BILL ANALYSIS
H.B. 1243
By: Smithee (Sibley)
Economic Development
05-22-95
Senate Committee Report (Amended)
BACKGROUND
Currently, Texas domiciled insurers are licensed in other states to
conduct the business of insurance. These insurers are primarily
regulated by the State of Texas, however, they must comply with the
insurance laws of the states in which they operate. Historically,
there has been a large disparity in solvency laws from state to
state and due to a significant number of insurance company
insolvencies on a national basis, the State of Texas has developed
a set of minimum solvency standards.
PURPOSE
As proposed, H.B. 1243 provides requirements for certain insurers
and health maintenance organizations concerning financial solvency.
RULEMAKING AUTHORITY
It is the committee's opinion that rulemaking authority is granted
to the commissioner of insurance under SECTION 1 (Art. 1.39(f),
Insurance Code) and to the State Board of Insurance under SECTION
2 (Art. 3.10(a), Insurance Code) of this bill.
SECTION BY SECTION ANALYSIS
SECTION 1. Amends Article 1.39, Insurance Code, by amending
Subsection (b) and adding Subsections (e) and (f), as follows:
(b) Authorizes an insurer to obtain a loan or an advance of
cash, cash equivalents, or other assets that have a readily
determinable value and are satisfactory to the commissioner of
insurance (commissioner), rather than property.
(e) Requires an agreement entered into under Subsection (b) of
this article to be submitted to the commissioner for approval
as to form and content; provided, however, that the
commissioner must give his decision of either approval or
disapproval within 30 days after the written filing by the
insurer, and his failure to so act within such 30 days shall
constitute approval of the transaction. Prohibits an insurer
from assuming a subordinated liability until the commissioner
has approved the agreement under either Section 4, Article
21.49-1, or this article. Sets forth provisions under which an
insurer may not repay principal or pay interest on a
subordinated liability assumed under either Section 4, Article
21.49-1, or this article on or after September 1, 1995.
Provides that a loan, debenture, revenue bond, or advance
agreement issued before September 1, 1995, and any subsequent
payment of interest or repayment of principal are governed by
the law in effect on the date of issuance.
(f) Requires the commissioner to adopt rules as necessary to
implement this article.
SECTION 2. Amends Article 3.10(1), Insurance Code, to include
minimum risk transfer standards, and all or any part of an
insurer's risks or liabilities by reinsurance agreements in
provisions for which the State Board of Insurance may adopt rules.
Requires rules adopted subsequent to September 1, 1995, to apply to
reinsurance agreements entered into on or after the effective date
of such rules, and to reinsurance agreements that are amended on or
after the effective date of such rules. Authorizes a reinsurance
agreement to contain a provision that allows the offset of mutual
debts and credits between a ceding insurer and the assuming
insurer, whether arising out of one or more reinsurance agreements.
SECTION 3. Amends Chapter 3B, Insurance Code, by adding Article
3.27-4, as follows:
Art. 3.27-4. APPLICATION OF CERTAIN SOLVENCY REQUIREMENTS.
Provides that Articles 3.02 and 21.49-8 of this code apply to
an insurance company subject to this subchapter.
SECTION 4. Amends Article 5.75-1(n), Insurance Code, to make
conforming changes.
SECTION 5. Amends Section 2, Article 9.47, Insurance Code, to
include Article 21.49-8, rather than 3.14, in the provisions that
shall apply to and govern certain title insurance companies.
SECTION 6. Amends Section 16.24(b), Insurance Code, to delete
Articles 1.08 and 21.28-B from the provisions that shall apply to
and govern farm mutual insurance companies. Makes a nonsubstantive
change.
SECTION 7. Amends Section 17.22(a), Insurance Code, to make
nonsubstantive and conforming changes.
SECTION 8. Amends Section 18.23(b), Insurance Code, to make
nonsubstantive and conforming changes.
SECTION 9. Amends Section 19.12(b), Insurance Code, to make
nonsubstantive and conforming
changes.
SECTION 10. Amends Section 26(i), Article 20A.26, V.T.I.C.
(Texas Health Maintenance Organization Act) to make a conforming
change.
SECTION 11. Amends Article 21.44, Insurance Code, to provide
that Articles 2.20 and 21.49-8 of this code apply to an insurance
company subject to this article.
SECTION 12. Amends Section 4(c), Article 21.49-1, Insurance
Code, to provide that for purposes of this section an extraordinary
dividend or distribution includes any dividend or distribution of
cash or other property, whose fair market value together with that
of other dividends or distributions made within the preceding 12
months exceeds the greater of 10 percent of such insurer's surplus
as regards policyholders as of the 31st day of December next
preceding, or the net gain from operations of such insurer, if such
insurer is a life or title insurer, or the net income, rather than
the net investment income, if such insurer is not a life or title
insurer, for the 12-month period ending the 31st day of December
next preceding.
SECTION 13. Amends Chapter 21E, Insurance Code, by adding
Article 21.49-8, as follows:
Art. 21.49-8. DISCLOSURE OF MATERIAL TRANSACTIONS REPORT
Sec. 1. APPLICATION; EXEMPTION. (a) Sets forth domestic
insurers and commercially domiciled insurers to which this
article applies.
(b) Provides that a domestic insurer listed under Subsection
(a) of this section that does business only in this state is
exempt from the application of this article until the
insurer obtains authority to conduct the business of
insurance in another state.
Sec. 2. REPORT. (a) Sets forth provisions of a report each
insurer shall file with the commissioner and applicable
conditions.
(b) Requires the report required under Subsection (a) of
this section to be filed no later than 15 days after the
last day of the calendar month in which any of the affected
transactions occur.
(c) Requires the insurer to file one complete copy of the
report with the department.
(d) Provides that a report obtained by or disclosed to the
commissioner under this article is confidential and is not
subject to a subpoena, other than a grand jury subpoena.
Prohibits the report from being disclosed by the
commissioner, the National Association of Insurance
Commissioners, or any other person, except to the insurance
department of another state or another authorized
governmental agency, without the prior consent of the
affected insurer, unless the commissioner determines that
the interest of policy holders, shareholders, or the public
will be served by the publication of the report. Authorizes
the department to disclose a report to the public and to
publish all or any part of the report in any manner
considered appropriate by the commissioner.
Sec. 3. ACQUISITIONS AND DISPOSITIONS OF ASSETS. (a) Provides
that an insurer is not required to report an acquisition or
disposition of assets under Section 2 of this article if the
acquisition or disposition is not material. Sets forth
provisions under which 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.
(b) Provides that an asset acquisition subject to this
article includes each purchase, lease, exchange, merger,
consolidation, succession, or other acquisition, other than
the construction or development of real property by or for
the reporting insurer or the acquisition of materials for
that purpose.
(c) Provides that an asset disposition subject to this
article includes each sale, lease, exchange, merger,
consolidation, mortgage, hypothecation, assignment, whether
for the benefit of creditors or otherwise, abandonment,
destruction, or other disposition.
(d) Sets forth information that must be disclosed in a
report of a material acquisition or disposition of assets.
(e) Requires an insurer to report material acquisitions and
dispositions on a nonconsolidated basis unless the insurer
is part of a consolidated group of insurers that uses a
pooling arrangement or a 100 percent reinsurance agreement
that affects the solvency and integrity of the insurer's
reserves; and ceded substantially all of its direct and
assumed business to the pooling arrangement.
(f) Sets forth provisions under which an insurer is
considered to have ceded substantially all of its direct and
assumed business to a pooling arrangement.
Sec. 4. NONRENEWALS, CANCELLATIONS, OR REVISIONS OF CEDED
INSURANCE. (a) Provides that an insurer is not required to
report a nonrenewal, cancellation, or revision of a ceded
reinsurance agreement under Section 2 of this article if the
nonrenewal, cancellation, or revision is not material. Sets
forth provisions under which a nonrenewal, cancellation, or
revision is material.
(b) Provides that an insurer is not required to report if
the insurer's ceded written premium of the total reserve
credit taken for business ceded represents, less than 10
percent of direct and assumed written premiums; or 10
percent of the statutory reserve requirement before a
cession.
(c) Requires an insurer to report without regard to which
party initiated the nonrenewal, cancellation, or revision of
ceded reinsurance when certain conditions exist.
(d) Requires an insurer to file a report if the result of
the revision affects more than 10 percent of the cession.
(e) Sets forth information to be disclosed in a report of a
material nonrenewal, cancellation, or revision of a ceded
reinsurance agreement.
(f) Requires an insurer to report all material nonrenewals,
cancellations, or revisions of ceded reinsurance agreements
on a nonconsolidated basis unless the insurer meets certain
provisions.
(g) Sets forth provisions under which an insurer is
considered to have ceded all of its direct and assumed
business to a pooling arrangement.
SECTION 14. Amends Chapter 21E, Insurance Code, by adding
Article 21.72, as follows:
Art. 21.72. GENERAL REINSURANCE REQUIREMENTS
Sec. 1. (a) Prohibits an insurance company incorporated under
the laws of another state or the U.S. and authorized to do
business in this state from exposing itself to any loss or
hazard on any one risk in an amount that exceeds 10 percent of
the company's surplus as regards policyholders unless the
excess is reinsured by the company in another solvent insurer.
(b) Prohibits an insurance company incorporated under a
jurisdiction other than that of this state, another state,
or the U.S. and authorized to do business in this state from
exposing itself to any loss or hazard on any one risk in an
amount that exceeds 10 percent of the company's deposit with
the statutory officer in the state through which the company
gains admission to the U.S., together with 10 percent of
other surplus to policyholders of the company's U.S. branch,
unless the excess is reinsured by the company in another
solvent insurer.
Sec. 2. Authorizes an insurance or reinsurance company
authorized to transact insurance or reinsurance in this state
to reinsure the whole or any part of an individual risk in
another solvent insurer.
Sec. 3. Sets forth provisions to which this article does not
apply.
Sec. 4. Requires any reinsurance required or permitted by this
article to comply with Article 5.75-1 of this code.
SECTION 15. Amends Section 1, Article 22.18, Insurance Code, to
delete the provision that Article 3.62 shall apply to and govern
stipulated premium companies.
SECTION 16. Amends Section 23.26(b), Insurance Code, to make
nonsubstantive and conforming changes.
SECTION 17. Amends Article 25.05, Insurance Code, to make
conforming changes.
SECTION 18. (a) Effective date: September 1, 1995.
(b) Requires the commissioner of insurance to adopt rules as
required by the Insurance Code, as amended by this Act, not
later than December 31, 1995.
(c) Provides that Article 21.49-8, Insurance Code, as added by
this Act, takes effect only on certification by the
commissioner that the National Association of Insurance has
provided to the commission, in writing, a total budgetary
disclosure as to the use by that association of the funds
received by that association from states that are members of
the association. Requires the commissioner to issue a finding
regarding the certification and to publish the finding in the
Texas Register.
SECTION 19. Emergency clause.