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.