.C. Art. 5.76-3, Secs. 11(c), (d).) Sec. 2054.154. COMPANY ASSETS; STATE LIABILITY. (a) All money, revenues, and other assets of the company belong solely to the company and are governed by the laws applicable to domestic mutual insurance companies. (b) The state: (1) covenants with the company's policyholders, persons receiving workers' compensation benefits, and the company's creditors that the state will not borrow, appropriate, or direct payments from the company's money, revenues, or other assets for any purpose; and (2) has no liability or responsibility to those policyholders, persons receiving benefits, or creditors if the company is placed in conservatorship or receivership or becomes insolvent. (V.T.I.C. Art. 5.76-3, Sec. 12(a).) Sec. 2054.155. REQUIRED RESERVES. The company shall establish and maintain reserves for losses on an actuarially sound basis in accordance with Chapter 426. (V.T.I.C. Art. 5.76-3, Sec. 12(b).) Sec. 2054.156. RATIO OF CERTAIN PREMIUMS TO SURPLUS. The company shall maintain a ratio of net written premiums on policies written after reinsurance to surplus of not more than three to one. (V.T.I.C. Art. 5.76-3, Sec. 12(c).) Sec. 2054.157. DISSOLUTION PROHIBITED. The company may not be dissolved. (V.T.I.C. Art. 5.76-3, Sec. 2(j).)
[Sections 2054.158-2054.200 reserved for expansion]
SUBCHAPTER E. EXAMINATIONS, REPORTS, AND FILINGS
Sec. 2054.201. EXAMINATION BY DEPARTMENT. (a) The department shall examine the company in the manner and under the conditions specified by Chapters 86 and 401 for the examination of insurers. (b) The company shall pay the costs of the examination. (V.T.I.C. Art. 5.76-3, Secs. 18(a), (b).) Sec. 2054.202. PROVIDING INFORMATION TO LEGISLATURE. The company shall provide requested information to each appropriate legislative committee in the manner requested by the committee. (V.T.I.C. Art. 5.76-3, Sec. 4(e).) Sec. 2054.203. ANNUAL ACCOUNTING OF MONEY RECEIVED AND DISBURSED. Each year, the company shall prepare a complete and detailed written report accounting for all money the company received and disbursed during the preceding fiscal year. (V.T.I.C. Art. 5.76-3, Sec. 2(i).) Sec. 2054.204. ANNUAL STATEMENTS. (a) The company shall file annual statements with the department and commission in the same manner as is required of other workers' compensation insurance companies. (b) The department shall include in the department's annual report under Section 32.021 a report on the company's condition. (V.T.I.C. Art. 5.76-3, Sec. 12(e).) Sec. 2054.205. PUBLICATION AND FILING OF AUDITED REPORT. The board shall: (1) publish an independently audited report analyzing the company's activities and fiscal condition during the preceding fiscal year; and (2) file the audited report with the department for submission simultaneously with its annual financial report. (V.T.I.C. Art. 5.76-3, Sec. 16(a).) Sec. 2054.206. ADDITIONAL REPORTS. The company shall file with the department and the commission all reports required of other workers' compensation insurance companies. (Art. 5.76-3, Sec. 16(b).) Sec. 2054.207. PERIODIC REPORTS TO BOARD. The president shall make periodic reports to the board regarding: (1) the company's status; and (2) the company's investments. (V.T.I.C. Art. 5.76-3, Sec. 13.)
[Sections 2054.208-2054.250 reserved for expansion]
SUBCHAPTER F. GENERAL POWERS AND DUTIES RELATING TO INSURANCE
Sec. 2054.251. RATEMAKING AUTHORITY. (a) Except as provided by this section, the board may propose rates to be charged by the company for insurance. (b) The board shall engage the services of an independent actuary who is a member in good standing with the Casualty Actuarial Society or the American Academy of Actuaries to develop and recommend actuarially sound rates. (c) The company is subject to the requirements of Subchapter A, Chapter 2053, and shall include the recommendations of the independent actuary as part of the company's filing under that subchapter. (V.T.I.C. Art. 5.76-3, Sec. 7(a).) Sec. 2054.252. AMOUNTS OF RATES. Rates charged by the company for insurance must be set in amounts sufficient, when invested, to: (1) carry all claims to maturity; (2) meet the reasonable expenses of conducting the company's business; and (3) maintain a reasonable surplus. (V.T.I.C. Art. 5.76-3, Sec. 7(b).) Sec. 2054.253. MULTITIERED PREMIUM SYSTEMS. (a) Notwithstanding any other provision of this code or another insurance law of this state, the company may establish multitiered premium systems to price workers' compensation insurance policies to: (1) insureds in the company's competitive programs; and (2) insureds to whom policies are offered by the company under Subchapter H. (b) The systems may provide for a higher or lower premium payment by an insured based on: (1) the company's evaluation of the underwriting characteristics of the individual risk; and (2) the appropriate premium to be charged for the policy coverages. (c) The systems must be filed in accordance with Subchapter A, Chapter 2053. (V.T.I.C. Art. 5.76-3, Sec. 7(c).) Sec. 2054.254. CASH DIVIDENDS; CREDIT ON RENEWAL PREMIUM. (a) The company may pay a cash dividend or allow a credit on the renewal premium for a policyholder insured with the company, other than a policyholder insured under Subchapter H. (b) Payment of a cash dividend or allowance of a credit: (1) must be made in accordance with criteria approved by the board, which may consider the policyholder's safety record and performance; and (2) may be made only with the department's prior approval . (V.T.I.C. Art. 5.76-3, Sec. 12(d).) Sec. 2054.255. APPOINTMENT OF AGENT NOT REQUIRED. (a) Notwithstanding any other provision of this code or another insurance law of this state, the company is not required to appoint a general property and casualty agent to act as an agent for the company. (b) An agent who transacts business with the company acts as an agent for the applicant and not as an agent for the company, unless the company and the agent have entered into a written agreement for the agent to act on behalf of the company. (V.T.I.C. Art. 5.76-3, Sec. 5(d).) Sec. 2054.256. WORK PRODUCT INFORMATION. (a) Information submitted to the company by an insurance agent on behalf of an employer, including a policy expiration date, is the work product of the agent. The company may not use the information in any marketing or direct sales activity. (b) Except as otherwise required or permi