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