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  H.B. No. 2761
 
 
 
 
AN ACT
  relating to requirements governing suitability in certain annuity
  transactions with consumers.
         BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
         SECTION 1.  Subtitle A, Title 7, Insurance Code, is amended
  by adding Chapter 1115 to read as follows:
  CHAPTER 1115. SUITABILITY OF CERTAIN ANNUITY TRANSACTIONS
  SUBCHAPTER A. GENERAL PROVISIONS
         Sec. 1115.001.  PURPOSE. The purpose of this chapter is to
  establish standards and procedures regarding recommendations made
  to a consumer that result in a transaction involving annuity
  products to ensure that the insurance needs and financial
  objectives of the consumer as of the time of the transaction are
  appropriately addressed.
         Sec. 1115.002.  DEFINITIONS. In this chapter:
               (1)  "Agent" means an individual who holds a license
  under Chapter 4054 and who sells, solicits, or negotiates insurance
  or annuity contracts in this state.
               (2)  "Annuity" means a fixed, variable, or modified
  guaranteed annuity that is individually solicited, whether
  classified as an individual annuity or group annuity.
               (3)  "Insurer" means an insurance company authorized to
  engage in the business of life insurance and annuities in this
  state.
               (4)  "Recommendation" means advice provided by an agent
  or insurer to an individual consumer that results in a purchase or
  exchange of an annuity made in accordance with that advice.
         Sec. 1115.003.  APPLICABILITY; EXEMPTIONS. (a) This
  chapter applies to any recommendation to purchase or exchange an
  annuity that:
               (1)  is made to a consumer by an agent or insurer; and
               (2)  results in the recommended purchase or exchange.
         (b)  Unless otherwise specifically included, this chapter
  does not apply to recommendations involving:
               (1)  direct response solicitations if there is no
  recommendation based on information collected from the consumer
  under this chapter; or
               (2)  contracts used to fund:
                     (A)  an employee pension benefit plan or employee
  welfare benefit plan covered by the Employee Retirement Income
  Security Act of 1974 (29 U.S.C. Section 1001 et seq.);
                     (B)  a plan described by Section 401(a), 401(k),
  403(b), 408(k), or 408(p), Internal Revenue Code of 1986, if
  established or maintained by an employer;
                     (C)  a government or church plan, as defined by
  Section 414, Internal Revenue Code of 1986, a government or church
  welfare benefit plan, or a deferred compensation plan of a state or
  local government or tax exempt organization described under Section
  457, Internal Revenue Code of 1986;
                     (D)  a nonqualified deferred compensation
  arrangement established or maintained by an employer or plan
  sponsor;
                     (E)  settlements of or assumptions of liabilities
  associated with personal injury litigation or any dispute or claim
  resolution process; or
                     (F)  prepaid funeral benefits contracts, as
  defined by Chapter 154, Finance Code.
         Sec. 1115.004.  NO CAUSE OF ACTION CREATED.  This chapter may
  not be construed to create or imply a private cause of action for a
  violation of this chapter.
         Sec. 1115.005.  RULES. The commissioner may adopt
  reasonable rules in the manner prescribed by Subchapter A, Chapter
  36, to accomplish and enforce the purpose of this chapter.
  [Sections 1115.006-1115.050 reserved for expansion]
  SUBCHAPTER B. DUTIES OF INSURERS AND AGENTS
         Sec. 1115.051.  SUITABILITY OF ANNUITY PRODUCT REQUIRED.  
  (a)  Before the execution of a purchase or exchange of an annuity
  resulting from a recommendation, an agent, or the insurer if an
  agent is not involved, must make reasonable efforts to obtain:
               (1)  information from the consumer concerning:
                     (A)  the consumer's financial status;
                     (B)  the consumer's tax status; and
                     (C)  the consumer's investment objectives; and
               (2)  other relevant information used or considered to
  be reasonable by the agent or that insurer in making
  recommendations to consumers.
         (b)  In a recommendation to a consumer regarding the purchase
  of an annuity or the exchange of an annuity that results in another
  insurance transaction or series of insurance transactions, an agent
  or the insurer, if an agent is not involved, has reasonable grounds
  for believing that the recommendation is suitable for that consumer
  based on the facts disclosed by the consumer regarding the
  consumer's:
               (1)  investments and other insurance products; and
               (2)  financial situation and needs.
         (c)  An agent, or an insurer if an agent is not involved, has
  no obligation to a consumer related to a recommendation if the
  consumer:
               (1)  refuses to provide relevant information requested
  by the agent or insurer;
               (2)  fails to provide complete or accurate information
  on the request of the agent or insurer; or
               (3)  decides to enter into a transaction that is not
  based on a recommendation of the agent or insurer.
         (d)  An agent's or insurer's recommendation subject to
  Subsection (a) must be reasonable under all the circumstances
  actually known to the agent or insurer at the time of the
  recommendation.
         Sec. 1115.052.  COMPLIANCE SYSTEM. (a)  Each insurer shall
  operate a system, that is reasonably designed to achieve compliance
  with this chapter, to supervise recommendations.
         (b)  An insurer may comply with Subsection (a) by complying
  with Subsections (c)-(e) or by establishing and maintaining the
  insurer's own compliance system that complies with Subsection (c).
  Each agent and independent agency shall adopt an insurer's
  compliance system or shall establish and maintain such a system.
         (c)  A compliance system established under Subsection (b)
  must include:
               (1)  maintenance of written procedures; and
               (2)  periodic reviews of the insurer's or agent's
  records in a manner reasonably designed to assist in detecting and
  preventing violations of this chapter.
         (d)  An agent or insurer may contract with a third party,
  including an agent or independent agency, to establish and maintain
  a compliance system with respect to agents under contract with or
  employed by the third party. The agent or insurer shall make
  reasonable inquiries sufficient to ensure that the third party is
  performing the functions required under Subsection (a), and shall
  take any action reasonable under the circumstances to enforce the
  contractual obligation to perform those functions. An agent or
  insurer may comply with the obligation to make reasonable inquiries
  by:
               (1)  annually obtaining certification from a senior
  manager of the third party that the third party is performing the
  required functions; and
               (2)  periodically selecting third parties, based on
  reasonable selection criteria, for a review to determine whether
  the third parties are performing the required functions.
         (e)  An agent or insurer shall adopt procedures for
  conducting a review under Subsection (d)(2) that are reasonable
  under the circumstances.  An insurer that contracts with a third
  party under Subsection (d) and that complies with the requirements
  to supervise under Subsection (d) is deemed to have complied with
  the insurer's responsibilities under Subsection (b).
         (f)  An insurer, agent, or independent agency is not required
  by this section to:
               (1)  review, or provide for review of, all
  agent-solicited transactions; or
               (2)  include in the compliance system an agent's
  recommendations to consumers of products other than the annuities
  offered by the insurer, agent, or independent agency.
         Sec. 1115.053.  CERTIFICATION REQUIREMENTS. (a)  On request
  by an insurer, an agent or independent agency that contracts with an
  insurer under Section 1115.052(d) shall promptly obtain a
  certification as described under Section 1115.052(d)(1) or give a
  clear statement that it is unable to meet the certification
  criteria.
         (b)  A person may not provide a certification under Section
  1115.052(d)(1) unless the person:
               (1)  is a senior manager with responsibility for the
  delegated functions; and
               (2)  has a reasonable basis for making the
  certification.
         Sec. 1115.054.  COMPLIANCE WITH CERTAIN NATIONAL STANDARDS.
  (a) Compliance with the conduct rules of the National Association
  of Securities Dealers relating to suitability, or the rules of
  another national organization recognized by the commissioner,
  satisfies the requirements under this chapter for the
  recommendation of variable annuities.
         (b)  This section does not affect or limit the commissioner's
  ability to enforce this chapter.
         Sec. 1115.055.  RECORDKEEPING REQUIREMENTS. (a)  Each
  agent, independent agency, and insurer shall maintain, or otherwise
  be able to make available to the commissioner, records of the
  information collected from the consumer and other information used
  in making a recommendation that was the basis for a transaction
  subject to this chapter until the fifth anniversary of the date on
  which the transaction is completed by the insurer.
         (b)  An insurer may, but is not required to, maintain
  documentation on behalf of an agent.
         (c)  Records required to be maintained under this section may
  be maintained in paper, photographic, microprocess, magnetic,
  mechanical, or electronic media by any process that accurately
  reproduces the actual document.
  [Sections 1115.056-1115.100 reserved for expansion]
  SUBCHAPTER C. ENFORCEMENT
         Sec. 1115.101.  MITIGATION. The commissioner may order:
               (1)  an insurer to take reasonable appropriate
  corrective action for any consumer harmed by the insurer or by the
  insurer's agent because of a violation of this chapter;
               (2)  an agent to take reasonably appropriate corrective
  action for any consumer harmed by the agent's violation of this
  chapter; and
               (3)  a managing general agent or independent agency
  that employs or contracts with an agent to sell, or solicit the sale
  of, annuities to consumers to take reasonably appropriate
  corrective action for any consumer harmed by the agent's violation
  of this chapter.
         Sec. 1115.102.  SANCTIONS. (a) The commissioner may impose
  sanctions as provided by Chapter 82 for a violation of this chapter.
         (b)  The commissioner may reduce or eliminate a sanction for
  a violation of this chapter otherwise applicable if corrective
  action for the consumer was taken promptly by the agent or insurer
  after a violation was discovered.
         SECTION 2.  This Act applies only to a recommendation to
  purchase or exchange an annuity contract made on or after January 1,
  2008. A recommendation made before January 1, 2008, is governed by
  the law as it existed immediately before the effective date of this
  Act, and that law is continued in effect for that purpose.
         SECTION 3.  This Act takes effect September 1, 2007.
 
 
  ______________________________ ______________________________
     President of the Senate Speaker of the House     
 
 
         I certify that H.B. No. 2761 was passed by the House on May 8,
  2007, by the following vote:  Yeas 146, Nays 0, 2 present, not
  voting; and that the House concurred in Senate amendments to H.B.
  No. 2761 on May 23, 2007, by the following vote:  Yeas 143, Nays 0,
  2 present, not voting.
 
  ______________________________
  Chief Clerk of the House   
 
         I certify that H.B. No. 2761 was passed by the Senate, with
  amendments, on May 18, 2007, by the following vote:  Yeas 30, Nays
  0.
 
  ______________________________
  Secretary of the Senate   
  APPROVED: __________________
                  Date       
   
           __________________
                Governor