By: Henderson S.B. No. 1544
A BILL TO BE ENTITLED
AN ACT
1-1 relating to the Insurance Code, by amending Article 3.33 and
1-2 Article 21.28-D, and repealing Section 5 of Article 21.39-B.
1-3 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-4 SECTION 1. Article 3.33, Section 3, subsection (b),
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. Article 3.33, Section 4, subsections (g), (h),
1-18 (j), (k), (m), (q) and (t), Insurance Code, are amended to read as
1-19 follows:
1-20 <(g) Equipment Trusts. Equipment trust obligations or
1-21 certificates; provided:>
1-22 <(1) any such obligation or certificate is secured by
1-23 an interest in transportation equipment that is in whole or in part
2-1 within the United States of America;>
2-2 <(2) the obligation or certificate provides a right to
2-3 receive determined portions of rental, purchase, or other fixed
2-4 obligatory payments for the use or purchase of the transportation
2-5 equipment;>
2-6 <(3) the obligation is classified as an obligation of
2-7 a business entity and is subject to the limitations on obligations
2-8 of business entities set forth in Subsection (c) of this section;
2-9 and>
2-10 <(4) the aggregate of all investments made under this
2-11 subsection may not exceed 10 percent of the insurer's assets;>
2-12 (g) Investment Pools. Investment pools which are subject to
2-13 the following:
2-14 (1) Pools that invest in (A) obligations that an
2-15 insurer may acquire under this Act that have (i) a maturity of 397
2-16 days or less and (ii) are rated 1 or 2 by the Securities Valuation
2-17 Office of the National Association of Insurance Commissioners, or
2-18 (B) in money market funds;
2-19 (2) the maximum investment per pool is 15% of admitted
2-20 assets;
2-21 (3) the pool manager shall be organized under the laws
2-22 of the United States and can be any one of the following: the
2-23 insurer, an affiliate of the insurer, a commercial bank or
2-24 investment advisor approved by the board of directors of the
2-25 insurer, or a committee appointed by the insurer's board of
3-1 directors to supervise investments; and
3-2 (4) the pool agreement shall be in writing and provide
3-3 that (A) the confirmation of participation or interest in the
3-4 investment is issued in the name of the insurer, the insurers'
3-5 custodian or agent bank or the nominee of either, (B) all
3-6 participants in the pool are affiliates, (C) each participant in
3-7 the pool shall be entitled to require the pool to redeem all or any
3-8 portion of the shares held by the participant on demand without
3-9 penalty or assessment on any business day, (D) the underlying
3-10 assets of the pool are held solely for the benefit of each
3-11 participant, (E) the pool assets shall be held by a custodian or
3-12 agent bank, and (F) the insurer shall maintain detailed accounting
3-13 records and description of all transactions, which shall be
3-14 available for inspection by the commissioner;
3-15 (h) <Common Stock.> Equity Interests. Equity interests in
3-16 business entities as defined in subsection (c) of this section,
3-17 including but not limited to <C> common stock of any corporation
3-18 organized under the laws of the United States of America or any of
3-19 its states, shares of mutual funds doing business under the
3-20 Investment Company Act of 1940 (15 U.S.C. Section 80a-1 et seq.),
3-21 other than money market funds as defined in Subsection (s) of this
3-22 section and shares in real estate investment trusts as defined in
3-23 the Internal Revenue Code of 1954 (26 U.S.C. Section 856);
3-24 provided:
3-25 (1) any such corporation, other than a mutual fund,
4-1 must be solvent with at least $1,000,000 net worth as of the date
4-2 of its latest annual or more recent certified audited financial
4-3 statement or will have at least $1,000,000 of net worth after
4-4 completion of a securities offering which is being subscribed to by
4-5 the insurer;
4-6 (2) mutual funds, other than money market funds as
4-7 defined in Subsection (s) of this section, and real estate
4-8 investment trusts must be solvent with at least $1,000,000 of net
4-9 assets as of the date of its latest annual or more recent certified
4-10 audited financial statement;
4-11 (3) investments in any one corporation, mutual fund,
4-12 other than a money market fund as defined in Subsection (s) of this
4-13 section, or real estate investment trust may not exceed 15 percent
4-14 of the insurer's capital and surplus; and
4-15 (4) the aggregate of all investments made under this
4-16 subsection may not exceed 25 percent of the insurer's assets;
4-17 (j) Collateral Loans. Collateral loans secured by a first
4-18 lien upon or a valid and perfected first security interest in an
4-19 asset; provided:
4-20 (1) the amount of any such collateral loan will not
4-21 exceed 80 percent of the value of the collateral asset at any time
4-22 during the duration of the loan; <and>
4-23 (2) the asset used as collateral would be authorized
4-24 for direct investment by the insurer under other provisions of this
4-25 Section 4, except real property in Subsection (l); and
5-1 (3) Notwithstanding anything contained herein to the
5-2 contrary, subsection (j) of this section shall not apply to
5-3 obligations qualified under subsection (c) of this section;
5-4 (k) Real Estate Loans. Notes, evidences of indebtedness, or
5-5 participations therein secured by a valid first lien upon real
5-6 property or leasehold estate therein located in the United States
5-7 of America; provided:
5-8 (1) the amount of any such obligations secured by a
5-9 first lien upon real property or leasehold estate therein shall not
5-10 exceed 90 percent of the value of such real property or leasehold
5-11 estate therein, but the amount of such obligation:
5-12 (A) may exceed 90 percent but shall not exceed
5-13 100 percent of the value of such real property or leasehold estate
5-14 therein if the insurer or one or more wholly owned subsidiaries of
5-15 the insurer owns in the aggregate a 10 percent or greater equity
5-16 interest in such real property or leasehold estate therein;
5-17 (B) may be 95 percent of the value of such real
5-18 property or leasehold estate therein if it contains only a dwelling
5-19 designed exclusively for occupancy by not more than four families
5-20 for residential purposes, and the portion of the unpaid balance of
5-21 such obligation which is in excess of an amount equal to 90 percent
5-22 of such value is guaranteed or insured by a mortgage insurance
5-23 company qualified to do business in the State of Texas; or
5-24 (C) may be greater than 90 percent of the value
5-25 of such real property or leasehold estate therein to the extent the
6-1 obligation is insured or guaranteed by the United States of
6-2 America, the Federal Housing Administration pursuant to the
6-3 National Housing Act of 1934, as amended (12 U.S.C. Section 1701 et
6-4 seq.), or the State of Texas; and
6-5 (D) that portion of the loan which does not
6-6 exceed 90 percent of the value of such real property or leasehold
6-7 estate therein shall be deemed to be a permitted investment under
6-8 this subsection (l), and the remainder of the loan in excess of the
6-9 90% may be deemed to be made under subsection (o) of this section;
6-10 (m) Oil, Gas, and Minerals. In addition to and without
6-11 limitation on the purposes for which real property may be acquired,
6-12 secured, held or retained pursuant to other provisions of this
6-13 section, every such insurance company may, either directly or
6-14 through a business entity, secure, hold, retain, and convey
6-15 production payments, producing royalties and producing overriding
6-16 royalties, or participations therein as an investment for the
6-17 production of income; provided:
6-18 <(1) in no event may such company carry such assets in
6-19 an amount in excess of 90 percent of the appraised value thereof;
6-20 and>
6-21 <(2)> (1) no one investment under this subsection may
6-22 exceed 10 percent of the insurer's capital and surplus in excess of
6-23 statutory minimum capital and surplus applicable to that insurer,
6-24 and the aggregate of all such investments may not exceed 10 percent
6-25 of the insurer's assets as of December 31st next preceding the date
7-1 of such investment; and
7-2 <(3)> (2) for the purposes of this subsection, the
7-3 following definitions apply:
7-4 (A) a production payment is defined to mean a
7-5 right to oil, gas, or other minerals in place or as produced that
7-6 entitles its owner to a specified fraction of production until a
7-7 specified sum of money, or a specified number of units of oil, gas,
7-8 or other minerals, has been received;
7-9 (B) a royalty and an overriding royalty are each
7-10 defined to mean a right to oil, gas, and other minerals in place or
7-11 as produced that entitles the owner to a specified fraction of
7-12 production without limitation to a specified sum of money or a
7-13 specified number of units of oil, gas, or other minerals;
7-14 (C) "producing" is defined to mean producing
7-15 oil, gas, or other minerals in paying quantities, provided that it
7-16 shall be deemed that oil, gas, or other minerals are being produced
7-17 in paying quantities if a well has been "shut in" and "shut-in
7-18 royalties" are being paid;
7-19 (n) Foreign Countries and United States Territories. In
7-20 addition to the investments in Canada authorized in other
7-21 subsections of this section, investments in other foreign countries
7-22 or in commonwealths, territories, or possessions of the United
7-23 States; provided:
7-24 (1) such investments are similar to those authorized
7-25 for investment within the United States of America or Canada by
8-1 other provisions of this section and are rated one or two by the
8-2 Securities Valuation Office of the National Association of
8-3 Insurance Commissioners; and
8-4 (2) such investments when added to the amount of
8-5 similar investments made within the United States and Canada do not
8-6 result in the combined total of such investments exceeding the
8-7 limitations specified in Subsections (a) through (p) of this
8-8 section; and
8-9 (3) such investments may not exceed the sum of:
8-10 (A) the amount of reserves attributable to the
8-11 business in force in said countries, if any, and any additional
8-12 investments required by any country as a condition to doing
8-13 business therein; and
8-14 (B) <five> twenty percent of the insurer's
8-15 assets;
8-16 (q) Special Limitations for Certain Fixed Annuity Insurers.
8-17 The quantitative limitations imposed above in Subsections (b)(2),
8-18 (c)<(2)> (1), (f)(1), (g)(3), (h)(3), (i)(2), and (k)(5) of this
8-19 section shall not apply to any insurer with assets in excess of
8-20 $2,500,000,000 and that receives more than 90 percent of its
8-21 premium income from fixed rate annuity contracts and that has more
8-22 than 90 percent of its assets allocated to its reserves held for
8-23 fixed rate annuity contracts, excluding, however, any premium
8-24 income, assets, and reserves received from, held for, or allocated
8-25 to separate accounts from the computation of the above percentages,
9-1 and in lieu thereof, the following quantitative limitations shall
9-2 apply to such insurers:
9-3 (1) the limitation in Subsection (b)(2) of this
9-4 section shall be two percent of the insurer's assets;
9-5 (2) the limitation in Subsection (c)<(2)> (1) of this
9-6 section shall be two percent of the insurer's assets;
9-7 (3) the limitation in Subsection (f)(1) of this
9-8 section shall be two percent of the insurer's assets;
9-9 (4) the limitation in Subsection (g)(3) of this
9-10 section shall be one percent of the insurer's assets;
9-11 (5) the limitation in Subsection (h)(3) of this
9-12 section shall be one percent of the insurer's assets;
9-13 (6) the limitation in Subsection (i)(2) of this
9-14 section shall be two percent of the insurer's assets; and
9-15 (7) the limitation in Subsection (k)(5) of this
9-16 section shall be two percent of the insurer's assets<.>;
9-17 (t) The percentage authorizations and limitations set forth
9-18 in any and all of the provisions of this section shall apply at the
9-19 time of originally making such investments and shall not be
9-20 applicable to the company or such investment thereafter except as
9-21 provided in subsection (v) of this section. In addition, any
9-22 investment once qualified under any subsection of this section
9-23 shall remain qualified notwithstanding any refinance, restructure
9-24 or modification of such investment.
9-25 SECTION 3. Article 3.33, Section 4, is amended to add
10-1 subsections (u) and (v) to read as follows:
10-2 (u) Distributions, Reinsurance and Merger. No provision of
10-3 this Article shall prohibit the acquisition by an insurer of
10-4 additional obligations, securities, or other assets if received as
10-5 a dividend or as a distribution of assets, nor shall this Article
10-6 apply to securities, obligations or other assets accepted incident
10-7 to the adjustment or realization of any kind of investment, when
10-8 deemed by the insurer's board of directors or by a committee
10-9 appointed by the board of directors to be in the best interests of
10-10 the insurer if the debt or investment had previously qualified as
10-11 an admitted asset, nor to assets acquired pursuant to a lawful
10-12 agreement of bulk reinsurance, merger or consolidation, if such
10-13 assets constituted legal and admissible investments for the ceding,
10-14 merged or consolidated company. No obligation, security or other
10-15 asset acquired as permitted by this subsection need be qualified
10-16 under any other subsection of this Article.
10-17 (v) Qualification of Investments. The qualification or
10-18 disqualification of an investment under one subsection of this
10-19 section shall not prevent its qualification in whole or in part
10-20 under another subsection, and an investment authorized by more than
10-21 one subsection may be held under whichever authorizing subsection
10-22 the insurer elects. An investment or investment practice qualified
10-23 under any subsection at the time it was acquired or entered into by
10-24 the company shall continue to be qualified under that subsection.
10-25 An investment in whole or in part may be transferred from time to
11-1 time, at the election of the insurer, to the authority of any
11-2 subsection under which it qualifies whether originally qualifying
11-3 thereunder or not.
11-4 SECTION 4. Article 21.28-D, Section 7, subsections (a) and
11-5 (d), Insurance Code, are amended to read as follows:
11-6 Sec. 7. (a) The <State Board> Commissioner of Insurance
11-7 shall appoint a board of directors of the association consisting of
11-8 nine members, three of whom shall be chosen from employees or
11-9 officers chosen from the <ten> fifty member companies having the
11-10 largest total direct premium income based on the latest financial
11-11 statement on file at date of appointment, two of whom shall be
11-12 chosen from the other companies to give fair representation to
11-13 member insurers based on due consideration of their varying
11-14 categories of premium income and geographical location, and four of
11-15 whom shall be representatives of the general public. Members serve
11-16 for six-year staggered terms, with the terms of three members
11-17 expiring each odd-numbered year. All directors shall serve until
11-18 their successors are appointed, except that in the case of any
11-19 vacancy, the unexpired term of office shall be filled by the
11-20 appointment of a director by the <State Board> Commissioner of
11-21 Insurance. If a director ceases to be an officer or employee of a
11-22 member insurer during the director's term of office, that office
11-23 becomes vacant until the director's successor is appointed. All
11-24 directors are eligible to succeed themselves in office. A public
11-25 representative may not be:
12-1 (1) an officer, director, or employee of an insurance
12-2 company, insurance agency, agent, broker, solicitor, adjuster, or
12-3 any other business entity regulated by the <State Board of
12-4 Insurance> Department;
12-5 (2) a person required to register with the secretary
12-6 of state under Chapter 305, Government Code; or
12-7 (3) related to a person described by Subparagraph (1)
12-8 or (2) of this paragraph within the second degree of affinity or
12-9 consanguinity.
12-10 (d) A director of the association <or any member, company,
12-11 or other entity represented by the director> may not receive any
12-12 money or valuable thing directly or indirectly or through any
12-13 substantial interest in any other corporation, firm, or business
12-14 unit, for negotiating, procuring, participating, recommending, or
12-15 aiding in a transaction, reinsurance agreement, merger, purchase,
12-16 sale, contribution, or exchange of assets, policies of insurance,
12-17 or property made by the association or the supervisor, conservator,
12-18 or receiver on behalf of an impaired insurer. The director of the
12-19 association, <company, or entity> may not have a pecuniary <or
12-20 contractually> interest, as principal, coprincipal, agent, or
12-21 beneficiary, directly, indirectly, or through any substantial
12-22 interest in any other corporation, firm, or business unit, in the
12-23 transaction, reinsurance agreement, merger, purchase, sale,
12-24 contribution, or exchange.
12-25 SECTION 5. Article 21.39-B, Section 5, Insurance Code, is
13-1 hereby repealed.
13-2 SECTION 6. This Act takes effect September 1, 1995.
13-3 SECTION 7. The importance of this legislation and the
13-4 crowded condition of the calendars in both houses create an
13-5 emergency and an imperative public necessity that the
13-6 constitutional rule requiring bills to be read on three several
13-7 days in each house be suspended, and this rule is hereby suspended.