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