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
1-24 indebtedness or obligations of the United States of America, or
2-1 bonds, evidences of indebtedness or obligations guaranteed as to
2-2 principal and interest by the full faith and credit of the United
2-3 States of America, and bonds, evidences of indebtedness, or
2-4 obligations of agencies and instrumentalities of the government of
2-5 the United States of America;
2-6 (b) Other Governmental Bonds. Bonds, evidences of
2-7 indebtedness or obligations of governmental units in the United
2-8 States, Canada, or any province or city of Canada, and of the
2-9 instrumentalities of such governmental units; provided:
2-10 (1) such governmental unit or instrumentality is not
2-11 in default in the payment of principal or interest in any of its
2-12 obligations; and
2-13 (2) investments in the obligations of any one
2-14 governmental unit or instrumentality may not exceed 20 percent of
2-15 the insurer's capital and surplus;
2-16 (c) Obligations of Business Entities. Obligations,
2-17 including bonds or evidences of indebtedness, or participations in
2-18 those bonds or evidences of indebtedness, that are issued, assumed,
2-19 guaranteed, or insured by any business entity, including a sole
2-20 proprietorship, a corporation, an association, a general or limited
2-21 partnership, a joint-stock company, a joint venture, a trust, or
2-22 any other form of business organization, whether for-profit or
2-23 not-for-profit, that is organized under the laws of the United
2-24 States, another state, Canada, or any state, district, province, or
2-25 territory of Canada, subject to all conditions set forth below:
2-26 (1) an insurer may acquire obligations in any one
2-27 business entity rated one or two by the Securities Valuation Office
3-1 of the National Association of Insurance Commissioners, but not to
3-2 exceed 20 percent of the insurer's statutory capital and surplus as
3-3 reported in the most recent annual statement filed with the
3-4 department;
3-5 (2) an insurer may acquire obligations rated three or
3-6 lower by the Securities Valuation Office if, after giving effect to
3-7 such an acquisition, the aggregate amount of all obligations rated
3-8 three or lower then held by the domestic insurer does not exceed 20
3-9 percent of its admitted assets. Not more than 10 percent of the
3-10 admitted assets of that insurer may consist of obligations rated
3-11 four, five, or six by the Securities Valuation Office. Not more
3-12 than three percent of the admitted assets of that insurer may
3-13 consist of obligations rated five or six by the Securities
3-14 Valuation Office. Not more than one percent of the admitted assets
3-15 of that insurer may consist of obligations rated six by the
3-16 Securities Valuation Office. Attaining or exceeding the limit in
3-17 any one category does not preclude an insurer from acquiring
3-18 obligations in other categories, subject to the specific and
3-19 multi-category limits;
3-20 (3) an insurer may not invest more than an aggregate
3-21 of one percent of its admitted assets in obligations rated three by
3-22 the Securities Valuation Office that are issued, assumed,
3-23 guaranteed, or insured by any one business entity, or more than
3-24 one-half percent of its admitted assets in obligations rated four,
3-25 five, or six by the Securities Valuation Office that are issued,
3-26 assumed, guaranteed, or insured by any one business entity. An
3-27 insurer may not invest more than one percent of its admitted assets
4-1 in any obligations rated three, four, five, or six by the
4-2 Securities Valuation Office that are issued, assumed, guaranteed,
4-3 or insured by any one business entity;
4-4 (4) notwithstanding the foregoing, an insurer may
4-5 acquire an obligation of a business entity in which the insurer
4-6 already has one or more obligations if the obligation is acquired
4-7 in order to protect an investment previously made in that business
4-8 entity. Such acquired obligations may not exceed one-half percent
4-9 of the insurer's admitted assets; and
4-10 (5) this subsection does not prohibit an insurer from
4-11 acquiring an obligation as a result of a restructuring of an
4-12 already held obligation that is rated three or lower by the
4-13 Securities Valuation Office;
4-14 (d) International Market. Bonds issued, assumed, or
4-15 guaranteed by the Interamerican Development Bank, the International
4-16 Bank for Reconstruction and Development (the World Bank), the Asian
4-17 Development Bank, the State of Israel, the African Development
4-18 Bank, and the International Finance Corporation; provided:
4-19 (1) investments in the bonds of any one of the
4-20 entities specified above may not exceed 20 percent of the insurer's
4-21 capital and surplus; and
4-22 (2) the aggregate of all investments made under this
4-23 subsection may not exceed 20 percent of the insurer's assets;
4-24 (e) Policy Loans. Loans upon the security of the insurer's
4-25 own policies not in excess of the amount of the reserve values
4-26 thereof;
4-27 (f) Time and Savings Deposits. Any type or form of savings
5-1 deposits, time deposits, certificates of deposit, NOW accounts, and
5-2 money market accounts in solvent banks, savings and loan
5-3 associations, and credit unions and branches thereof, organized
5-4 under the laws of the United States of America or its states, when
5-5 made in accordance with the laws or regulations applicable to such
5-6 entities; provided the amount of the deposits in any one bank,
5-7 savings and loan association, or credit union will not exceed the
5-8 greater of:
5-9 (1) twenty percent of the insurer's capital and
5-10 surplus;
5-11 (2) the amount of federal or state deposit insurance
5-12 coverage pertaining to such deposit; or
5-13 (3) ten percent of the amount of capital, surplus, and
5-14 undivided profits of the entity receiving such deposits;
5-15 (g) Short-term Investment Pools. Short-term investment
5-16 pools subject to the following:
5-17 (1) ownership interests in pools that invest only in
5-18 obligations that an insurer may acquire under this article and
5-19 that:
5-20 (A)(i) have a remaining maturity of 397 days or
5-21 less or contain a put option that upon exercise entitles the pool
5-22 to receive the principal amount within 397 days and (ii) are rated
5-23 1 or 2 by the Securities Valuation Office of the National
5-24 Association of Insurance Commissioners;
5-25 (B)(i) have a rating of 1 or 2 by the Securities
5-26 Valuation Office and (ii) have a remaining maturity of three years
5-27 or less and (iii) have a floating interest rate that resets no less
6-1 frequently than quarterly on the basis of any one short-term index
6-2 (federal funds, prime rate, treasury bills, LIBOR, or commercial
6-3 paper) and (iv) are subject to no maximum limit, provided that no
6-4 obligation having an interest rate that changes inversely to market
6-5 interest rate changes shall be permitted; or
6-6 (C) money market funds on the Securities
6-7 Valuation Office Approved List of Exempt or Class 1 Money Market
6-8 Funds;
6-9 (2) the pool may engage in securities lending and
6-10 repurchase and reverse repurchase transactions in an amount up to
6-11 40 percent of pool assets, but may not incur indebtedness for any
6-12 other purpose or invest in any security issued, assumed,
6-13 guaranteed, or insured by the insurer or any of its affiliates;
6-14 provided, however, that such transactions are subject to Article
6-15 3.39-1 of this code and any applicable regulations of the
6-16 department;
6-17 (3) ownership interests in pools are subject to either
6-18 of the following limits:
6-19 (A) the maximum investment in one business
6-20 entity may not exceed 10 percent of the assets of the pool, and the
6-21 maximum investment by an insurer in a pool may not exceed 10
6-22 percent of the insurer's admitted assets; or
6-23 (B) provided that if the admitted assets of
6-24 either the insurer or the group of affiliated insurers exceed $1
6-25 billion, the insurer's pro rata share of each underlying asset
6-26 shall be aggregated with all other investments of the insurer for
6-27 purposes of determining compliance with this article;
7-1 (4) the pool assets shall be held in a separate
7-2 custodian account by a custodian bank for the benefit of each pool
7-3 participant as its interest may appear. The custodial agreement
7-4 and the pool agreement shall be in writing and the pool agreement
7-5 shall provide that:
7-6 (A) participation in the pool is restricted to
7-7 the insurer and its affiliates;
7-8 (B) the pool manager shall be organized under
7-9 the laws of the United States or a state and shall be the insurer,
7-10 an affiliate of the insurer, a commercial bank, or an investment
7-11 advisor registered under the Investment Advisors Act of 1940, as
7-12 amended (15 U.S.C. Section 80b-1 et seq.);
7-13 (C) the underlying assets are held solely for
7-14 the benefit of each participant, and each participant owns an
7-15 undivided interest in each underlying asset;
7-16 (D) each participant may withdraw from the pool
7-17 on demand without penalty or assessment on any business day;
7-18 (E) the fees and expenses of managing the pool
7-19 may be charged to the pool; and
7-20 (F) the pool manager is responsible for
7-21 maintaining accounting records of all transactions including a
7-22 complete description of all pool assets and each participant's
7-23 interest in the pool; these records shall be made available for
7-24 inspection by the commissioner, and an audit of pool accounting
7-25 records shall be conducted at least annually by an independent
7-26 auditor; and
7-27 (5) investment in pools shall not be deemed to be an
8-1 affiliate transaction under Article 21.49-1 of this code <Equipment
8-2 Trusts. Equipment trust obligations or certificates; provided:>
8-3 <(1) any such obligation or certificate is secured by
8-4 an interest in transportation equipment that is in whole or in part
8-5 within the United States of America;>
8-6 <(2) the obligation or certificate provides a right to
8-7 receive determined portions of rental, purchase, or other fixed
8-8 obligatory payments for the use or purchase of the transportation
8-9 equipment;>
8-10 <(3) the obligation is classified as an obligation of
8-11 a business entity and is subject to the limitations on obligations
8-12 of business entities set forth in Subsection (c) of this section;
8-13 and>
8-14 <(4) the aggregate of all investments made under this
8-15 subsection may not exceed 10 percent of the insurer's assets>;
8-16 (h) Equity Interests <Common Stock>. (i) Common stock of
8-17 any corporation organized under the laws of the United States of
8-18 America or any of its states, (ii) shares of mutual funds doing
8-19 business under the Investment Company Act of 1940 (15 U.S.C.
8-20 Section 80a-1 et seq.), other than money market funds as defined in
8-21 Subsection (s) of this section, (iii) <and> shares in real estate
8-22 investment trusts as defined in the Internal Revenue Code of 1954
8-23 (26 U.S.C. Section 856), and (iv) equity interests in any business
8-24 entity that is a limited liability partnership, limited liability
8-25 company, limited partnership, a limited partnership interest in a
8-26 joint venture, or trust that is organized under the laws of the
8-27 United States, another state, Canada, or any state, district,
9-1 province, or territory of Canada; provided:
9-2 (1) any such corporation, other than a mutual fund,
9-3 must be solvent with at least $1,000,000 net worth as of the date
9-4 of its latest annual or more recent certified audited financial
9-5 statement or will have at least $1,000,000 of net worth after
9-6 completion of a securities offering which is being subscribed to by
9-7 the insurer;
9-8 (2) mutual funds, other than money market funds as
9-9 defined in Subsection (s) of this section, and real estate
9-10 investment trusts must be solvent with at least $1,000,000 of net
9-11 assets as of the date of its latest annual or more recent certified
9-12 audited financial statement;
9-13 (3) investments in any one corporation, mutual fund,
9-14 other than a money market fund as defined in Subsection (s) of this
9-15 section, or real estate investment trust may not exceed 15 percent
9-16 of the insurer's capital and surplus; <and>
9-17 (4) the business entity shall be subject to an annual
9-18 audit by an independent certified public accountant or subject to
9-19 another method of valuation acceptable to the commissioner; and
9-20 (5) the aggregate of all investments made under this
9-21 subsection may not exceed 25 percent of the insurer's assets;
9-22 (i) Preferred Stock. Preferred stock of corporations
9-23 organized under the laws of the United States of America or any of
9-24 its states; provided:
9-25 (1) such corporation must be solvent with at least
9-26 $1,000,000 of net worth as of the date of its latest annual or more
9-27 recent certified audited financial statement or will have at least
10-1 $1,000,000 of net worth after completion of a security offering
10-2 which is being subscribed to by the insurer;
10-3 (2) investments in the preferred stock of any one
10-4 corporation will not exceed 20 percent of the insurer's capital and
10-5 surplus;
10-6 (3) in the aggregate not more than 10 percent of the
10-7 insurer's assets may be invested in preferred stock, the redemption
10-8 and retirement of which is not provided for by a sinking fund
10-9 meeting the standards established by the National Association of
10-10 Insurance Commissioners to value the preferred stock at cost; and
10-11 (4) the aggregate of all investments made under this
10-12 subsection may not exceed 40 percent of the insurer's assets;
10-13 (j) Collateral Loans. Collateral loans secured by a first
10-14 lien upon or a valid and perfected first security interest in an
10-15 asset; provided:
10-16 (1) the amount of any such collateral loan will not
10-17 exceed 80 percent of the value of the collateral asset at any time
10-18 during the duration of the loan; <and>
10-19 (2) the asset used as collateral would be authorized
10-20 for direct investment by the insurer under other provisions of this
10-21 Section 4, except real property in Subsection (l); and
10-22 (3) notwithstanding anything contained herein to the
10-23 contrary, this subsection does not apply to obligations qualified
10-24 under Subsection (c) of this section;
10-25 (k) Real Estate Loans. Notes, evidences of indebtedness, or
10-26 participations therein secured by a valid first lien upon real
10-27 property or leasehold estate therein located in the United States
11-1 of America; provided:
11-2 (1) the amount of any such obligation secured by a
11-3 first lien upon real property or leasehold estate therein shall not
11-4 exceed 90 percent of the value of such real property or leasehold
11-5 estate therein, but the amount of such obligation:
11-6 (A) may exceed 90 percent but shall not exceed
11-7 100 percent of the value of such real property or leasehold estate
11-8 therein if the insurer or one or more wholly owned subsidiaries of
11-9 the insurer owns in the aggregate a 10 percent or greater equity
11-10 interest in such real property or leasehold estate therein;
11-11 (B) may be 95 percent of the value of such real
11-12 property or leasehold estate therein if it contains only a dwelling
11-13 designed exclusively for occupancy by not more than four families
11-14 for residential purposes, and the portion of the unpaid balance of
11-15 such obligation which is in excess of an amount equal to 90 percent
11-16 of such value is guaranteed or insured by a mortgage insurance
11-17 company qualified to do business in the State of Texas; <or>
11-18 (C) may be greater than 90 percent of the value
11-19 of such real property or leasehold estate therein to the extent the
11-20 obligation is insured or guaranteed by the United States of
11-21 America, the Federal Housing Administration pursuant to the
11-22 National Housing Act of 1934, as amended (12 U.S.C. Section 1701 et
11-23 seq.), or the State of Texas; or
11-24 (D) may exceed 90 percent if that portion of the
11-25 loan which does not exceed 90 percent of the value of such real
11-26 property or leasehold estate therein is deemed to be a permitted
11-27 investment under Subsection (l) of this section, and the remainder
12-1 of the loan in excess of the 90 percent limit is deemed to be made
12-2 under Subsection (o) of this section; and
12-3 (2) the term of an obligation secured by a first lien
12-4 upon a leasehold estate in real property shall not exceed a period
12-5 equal to four-fifths of the then unexpired term of such leasehold
12-6 estate; provided the unexpired term of the leasehold estate must
12-7 extend at least 10 years beyond the term of the obligation, and
12-8 each obligation shall be payable in an installment or installments
12-9 of sufficient amount or amounts so that at any time after the
12-10 expiration of two-thirds of the original loan term, the principal
12-11 balance will be no greater than the principal balance would have
12-12 been if the loan had been amortized over the original loan term in
12-13 equal monthly, quarterly, semiannual, or annual payments of
12-14 principal and interest, it being required that under any method of
12-15 repayment such obligation will fully amortize during a period of
12-16 time not exceeding four-fifths of the then unexpired term of the
12-17 security leasehold estate; and
12-18 (3) if any part of the value of buildings is to be
12-19 included in the value of such real property or leasehold estate
12-20 therein to secure the obligations provided for in this subsection,
12-21 such buildings shall be covered by adequate property insurance,
12-22 including but not limited to fire and extended coverage insurance
12-23 issued by a company authorized to transact business in the State of
12-24 Texas or by a company recognized as acceptable for such purpose by
12-25 the insurance regulatory official of the state in which such real
12-26 estate is located, and the amount of insurance granted in the
12-27 policy or policies shall be not less than the unpaid balance of the
13-1 obligation or the insurable value of such buildings, whichever is
13-2 the lesser; the loss clause shall be payable to the insurer as its
13-3 interest may appear; and
13-4 (4) to the extent any note, evidence of indebtedness,
13-5 or participation therein under this subsection represents an equity
13-6 interest in the underlying real property, the value of such equity
13-7 interest shall be determined at the time of execution of such note,
13-8 evidence of indebtedness, or participation therein and that portion
13-9 shall be designated as an investment subject to the provisions of
13-10 Subsection (l)(2) of this section; and
13-11 (5) the amount of any one such obligation may not
13-12 exceed 25 percent of the insurer's capital and surplus; and
13-13 (6) a first lien on real property may be purchased
13-14 after its origination if the first lien is insured by a mortgagee's
13-15 title policy issued to the original mortgagee that contains a
13-16 provision that inures the policy to the use and benefit of the
13-17 owners of the evidence of debt indicated in the policy and to any
13-18 subsequent owners of that evidence of debt, and if the insurer
13-19 maintains evidence of assignments or other transfers of the first
13-20 lien on real property to the insurer. An assignment or other
13-21 transfer to the insurer, duly recorded in the county in which the
13-22 real property is located, shall be presumed to create legal
13-23 ownership of the first lien by the insurer;
13-24 (l) Real Estate. Real property fee simple or leasehold
13-25 estates located within the United States of America, as follows:
13-26 (1) home and branch office real property or
13-27 participations therein, which must be materially enhanced in value
14-1 by the construction of durable, permanent-type buildings and other
14-2 improvements costing an amount at least equal to the cost of such
14-3 real property, exclusive of buildings and improvements at the time
14-4 of acquisition, or by the construction of such buildings and
14-5 improvements which must be commenced within two years of the date
14-6 of the acquisition of such real property; provided:
14-7 (A) at least 30 percent of the available space
14-8 in such building shall be occupied for the business purposes of the
14-9 insurer and its affiliates; and
14-10 (B) the aggregate investment in such home and
14-11 branch offices shall not exceed 20 percent of the insurer's assets;
14-12 and
14-13 (2) other investment property or participations
14-14 therein, which must be materially enhanced in value by the
14-15 construction of durable, permanent-type buildings and other
14-16 improvements costing an amount at least equal to the cost of such
14-17 real property, exclusive of buildings and improvements at the time
14-18 of acquisition, or by the construction of such buildings and
14-19 improvements which must be commenced within two years of the date
14-20 of acquisition of such real property; provided that such investment
14-21 in any one piece of property or interest therein, including the
14-22 improvements, fixtures, and equipment pertaining thereto may not
14-23 exceed five percent of the insurer's assets; provided, however,
14-24 nothing in this article shall allow ownership of, development of,
14-25 or equity interest in any residential property or subdivision,
14-26 single or multiunit family dwelling property, or undeveloped real
14-27 estate for the purpose of subdivision for or development of
15-1 residential, single, or multiunit family dwellings, except
15-2 acquisitions as provided in Subdivision (4) below, and such
15-3 ownership, development, or equity interests shall be specifically
15-4 prohibited;
15-5 (3) the admissible asset value of each such investment
15-6 in the properties acquired under Subdivisions (1) and (2) of this
15-7 subsection shall be subject to review and approval by the
15-8 Commissioner of Insurance. The commissioner shall have discretion
15-9 at the time such investment is made or any time when an examination
15-10 of the company is being made to cause any such investment to be
15-11 appraised by an appraiser, appointed by the commissioner, and the
15-12 reasonable expense of such appraisal shall be paid by such
15-13 insurance company and shall be deemed to be a part of the expense
15-14 of examination of such company; if the appraisal is made upon
15-15 application of the company, the expense of such appraisal shall not
15-16 be considered a part of the expense of examination of such company;
15-17 no insurance company may hereafter make any write-up in the
15-18 valuation of any of the properties described in Subdivision (1) or
15-19 (2) of this subsection unless and until it makes application
15-20 therefor and such increase in valuation shall be approved by the
15-21 commissioner; and
15-22 (4) other real property acquired:
15-23 (A) in good faith by way of security for loans
15-24 previously contracted or money due; or
15-25 (B) in satisfaction of debts previously
15-26 contracted for in the course of its dealings; or
15-27 (C) by purchase at sales under judgment or
16-1 decrees of court, or mortgage or other lien held by such insurer;
16-2 and
16-3 (5) regardless of the mode of acquisition specified
16-4 herein, upon sale of any such real property, the fee title to the
16-5 mineral estate or any portion thereof may be retained by the
16-6 insurance company indefinitely;
16-7 (m) Oil, Gas, and Minerals. In addition to and without
16-8 limitation on the purposes for which real property may be acquired,
16-9 secured, held, or retained pursuant to other provisions of this
16-10 section, every such insurance company may, either directly or
16-11 through a business entity, secure, hold, retain, and convey
16-12 production payments, producing royalties and producing overriding
16-13 royalties, or participations therein as an investment for the
16-14 production of income; provided:
16-15 (1) in no event may such company carry such assets in
16-16 an amount in excess of 90 percent of the appraised value thereof;
16-17 and
16-18 (2) no one investment under this subsection may exceed
16-19 10 percent of the insurer's capital and surplus in excess of
16-20 statutory minimum capital and surplus applicable to that insurer,
16-21 and the aggregate of all such investments may not exceed 10 percent
16-22 of the insurer's assets as of December 31st next preceding the date
16-23 of such investment; and
16-24 (3) for the purposes of this subsection, the following
16-25 definitions apply:
16-26 (A) a production payment is defined to mean a
16-27 right to oil, gas, or other minerals in place or as produced that
17-1 entitles its owner to a specified fraction of production until a
17-2 specified sum of money, or a specified number of units of oil, gas,
17-3 or other minerals, has been received;
17-4 (B) a royalty and an overriding royalty are each
17-5 defined to mean a right to oil, gas, and other minerals in place or
17-6 as produced that entitles the owner to a specified fraction of
17-7 production without limitation to a specified sum of money or a
17-8 specified number of units of oil, gas, or other minerals;
17-9 (C) "producing" is defined to mean producing
17-10 oil, gas, or other minerals in paying quantities, provided that it
17-11 shall be deemed that oil, gas, or other minerals are being produced
17-12 in paying quantities if a well has been "shut in" and "shut-in
17-13 royalties" are being paid;
17-14 (n) Foreign Countries and United States Territories. In
17-15 addition to the investments in Canada authorized in other
17-16 subsections of this section, investments in other foreign countries
17-17 or in commonwealths, territories, or possessions of the United
17-18 States; provided:
17-19 (1) such investments are similar to those authorized
17-20 for investment within the United States of America or Canada by
17-21 other provisions of this section and are rated one or two by the
17-22 Securities Valuation Office of the National Association of
17-23 Insurance Commissioners; and
17-24 (2) such investments when added to the amount of
17-25 similar investments made within the United States and Canada do not
17-26 result in the combined total of such investments exceeding the
17-27 limitations specified in Subsections (a) through (p) of this
18-1 section; and
18-2 (3) such investments may not exceed the sum of:
18-3 (A) the amount of reserves attributable to the
18-4 business in force in said countries, if any, and any additional
18-5 investments required by any country as a condition to doing
18-6 business therein; and
18-7 (B) 20 <five> percent of the insurer's assets;
18-8 (o) Investments Not Otherwise Specified. Investments which
18-9 are not otherwise authorized by this article and which are not
18-10 specifically prohibited by statute, including that portion of any
18-11 investments which may exceed the limits specified in Subsections
18-12 (a) through (n) of this section; provided:
18-13 (1) if any aggregate or individual specified
18-14 investment limitation in Subsections (a) through (n) of this
18-15 section is exceeded, then the excess portion of such investment
18-16 shall be an investment under this subsection; and
18-17 (2) the burden of establishing the value of such
18-18 investments shall be upon the insurer; and
18-19 (3) the amount of any one such investment may not
18-20 exceed 10 percent of the insurer's capital and surplus in excess of
18-21 the statutory minimum capital and surplus applicable to that
18-22 insurer; and
18-23 (4) the aggregate of all investments made under this
18-24 subsection may not exceed the lesser of either five percent of the
18-25 insurer's assets or the insurer's capital and surplus in excess of
18-26 the statutory minimum capital and surplus applicable to that
18-27 insurer;
19-1 (p) Other Authorized Investments. Those other investments
19-2 as follows:
19-3 (1) any investment held by an insurer on the effective
19-4 date of this Act, which was legally authorized at the time it was
19-5 made or acquired or which the insurer was authorized to hold or
19-6 possess immediately prior to such effective date, but which does
19-7 not conform to the requirements of the investments authorized in
19-8 Subsections (a) through (o) of this section, may continue to be
19-9 held by and considered as an admitted asset of the insurer;
19-10 provided the investment is disposed of at its maturity date, if
19-11 any, or within the time prescribed by the law under which it was
19-12 acquired, if any; and provided further, in no event shall the
19-13 provisions of this subdivision alter the legal or accounting status
19-14 of such asset; and
19-15 (2) any other investment which may be authorized by
19-16 other provisions of this code or by other laws of this state for
19-17 the insurers which are subject to this article.
19-18 (q) Special Limitations for Certain Fixed Annuity Insurers.
19-19 The quantitative limitations imposed above in Subsections (b)(2),
19-20 (c)(1) <(c)(2)>, (f)(1), (g)(3), (h)(3), (i)(2), and (k)(5) of this
19-21 section shall not apply to any insurer with assets in excess of
19-22 $2,500,000,000 and that receives more than 90 percent of its
19-23 premium income from fixed rate annuity contracts and that has more
19-24 than 90 percent of its assets allocated to its reserves held for
19-25 fixed rate annuity contracts, excluding, however, any premium
19-26 income, assets, and reserves received from, held for, or allocated
19-27 to separate accounts from the computation of the above percentages,
20-1 and in lieu thereof, the following quantitative limitations shall
20-2 apply to such insurers:
20-3 (1) the limitation in Subsection (b)(2) of this
20-4 section shall be two percent of the insurer's assets;
20-5 (2) the limitation in Subsection (c)(1) <(c)(2)> of
20-6 this section shall be two percent of the insurer's assets;
20-7 (3) the limitation in Subsection (f)(1) of this
20-8 section shall be two percent of the insurer's assets;
20-9 (4) the limitation in Subsection (g)(3) of this
20-10 section shall be one percent of the insurer's assets;
20-11 (5) the limitation in Subsection (h)(3) of this
20-12 section shall be one percent of the insurer's assets;
20-13 (6) the limitation in Subsection (i)(2) of this
20-14 section shall be two percent of the insurer's assets; and
20-15 (7) the limitation in Subsection (k)(5) of this
20-16 section shall be two percent of the insurer's assets;<.>
20-17 (r) Premium Loans. Loans to finance the payment of premiums
20-18 for the insurer's own insurance policies or annuity contracts;
20-19 provided that the amount of any such loan does not exceed the sum
20-20 of: (i) the available cash value of such insurance policy or
20-21 annuity contract; and (ii) the amount of any escrowed commissions
20-22 payable relating to such insurance policy or annuity contract for
20-23 which the premium loan is made; and
20-24 (s) Money Market Funds. (1) Money market funds as defined
20-25 by 17 CFR 270.2a-7 under the Investment Company Act of 1940 (15
20-26 U.S.C. 80a-1 et seq.) that meet the following additional
20-27 conditions:
21-1 (A) the funds invest 100 percent of total assets
21-2 in United States treasury bills, notes, and bonds, and
21-3 collateralized repurchase agreements composed of those obligations
21-4 at all times;
21-5 (B) the funds invest 100 percent of total assets
21-6 in other full faith and credit instruments of the United States; or
21-7 (C) the funds invest at least 95 percent of
21-8 total assets in exempt securities, short-term debt instruments with
21-9 a maturity of 397 days or less, class one bonds, and collateralized
21-10 repurchase agreements composed of those securities at all times;
21-11 (2) For purposes of complying with Subsection (h) of
21-12 this section, money market funds qualifying for listing within
21-13 these categories must conform to the purpose and procedures manual
21-14 of the valuation of securities manual of the National Association
21-15 of Insurance Commissioners;<.>
21-16 (t) The percentage authorizations and limitations set forth
21-17 in any and all of the provisions of this section shall apply at the
21-18 time of originally making such investments and shall not be
21-19 applicable to the company or such investment thereafter except as
21-20 provided in Subsection (v) of this section. In addition, any
21-21 investment, once qualified under any subsection of this section,
21-22 shall remain qualified notwithstanding any refinancing,
21-23 restructuring or modification of such investment.
21-24 (u) Distributions, Reinsurance, and Merger. No provision of
21-25 this article prohibits the acquisition by an insurer of additional
21-26 obligations, securities, or other assets if received as a dividend
21-27 or as a distribution of assets, nor does this article apply to
22-1 securities, obligations, or other assets accepted incident to the
22-2 adjustment or realization of any kind of investment, when deemed by
22-3 the insurer's board of directors or by a committee appointed by the
22-4 board of directors to be in the best interests of the insurer, if
22-5 the debt or investment had previously qualified as an admitted
22-6 asset, nor does this article apply to assets acquired pursuant to a
22-7 lawful agreement of bulk reinsurance, merger, or consolidation if
22-8 such assets constituted legal and admissible investments for the
22-9 ceding, merged, or consolidated company. No obligation, security,
22-10 or other asset acquired as permitted by this subsection need be
22-11 qualified under any other subsection of this article.
22-12 (v) Qualification of Investments. The qualification or
22-13 disqualification of an investment under one subsection of this
22-14 section does not prevent its qualification in whole or in part
22-15 under another subsection, and an investment authorized by more than
22-16 one subsection may be held under whichever authorizing subsection
22-17 the insurer elects. An investment or investment practice qualified
22-18 under any subsection at the time it was acquired or entered into by
22-19 the company shall continue to be qualified under that subsection.
22-20 An investment, in whole or in part, may be transferred from time to
22-21 time, at the election of the insurer, to the authority of any
22-22 subsection under which it qualifies, whether originally qualifying
22-23 thereunder or not.
22-24 SECTION 3. Subsections (a) and (d), Section 7, Article
22-25 21.28-D, Insurance Code, are amended to read as follows:
22-26 (a) The Commissioner <State Board> of Insurance shall
22-27 appoint a board of directors of the association consisting of nine
23-1 members, three of whom shall be chosen from employees or officers
23-2 chosen from the 50 <ten> member companies having the largest total
23-3 direct premium income based on the latest financial statement on
23-4 file at date of appointment, two of whom shall be chosen from the
23-5 other companies to give fair representation to member insurers
23-6 based on due consideration of their varying categories of premium
23-7 income and geographical location, and four of whom shall be
23-8 representatives of the general public. Members serve for six-year
23-9 staggered terms, with the terms of three members expiring each
23-10 odd-numbered year. All directors shall serve until their
23-11 successors are appointed, except that in the case of any vacancy,
23-12 the unexpired term of office shall be filled by the appointment of
23-13 a director by the Commissioner <State Board> of Insurance. If a
23-14 director ceases to be an officer or employee of a member insurer
23-15 during the director's term of office, that office becomes vacant
23-16 until the director's successor is appointed. All directors are
23-17 eligible to succeed themselves in office. A public representative
23-18 may not be:
23-19 (1) an officer, director, or employee of an insurance
23-20 company, insurance agency, agent, broker, solicitor, adjuster, or
23-21 any other business entity regulated by the department <State Board
23-22 of Insurance>;
23-23 (2) a person required to register with the secretary
23-24 of state under Chapter 305, Government Code; or
23-25 (3) related to a person described by Subparagraph (1)
23-26 or (2) of this paragraph within the second degree of affinity or
23-27 consanguinity.
24-1 (d) A director of the association <or any member company or
24-2 other entity represented by the director> may not receive any money
24-3 or valuable thing directly, indirectly, or through any substantial
24-4 interest in any other corporation, firm, or business unit for
24-5 negotiating, procuring, participating, recommending, or aiding in a
24-6 transaction, reinsurance agreement, merger, purchase, sale,
24-7 contribution, or exchange of assets, policies of insurance, or
24-8 property made by the association or the supervisor, conservator, or
24-9 receiver on behalf of an impaired insurer. The director of the
24-10 association<, company, or entity> may not have a pecuniary interest
24-11 <be pecuniarily or contractually interested>, as principal,
24-12 co-principal, agent, or beneficiary, directly, indirectly, or
24-13 through any substantial interest in any other corporation, firm, or
24-14 business unit, in the transaction, reinsurance agreement, merger,
24-15 purchase, sale, contribution, or exchange.
24-16 SECTION 4. Section 5, Article 21.39-B, Insurance Code, is
24-17 repealed.
24-18 SECTION 5. This Act takes effect September 1, 1995.
24-19 SECTION 6. The importance of this legislation and the
24-20 crowded condition of the calendars in both houses create an
24-21 emergency and an imperative public necessity that the
24-22 constitutional rule requiring bills to be read on three several
24-23 days in each house be suspended, and this rule is hereby suspended.
24-24 COMMITTEE AMENDMENT NO. 1
24-25 Amend S.B. 1544 by deleting Subsection (g)(3) in SECTION 2
24-26 and substituting the following:
24-27 (3) ownership interests in pools shall be subject to
25-1 either of the following limits:
25-2 (A) the maximum investment in one business
25-3 entity by a pool shall not exceed 10 percent of the assets of the
25-4 pool, and the aggregate investment by an insurer in all pools may
25-5 not exceed 10 percent of the insurer's admitted assets; or
25-6 (B) provided that if the admitted assets of
25-7 either the insurer or its group of affiliated insurers exceed $1
25-8 billion dollars, (i) the maximum investment in one business entity
25-9 by a pool shall not exceed 10 percent of the assets of the pool,
25-10 and the maximum investment by an insurer in a pool may not exceed
25-11 10 percent of the insurer's admitted assets, or (ii) the insurer's
25-12 pro rata share of each underlying asset shall be aggregated with
25-13 all other investments of the insurer for purposes of determining
25-14 compliance with this article.
25-15 Smithee