S.B. No. 1196
  relating to the regulation of funding agreements, guaranteed
  investment contracts, and synthetic guaranteed investment
  contracts issued by a life insurer; clarifying certain provisions
  relating to insurer receivership.
         SECTION 1.  Section 443.301, Insurance Code, is amended to
  read as follows:
         Sec. 443.301.  PRIORITY OF DISTRIBUTION.  The priority of
  payment of distributions on unsecured claims must be in accordance
  with the order in which each class of claims is set forth in this
  section.  Every claim in each class shall be paid in full, or
  adequate funds retained for their payment, before the members of
  the next class receive payment, and all claims within a class must
  be paid substantially the same percentage of the amount of the
  claim.  Except as provided by Subsections (a)(2), (a)(3), (i), and
  (k), subclasses may not be established within a class.  No claim by
  a shareholder, policyholder, or other creditor shall be permitted
  to circumvent the priority classes through the use of equitable
  remedies.  The order of distribution of claims shall be:
         (a)  Class 1.  (1)  The costs and expenses of administration
  expressly approved or ratified by the liquidator, including the
                     (A)  the actual and necessary costs of preserving
  or recovering the property of the insurer;
                     (B)  reasonable compensation for all services
  rendered on behalf of the administrative supervisor or receiver;
                     (C)  any necessary filing fees;
                     (D)  the fees and mileage payable to witnesses;
                     (E)  unsecured loans obtained by the receiver; and
                     (F)  expenses, if any, approved by the
  rehabilitator of the insurer and incurred in the course of the
  rehabilitation that are unpaid at the time of the entry of the order
  of liquidation.
               (2)  The reasonable expenses of a guaranty association,
  including overhead, salaries and other general administrative
  expenses allocable to the receivership to include administrative
  and claims handling expenses and expenses in connection with
  arrangements for ongoing coverage, other than expenses incurred in
  the performance of duties under Section 462.002(3), 463.108,
  463.111, 463.113, 463.353, or 2602.113 or similar duties under the
  statute governing a similar organization in another state.  In the
  case of the Texas Property and Casualty Insurance Guaranty
  Association and other property and casualty guaranty associations,
  the expenses shall include loss adjustment expenses, including
  adjusting and other expenses and defense and cost containment
  expenses.  In the event that there are insufficient assets to pay
  all of the costs and expenses of administration under Subsection
  (a)(1) and the expenses of a guaranty association, the costs and
  expenses under Subsection (a)(1) shall have priority over the
  expenses of a guaranty association.  In this event, the expenses of
  a guaranty association shall be paid on a pro rata basis after the
  payment of costs and expenses under Subsection (a)(1) in full.
               (3)  For purposes of Subsection (a)(1)(E), any
  unsecured loan obtained by the receiver, unless by its terms it
  otherwise provides, has priority over all other costs of
  administration.  Absent agreement to the contrary, all claims in
  this subclass share pro rata.
               (4)  Except as expressly approved by the receiver, any
  expenses arising from a duty to indemnify the directors, officers,
  or employees of the insurer are excluded from this class and, if
  allowed, are Class 5 claims.
         (b)  Class 2.  (1)  All claims under policies of insurance,
  including third-party claims; claims under annuity contracts,
  including funding agreements, guaranteed investment contracts, and
  synthetic guaranteed investment contracts;[,] claims under
  nonassessable policies for unearned premium;[,] claims of obligees
  and, subject to the discretion of the receiver, completion
  contractors, under surety bonds and surety undertakings other than
  bail bonds, mortgage or financial guaranties, or other forms of
  insurance offering protection against investment risk;[,] claims
  by principals under surety bonds and surety undertakings for
  wrongful dissipation of collateral by the insurer or its agents;[,]
  and claims incurred during the extension of coverage provided for
  in Section 443.152.  For purposes of this subdivision, "annuity
  contract," "funding agreement," "guaranteed investment contract,"
  and "synthetic guaranteed investment contract" have the meanings
  assigned by Section 1154.003.
               (2)  All other claims incurred in fulfilling the
  statutory obligations of a guaranty association not included in
  Class 1, including indemnity payments on covered claims and, in the
  case of the Life, Accident, Health, and Hospital Service Insurance
  Guaranty Association or another life and health guaranty
  association, all claims as a creditor of the impaired or insolvent
  insurer for all payments of and liabilities incurred on behalf of
  covered claims or covered obligations of the insurer and for the
  funds needed to reinsure those obligations with a solvent insurer.
               (3)  Claims for benefits under a health care plan
  issued by a health maintenance organization.
               (4)  Claims under insurance policies or contracts for
  benefits issued by an unauthorized insurer.
               (5)  Notwithstanding any provision of this chapter, the
  following claims are excluded from Class 2 priority:
                     (A)  obligations of the insolvent insurer arising
  out of reinsurance contracts;
                     (B)  obligations, excluding unearned premium
  claims on policies other than reinsurance agreements, incurred
                           (i)  the expiration date of the insurance
                           (ii)  the policy has been replaced by the
  insured or canceled at the insured's request; or
                           (iii)  the policy has been canceled as
  provided by this chapter;
                     (C)  obligations to insurers, insurance pools, or
  underwriting associations and their claims for contribution,
  indemnity, or subrogation, equitable or otherwise;
                     (D)  any claim that is in excess of any applicable
  limits provided in the insurance policy issued by the insurer;
                     (E)  any amount accrued as punitive or exemplary
  damages unless expressly covered under the terms of the policy;
                     (F)  tort claims of any kind against the insurer
  and claims against the insurer for bad faith or wrongful settlement
  practices; and
                     (G)  claims of the guaranty associations for
  assessments not paid by the insurer, which must be paid as claims in
  Class 5.
         (c)  Class 3.  Claims of the federal government not included
  in Class 2.
         (d)  Class 4.  Debts due employees for services or benefits
  to the extent that the debts do not exceed $5,000 or two months
  salary, whichever is the lesser, and represent payment for services
  performed within one year before the entry of the initial order of
  receivership.  This priority is in lieu of any other similar
  priority that may be authorized by law as to wages or compensation
  of employees.
         (e)  Class 5.  Claims of other unsecured creditors not
  included in Classes 1 through 4, including claims under reinsurance
  contracts, claims of guaranty associations for assessments not paid
  by the insurer, and other claims excluded from Class 2.
         (f)  Class 6.  Claims of any state or local governments,
  except those specifically classified elsewhere in this section.  
  Claims of attorneys for fees and expenses owed them by an insurer
  for services rendered in opposing a formal delinquency proceeding.  
  In order to prove the claim, the claimant must show that the insurer
  that is the subject of the delinquency proceeding incurred the fees
  and expenses based on its best knowledge, information, and belief,
  formed after reasonable inquiry, indicating opposition was in the
  best interests of the insurer, was well grounded in fact, and was
  warranted by existing law or a good faith argument for the
  extension, modification, or reversal of existing law, and that
  opposition was not pursued for any improper purpose, such as to
  harass or to cause unnecessary delay or needless increase in the
  cost of the litigation.
         (g)  Class 7.  Claims of any state or local government for a
  penalty or forfeiture, but only to the extent of the pecuniary loss
  sustained from the act, transaction, or proceeding out of which the
  penalty or forfeiture arose, with reasonable and actual costs
  occasioned thereby.  The balance of the claims must be treated as
  Class 9 claims under Subsection (i).
         (h)  Class 8.  Except as provided in Sections 443.251(b) and
  (d), late filed claims that would otherwise be classified in
  Classes 2 through 7.
         (i)  Class 9.  Surplus notes, capital notes or contribution
  notes or similar obligations, premium refunds on assessable
  policies, and any other claims specifically assigned to this class.  
  Claims in this class are subject to any subordination agreements
  related to other claims in this class that existed before the entry
  of the liquidation order.
         (j)  Class 10.  Interest on allowed claims of Classes 1
  through 9, according to the terms of a plan proposed by the
  liquidator and approved by the receivership court.
         (k)  Class 11.  Claims of shareholders or other owners
  arising out of their capacity as shareholders or other owners, or
  any other capacity, except as they may be qualified in Class 2, 5,
  or 10.  Claims in this class are subject to any subordination
  agreements related to other claims in this class that existed
  before the entry of the liquidation order.
         SECTION 2.  Subtitle C, Title 7, Insurance Code, is amended
  by adding Chapter 1154 to read as follows:
         Sec. 1154.001.  SHORT TITLE. This chapter may be cited as
  the Act for the Regulation of Funding Agreements, Guaranteed
  Investment Contracts, and Synthetic Guaranteed Investment
  (a)  The purpose of this chapter is to:
               (1)  promote the public welfare by regulating funding
  agreements, guaranteed investment contracts, and synthetic
  guaranteed investment contracts; and
               (2)  clarify and codify the existing law pertaining to
  funding agreements, guaranteed investment contracts, and synthetic
  guaranteed investment contracts.
         (b)  This chapter shall be liberally construed.
         Sec. 1154.003.  DEFINITIONS. In this chapter:
               (1)  "Annuity contract" means a contract, including a
  funding agreement, guaranteed investment contract, and synthetic
  guaranteed investment contract, issued by a life insurer, with or
  without a mortality or morbidity contingency, under which:
                     (A)  the owner deposits cash or assets in one or
  more installments with the life insurer; and
                     (B)  the owner or a beneficiary designated by the
  owner has a right to receive periodic payments for a specified
  future term.
               (2)  "Funding agreement" means a type of annuity
  contract under which a life insurer:
                     (A)  accepts and accumulates funds, including
  noncash assets; and
                     (B)  makes one or more payments at a future date in
  amounts that are not based on mortality or morbidity contingencies.
               (3)  "Governmental body" means a federal, state,
  municipal, local, or foreign court, tribunal, governmental
  department, commission, board, bureau, agency, authority,
  instrumentality, regulatory body, or quasi-regulatory body.
               (4)  "Group" means a group to which a group life
  insurance policy may be issued under Subchapter B, Chapter 1131.
               (5)  "Group annuity contract" means an annuity contract
  issued to a group and not an individual. 
               (6)  "Guaranteed investment contract" means a type of
  annuity contract issued by a life insurer:
                     (A)  that is a funding vehicle typically issued to
  a retirement plan; and
                     (B)  under which the life insurer accepts a
  deposit or series of deposits from the purchaser and guarantees to
  pay a specified interest rate of return on the funds deposited
  during a specified period. 
               (7)  "Life insurer" means an insurance company
  authorized to engage in the business of life insurance, including
  issuing annuity contracts, in this state.
               (8)  "Synthetic guaranteed investment contract" means
  a group annuity contract or other agreement issued by a life insurer
  that, wholly or partly, establishes the life insurer's obligations
  by reference to a segregated portfolio of assets that the life
  insurer does not own. 
  Chapters 521, 1107, 1115, and 1131 do not apply to funding
  agreements, guaranteed investment contracts, or synthetic
  guaranteed investment contracts without mortality or morbidity
         Sec. 1154.005.  RULES. The commissioner may adopt rules to
  implement or clarify this chapter.
         Sec. 1154.051.  ESTABLISHMENT OF FUNDING AGREEMENTS. (a)  A
  life insurer may issue a funding agreement to generate an income
  stream for the purchaser of the agreement or fund a future liability
  or program of the purchaser or the purchaser's designee.  A life
  insurer may issue a funding agreement to:
               (1)  an accredited investor, as defined by 17 C.F.R.
  Section 230.501;
               (2)  a governmental body; or
               (3)  an institution with assets in excess of $25
         (b)  A life insurer that issues a funding agreement in this
  state engages in the business of insurance for the purpose of
  CONTRACTS. A life insurer may issue a guaranteed investment
  contract to provide a benefit in a fixed amount or a variable amount
  or a fixed amount and a variable amount.
         SECTION 3.  This Act takes effect September 1, 2015.
  ______________________________ ______________________________
     President of the Senate Speaker of the House     
         I hereby certify that S.B. No. 1196 passed the Senate on
  April 30, 2015, by the following vote: Yeas 31, Nays 0; and that
  the Senate concurred in House amendment on May 28, 2015, by the
  following vote: Yeas 31, Nays 0.
  Secretary of the Senate    
         I hereby certify that S.B. No. 1196 passed the House, with
  amendment, on May 22, 2015, by the following vote: Yeas 140,
  Nays 0, two present not voting.
  Chief Clerk of the House