BILL ANALYSIS H.B. 2793 By: Shields (Wentworth) Economic Development 05-22-95 Senate Committee Report (Unamended) BACKGROUND Currently, the Texas Insurance Holding Company System Regulatory Act provides regulation for the payment of dividends by property and casualty insurers by defining what constitutes an "extraordinary" dividend whose payment is subject to the prior approval of the commissioner of insurance. Additionally, the Holding Company Act establishes specific amounts an insurer may invest in its subsidiaries or affiliates. PURPOSE As proposed, H.B. 2793 provides for the regulation of insurance holding companies. RULEMAKING AUTHORITY It is the committee's opinion that this bill does not grant any additional rulemaking authority to a state officer, institution, or agency. SECTION BY SECTION ANALYSIS SECTION 1. Amends Section 2(b), Article 21.49-1, Insurance Code, to redefine "commercially domiciled insurer" to mean an alien insurer authorized to do business in this state that, during a specified amount of time, has written an average of more gross premiums in this state that it has written in its state of domicile during the same period, with those gross premiums constituting 30, rather than 20, percent or more of its total gross premiums. SECTION 2. Amends Section 4(c)(2), Article 21.49-1, Insurance Code, to provide that 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, rather than net investment, income, if the insurer is not a life or title insurer, for the 12-month period ending the 31st day of December next preceding, but shall not include pro rata distributions of any class of the insurer's own securities. SECTION 3. Amends Section 6(b), Article 21.49-1, Insurance Code, to authorize a domestic insurer to invest in securities of one or more subsidiaries and affiliates amounts which in the aggregate do not exceed the lesser of 10, rather than five, percent of the insurer's assets. In calculating the amount of investments, investments in domestic or foreign insurance subsidiaries are excluded. SECTION 4. Amends Section 6(d), Article 21.49-1, Insurance Code, to provide that whether any investment under Subsection (b) hereof meets the applicable requirements thereof is to be determined before the investment is made by computing the applicable investment limitations as though the investment has already been made, taking into account the principal balance outstanding at the time of the computation on all previous investments in debt obligations and the value of all previous investments in equity securities as of the day the previous investments were made, net of any return of capital invested, not including dividends. Deletes the provision that whether any investment under Subsection (b) hereof meets the applicable requirements thereof is to be determined on a pro forma basis as of the time after such investment is made. SECTION 5. Amends Section 6A(a), Article 21.49-1, Insurance Code, to provide that for financial statement valuation purposes only, and not to determine the amount invested in accordance with Section 6(b)(1) of this article, valuation of an investment by an insurer in a subsidiary or affiliate of an insurer shall be valued on a certain basis. SECTION 6. Amends Section 18, Article 21.49-1, Insurance Code, as follows: Sec. 18. New heading: APPLICABILITY TO FOREIGN AND ALIEN INSURERS. (a) Created from existing text. (b) Provides that a foreign or alien insurer is not subject to the requirements of this article if the commissioner of insurance has approved a withdrawal plan for the insurer under Article 21.49-2C of this code. SECTION 7. Effective date: September 1, 1995. SECTION 8. Emergency clause.