74R9048 DLF-F
By Shields H.B. No. 2793
Substitute the following for H.B. No. 2793:
By Shields C.S.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 4(c)(2), Article 21.49-1, Insurance Code,
1-5 is amended to read as follows:
1-6 (2) For purposes of this section an extraordinary
1-7 dividend or distribution includes any dividend or distribution of
1-8 cash or other property, whose fair market value together with that
1-9 of other dividends or distributions made within the preceding 12
1-10 months exceeds the greater of (i) 10 percent (20 percent if such
1-11 insurer is a title insurer) of such insurer's surplus as regards
1-12 policyholders as of the 31st day of December next preceding, or
1-13 (ii) the net gain from operations of such insurer, if such insurer
1-14 is a life or title insurer, or the net <investment> income, if such
1-15 insurer is not a life or title insurer, for the 12-month period
1-16 ending the 31st day of December next preceding, but shall not
1-17 include pro rata distributions of any class of the insurer's own
1-18 securities.
1-19 SECTION 2. Section 6(b), Article 21.49-1, Insurance Code, is
1-20 amended to read as follows:
1-21 (b) Additional investment authority. In addition to
1-22 investments in common stock, preferred stock, debt obligations, and
1-23 other securities permitted under all other sections of the
2-1 Insurance Code, a domestic insurer may also:
2-2 (1) invest in common stock, preferred stock, debt
2-3 obligations, and other securities of one or more subsidiaries and
2-4 affiliates organized for any lawful purpose amounts which in the
2-5 aggregate do not exceed the lesser of 10 <five> percent of the
2-6 insurer's assets or 50 percent of the insurer's surplus as regards
2-7 policyholders, but after such investments the insurer's surplus as
2-8 regards policyholders must be reasonable in relation to the
2-9 insurer's outstanding liabilities and adequate to its financial
2-10 needs. In calculating the amount of such investments:
2-11 (A) investments in domestic or foreign insurance
2-12 subsidiaries are excluded; and
2-13 (B) the following are <, there must be>
2-14 included:
2-15 (i) total net money or other consideration
2-16 expended and obligations assumed in the acquisition or formation of
2-17 a subsidiary, including all organizational expenses and
2-18 contributions to capital and surplus of the subsidiary whether or
2-19 not represented by the purchase of capital stock or issuance of
2-20 other securities;<,> and
2-21 (ii) all amounts expended in acquiring
2-22 additional common stock, preferred stock, debt obligations, and
2-23 other securities and all contributions to the capital or surplus of
2-24 a subsidiary subsequent to its acquisition or formation;
2-25 (2) if the insurer's total liabilities, as calculated
3-1 for National Association of Insurance Commissioners annual
3-2 statement purposes, are less than 10 percent of assets, invest any
3-3 amount in common stock, preferred stock, debt obligations, and
3-4 other securities of one or more subsidiaries and affiliates
3-5 organized for any lawful purpose, but after such investment the
3-6 insurer's surplus as regards policyholders, considering such
3-7 investment as if it were a nonadmitted asset, must be reasonable in
3-8 relation to the insurer's outstanding liabilities and adequate to
3-9 its financial needs;
3-10 (3) invest any amount in common stock, preferred
3-11 stock, debt obligations, and other securities of one or more
3-12 subsidiaries and affiliates organized for any lawful purpose,
3-13 provided that such subsidiary or affiliate agrees to limit its
3-14 investments in any particular asset so that such investments will
3-15 not cause the amount of the total investment of the insurer to
3-16 exceed the amount the insurer could have directly invested in such
3-17 asset. For the purpose of this clause, "the total investment of
3-18 the insurer" will include (i) any direct investment by the insurer
3-19 in an asset and (ii) the insurer's proportionate share of any
3-20 investment in such asset by any subsidiary or affiliate of the
3-21 insurer, which must be calculated by multiplying the amount of the
3-22 subsidiary's or affiliate's investment by the percentage of the
3-23 insurer's ownership of such subsidiary or affiliate; and
3-24 (4) with the prior approval of the commissioner,
3-25 invest any amount in common stock, preferred stock, debt
4-1 obligations, or other securities of one or more subsidiaries and
4-2 affiliates, but after such investment the insurer's surplus as
4-3 regards policyholders must be reasonable in relation to the
4-4 insurer's outstanding liabilities and adequate to its financial
4-5 needs.
4-6 SECTION 3. Section 6(d), Article 21.49-1, Insurance Code, is
4-7 amended to read as follows:
4-8 (d) Qualification of Investment. Whether any investment
4-9 under Subsection (b) hereof meets the applicable requirements
4-10 thereof is to be determined before the investment is made by
4-11 computing the applicable investment limitations as though the
4-12 investment has already been made, taking into account the principal
4-13 balance outstanding at the time of the computation on all previous
4-14 investments in debt obligations and the value of all previous
4-15 investments in equity securities as of the day the previous
4-16 investments were made, net of any return of capital invested, not
4-17 including dividends <on a pro forma basis as of the time
4-18 immediately after such investment is made, taking into account the
4-19 insurer's assets, liabilities, and surplus as regards
4-20 policyholders, the then outstanding principal balance of all
4-21 previous investments in debt obligations of subsidiaries and
4-22 affiliates, and the value of all previous investments in equity
4-23 securities of subsidiaries and affiliates>.
4-24 SECTION 4. Section 6A(a), Article 21.49-1, Insurance Code,
4-25 is amended to read as follows:
5-1 (a) For financial statement valuation purposes only, and not
5-2 to determine the amount invested in accordance with Section 6(b)(1)
5-3 of this article, valuation <Valuation> of an investment by an
5-4 insurer in a subsidiary or affiliate of an insurer, which is not
5-5 itself an insurer, shall be valued, subject to the additional
5-6 provisions of this section, on the basis of the greater of:
5-7 (1) the net stockholder equity value owned by the
5-8 insurer in the subsidiary or affiliate, adjusted to include the
5-9 value of only such of the assets of such subsidiary as would
5-10 constitute lawful investments for the insurer if acquired or held
5-11 directly by the insurer; or
5-12 (2) one of the following bases appropriate to each
5-13 type of subsidiary or affiliate owned by it, provided, however,
5-14 that an insurer shall not be required to value the stock of all its
5-15 subsidiaries or affiliates on the same basis:
5-16 (i) the net worth of the subsidiary or affiliate
5-17 determined in accordance with generally accepted accounting
5-18 principles as of the end of its most recent fiscal year, provided,
5-19 subject to the other provisions of this section, that the financial
5-20 statements of the subsidiary or affiliate for its most recent
5-21 fiscal year have been audited by an independent certified public
5-22 accountant in accordance with generally accepted auditing
5-23 standards; or
5-24 (ii) a value equal to the cost of the stock of
5-25 the subsidiary or affiliate, provided such value is determined and
6-1 adjusted to reflect subsequent operating results in accordance with
6-2 generally accepted accounting principles; or
6-3 (iii) the market value of the stock of the
6-4 subsidiary or affiliate, if the stock is listed on a national
6-5 securities exchange; or
6-6 (iv) the value, if any, placed on the stock of
6-7 such subsidiary or affiliate by the National Association of
6-8 Insurance Commissioners; or
6-9 (v) any other value which the insurer can
6-10 substantiate to the satisfaction of the commissioner as being a
6-11 reasonable value.
6-12 SECTION 5. This Act takes effect September 1, 1995.
6-13 SECTION 6. The importance of this legislation and the
6-14 crowded condition of the calendars in both houses create an
6-15 emergency and an imperative public necessity that the
6-16 constitutional rule requiring bills to be read on three several
6-17 days in each house be suspended, and this rule is hereby suspended.