By: Henderson S.B. No. 1544
A BILL TO BE ENTITLED
AN ACT
1-1 relating to amending certain provisions of the Insurance Code,
1-2 including those relating to authorized investments of insurers.
1-3 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-4 SECTION 1. Subsection (b), Section 3, Article 3.33,
1-5 Insurance Code, is amended to read as follows:
1-6 (b) The insurer shall maintain the investment plan in its
1-7 principal office and shall provide same to the commissioner or his
1-8 designee upon request, and such plans shall be maintained as a
1-9 privileged and confidential document by the Commissioner of
1-10 Insurance or his designee and it shall not be subject to public
1-11 disclosure. The insurer shall maintain investment records covering
1-12 each transaction. <Such investment records shall contain a
1-13 reference to the subsection of this article and, if appropriate,
1-14 other provision of law that authorizes the investment.> At all
1-15 times, the insurer shall be able to demonstrate that its
1-16 investments are within the limitations prescribed in this article.
1-17 SECTION 2. Section 4, Article 3.33, Insurance Code, is
1-18 amended to read as follows:
1-19 Sec. 4. Authorized Investments and Loans. Subject to the
1-20 limitations and restrictions herein contained, the investments and
1-21 loans described in the following subsections, and none other, are
1-22 authorized for the insurers subject hereto:
1-23 (a) United States Government Bonds. Bonds, evidences of
2-1 indebtedness or obligations of the United States of America, or
2-2 bonds, evidences of indebtedness or obligations guaranteed as to
2-3 principal and interest by the full faith and credit of the United
2-4 States of America, and bonds, evidences of indebtedness, or
2-5 obligations of agencies and instrumentalities of the government of
2-6 the United States of America;
2-7 (b) Other Governmental Bonds. Bonds, evidences of
2-8 indebtedness or obligations of governmental units in the United
2-9 States, Canada, or any province or city of Canada, and of the
2-10 instrumentalities of such governmental units; provided:
2-11 (1) such governmental unit or instrumentality is not
2-12 in default in the payment of principal or interest in any of its
2-13 obligations; and
2-14 (2) investments in the obligations of any one
2-15 governmental unit or instrumentality may not exceed 20 percent of
2-16 the insurer's capital and surplus;
2-17 (c) Obligations of Business Entities. Obligations,
2-18 including bonds or evidences of indebtedness, or participations in
2-19 those bonds or evidences of indebtedness, that are issued, assumed,
2-20 guaranteed, or insured by any business entity, including a sole
2-21 proprietorship, a corporation, an association, a general or limited
2-22 partnership, a joint-stock company, a joint venture, a trust, or
2-23 any other form of business organization, whether for-profit or
2-24 not-for-profit, that is organized under the laws of the United
2-25 States, another state, Canada, or any state, district, province, or
3-1 territory of Canada, subject to all conditions set forth below:
3-2 (1) an insurer may acquire obligations in any one
3-3 business entity rated one or two by the Securities Valuation Office
3-4 of the National Association of Insurance Commissioners, but not to
3-5 exceed 20 percent of the insurer's statutory capital and surplus as
3-6 reported in the most recent annual statement filed with the
3-7 department;
3-8 (2) an insurer may acquire obligations rated three or
3-9 lower by the Securities Valuation Office if, after giving effect to
3-10 such an acquisition, the aggregate amount of all obligations rated
3-11 three or lower then held by the domestic insurer does not exceed 20
3-12 percent of its admitted assets. Not more than 10 percent of the
3-13 admitted assets of that insurer may consist of obligations rated
3-14 four, five, or six by the Securities Valuation Office. Not more
3-15 than three percent of the admitted assets of that insurer may
3-16 consist of obligations rated five or six by the Securities
3-17 Valuation Office. Not more than one percent of the admitted assets
3-18 of that insurer may consist of obligations rated six by the
3-19 Securities Valuation Office. Attaining or exceeding the limit in
3-20 any one category does not preclude an insurer from acquiring
3-21 obligations in other categories, subject to the specific and
3-22 multi-category limits;
3-23 (3) an insurer may not invest more than an aggregate
3-24 of one percent of its admitted assets in obligations rated three by
3-25 the Securities Valuation Office that are issued, assumed,
4-1 guaranteed, or insured by any one business entity, or more than
4-2 one-half percent of its admitted assets in obligations rated four,
4-3 five, or six by the Securities Valuation Office that are issued,
4-4 assumed, guaranteed, or insured by any one business entity. An
4-5 insurer may not invest more than one percent of its admitted assets
4-6 in any obligations rated three, four, five, or six by the
4-7 Securities Valuation Office that are issued, assumed, guaranteed,
4-8 or insured by any one business entity;
4-9 (4) notwithstanding the foregoing, an insurer may
4-10 acquire an obligation of a business entity in which the insurer
4-11 already has one or more obligations if the obligation is acquired
4-12 in order to protect an investment previously made in that business
4-13 entity. Such acquired obligations may not exceed one-half percent
4-14 of the insurer's admitted assets; and
4-15 (5) this subsection does not prohibit an insurer from
4-16 acquiring an obligation as a result of a restructuring of an
4-17 already held obligation that is rated three or lower by the
4-18 Securities Valuation Office;
4-19 (d) International Market. Bonds issued, assumed, or
4-20 guaranteed by the Interamerican Development Bank, the International
4-21 Bank for Reconstruction and Development (the World Bank), the Asian
4-22 Development Bank, the State of Israel, the African Development
4-23 Bank, and the International Finance Corporation; provided:
4-24 (1) investments in the bonds of any one of the
4-25 entities specified above may not exceed 20 percent of the insurer's
5-1 capital and surplus; and
5-2 (2) the aggregate of all investments made under this
5-3 subsection may not exceed 20 percent of the insurer's assets;
5-4 (e) Policy Loans. Loans upon the security of the insurer's
5-5 own policies not in excess of the amount of the reserve values
5-6 thereof;
5-7 (f) Time and Savings Deposits. Any type or form of savings
5-8 deposits, time deposits, certificates of deposit, NOW accounts, and
5-9 money market accounts in solvent banks, savings and loan
5-10 associations, and credit unions and branches thereof, organized
5-11 under the laws of the United States of America or its states, when
5-12 made in accordance with the laws or regulations applicable to such
5-13 entities; provided the amount of the deposits in any one bank,
5-14 savings and loan association, or credit union will not exceed the
5-15 greater of:
5-16 (1) twenty percent of the insurer's capital and
5-17 surplus;
5-18 (2) the amount of federal or state deposit insurance
5-19 coverage pertaining to such deposit; or
5-20 (3) ten percent of the amount of capital, surplus, and
5-21 undivided profits of the entity receiving such deposits;
5-22 (g) Short-term Investment Pools. Short-term investment
5-23 pools subject to the following:
5-24 (1) ownership interests in pools that invest only in
5-25 obligations that an insurer may acquire under this article and
6-1 that:
6-2 (A)(i) have a remaining maturity of 397 days or
6-3 less or contain a put option that upon exercise entitles the pool
6-4 to receive the principal amount within 397 days and (ii) are rated
6-5 1 or 2 by the Securities Valuation Office of the National
6-6 Association of Insurance Commissioners;
6-7 (B)(i) have a rating of 1 or 2 by the Securities
6-8 Valuation Office and (ii) have a remaining maturity of three years
6-9 or less and (iii) have a floating interest rate that resets no less
6-10 frequently than quarterly on the basis of any one short-term index
6-11 (federal funds, prime rate, treasury bills, LIBOR, or commercial
6-12 paper) and (iv) are subject to no maximum limit, provided that no
6-13 obligation having an interest rate that changes inversely to market
6-14 interest rate changes shall be permitted; or
6-15 (C) money market funds on the Securities
6-16 Valuation Office Approved List of Exempt or Class 1 Money Market
6-17 Funds;
6-18 (2) the pool may engage in securities lending and
6-19 repurchase and reverse repurchase transactions in an amount up to
6-20 40 percent of pool assets, but may not incur indebtedness for any
6-21 other purpose or invest in any security issued, assumed,
6-22 guaranteed, or insured by the insurer or any of its affiliates;
6-23 provided, however, that such transactions are subject to Article
6-24 3.39-1 of this code and any applicable regulations of the
6-25 department;
7-1 (3) ownership interests in pools are subject to either
7-2 of the following limits:
7-3 (A) the maximum investment in one business
7-4 entity may not exceed 10 percent of the assets of the pool, and the
7-5 maximum investment by an insurer in a pool may not exceed 10
7-6 percent of the insurer's admitted assets; or
7-7 (B) provided that if the admitted assets of
7-8 either the insurer or the group of affiliated insurers exceed $1
7-9 billion, the insurer's pro rata share of each underlying asset
7-10 shall be aggregated with all other investments of the insurer for
7-11 purposes of determining compliance with this article;
7-12 (4) the pool assets shall be held in a separate
7-13 custodian account by a custodian bank for the benefit of each pool
7-14 participant as its interest may appear. The custodial agreement
7-15 and the pool agreement shall be in writing and the pool agreement
7-16 shall provide that:
7-17 (A) participation in the pool is restricted to
7-18 the insurer and its affiliates;
7-19 (B) the pool manager shall be organized under
7-20 the laws of the United States or a state and shall be the insurer,
7-21 an affiliate of the insurer, a commercial bank, or an investment
7-22 advisor registered under the Investment Advisors Act of 1940, as
7-23 amended (15 U.S.C. Section 80b-1 et seq.);
7-24 (C) the underlying assets are held solely for
7-25 the benefit of each participant, and each participant owns an
8-1 undivided interest in each underlying asset;
8-2 (D) each participant may withdraw from the pool
8-3 on demand without penalty or assessment on any business day;
8-4 (E) the fees and expenses of managing the pool
8-5 may be charged to the pool; and
8-6 (F) the pool manager is responsible for
8-7 maintaining accounting records of all transactions including a
8-8 complete description of all pool assets and each participant's
8-9 interest in the pool; these records shall be made available for
8-10 inspection by the commissioner, and an audit of pool accounting
8-11 records shall be conducted at least annually by an independent
8-12 auditor; and
8-13 (5) investment in pools shall not be deemed to be an
8-14 affiliate transaction under Article 21.49-1 of this code <Equipment
8-15 Trusts. Equipment trust obligations or certificates; provided:>
8-16 <(1) any such obligation or certificate is secured by
8-17 an interest in transportation equipment that is in whole or in part
8-18 within the United States of America;>
8-19 <(2) the obligation or certificate provides a right to
8-20 receive determined portions of rental, purchase, or other fixed
8-21 obligatory payments for the use or purchase of the transportation
8-22 equipment;>
8-23 <(3) the obligation is classified as an obligation of
8-24 a business entity and is subject to the limitations on obligations
8-25 of business entities set forth in Subsection (c) of this section;
9-1 and>
9-2 <(4) the aggregate of all investments made under this
9-3 subsection may not exceed 10 percent of the insurer's assets>;
9-4 (h) Equity Interests <Common Stock>. (i) Common stock of
9-5 any corporation organized under the laws of the United States of
9-6 America or any of its states, (ii) shares of mutual funds doing
9-7 business under the Investment Company Act of 1940 (15 U.S.C.
9-8 Section 80a-1 et seq.), other than money market funds as defined in
9-9 Subsection (s) of this section, (iii) <and> shares in real estate
9-10 investment trusts as defined in the Internal Revenue Code of 1954
9-11 (26 U.S.C. Section 856), and (iv) equity interests in any business
9-12 entity that is a limited liability partnership, limited liability
9-13 company, limited partnership, a limited partnership interest in a
9-14 joint venture, or trust that is organized under the laws of the
9-15 United States, another state, Canada, or any state, district,
9-16 province, or territory of Canada; provided:
9-17 (1) any such corporation, other than a mutual fund,
9-18 must be solvent with at least $1,000,000 net worth as of the date
9-19 of its latest annual or more recent certified audited financial
9-20 statement or will have at least $1,000,000 of net worth after
9-21 completion of a securities offering which is being subscribed to by
9-22 the insurer;
9-23 (2) mutual funds, other than money market funds as
9-24 defined in Subsection (s) of this section, and real estate
9-25 investment trusts must be solvent with at least $1,000,000 of net
10-1 assets as of the date of its latest annual or more recent certified
10-2 audited financial statement;
10-3 (3) investments in any one corporation, mutual fund,
10-4 other than a money market fund as defined in Subsection (s) of this
10-5 section, or real estate investment trust may not exceed 15 percent
10-6 of the insurer's capital and surplus; <and>
10-7 (4) the business entity shall be subject to an annual
10-8 audit by an independent certified public accountant or subject to
10-9 another method of valuation acceptable to the commissioner; and
10-10 (5) the aggregate of all investments made under this
10-11 subsection may not exceed 25 percent of the insurer's assets;
10-12 (i) Preferred Stock. Preferred stock of corporations
10-13 organized under the laws of the United States of America or any of
10-14 its states; provided:
10-15 (1) such corporation must be solvent with at least
10-16 $1,000,000 of net worth as of the date of its latest annual or more
10-17 recent certified audited financial statement or will have at least
10-18 $1,000,000 of net worth after completion of a security offering
10-19 which is being subscribed to by the insurer;
10-20 (2) investments in the preferred stock of any one
10-21 corporation will not exceed 20 percent of the insurer's capital and
10-22 surplus;
10-23 (3) in the aggregate not more than 10 percent of the
10-24 insurer's assets may be invested in preferred stock, the redemption
10-25 and retirement of which is not provided for by a sinking fund
11-1 meeting the standards established by the National Association of
11-2 Insurance Commissioners to value the preferred stock at cost; and
11-3 (4) the aggregate of all investments made under this
11-4 subsection may not exceed 40 percent of the insurer's assets;
11-5 (j) Collateral Loans. Collateral loans secured by a first
11-6 lien upon or a valid and perfected first security interest in an
11-7 asset; provided:
11-8 (1) the amount of any such collateral loan will not
11-9 exceed 80 percent of the value of the collateral asset at any time
11-10 during the duration of the loan; <and>
11-11 (2) the asset used as collateral would be authorized
11-12 for direct investment by the insurer under other provisions of this
11-13 Section 4, except real property in Subsection (l); and
11-14 (3) notwithstanding anything contained herein to the
11-15 contrary, this subsection does not apply to obligations qualified
11-16 under Subsection (c) of this section;
11-17 (k) Real Estate Loans. Notes, evidences of indebtedness, or
11-18 participations therein secured by a valid first lien upon real
11-19 property or leasehold estate therein located in the United States
11-20 of America; provided:
11-21 (1) the amount of any such obligation secured by a
11-22 first lien upon real property or leasehold estate therein shall not
11-23 exceed 90 percent of the value of such real property or leasehold
11-24 estate therein, but the amount of such obligation:
11-25 (A) may exceed 90 percent but shall not exceed
12-1 100 percent of the value of such real property or leasehold estate
12-2 therein if the insurer or one or more wholly owned subsidiaries of
12-3 the insurer owns in the aggregate a 10 percent or greater equity
12-4 interest in such real property or leasehold estate therein;
12-5 (B) may be 95 percent of the value of such real
12-6 property or leasehold estate therein if it contains only a dwelling
12-7 designed exclusively for occupancy by not more than four families
12-8 for residential purposes, and the portion of the unpaid balance of
12-9 such obligation which is in excess of an amount equal to 90 percent
12-10 of such value is guaranteed or insured by a mortgage insurance
12-11 company qualified to do business in the State of Texas; <or>
12-12 (C) may be greater than 90 percent of the value
12-13 of such real property or leasehold estate therein to the extent the
12-14 obligation is insured or guaranteed by the United States of
12-15 America, the Federal Housing Administration pursuant to the
12-16 National Housing Act of 1934, as amended (12 U.S.C. Section 1701 et
12-17 seq.), or the State of Texas; or
12-18 (D) may exceed 90 percent if that portion of the
12-19 loan which does not exceed 90 percent of the value of such real
12-20 property or leasehold estate therein is deemed to be a permitted
12-21 investment under Subsection (l) of this section, and the remainder
12-22 of the loan in excess of the 90 percent limit is deemed to be made
12-23 under Subsection (o) of this section; and
12-24 (2) the term of an obligation secured by a first lien
12-25 upon a leasehold estate in real property shall not exceed a period
13-1 equal to four-fifths of the then unexpired term of such leasehold
13-2 estate; provided the unexpired term of the leasehold estate must
13-3 extend at least 10 years beyond the term of the obligation, and
13-4 each obligation shall be payable in an installment or installments
13-5 of sufficient amount or amounts so that at any time after the
13-6 expiration of two-thirds of the original loan term, the principal
13-7 balance will be no greater than the principal balance would have
13-8 been if the loan had been amortized over the original loan term in
13-9 equal monthly, quarterly, semiannual, or annual payments of
13-10 principal and interest, it being required that under any method of
13-11 repayment such obligation will fully amortize during a period of
13-12 time not exceeding four-fifths of the then unexpired term of the
13-13 security leasehold estate; and
13-14 (3) if any part of the value of buildings is to be
13-15 included in the value of such real property or leasehold estate
13-16 therein to secure the obligations provided for in this subsection,
13-17 such buildings shall be covered by adequate property insurance,
13-18 including but not limited to fire and extended coverage insurance
13-19 issued by a company authorized to transact business in the State of
13-20 Texas or by a company recognized as acceptable for such purpose by
13-21 the insurance regulatory official of the state in which such real
13-22 estate is located, and the amount of insurance granted in the
13-23 policy or policies shall be not less than the unpaid balance of the
13-24 obligation or the insurable value of such buildings, whichever is
13-25 the lesser; the loss clause shall be payable to the insurer as its
14-1 interest may appear; and
14-2 (4) to the extent any note, evidence of indebtedness,
14-3 or participation therein under this subsection represents an equity
14-4 interest in the underlying real property, the value of such equity
14-5 interest shall be determined at the time of execution of such note,
14-6 evidence of indebtedness, or participation therein and that portion
14-7 shall be designated as an investment subject to the provisions of
14-8 Subsection (l)(2) of this section; and
14-9 (5) the amount of any one such obligation may not
14-10 exceed 25 percent of the insurer's capital and surplus; and
14-11 (6) a first lien on real property may be purchased
14-12 after its origination if the first lien is insured by a mortgagee's
14-13 title policy issued to the original mortgagee that contains a
14-14 provision that inures the policy to the use and benefit of the
14-15 owners of the evidence of debt indicated in the policy and to any
14-16 subsequent owners of that evidence of debt, and if the insurer
14-17 maintains evidence of assignments or other transfers of the first
14-18 lien on real property to the insurer. An assignment or other
14-19 transfer to the insurer, duly recorded in the county in which the
14-20 real property is located, shall be presumed to create legal
14-21 ownership of the first lien by the insurer;
14-22 (l) Real Estate. Real property fee simple or leasehold
14-23 estates located within the United States of America, as follows:
14-24 (1) home and branch office real property or
14-25 participations therein, which must be materially enhanced in value
15-1 by the construction of durable, permanent-type buildings and other
15-2 improvements costing an amount at least equal to the cost of such
15-3 real property, exclusive of buildings and improvements at the time
15-4 of acquisition, or by the construction of such buildings and
15-5 improvements which must be commenced within two years of the date
15-6 of the acquisition of such real property; provided:
15-7 (A) at least 30 percent of the available space
15-8 in such building shall be occupied for the business purposes of the
15-9 insurer and its affiliates; and
15-10 (B) the aggregate investment in such home and
15-11 branch offices shall not exceed 20 percent of the insurer's assets;
15-12 and
15-13 (2) other investment property or participations
15-14 therein, which must be materially enhanced in value by the
15-15 construction of durable, permanent-type buildings and other
15-16 improvements costing an amount at least equal to the cost of such
15-17 real property, exclusive of buildings and improvements at the time
15-18 of acquisition, or by the construction of such buildings and
15-19 improvements which must be commenced within two years of the date
15-20 of acquisition of such real property; provided that such investment
15-21 in any one piece of property or interest therein, including the
15-22 improvements, fixtures, and equipment pertaining thereto may not
15-23 exceed five percent of the insurer's assets; provided, however,
15-24 nothing in this article shall allow ownership of, development of,
15-25 or equity interest in any residential property or subdivision,
16-1 single or multiunit family dwelling property, or undeveloped real
16-2 estate for the purpose of subdivision for or development of
16-3 residential, single, or multiunit family dwellings, except
16-4 acquisitions as provided in Subdivision (4) below, and such
16-5 ownership, development, or equity interests shall be specifically
16-6 prohibited;
16-7 (3) the admissible asset value of each such investment
16-8 in the properties acquired under Subdivisions (1) and (2) of this
16-9 subsection shall be subject to review and approval by the
16-10 Commissioner of Insurance. The commissioner shall have discretion
16-11 at the time such investment is made or any time when an examination
16-12 of the company is being made to cause any such investment to be
16-13 appraised by an appraiser, appointed by the commissioner, and the
16-14 reasonable expense of such appraisal shall be paid by such
16-15 insurance company and shall be deemed to be a part of the expense
16-16 of examination of such company; if the appraisal is made upon
16-17 application of the company, the expense of such appraisal shall not
16-18 be considered a part of the expense of examination of such company;
16-19 no insurance company may hereafter make any write-up in the
16-20 valuation of any of the properties described in Subdivision (1) or
16-21 (2) of this subsection unless and until it makes application
16-22 therefor and such increase in valuation shall be approved by the
16-23 commissioner; and
16-24 (4) other real property acquired:
16-25 (A) in good faith by way of security for loans
17-1 previously contracted or money due; or
17-2 (B) in satisfaction of debts previously
17-3 contracted for in the course of its dealings; or
17-4 (C) by purchase at sales under judgment or
17-5 decrees of court, or mortgage or other lien held by such insurer;
17-6 and
17-7 (5) regardless of the mode of acquisition specified
17-8 herein, upon sale of any such real property, the fee title to the
17-9 mineral estate or any portion thereof may be retained by the
17-10 insurance company indefinitely;
17-11 (m) Oil, Gas, and Minerals. In addition to and without
17-12 limitation on the purposes for which real property may be acquired,
17-13 secured, held, or retained pursuant to other provisions of this
17-14 section, every such insurance company may, either directly or
17-15 through a business entity, secure, hold, retain, and convey
17-16 production payments, producing royalties and producing overriding
17-17 royalties, or participations therein as an investment for the
17-18 production of income; provided:
17-19 (1) in no event may such company carry such assets in
17-20 an amount in excess of 90 percent of the appraised value thereof;
17-21 and
17-22 (2) no one investment under this subsection may exceed
17-23 10 percent of the insurer's capital and surplus in excess of
17-24 statutory minimum capital and surplus applicable to that insurer,
17-25 and the aggregate of all such investments may not exceed 10 percent
18-1 of the insurer's assets as of December 31st next preceding the date
18-2 of such investment; and
18-3 (3) for the purposes of this subsection, the following
18-4 definitions apply:
18-5 (A) a production payment is defined to mean a
18-6 right to oil, gas, or other minerals in place or as produced that
18-7 entitles its owner to a specified fraction of production until a
18-8 specified sum of money, or a specified number of units of oil, gas,
18-9 or other minerals, has been received;
18-10 (B) a royalty and an overriding royalty are each
18-11 defined to mean a right to oil, gas, and other minerals in place or
18-12 as produced that entitles the owner to a specified fraction of
18-13 production without limitation to a specified sum of money or a
18-14 specified number of units of oil, gas, or other minerals;
18-15 (C) "producing" is defined to mean producing
18-16 oil, gas, or other minerals in paying quantities, provided that it
18-17 shall be deemed that oil, gas, or other minerals are being produced
18-18 in paying quantities if a well has been "shut in" and "shut-in
18-19 royalties" are being paid;
18-20 (n) Foreign Countries and United States Territories. In
18-21 addition to the investments in Canada authorized in other
18-22 subsections of this section, investments in other foreign countries
18-23 or in commonwealths, territories, or possessions of the United
18-24 States; provided:
18-25 (1) such investments are similar to those authorized
19-1 for investment within the United States of America or Canada by
19-2 other provisions of this section and are rated one or two by the
19-3 Securities Valuation Office of the National Association of
19-4 Insurance Commissioners; and
19-5 (2) such investments when added to the amount of
19-6 similar investments made within the United States and Canada do not
19-7 result in the combined total of such investments exceeding the
19-8 limitations specified in Subsections (a) through (p) of this
19-9 section; and
19-10 (3) such investments may not exceed the sum of:
19-11 (A) the amount of reserves attributable to the
19-12 business in force in said countries, if any, and any additional
19-13 investments required by any country as a condition to doing
19-14 business therein; and
19-15 (B) 20 <five> percent of the insurer's assets;
19-16 (o) Investments Not Otherwise Specified. Investments which
19-17 are not otherwise authorized by this article and which are not
19-18 specifically prohibited by statute, including that portion of any
19-19 investments which may exceed the limits specified in Subsections
19-20 (a) through (n) of this section; provided:
19-21 (1) if any aggregate or individual specified
19-22 investment limitation in Subsections (a) through (n) of this
19-23 section is exceeded, then the excess portion of such investment
19-24 shall be an investment under this subsection; and
19-25 (2) the burden of establishing the value of such
20-1 investments shall be upon the insurer; and
20-2 (3) the amount of any one such investment may not
20-3 exceed 10 percent of the insurer's capital and surplus in excess of
20-4 the statutory minimum capital and surplus applicable to that
20-5 insurer; and
20-6 (4) the aggregate of all investments made under this
20-7 subsection may not exceed the lesser of either five percent of the
20-8 insurer's assets or the insurer's capital and surplus in excess of
20-9 the statutory minimum capital and surplus applicable to that
20-10 insurer;
20-11 (p) Other Authorized Investments. Those other investments
20-12 as follows:
20-13 (1) any investment held by an insurer on the effective
20-14 date of this Act, which was legally authorized at the time it was
20-15 made or acquired or which the insurer was authorized to hold or
20-16 possess immediately prior to such effective date, but which does
20-17 not conform to the requirements of the investments authorized in
20-18 Subsections (a) through (o) of this section, may continue to be
20-19 held by and considered as an admitted asset of the insurer;
20-20 provided the investment is disposed of at its maturity date, if
20-21 any, or within the time prescribed by the law under which it was
20-22 acquired, if any; and provided further, in no event shall the
20-23 provisions of this subdivision alter the legal or accounting status
20-24 of such asset; and
20-25 (2) any other investment which may be authorized by
21-1 other provisions of this code or by other laws of this state for
21-2 the insurers which are subject to this article.
21-3 (q) Special Limitations for Certain Fixed Annuity Insurers.
21-4 The quantitative limitations imposed above in Subsections (b)(2),
21-5 (c)(1) <(c)(2)>, (f)(1), (g)(3), (h)(3), (i)(2), and (k)(5) of this
21-6 section shall not apply to any insurer with assets in excess of
21-7 $2,500,000,000 and that receives more than 90 percent of its
21-8 premium income from fixed rate annuity contracts and that has more
21-9 than 90 percent of its assets allocated to its reserves held for
21-10 fixed rate annuity contracts, excluding, however, any premium
21-11 income, assets, and reserves received from, held for, or allocated
21-12 to separate accounts from the computation of the above percentages,
21-13 and in lieu thereof, the following quantitative limitations shall
21-14 apply to such insurers:
21-15 (1) the limitation in Subsection (b)(2) of this
21-16 section shall be two percent of the insurer's assets;
21-17 (2) the limitation in Subsection (c)(1) <(c)(2)> of
21-18 this section shall be two percent of the insurer's assets;
21-19 (3) the limitation in Subsection (f)(1) of this
21-20 section shall be two percent of the insurer's assets;
21-21 (4) the limitation in Subsection (g)(3) of this
21-22 section shall be one percent of the insurer's assets;
21-23 (5) the limitation in Subsection (h)(3) of this
21-24 section shall be one percent of the insurer's assets;
21-25 (6) the limitation in Subsection (i)(2) of this
22-1 section shall be two percent of the insurer's assets; and
22-2 (7) the limitation in Subsection (k)(5) of this
22-3 section shall be two percent of the insurer's assets;<.>
22-4 (r) Premium Loans. Loans to finance the payment of premiums
22-5 for the insurer's own insurance policies or annuity contracts;
22-6 provided that the amount of any such loan does not exceed the sum
22-7 of: (i) the available cash value of such insurance policy or
22-8 annuity contract; and (ii) the amount of any escrowed commissions
22-9 payable relating to such insurance policy or annuity contract for
22-10 which the premium loan is made; and
22-11 (s) Money Market Funds. (1) Money market funds as defined
22-12 by 17 CFR 270.2a-7 under the Investment Company Act of 1940 (15
22-13 U.S.C. 80a-1 et seq.) that meet the following additional
22-14 conditions:
22-15 (A) the funds invest 100 percent of total assets
22-16 in United States treasury bills, notes, and bonds, and
22-17 collateralized repurchase agreements composed of those obligations
22-18 at all times;
22-19 (B) the funds invest 100 percent of total assets
22-20 in other full faith and credit instruments of the United States; or
22-21 (C) the funds invest at least 95 percent of
22-22 total assets in exempt securities, short-term debt instruments with
22-23 a maturity of 397 days or less, class one bonds, and collateralized
22-24 repurchase agreements composed of those securities at all times;
22-25 (2) For purposes of complying with Subsection (h) of
23-1 this section, money market funds qualifying for listing within
23-2 these categories must conform to the purpose and procedures manual
23-3 of the valuation of securities manual of the National Association
23-4 of Insurance Commissioners;<.>
23-5 (t) The percentage authorizations and limitations set forth
23-6 in any and all of the provisions of this section shall apply at the
23-7 time of originally making such investments and shall not be
23-8 applicable to the company or such investment thereafter except as
23-9 provided in Subsection (v) of this section. In addition, any
23-10 investment, once qualified under any subsection of this section,
23-11 shall remain qualified notwithstanding any refinancing,
23-12 restructuring or modification of such investment.
23-13 (u) Distributions, Reinsurance, and Merger. No provision of
23-14 this article prohibits the acquisition by an insurer of additional
23-15 obligations, securities, or other assets if received as a dividend
23-16 or as a distribution of assets, nor does this article apply to
23-17 securities, obligations, or other assets accepted incident to the
23-18 adjustment or realization of any kind of investment, when deemed by
23-19 the insurer's board of directors or by a committee appointed by the
23-20 board of directors to be in the best interests of the insurer, if
23-21 the debt or investment had previously qualified as an admitted
23-22 asset, nor does this article apply to assets acquired pursuant to a
23-23 lawful agreement of bulk reinsurance, merger, or consolidation if
23-24 such assets constituted legal and admissible investments for the
23-25 ceding, merged, or consolidated company. No obligation, security,
24-1 or other asset acquired as permitted by this subsection need be
24-2 qualified under any other subsection of this article.
24-3 (v) Qualification of Investments. The qualification or
24-4 disqualification of an investment under one subsection of this
24-5 section does not prevent its qualification in whole or in part
24-6 under another subsection, and an investment authorized by more than
24-7 one subsection may be held under whichever authorizing subsection
24-8 the insurer elects. An investment or investment practice qualified
24-9 under any subsection at the time it was acquired or entered into by
24-10 the company shall continue to be qualified under that subsection.
24-11 An investment, in whole or in part, may be transferred from time to
24-12 time, at the election of the insurer, to the authority of any
24-13 subsection under which it qualifies, whether originally qualifying
24-14 thereunder or not.
24-15 SECTION 3. Subsections (a) and (d), Section 7, Article
24-16 21.28-D, Insurance Code, are amended to read as follows:
24-17 (a) The Commissioner <State Board> of Insurance shall
24-18 appoint a board of directors of the association consisting of nine
24-19 members, three of whom shall be chosen from employees or officers
24-20 chosen from the 50 <ten> member companies having the largest total
24-21 direct premium income based on the latest financial statement on
24-22 file at date of appointment, two of whom shall be chosen from the
24-23 other companies to give fair representation to member insurers
24-24 based on due consideration of their varying categories of premium
24-25 income and geographical location, and four of whom shall be
25-1 representatives of the general public. Members serve for six-year
25-2 staggered terms, with the terms of three members expiring each
25-3 odd-numbered year. All directors shall serve until their
25-4 successors are appointed, except that in the case of any vacancy,
25-5 the unexpired term of office shall be filled by the appointment of
25-6 a director by the Commissioner <State Board> of Insurance. If a
25-7 director ceases to be an officer or employee of a member insurer
25-8 during the director's term of office, that office becomes vacant
25-9 until the director's successor is appointed. All directors are
25-10 eligible to succeed themselves in office. A public representative
25-11 may not be:
25-12 (1) an officer, director, or employee of an insurance
25-13 company, insurance agency, agent, broker, solicitor, adjuster, or
25-14 any other business entity regulated by the department <State Board
25-15 of Insurance>;
25-16 (2) a person required to register with the secretary
25-17 of state under Chapter 305, Government Code; or
25-18 (3) related to a person described by Subparagraph (1)
25-19 or (2) of this paragraph within the second degree of affinity or
25-20 consanguinity.
25-21 (d) A director of the association <or any member company or
25-22 other entity represented by the director> may not receive any money
25-23 or valuable thing directly, indirectly, or through any substantial
25-24 interest in any other corporation, firm, or business unit for
25-25 negotiating, procuring, participating, recommending, or aiding in a
26-1 transaction, reinsurance agreement, merger, purchase, sale,
26-2 contribution, or exchange of assets, policies of insurance, or
26-3 property made by the association or the supervisor, conservator, or
26-4 receiver on behalf of an impaired insurer. The director of the
26-5 association<, company, or entity> may not have a pecuniary interest
26-6 <be pecuniarily or contractually interested>, as principal,
26-7 co-principal, agent, or beneficiary, directly, indirectly, or
26-8 through any substantial interest in any other corporation, firm, or
26-9 business unit, in the transaction, reinsurance agreement, merger,
26-10 purchase, sale, contribution, or exchange.
26-11 SECTION 4. Section 5, Article 21.39-B, Insurance Code, is
26-12 repealed.
26-13 SECTION 5. This Act takes effect September 1, 1995.
26-14 SECTION 6. The importance of this legislation and the
26-15 crowded condition of the calendars in both houses create an
26-16 emergency and an imperative public necessity that the
26-17 constitutional rule requiring bills to be read on three several
26-18 days in each house be suspended, and this rule is hereby suspended.