RS S.B. 1111 75(R) BILL ANALYSIS
INSURANCE
S.B. 1111
By: Duncan (Van de Putte)
5-1-97
Committee Report (Unamended)
BACKGROUND
Currently, the Insurance Code authorizes property and casualty insurers to
invest funds within certain limitations and diversification requirements.
Property and casualty insurers are not authorized to participate in
investment pools. This bill would authorize property and casualty
insurers to acquire investments and participate in qualified investment
pools which meet certain requirements.
PURPOSE
As proposed, S.B. 1111 authorizes property and casualty insurers to
acquire investments and participate in certain qualified investment pools.
RULEMAKING AUTHORITY
This bill does not grant any additional rulemaking authority to a state
officer, institution, or agency.
SECTION BY SECTION ANALYSIS
SECTION 1. Amends Chapter 2, Insurance Code, by adding Article 2.10-5, as
follows:
Art. 2.10-5. INVESTMENT AUTHORITY
Sec. 1. DEFINITIONS. Defines "business entity," "class one money market
mutual fund," "government money market mutual fund," "money market mutual
fund," "obligation," "qualified bank," "repurchase transaction," "reverse
repurchase transaction," "securities lending transaction," and "securities
valuation office."
Sec. 2. AUTHORITY TO INVEST. Authorizes an insurer to acquire
investments and participate in an investment pool that is qualified under
Section 5 of this article and the investments of which are limited to
investments authorized for a short-term investment pool under Section 3 of
this article or for an authorized investment pool under Section 4 of this
article.
Sec. 3. SHORT-TERM INVESTMENT POOLS. Authorizes a short-term investment
pool to contain only certain obligations; government money market mutual
funds or class one money market mutual funds; or securities lending,
repurchase and reverse purchase transactions that meet the requirements
imposed under Article 2.10-3 of this code. Requires the issuer of an
obligation under Subsection (a)(1) of this section, in the absence of a
one or two rating or equivalent rating, to have outstanding obligations
rated one or two by the securities valuation office or that has a rating
equivalent to a securities valuation office rating of one or two made by a
nationally recognized statistical rating organization recognized by the
securities valuation office. Provides that a current short-term index is
a federal funds rate; the prime rate; the rate for treasury bills; the
London InterBank Offered Rate; or the rate for commercial paper.
Sec. 4. AUTHORIZED INVESTMENT POOLS. Provides that authorized investment
pools are limited to investments that a participating insurer is
authorized to acquire by other articles of this code. Prohibits the
insurer's total of proportionate ownership interests in any one authorized
investment held by an authorized investment pool, and direct investments
in the same authorized investment, from exceeding the limit provided by
the applicable authorizing article. Provides that an insurer is also
subject to the overall limitations contained in Section 6(c) of this
article.
Sec. 5. QUALIFICATIONS FOR AN INVESTMENT POOL. Requires an investment
pool to comply with the requirements established under this section.
Prohibits the investment pool from acquiring securities issued, assumed,
guaranteed, or insured by the investing insurer or an affiliate of the
investing insurer; from borrowing or incurring an indebtness for borrowed
money, except for securities lending and reverse repurchase transactions
that meet the requirements of this article; or from permitting the
aggregate value of securities then loaned or sold to, purchased from, or
invested in any one business entity under this section to exceed 10
percent of the total assets of the investment pool. Requires the
investment pool to have a written pooling agreement. Requires the pooling
agreement to designate a pool manager. Requires the pool manager to be
organized under the laws of the United States or a state, and to be the
investing insurer, an affiliate insurer, or business entity affiliated
with the investing insurer; to be a qualified bank; to be a business
entity registered under the Investment Advisors Act of 1940 (15 U.S.C.
Sec. 80A-1 et seq.), as amended; if a reciprocal insurer or interinsurance
exchange, to be its attorney-in-fact; or if a United States branch of an
alien insurer, to be its United State manager or an affiliate or
subsidiary of its United States manager. Requires the pool manger to
compile and maintain certain records. Requires the pool manager to
maintain the assets of the investment pool in one or more accounts, in the
name of or on behalf of the investment pool, under a custody agreement
with a qualified bank. Sets forth the required terms of the custody
agreement. Sets forth the required terms and conditions of the pooling
agreement for the investment pool.
Sec. 6. ADDITIONAL REQUIREMENTS; LIMITATIONS. Requires an investment
pool to be a business entity. Provides that a transaction between the
pool and a participant in the pool is not subject to Section 4, Article
21.49-1, of this code, except that, before entering into a pool, an
insurer subject to Article 21.49-1, shall file the notice required under
Section 4(d)(2), Article 21.49-1, of this code. Requires the investment
activities of the pool and transactions between pools and participants to
be reported annually in the registration statement required by Section 3,
Article 21.49-1, of this code. Prohibits an insurer from acquiring an
investment in an investment pool under this section if, as a result of and
after giving effect to that investment, the aggregate amount of
investments then held by the insurer under this article exceeds a certain
percentage of the pool's admitted assets. Requires a pool participant to
be able to make withdrawals on demand without penalty or other assessment
on any business day, and settlement of funds must occur within a
reasonable and customary period after a withdrawal not to exceed five
business days. Requires the pooling agreement to provide that the pool
manager make a distribution to a pool participant, at the discretion of
the pool manager, either in cash, in kind, or in a combination of in cash
and in kind distributions. Provides that a distribution under Subsection
(e) is computed in each case after subtracting all applicable fees and
expenses of the investment pool. Requires the pool manager to make the
records of the investment pool available for inspection by the
commissioner of insurance.
SECTION 2. Emergency clause.
Effective date: 90 days after adjournment.