By Dutton H.B. No. 909
A BILL TO BE ENTITLED
1-1 AN ACT
1-2 relating to amending certain provisions of the Insurance Code,
1-3 concerning authorized investments of insurers, specifically,
1-4 Articles 2.10, 3.33, 3.39-1, 3.39-2, 9.18, and 21.39-B.
1-5 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-6 SECTION 1. Section 2, Article 3.33, Insurance Code, is
1-7 amended to read as follows:
1-8 Sec. 2. Purpose. The purpose of this article is to protect
1-9 and further the interests of insureds, insurers, creditors, and the
1-10 public by providing standards for the development and
1-11 administration of plans for the investment of the assets of
1-12 insurers. [Such plans should seek a reasonable relationship of
1-13 liabilities and assets as to term and nature.]
1-14 SECTION 2. Section 3, Article 3.33, Insurance Code, is
1-15 amended to read as follows:
1-16 Sec. 3. Insurers' Investment Plans. (a) The board of
1-17 directors of each insurer or corresponding authority designated by
1-18 the charter, bylaws, or plan of operations of an insurer which has
1-19 no board of directors shall:
1-20 (1) adopt a written investment plan consistent with
1-21 the provisions of this article which:
1-22 (A) specifies the diversification of the
1-23 insurer's investments, so as to reduce the risk of large losses,
1-24 by:
2-1 (i) broad categories (such as bonds and
2-2 real estate loans),
2-3 (ii) kinds (such as obligations of
2-4 governments, or business entities, mortgage-backed securities, and
2-5 real estate loans on office, retail, industrial or residential
2-6 properties),
2-7 (iii) quality,
2-8 (iv) maturity,
2-9 (v) industry, and
2-10 (vi) geographical areas (as to both
2-11 domestic and foreign investments);
2-12 (B) balances safety of principal with yield and
2-13 growth;
2-14 (C) seeks a reasonable relationship of assets
2-15 and liabilities as to term and nature;
2-16 (D) is appropriate considering the capital and
2-17 surplus and the business conducted by the insurer; [adopt a written
2-18 investment plan consistent with the provision of this article which
2-19 specifies quality, maturity, and diversification of investments and
2-20 is appropriate for the business conducted by the insurer and its
2-21 capital and surplus;]
2-22 (2) at least annually, review the adequacy of such
2-23 investment plan and the implementation thereof.
2-24 (b) The insurer shall maintain the investment plan in its
2-25 principal office and shall provide same to the commissioner or his
2-26 designee upon request, and such plans shall be maintained as a
2-27 privileged and confidential document by the Commissioner of
3-1 Insurance or his designee and it shall not be subject to public
3-2 disclosure. The insurer shall maintain investment records covering
3-3 each transaction. [Such investment records shall contain a
3-4 reference to the subsection of this article and, if appropriate,
3-5 other provision of law that authorizes the investment.] At all
3-6 times, the insurer shall be able to demonstrate that its
3-7 investments are within the limitations prescribed in this article.
3-8 SECTION 3. Section 4, Article 3.33, Insurance Code, is
3-9 amended to read as follows:
3-10 Sec. 4. Authorized Investments and Transactions [Loans].
3-11 Subject to the limitations and restrictions herein contained and,
3-12 unless otherwise specified, based upon the insurer's capital,
3-13 surplus and admitted assets as reported in the most recently filed
3-14 statutory financial statement, the investments and transactions
3-15 [loans] described in the following subsections, and in Section 6,
3-16 Article 21.49-1, and none other, are authorized for the insurers
3-17 subject hereto:
3-18 (a) United States Government Bonds. Bonds, evidences
3-19 of indebtedness or obligations of the United States of America, or
3-20 bonds, evidences of indebtedness or obligations guaranteed as to
3-21 principal and interest by the full faith and credit of the United
3-22 States of America, and bonds, evidences of indebtedness, or
3-23 obligations of agencies and instrumentalities of the government of
3-24 the United States of America;
3-25 (b) Other Governmental Bonds. Bonds, evidences of
3-26 indebtedness or obligations of governmental units in the United
3-27 States, Canada, or any province or city of Canada, and of the
4-1 instrumentalities of such governmental units; provided:
4-2 (1) such governmental unit or instrumentality is
4-3 not in default in the payment of principal or interest in any of
4-4 its obligations; and
4-5 (2) investments in the obligations of any one
4-6 governmental unit or instrumentality may not exceed 20 percent of
4-7 the insurer's capital and surplus;
4-8 (c) Obligations of Business Entities. Obligations,
4-9 including bonds or evidences of indebtedness, or participations in
4-10 those bonds or evidences of indebtedness, or asset-backed
4-11 securities, that are issued, assumed, guaranteed, or insured by any
4-12 business entity, including a sole proprietorship, a corporation, an
4-13 association, a general or limited partnership, a limited liability
4-14 company, a joint-stock company, a joint venture, a trust, or any
4-15 other form of business organization, whether for-profit or
4-16 not-for-profit, that is organized under the laws of the United
4-17 States, another state, Canada, or any state, district, province, or
4-18 territory of Canada, subject to all conditions set forth below:
4-19 (1) an insurer may acquire obligations or
4-20 counterparty exposure amounts, as defined in Subsection (u), in any
4-21 one business entity rated [one or two] by the Securities Valuation
4-22 Office of the National Association of Insurance Commissioners, but
4-23 not to exceed 20 percent of the insurer's statutory capital and
4-24 surplus [as reported in the most recent annual statement filed with
4-25 the department];
4-26 (2) an insurer shall not acquire an obligation,
4-27 counterparty exposure amount or preferred stock of any business
5-1 entity if, after giving effect to the investment:
5-2 (A) the aggregate amount of such
5-3 investments then held by the insurer that are rated 3, 4, 5 or 6 by
5-4 the Securities Valuation Office of the National Association of
5-5 Insurance Commissioners would exceed 20 percent of its assets;
5-6 (B) the aggregate amount of such
5-7 investments then held by the insurer that are rated 4, 5, or 6 by
5-8 the Securities Valuation Office would exceed 10 percent of its
5-9 assets;
5-10 (C) the aggregate amount of such
5-11 investments then held by the insurer that are rated 5 or 6 by the
5-12 Securities Valuation Office would exceed three percent of its
5-13 assets; or
5-14 (D) the aggregate amount of such
5-15 investments then held by the insurer that are rated 6 by the
5-16 Securities Valuation Office would exceed one percent of its assets.
5-17 If an insurer attains or exceeds the limit of any one rating
5-18 category referred to in this subsection, the insurer shall not be
5-19 precluded from acquiring investments in other rating categories
5-20 subject to the specific and multiple category limits applicable to
5-21 those investments [an insurer may acquire obligations rated three
5-22 or lower by the Securities Valuation Office if, after giving effect
5-23 to such an acquisition, the aggregate amount of all obligations
5-24 rated three or lower then held by the domestic insurer does not
5-25 exceed 20 percent of its admitted assets. Not more than 10 percent
5-26 of the admitted assets of that insurer may consist of obligations
5-27 rated four, five, or six by the Securities Valuation Office. Not
6-1 more than three percent of the admitted assets of that insurer may
6-2 consist of obligations rated five or six by the Securities
6-3 Valuation Office. Not more than one percent of the admitted assets
6-4 of that insurer may consist of obligations rated six by the
6-5 Securities Valuation Office. Attaining or exceeding the limit in
6-6 any one category does not preclude an insurer from acquiring
6-7 obligations in other categories, subject to the specific and
6-8 multi-category limits;]
6-9 [(3) an insurer may not invest more than an
6-10 aggregate of one percent of its admitted assets in obligations
6-11 rated three by the Securities Valuation Office that are issued,
6-12 assumed, guaranteed, or insured by any one business entity, or more
6-13 than one-half percent of its admitted assets in obligations rated
6-14 four, five, or six by the Securities Valuation Office that are
6-15 issued, assumed, guaranteed, or insured by any one business entity.
6-16 An insurer may not invest more than one percent of its admitted
6-17 assets in any obligations rated three, four, five, or six by the
6-18 Securities Valuation Office that are issued, assumed, guaranteed,
6-19 or insured by any one business entity];
6-20 (3) [(4)] notwithstanding the foregoing, an
6-21 insurer may acquire an obligation of a business entity in which the
6-22 insurer already holds [has] one or more obligations if the
6-23 obligation is acquired in order to protect an investment previously
6-24 made in that business entity, but[. Such acquired] obligations so
6-25 acquired may not exceed one-half percent of the insurer's
6-26 [admitted] assets; and
6-27 (4) [(5)] this subsection does not prohibit an
7-1 insurer from acquiring an obligation as a result of a restructuring
7-2 of an already held obligation or preferred stock that is rated 3,
7-3 4, 5 or 6 [three or lower] by the Securities Valuation Office;
7-4 (d) International Market. Bonds issued, assumed, or
7-5 guaranteed by the Interamerican Development Bank, the International
7-6 Bank for Reconstruction and Development (the World Bank), the Asian
7-7 Development Bank, the State of Israel, the African Development
7-8 Bank, and the International Finance Corporation; provided:
7-9 (1) investments in the bonds of any one of the
7-10 entities specified above may not exceed 20 percent of the insurer's
7-11 capital and surplus; and
7-12 (2) the aggregate of all investments made under
7-13 this subsection may not exceed 20 percent of the insurer's assets;
7-14 (e) Policy Loans. Loans upon the security of the
7-15 insurer's own policies not in excess of the amount of the reserve
7-16 values thereof;
7-17 (f) Time and Savings Deposits. Any type or form of
7-18 savings deposits, time deposits, certificates of deposit, NOW
7-19 accounts, and money market accounts in solvent banks, savings and
7-20 loan associations, and credit unions and branches thereof,
7-21 organized under the laws of the United States of America or its
7-22 states, when made in accordance with the laws or regulations
7-23 applicable to such entities; provided the amount of the deposits in
7-24 any one bank, savings and loan association, or credit union will
7-25 not exceed the greater of:
7-26 (1) 20 [twenty] percent of the insurer's capital
7-27 and surplus;
8-1 (2) the amount of federal or state deposit
8-2 insurance coverage pertaining to such deposit; or
8-3 (3) 10 [ten] percent of the amount of capital,
8-4 surplus, and undivided profits of the entity receiving such
8-5 deposits;
8-6 (g) Insurer Investment Pools. For the purposes of
8-7 this Subsection (g), the following definition shall apply:
8-8 (A) "Affiliate" means, as to any person, another
8-9 person that, directly or indirectly through one or more
8-10 intermediaries, controls, is controlled by, or is under common
8-11 control with the person.
8-12 (1) An insurer may acquire investments in
8-13 investment pools that:
8-14 (A) invest only in:
8-15 (i) obligations
8-16 that are rated 1 or 2 by the SecuritiesValuation Office or have an
8-17 equivalent of a Securities Valuation Office 1 or 2 rating (or, in
8-18 the absence of a 1 or 2 rating or equivalent rating, the issuer has
8-19 outstanding obligations with a Securities Valuation Office 1 or 2
8-20 or equivalent rating) by a nationally recognized statistical rating
8-21 organization recognized by the Securities Valuation Office and
8-22 have:
8-23 (a) a
8-24 remaining maturity of 397 days or less or a put that entitles the
8-25 holder to receive the principal amount of the obligation which put
8-26 may be exercised through maturity at specified intervals not
8-27 exceeding 397 days; or
9-1 (b) a
9-2 remaining maturity of three years or less and a floating interest
9-3 rate that resets no less frequently than quarterly on the basis of
9-4 a current short-term index (federal funds, prime rate, treasury
9-5 bills, London InterBank Offered Rate (LIBOR) or commercial paper)
9-6 and is subject to no maximum limit, if the obligations do not have
9-7 an interest rate that varies inversely to market interest rate
9-8 changes;
9-9 (ii) securities
9-10 lending, repurchase and reverse repurchasetransactions that meet
9-11 the requirements of Subsection (q) and any applicable regulations
9-12 of the department; or
9-13 (iii) money
9-14 market mutual funds as authorized in Subsection (s); provided that
9-15 this short-term investment pool shall not acquire investments in
9-16 any one business entity that exceed 10 percent of the total assets
9-17 of the investment pool;
9-18 (B) invest only in
9-19 investments which an insurer may acquire under this article, if the
9-20 insurer's proportionate interest in the amount invested in these
9-21 investments does not exceed the applicable limits of this article,
9-22 and the aggregate amount of all investments in such other
9-23 investment pools may not exceed 25 percent of the insurer's assets.
9-24 (2) An insurer shall not acquire an
9-25 investment in an investment pool under this subsection if after
9-26 giving effect to the investment, the aggregate amount of
9-27 investments in all investment pools then held by the insurer would
10-1 exceed 35 percent of its assets.
10-2 (3) For an investment in an investment
10-3 pool to be qualified under this article, the investment pool shall
10-4 not:
10-5 (A) acquire securities
10-6 issued, assumed, guaranteed or insured by the insurer or an
10-7 affiliate of the insurer;
10-8 (B) borrow or incur any
10-9 indebtedness for borrowed money, except for securities lending and
10-10 reverse repurchase transactions.
10-11 (4) For an investment pool to be qualified
10-12 under this article:
10-13 (A) the manager of the
10-14 investment pool shall:
10-15 (i) be
10-16 organized under the laws of the United States or a state and
10-17 designated as the pool manager in a pooling agreement;
10-18 (ii) be the
10-19 insurer, an affiliated insurer, a business entity affiliated with
10-20 the insurer, a custodian bank, a business entity registered under
10-21 the Investment Advisors Act of 1940 (15 U.S.C. Section 80a-1 et
10-22 seq.), as amended, or, in the case of a reciprocal insurer or
10-23 interinsurance exchange, its attorney-in-fact or, in the case of a
10-24 United States branch of an alien insurer, its United States manager
10-25 or affiliates or subsidiaries of its United States manager;
10-26 (B) the pool manager or an
10-27 entity designated by the pool manager of the type set forth in
11-1 (4)(A)(ii) shall maintain detailed accounting records setting
11-2 forth:
11-3 (i) the
11-4 cash receipts and disbursements reflecting each participant's
11-5 proportionate investment in the investment pool;
11-6 (ii) a
11-7 complete description of all underlying assets of the investment
11-8 pool (including amount, interest rate, maturity date (if any) and
11-9 other appropriate designations); and
11-10 (iii) other
11-11 records which, on a daily basis, allow third parties to verify each
11-12 participant's investments in the investment pool;
11-13 (C) the assets of the
11-14 investment pool shall be held in one or more accounts, in the name
11-15 or on behalf of the investment pool, either (i) under a custody
11-16 agreement or trust agreement with a custodian bank or (ii) at the
11-17 principal office of the pool manager. The applicable agreement
11-18 shall:
11-19 (i) state
11-20 and recognize the claims and rights of each participant;
11-21 (ii) acknowledge
11-22 that the underlying assets of the investmentpool are held solely
11-23 for the benefit of each participant in proportion to the aggregate
11-24 amount of its investments in the investment pool; and
11-25 (iii) contain
11-26 an agreement that the underlying assets of theinvestment pool shall
11-27 not be commingled with the general assets of the custodian bank or
12-1 any other person.
12-2 (5) The pooling agreement for each
12-3 investment pool shall be in writing and shall provide that:
12-4 (A) the insurer, its
12-5 subsidiaries, affiliates or, in the case of a United States branch
12-6 of an alien insurer, affiliates or subsidiaries of its United
12-7 States manager, and any unaffiliated insurer shall, at all times,
12-8 hold 100 percent of the interests in the investment pool;
12-9 (B) the underlying assets
12-10 of the investment pool shall not be commingled with the general
12-11 assets of the pool manager or any other person;
12-12 (C) in proportion to the
12-13 aggregate amount of each pool participant's interest in the
12-14 investment pool:
12-15 (i) each
12-16 participant owns an undivided interest in the underlying assets or
12-17 the investment pool; and
12-18 (ii) the
12-19 underlying assets of the investment pool are held solely for the
12-20 benefit of each participant;
12-21 (D) a participant, or, in
12-22 the event of the participant's insolvency, bankruptcy, or
12-23 receivership, its trustee, receiver, conservator or other
12-24 successor-in-interest, may withdraw all or any portion of its
12-25 investment from the investment pool under the terms of the pooling
12-26 agreement;
12-27 (E) withdrawals may be made
13-1 on demand without penalty or other assessment on any business day,
13-2 but settlement of funds shall occur within a reasonable and
13-3 customary period thereafter provided: (i) in the case of publicly
13-4 traded securities, settlement shall not exceed five business days,
13-5 and (ii) in the case of all other securities and investments,
13-6 settlement shall not exceed 10 business days. Distributions under
13-7 this paragraph shall be calculated in each case net of all then
13-8 applicable fees and expenses of the investment pool. The pooling
13-9 agreement shall provide that the pool manager shall distribute to a
13-10 participant, at the discretion of the pool manager:
13-11 (i) in
13-12 cash, the then fair market value of the participant's pro rata
13-13 share of each underlying asset of the investment pool;
13-14 (ii) in
13-15 kind, a pro rata share of each underlying asset; or
13-16 (iii) in a
13-17 combination of cash and in kind distributions, a pro rata share in
13-18 each underlying asset; and
13-19 (F) the pool manager shall
13-20 make the records of the investment pool available for inspection
13-21 by the commissioner.
13-22 (6) An investment in an investment pool
13-23 shall not be deemed to be an affiliate transaction under Section 4,
13-24 Article 21.49-1, of this code; however each pooling agreement shall
13-25 be subject to the standards of Section 4(a), Article 21.49-1, of
13-26 this code and the reporting requirements of Section 3(b), Article
13-27 21.49-1, of this code. [Equipment Trusts. Equipment trust
14-1 obligations or certificates; provided:]
14-2 [(1) any such obligation or certificate is secured by
14-3 an interest in transportation equipment that is in whole or in part
14-4 within the United States of America;]
14-5 [(2) the obligation or certificate provides a right to
14-6 receive determined portions of rental, purchase, or other fixed
14-7 obligatory payments for the use or purchase of the transportation
14-8 equipment;]
14-9 [(3) the obligation is classified as an obligation of
14-10 a business entity and is subject to the limitations on obligations
14-11 of business entities set forth in Subsection (c) of this section;
14-12 and]
14-13 [(4) the aggregate of all investments made under this
14-14 subsection may not exceed 10 percent of the insurer's assets;]
14-15 (h) Equity Interests. Equity interests including
14-16 common stock, equity investment in an investment company (other
14-17 than a money market mutual fund as defined in Subsection (s) of
14-18 this section), real estate investment trust, limited partnership
14-19 interests, warrants or other rights to acquire equity interests
14-20 that are created by the person that owns or would issue the equity
14-21 to be acquired, and equity interests in any business entity that is
14-22 organized under the laws of the United States, any of its states,
14-23 Canada or any province or territory of Canada provided:
14-24 (1) if no market value from a generally
14-25 recognized source is available for the equity interest, the
14-26 business entity or other investment shall be subject to an annual
14-27 audit by an independent certified public accountant or subject to
15-1 another method of valuation acceptable to the commissioner; and
15-2 (2) an insurer shall not be permitted to invest
15-3 in a partnership, as a general partner, except through an
15-4 investment subsidiary;
15-5 (3) such investments in any one business entity
15-6 other than a money market fund defined in Subsection (s) may not
15-7 exceed 15 percent of the insurer's capital and surplus;
15-8 (4) the aggregate amount of all investments made
15-9 under this subsection may not exceed 25 percent of the insurer's
15-10 assets.
15-11 For purposes of this subsection, a business entity shall mean
15-12 a real estate investment trust, corporation, limited liability
15-13 company, association, limited partnership, joint venture, mutual
15-14 fund, trust, joint tenancy or other similar form of business
15-15 organization, whether organized for profit or not-for-profit.
15-16 [Common Stock. Common stock of any corporation organized under the
15-17 laws of the United States of America or any of its states, shares
15-18 of mutual funds doing business under the Investment Company Act of
15-19 1940 (15 U.S.C. Section 80a-1 et seq.), other than money market
15-20 funds as defined in Subsection (s) of this section, and shares in
15-21 real estate investment trusts as defined in the Internal Revenue
15-22 Code of 1954 (26 U.S.C. Section 856); provided:]
15-23 [(1) any such corporation, other than a mutual fund,
15-24 must be solvent with at least $1,000,000 net worth as of the date
15-25 of its latest annual or more recent certified audited financial
15-26 statement or will have at least $1,000,000 of net worth after
15-27 completion of a securities offering which is being subscribed to by
16-1 the insurer;]
16-2 [(2) mutual funds, other than money market funds as
16-3 defined in Subsection (s) of this section, and real estate
16-4 investment trusts must be solvent with at least $1,000,000 of net
16-5 assets as of the date of its latest annual or more recent certified
16-6 audited financial statement;]
16-7 [(3) investments in any one corporation, mutual fund,
16-8 other than a money market fund as defined in Subsection (s) of this
16-9 section, or real estate investment trust may not exceed 15 percent
16-10 of the insurer's capital and surplus; and]
16-11 [(4) the aggregate of all investments made under this
16-12 subsection may not exceed 25 percent of the insurer's assets;]
16-13 (i) Preferred Stock. Preferred stock of business
16-14 entities as described in Subsection (c) of this section
16-15 [corporations organized under the laws of the United States of
16-16 America or any of its states]; provided:
16-17 (1) investments in the preferred stock of any
16-18 one business entity will not exceed 20 percent of the insurer's
16-19 capital and surplus;
16-20 (2) the preferred stock is rated by the
16-21 Securities Valuation Office, and the aggregate investment in
16-22 preferred stock rated 3, 4, 5, or 6, when added to the investments
16-23 under Subsection (c)(2) do not result in the combined total of such
16-24 investments exceeding the limitations specified in Subsection
16-25 (c)(2);
16-26 [(1) such corporation must be solvent with at least
16-27 $1,000,000 of net worth as of the date of its latest annual or more
17-1 recent certified audited financial statement or will have at least
17-2 $1,000,000 of net worth after completion of a security offering
17-3 which is being subscribed to by the insurer;]
17-4 [(2) investments in the preferred stock of any one
17-5 corporation will not exceed 20 percent of the insurer's capital and
17-6 surplus;]
17-7 (3) in the aggregate not more than 10 percent of
17-8 the insurer's assets may be invested in preferred stock, the
17-9 redemption and retirement of which is not provided for by a sinking
17-10 fund meeting the standards established by the National Association
17-11 of Insurance Commissioners [to value the preferred stock at cost];
17-12 and
17-13 (4) the aggregate of all investments made under
17-14 this subsection may not exceed 40 percent of the insurer's assets;
17-15 (j) Collateral Loans. Collateral loans secured by a
17-16 first lien upon or a valid and perfected first security interest in
17-17 an asset; provided:
17-18 (1) the amount of any such collateral loan will
17-19 not exceed 80 percent of the value of the collateral asset at any
17-20 time during the duration of the loan; and
17-21 (2) the asset used as collateral would be
17-22 authorized for direct investment by the insurer under other
17-23 provisions of this Section 4, except real property in Subsection
17-24 (l);
17-25 (k) Real Estate Loans. Notes, evidences of
17-26 indebtedness, or participations therein secured by a valid first
17-27 lien upon real property or leasehold estate therein located in the
18-1 United States of America; provided:
18-2 (1) the amount of any such obligation secured by
18-3 a first lien upon real property or leasehold estate therein shall
18-4 not exceed 90 percent of the value of such real property or
18-5 leasehold estate therein, but the amount of such obligation:
18-6 (A) may exceed 90 percent but shall not
18-7 exceed 100 percent of the value of such real property or leasehold
18-8 estate therein if the insurer or one or more wholly owned
18-9 subsidiaries of the insurer owns in the aggregate a 10 percent or
18-10 greater equity interest in such real property or leasehold estate
18-11 therein;
18-12 (B) may be 95 percent of the value of such
18-13 real property or leasehold estate therein if it contains only a
18-14 dwelling designed exclusively for occupancy by not more than four
18-15 families for residential purposes, and the portion of the unpaid
18-16 balance of such obligation which is in excess of an amount equal to
18-17 90 percent of such value is guaranteed or insured by a mortgage
18-18 insurance company qualified to do business in the State of Texas;
18-19 or
18-20 (C) may be greater than 90 percent of the
18-21 value of such real property or leasehold estate therein to the
18-22 extent the obligation is insured or guaranteed by the United States
18-23 of America, the Federal Housing Administration pursuant to the
18-24 National Housing Act of 1934, as amended (12 U.S.C. Section 1701 et
18-25 seq.), or the State of Texas; and
18-26 (2) the term of an obligation secured by a first
18-27 lien upon a leasehold estate in real property shall not exceed a
19-1 period equal to four-fifths of the then unexpired term of such
19-2 leasehold estate; provided the unexpired term of the leasehold
19-3 estate must extend at least 10 years beyond the term of the
19-4 obligation, and each obligation shall be payable in an installment
19-5 or installments of sufficient amount or amounts so that at any time
19-6 after the expiration of two-thirds of the original loan term, the
19-7 principal balance will be no greater than the principal balance
19-8 would have been if the loan had been amortized over the original
19-9 loan term in equal monthly, quarterly, semiannual, or annual
19-10 payments of principal and interest, it being required that under
19-11 any method of repayment such obligation will fully amortize during
19-12 a period of time not exceeding four-fifths of the then unexpired
19-13 term of the security leasehold estate; and
19-14 (3) if any part of the value of buildings is to
19-15 be included in the value of such real property or leasehold estate
19-16 therein to secure the obligations provided for in this subsection,
19-17 such buildings shall be covered by adequate property insurance,
19-18 including but not limited to fire and extended coverage insurance
19-19 issued by a company authorized to transact business in the State of
19-20 Texas or by a company recognized as acceptable for such purpose by
19-21 the insurance regulatory official of the state in which such real
19-22 estate is located, and the amount of insurance granted in the
19-23 policy or policies shall be not less than the unpaid balance of the
19-24 obligation or the insurable value of such buildings, whichever is
19-25 the lesser; the loss clause shall be payable to the insurer as its
19-26 interest may appear; and
19-27 (4) to the extent any note, evidence of
20-1 indebtedness, or participation therein under this subsection
20-2 represents an equity interest in the underlying real property, the
20-3 value of such equity interest shall be determined at the time of
20-4 execution of such note, evidence of indebtedness, or participation
20-5 therein and that portion shall be designated as an investment
20-6 subject to the provisions of Subsection (l)(2) of this section; and
20-7 (5) the amount of any one such obligation may
20-8 not exceed 25 percent of the insurer's capital and surplus; and
20-9 (6) a first lien on real property may be
20-10 purchased after its origination if the first lien is insured by a
20-11 mortgagee's title policy issued to the original mortgagee that
20-12 contains a provision that inures the policy to the use and benefit
20-13 of the owners of the evidence of debt indicated in the policy and
20-14 to any subsequent owners of that evidence of debt, and if the
20-15 insurer maintains evidence of assignments or other transfers of the
20-16 first lien on real property to the insurer. An assignment or other
20-17 transfer to the insurer, duly recorded in the county in which the
20-18 real property is located, shall be presumed to create legal
20-19 ownership of the first lien by the insurer;
20-20 (l) Real Estate. Real property fee simple or
20-21 leasehold estates located within the United States of America, as
20-22 follows:
20-23 (1) home and branch office real property or
20-24 participations therein, which must be materially enhanced in value
20-25 by the construction of durable, permanent-type buildings and other
20-26 improvements costing an amount at least equal to the cost of such
20-27 real property, exclusive of buildings and improvements at the time
21-1 of acquisition, or by the construction of such buildings and
21-2 improvements which must be commenced within two years of the date
21-3 of the acquisition of such real property; provided:
21-4 (A) at least 30 percent of the available space
21-5 in such building shall be occupied for the business purposes of the
21-6 insurer and its affiliates; and
21-7 (B) the aggregate investment in such home and
21-8 branch offices shall not exceed 20 percent of the insurer's assets;
21-9 and
21-10 (2) other investment property or participations
21-11 therein, which must be materially enhanced in value by the
21-12 construction of durable, permanent-type buildings and other
21-13 improvements costing an amount at least equal to the cost of such
21-14 real property, exclusive of buildings and improvements at the time
21-15 of acquisition, or by the construction of such buildings and
21-16 improvements which must be commenced within two years of the date
21-17 of acquisition of such real property; provided that such investment
21-18 in any one piece of property or interest therein, including the
21-19 improvements, fixtures, and equipment pertaining thereto may not
21-20 exceed five percent of the insurer's assets; provided, however,
21-21 nothing in this article shall allow ownership of, development of,
21-22 or equity interest in any residential property or subdivision,
21-23 single or multiunit family dwelling property, or undeveloped real
21-24 estate for the purpose of subdivision for or development of
21-25 residential, single, or multiunit family dwellings, except
21-26 acquisitions as provided in Subdivision (4) below, and such
21-27 ownership, development, or equity interests shall be specifically
22-1 prohibited;
22-2 (3) the admissible asset value of each such
22-3 investment in the properties acquired under Subdivisions (1) and
22-4 (2) of this subsection shall be subject to review and approval by
22-5 the Commissioner of Insurance. The commissioner shall have
22-6 discretion at the time such investment is made or any time when an
22-7 examination of the company is being made to cause any such
22-8 investment to be appraised by an appraiser, appointed by the
22-9 commissioner, and the reasonable expense of such appraisal shall be
22-10 paid by such insurance company and shall be deemed to be a part of
22-11 the expense of examination of such company; if the appraisal is
22-12 made upon application of the company, the expense of such appraisal
22-13 shall not be considered a part of the expense of examination of
22-14 such company; no insurance company may hereafter make any write-up
22-15 in the valuation of any of the properties described in Subdivision
22-16 (1) or (2) of this subsection unless and until it makes application
22-17 therefor and such increase in valuation shall be approved by the
22-18 commissioner; and
22-19 (4) other real property acquired:
22-20 (A) in good faith by way of security for
22-21 loans previously contracted or money due; or
22-22 (B) in satisfaction of debts previously
22-23 contracted for in the course of its dealings; or
22-24 (C) by purchase at sales under judgment or
22-25 decrees of court, or mortgage or other lien held by such insurer;
22-26 and
22-27 (5) regardless of the mode of acquisition
23-1 specified herein, upon sale of any such real property, the fee
23-2 title to the mineral estate or any portion thereof may be retained
23-3 by the insurance company indefinitely;
23-4 (m) Oil, Gas, and Minerals. In addition to and
23-5 without limitation on the purposes for which real property may be
23-6 acquired, secured, held, or retained pursuant to other provisions
23-7 of this section, every such insurance company may secure, hold,
23-8 retain, and convey production payments, producing royalties and
23-9 producing overriding royalties, or participations therein as an
23-10 investment for the production of income; provided:
23-11 (1) in no event may such company carry such
23-12 assets in an amount in excess of 90 percent of the appraised value
23-13 thereof; and
23-14 (2) no one investment under this subsection may
23-15 exceed 10 percent of the insurer's capital and surplus in excess of
23-16 statutory minimum capital and surplus applicable to that insurer,
23-17 and the aggregate of all such investments may not exceed 10 percent
23-18 of the insurer's assets as of December 31st next preceding the date
23-19 of such investment; and
23-20 (3) for the purposes of this subsection, the
23-21 following definitions apply:
23-22 (A) a production payment is defined to
23-23 mean a right to oil, gas, or other minerals in place or as produced
23-24 that entitles its owner to a specified fraction of production until
23-25 a specified sum of money, or a specified number of units of oil,
23-26 gas, or other minerals, has been received;
23-27 (B) a royalty and an overriding royalty
24-1 are each defined to mean a right to oil, gas, and other minerals in
24-2 place or as produced that entitles the owner to a specified
24-3 fraction of production without limitation to a specified sum of
24-4 money or a specified number of units of oil, gas, or other
24-5 minerals;
24-6 (C) "producing" is defined to mean
24-7 producing oil, gas, or other minerals in paying quantities,
24-8 provided that it shall be deemed that oil, gas, or other minerals
24-9 are being produced in paying quantities if a well has been "shut
24-10 in" and "shut-in royalties" are being paid;
24-11 (n) Foreign Countries and United States Territories.
24-12 In addition to the investments in Canada authorized in other
24-13 subsections of this section, investments in other foreign countries
24-14 or in commonwealths, territories, or possessions of the United
24-15 States; provided:
24-16 (1) such investments are substantially the same
24-17 types as [similar to] those authorized for investment within the
24-18 United States of America or Canada by other provisions of this
24-19 section [and are rated one or two by the Securities Valuation
24-20 Office of the National Association of Insurance Commissioners]; and
24-21 (2) such investments when added to the amount of
24-22 similar investments made within the United States and Canada do not
24-23 result in the combined total of such investments exceeding the
24-24 limitations specified in Subsections (a) through (m), (o), (q) and
24-25 (u) [(p)] of this section; and
24-26 (3) such investments may not exceed the sum of:
24-27 (A) the amount of insurer's reserves
25-1 attributable to the insurance business in force in foreign [said]
25-2 countries, if any, and any additional investments required by any
25-3 foreign country as a condition to doing business therein; and
25-4 (B) 20 [five] percent of the insurer's
25-5 assets of which no more than 10 percent of the insurer's assets may
25-6 be investments denominated in foreign currency that are not hedged
25-7 pursuant to the provisions of Subsection (u);
25-8 (o) Investments Not Otherwise Specified. Investments
25-9 which are not otherwise authorized by this article and which are
25-10 not specifically prohibited by statute, including that portion of
25-11 any investments which may exceed the limits specified in
25-12 Subsections (a) through (n), (q) and (u) of this section; provided:
25-13 (1) if any aggregate or individual specified
25-14 investment limitation in Subsections (a) through (n), (q) and (u)
25-15 of this section is exceeded, then the excess portion of such
25-16 investment shall be an investment under this subsection; and
25-17 (2) the burden of establishing the value of such
25-18 investments shall be upon the insurer; and
25-19 (3) the amount of any one such investment may
25-20 not exceed 10 percent of the insurer's capital and surplus in
25-21 excess of the statutory minimum capital and surplus applicable to
25-22 that insurer; and
25-23 (4) the aggregate of all investments made under
25-24 this subsection may not exceed the lesser of either five percent of
25-25 the insurer's assets or the insurer's capital and surplus in excess
25-26 of the statutory minimum capital and surplus applicable to that
25-27 insurer;
26-1 (p) Other Authorized Investments. Those other
26-2 investments as follows:
26-3 (1) any investment held by an insurer on the
26-4 effective date of this Act, which was legally authorized at the
26-5 time it was made or acquired or which the insurer was authorized to
26-6 hold or possess immediately prior to such effective date, but which
26-7 does not conform to the requirements of the investments authorized
26-8 in Subsections (a) through (o) of this section, may continue to be
26-9 held by and considered as an authorized [admitted] asset or
26-10 transaction of the insurer; provided the investment or transaction
26-11 is disposed of at its maturity date, if any, or within the time
26-12 prescribed by the law under which it was acquired, if any; and
26-13 provided further, in no event shall the provisions of this
26-14 subdivision alter the legal or accounting status of such asset; and
26-15 (2) any other investment which may be authorized
26-16 by other provisions of this code or by other laws of this state for
26-17 the insurers which are subject to this article.
26-18 (q) Securities Lending, Repurchase, Reverse Repurchase
26-19 and Dollar Roll Transactions. (a) For purposes of this subsection
26-20 (q), the following definitions shall apply:
26-21 (1) "Repurchase transaction" means a transaction
26-22 in which an insurer purchases securities from a business entity
26-23 that is obligated to repurchase the purchased securities or
26-24 equivalent securities from the insurer at a specified price, either
26-25 within a specified period of time or upon demand.
26-26 (2) "Reverse repurchase transaction" means a
26-27 transaction in which an insurer sells securities to a business
27-1 entity and is obligated to repurchase the sold securities or
27-2 equivalent securities from the business entity at a specified
27-3 price, either within a specified period of time or upon demand.
27-4 (3) "Securities lending transaction" means a
27-5 transaction in which securities are loaned by an insurer to a
27-6 business entity that is obligated to return the loaned securities
27-7 or equivalent securities to the insurer, either within a specified
27-8 period of time or upon demand.
27-9 (4) "Dollar roll transaction" means two
27-10 simultaneous transactions with settlement dates no more than 96
27-11 days apart so that in one transaction an insurer sells to a
27-12 business entity, and in the other transaction the insurer is
27-13 obligated to purchase from the same business entity, substantially
27-14 similar securities of the following types:
27-15 (A) mortgage-backed securities issued,
27-16 assumed or guaranteed by the Government National Mortgage
27-17 Association, the Federal National Mortgage Association or the
27-18 Federal Home Loan Mortgage Corporation or their respective
27-19 successors; and
27-20 (B) other mortgage-backed securities
27-21 referred to in Section 106 of Title I of the Secondary Mortgage
27-22 Market Enhancement Act of 1984 (15 U.S.C. Section 77r-1), as
27-23 amended.
27-24 (b) An insurer may engage in securities lending,
27-25 repurchase, reverse repurchase and dollar roll transactions as set
27-26 forth herein. The insurer shall enter into a written agreement for
27-27 all transactions, except dollar roll transactions, that shall
28-1 require each transaction terminate no more than one year from its
28-2 inception.
28-3 (c) Cash received in a transaction under this
28-4 section shall be invested in accordance with this article and in a
28-5 manner that recognizes the liquidity needs of the transaction or
28-6 used by the insurer for its general corporate purposes. For so
28-7 long as the transaction remains outstanding, the insurer, its agent
28-8 or custodian shall maintain, as to acceptable collateral received
28-9 in a transaction under this subsection, either physically or
28-10 through the book entry systems of the Federal Reserve, Depository
28-11 Trust Company, Participants Trust Company or other securities
28-12 depositories approved by the commissioner:
28-13 (1) possession of the acceptable
28-14 collateral;
28-15 (2) a perfected security interest in the
28-16 acceptable collateral; or
28-17 (3) in the case of a jurisdiction outside
28-18 of the United States, title to, or rights of a secured creditor to,
28-19 the acceptable collateral; and
28-20 (d) The limitations of section 4(c) and section
28-21 5(a) shall not apply to the business entity counterparty exposure
28-22 created by transactions under this section. An insurer shall not
28-23 enter into a transaction under this subsection if, as a result of
28-24 and after giving effect to the transaction:
28-25 (1) the aggregate amount of securities
28-26 then loaned, sold to, or purchased from, any one business entity
28-27 counterparty under this subsection would exceed 5 percent of its
29-1 assets. In calculating the amount sold to or purchased from a
29-2 business entity counterparty under repurchase or reverse repurchase
29-3 transactions, effect may be given to netting provisions under a
29-4 master written agreement; or
29-5 (2) the aggregate amount of all securities
29-6 then loaned, sold to or purchased from all business entities under
29-7 this subsection would exceed 40 percent of its assets.
29-8 (e) The amount of collateral required for
29-9 securities lending, repurchase and reverse repurchase transactions
29-10 is the amount required pursuant to the provisions of the Purposes
29-11 and Procedures of the Securities Valuation Office or such successor
29-12 publication.
29-13 (f) Article 3.39-1 shall not apply to
29-14 transactions authorized by this Subsection (q). [Special
29-15 Limitations for Certain Fixed Annuity Insurers. The quantitative
29-16 limitations imposed above in Subsections (b)(2), (c)(2), (f)(1),
29-17 (g)(3), (h)(3), (i)(2), and (k)(5) of this section shall not apply
29-18 to any insurer with assets in excess of $2,500,000,000 and that
29-19 receives more than 90 percent of its premium income from fixed rate
29-20 annuity contracts and that has more than 90 percent of its assets
29-21 allocated to its reserves held for fixed rate annuity contracts,
29-22 excluding, however, any premium income, assets, and reserves
29-23 received from, held for, or allocated to separate accounts from the
29-24 computation of the above percentages, and in lieu thereof, the
29-25 following quantitative limitations shall apply to such insurers:]
29-26 [(1) the limitation in Subsection (b)(2) of this
29-27 section shall be two percent of the insurer's assets;]
30-1 [(2) the limitation in Subsection (c)(2) of this
30-2 section shall be two percent of the insurer's assets;]
30-3 [(3) the limitation in Subsection (f)(1) of this
30-4 section shall be two percent of the insurer's assets;]
30-5 [(4) the limitation in Subsection (g)(3) of this
30-6 section shall be one percent of the insurer's assets;]
30-7 [(5) the limitation in Subsection (h)(3) of this
30-8 section shall be one percent of the insurer's assets;]
30-9 [(6) the limitation in Subsection (i)(2) of this
30-10 section shall be two percent of the insurer's assets; and]
30-11 [(7) the limitation in Subsection (k)(5) of this
30-12 section shall be two percent of the insurer's assets.]
30-13 (r) Premium Loans. Loans to finance the payment of
30-14 premiums for the insurer's own insurance policies or annuity
30-15 contracts; provided that the amount of any such loan does not
30-16 exceed the sum of: (i) the available cash value of such insurance
30-17 policy or annuity contract; and (ii) the amount of any escrowed
30-18 commissions payable relating to such insurance policy or annuity
30-19 contract for which the premium loan is made; and
30-20 (s) Money Market Funds. (1) Money market mutual
30-21 funds as defined by 17 CFR 270.2a-7 under the Investment Company
30-22 Act of 1940 (15 U.S.C. 80a-1 et seq.) that may be either of the
30-23 following [meet the following additional conditions]:
30-24 (A) government money market mutual fund
30-25 which is a money market mutual fund that:
30-26 (i) invests only in
30-27 obligations issued, guaranteed or insured by the federal government
31-1 of the United States or collateralized repurchase agreements
31-2 composed of these obligations; and
31-3 (ii) qualifies for
31-4 investment without a reserve under the Purposes and Procedures of
31-5 the Securities Valuation Office or any successor publication; or
31-6 (B) class one money market mutual fund
31-7 which is a money market mutual fund that qualifies for investment
31-8 using the bond class one reserve factor under the Purposes and
31-9 Procedures of the Securities Valuation Office or any successor
31-10 publication. [the funds invest 100 percent of total assets in
31-11 United States treasury bills, notes, and bonds, and collateralized
31-12 repurchase agreements composed of those obligations at all times;]
31-13 [(B) the funds invest 100 percent of total
31-14 assets in other full faith and credit instruments of the United
31-15 States; or]
31-16 [(C) the funds invest at least 95 percent
31-17 of total assets in exempt securities, short-term debt instruments
31-18 with a maturity of 397 days or less, class one bonds, and
31-19 collateralized repurchase agreements composed of those securities
31-20 at all times;]
31-21 (2) For purposes of complying with Subsection
31-22 (h) of this section, money market funds qualifying for listing
31-23 within these categories must conform to the Purposes and Procedures
31-24 [purposes and procedures manual] of the Securities Valuation Office
31-25 or such successor publication; [valuation of securities manual of
31-26 the National Association of Insurance Commissioners.]
31-27 (t) The percentage authorizations and limitations set
32-1 forth in any or [and] all of the provisions of this Article 3.33
32-2 [section] shall apply only at the time of the original acquisition
32-3 of an investment or at the time a transaction is entered into and
32-4 shall not be applicable to the insurer or such investment or
32-5 transaction [originally making such investments and shall not be
32-6 applicable to the company or such investment] thereafter except as
32-7 provided in Subsection (w) of this section. In addition, any
32-8 investment, once qualified under any subsection of this section,
32-9 shall remain qualified notwithstanding any refinancing,
32-10 restructuring or modification of such investment provided that, the
32-11 insurer shall not engage in any such refinancing, restructuring or
32-12 modification of any investment for the purpose of circumventing the
32-13 requirements or limitations of this article.
32-14 (u) Risk Control Transactions. An insurer may use
32-15 derivative instruments to engage in hedging transactions,
32-16 replication transactions and income generation transactions as set
32-17 forth herein.
32-18 (1) For the purposes of this Subsection (u), the
32-19 following definitions shall apply:
32-20 (A) "Acceptable collateral" means cash,
32-21 cash equivalents, letters or credit and direct obligations, or
32-22 securities that are fully guaranteed as to principal and interest
32-23 by, the government of the United States.
32-24 (B) "Business entity" includes a sole
32-25 proprietorship, corporation, limited liability company,
32-26 association, partnership, joint stock company, joint venture,
32-27 mutual fund, bank, trust, joint tenancy or other similar form of
33-1 business organization, whether organized for-profit or
33-2 not-for-profit.
33-3 (C) "Cap" means an agreement obligating
33-4 the seller to make payments to the buyer with each payment based on
33-5 the amount by which a reference price or level or the performance
33-6 or value of one or more underlying interests exceeds a
33-7 predetermined number, sometimes called the strike rate or strike
33-8 price.
33-9 (D) "Cash equivalents" means short-term,
33-10 highly rated, highly liquid and readily marketable investments or
33-11 securities, which includes money market funds as defined in
33-12 Subsection (s). For purposes of this definition:
33-13 (i) "short-term" means
33-14 investments with a remaining term to maturity of one year or less;
33-15 and
33-16 (ii) "highly rated" means
33-17 an investment rated "P-1" by Moody's Investors Service, Inc., or
33-18 "A-1" by the Standard and Poor's Division of the McGraw Hill
33-19 Companies, Inc., or its equivalent rating by a nationally
33-20 recognized statistical rating organization recognized by the
33-21 Securities Valuation Office.
33-22 (E) "Collar" means an agreement to receive
33-23 payments as the buyer of an option, cap or floor and to make
33-24 payments as the seller of a different option, cap or floor.
33-25 (F) "Counterparty exposure amount" means:
33-26 (i) for an over-the-counter
33-27 derivative instrument not entered into pursuant to a written master
34-1 agreement which provides for netting of payments owed by the
34-2 respective parties:
34-3 (a) the
34-4 market value of the over-the-counter derivative instrument if the
34-5 liquidation of the derivative instrument would result in a final
34-6 cash payment to the insurer; or
34-7 (b) zero if
34-8 the liquidation of the derivative instrument would not result in a
34-9 final cash payment to the insurer;
34-10 (ii) for over-the-counter
34-11 derivative instruments entered into pursuant to a written master
34-12 agreement which provides for netting of payments owed by the
34-13 respective parties, and the domiciliary jurisdiction of the
34-14 counterparty is either within the United States, or if not within
34-15 the United States, is within a foreign (not United States)
34-16 jurisdiction listed in the Purposes and Procedures Manual of the
34-17 Securities Valuation Office as eligible for netting, the greater of
34-18 zero or the net sum payable to the insurer in connection with all
34-19 derivative instruments subject to the written master agreement upon
34-20 their liquidation in the event of default by the counterparty
34-21 pursuant to the master agreement (assuming no conditions precedent
34-22 to the obligations of the counterparty to make such a payment and
34-23 assuming no setoff of amounts payable pursuant to any other
34-24 instrument or agreement);
34-25 (iii) for purposes of this
34-26 definition, market value or the net sum payable, as the case may
34-27 be, shall be determined at the end of the most recent quarter of
35-1 the insurer's fiscal year and shall be reduced by the market value
35-2 of acceptable collateral held by the insurer or a custodian on the
35-3 insurer's behalf.
35-4 (G) "Derivative instrument" means any
35-5 agreement, option or instrument, or any series or combinations
35-6 thereof:
35-7 (i) to make or take
35-8 delivery of, or assume or relinquish, a specified amount of one or
35-9 more underlying interests, or to make a cash settlement in lieu
35-10 thereof; or
35-11 (ii) that have a price,
35-12 performance, value or cash flow based primarily upon the actual or
35-13 expected price, yield, level, performance, value or cash flow of
35-14 one or more underlying interests.
35-15 Derivative instruments include options, warrants not
35-16 otherwise permitted to be held by the insurer under this article,
35-17 caps, floors, collars, swaps, swaptions, forwards, futures and any
35-18 other agreements, options or instruments substantially similar
35-19 thereto, or any series or combinations thereof.
35-20 Derivative instruments do not include collateralized mortgage
35-21 obligations, other asset-backed securities, principal-protected
35-22 structured securities, floating rate securities, or instruments
35-23 which an insurer is otherwise permitted to invest in or receive
35-24 under this article other than under this subsection, and any debt
35-25 obligations of the insurer.
35-26 (H) "Derivative transaction" means a
35-27 transaction involving the use of one or more derivative
36-1 instruments. Dollar roll transactions, repurchase transactions,
36-2 reverse repurchase transactions and securities lending transactions
36-3 shall not be included as derivative transactions for purposes of
36-4 this subsection.
36-5 (I) "Floor" means an agreement obligating
36-6 the seller to make payments to the buyer in which each payment is
36-7 based on the amount by which a predetermined number, sometimes
36-8 called the floor rate or price, exceeds a reference price, level,
36-9 performance or value of one or more underlying interests.
36-10 (J) "Forward" means an agreement (other
36-11 than a future) to make or take delivery in the future of one or
36-12 more underlying interests, or effect a cash settlement, based on
36-13 the actual or expected price, level, performance or value of such
36-14 underlying interests, but shall not mean or include spot
36-15 transactions effected within customary settlement periods,
36-16 when-issued purchases or other similar cash market transactions.
36-17 (K) "Future" means an agreement, traded on
36-18 a futures exchange, to make or take delivery of, or effect a cash
36-19 settlement based on the actual or expected price, level,
36-20 performance or value of, one or more underlying interests.
36-21 (L) "Futures exchange" means a foreign or
36-22 domestic exchange, contract market or board of trade on which
36-23 trading in futures is conducted and, in the United States, which
36-24 has been authorized for such trading by the Commodities Futures
36-25 Trading Commission or any successor thereof.
36-26 (M) "Hedging transaction" means a
36-27 derivative transaction which is entered into and maintained to
37-1 manage:
37-2 (i) the risk of a change in
37-3 the value, yield, price, cash flow or quantity of assets or
37-4 liabilities (or a portfolio of assets and/or liabilities) which the
37-5 insurer has acquired or incurred or anticipates acquiring or
37-6 incurring; or
37-7 (ii) the currency exchange
37-8 rate risk related to assets or liabilities (or a portfolio of
37-9 assets and/or liabilities) which an insurer has acquired or
37-10 incurred or anticipates acquiring or incurring.
37-11 (N) "Income generation transaction" means
37-12 a derivative transaction which is entered into to generate income.
37-13 A derivative transaction which is entered into as a hedging
37-14 transaction or a replication transaction shall not be considered an
37-15 income generation transaction.
37-16 (O) "Market value" means the price for the
37-17 security or derivative instrument obtained from a generally
37-18 recognized source or the most recent quotation from such a source
37-19 or, to the extent no generally recognized source exists, the price
37-20 for the security or derivative instrument as determined pursuant to
37-21 the terms of the instrument or in good faith by the insurer as can
37-22 be reasonably demonstrated to the Commissioner upon request, plus
37-23 accrued but unpaid income thereon to the extent not included in the
37-24 price as of the date.
37-25 (P) "Option" means an agreement giving the
37-26 buyer the right to buy or receive (a "call option"), sell or
37-27 deliver (a "put option"), enter into, extend or terminate or effect
38-1 a cash settlement based on the actual or expected price, spread,
38-2 level, performance or value of one or more underlying interests.
38-3 (Q) "Over-the-counter derivative
38-4 instrument" means a derivative instrument entered into with a
38-5 business entity, other than through a securities exchange, futures
38-6 exchange, or cleared through a qualified clearinghouse.
38-7 (R) "Potential exposure" means:
38-8 (i) as to a futures
38-9 position, the amount of initial margin required for that position;
38-10 or
38-11 (ii) as to swaps, collars
38-12 and forwards, one-half percent times the notional amount times the
38-13 square root of the remaining years to maturity.
38-14 (S) "Qualified clearinghouse" means a
38-15 clearinghouse subject to the rules of a securities exchange or a
38-16 futures exchange, which provides clearing services, including
38-17 acting as a counterparty to each of the parties to a transaction
38-18 such that the parties no longer have credit risk to each other.
38-19 (T) "Replication transaction" means a
38-20 derivative transaction or combination of derivative transactions
38-21 effected either separately or in conjunction with cash market
38-22 investments included in the insurer's investment portfolio in order
38-23 to replicate the risks and returns of another authorized
38-24 transaction, investment or instrument and/or operate as a
38-25 substitute for cash market transactions. A derivative transaction
38-26 entered into by the insurer as a hedging transaction shall not be
38-27 considered a replication transaction.
39-1 (U) "Securities exchange" means:
39-2 (i) an exchange registered
39-3 as a national securities exchange or a securities market registered
39-4 under the Securities Exchange Act of 1934 (15 U.S.C. Section 78 et
39-5 seq.), as amended;
39-6 (ii) Private Offerings
39-7 Resales and Trading through Automated Linkages (PORTAL); or
39-8 (iii) a designated offshore
39-9 securities market as defined in Securities Exchange Commission
39-10 Regulation S, 17 C.F.R. Part 230, as amended.
39-11 (V) "Swap" means an agreement to exchange
39-12 or to net payments at one or more times based on the actual or
39-13 expected price, yield, level, performance or value of one or more
39-14 underlying interests.
39-15 (W) "Swaption" means an option to purchase
39-16 or sell a swap at a given price and time or at a series of prices
39-17 and times. A swaption does not mean a swap with an embedded
39-18 option.
39-19 (X) "Underlying interest" means the
39-20 assets, liabilities or other interests, or a combination thereof,
39-21 underlying a derivative instrument, such as any one or more
39-22 securities, currencies, rates, indices, commodities or derivatives
39-23 instruments.
39-24 (Y) "Warrant" means an instrument that
39-25 gives the holder the right to purchase or sell the underlying
39-26 interest at a given price and time or at a series of prices and
39-27 times outlined in the warrant agreement.
40-1 (2) Prior to entering into any derivative
40-2 transaction, the board of directors of the insurer shall approve a
40-3 derivative use plan, as part of the investment plan required in
40-4 Section 3 of this article, that:
40-5 (A) describes investment objectives and
40-6 risk constraints, such as counterparty exposure amounts;
40-7 (B) defines permissible transactions
40-8 identifying the risks to be hedged, the assets or liabilities being
40-9 replicated; and
40-10 (C) requires compliance with internal
40-11 control procedures.
40-12 (3) The insurer shall establish written internal
40-13 control procedures that provide for:
40-14 (A) a quarterly report to the board of
40-15 directors that reviews:
40-16 (i) all derivative
40-17 transactions entered into, outstanding or closed out;
40-18 (ii) the results and
40-19 effectiveness of the derivatives program; and
40-20 (iii) the credit risk
40-21 exposure to each counterparty for over-the-counter derivative
40-22 transactions based upon the counterparty exposure amount;
40-23 (B) a system for determining whether
40-24 hedging or replication strategies utilized have been effective;
40-25 (C) a system of regular reports (not less
40-26 frequently than monthly) to management including:
40-27 (i) a description of all
41-1 the derivative transactions entered into, outstanding or closed out
41-2 during the period since the last report;
41-3 (ii) the purpose of each
41-4 outstanding derivative transaction;
41-5 (iii) a performance review
41-6 of the derivative instrument program; and
41-7 (iv) the counterparty
41-8 exposure amount for over-the-counter derivative transactions;
41-9 (D) written authorizations that identify
41-10 the responsibilities and limitations of authority of persons
41-11 authorized to effect and maintain derivative transactions;
41-12 (E) documentation appropriate for each
41-13 transaction including:
41-14 (i) the purpose of the
41-15 transaction;
41-16 (ii) the assets or
41-17 liabilities to which the transaction relates;
41-18 (iii) the specific
41-19 derivative instrument used in the transaction;
41-20 (iv) for over-the-counter
41-21 derivative instrument transactions, the name of the counterparty
41-22 and the counterparty exposure amount; and
41-23 (v) for exchange-traded
41-24 derivative instruments, the name of the exchange and the name of
41-25 the firm that handled the transaction.
41-26 (4) An insurer shall be able to demonstrate to
41-27 the commissioner, upon request, the intended hedging
42-1 characteristics and ongoing effectiveness of the derivative
42-2 transaction or combination of transactions through cash flow
42-3 testing, duration analysis or other appropriate analysis.
42-4 (5) An insurer shall include all counterparty
42-5 exposure amounts in determining compliance with the limitations of
42-6 Subsection (c).
42-7 (6)(a) Ten days prior to entering into the
42-8 initial hedging transaction, the insurer shall notify the
42-9 commissioner in writing that: (i) the insurer's board of
42-10 directors has adopted an investment plan which authorizes hedging
42-11 transactions, and (ii) all hedging transactions will comply with
42-12 this Subsection (u). Insurers already engaged in hedging
42-13 transactions shall notify the commissioner as set forth in the
42-14 preceding sentence within 30 days of the effective date of this
42-15 Subsection (u). Thereafter, an insurer may enter into hedging
42-16 transactions under this subsection, if as a result of and after
42-17 giving effect to each such transaction:
42-18 (A) the aggregate statement
42-19 value of all outstanding options (other than collars), caps,
42-20 floors, swaptions and warrants (not attached to another financial
42-21 instrument purchased by the insurer) pursuant to this subsection
42-22 does not exceed 7.5 percent of its assets;
42-23 (B) the aggregate statement
42-24 value of all outstanding options (other than collars), swaptions,
42-25 warrants, caps and floors written by the insurer pursuant to this
42-26 subsection does not exceed three percent of its assets; and
42-27 (C) the aggregate potential
43-1 exposure of all outstanding collars, swaps, forwards and futures
43-2 entered into or acquired by the insurer pursuant to this subsection
43-3 does not exceed 6.5 percent of its assets.
43-4 (b) Whenever the derivative transactions
43-5 entered into under this Subsection (u)(6), are not in compliance
43-6 with this Subsection (u) or, if continued, may now or subsequently,
43-7 create a hazardous financial condition to the insurer which affects
43-8 its policyholders, creditors or the general public, the
43-9 commissioner may, after notice and an opportunity for a hearing,
43-10 order the insurer to take such action as may be reasonably
43-11 necessary to (i) rectify a hazardous financial condition, or
43-12 (ii) to prevent an impending hazardous financial condition from
43-13 occurring.
43-14 (7) An insurer may only enter into an income
43-15 generation transaction if:
43-16 (A) as a result of and after giving effect
43-17 to the transaction, the aggregate statement value of admitted
43-18 assets that are then subject to call or that generate the cash
43-19 flows for payments required to be made by the insurer under caps
43-20 and floors sold by the insurer and then outstanding under this
43-21 subsection, plus the statement value of admitted assets underlying
43-22 derivative instruments then subject to calls sold by the insurer
43-23 and outstanding under this subsection, plus the purchase price of
43-24 assets subject to puts then outstanding under this subsection does
43-25 not exceed 10 percent of its assets; and
43-26 (B) the transaction is one of the
43-27 following types, is covered in the manner specified below and meets
44-1 the other requirements specified below:
44-2 (i) sales of call options
44-3 on assets, provided that the insurer holds or has a currently
44-4 exercisable right to acquire the underlying assets during the
44-5 entire period that the option is outstanding;
44-6 (ii) sales of put options
44-7 on assets, provided that the insurer holds sufficient cash, cash
44-8 equivalents or interests in a short-term investment pool to
44-9 purchase the underlying assets upon exercise during the entire
44-10 period that the option is outstanding, and has the ability to hold
44-11 the underlying assets in its portfolio. If the total market value
44-12 of all put options sold by the insurer exceeds two percent of the
44-13 insurer's assets, the insurer shall set aside pursuant to a
44-14 custodial or escrow agreement cash or cash equivalents having a
44-15 market value equal to the amount of its put option obligations in
44-16 excess of two percent of the insurer's assets during the entire
44-17 period the option is outstanding;
44-18 (iii) sales of call options
44-19 on derivative instruments (including swaptions), provided that the
44-20 insurer holds or has a currently exercisable right to acquire
44-21 assets generating the cash flow to make any payments for which the
44-22 insurer is liable pursuant to the underlying derivative instruments
44-23 during the entire period that the call options are outstanding and
44-24 has the ability to enter into the underlying derivative
44-25 transactions for its portfolio; and
44-26 (iv) sales of caps and
44-27 floors, provided that the insurer holds or has a currently
45-1 exercisable right to acquire assets generating the cash flow to
45-2 make any payments for which the insurer is liable pursuant to the
45-3 caps and floors during the entire period that the caps and floors
45-4 are outstanding.
45-5 (8)(a) An insurer may enter into replication
45-6 transactions only with prior written approval from the
45-7 Commissioner, provided that:
45-8 (A) the insurer would
45-9 otherwise be authorized to invest its funds under this article in
45-10 the asset being replicated; and
45-11 (B) the asset being
45-12 replicated is subject to all the provisions and limitations on the
45-13 making thereof specified in this article with respect to
45-14 investments by the insurer as if the transaction constituted a
45-15 direct investment by the insurer in the replicated asset.
45-16 (b) The commissioner may adopt such rules
45-17 and regulations regarding replication transactions as may be fair
45-18 and reasonable to implement this Subsection (u)(8).
45-19 (9) An insurer may purchase or sell one or more
45-20 derivative instruments to offset, in whole or in part, any
45-21 derivative instrument previously purchased or sold, as the case may
45-22 be, without regard to the quantitative limitations of this
45-23 subsection, provided that such offsetting transaction utilizes the
45-24 same type of derivative instrument as the derivative instrument
45-25 being offset.
45-26 (10) Trading Requirements. Each derivative
45-27 instrument shall be:
46-1 (A) traded on a securities exchange;
46-2 (B) entered into with, or guaranteed by, a
46-3 business entity;
46-4 (C) issued or written by or entered into
46-5 with the issuer of the underlying interest on which the derivative
46-6 instrument is based; or
46-7 (D) in the case of futures, traded through
46-8 a broker which is registered as a futures commission merchant under
46-9 the Commodity Exchange Act or which has received exemptive relief
46-10 from such registration under Rule 30.10 promulgated under the
46-11 Commodity Exchange Act.
46-12 (11) Article 3.39-2 shall not apply to
46-13 transactions authorized by this Subsection (u).
46-14 (v) Distributions, Reinsurance, and Merger. No
46-15 provision of this article prohibits the acquisition by an insurer
46-16 of additional obligations, securities, or other assets if received
46-17 as a dividend or as a distribution of assets, nor does this article
46-18 apply to securities, obligations, or other assets accepted incident
46-19 to the workout, adjustment, restructuring or similar realization of
46-20 any kind of investment or transaction when deemed by the insurer's
46-21 board of directors or by a committee appointed by the board of
46-22 directors to be in the best interests of the insurer, if the
46-23 investment or transaction had previously been authorized, nor does
46-24 this article apply to assets acquired pursuant to a lawful
46-25 agreement of bulk reinsurance, merger, or consolidation if such
46-26 assets constituted legal and authorized investments for the ceding,
46-27 merged or consolidated company. No obligation, security or other
47-1 asset acquired as permitted by this subsection need be qualified
47-2 under any other subsection of this article.
47-3 (w) Qualification of Investments. The qualification
47-4 or disqualification of an investment under one subsection of this
47-5 section does not prevent its qualification in whole or in part
47-6 under another subsection, and an investment authorized by more than
47-7 one subsection may be held under whichever authorizing subsection
47-8 the insurer elects. An investment or transaction qualified under
47-9 any subsection at the time it was acquired or entered into by the
47-10 insurer shall continue to be qualified under that subsection. An
47-11 investment, in whole or in part, may be transferred from time to
47-12 time, at the election of the insurer, to the authority of any
47-13 subsection under which it then qualifies, whether or not it
47-14 originally qualified thereunder.
47-15 SECTION 4. Section 5, Article 3.33, Insurance Code, is
47-16 amended to read as follows:
47-17 Sec. 5. Aggregate Diversification Requirements. The
47-18 following provisions govern and take precedence over each and every
47-19 provision of Section 4, except Subsections (q), (t) and (v):
47-20 (a) Investment in all or any types of securities,
47-21 loans, obligations, or evidences of indebtedness of a single issuer
47-22 or borrower (which shall include such issuer's or borrower's
47-23 majority-owned subsidiaries or parent or the majority-owned
47-24 subsidiaries of such parent), other than those authorized
47-25 investments that are either direct obligations of or guaranteed by
47-26 the full faith and credit of the United States of America, the
47-27 State of Texas, or a political subdivision thereof or are insured
48-1 by an agency of the United States of America or the State of Texas
48-2 shall not in the aggregate exceed five percent of the insurer's
48-3 assets except for those investments provided for in Subsections (e)
48-4 and (f) of Section 4 of this article; and
48-5 (b) The aggregate investment in real property
48-6 authorized by Subsections (l), (m), (o), and (p) of Section 4 may
48-7 not exceed 33 1/3 percent of the insurer's assets; provided, in
48-8 the event an insurer acquires real property under Subdivision (4)
48-9 of Subsection (l) of Section 4 and such acquisition causes such
48-10 aggregate real estate to exceed the limitation set forth herein,
48-11 the insurer shall either dispose of sufficient excess real property
48-12 to come within such limitations within 10 years of such acquisition
48-13 or it may not thereafter admit as an asset the value of the real
48-14 property in excess of such limitation; should an insurer's real
48-15 property acquisitions exceed such 33 1/3 percent limitation, no
48-16 additional real property acquisitions under Subdivisions (1) and
48-17 (2) of Subsection (l), and Subsections (m), (o), and (p) of Section
48-18 4 of this article are authorized until such excess is removed.
48-19 SECTION 5. Section 7, Article 3.33, Insurance Code, is
48-20 amended to read as follows:
48-21 Sec. 7. Accounting Provisions. (a) The term "assets" as
48-22 used in this article shall mean the statutory accounting admitted
48-23 assets of the insurer, including lawful money of the United States,
48-24 whether in the form of cash or demand deposits in solvent banks,
48-25 savings and loan associations, and credit unions and branches
48-26 thereof, organized under the laws of the United States of America
48-27 or its states, when held in accordance with the laws or regulations
49-1 applicable to such entities, less the insurer's separate accounts
49-2 that are subject to Part III of Article 3.39, Article 3.72, Article
49-3 3.73, and Article 3.75 of this code.
49-4 (b) Each insurer shall maintain reasonable, adequate, and
49-5 accurate evidence of its ownership of its assets and investments.
49-6 (c) The ownership of governmental or corporate securities
49-7 shall be evidenced as provided for in Article 21.39-B, Section 4,
49-8 of this code.
49-9 (d) Other than investments made as a participation in a
49-10 partnership or joint venture, or as otherwise provided in Article
49-11 21.39-B of this code, investments shall be held solely in the name
49-12 of the insurer.
49-13 [(e) An insurer's participation in a partnership or joint
49-14 venture shall be limited to those partnerships or joint ventures
49-15 whose purposes are for investment in properties authorized under
49-16 Subsections (k), (l), and (m) of Section 4 of this article, and the
49-17 whole of the insurer's participation therein shall be designated
49-18 under such subsections.]
49-19 SECTION 6. Article 2.10, Insurance Code, is amended to read
49-20 as follows:
49-21 Art. 2.10. Investment of Funds in Excess of Minimum Capital
49-22 and Minimum Surplus. No company except any writing life, health
49-23 and accident insurance, organized under the laws of this state,
49-24 shall invest its funds over and above its minimum capital and its
49-25 minimum surplus, as provided in Article 2.02, except as otherwise
49-26 provided in this Code, in any other manner than as follows:
49-27 1. As provided for the investment of its minimum
50-1 capital and its minimum surplus in Article 2.08;
50-2 2. In bonds or other evidences of debt which at the
50-3 time of purchase are interest-bearing and are issued by authority
50-4 of law and are not in default as to principal or interest, of any
50-5 of the States of the United States, or of Canada, or any province
50-6 of Canada, or in the stock of any National Bank, in stock of any
50-7 State Bank of Texas whose deposits are insured by the Federal
50-8 Deposit Insurance Corporation; provided, however, that if said
50-9 funds are invested in the stock of a State Bank of Texas that not
50-10 more than thirty-five per cent (35%) of the total outstanding stock
50-11 of any one (1) State Bank of Texas may be so purchased by any one
50-12 (1) insurance company; and provided further, that neither the
50-13 insurance company whose funds are invested in said bank stock nor
50-14 any other insurance company may invest its funds in the remaining
50-15 stock of any such State Bank;
50-16 3. In bonds, notes, evidences of indebtedness or
50-17 participations therein secure by a valid first lien upon real
50-18 property or leasehold estate therein located in the United States
50-19 of America, its states, commonwealths, territories, or possessions,
50-20 provided:
50-21 (a) The amount of any such obligation secured by
50-22 a first lien upon real property or leasehold estate therein shall
50-23 not exceed ninety per cent (90%) of the value of such real property
50-24 or leasehold estate therein, but the amount of such obligation:
50-25 (1) May exceed ninety per cent (90%) but
50-26 shall not exceed one hundred per cent (100%) of the value of such
50-27 real property or leasehold estate therein if the insurer or one or
51-1 more wholly owned subsidiaries of the insurer own in the aggregate
51-2 a ten per cent (10%) or greater equity interest in such real
51-3 property or leasehold estate therein;
51-4 (2) May be ninety-five per cent (95%) of
51-5 the value of such real property if it contains only a dwelling
51-6 designed exclusively for occupancy by not more than four families
51-7 for residential purposes, and the portion of the unpaid balance of
51-8 such obligation which is in excess of an amount equal to ninety per
51-9 cent (90%) of such value is guaranteed or insured by a mortgage
51-10 insurance company licensed to do business in the State of Texas; or
51-11 (3) May be greater than ninety per cent
51-12 (90%) of the value of such real property to the extent the
51-13 obligation is insured or guaranteed by the United States of
51-14 America, or an agency or instrumentality thereof, the Federal
51-15 Housing Administration pursuant to the National Housing Act of
51-16 1934, as amended (12 U.S.C. Sec. 1701 et seq.), or the State of
51-17 Texas; and
51-18 (b) The term of an obligation secured by a first
51-19 lien upon a leasehold estate in real property and improvements
51-20 situated thereon shall not exceed a period equal to four-fifths
51-21 (4/5) of the then unexpired term of such leasehold estate,
51-22 provided:
51-23 (1) The unexpired term of the leasehold
51-24 estate must extend at least ten (10) years beyond the term of the
51-25 obligation; and
51-26 (2) Each obligation shall be payable in
51-27 equal monthly, quarterly, semi-annual, or annual payments of
52-1 principal plus accrued interest to the date of such principal
52-2 payment, so that under either method of repayment such obligation
52-3 will fully amortize during a period of time not to exceed
52-4 four-fifths (4/5) of the then unexpired term of the security
52-5 leasehold estate; and
52-6 (c) The amount of any one such obligation may
52-7 not exceed ten per cent (10%) of the insurer's capital and surplus;
52-8 and
52-9 (d) The aggregate of investments made under this
52-10 Section 3 may not exceed thirty per cent (30%) of the insurer's
52-11 assets;
52-12 4. In bonds or other interest-bearing evidences of
52-13 debt of any county, municipality, road district, turnpike district
52-14 or authority, water district, any subdivision of a county,
52-15 incorporated city, town, school district, sanitary or navigation
52-16 district, any municipally owned revenue water system, sewer system
52-17 or electric utility company where special revenues to meet the
52-18 principal and interest payments of such municipally owned revenue
52-19 water system, sewer system or electric utility company bonds or
52-20 other evidences of debt shall have been appropriated, pledged or
52-21 otherwise provided for by such municipality. Provided, before
52-22 bonds or other evidences of debt of navigation districts shall be
52-23 eligible investments such navigation district shall be located in
52-24 whole or in part in a county containing a population of not less
52-25 than 100,000 according to the last preceding Federal Census; and
52-26 provided further, that the interest due on such navigation bonds or
52-27 other evidences of debt of navigation districts must never have
53-1 been defaulted;
53-2 5. In the stocks, bonds, debentures, bills of exchange
53-3 or other commercial notes or bills and securities of any solvent
53-4 dividend paying corporation at time of purchase, incorporated under
53-5 the laws of this state, or of any other State of the United States,
53-6 or of the United States, or of Canada, or any province of Canada,
53-7 which has not defaulted in the payment of any of its obligations
53-8 for a period of five (5) years, immediately preceding the date of
53-9 the investment; provided such funds may not be invested in the
53-10 stock of any oil, manufacturing or mercantile corporation organized
53-11 under the laws of this state, unless such corporation has at the
53-12 time of investment a net worth of not less than $250,000.00 nor in
53-13 the stock of any oil, manufacturing or mercantile corporation not
53-14 organized under the laws of this state, unless such corporation has
53-15 a combined capital, surplus and undivided profits of not less than
53-16 $2,500,000.00; provided further:
53-17 (a) Any such insurance company may invest its
53-18 funds over and above its minimum capital stock, its minimum
53-19 surplus, and all reserves required by law, in the stocks, bonds or
53-20 debentures of any solvent corporation organized under the laws of
53-21 this state, or of any other State of the United States, or of the
53-22 United States, or of Canada, or any province of Canada.
53-23 (b) No such insurance company shall invest any
53-24 of its funds in its own stock or in any stock on account of which
53-25 the holders or owners thereof may, in any event, be or become
53-26 liable to any assessment, except for taxes.
53-27 (c) No such insurance company shall invest any
54-1 of its funds in stocks, bonds or other securities issued by a
54-2 corporation if a majority of the stock having voting powers of such
54-3 issuing corporation is owned, directly or indirectly, by or for the
54-4 benefit of one or more officers or directors of such insurance
54-5 company; provided, however, that this Section shall not apply to
54-6 any insurance company which has been in continuous operation for
54-7 five (5) years.
54-8 6. In shares of mutual funds doing business under the
54-9 Investment Company Act of 1940 (15 U.S.C. Section 80a-1 et seq.),
54-10 provided:
54-11 (a) mutual funds must be solvent with at least
54-12 $1,000,000 of net assets as of the date of its latest annual or
54-13 more recent certified audited financial statement; and
54-14 (b) investment in any one mutual fund may not
54-15 exceed 15 percent of the insurer's capital and surplus; and
54-16 (c) the aggregate of all investments made under
54-17 this subsection shall not exceed 25 percent of the insurer's
54-18 assets.
54-19 7. In addition to the investments in Canada authorized
54-20 in other subsections of this section, investments in other foreign
54-21 countries or in commonwealths, territories or possessions of the
54-22 United States, or in foreign securities originating in such foreign
54-23 countries, commonwealths, territories or possessions of the United
54-24 States, provided:
54-25 (a) such investments are similar to those
54-26 authorized for investment within the United States or Canada by
54-27 other provisions of this section and, if debt obligations, are
55-1 rated one or two by the Securities Valuation Office of the National
55-2 Association of Insurance Commissioners; and
55-3 (b) the aggregate amount of foreign investments
55-4 held by the insurer under this subsection in a single foreign
55-5 jurisdiction does not exceed either 10 percent of its admitted
55-6 assets as to a foreign jurisdiction that has a sovereign debt
55-7 rating of Securities Valuation Office 1 by the Securities Valuation
55-8 Office of the National Association of Insurance Commissioners or
55-9 five percent of its admitted assets as to any other foreign
55-10 jurisdiction; and
55-11 (c) such investments when added to the amount of
55-12 similar investments made within the United States and Canada and
55-13 any amounts authorized by Article 2.10-2 do not result in the
55-14 combined total of such investments exceeding the limitations
55-15 specified elsewhere in this section; and
55-16 (d) such investments may not exceed the sum of:
55-17 (i) the amounts authorized by Article
55-18 2.10-2; and
55-19 (ii) 20 percent of the insurer's assets.
55-20 8. In loans upon the pledge of any mortgage, stock,
55-21 bonds or other evidence of indebtedness acceptable as investments
55-22 under the terms of this Article, if the current value of such
55-23 mortgage, stock, bonds or other evidence of indebtedness is at
55-24 least twenty-five per cent (25%) more than the amount loaned
55-25 thereon;
55-26 9 [7]. In interest-bearing notes or bonds of The
55-27 University of Texas issued under and by virtue of Chapter 40, Acts
56-1 of the 43rd Legislature, Second Called Session;
56-2 10 [8]. (a) In real estate to the extent as elsewhere
56-3 authorized by this Code;
56-4 (b) Any such company with admitted assets in
56-5 excess of $500,000,000.00 may own other investment real property or
56-6 participations therein, which must be materially enhanced in value
56-7 by the construction of durable, permanent type buildings and other
56-8 improvements costing an amount at least equal to the cost of such
56-9 real property, exclusive of buildings and improvements at the time
56-10 of acquisition, or by the construction of such buildings and
56-11 improvements which must be commenced within two years of the date
56-12 of acquisition of such real property; provided, however, nothing in
56-13 this Article shall allow ownership of, development of, or equity
56-14 interest in any residential property or subdivision, single or
56-15 multiunit family dwelling property, or undeveloped real estate for
56-16 the purpose of subdivision for or development of residential,
56-17 single or multiunit family dwellings, except those properties
56-18 acquired as provided in Article 6.08 of this Code, and such
56-19 ownership, development, or equity interests shall be specifically
56-20 prohibited;
56-21 (c) The total amount invested by any such
56-22 company in all such investment real property and improvements
56-23 thereof shall not exceed fifteen per cent (15%) of its admitted
56-24 assets which are in excess of $500,000,000.00, provided, however,
56-25 that the amount invested in any one such property and its
56-26 improvements or interest therein shall not exceed five per cent
56-27 (5%) of its admitted assets which are in excess of $500,000,000.00.
57-1 The admitted assets of the company at any time shall be determined
57-2 from its annual statements made as of the last preceding December
57-3 31 and filed with the State Board of Insurance as required by law.
57-4 The value of any investment made under this Article shall be
57-5 subject to the appraisal provision set forth in Paragraph 5 of
57-6 Article 6.08 of this Code;
57-7 (d) The investment authority granted by (b) and
57-8 (c) of this Paragraph 10 [8] is in addition to and separate and
57-9 apart from that granted by Article 6.08 of this Code, provided,
57-10 however, that no such company shall make any investment in such
57-11 real estate which, when added to those properties described in
57-12 Paragraph 1 of Article 6.08 of this Code, would be in excess of the
57-13 limitations provided by Paragraph 5 of Article 6.08 of this Code;
57-14 (e) The insurance companies defined in Article
57-15 2.01 of this Code and other insurers specifically made subject to
57-16 the provisions of this Article shall not engage in the business of
57-17 a real estate broker or a real estate salesman as defined by
57-18 Chapter 1, page 560, General Laws, Acts of the 46th Legislature,
57-19 1939 (Article 6573a, Vernon's Texas Civil Statutes), except that
57-20 such insurers may hold, improve, maintain, manage, rent, lease,
57-21 sell, exchange, or convey any of the real property interests
57-22 legally owned as investments under this Code;
57-23 11 [9]. In equipment trust obligations or certificates
57-24 that are adequately secured or in other adequately secured
57-25 instruments evidencing an interest in transportation equipment in
57-26 whole or in part within the United States and a right to receive
57-27 determined portions of rental, purchase, or other fixed obligatory
58-1 payments for the use or purchase of the transportation equipment;
58-2 12 [10]. In insured accounts and evidences of
58-3 indebtedness as defined and limited by Section 1, Chapter 618, page
58-4 1356, Acts of the 47th Legislature; in shares or share accounts as
58-5 authorized in Section 1, page 76, Acts 1939, 46th Legislature; in
58-6 insured or guaranteed obligations as authorized in Chapter 230,
58-7 page 315, Acts 1945, 49th Legislature; in bonds issued under the
58-8 provisions authorized by Section 9, Chapter 231, page 774, Acts
58-9 1933, 43rd Legislature; in bonds under authority of Section 1,
58-10 Chapter 1, page 427, Acts 1939, 46th Legislature; in bonds and
58-11 other indebtedness as authorized in Section 1, Chapter 3, page 494,
58-12 Acts 1939, 46th Legislature; in "Municipal Bonds" issued under and
58-13 by virtue of Chapter 280, Acts 1929, 41st Legislature; or in bonds
58-14 as authorized by Section 5, Chapter 122, page 219, Acts 1949, 51st
58-15 Legislature; or in bonds as authorized by Section 10, Chapter 159,
58-16 page 326, Acts 1949, 51st Legislature; or in bonds as authorized by
58-17 Section 19, Chapter 340, page 655, Acts 1949, 51st Legislature; or
58-18 in bonds as authorized by Section 10, Chapter 398, page 737, Acts
58-19 1949, 51st Legislature; or in bonds as authorized by Section 18,
58-20 Chapter 465, page 855, Acts 1949, 51st Legislature; or in shares or
58-21 share accounts authorized in Chapter 534, page 966, Acts 1949, 51st
58-22 Legislature; or in bonds as authorized by Section 24, Chapter 110,
58-23 page 193, Acts 1949, 51st Legislature; together with such other
58-24 investments as are now or may hereafter be specifically authorized
58-25 by law.
58-26 SECTION 7. Article 9.18, Insurance Code, is amended to read
58-27 as follows:
59-1 Art. 9.18. Admissible Investments for Title Insurance
59-2 Companies. Investments of all title insurance companies operating
59-3 under the provisions of this Act shall be held in cash or may be
59-4 invested in the following:
59-5 (a) Any corporation organized under this Act having
59-6 the right to do a title insurance business may invest as much as 50
59-7 percent of its capital stock in an abstract plant or plants,
59-8 provided that the valuation to be placed upon such plant or plants
59-9 shall be approved by the Board; provided, however, that if such
59-10 corporation maintains with the Board the deposit of One Hundred
59-11 Thousand Dollars ($100,000) in securities as provided in Article
59-12 9.12 of this Act, such of its capital in excess of 50 percent, as
59-13 deemed necessary to its business by its board of directors may be
59-14 invested in abstract plants; and provided further, that a
59-15 corporation created or operating under the provisions of this Act
59-16 may own or acquire more than one abstract plant in any one county
59-17 but only one abstract plant in any one county is admissible as an
59-18 investment.
59-19 (b) Those securities set forth in Article 3.39,
59-20 Insurance Code, and in authorized investments for title insurance
59-21 companies under the laws of any other state in which the affected
59-22 company may be authorized to do business from time to time.
59-23 (c) Real estate or any interest therein which may be:
59-24 (1) required for its convenient accommodation in
59-25 the transaction of its business with reasonable regard to future
59-26 needs;
59-27 (2) acquired in connection with a claim under a
60-1 policy of title insurance;
60-2 (3) acquired in satisfaction or on account of
60-3 loans, mortgages, liens, judgments or decrees, previously owing to
60-4 it in the course of its business;
60-5 (4) acquired in part payment of the
60-6 consideration of the sale of real property owned by it if the
60-7 transaction shall result in a net reduction in the company's
60-8 investment in real estate;
60-9 (5) reasonably necessary for the purpose of
60-10 maintaining or enhancing the sale value of real property previously
60-11 acquired or held by it under Subparagraphs (1), (2), (3) or (4) of
60-12 this Section; provided, however, that no title insurance company
60-13 shall hold any real estate acquired under Subparagraphs (2), (3) or
60-14 (4) for more than ten (10) years without written approval of the
60-15 Board.
60-16 (d) First mortgage notes secured by:
60-17 (1) abstract plants and connected personalty
60-18 within or without the State of Texas;
60-19 (2) stock of title insurance agents within or
60-20 without the State of Texas;
60-21 (3) construction contract or contracts for the
60-22 purpose of building an abstract plant and connected personalty;
60-23 (4) any combination of two or more of items (1),
60-24 (2), and (3).
60-25 In no event shall the amount of any first mortgage note
60-26 exceed 80 percent of the appraised value of the security for such
60-27 note as set out above.
61-1 (e) The shares of any federal home loan bank in the
61-2 amount necessary to qualify for membership and any additional
61-3 amounts approved by the Commissioner.
61-4 (f) Investments in foreign securities that are
61-5 substantially of the same kinds, classes, and investment-grade as
61-6 those eligible for investment under other provisions of this
61-7 Article. Unless the investment is also authorized under Subsection
61-8 (b) of this Article the aggregate amount of foreign investments
61-9 made under this Section may not exceed:
61-10 (1) five percent of the insurer's admitted assets at
61-11 the last year end;
61-12 (2) two percent of the insurer's admitted assets at
61-13 the last year end invested in the securities of all entities
61-14 domiciled in any one foreign country; and
61-15 (3) one-half of one percent of the insurer's admitted
61-16 assets at the last year end invested in the securities of any one
61-17 individual entity domiciled in a foreign country.
61-18 Any investments which do not qualify under this Article and
61-19 which were owned by the title insurance company on October 1, 1967,
61-20 continue to qualify.
61-21 If any otherwise valid investment which qualifies under the
61-22 provisions of this Article shall exceed in amount any of the
61-23 limitations on investment contained in this Article, it shall be
61-24 inadmissible only to the extent that it exceeds such limitation.
61-25 (g) Securities Lending, Repurchase, Reverse Repurchase
61-26 and Dollar Roll Transactions as provided for in Section 4(q),
61-27 Article 3.33, of this code and Money Market Funds as provided for
62-1 in Section 4(s), Article 3.33, of this code.
62-2 SECTION 8. Article 3.39-1 and Article 3.39-2, Insurance
62-3 Code, are repealed.
62-4 SECTION 9. Section 5, Article 21.39-B, Insurance Code, is
62-5 repealed.
62-6 SECTION 10. This Act takes effect September 1, 1997.
62-7 SECTION 11. The importance of this legislation and the
62-8 crowded condition of the calendars in both houses create an
62-9 emergency and an imperative public necessity that the
62-10 constitutional rule requiring bills to be read on three several
62-11 days in each house be suspended, and this rule is hereby suspended.