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