By Smithee H.B. No. 1243
Substitute the following for H.B. No. 1243:
By Smithee C.S.H.B. No. 1243
A BILL TO BE ENTITLED
1-1 AN ACT
1-2 relating to financial solvency requirements for certain insurers
1-3 and health maintenance organizations.
1-4 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-5 SECTION 1. Article 1.39, Insurance Code, is amended by
1-6 amending Subsection (b) and adding Subsections (e) and (f) to read
1-7 as follows:
1-8 (b) An insurer may obtain a loan or an advance of cash, cash
1-9 equivalents, or other assets that have a readily determinable value
1-10 and are satisfactory to the commissioner <or property>, repayable
1-11 with interest, and may assume a subordinated liability for
1-12 repayment of the advance and payment of interest on the advance if
1-13 the insurer and creditor execute a written agreement stating that
1-14 the creditor may be paid only out of that portion of the insurer's
1-15 surplus that exceeds the greater of a minimum surplus stated and
1-16 fixed in the agreement or a minimum surplus of $500,000 for that
1-17 insurer. The department or the commissioner may not require the
1-18 agreement to provide another minimum surplus amount.
1-19 (e) An agreement entered into under Subsection (b) of this
1-20 article must be submitted to the commissioner for approval as to
1-21 form and content. An insurer may not assume a subordinated
1-22 liability until the commissioner has approved the agreement. An
1-23 insurer may not repay principal or pay interest on a subordinated
1-24 liability assumed under this article on or after September 1, 1995,
2-1 unless notice of the payment or repayment is provided to the
2-2 commissioner at least 15 days before the date scheduled for the
2-3 payment or repayment. A loan, debenture, revenue bond, or advance
2-4 agreement issued before September 1, 1995, and any subsequent
2-5 payment of interest or repayment of principal are governed by the
2-6 law in effect on the date of issuance.
2-7 (f) The commissioner shall adopt rules as necessary to
2-8 implement this article.
2-9 SECTION 2. Article 2.02, Insurance Code, is amended to read
2-10 as follows:
2-11 Art. 2.02. Articles of Incorporation. (a) Such Articles of
2-12 Incorporation shall contain:
2-13 1. The name of the company; the name selected may not
2-14 be so similar to the name of any other insurance company as to be
2-15 likely to mislead the public;
2-16 2. The locality of the principal business office of
2-17 such company;
2-18 3. The kind of insurance business in which the company
2-19 proposes to engage; for the purposes of determining the amount of
2-20 capital and surplus required under this Code of a capital stock
2-21 company, or the amount of surplus required of a mutual company,
2-22 reciprocal exchange, or the amount of guaranty fund and surplus
2-23 required of a Lloyds, full coverage automobile insurance shall be
2-24 construed as one line of casualty insurance;
2-25 4. The amount of its capital stock and its surplus,
2-26 which shall in no case be less than $1 million capital and $1
2-27 million surplus.
3-1 (b) <The board may adopt rules, regulations, and guidelines,
3-2 from time to time, requiring any company incorporated under this
3-3 article, and any alien or foreign insurer admitted in this state to
3-4 do the types of business authorized by this Chapter, to maintain
3-5 capital and surplus levels in excess of the statutory levels
3-6 required by this article based upon any of the following factors:>
3-7 <1. the nature and type of risks a company underwrites
3-8 or reinsures;>
3-9 <2. the premium volume of risks a company underwrites
3-10 or reinsures;>
3-11 <3. the composition, quality, duration, or liquidity
3-12 of a company's investment portfolio;>
3-13 <4. fluctuations in the market value of securities a
3-14 company holds; or>
3-15 <5. the adequacy of a company's reserves.>
3-16 <The rules and regulations adopted under this subsection
3-17 shall be designed to assure the financial solvency of companies for
3-18 the protection of policyholders.>
3-19 <(c) The commissioner may order an insurer subject to the
3-20 capital and surplus requirements of either this article or of
3-21 Article 2.20 of this code that fails to comply with such article to
3-22 cease writing new business, and the commissioner may also:>
3-23 <1. place the insurer under state supervision or
3-24 conservatorship;>
3-25 <2. determine the insurer to be in a hazardous
3-26 condition as provided by Article 1.32 of this code;>
3-27 <3. determine the insurer to be impaired as provided
4-1 by Section 5 of Article 1.10 of this code; or>
4-2 <4. make the insurer subject to any other applicable
4-3 sanctions provided by this code.>
4-4 <(d)> At the time of incorporation all of said capital and
4-5 surplus shall be in cash.
4-6 SECTION 3. Articles 2.20(d) and (f), Insurance Code, are
4-7 amended to read as follows:
4-8 (d) The commissioner <board> may adopt rules, regulations,
4-9 and guidelines, from time to time, that require <requiring> any
4-10 company subject to this article to maintain capital and surplus
4-11 levels in excess of the minimums required by Article 2.02 of this
4-12 code for a newly incorporated company and in excess of the levels
4-13 required in the schedule established under Subsection (c) of this
4-14 article, consistent with the risk-based capital requirements
4-15 imposed under Article 21.29 of this code. This article and Article
4-16 21.29 of this code apply to the following insurers authorized to
4-17 engage in the business of insurance in this state:
4-18 (1) a mutual company, other than a life company;
4-19 (2) a Lloyd's plan company;
4-20 (3) a reciprocal or interinsurance exchange; and
4-21 (4) a risk retention group chartered in this state
4-22 <based upon any of the following factors:>
4-23 <(1) the nature and type of risks a company
4-24 underwrites or reinsures;>
4-25 <(2) the premium volume of risks a company underwrites
4-26 or reinsures;>
4-27 <(3) the composition, quality, duration, or liquidity
5-1 of a company's investment portfolio;>
5-2 <(4) fluctuations in the market value of securities a
5-3 company holds; or>
5-4 <(5) the adequacy of a company's reserves.>
5-5 <The rules adopted under this subsection shall be designed to
5-6 assure the financial solvency of companies for the protection of
5-7 policyholders>.
5-8 (f) Notwithstanding any other provision of this code other
5-9 than Subsection (b) of this article, for insurers licensed only in
5-10 this state who <which> are not required by law to have capital
5-11 stock, the minimum free surplus or guaranty fund and free surplus
5-12 required shall be the greater of that required of the insurer
5-13 immediately before September 1, 1991, <prior to the effective date
5-14 of this article> or one-third of the net written premium of the
5-15 insurer for the preceding 12 months after deducting:
5-16 (1) lawfully ceded reinsurance; and
5-17 (2) policy fees, if any, not ceded to reinsurers.
5-18 SECTION 4. Article 3.10(l), Insurance Code, is amended to
5-19 read as follows:
5-20 (l) An insurer shall account for reinsurance agreements and
5-21 shall record those reinsurance agreements in the insurer's
5-22 financial statement in a manner that accurately reflects the effect
5-23 of the reinsurance agreements on the financial condition of the
5-24 company. The State Board of Insurance may adopt reasonable rules
5-25 relating to the accounting and financial statement requirements of
5-26 this section and the treatment of reinsurance agreements between
5-27 insurance companies, including minimum risk transfer standards,
6-1 asset debits or credits, reinsurance debits or credits, and reserve
6-2 debits or credits relating to the transfer of all or any part of an
6-3 insurer's risks or liabilities by reinsurance agreements and any
6-4 contingencies arising from reinsurance agreements. Rules adopted
6-5 subsequent to September 1, 1995 shall apply to reinsurance
6-6 agreements entered into on or after the effective date of such
6-7 rules, and to reinsurance agreements that are amended on or after
6-8 the effective date of such rules. A reinsurance agreement may
6-9 contain a provision that allows the offset of mutual debts and
6-10 credits between a ceding insurer and the assuming insurer, whether
6-11 arising out of one or more reinsurance agreements.
6-12 SECTION 5. Subchapter B, Chapter 3, Insurance Code, is
6-13 amended by adding Article 3.27-4 to read as follows:
6-14 Art. 3.27-4. APPLICATION OF CERTAIN SOLVENCY REQUIREMENTS.
6-15 Articles 3.02 and 21.49-8 of this code apply to an insurance
6-16 company subject to this subchapter.
6-17 SECTION 6. Article 3.60, Insurance Code, is amended to read
6-18 as follows:
6-19 Art. 3.60. Impairment of Capital or Surplus. No impairment
6-20 of capital shall be permitted for companies either incorporated or
6-21 authorized to do the lines of business authorized in this chapter.
6-22 No impairment of more than 90 percent of the statutory minimum
6-23 surplus required of a company under Article 3.02 of this code shall
6-24 be permitted, and no impairment of a company's authorized control
6-25 level risk based capital <surplus> required by the <board
6-26 promulgated> risk-based capital and surplus requirements imposed
6-27 under Article 21.29 of this code and related rules adopted by the
7-1 commissioner <regulations> shall be permitted. If the commissioner
7-2 determines that either the capital is impaired or the surplus of a
7-3 company is impaired in excess of such permissible amount, the
7-4 commissioner shall order the company to immediately reduce the
7-5 impairment to acceptable levels specified by the commissioner or to
7-6 cease to do business within this state. The commissioner shall
7-7 thereupon institute such proceedings as may be necessary to
7-8 determine what further actions shall be taken in the matter.
7-9 SECTION 7. Article 5.75-1(n), Insurance Code, is amended to
7-10 read as follows:
7-11 (n) An insurer shall account for reinsurance agreements and
7-12 shall record those agreements in the insurer's financial statements
7-13 in a manner that accurately reflects the effect of the reinsurance
7-14 agreements on the financial condition of the insurer. The State
7-15 Board of Insurance may adopt reasonable rules relating to the
7-16 accounting and financial statement requirements of this subsection
7-17 and the treatment of reinsurance agreements between insurers,
7-18 including minimum risk transfer standards, asset debits or credits,
7-19 reinsurance debits or credits, and reserve debits or credits
7-20 relating to the transfer of all or any part of an insurer's risks
7-21 or liabilities by reinsurance agreements and to any contingencies
7-22 arising from reinsurance agreements. Reinsurance agreements may
7-23 contain a provision allowing the offset of mutual debts and credits
7-24 between the ceding insurer and the assuming insurer whether arising
7-25 out of one or more reinsurance agreements.
7-26 SECTION 8. Section 2, Article 9.47, Insurance Code, is
7-27 amended to read as follows:
8-1 Sec. 2. Regardless of Section 1 of this Article, where
8-2 applicable to title insurance companies, Article 1.01 through 1.25;
8-3 Article 2.01; Article 2.02<, Sections 1, 2 and 3>; Article 2.03,
8-4 except Section 5; Article 2.04; Article 2.05; Article 2.06; Article
8-5 3.01, Section 10(a), (b) and (c); Article 3.12, except Section (c);
8-6 Article 3.13; <Article 3.14;> Article 21.21; Article 21.21-1;
8-7 Article 21.25; Article 21.26; Article 21.31; Article 21.36; Article
8-8 21.37; Article 21.43; Article 21.46; <and> Article 21.47; Article
8-9 21.49-8; and Subchapter F of Chapter 5 of this code shall apply to
8-10 and govern title insurance companies where applicable thereto. In
8-11 case of conflict between provisions of any of the foregoing
8-12 articles and the provisions of this Chapter Nine, the latter shall
8-13 govern.
8-14 SECTION 9. Section 16.24(b), Insurance Code, is amended to
8-15 read as follows:
8-16 (b) Regardless of the preceding portion of this Article,
8-17 Articles 1.01, 1.02, 1.04, <1.08,> 1.09, 1.09-1, 1.11, 1.12, 1.13,
8-18 1.14, 1.15, 1.15A, 1.16, 1.17, 1.18, 1.19, 1.20, 1.21, 1.22, 1.23,
8-19 1.24, 1.29, 2.08, 2.10, 3.12, 3.13, 6.16, 21.21, 21.25, 21.28,
8-20 21.28-A, <21.28-B,> 21.28-C, 21.39, 21.39-A, and Sections 10(a),
8-21 (b) and (c) of Article 3.01 and Sections 1, 2, 5, 6, 7, 8, 9, 10,
8-22 11, 13, 14 and 17 of Article 1.10 of this code <the Insurance Code
8-23 as they now exist or shall hereafter be amended> shall apply to and
8-24 govern farm mutual insurance companies except where such Articles
8-25 or portions thereof are in conflict with the provisions of Chapter
8-26 16 of the Insurance Code.
8-27 SECTION 10. Section 17.22(a), Insurance Code, is amended to
9-1 read as follows:
9-2 (a) County mutual insurance companies shall be exempt from
9-3 the operation of all insurance laws of this state, except such laws
9-4 as are made applicable by their specific terms or as in this
9-5 Chapter specifically provided. In addition to such other Articles
9-6 as may be made to apply by other Articles of this Code, county
9-7 mutual insurance companies shall be subject to:
9-8 (1) <all the provisions of Article 1.04(e), and of>
9-9 Subdivision 7 of Article 1.10 of this Code;
9-10 (2) Articles <and of Article> 1.15A, <and of Article>
9-11 1.24, <and of Article> 2.04, <and of Article> 2.05, <and of
9-12 Article> 2.08, <and of Article> 2.10, <and of Article> 5.12, <a
9-13 of Article> 5.37, <and of Article> 5.38, <and of Article> 5.39,
9-14 <and of Article> 5.40, <and of Article> 5.49, <and of Article>
9-15 21.21, and <of Article 21.28B and of Article> 21.49 of this
9-16 Code;<,> and
9-17 (3) <the provisions of> Article 7064, <of the> Revised
9-18 <Civil> Statutes <of Texas, 1925>.
9-19 SECTION 11. Section 18.23(b), Insurance Code, is amended to
9-20 read as follows:
9-21 (b) In addition to such Articles as may be made to apply by
9-22 other Articles of this Chapter, underwriters at a Lloyds' shall not
9-23 be exempt from and shall be subject to Articles <all of the
9-24 provisions of Article> 1.15A, <and of Article> 2.20, <and of
9-25 Article> 5.35, <and of Article> 5.38, <and of Article> 5.39, <
9-26 of Article> 5.40, <and of Article> 5.49, <and of Article> 21.21,
9-27 and 21.49-8 of this Code.
10-1 SECTION 12. Section 19.12(b), Insurance Code, is amended to
10-2 read as follows:
10-3 (b) In addition to such Articles as may be made to apply by
10-4 other Articles of this Code, reciprocal or inter-insurance
10-5 exchanges shall not be exempt from and shall be subject to:
10-6 (1) <all of the provisions of> Section 5, <of> Article
10-7 1.10 of this Code; and
10-8 (2) Articles <of Article> 1.15, <and of Article>
10-9 1.15A, <and of Article> 1.16, 2.20, <and of Article> 5.35, <and ofª
10-10 Article 5.36 and of Article> 5.37, <and of Article> 5.38, <and of
10-11 Article> 5.39, <and of Article> 5.40, <and of Article> 6.12, <a
10-12 of Article> 8.07, <and of Article> 21.21, and 21.49-8 of this Code.
10-13 SECTION 13. Section 26(i), Texas Health Maintenance
10-14 Organization Act (Article 20A.26, Vernon's Texas Insurance Code),
10-15 is amended to read as follows:
10-16 (i) Any health maintenance organization authorized under
10-17 this Act shall be subject to:
10-18 (1) Article 21.49-8, Insurance Code; and
10-19 (2) Article 3.51-6, Section 3B, Insurance Code.
10-20 SECTION 14. Article 21.44, Insurance Code, is amended to
10-21 read as follows:
10-22 Art. 21.44. Capital and Surplus Requirements for Foreign or
10-23 Alien Insurance Companies Other Than Life. (a) No foreign or
10-24 alien insurance company subject to the provisions of Article 21.43
10-25 of this code shall be permitted to do business within this State
10-26 unless it shall have and maintain the minimum requirements of this
10-27 Code as to capital or surplus or both, applicable to companies
11-1 organized under this Code doing the same kind or kinds of business.
11-2 (b) Articles 2.20 and 21.49-8 of this code apply to an
11-3 insurance company subject to this article.
11-4 SECTION 15. Section 4(c), Article 21.49-1, Insurance Code,
11-5 is amended to read as follows:
11-6 (c) Dividends and Other Distributions. (1) No insurer
11-7 subject to registration under Section 3 shall pay any extraordinary
11-8 dividend or make any other extraordinary distribution to its
11-9 shareholders until (i) 30 days after the commissioner has received
11-10 notice of the declaration thereof and has not within such period
11-11 disapproved such payment, or (ii) the commissioner shall have
11-12 approved such payment within such 30-day period.
11-13 (2) For purposes of this section an extraordinary
11-14 dividend or distribution includes any dividend or distribution of
11-15 cash or other property, whose fair market value together with that
11-16 of other dividends or distributions made within the preceding 12
11-17 months exceeds the greater of (i) 10 percent (20 percent if such
11-18 insurer is a title insurer) of such insurer's surplus as regards
11-19 policyholders as of the 31st day of December next preceding, or
11-20 (ii) the net gain from operations of such insurer, if such insurer
11-21 is a life or title insurer, or the net <investment> income, if such
11-22 insurer is not a life or title insurer, for the 12-month period
11-23 ending the 31st day of December next preceding, but shall not
11-24 include pro rata distributions of any class of the insurer's own
11-25 securities.
11-26 (3) Notwithstanding any other provision of law, an
11-27 insurer may declare an extraordinary dividend or distribution which
12-1 is conditional upon the commissioner's approval thereof, and such a
12-2 declaration shall confer no rights upon shareholders until (i) the
12-3 commissioner has approved the payment of such dividend or
12-4 distribution or (ii) the commissioner has not disapproved such
12-5 payment within the 30-day period referred to above.
12-6 SECTION 16. Subchapter E, Chapter 21, Insurance Code, is
12-7 amended by adding Article 21.49-8 to read as follows:
12-8 Art. 21.49-8. DISCLOSURE OF MATERIAL TRANSACTIONS REPORT
12-9 Sec. 1. APPLICATION; EXEMPTION. (a) Except as provided by
12-10 Subsection (b) of this section, this article applies to the
12-11 following domestic insurers and commercially domiciled insurers:
12-12 (1) a capital stock company;
12-13 (2) a mutual company;
12-14 (3) a title insurance company;
12-15 (4) a fraternal benefit society;
12-16 (5) a Lloyd's plan company;
12-17 (6) a reciprocal or interinsurance exchange;
12-18 (7) a group hospital service corporation;
12-19 (8) a health maintenance organization;
12-20 (9) a risk retention group;
12-21 (10) a nonprofit legal service corporation; and
12-22 (11) a nonprofit hospital, medical, or dental service
12-23 corporation.
12-24 (b) A domestic insurer listed under Subsection (a) of this
12-25 section that does business only in this state is exempt from the
12-26 application of this article until the insurer obtains authority to
12-27 conduct the business of insurance in another state.
13-1 Sec. 2. REPORT. (a) Unless the material acquisition and
13-2 disposition of assets and the nonrenewal, cancellation, or
13-3 revisions of material ceded reinsurance agreements have been
13-4 submitted to the commissioner for review, approval, or information
13-5 under other provisions of this code or other laws, regulations, or
13-6 requirements, each insurer shall file a report with the
13-7 commissioner that discloses:
13-8 (1) material acquisitions and dispositions of assets;
13-9 or
13-10 (2) material nonrenewals, cancellations, or revisions
13-11 of ceded reinsurance agreements.
13-12 (b) The report required under Subsection (a) of this section
13-13 must be filed not later than the 15th day after the last day of the
13-14 calendar month in which any of the affected transactions occur.
13-15 (c) The insurer also shall file one complete copy of the
13-16 report, including any necessary exhibits or other attachments, with
13-17 the department.
13-18 (d) A report obtained by or disclosed to the commissioner
13-19 under this article is confidential and is not subject to a
13-20 subpoena, other than a grand jury subpoena. The report may not be
13-21 disclosed by the commissioner, the National Association of
13-22 Insurance Commissioners, or any other person, except to the
13-23 insurance department of another state or another authorized
13-24 governmental agency, without the prior written consent of the
13-25 affected insurer, unless the commissioner, after notice to the
13-26 affected insurer and an opportunity for a hearing, determines that
13-27 the interest of policyholders, shareholders, or the public will be
14-1 served by the publication of the report. If the commissioner does
14-2 so determine, the department may disclose a report to the public
14-3 and may publish all or any part of the report in any manner
14-4 considered appropriate by the commissioner.
14-5 Sec. 3. ACQUISITIONS AND DISPOSITIONS OF ASSETS. (a) An
14-6 insurer is not required to report an acquisition or disposition of
14-7 assets under Section 2 of this article if the acquisition or
14-8 disposition is not material. For purposes of this article, an
14-9 acquisition, or the aggregate of a series of related acquisitions
14-10 during a 30-day period, or a disposition, or the aggregate of a
14-11 series of related dispositions during a 30-day period, is material
14-12 if it:
14-13 (1) is not recurring;
14-14 (2) is not in the ordinary course of business; and
14-15 (3) involves more than five percent of the reporting
14-16 insurer's total admitted assets as reported in its most recent
14-17 statutory statement filed with the department.
14-18 (b) An asset acquisition subject to this article includes
14-19 each purchase, lease, exchange, merger, consolidation, succession,
14-20 or other acquisition, other than the construction or development of
14-21 real property by or for the reporting insurer or the acquisition of
14-22 materials for that purpose.
14-23 (c) An asset disposition subject to this article includes
14-24 each sale, lease, exchange, merger, consolidation, mortgage,
14-25 hypothecation, assignment, whether for the benefit of creditors or
14-26 otherwise, abandonment, destruction, or other disposition.
14-27 (d) The following information must be disclosed in a report
15-1 of a material acquisition or disposition of assets:
15-2 (1) the date of the transaction;
15-3 (2) the manner of acquisition or disposition;
15-4 (3) a description of the assets involved;
15-5 (4) the nature and amount of the consideration given
15-6 or received;
15-7 (5) the purpose of or reason for the transaction;
15-8 (6) the manner by which the amount of consideration
15-9 was determined;
15-10 (7) the gain or loss recognized or realized as a
15-11 result of the transaction; and
15-12 (8) the name of each person from whom the assets were
15-13 acquired or to whom they were disposed.
15-14 (e) An insurer shall report material acquisitions and
15-15 dispositions on a nonconsolidated basis unless the insurer:
15-16 (1) is part of a consolidated group of insurers that
15-17 uses a pooling arrangement or a 100 percent reinsurance agreement
15-18 that affects the solvency and integrity of the insurer's reserves;
15-19 and
15-20 (2) ceded substantially all of its direct and assumed
15-21 business to the pooling arrangement.
15-22 (f) For purposes of Subsection (e), an insurer is considered
15-23 to have ceded substantially all of its direct and assumed business
15-24 to a pooling arrangement if:
15-25 (1) the insurer has, during a calendar year, less than
15-26 $1 million total direct and assumed written premiums that are not
15-27 subject to a pooling arrangement; and
16-1 (2) the net income of the business not subject to the
16-2 pooling arrangement represents less than five percent of the
16-3 insurer's capital and surplus.
16-4 Sec. 4. NONRENEWALS, CANCELLATIONS, OR REVISIONS OF CEDED
16-5 INSURANCE. (a) An insurer is not required to report a nonrenewal,
16-6 cancellation, or revision of a ceded reinsurance agreement under
16-7 Section 2 of this article if the nonrenewal, cancellation, or
16-8 revision is not material. For purposes of this article, a
16-9 nonrenewal, cancellation, or revision is material if it affects, on
16-10 an annual basis, as indicated in the insurer's most recently filed
16-11 statutory statement:
16-12 (1) for property and casualty business, including
16-13 accident and health business when written as property and casualty
16-14 business, more than 50 percent of an insurer's ceded written
16-15 premium; or
16-16 (2) for life, annuity, and accident and health
16-17 business, more than 50 percent of the total reserve credit taken
16-18 for business ceded.
16-19 (b) An insurer is not required to report if the insurer's
16-20 ceded written premium of the total reserve credit taken for
16-21 business ceded represents, on an annual basis, less than:
16-22 (1) 10 percent of direct and assumed written premiums;
16-23 or
16-24 (2) 10 percent of the statutory reserve requirement
16-25 before a cession.
16-26 (c) Subject to the requirements imposed under Subsections
16-27 (a) and (b) of this section, an insurer shall file a report without
17-1 regard to which party initiated the nonrenewal, cancellation, or
17-2 revision of ceded reinsurance when one or more of the following
17-3 conditions exist:
17-4 (1) the entire cession has been canceled, nonrenewed,
17-5 or revised, and ceded indemnity and loss adjustment expense
17-6 reserves after the nonrenewal, cancellation, or revision represent
17-7 less than 50 percent of the comparable reserves that would have
17-8 been ceded had the nonrenewal, cancellation, or revision not
17-9 occurred;
17-10 (2) an authorized or accredited reinsurer has been
17-11 replaced on an existing cession by an unauthorized reinsurer; or
17-12 (3) collateral requirements previously established for
17-13 unauthorized reinsurers have been reduced in that the requirement
17-14 to collateralize incurred but not reported claim reserves has been
17-15 waived for one or more unauthorized reinsurers newly participating
17-16 in an existing cession.
17-17 (d) Subject to the requirement of materiality, for purposes
17-18 of Subsections (c)(2) and (3) of this section, an insurer shall
17-19 file a report if the result of the revision affects more than 10
17-20 percent of the cession.
17-21 (e) An insurer shall disclose the following information in a
17-22 report of a material nonrenewal, cancellation, or revision of a
17-23 ceded reinsurance agreement:
17-24 (1) the effective date of the nonrenewal,
17-25 cancellation, or revision;
17-26 (2) a description of the transaction that identifies
17-27 the initiator of the transaction;
18-1 (3) the purpose of or reason for the transaction; and
18-2 (4) if applicable, the identity of the replacement
18-3 reinsurers.
18-4 (f) An insurer shall report all material nonrenewals,
18-5 cancellations, or revisions of ceded reinsurance agreements on a
18-6 nonconsolidated basis unless the insurer:
18-7 (1) is part of a consolidated group of insurers that
18-8 uses a pooling arrangement or 100 percent reinsurance agreement
18-9 that affects the solvency and integrity of the insurer's reserves;
18-10 and
18-11 (2) ceded substantially all of its direct and assumed
18-12 business to the pooling arrangement.
18-13 (g) For purposes of Subsection (f) of this section, an
18-14 insurer is considered to have ceded substantially all of its direct
18-15 and assumed business to a pooling arrangement if:
18-16 (1) the insurer has, during a calendar year, less than
18-17 $1 million total direct and assumed written premiums that are not
18-18 subject to the pooling arrangement; and
18-19 (2) the net income of the business not subject to the
18-20 pooling arrangement represents less than five percent of the
18-21 insurer's capital and surplus.
18-22 SECTION 17. Subchapter E, Chapter 21, Insurance Code, is
18-23 amended by adding Article 21.72 to read as follows:
18-24 Art. 21.72. GENERAL REINSURANCE REQUIREMENTS
18-25 Sec. 1. (a) An insurance company incorporated under the laws
18-26 of another state or the United States and authorized to do business
18-27 in this state may not expose itself to any loss or hazard on any
19-1 one risk in an amount that exceeds 10 percent of the company's
19-2 surplus as regards policyholders unless the excess is reinsured by
19-3 the company in another solvent insurer.
19-4 (b) An insurance company incorporated under a jurisdiction
19-5 other than that of this state, another state, or the United States
19-6 and authorized to do business in this state may not expose itself
19-7 to any loss or hazard on any one risk in an amount that exceeds 10
19-8 percent of the company's deposit with the statutory officer in the
19-9 state through which the company gains admission to the United
19-10 States, together with 10 percent of the other surplus to
19-11 policyholders of the company's United States branch, unless the
19-12 excess is reinsured by the company in another solvent insurer.
19-13 Sec. 2. An insurance or reinsurance company authorized to
19-14 transact insurance or reinsurance in this state may reinsure the
19-15 whole or any part of an individual risk in another solvent insurer.
19-16 Sec. 3. This article does not apply to:
19-17 (1) life insurance;
19-18 (2) health insurance;
19-19 (3) annuity contracts;
19-20 (4) title insurance;
19-21 (5) workers' compensation insurance;
19-22 (6) employers' liability insurance coverage; or
19-23 (7) any policy or type of coverage as to which the
19-24 maximum possible loss to the insurer is not readily ascertainable
19-25 on issuance of the policy.
19-26 Sec. 4. Any reinsurance required or permitted by this
19-27 article must comply with Article 5.75-1 of this code.
20-1 SECTION 18. Section 1, Article 22.18, Insurance Code, is
20-2 amended to read as follows:
20-3 Sec. 1. The following Articles of this Code<, to
20-4 wit>: Article 1.14, Article 1.15, Article 1.15A, Article 1.16,
20-5 Article 1.19, Article 1.24, Article 1.32, Article 3.10, Article
20-6 3.13, Article 3.39, Article 3.40, Article 3.61, <Article 3.62,>
20-7 Article 3.63, Article 3.67, Article 21.07-7, Article 21.21, Article
20-8 21.25, Article 21.26, Article 21.28, Article 21.32, Article 21.39,
20-9 Article 21.45, and Article 21.47, shall apply to and govern
20-10 stipulated premium companies and each company shall comply with the
20-11 provisions thereof.
20-12 SECTION 19. Section 23.26(b), Insurance Code, is amended to
20-13 read as follows:
20-14 (b) The following provisions of the Insurance Code as they
20-15 now exist or shall hereafter be amended shall, where not in
20-16 conflict with this chapter, apply to corporations complying with
20-17 the provisions of this chapter to the same extent as they apply to
20-18 insurers and to those doing the business of insurance: Articles
20-19 1.01, 1.02, 1.04, <1.08,> 1.09, 1.09-1, 1.11, 1.12, 1.13, 1.14,
20-20 1.15, 1.15A, 1.16, 1.17, 1.18, 1.19, 1.20, 1.21, 1.22, 1.23, 1.24,
20-21 1.25, 1.29, 3.12, 3.13, <3.14,> 21.21, 21.21-2, 21.25, 21.28,
20-22 21.28-A, <21.28A, and> 21.47, 21.49-8 and Sections 1, 2, 6, 8, 9,
20-23 10, 11, 12, 13, 14, and 17 of Article 1.10 of this code <the
20-24 Insurance Code, as amended>.
20-25 SECTION 20. Article 25.05, Insurance Code, is amended to
20-26 read as follows:
20-27 Art. 25.05. Other Laws to Govern. Chapter <Chapters> 2,
21-1 including Article 2.20, Chapter <and> 8, and Article 4.10 of this
21-2 code, and all other provisions of the Insurance Code, if not in
21-3 conflict with this chapter, shall apply to and govern any insurance
21-4 carrier operating under this chapter. In addition, Article 21.49-8
21-5 of this code applies to each insurance carrier operating under this
21-6 chapter.
21-7 SECTION 21. (a) The risk-based capital requirements adopted
21-8 under Article 21.29, Insurance Code, as added by this Act, shall be
21-9 implemented in phases over a two-year period as provided by this
21-10 section.
21-11 (b) Authorized control level risk-based capital shall be
21-12 determined in the manner provided by Article 21.29, Insurance Code,
21-13 as added by this Act, except that authorized control level
21-14 risk-based capital:
21-15 (1) as of December 31, 1996, is not required to exceed
21-16 95 percent of the amount determined under that article; and
21-17 (2) as of December 31, 1997, is not required to exceed
21-18 98 percent of the amount determined under that article.
21-19 (c) For the period from December 31, 1996, to December 31,
21-20 1998, the commissioner of insurance shall adjust proportionately
21-21 each of the other three levels of required risk-based capital
21-22 established under Article 21.29, Insurance Code, as added by this
21-23 Act.
21-24 (d) On December 31, 1998, the phase-in period ends and all
21-25 requirements imposed under Article 21.29, Insurance Code, as added
21-26 by this Act, take full effect.
21-27 SECTION 22. (a) Except as provided by Sections 26 and 27,
22-1 this Act takes effect September 1, 1995.
22-2 (b) The commissioner of insurance shall adopt rules as
22-3 required by the Insurance Code, as amended by this Act, not later
22-4 than December 31, 1995.
22-5 SECTION 23. The importance of this legislation and the
22-6 crowded condition of the calendars in both houses create an
22-7 emergency and an imperative public necessity that the
22-8 constitutional rule requiring bills to be read on three several
22-9 days in each house be suspended, and this rule is hereby suspended.