1-1 By: Henderson S.B. No. 1544
1-2 (In the Senate - Filed March 13, 1995; March 21, 1995, read
1-3 first time and referred to Committee on Economic Development;
1-4 April 28, 1995, reported adversely, with favorable Committee
1-5 Substitute by the following vote: Yeas 8, Nays 0; April 28, 1995,
1-6 sent to printer.)
1-7 COMMITTEE SUBSTITUTE FOR S.B. No. 1544 By: Henderson
1-8 A BILL TO BE ENTITLED
1-9 AN ACT
1-10 relating to amending certain provisions of the Insurance Code,
1-11 including those relating to authorized investments of insurers.
1-12 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-13 SECTION 1. Subsection (b), Section 3, Article 3.33,
1-14 Insurance Code, is amended to read as follows:
1-15 (b) The insurer shall maintain the investment plan in its
1-16 principal office and shall provide same to the commissioner or his
1-17 designee upon request, and such plans shall be maintained as a
1-18 privileged and confidential document by the Commissioner of
1-19 Insurance or his designee and it shall not be subject to public
1-20 disclosure. The insurer shall maintain investment records covering
1-21 each transaction. <Such investment records shall contain a
1-22 reference to the subsection of this article and, if appropriate,
1-23 other provision of law that authorizes the investment.> At all
1-24 times, the insurer shall be able to demonstrate that its
1-25 investments are within the limitations prescribed in this article.
1-26 SECTION 2. Section 4, Article 3.33, Insurance Code, is
1-27 amended to read as follows:
1-28 Sec. 4. Authorized Investments and Loans. Subject to the
1-29 limitations and restrictions herein contained, the investments and
1-30 loans described in the following subsections, and none other, are
1-31 authorized for the insurers subject hereto:
1-32 (a) United States Government Bonds. Bonds, evidences of
1-33 indebtedness or obligations of the United States of America, or
1-34 bonds, evidences of indebtedness or obligations guaranteed as to
1-35 principal and interest by the full faith and credit of the United
1-36 States of America, and bonds, evidences of indebtedness, or
1-37 obligations of agencies and instrumentalities of the government of
1-38 the United States of America;
1-39 (b) Other Governmental Bonds. Bonds, evidences of
1-40 indebtedness or obligations of governmental units in the United
1-41 States, Canada, or any province or city of Canada, and of the
1-42 instrumentalities of such governmental units; provided:
1-43 (1) such governmental unit or instrumentality is not
1-44 in default in the payment of principal or interest in any of its
1-45 obligations; and
1-46 (2) investments in the obligations of any one
1-47 governmental unit or instrumentality may not exceed 20 percent of
1-48 the insurer's capital and surplus;
1-49 (c) Obligations of Business Entities. Obligations,
1-50 including bonds or evidences of indebtedness, or participations in
1-51 those bonds or evidences of indebtedness, that are issued, assumed,
1-52 guaranteed, or insured by any business entity, including a sole
1-53 proprietorship, a corporation, an association, a general or limited
1-54 partnership, a joint-stock company, a joint venture, a trust, or
1-55 any other form of business organization, whether for-profit or
1-56 not-for-profit, that is organized under the laws of the United
1-57 States, another state, Canada, or any state, district, province, or
1-58 territory of Canada, subject to all conditions set forth below:
1-59 (1) an insurer may acquire obligations in any one
1-60 business entity rated one or two by the Securities Valuation Office
1-61 of the National Association of Insurance Commissioners, but not to
1-62 exceed 20 percent of the insurer's statutory capital and surplus as
1-63 reported in the most recent annual statement filed with the
1-64 department;
1-65 (2) an insurer may acquire obligations rated three or
1-66 lower by the Securities Valuation Office if, after giving effect to
1-67 such an acquisition, the aggregate amount of all obligations rated
1-68 three or lower then held by the domestic insurer does not exceed 20
2-1 percent of its admitted assets. Not more than 10 percent of the
2-2 admitted assets of that insurer may consist of obligations rated
2-3 four, five, or six by the Securities Valuation Office. Not more
2-4 than three percent of the admitted assets of that insurer may
2-5 consist of obligations rated five or six by the Securities
2-6 Valuation Office. Not more than one percent of the admitted assets
2-7 of that insurer may consist of obligations rated six by the
2-8 Securities Valuation Office. Attaining or exceeding the limit in
2-9 any one category does not preclude an insurer from acquiring
2-10 obligations in other categories, subject to the specific and
2-11 multi-category limits;
2-12 (3) an insurer may not invest more than an aggregate
2-13 of one percent of its admitted assets in obligations rated three by
2-14 the Securities Valuation Office that are issued, assumed,
2-15 guaranteed, or insured by any one business entity, or more than
2-16 one-half percent of its admitted assets in obligations rated four,
2-17 five, or six by the Securities Valuation Office that are issued,
2-18 assumed, guaranteed, or insured by any one business entity. An
2-19 insurer may not invest more than one percent of its admitted assets
2-20 in any obligations rated three, four, five, or six by the
2-21 Securities Valuation Office that are issued, assumed, guaranteed,
2-22 or insured by any one business entity;
2-23 (4) notwithstanding the foregoing, an insurer may
2-24 acquire an obligation of a business entity in which the insurer
2-25 already has one or more obligations if the obligation is acquired
2-26 in order to protect an investment previously made in that business
2-27 entity. Such acquired obligations may not exceed one-half percent
2-28 of the insurer's admitted assets; and
2-29 (5) this subsection does not prohibit an insurer from
2-30 acquiring an obligation as a result of a restructuring of an
2-31 already held obligation that is rated three or lower by the
2-32 Securities Valuation Office;
2-33 (d) International Market. Bonds issued, assumed, or
2-34 guaranteed by the Interamerican Development Bank, the International
2-35 Bank for Reconstruction and Development (the World Bank), the Asian
2-36 Development Bank, the State of Israel, the African Development
2-37 Bank, and the International Finance Corporation; provided:
2-38 (1) investments in the bonds of any one of the
2-39 entities specified above may not exceed 20 percent of the insurer's
2-40 capital and surplus; and
2-41 (2) the aggregate of all investments made under this
2-42 subsection may not exceed 20 percent of the insurer's assets;
2-43 (e) Policy Loans. Loans upon the security of the insurer's
2-44 own policies not in excess of the amount of the reserve values
2-45 thereof;
2-46 (f) Time and Savings Deposits. Any type or form of savings
2-47 deposits, time deposits, certificates of deposit, NOW accounts, and
2-48 money market accounts in solvent banks, savings and loan
2-49 associations, and credit unions and branches thereof, organized
2-50 under the laws of the United States of America or its states, when
2-51 made in accordance with the laws or regulations applicable to such
2-52 entities; provided the amount of the deposits in any one bank,
2-53 savings and loan association, or credit union will not exceed the
2-54 greater of:
2-55 (1) twenty percent of the insurer's capital and
2-56 surplus;
2-57 (2) the amount of federal or state deposit insurance
2-58 coverage pertaining to such deposit; or
2-59 (3) ten percent of the amount of capital, surplus, and
2-60 undivided profits of the entity receiving such deposits;
2-61 (g) Short-term Investment Pools. Short-term investment
2-62 pools subject to the following:
2-63 (1) ownership interests in pools that invest only in
2-64 obligations that an insurer may acquire under this article and
2-65 that:
2-66 (A)(i) have a remaining maturity of 397 days or
2-67 less or contain a put option that upon exercise entitles the pool
2-68 to receive the principal amount within 397 days and (ii) are rated
2-69 1 or 2 by the Securities Valuation Office of the National
2-70 Association of Insurance Commissioners;
3-1 (B)(i) have a rating of 1 or 2 by the Securities
3-2 Valuation Office and (ii) have a remaining maturity of three years
3-3 or less and (iii) have a floating interest rate that resets no less
3-4 frequently than quarterly on the basis of any one short-term index
3-5 (federal funds, prime rate, treasury bills, LIBOR, or commercial
3-6 paper) and (iv) are subject to no maximum limit, provided that no
3-7 obligation having an interest rate that changes inversely to market
3-8 interest rate changes shall be permitted; or
3-9 (C) money market funds on the Securities
3-10 Valuation Office Approved List of Exempt or Class 1 Money Market
3-11 Funds;
3-12 (2) the pool may engage in securities lending and
3-13 repurchase and reverse repurchase transactions in an amount up to
3-14 40 percent of pool assets, but may not incur indebtedness for any
3-15 other purpose or invest in any security issued, assumed,
3-16 guaranteed, or insured by the insurer or any of its affiliates;
3-17 provided, however, that such transactions are subject to Article
3-18 3.39-1 of this code and any applicable regulations of the
3-19 department;
3-20 (3) ownership interests in pools are subject to either
3-21 of the following limits:
3-22 (A) the maximum investment in one business
3-23 entity may not exceed 10 percent of the assets of the pool, and the
3-24 maximum investment by an insurer in a pool may not exceed 10
3-25 percent of the insurer's admitted assets; or
3-26 (B) provided that if the admitted assets of
3-27 either the insurer or the group of affiliated insurers exceed $1
3-28 billion, the insurer's pro rata share of each underlying asset
3-29 shall be aggregated with all other investments of the insurer for
3-30 purposes of determining compliance with this article;
3-31 (4) the pool assets shall be held in a separate
3-32 custodian account by a custodian bank for the benefit of each pool
3-33 participant as its interest may appear. The custodial agreement
3-34 and the pool agreement shall be in writing and the pool agreement
3-35 shall provide that:
3-36 (A) participation in the pool is restricted to
3-37 the insurer and its affiliates;
3-38 (B) the pool manager shall be organized under
3-39 the laws of the United States or a state and shall be the insurer,
3-40 an affiliate of the insurer, a commercial bank, or an investment
3-41 advisor registered under the Investment Advisors Act of 1940, as
3-42 amended (15 U.S.C. Section 80b-1 et seq.);
3-43 (C) the underlying assets are held solely for
3-44 the benefit of each participant, and each participant owns an
3-45 undivided interest in each underlying asset;
3-46 (D) each participant may withdraw from the pool
3-47 on demand without penalty or assessment on any business day;
3-48 (E) the fees and expenses of managing the pool
3-49 may be charged to the pool; and
3-50 (F) the pool manager is responsible for
3-51 maintaining accounting records of all transactions including a
3-52 complete description of all pool assets and each participant's
3-53 interest in the pool; these records shall be made available for
3-54 inspection by the commissioner, and an audit of pool accounting
3-55 records shall be conducted at least annually by an independent
3-56 auditor; and
3-57 (5) investment in pools shall not be deemed to be an
3-58 affiliate transaction under Article 21.49-1 of this code <Equipment
3-59 Trusts. Equipment trust obligations or certificates; provided:>
3-60 <(1) any such obligation or certificate is secured by
3-61 an interest in transportation equipment that is in whole or in part
3-62 within the United States of America;>
3-63 <(2) the obligation or certificate provides a right to
3-64 receive determined portions of rental, purchase, or other fixed
3-65 obligatory payments for the use or purchase of the transportation
3-66 equipment;>
3-67 <(3) the obligation is classified as an obligation of
3-68 a business entity and is subject to the limitations on obligations
3-69 of business entities set forth in Subsection (c) of this section;
3-70 and>
4-1 <(4) the aggregate of all investments made under this
4-2 subsection may not exceed 10 percent of the insurer's assets>;
4-3 (h) Equity Interests <Common Stock>. (i) Common stock of
4-4 any corporation organized under the laws of the United States of
4-5 America or any of its states, (ii) shares of mutual funds doing
4-6 business under the Investment Company Act of 1940 (15 U.S.C.
4-7 Section 80a-1 et seq.), other than money market funds as defined in
4-8 Subsection (s) of this section, (iii) <and> shares in real estate
4-9 investment trusts as defined in the Internal Revenue Code of 1954
4-10 (26 U.S.C. Section 856), and (iv) equity interest in any business
4-11 entity that is a limited liability partnership, limited liability
4-12 company, limited partnership, joint-stock company, joint venture,
4-13 or trust that is organized under the laws of the United States,
4-14 another state, Canada, or any state, district, province, or
4-15 territory of Canada; provided:
4-16 (1) any such corporation, other than a mutual fund,
4-17 must be solvent with at least $1,000,000 net worth as of the date
4-18 of its latest annual or more recent certified audited financial
4-19 statement or will have at least $1,000,000 of net worth after
4-20 completion of a securities offering which is being subscribed to by
4-21 the insurer;
4-22 (2) mutual funds, other than money market funds as
4-23 defined in Subsection (s) of this section, and real estate
4-24 investment trusts must be solvent with at least $1,000,000 of net
4-25 assets as of the date of its latest annual or more recent certified
4-26 audited financial statement;
4-27 (3) investments in any one corporation, mutual fund,
4-28 other than a money market fund as defined in Subsection (s) of this
4-29 section, or real estate investment trust may not exceed 15 percent
4-30 of the insurer's capital and surplus; <and>
4-31 (4) the business entity shall be subject to an annual
4-32 audit by an independent certified public accountant or subject to
4-33 another method of valuation acceptable to the commissioner; and
4-34 (5) the aggregate of all investments made under this
4-35 subsection may not exceed 25 percent of the insurer's assets;
4-36 (i) Preferred Stock. Preferred stock of corporations
4-37 organized under the laws of the United States of America or any of
4-38 its states; provided:
4-39 (1) such corporation must be solvent with at least
4-40 $1,000,000 of net worth as of the date of its latest annual or more
4-41 recent certified audited financial statement or will have at least
4-42 $1,000,000 of net worth after completion of a security offering
4-43 which is being subscribed to by the insurer;
4-44 (2) investments in the preferred stock of any one
4-45 corporation will not exceed 20 percent of the insurer's capital and
4-46 surplus;
4-47 (3) in the aggregate not more than 10 percent of the
4-48 insurer's assets may be invested in preferred stock, the redemption
4-49 and retirement of which is not provided for by a sinking fund
4-50 meeting the standards established by the National Association of
4-51 Insurance Commissioners to value the preferred stock at cost; and
4-52 (4) the aggregate of all investments made under this
4-53 subsection may not exceed 40 percent of the insurer's assets;
4-54 (j) Collateral Loans. Collateral loans secured by a first
4-55 lien upon or a valid and perfected first security interest in an
4-56 asset; provided:
4-57 (1) the amount of any such collateral loan will not
4-58 exceed 80 percent of the value of the collateral asset at any time
4-59 during the duration of the loan; <and>
4-60 (2) the asset used as collateral would be authorized
4-61 for direct investment by the insurer under other provisions of this
4-62 Section 4, except real property in Subsection (l); and
4-63 (3) notwithstanding anything contained herein to the
4-64 contrary, this subsection does not apply to obligations qualified
4-65 under Subsection (c) of this section;
4-66 (k) Real Estate Loans. Notes, evidences of indebtedness, or
4-67 participations therein secured by a valid first lien upon real
4-68 property or leasehold estate therein located in the United States
4-69 of America; provided:
4-70 (1) the amount of any such obligation secured by a
5-1 first lien upon real property or leasehold estate therein shall not
5-2 exceed 90 percent of the value of such real property or leasehold
5-3 estate therein, but the amount of such obligation:
5-4 (A) may exceed 90 percent but shall not exceed
5-5 100 percent of the value of such real property or leasehold estate
5-6 therein if the insurer or one or more wholly owned subsidiaries of
5-7 the insurer owns in the aggregate a 10 percent or greater equity
5-8 interest in such real property or leasehold estate therein;
5-9 (B) may be 95 percent of the value of such real
5-10 property or leasehold estate therein if it contains only a dwelling
5-11 designed exclusively for occupancy by not more than four families
5-12 for residential purposes, and the portion of the unpaid balance of
5-13 such obligation which is in excess of an amount equal to 90 percent
5-14 of such value is guaranteed or insured by a mortgage insurance
5-15 company qualified to do business in the State of Texas; <or>
5-16 (C) may be greater than 90 percent of the value
5-17 of such real property or leasehold estate therein to the extent the
5-18 obligation is insured or guaranteed by the United States of
5-19 America, the Federal Housing Administration pursuant to the
5-20 National Housing Act of 1934, as amended (12 U.S.C. Section 1701 et
5-21 seq.), or the State of Texas; or
5-22 (D) may exceed 90 percent if that portion of the
5-23 loan which does not exceed 90 percent of the value of such real
5-24 property or leasehold estate therein is deemed to be a permitted
5-25 investment under Subsection (l) of this section, and the remainder
5-26 of the loan in excess of the 90 percent limit is deemed to be made
5-27 under Subsection (o) of this section; and
5-28 (2) the term of an obligation secured by a first lien
5-29 upon a leasehold estate in real property shall not exceed a period
5-30 equal to four-fifths of the then unexpired term of such leasehold
5-31 estate; provided the unexpired term of the leasehold estate must
5-32 extend at least 10 years beyond the term of the obligation, and
5-33 each obligation shall be payable in an installment or installments
5-34 of sufficient amount or amounts so that at any time after the
5-35 expiration of two-thirds of the original loan term, the principal
5-36 balance will be no greater than the principal balance would have
5-37 been if the loan had been amortized over the original loan term in
5-38 equal monthly, quarterly, semiannual, or annual payments of
5-39 principal and interest, it being required that under any method of
5-40 repayment such obligation will fully amortize during a period of
5-41 time not exceeding four-fifths of the then unexpired term of the
5-42 security leasehold estate; and
5-43 (3) if any part of the value of buildings is to be
5-44 included in the value of such real property or leasehold estate
5-45 therein to secure the obligations provided for in this subsection,
5-46 such buildings shall be covered by adequate property insurance,
5-47 including but not limited to fire and extended coverage insurance
5-48 issued by a company authorized to transact business in the State of
5-49 Texas or by a company recognized as acceptable for such purpose by
5-50 the insurance regulatory official of the state in which such real
5-51 estate is located, and the amount of insurance granted in the
5-52 policy or policies shall be not less than the unpaid balance of the
5-53 obligation or the insurable value of such buildings, whichever is
5-54 the lesser; the loss clause shall be payable to the insurer as its
5-55 interest may appear; and
5-56 (4) to the extent any note, evidence of indebtedness,
5-57 or participation therein under this subsection represents an equity
5-58 interest in the underlying real property, the value of such equity
5-59 interest shall be determined at the time of execution of such note,
5-60 evidence of indebtedness, or participation therein and that portion
5-61 shall be designated as an investment subject to the provisions of
5-62 Subsection (l)(2) of this section; and
5-63 (5) the amount of any one such obligation may not
5-64 exceed 25 percent of the insurer's capital and surplus; and
5-65 (6) a first lien on real property may be purchased
5-66 after its origination if the first lien is insured by a mortgagee's
5-67 title policy issued to the original mortgagee that contains a
5-68 provision that inures the policy to the use and benefit of the
5-69 owners of the evidence of debt indicated in the policy and to any
5-70 subsequent owners of that evidence of debt, and if the insurer
6-1 maintains evidence of assignments or other transfers of the first
6-2 lien on real property to the insurer. An assignment or other
6-3 transfer to the insurer, duly recorded in the county in which the
6-4 real property is located, shall be presumed to create legal
6-5 ownership of the first lien by the insurer;
6-6 (l) Real Estate. Real property fee simple or leasehold
6-7 estates located within the United States of America, as follows:
6-8 (1) home and branch office real property or
6-9 participations therein, which must be materially enhanced in value
6-10 by the construction of durable, permanent-type buildings and other
6-11 improvements costing an amount at least equal to the cost of such
6-12 real property, exclusive of buildings and improvements at the time
6-13 of acquisition, or by the construction of such buildings and
6-14 improvements which must be commenced within two years of the date
6-15 of the acquisition of such real property; provided:
6-16 (A) at least 30 percent of the available space
6-17 in such building shall be occupied for the business purposes of the
6-18 insurer and its affiliates; and
6-19 (B) the aggregate investment in such home and
6-20 branch offices shall not exceed 20 percent of the insurer's assets;
6-21 and
6-22 (2) other investment property or participations
6-23 therein, which must be materially enhanced in value by the
6-24 construction of durable, permanent-type buildings and other
6-25 improvements costing an amount at least equal to the cost of such
6-26 real property, exclusive of buildings and improvements at the time
6-27 of acquisition, or by the construction of such buildings and
6-28 improvements which must be commenced within two years of the date
6-29 of acquisition of such real property; provided that such investment
6-30 in any one piece of property or interest therein, including the
6-31 improvements, fixtures, and equipment pertaining thereto may not
6-32 exceed five percent of the insurer's assets; provided, however,
6-33 nothing in this article shall allow ownership of, development of,
6-34 or equity interest in any residential property or subdivision,
6-35 single or multiunit family dwelling property, or undeveloped real
6-36 estate for the purpose of subdivision for or development of
6-37 residential, single, or multiunit family dwellings, except
6-38 acquisitions as provided in Subdivision (4) below, and such
6-39 ownership, development, or equity interests shall be specifically
6-40 prohibited;
6-41 (3) the admissible asset value of each such investment
6-42 in the properties acquired under Subdivisions (1) and (2) of this
6-43 subsection shall be subject to review and approval by the
6-44 Commissioner of Insurance. The commissioner shall have discretion
6-45 at the time such investment is made or any time when an examination
6-46 of the company is being made to cause any such investment to be
6-47 appraised by an appraiser, appointed by the commissioner, and the
6-48 reasonable expense of such appraisal shall be paid by such
6-49 insurance company and shall be deemed to be a part of the expense
6-50 of examination of such company; if the appraisal is made upon
6-51 application of the company, the expense of such appraisal shall not
6-52 be considered a part of the expense of examination of such company;
6-53 no insurance company may hereafter make any write-up in the
6-54 valuation of any of the properties described in Subdivision (1) or
6-55 (2) of this subsection unless and until it makes application
6-56 therefor and such increase in valuation shall be approved by the
6-57 commissioner; and
6-58 (4) other real property acquired:
6-59 (A) in good faith by way of security for loans
6-60 previously contracted or money due; or
6-61 (B) in satisfaction of debts previously
6-62 contracted for in the course of its dealings; or
6-63 (C) by purchase at sales under judgment or
6-64 decrees of court, or mortgage or other lien held by such insurer;
6-65 and
6-66 (5) regardless of the mode of acquisition specified
6-67 herein, upon sale of any such real property, the fee title to the
6-68 mineral estate or any portion thereof may be retained by the
6-69 insurance company indefinitely;
6-70 (m) Oil, Gas, and Minerals. In addition to and without
7-1 limitation on the purposes for which real property may be acquired,
7-2 secured, held, or retained pursuant to other provisions of this
7-3 section, every such insurance company may, either directly or
7-4 through a business entity, secure, hold, retain, and convey
7-5 production payments, producing royalties and producing overriding
7-6 royalties, or participations therein as an investment for the
7-7 production of income; provided:
7-8 (1) in no event may such company carry such assets in
7-9 an amount in excess of 90 percent of the appraised value thereof;
7-10 and
7-11 (2) no one investment under this subsection may exceed
7-12 10 percent of the insurer's capital and surplus in excess of
7-13 statutory minimum capital and surplus applicable to that insurer,
7-14 and the aggregate of all such investments may not exceed 10 percent
7-15 of the insurer's assets as of December 31st next preceding the date
7-16 of such investment; and
7-17 (3) for the purposes of this subsection, the following
7-18 definitions apply:
7-19 (A) a production payment is defined to mean a
7-20 right to oil, gas, or other minerals in place or as produced that
7-21 entitles its owner to a specified fraction of production until a
7-22 specified sum of money, or a specified number of units of oil, gas,
7-23 or other minerals, has been received;
7-24 (B) a royalty and an overriding royalty are each
7-25 defined to mean a right to oil, gas, and other minerals in place or
7-26 as produced that entitles the owner to a specified fraction of
7-27 production without limitation to a specified sum of money or a
7-28 specified number of units of oil, gas, or other minerals;
7-29 (C) "producing" is defined to mean producing
7-30 oil, gas, or other minerals in paying quantities, provided that it
7-31 shall be deemed that oil, gas, or other minerals are being produced
7-32 in paying quantities if a well has been "shut in" and "shut-in
7-33 royalties" are being paid;
7-34 (n) Foreign Countries and United States Territories. In
7-35 addition to the investments in Canada authorized in other
7-36 subsections of this section, investments in other foreign countries
7-37 or in commonwealths, territories, or possessions of the United
7-38 States; provided:
7-39 (1) such investments are similar to those authorized
7-40 for investment within the United States of America or Canada by
7-41 other provisions of this section and are rated one or two by the
7-42 Securities Valuation Office of the National Association of
7-43 Insurance Commissioners; and
7-44 (2) such investments when added to the amount of
7-45 similar investments made within the United States and Canada do not
7-46 result in the combined total of such investments exceeding the
7-47 limitations specified in Subsections (a) through (p) of this
7-48 section; and
7-49 (3) such investments may not exceed the sum of:
7-50 (A) the amount of reserves attributable to the
7-51 business in force in said countries, if any, and any additional
7-52 investments required by any country as a condition to doing
7-53 business therein; and
7-54 (B) 20 <five> percent of the insurer's assets;
7-55 (o) Investments Not Otherwise Specified. Investments which
7-56 are not otherwise authorized by this article and which are not
7-57 specifically prohibited by statute, including that portion of any
7-58 investments which may exceed the limits specified in Subsections
7-59 (a) through (n) of this section; provided:
7-60 (1) if any aggregate or individual specified
7-61 investment limitation in Subsections (a) through (n) of this
7-62 section is exceeded, then the excess portion of such investment
7-63 shall be an investment under this subsection; and
7-64 (2) the burden of establishing the value of such
7-65 investments shall be upon the insurer; and
7-66 (3) the amount of any one such investment may not
7-67 exceed 10 percent of the insurer's capital and surplus in excess of
7-68 the statutory minimum capital and surplus applicable to that
7-69 insurer; and
7-70 (4) the aggregate of all investments made under this
8-1 subsection may not exceed the lesser of either five percent of the
8-2 insurer's assets or the insurer's capital and surplus in excess of
8-3 the statutory minimum capital and surplus applicable to that
8-4 insurer;
8-5 (p) Other Authorized Investments. Those other investments
8-6 as follows:
8-7 (1) any investment held by an insurer on the effective
8-8 date of this Act, which was legally authorized at the time it was
8-9 made or acquired or which the insurer was authorized to hold or
8-10 possess immediately prior to such effective date, but which does
8-11 not conform to the requirements of the investments authorized in
8-12 Subsections (a) through (o) of this section, may continue to be
8-13 held by and considered as an admitted asset of the insurer;
8-14 provided the investment is disposed of at its maturity date, if
8-15 any, or within the time prescribed by the law under which it was
8-16 acquired, if any; and provided further, in no event shall the
8-17 provisions of this subdivision alter the legal or accounting status
8-18 of such asset; and
8-19 (2) any other investment which may be authorized by
8-20 other provisions of this code or by other laws of this state for
8-21 the insurers which are subject to this article.
8-22 (q) Special Limitations for Certain Fixed Annuity Insurers.
8-23 The quantitative limitations imposed above in Subsections (b)(2),
8-24 (c)(1) <(c)(2)>, (f)(1), (g)(3), (h)(3), (i)(2), and (k)(5) of this
8-25 section shall not apply to any insurer with assets in excess of
8-26 $2,500,000,000 and that receives more than 90 percent of its
8-27 premium income from fixed rate annuity contracts and that has more
8-28 than 90 percent of its assets allocated to its reserves held for
8-29 fixed rate annuity contracts, excluding, however, any premium
8-30 income, assets, and reserves received from, held for, or allocated
8-31 to separate accounts from the computation of the above percentages,
8-32 and in lieu thereof, the following quantitative limitations shall
8-33 apply to such insurers:
8-34 (1) the limitation in Subsection (b)(2) of this
8-35 section shall be two percent of the insurer's assets;
8-36 (2) the limitation in Subsection (c)(1) <(c)(2)> of
8-37 this section shall be two percent of the insurer's assets;
8-38 (3) the limitation in Subsection (f)(1) of this
8-39 section shall be two percent of the insurer's assets;
8-40 (4) the limitation in Subsection (g)(3) of this
8-41 section shall be one percent of the insurer's assets;
8-42 (5) the limitation in Subsection (h)(3) of this
8-43 section shall be one percent of the insurer's assets;
8-44 (6) the limitation in Subsection (i)(2) of this
8-45 section shall be two percent of the insurer's assets; and
8-46 (7) the limitation in Subsection (k)(5) of this
8-47 section shall be two percent of the insurer's assets;<.>
8-48 (r) Premium Loans. Loans to finance the payment of premiums
8-49 for the insurer's own insurance policies or annuity contracts;
8-50 provided that the amount of any such loan does not exceed the sum
8-51 of: (i) the available cash value of such insurance policy or
8-52 annuity contract; and (ii) the amount of any escrowed commissions
8-53 payable relating to such insurance policy or annuity contract for
8-54 which the premium loan is made; and
8-55 (s) Money Market Funds. (1) Money market funds as defined
8-56 by 17 CFR 270.2a-7 under the Investment Company Act of 1940 (15
8-57 U.S.C. 80a-1 et seq.) that meet the following additional
8-58 conditions:
8-59 (A) the funds invest 100 percent of total assets
8-60 in United States treasury bills, notes, and bonds, and
8-61 collateralized repurchase agreements composed of those obligations
8-62 at all times;
8-63 (B) the funds invest 100 percent of total assets
8-64 in other full faith and credit instruments of the United States; or
8-65 (C) the funds invest at least 95 percent of
8-66 total assets in exempt securities, short-term debt instruments with
8-67 a maturity of 397 days or less, class one bonds, and collateralized
8-68 repurchase agreements composed of those securities at all times;
8-69 (2) For purposes of complying with Subsection (h) of
8-70 this section, money market funds qualifying for listing within
9-1 these categories must conform to the purpose and procedures manual
9-2 of the valuation of securities manual of the National Association
9-3 of Insurance Commissioners;<.>
9-4 (t) The percentage authorizations and limitations set forth
9-5 in any and all of the provisions of this section shall apply at the
9-6 time of originally making such investments and shall not be
9-7 applicable to the company or such investment thereafter except as
9-8 provided in Subsection (v) of this section. In addition, any
9-9 investment, once qualified under any subsection of this section,
9-10 shall remain qualified notwithstanding any refinancing,
9-11 restructuring or modification of such investment.
9-12 (u) Distributions, Reinsurance, and Merger. No provision of
9-13 this article prohibits the acquisition by an insurer of additional
9-14 obligations, securities, or other assets if received as a dividend
9-15 or as a distribution of assets, nor does this article apply to
9-16 securities, obligations, or other assets accepted incident to the
9-17 adjustment or realization of any kind of investment, when deemed by
9-18 the insurer's board of directors or by a committee appointed by the
9-19 board of directors to be in the best interests of the insurer, if
9-20 the debt or investment had previously qualified as an admitted
9-21 asset, nor does this article apply to assets acquired pursuant to a
9-22 lawful agreement of bulk reinsurance, merger, or consolidation if
9-23 such assets constituted legal and admissible investments for the
9-24 ceding, merged, or consolidated company. No obligation, security,
9-25 or other asset acquired as permitted by this subsection need be
9-26 qualified under any other subsection of this article.
9-27 (v) Qualification of Investments. The qualification or
9-28 disqualification of an investment under one subsection of this
9-29 section does not prevent its qualification in whole or in part
9-30 under another subsection, and an investment authorized by more than
9-31 one subsection may be held under whichever authorizing subsection
9-32 the insurer elects. An investment or investment practice qualified
9-33 under any subsection at the time it was acquired or entered into by
9-34 the company shall continue to be qualified under that subsection.
9-35 An investment, in whole or in part, may be transferred from time to
9-36 time, at the election of the insurer, to the authority of any
9-37 subsection under which it qualifies, whether originally qualifying
9-38 thereunder or not.
9-39 SECTION 3. Subsections (a) and (d), Section 7, Article
9-40 21.28-D, Insurance Code, are amended to read as follows:
9-41 (a) The Commissioner <State Board> of Insurance shall
9-42 appoint a board of directors of the association consisting of nine
9-43 members, three of whom shall be chosen from employees or officers
9-44 chosen from the 50 <ten> member companies having the largest total
9-45 direct premium income based on the latest financial statement on
9-46 file at date of appointment, two of whom shall be chosen from the
9-47 other companies to give fair representation to member insurers
9-48 based on due consideration of their varying categories of premium
9-49 income and geographical location, and four of whom shall be
9-50 representatives of the general public. Members serve for six-year
9-51 staggered terms, with the terms of three members expiring each
9-52 odd-numbered year. All directors shall serve until their
9-53 successors are appointed, except that in the case of any vacancy,
9-54 the unexpired term of office shall be filled by the appointment of
9-55 a director by the Commissioner <State Board> of Insurance. If a
9-56 director ceases to be an officer or employee of a member insurer
9-57 during the director's term of office, that office becomes vacant
9-58 until the director's successor is appointed. All directors are
9-59 eligible to succeed themselves in office. A public representative
9-60 may not be:
9-61 (1) an officer, director, or employee of an insurance
9-62 company, insurance agency, agent, broker, solicitor, adjuster, or
9-63 any other business entity regulated by the department <State Board
9-64 of Insurance>;
9-65 (2) a person required to register with the secretary
9-66 of state under Chapter 305, Government Code; or
9-67 (3) related to a person described by Subparagraph (1)
9-68 or (2) of this paragraph within the second degree of affinity or
9-69 consanguinity.
9-70 (d) A director of the association <or any member company or
10-1 other entity represented by the director> may not receive any money
10-2 or valuable thing directly, indirectly, or through any substantial
10-3 interest in any other corporation, firm, or business unit for
10-4 negotiating, procuring, participating, recommending, or aiding in a
10-5 transaction, reinsurance agreement, merger, purchase, sale,
10-6 contribution, or exchange of assets, policies of insurance, or
10-7 property made by the association or the supervisor, conservator, or
10-8 receiver on behalf of an impaired insurer. The director of the
10-9 association<, company, or entity> may not have a pecuniary interest
10-10 <be pecuniarily or contractually interested>, as principal,
10-11 co-principal, agent, or beneficiary, directly, indirectly, or
10-12 through any substantial interest in any other corporation, firm, or
10-13 business unit, in the transaction, reinsurance agreement, merger,
10-14 purchase, sale, contribution, or exchange.
10-15 SECTION 4. Section 5, Article 21.39-B, Insurance Code, is
10-16 repealed.
10-17 SECTION 5. This Act takes effect September 1, 1995.
10-18 SECTION 6. The importance of this legislation and the
10-19 crowded condition of the calendars in both houses create an
10-20 emergency and an imperative public necessity that the
10-21 constitutional rule requiring bills to be read on three several
10-22 days in each house be suspended, and this rule is hereby suspended.
10-23 * * * * *