1-1 By: Shields (Senate Sponsor - Wentworth) H.B. No. 2793
1-2 (In the Senate - Received from the House May 15, 1995;
1-3 May 16, 1995, read first time and referred to Committee on Economic
1-4 Development; May 22, 1995, reported favorably by the following
1-5 vote: Yeas 6, Nays 0; May 22, 1995, sent to printer.)
1-6 A BILL TO BE ENTITLED
1-7 AN ACT
1-8 relating to the regulation of insurance holding companies.
1-9 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-10 SECTION 1. Section 2(b), Article 21.49-1, Insurance Code, is
1-11 amended to read as follows:
1-12 (b) Commercially Domiciled Insurer. The term "commercially
1-13 domiciled insurer" means a foreign or alien insurer authorized to
1-14 do business in this state that during its three preceding fiscal
1-15 years taken together, or any lesser period if it has been licensed
1-16 to transact business in this state only for that lesser period, has
1-17 written an average of more gross premiums in this state than it has
1-18 written in its state of domicile during the same period, with those
1-19 gross premiums constituting 30 <20> percent or more of its total
1-20 gross premiums everywhere in the United States for that three-year
1-21 or lesser period, as reported in its three most recent annual
1-22 statements.
1-23 SECTION 2. Section 4(c)(2), Article 21.49-1, Insurance Code,
1-24 is amended to read as follows:
1-25 (2) For purposes of this section an extraordinary
1-26 dividend or distribution includes any dividend or distribution of
1-27 cash or other property, whose fair market value together with that
1-28 of other dividends or distributions made within the preceding 12
1-29 months exceeds the greater of (i) 10 percent (20 percent if such
1-30 insurer is a title insurer) of such insurer's surplus as regards
1-31 policyholders as of the 31st day of December next preceding, or
1-32 (ii) the net gain from operations of such insurer, if such insurer
1-33 is a life or title insurer, or the net <investment> income, if such
1-34 insurer is not a life or title insurer, for the 12-month period
1-35 ending the 31st day of December next preceding, but shall not
1-36 include pro rata distributions of any class of the insurer's own
1-37 securities.
1-38 SECTION 3. Section 6(b), Article 21.49-1, Insurance Code, is
1-39 amended to read as follows:
1-40 (b) Additional investment authority. In addition to
1-41 investments in common stock, preferred stock, debt obligations, and
1-42 other securities permitted under all other sections of the
1-43 Insurance Code, a domestic insurer may also:
1-44 (1) invest in common stock, preferred stock, debt
1-45 obligations, and other securities of one or more subsidiaries and
1-46 affiliates organized for any lawful purpose amounts which in the
1-47 aggregate do not exceed the lesser of 10 <five> percent of the
1-48 insurer's assets or 50 percent of the insurer's surplus as regards
1-49 policyholders, but after such investments the insurer's surplus as
1-50 regards policyholders must be reasonable in relation to the
1-51 insurer's outstanding liabilities and adequate to its financial
1-52 needs. In calculating the amount of such investments:
1-53 (A) investments in domestic or foreign insurance
1-54 subsidiaries are excluded; and
1-55 (B) the following are<, there must be> included:
1-56 (i) total net money or other consideration
1-57 expended and obligations assumed in the acquisition or formation of
1-58 a subsidiary, including all organizational expenses and
1-59 contributions to capital and surplus of the subsidiary whether or
1-60 not represented by the purchase of capital stock or issuance of
1-61 other securities;<,> and
1-62 (ii) all amounts expended in acquiring
1-63 additional common stock, preferred stock, debt obligations, and
1-64 other securities and all contributions to the capital or surplus of
1-65 a subsidiary subsequent to its acquisition or formation;
1-66 (2) if the insurer's total liabilities, as calculated
1-67 for National Association of Insurance Commissioners annual
1-68 statement purposes, are less than 10 percent of assets, invest any
2-1 amount in common stock, preferred stock, debt obligations, and
2-2 other securities of one or more subsidiaries and affiliates
2-3 organized for any lawful purpose, but after such investment the
2-4 insurer's surplus as regards policyholders, considering such
2-5 investment as if it were a nonadmitted asset, must be reasonable in
2-6 relation to the insurer's outstanding liabilities and adequate to
2-7 its financial needs;
2-8 (3) invest any amount in common stock, preferred
2-9 stock, debt obligations, and other securities of one or more
2-10 subsidiaries and affiliates organized for any lawful purpose,
2-11 provided that such subsidiary or affiliate agrees to limit its
2-12 investments in any particular asset so that such investments will
2-13 not cause the amount of the total investment of the insurer to
2-14 exceed the amount the insurer could have directly invested in such
2-15 asset. For the purpose of this clause, "the total investment of
2-16 the insurer" will include (i) any direct investment by the insurer
2-17 in an asset and (ii) the insurer's proportionate share of any
2-18 investment in such asset by any subsidiary or affiliate of the
2-19 insurer, which must be calculated by multiplying the amount of the
2-20 subsidiary's or affiliate's investment by the percentage of the
2-21 insurer's ownership of such subsidiary or affiliate; and
2-22 (4) with the prior approval of the commissioner,
2-23 invest any amount in common stock, preferred stock, debt
2-24 obligations, or other securities of one or more subsidiaries and
2-25 affiliates, but after such investment the insurer's surplus as
2-26 regards policyholders must be reasonable in relation to the
2-27 insurer's outstanding liabilities and adequate to its financial
2-28 needs.
2-29 SECTION 4. Section 6(d), Article 21.49-1, Insurance Code, is
2-30 amended to read as follows:
2-31 (d) Qualification of Investment. Whether any investment
2-32 under Subsection (b) hereof meets the applicable requirements
2-33 thereof is to be determined before the investment is made by
2-34 computing the applicable investment limitations as though the
2-35 investment has already been made, taking into account the principal
2-36 balance outstanding at the time of the computation on all previous
2-37 investments in debt obligations and the value of all previous
2-38 investments in equity securities as of the day the previous
2-39 investments were made, net of any return of capital invested, not
2-40 including dividends <on a pro forma basis as of the time
2-41 immediately after such investment is made, taking into account the
2-42 insurer's assets, liabilities, and surplus as regards
2-43 policyholders, the then outstanding principal balance of all
2-44 previous investments in debt obligations of subsidiaries and
2-45 affiliates, and the value of all previous investments in equity
2-46 securities of subsidiaries and affiliates>.
2-47 SECTION 5. Section 6A(a), Article 21.49-1, Insurance Code,
2-48 is amended to read as follows:
2-49 (a) For financial statement valuation purposes only, and not
2-50 to determine the amount invested in accordance with Section 6(b)(1)
2-51 of this article, valuation <Valuation> of an investment by an
2-52 insurer in a subsidiary or affiliate of an insurer, which is not
2-53 itself an insurer, shall be valued, subject to the additional
2-54 provisions of this section, on the basis of the greater of:
2-55 (1) the net stockholder equity value owned by the
2-56 insurer in the subsidiary or affiliate, adjusted to include the
2-57 value of only such of the assets of such subsidiary as would
2-58 constitute lawful investments for the insurer if acquired or held
2-59 directly by the insurer; or
2-60 (2) one of the following bases appropriate to each
2-61 type of subsidiary or affiliate owned by it, provided, however,
2-62 that an insurer shall not be required to value the stock of all its
2-63 subsidiaries or affiliates on the same basis:
2-64 (i) the net worth of the subsidiary or affiliate
2-65 determined in accordance with generally accepted accounting
2-66 principles as of the end of its most recent fiscal year, provided,
2-67 subject to the other provisions of this section, that the financial
2-68 statements of the subsidiary or affiliate for its most recent
2-69 fiscal year have been audited by an independent certified public
2-70 accountant in accordance with generally accepted auditing
3-1 standards; or
3-2 (ii) a value equal to the cost of the stock of
3-3 the subsidiary or affiliate, provided such value is determined and
3-4 adjusted to reflect subsequent operating results in accordance with
3-5 generally accepted accounting principles; or
3-6 (iii) the market value of the stock of the
3-7 subsidiary or affiliate, if the stock is listed on a national
3-8 securities exchange; or
3-9 (iv) the value, if any, placed on the stock of
3-10 such subsidiary or affiliate by the National Association of
3-11 Insurance Commissioners; or
3-12 (v) any other value which the insurer can
3-13 substantiate to the satisfaction of the commissioner as being a
3-14 reasonable value.
3-15 SECTION 6. Section 18, Article 21.49-1, Insurance Code, is
3-16 amended to read as follows:
3-17 Sec. 18. APPLICABILITY TO FOREIGN AND ALIEN INSURERS. (a)
3-18 Each Texas-licensed foreign insurer domiciled in a jurisdiction
3-19 which has not, by statute or regulation, adopted controls
3-20 considered by the Commissioner of Insurance of the State of Texas
3-21 to be substantially similar to those contained in this Article
3-22 shall be subject to all provisions of Article 21.49-1 of the
3-23 Insurance Code the same as Texas domestic insurers and is, in the
3-24 event of non-compliance therewith, subject to all of the remedies,
3-25 penalties, and sanctions authorized by the Insurance Code,
3-26 including, but not limited to, after notice and hearing, suspension
3-27 or revocation of certificate of authority to do business in Texas.
3-28 If, after the effective date of this Act, any domiciliary
3-29 jurisdictions adopt controls considered by the Commissioner of
3-30 Insurance of the State of Texas to be substantially similar to
3-31 those contained in this Article, the commissioner may thereafter
3-32 exempt insurers domiciled in said jurisdictions from the provisions
3-33 of this Section 18 of Article 21.49-1.
3-34 (b) A foreign or alien insurer is not subject to the
3-35 requirements of this Article if the commissioner has approved a
3-36 withdrawal plan for the insurer under Article 21.49-2C of this
3-37 code.
3-38 SECTION 7. This Act takes effect September 1, 1995.
3-39 SECTION 8. The importance of this legislation and the
3-40 crowded condition of the calendars in both houses create an
3-41 emergency and an imperative public necessity that the
3-42 constitutional rule requiring bills to be read on three several
3-43 days in each house be suspended, and this rule is hereby suspended.
3-44 * * * * *