By: Harris of Dallas S.B. No. 1134
A BILL TO BE ENTITLED
AN ACT
1-1 relating to an amendment to the Texas Insurance Code including
1-2 Article 3.33 concerning the investments of insurers including the
1-3 treatment of money market funds.
1-4 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-5 SECTION 1. Section 4, Article 3.33, Insurance Code, is
1-6 amended to read as follows:
1-7 Sec. 4. Subject to the limitations and restrictions herein
1-8 contained, the investments and loans described in the following
1-9 subsections, and none other, are authorized for the insurers
1-10 subject hereto:
1-11 (a) United States Government Bonds. Bonds, evidences of
1-12 indebtedness or obligations of the United States of America, or
1-13 bonds, evidences of indebtedness or obligations guaranteed as to
1-14 principal and interest by the full faith and credit of the United
1-15 States of America, and bonds, evidences of indebtedness, or
1-16 obligations of agencies and instrumentalities of the government of
1-17 the United States of America;
1-18 (b) Other Governmental Bonds. Bonds, evidences of
1-19 indebtedness or obligations of governmental units in the United
1-20 States, Canada, or any province or city of Canada, and of the
1-21 instrumentalities of such governmental units; provided:
1-22 (1) such governmental unit or instrumentality is not
1-23 in default in the payment of principal or interest in any of its
2-1 obligations; and
2-2 (2) investments in the obligations of any one
2-3 governmental unit or instrumentality may not exceed 20 percent of
2-4 the insurer's capital and surplus;
2-5 (c) Corporate Bonds. Bonds, evidences of indebtedness or
2-6 obligations of corporations organized under the laws of the United
2-7 States of America or its states or Canada or any state, district,
2-8 province, or territory of Canada; provided:
2-9 (1) any such corporation must be solvent with at least
2-10 $1,000,000 of net worth as of the date of its latest annual or more
2-11 recent certified audited financial statement or will have at least
2-12 $1,000,000 of net worth after completion of a securities offering
2-13 which is being subscribed to by the insurer, or the obligation is
2-14 guaranteed as to principal and interest by a solvent corporation
2-15 meeting such net worth requirements which is organized under the
2-16 laws of the United States of America or one of its states or Canada
2-17 or any state, district, province, or territory of Canada;
2-18 (2) investments in the obligations of any one
2-19 corporation may not exceed 20 percent of the insurer's capital and
2-20 surplus; and
2-21 (3) the aggregate of all investments under this
2-22 subsection may not exceed:
2-23 (A) one hundred percent of the insurer's assets
2-24 (excluding, however, those assets representing the minimum capital
2-25 required for the insurer), but only if more than 75 percent of the
3-1 total amount invested by the insurer in such bonds, evidences of
3-2 indebtedness, or obligations of any such corporations qualifying
3-3 under Subdivision (1) of this subsection are rated either: (i) AA
3-4 or better by Standard and Poor's Bond Ratings service; or (ii) Aa
3-5 or better by Moody's Bond Ratings service; or
3-6 (B) eighty percent of the insurer's assets
3-7 (excluding, however, those assets representing the minimum capital
3-8 required for the insurer), but only if more than 50 percent of the
3-9 total amount invested by the insurer in such bonds, evidences of
3-10 indebtedness or obligations of any such corporations qualifying
3-11 under Subdivision (1) of this subsection are rated either: (i) BBB
3-12 or better by Standard and Poor's Bond Ratings service; or (ii) Baa
3-13 or better by Moody's Bond Ratings service; or
3-14 (C) fifty percent of the insurer's assets;
3-15 (d) International Market. Bonds issued, assumed, or
3-16 guaranteed by the Interamerican Development Bank, the International
3-17 Bank for Reconstruction and Development (the World Bank), the Asian
3-18 Development Bank, the State of Israel, the African Development
3-19 Bank, and the International Finance Corporation; provided:
3-20 (1) investments in the bonds of any one of the
3-21 entities specified above may not exceed 20 percent of the insurer's
3-22 capital and surplus; and
3-23 (2) the aggregate of all investments made under this
3-24 subsection may not exceed 20 percent of the insurer's assets;
3-25 (e) Policy Loans. Loans upon the security of the insurer's
4-1 own policies not in excess of the amount of the reserve values
4-2 thereof;
4-3 (f) Time and Savings Deposits. Any type or form of savings
4-4 deposits, time deposits, certificates of deposit, NOW accounts, and
4-5 money market accounts in solvent banks, savings and loan
4-6 associations, and credit unions and branches thereof, organized
4-7 under the laws of the United States of America or its states, when
4-8 made in accordance with the laws or regulations applicable to such
4-9 entities; provided the amount of the deposits in any one bank,
4-10 savings and loan association, or credit union will not exceed the
4-11 greater of:
4-12 (1) twenty percent of the insurer's capital and
4-13 surplus;
4-14 (2) the amount of federal or state deposit insurance
4-15 coverage pertaining to such deposit; or
4-16 (3) ten percent of the amount of capital, surplus, and
4-17 undivided profits of the entity receiving such deposits;
4-18 (g) Equipment Trusts. Equipment trust obligations or
4-19 certificates; provided:
4-20 (1) any such obligation or certificate is secured by
4-21 an interest in transportation equipment that is in whole or in part
4-22 within the United States of America and the amount of the
4-23 obligation or certificate may not exceed 90 percent of the value of
4-24 the equipment;
4-25 (2) the obligation or certificate provides a right to
5-1 receive determined portions of rental, purchase, or other fixed
5-2 obligatory payments for the use or purchase of the transportation
5-3 equipment;
5-4 (3) investment in any one equipment trust obligation
5-5 or certificate may not exceed 10 percent of the insurer's capital
5-6 and surplus; and
5-7 (4) the aggregate of all investments made under this
5-8 subsection may not exceed 10 percent of the insurer's assets;
5-9 (h) Common Stock. Common stock of any corporation organized
5-10 under the laws of the United States of America or any of its
5-11 states, shares of mutual funds doing business under the Investment
5-12 Company Act of 1940 (15 U.S.C. Section 80a-1 et seq.), other than
5-13 money market funds as defined in Subsection (s), and shares in real
5-14 estate investment trusts as defined in the Internal Revenue Code of
5-15 1954 (26 U.S.C. Section 856); provided:
5-16 (1) any such corporation, other than a mutual fund,
5-17 must be solvent with at least $1,000,000 net worth as of the date
5-18 of its latest annual or more recent certified audited financial
5-19 statement or will have at least $1,000,000 of net worth after
5-20 completion of a securities offering which is being subscribed to by
5-21 the insurer;
5-22 (2) mutual funds, other than money market funds as
5-23 defined in Subsection (s), and real estate investment trusts must
5-24 be solvent with at least $1,000,000 of net assets as of the date of
5-25 its latest annual or more recent certified audited financial
6-1 statement;
6-2 (3) investments in any one corporation, mutual fund,
6-3 other than a money market fund as described in Subsection (s), or
6-4 real estate investment trust may not exceed 10 percent of the
6-5 insurer's capital and surplus; and
6-6 (4) the aggregate of all investments made under this
6-7 subsection may not exceed 20 percent of the insurer's assets;
6-8 (i) Preferred Stock. Preferred stock of corporations
6-9 organized under the laws of the United States of America or any of
6-10 its states; provided:
6-11 (1) such corporation must be solvent with at least
6-12 $1,000,000 of net worth as of the date of its latest annual or more
6-13 recent certified audited financial statement or will have at least
6-14 $1,000,000 of net worth after completion of a security offering
6-15 which is being subscribed to by the insurer;
6-16 (2) investments in the preferred stock of any one
6-17 corporation will not exceed 20 percent of the insurer's capital and
6-18 surplus;
6-19 (3) in the aggregate not more than 10 percent of the
6-20 insurer's assets may be invested in preferred stock, the redemption
6-21 and retirement of which is not provided for by a sinking fund
6-22 meeting the standards established by the National Association of
6-23 Insurance Commissioners to value the preferred stock at cost; and
6-24 (4) the aggregate of all investments made under this
6-25 subsection may not exceed 40 percent of the insurer's assets;
7-1 (j) Collateral Loans. Collateral loans secured by a first
7-2 lien upon or a valid and perfected first security interest in an
7-3 asset; provided:
7-4 (1) the amount of any such collateral loan will not
7-5 exceed 80 percent of the value of the collateral asset at any time
7-6 during the duration of the loan; and
7-7 (2) the asset used as collateral would be authorized
7-8 for direct investment by the insurer under other provisions of this
7-9 Section 4, except real property in Subsection (l);
7-10 (k) Real Estate Loans. Notes, evidences of indebtedness, or
7-11 participations therein secured by a valid first lien upon real
7-12 property or leasehold estate therein located in the United States
7-13 of America; provided:
7-14 (1) the amount of any such obligation secured by a
7-15 first lien upon real property or leasehold estate therein shall not
7-16 exceed 90 percent of the value of such real property or leasehold
7-17 estate therein, but the amount of such obligation:
7-18 (A) may exceed 90 percent but shall not exceed
7-19 100 percent of the value of such real property or leasehold estate
7-20 therein if the insurer or one or more wholly owned subsidiaries of
7-21 the insurer owns in the aggregate a 10 percent or greater equity
7-22 interest in such real property or leasehold estate therein;
7-23 (B) may be 95 percent of the value of such real
7-24 property or leasehold estate therein if it contains only a dwelling
7-25 designed exclusively for occupancy by not more than four families
8-1 for residential purposes, and the portion of the unpaid balance of
8-2 such obligation which is in excess of an amount equal to 90 percent
8-3 of such value is guaranteed or insured by a mortgage insurance
8-4 company qualified to do business in the State of Texas; or
8-5 (C) may be greater than 90 percent of the value
8-6 of such real property or leasehold estate therein to the extent the
8-7 obligation is insured or guaranteed by the United States of
8-8 America, the Federal Housing Administration pursuant to the
8-9 National Housing Act of 1934, as amended (12 U.S.C. Section 1701 et
8-10 seq.), or the State of Texas; and
8-11 (2) the term of an obligation secured by a first lien
8-12 upon a leasehold estate in real property shall not exceed a period
8-13 equal to four-fifths of the then unexpired term of such leasehold
8-14 estate; provided the unexpired term of the leasehold estate may
8-15 extend at least 10 years beyond the term of the obligation, and
8-16 each obligation shall be payable in an installment or installments
8-17 of sufficient amount or amounts so that at any time after the
8-18 expiration of two-thirds of the original loan term, the principal
8-19 balance will be no greater than the principal balance would have
8-20 been if the loan had been amortized over the original loan term in
8-21 equal monthly, quarterly, semiannual, or annual payments of
8-22 principal and interest, it being required that under any method of
8-23 repayment such obligations will fully amortize during a period of
8-24 time not exceeding four-fifths of the then unexpired term of the
8-25 security leasehold estate; and
9-1 (3) if any part of the value of buildings is to be
9-2 included in the value of such real property or leasehold estate
9-3 therein to secure the obligations provided for in this subsection,
9-4 such buildings shall be covered by adequate property insurance,
9-5 including but not limited to fire and extended coverage insurance
9-6 issued by a company authorized to transact business in the State of
9-7 Texas or by a company recognized as acceptable for such purpose by
9-8 the insurance regulatory official of the state in which such real
9-9 estate is located, and the amount of insurance granted in the
9-10 policy or policies shall be not less than the unpaid balance of the
9-11 obligation or the insurable value of such buildings, whichever is
9-12 the lesser; the loss clause shall be payable to the insurer as its
9-13 interest may appear; and
9-14 (4) to the extent any note, evidence of indebtedness,
9-15 or participation therein under this subsection represents an equity
9-16 interest in the underlying real property, the value of such equity
9-17 interest shall be determined at the time of execution of such note,
9-18 evidence of indebtedness, or participation therein and that portion
9-19 shall be designated as an investment subject to the provisions of
9-20 Subsection (l)(2) of this section; and
9-21 (5) the amount of any one such obligation may not
9-22 exceed 25 percent of the insurer's capital and surplus;
9-23 (l) Real Estate. Real property fee simple or leasehold
9-24 estates located within the United States of America, as follows:
9-25 (1) home and branch office real property or
10-1 participations therein, which must be materially enhanced in value
10-2 by the construction of durable, permanent-type buildings and other
10-3 improvements costing an amount at least equal to the cost of such
10-4 real property, exclusive of buildings and improvements at the time
10-5 of acquisition, or by the construction of such buildings and
10-6 improvements which must be commenced within two years of the date
10-7 of the acquisition of such real property; provided:
10-8 (A) at least 30 percent of the available space
10-9 in such building shall be occupied for the business purposes of the
10-10 insurer and its affiliates; and
10-11 (B) the aggregate investment in such home and
10-12 branch offices shall not exceed 20 percent of the insurer's assets;
10-13 and
10-14 (2) other investment property or participations
10-15 therein, which must be materially enhanced in value by the
10-16 construction of durable, permanent-type buildings and other
10-17 improvements costing an amount at least equal to the cost of such
10-18 real property, exclusive of buildings and improvements at the time
10-19 of acquisition, or by the construction of such buildings and
10-20 improvements which must be commenced within two years of the date
10-21 of acquisition of such real property; provided that such investment
10-22 in any one piece of property or interest therein, including the
10-23 improvements, fixtures, and equipment pertaining thereto may not
10-24 exceed five percent of the insurer's assets; provided, however,
10-25 nothing in this article shall allow ownership of, development of,
11-1 or equity interest in any residential property or subdivision,
11-2 single or multiunit family dwelling property, or undeveloped real
11-3 estate for the purpose of subdivision for or development of
11-4 residential, single, or multiunit family dwellings, except
11-5 acquisitions as provided in Subdivision (4) below, and such
11-6 ownership, development, or equity interests shall be specifically
11-7 prohibited;
11-8 (3) the admissible asset value of each such investment
11-9 in the properties acquired under Subdivisions (1) and (2) of this
11-10 subsection shall be subject to review and approval by the
11-11 Commissioner of Insurance. The commissioner shall have discretion
11-12 at the time such investment is made or any time when an examination
11-13 of the company is being made to cause any such investment to be
11-14 appraised by an appraiser, appointed by the commissioner, and the
11-15 reasonable expense of such appraisal shall be paid by such
11-16 insurance company and shall be deemed to be a part of the expense
11-17 of examination of such company; if the appraisal is made upon
11-18 application of the company, the expense of such appraisal shall not
11-19 be considered a part of the expense of examination of such company;
11-20 no insurance company may hereafter make any write-up in the
11-21 valuation of any of the properties described in Subdivision (1) or
11-22 (2) of this subsection unless and until it makes application
11-23 therefor and such increase in valuation shall be approved by the
11-24 commissioner; and
11-25 (4) other real property acquired:
12-1 (A) in good faith by way of security for loans
12-2 previously contracted or money due; or
12-3 (B) in satisfaction of debts previously
12-4 contracted for in the course of its dealings; or
12-5 (C) by purchase at sales under judgment or
12-6 decrees of court, or mortgage or other lien held by such insurer;
12-7 and
12-8 (5) regardless of the mode of acquisition specified
12-9 herein, upon sale of any such real property, the fee title to the
12-10 mineral estate or any portion thereof may be retained by the
12-11 insurance company indefinitely;
12-12 (m) Oil, Gas, and Minerals. In addition to and without
12-13 limitation on the purposes for which real property may be acquired,
12-14 secured, held, or retained pursuant to other provisions of this
12-15 section, every such insurance company may secure, hold, retain, and
12-16 convey production payments, producing royalties and producing
12-17 overriding royalties, or participations therein as an investment
12-18 for the production of income; provided:
12-19 (1) in no event may such company carry such assets in
12-20 an amount in excess of 90 percent of the appraised value thereof;
12-21 and
12-22 (2) no one investment under this subsection may exceed
12-23 10 percent of the insurer's capital and surplus in excess of
12-24 statutory minimum capital and surplus applicable to that insurer,
12-25 and the aggregate of all such investments may not exceed 10 percent
13-1 of the insurer's assets as of December 31st next preceding the date
13-2 of such investment; and
13-3 (3) for the purposes of this subsection, the following
13-4 definitions apply:
13-5 (A) a production payment is defined to mean a
13-6 right to oil, gas, or other minerals in place or as produced that
13-7 entitles its owner to a specified fraction of production until a
13-8 specified sum of money, or a specified number of units of oil, gas,
13-9 or other minerals, has been received;
13-10 (B) a royalty and an overriding royalty are each
13-11 defined to mean a right to oil, gas, and other minerals in place or
13-12 as produced that entitles the owner to a specified fraction of
13-13 production without limitation to a specified sum of money or a
13-14 specified number of units of oil, gas, or other minerals;
13-15 (C) "producing" is defined to mean producing
13-16 oil, gas, or other minerals in paying quantities, provided that it
13-17 shall be deemed that oil, gas, or other minerals are being produced
13-18 in paying quantities if a well has been "shut in" and "shut-in
13-19 royalties" are being paid;
13-20 (n) Foreign Countries and United States Territories.
13-21 Investments in foreign countries or in commonwealths, territories,
13-22 or possessions of the United States where the insurer conducts an
13-23 insurance business; provided:
13-24 (1) such investments are similar to those authorized
13-25 for investment within the United States of America by other
14-1 provisions of this section; and
14-2 (2) such investments when added to the amount of
14-3 similar investments made within the United States do not result in
14-4 the combined total of such investments exceeding the limitations
14-5 specified in Subsections (a) through (p) of this section; and
14-6 (3) such investments may not exceed the amount of
14-7 reserves attributable to the business in force in said countries;
14-8 provided, however, such investments may exceed such reserves to the
14-9 extent required by any country as a condition to doing business
14-10 therein, but to the extent such investments exceed such reserves
14-11 said investments shall not be considered as admitted assets of the
14-12 insurer;
14-13 (o) Investments Not Otherwise Specified. Investments which
14-14 are not otherwise authorized by this article and which are not
14-15 specifically prohibited by statute, including that portion of any
14-16 investments which may exceed the limits specified in Subsections
14-17 (a) through (n) of this section; provided:
14-18 (1) if any aggregate or individual specified
14-19 investment limitation in Subsections (a) through (n) of this
14-20 section is exceeded, then the excess portion of such investment
14-21 shall be an investment under this subsection; and
14-22 (2) the burden of establishing the value of such
14-23 investments shall be upon the insurer; and
14-24 (3) the amount of any one such investment may not
14-25 exceed 10 percent of the insurer's capital and surplus in excess of
15-1 the statutory minimum capital and surplus applicable to that
15-2 insurer; and
15-3 (4) the aggregate of all investments made under this
15-4 subsection may not exceed the lesser of either five percent of the
15-5 insurer's assets or the insurer's capital and surplus applicable to
15-6 that insurer;
15-7 (p) Other Authorized Investments. Those other investments
15-8 as follows:
15-9 (1) any investment held by an insurer on the effective
15-10 date of this Act, which was legally authorized at the time it was
15-11 made or acquired or which the insurer was authorized to hold or
15-12 possess immediately prior to such effective date, but which does
15-13 not conform to the requirements of the investments authorized in
15-14 Subsections (a) through (o) of this section, may continue to be
15-15 held by and considered as an admitted asset of the insurer;
15-16 provided the investment is disposed of at its maturity date, if
15-17 any, or within the time prescribed by the law under which it was
15-18 acquired, if any; and provided further, in no event shall the
15-19 provisions of the subdivision alter the legal or accounting status
15-20 of such asset; and
15-21 (2) any other investment which may be authorized by
15-22 other provisions of this code or by other laws of this state for
15-23 the insurers which are subject to this article.
15-24 (q) Special Limitations for Certain Fixed Annuity Insurers.
15-25 The quantitative limitations imposed above in Subsections (b)(2),
16-1 (c)(2), (f)(1), (g)(3), (h)(3), (i)(2), and (k)(5) of this section
16-2 shall not apply to any insurer with assets in excess of
16-3 $2,500,000,000 and that receives more than 90 percent of its
16-4 premium income from fixed rate annuity contracts and that has more
16-5 than 90 percent of its assets allocated to its reserves held for
16-6 fixed rate annuity contracts, excluding, however, any premium
16-7 income, assets, and reserves received from, held for, or allocated
16-8 to separate accounts from the computation of the above percentages,
16-9 and in lieu thereof, the following quantitative limitations shall
16-10 apply to such insurers:
16-11 (1) the limitation in Subsection (b)(2) of this
16-12 section shall be two percent of the insurer's assets;
16-13 (2) the limitation in Subsection (c)(2) of this
16-14 section shall be two percent of the insurer's assets;
16-15 (3) the limitation in Subsection (f)(1) of this
16-16 section shall be two percent of the insurer's assets;
16-17 (4) the limitation in Subsection (g)(3) of this
16-18 section shall be one percent of the insurer's assets;
16-19 (5) the limitation in Subsection (h)(3) of this
16-20 section shall be one percent of the insurer's assets;
16-21 (6) the limitation in Subsection (i)(2) of this
16-22 section shall be two percent of the insurer's assets; and
16-23 (7) the limitation in Subsection (k)(5) of this
16-24 section shall be two percent of the insurer's assets.
16-25 (r) Premium Loans. Loans to finance the payment of premiums
17-1 for the insurer's own insurance policies or annuity contracts;
17-2 provided that the amount of any such loan does not exceed the sum
17-3 of: (i) the available cash value of such insurance policy or
17-4 annuity contract; and (ii) the amount of any escrowed commissions
17-5 payable relating to such insurance policy or annuity contract for
17-6 which the premium loan is made.
17-7 (s) Money market funds are those defined by 17 CFR 270.2a-7
17-8 under the Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.)
17-9 and further which meet the following conditions:
17-10 (1) such funds shall invest 100% of its total assets
17-11 in U.S. treasury bills, notes, and bonds and collateralized
17-12 repurchase agreements comprised of those obligations at all times;
17-13 or
17-14 (2) such funds shall invest 100% of its total assets
17-15 in other full faith and credit instruments of the United States
17-16 government; or
17-17 (3) such funds shall invest at least 95% of its total
17-18 assets in exempt securities short-term debt instruments with a
17-19 maturity of 397 days or less, class and bonds, and collateralized
17-20 repurchase agreements comprised of those securities at all times.
17-21 For purposes of complying with subsection (h) herein, funds
17-22 qualifying for listing within these categories must conform to the
17-23 Purpose and Procedures Manual of the Valuation of Securities Manual
17-24 of the National Association of Insurance Commissioners.
17-25 SECTION 2. This Act takes effect September 1, 1993.
18-1 SECTION 3. The importance of this legislation and the
18-2 crowded condition of the calendars in both houses create an
18-3 emergency and an imperative public necessity that the
18-4 constitutional rule requiring bills to be read on three several
18-5 days in each house be suspended, and this rule is hereby suspended.