RS S.B. 1388 75(R) BILL ANALYSIS INSURANCE S.B. 1388 By: Patterson, Jerry (Smithee) 5-10-97 Committee Report (Unamended) BACKGROUND Currently, Texas title insurers are required to establish minimum statutory premium reserves to pay claims or secure reinsurance in the event of an insolvency. The formulas currently used by title insurers to establish reserve requirements may not be adequate to ensure the financial stability of insurers. This bill would revise the present statutory formulas used to calculate the minimum statutory premium reserves established by domestic title insurers. Additionally, this bill would require insurers to file an actuarial certification annually with the annual statement. PURPOSE As proposed, S.B. 1388 revises the present statutory formulas used to calculate the minimum statutory premium reserves established by domestic title insurers. Additionally, this bill would require insurers to file an actuarial certification annually with the annual statement. 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 Article 9.16, Insurance Code, as follows: Sec. 1. STATUTORY PREMIUM RESERVE REQUIRED. Requires each domestic title insurer doing a title insurance business under this chapter to establish and maintain a statutory premium reserve during the period and for the uses and purposes provided by this article. Requires the reserve required under Subsection (a) to be cumulative. Requires the reserve to be established and to consist of the amounts required under this article. Makes a conforming change. Sec. 2. AMOUNTS ADDED TO RESERVE FOR 1997; REDUCTIONS. Sets forth the calculation for total charges of a domestic title insurer for the 1997 calendar year. Sets forth the calculation of the set aside for a domestic title insurer. Sets forth calculations for additions to the statutory premium reserve set aside for title insurance policies written or assumed during 1997. Subsection (c) sets forth requirements for annual reductions. Subsection (d) sets forth time line for reductions. Sec. 3. AMOUNTS ADDED TO RESERVE IN CALENDAR YEARS AFTER 1997; REDUCTIONS. Sets forth calculations for amounts added to reserves in calendar years after 1997. Sets forth requirements for annual reductions in the additions to hte reserve. Sec. 4. TRANSITIONAL RELEASE; TRANSITIONAL CHARGE. (a) Each domestic title insurer shall compute a total statutory premium reserve balance for all of the policy years combined as of December 31, 1996. (b) Sets forth calculations for a transitional charge. Sets forth the effects of having a transitional release. (c) If the title insurer has transitional charges under subsection (b) in addition to the statutory premium reserve required by this article, the domestic title insurer shall add to its statutory premium on December 31 of each year for 10 consecutive years beginning on December 31, 1997, an amount equal to 10% of the transitional charge. (d) If the domestic insurer has a transitional release under subsection (b), then in addition to the changes required by the article, the domestic insurer shall reduce its statutory premium reserve on December 31 of each year by 10% of the transitional release for ten consecutive years starting December 31, 1997. Sec. 5. RUNOFF BALANCE. Sets forth requirements and procedures for having a runoff balance. (b) Sets forth formula for reduction of statutory premium reserve. (c) The change is in addition to any other changes to the premium reserve required by this article. Sec. 6. ACTUARIAL CERTIFICATION. (a) Each domestic and foreign title insurer shall file annually with the annual statement required under Art. 9.22, Insurance Code, an actuarial certification made by a member in good standing of the American Academy of Actuaries. (b) Sets forth requirements for an actuarial certification and requirements for the reserves under this Section. Sec. 7. SUPPLEMENTAL RESERVE. Requires each domestic and foreign title insurer to establish supplemental reserves in certain amounts. Sets forth the requirements for phasing in supplemental reserves. Deletes existing Subsections (a)-(d). Sec. 8. FOREIGN COMPANIES. Requires a foreign title insurer doing business in this state to be required to comply with Sections 6 and 7 of this article. Deletes text regarding foreign companies and unearned premium reserves. Sec. 9. REEVALUATION OF RESERVE REQUIREMENTS. Authorizes the commissioner of insurance to reevaluate reserve requirements and make recommendations for legislative changes. Sec. 10. MAINTENANCE OF FUND. Requires the statutory premium reserve and supplemental reserve fund to be held in cash or other securities admissible for investment by title insurers under Article 9.18 of this code. Sec. 11. EFFECT OF INSOLVENCY OR DISSOLUTION. In the event of insolvency or dissolution of a title insurer, the statutory premium reserve, and supplemental reserve fund shall be used to protect the contract holders. Makes conforming and nonsubstantive changes. SECTION 2. Provides that this Act applies to reports made by title insurers beginning with reports due for calendar year 1997. SECTION 3. Emergency clause. Effective date: upon passage.