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