By Shields H.B. No. 2793
A BILL TO BE ENTITLED
1-1 AN ACT
1-2 relating to the regulation of insurance holding companies.
1-3 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-4 SECTION 1. Section 2(b), Article 21.49-1, Insurance Code, is
1-5 amended to read as follows:
1-6 (b) Commercially Domiciled Insurer. The term "commercially
1-7 domiciled insurer" means a foreign or alien insurer authorized to
1-8 do business in this state that during its three preceding fiscal
1-9 years taken together, or any lesser period if it has been licensed
1-10 to transact business in this state only for that lesser period, has
1-11 written an average of more gross premiums in this state than it has
1-12 written in its state of domicile during the same period, with those
1-13 gross premiums constituting 30 <20> percent or more of its total
1-14 gross premiums everywhere in the United States for that three-year
1-15 or lesser period, as reported in its three most recent annual
1-16 statements.
1-17 SECTION 2. Section 4(c)(2), Article 21.49-1, Insurance Code,
1-18 is amended to read as follows:
1-19 (2) For purposes of this section an extraordinary
1-20 dividend or distribution includes any dividend or distribution of
1-21 cash or other property, whose fair market value together with that
1-22 of other dividends or distributions made within the preceding 12
1-23 months exceeds the greater of (i) 10 percent (20 percent if such
2-1 insurer is a title insurer) of such insurer's surplus as regards
2-2 policyholders as of the 31st day of December next preceding, or
2-3 (ii) the net gain from operations of such insurer, if such insurer
2-4 is a life or title insurer, or the net <investment> income, if such
2-5 insurer is not a life or title insurer, for the 12-month period
2-6 ending the 31st day of December next preceding, but shall not
2-7 include pro rata distributions of any class of the insurer's own
2-8 securities.
2-9 SECTION 3. Section 6(b), Article 21.49-1, Insurance Code, is
2-10 amended to read as follows:
2-11 (b) Additional investment authority. In addition to
2-12 investments in common stock, preferred stock, debt obligations, and
2-13 other securities permitted under all other sections of the
2-14 Insurance Code, a domestic insurer may also:
2-15 (1) invest in common stock, preferred stock, debt
2-16 obligations, and other securities of one or more subsidiaries and
2-17 affiliates organized for any lawful purpose amounts which in the
2-18 aggregate do not exceed the lesser of 10 <five> percent of the
2-19 insurer's assets or 50 percent of the insurer's surplus as regards
2-20 policyholders, but after such investments the insurer's surplus as
2-21 regards policyholders must be reasonable in relation to the
2-22 insurer's outstanding liabilities and adequate to its financial
2-23 needs. In calculating the amount of such investments:
2-24 (A) investments in domestic or foreign insurance
2-25 subsidiaries are excluded; and
3-1 (B) the following are<, there must be> included:
3-2 (i) total net money or other consideration
3-3 expended and obligations assumed in the acquisition or formation of
3-4 a subsidiary, including all organizational expenses and
3-5 contributions to capital and surplus of the subsidiary whether or
3-6 not represented by the purchase of capital stock or issuance of
3-7 other securities;<,> and
3-8 (ii) all amounts expended in acquiring
3-9 additional common stock, preferred stock, debt obligations, and
3-10 other securities and all contributions to the capital or surplus of
3-11 a subsidiary subsequent to its acquisition or formation;
3-12 (2) if the insurer's total liabilities, as calculated
3-13 for National Association of Insurance Commissioners annual
3-14 statement purposes, are less than 10 percent of assets, invest any
3-15 amount in common stock, preferred stock, debt obligations, and
3-16 other securities of one or more subsidiaries and affiliates
3-17 organized for any lawful purpose, but after such investment the
3-18 insurer's surplus as regards policyholders, considering such
3-19 investment as if it were a nonadmitted asset, must be reasonable in
3-20 relation to the insurer's outstanding liabilities and adequate to
3-21 its financial needs;
3-22 (3) invest any amount in common stock, preferred
3-23 stock, debt obligations, and other securities of one or more
3-24 subsidiaries and affiliates organized for any lawful purpose,
3-25 provided that such subsidiary or affiliate agrees to limit its
4-1 investments in any particular asset so that such investments will
4-2 not cause the amount of the total investment of the insurer to
4-3 exceed the amount the insurer could have directly invested in such
4-4 asset. For the purpose of this clause, "the total investment of
4-5 the insurer" will include (i) any direct investment by the insurer
4-6 in an asset and (ii) the insurer's proportionate share of any
4-7 investment in such asset by any subsidiary or affiliate of the
4-8 insurer, which must be calculated by multiplying the amount of the
4-9 subsidiary's or affiliate's investment by the percentage of the
4-10 insurer's ownership of such subsidiary or affiliate; and
4-11 (4) with the prior approval of the commissioner,
4-12 invest any amount in common stock, preferred stock, debt
4-13 obligations, or other securities of one or more subsidiaries and
4-14 affiliates, but after such investment the insurer's surplus as
4-15 regards policyholders must be reasonable in relation to the
4-16 insurer's outstanding liabilities and adequate to its financial
4-17 needs.
4-18 SECTION 4. Section 6(d), Article 21.49-1, Insurance Code, is
4-19 amended to read as follows:
4-20 (d) Qualification of Investment. Whether any investment
4-21 under Subsection (b) hereof meets the applicable requirements
4-22 thereof is to be determined before the investment is made by
4-23 computing the applicable investment limitations as though the
4-24 investment has already been made, taking into account the principal
4-25 balance outstanding at the time of the computation on all previous
5-1 investments in debt obligations and the value of all previous
5-2 investments in equity securities as of the day the previous
5-3 investments were made, net of any return of capital invested, not
5-4 including dividends <on a pro forma basis as of the time
5-5 immediately after such investment is made, taking into account the
5-6 insurer's assets, liabilities, and surplus as regards
5-7 policyholders, the then outstanding principal balance of all
5-8 previous investments in debt obligations of subsidiaries and
5-9 affiliates, and the value of all previous investments in equity
5-10 securities of subsidiaries and affiliates>.
5-11 SECTION 5. Section 6A(a), Article 21.49-1, Insurance Code,
5-12 is amended to read as follows:
5-13 (a) For financial statement valuation purposes only, and not
5-14 to determine the amount invested in accordance with Section 6(b)(1)
5-15 of this article, valuation <Valuation> of an investment by an
5-16 insurer in a subsidiary or affiliate of an insurer, which is not
5-17 itself an insurer, shall be valued, subject to the additional
5-18 provisions of this section, on the basis of the greater of:
5-19 (1) the net stockholder equity value owned by the
5-20 insurer in the subsidiary or affiliate, adjusted to include the
5-21 value of only such of the assets of such subsidiary as would
5-22 constitute lawful investments for the insurer if acquired or held
5-23 directly by the insurer; or
5-24 (2) one of the following bases appropriate to each
5-25 type of subsidiary or affiliate owned by it, provided, however,
6-1 that an insurer shall not be required to value the stock of all its
6-2 subsidiaries or affiliates on the same basis:
6-3 (i) the net worth of the subsidiary or affiliate
6-4 determined in accordance with generally accepted accounting
6-5 principles as of the end of its most recent fiscal year, provided,
6-6 subject to the other provisions of this section, that the financial
6-7 statements of the subsidiary or affiliate for its most recent
6-8 fiscal year have been audited by an independent certified public
6-9 accountant in accordance with generally accepted auditing
6-10 standards; or
6-11 (ii) a value equal to the cost of the stock of
6-12 the subsidiary or affiliate, provided such value is determined and
6-13 adjusted to reflect subsequent operating results in accordance with
6-14 generally accepted accounting principles; or
6-15 (iii) the market value of the stock of the
6-16 subsidiary or affiliate, if the stock is listed on a national
6-17 securities exchange; or
6-18 (iv) the value, if any, placed on the stock of
6-19 such subsidiary or affiliate by the National Association of
6-20 Insurance Commissioners; or
6-21 (v) any other value which the insurer can
6-22 substantiate to the satisfaction of the commissioner as being a
6-23 reasonable value.
6-24 SECTION 6. Section 18, Article 21.49-1, Insurance Code, is
6-25 amended to read as follows:
7-1 Sec. 18. APPLICABILITY TO FOREIGN AND ALIEN INSURERS. (a)
7-2 Each Texas-licensed foreign insurer domiciled in a jurisdiction
7-3 which has not, by statute or regulation, adopted controls
7-4 considered by the Commissioner of Insurance of the State of Texas
7-5 to be substantially similar to those contained in this Article
7-6 shall be subject to all provisions of Article 21.49-1 of the
7-7 Insurance Code the same as Texas domestic insurers and is, in the
7-8 event of non-compliance therewith, subject to all of the remedies,
7-9 penalties, and sanctions authorized by the Insurance Code,
7-10 including, but not limited to, after notice and hearing, suspension
7-11 or revocation of certificate of authority to do business in Texas.
7-12 If, after the effective date of this Act, any domiciliary
7-13 jurisdictions adopt controls considered by the Commissioner of
7-14 Insurance of the State of Texas to be substantially similar to
7-15 those contained in this Article, the commissioner may thereafter
7-16 exempt insurers domiciled in said jurisdictions from the provisions
7-17 of this Section 18 of Article 21.49-1.
7-18 (b) A foreign or alien insurer is not subject to the
7-19 requirements of this Article if the commissioner has approved a
7-20 withdrawal plan for the insurer under Article 21.49-2C of this
7-21 code.
7-22 SECTION 7. This Act takes effect September 1, 1995.
7-23 SECTION 8. The importance of this legislation and the
7-24 crowded condition of the calendars in both houses create an
7-25 emergency and an imperative public necessity that the
8-1 constitutional rule requiring bills to be read on three several
8-2 days in each house be suspended, and this rule is hereby suspended.