1-1  By:  Smithee (Senate Sponsor - Sibley)                 H.B. No. 774
    1-2        (In the Senate - Received from the House May 8, 1995;
    1-3  May 12, 1995, read first time and referred to Committee on Economic
    1-4  Development; May 23, 1995, reported favorably by the following
    1-5  vote:  Yeas 6, Nays 0; May 23, 1995, sent to printer.)
    1-6                         A BILL TO BE ENTITLED
    1-7                                AN ACT
    1-8  relating to certain technical corrections to the Insurance Code.
    1-9        BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
   1-10        SECTION 1.  Section 8, Article 1.14-2, Insurance Code, is
   1-11  amended by relettering Subsection (d), as added by Section 7.08,
   1-12  Chapter 685, Acts of the 73rd Legislature, Regular Session, 1993,
   1-13  as Subsection (e) and relettering existing Subsections (e)-(l) to
   1-14  read as follows:
   1-15        (e) <(d)>  A surplus lines insurer may be exempt from the
   1-16  minimum capital and surplus requirements of this article if the
   1-17  commissioner finds, after a public hearing, that the applicant for
   1-18  exemption complies with each of the following conditions:
   1-19        1.  the insurer has at least $6 million in capital and
   1-20  surplus;
   1-21        2.  the amount of net risk retained after ceding to a
   1-22  reinsurer is reasonable and does not exceed 10 percent of the
   1-23  capital and surplus of the insurer;
   1-24        3.  the annual ratio of net written premiums to surplus of
   1-25  the insurer does not exceed 2.5 to 1;
   1-26        4.  the reinsurance company of the insurer is rated at least
   1-27  "B+" by the A.M. Best Company;
   1-28        5.  the ownership interest in the insurer of an agent who
   1-29  places insurance with it does not exceed 10 percent;
   1-30        6.  the officers, directors, or managing head have sufficient
   1-31  insurance ability, standing, and good record to render continued
   1-32  success of the company probable;
   1-33        7.  the composition, quality, duration, and liquidity of the
   1-34  insurer's investment portfolio are prudent;
   1-35        8.  the insurer is audited annually by an independent
   1-36  certified public accountant who is in good standing with the
   1-37  American Institute of Certified Public Accountants and is licensed
   1-38  to practice by the Texas State Board of Public Accountancy, and a
   1-39  copy of such audit is filed with the commissioner;
   1-40        9.  the number and type of complaints are not excessive
   1-41  relative to the number of insurance policies written; and
   1-42        10.  the insurer is acting in good faith in applying for an
   1-43  exemption.
   1-44        The commissioner may continue the exemption in force on an
   1-45  annual basis upon the filing of a certificate by the insurer that
   1-46  the above conditions remain true and correct.  The commissioner may
   1-47  hold a public hearing, however, at any time to determine that the
   1-48  continued exemption is warranted.  The commissioner may waive any
   1-49  of the above 10 conditions if in her or his judgment the
   1-50  policyholders of the insurer would not be adversely affected
   1-51  thereby.
   1-52        (f) <(e)>  Instead of the minimum capital and surplus
   1-53  requirements provided by this section, a group of insurers, which
   1-54  group includes unincorporated individual insurers, may maintain a
   1-55  trust fund in an amount not less than $50 million as security to
   1-56  the full amount of the trust fund for all policyholders and
   1-57  creditors in the United States of each member of the group.  Except
   1-58  as specifically otherwise provided by this subsection, the trust
   1-59  fund must comply with the terms and conditions provided by
   1-60  Subsection (d) of this section for the trust fund required by that
   1-61  subsection.
   1-62        (g) <(f)>  Every insurer proposing to transact surplus lines
   1-63  insurance within this state shall hold a current license or
   1-64  authority from its domiciliary state or country to conduct the
   1-65  business of insurance.  The license or authority from the
   1-66  domiciliary state or country must be for the kind or class of
   1-67  insurance to be written in this state as surplus lines insurance,
   1-68  and satisfactory evidence that the insurer holds the required
    2-1  license or authorization must be provided to the Commissioner of
    2-2  Insurance.
    2-3        (h) <(g)>  The insurer must be of good repute and provide
    2-4  reasonably prompt service to its policyholders in the payment of
    2-5  just losses and claims.
    2-6        (i) <(h)>  No insurer shall be eligible if the management is
    2-7  incompetent or untrustworthy, or so lacking in insurance company
    2-8  managerial experience as to make its proposed operation hazardous
    2-9  to the insurance-buying public; or if the State Board of Insurance
   2-10  has good reason to believe that it is affiliated directly or
   2-11  indirectly through ownership, control, reinsurance transactions or
   2-12  other insurance or business relations, with any person whose
   2-13  business operations are or have been detrimental to policyholders,
   2-14  stockholders, investors, creditors or to the public.
   2-15        (j) <i>  No insurer shall be eligible if the insurer or its
   2-16  agents have failed to submit to any fine or penalty levied pursuant
   2-17  to statute.  No insurer shall be eligible if the insurer is
   2-18  obligated to pay and has failed to pay premium taxes in the state.
   2-19  The State Board of Insurance may order revocation of insurance
   2-20  contracts issued by insurers that do not conform with the
   2-21  eligibility requirements of this section.
   2-22        (k) <(j)>  No new or renewal surplus lines insurance shall be
   2-23  placed with any eligible surplus lines insurer which requires as a
   2-24  condition precedent to writing such new or renewal insurance that
   2-25  the prospective insured or the insured place other insurance not
   2-26  procurable as surplus lines insurance with such eligible surplus
   2-27  lines insurer.
   2-28        (l) <(k)>  This section shall not be deemed to cast upon the
   2-29  State Board of Insurance any duty or responsibility to determine
   2-30  the actual financial condition or claims practice of any unlicensed
   2-31  insurer or any unauthorized insurer as defined in Article 1.14-1 of
   2-32  this code.
   2-33        (m) <(l)>  An insurer is not an eligible surplus lines
   2-34  insurer unless it is authorized to write the same coverage in the
   2-35  jurisdiction in which the insurer is licensed or certificated to do
   2-36  business.
   2-37        SECTION 2.  Article 5.15B(b), Insurance Code, is amended to
   2-38  read as follows:
   2-39        (b)  Information provided with an application under
   2-40  Subsection (c) <Section (d)>, Article 5.15, of this code is exempt
   2-41  from the disclosure requirements of this article.
   2-42        SECTION 3.  Article 9.16(2), Insurance Code, is amended to
   2-43  read as follows:
   2-44              (2)  Such reserve shall be cumulative and shall be
   2-45  established and shall consist of the following:
   2-46                    (a)  The reserve which has been established
   2-47  pursuant to Article 9.12 of this code <9.11 of the Insurance Code>;
   2-48  and
   2-49                    (b)  Each insurer which has accumulated the
   2-50  maximum unearned premium reserve of One Hundred Thousand Dollars
   2-51  ($100,000) required by Article 9.12 of this code <9.11 of  the
   2-52  Insurance Code> shall reserve a sum equal to three (3%) percent of
   2-53  the premiums charged for title insurance contracts; and
   2-54                    (c)  Each insurer which has not accumulated the
   2-55  maximum unearned premium reserve of One Hundred Thousand Dollars
   2-56  ($100,000) required by Article 9.12 of this code <9.11 of the
   2-57  Insurance Code> shall reserve a sum equal to five (5%) percent of
   2-58  the premiums charged for title insurance contracts until the
   2-59  unearned premium reserve shall have reached a total of One Hundred
   2-60  Thousand Dollars ($100,000) and thereafter such insurer shall
   2-61  reserve a sum equal to three (3%) percent of the premium charged
   2-62  for title insurance contracts; and
   2-63                    (d)  Each domestic insurer shall reserve a sum
   2-64  equal to ten (10%) percent of the risk rate charged for title
   2-65  insurance contracts on property outside the State of Texas.  This
   2-66  requirement shall be cumulative of, and not in addition to, the
   2-67  reserve requirement that might be imposed upon such insurer in such
   2-68  other state or states.
   2-69        SECTION 4.  Section 6(c), Article 9.48, Insurance Code, is
   2-70  amended to read as follows:
    3-1        (c)  Funds derived from guaranty fees shall be authorized
    3-2  only for the payment of the following:
    3-3              (1)  "covered claims" as defined by Subparagraph (iv)
    3-4  of Paragraph A and Paragraphs C and D of Subsection (2), Section 5
    3-5  of this article; and
    3-6              (2)  audit expenses as provided by Paragraph (13)
    3-7  <(8)>, Subsection (c), Section 14 of this article.
    3-8        SECTION 5.  The heading of Section 4A, Article 21.07,
    3-9  Insurance Code, is amended to read as follows:
   3-10        Sec. 4A.  Examination of Applicant for License to Write Life
   3-11  Insurance Upon Any One Life in Excess of $7,500 <$5,000.00>.
   3-12        SECTION 6.  Section 9, Article 3.75, Insurance Code, is
   3-13  amended to read as follows:
   3-14        Sec. 9.  APPLICATION OF CODE.  (a)  This code applies to
   3-15  separate accounts and contracts relating to separate accounts
   3-16  except for Subdivisions 2, 6, 7, 8, 9, 11, and 12, Article 3.44, as
   3-17  amended; Article 3.44a, as amended; Subdivision 3, Article 3.45;
   3-18  Subdivision 1, Section 2, Article 3.50, as amended; Article 11.12,
   3-19  as amended; Article 11.13; and Article 11.14, Insurance Code.
   3-20        (b)  Notwithstanding any other law, or any other provision of
   3-21  this article, after the effective date of the repeal of Articles
   3-22  3.39 Part III, 3.72, and 3.73, Insurance Code, all separate
   3-23  accounts established under such articles are deemed and shall be
   3-24  construed to be established under Article 3.75; provided any
   3-25  policy, contract, or agreement issued before such repeal in
   3-26  accordance with the provisions of such articles, shall be construed
   3-27  under and continue to be subject to all provisions of the
   3-28  applicable article under which they were issued, as amended and in
   3-29  effect at the time of such repeal.
   3-30        SECTION 7.  The importance of this legislation and the
   3-31  crowded condition of the calendars in both houses create an
   3-32  emergency and an imperative public necessity that the
   3-33  constitutional rule requiring bills to be read on three several
   3-34  days in each house be suspended, and this rule is hereby suspended,
   3-35  and that this Act take effect and be in force from and after its
   3-36  passage, and it is so enacted.
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