By: Dutton (Senate Sponsor - Sibley) H.B. No. 909
1-1 By: Dutton (Senate Sponsor - Sibley) H.B. No. 909
1-2 (In the Senate - Received from the House April 29, 1997;
1-3 April 30, 1997, read first time and referred to Committee on
1-4 Economic Development; May 12, 1997, reported adversely, with
1-5 favorable Committee Substitute by the following vote: Yeas 9, Nays
1-6 0; May 12, 1997, sent to printer.)
1-7 COMMITTEE SUBSTITUTE FOR H.B. No. 909 By: Sibley
1-8 A BILL TO BE ENTITLED
1-9 AN ACT
1-10 relating to amending certain provisions of the Insurance Code,
1-11 concerning authorized investments of insurers, specifically,
1-12 Articles 2.10, 3.33, 3.39-1, 3.39-2, 9.18, and 21.39-B.
1-13 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-14 SECTION 1. Section 2, Article 3.33, Insurance Code, is
1-15 amended to read as follows:
1-16 Sec. 2. Purpose. The purpose of this article is to protect
1-17 and further the interests of insureds, insurers, creditors, and the
1-18 public by providing standards for the development and
1-19 administration of plans for the investment of the assets of
1-20 insurers. [Such plans should seek a reasonable relationship of
1-21 liabilities and assets as to term and nature.]
1-22 SECTION 2. Section 3, Article 3.33, Insurance Code, is
1-23 amended to read as follows:
1-24 Sec. 3. Insurers' Investment Plans. (a) The board of
2-1 directors of each insurer or corresponding authority designated by
2-2 the charter, bylaws, or plan of operations of an insurer which has
2-3 no board of directors shall:
2-4 (1) adopt a written investment plan consistent with
2-5 the provisions of this article which:
2-6 (A) specifies the diversification of the
2-7 insurer's investments, so as to reduce the risk of large losses,
2-8 by:
2-9 (i) broad categories (such as bonds and
2-10 real estate loans),
2-11 (ii) kinds (such as obligations of
2-12 governments, or business entities, mortgage-backed securities, and
2-13 real estate loans on office, retail, industrial or residential
2-14 properties),
2-15 (iii) quality,
2-16 (iv) maturity,
2-17 (v) industry, and
2-18 (vi) geographical areas (as to both
2-19 domestic and foreign investments);
2-20 (B) balances safety of principal with yield and
2-21 growth;
2-22 (C) seeks a reasonable relationship of assets
2-23 and liabilities as to term and nature;
2-24 (D) is appropriate considering the capital and
2-25 surplus and the business conducted by the insurer; [adopt a written
2-26 investment plan consistent with the provision of this article which
2-27 specifies quality, maturity, and diversification of investments and
3-1 is appropriate for the business conducted by the insurer and its
3-2 capital and surplus;]
3-3 (2) at least annually, review the adequacy of such
3-4 investment plan and the implementation thereof.
3-5 (b) The insurer shall maintain the investment plan in its
3-6 principal office and shall provide same to the commissioner or his
3-7 designee upon request, and such plans shall be maintained as a
3-8 privileged and confidential document by the Commissioner of
3-9 Insurance or his designee and it shall not be subject to public
3-10 disclosure. The insurer shall maintain investment records covering
3-11 each transaction. [Such investment records shall contain a
3-12 reference to the subsection of this article and, if appropriate,
3-13 other provision of law that authorizes the investment.] At all
3-14 times, the insurer shall be able to demonstrate that its
3-15 investments are within the limitations prescribed in this article.
3-16 SECTION 3. Article 3.33, Insurance Code, is amended by
3-17 adding Section 3A to read as follows:
3-18 Sec. 3A. COMMUNITY INVESTMENT REPORT. (a) The Texas
3-19 Department of Insurance shall, after consultation with the
3-20 insurance industry of this state and the Office of Public Insurance
3-21 Counsel, develop a report of insurance industry community
3-22 investments in Texas.
3-23 (b) The commissioner may request and insurance companies
3-24 shall provide information necessary to complete the requirements of
3-25 Subsection (a).
3-26 (c) The report established under Subsection (a) shall be
3-27 provided to the Texas Legislature no later than December 1 of each
4-1 even-numbered year.
4-2 SECTION 4. Section 4, Article 3.33, Insurance Code, is
4-3 amended to read as follows:
4-4 Sec. 4. Authorized Investments and Transactions [Loans].
4-5 Subject to the limitations and restrictions herein contained and,
4-6 unless otherwise specified, based upon the insurer's capital,
4-7 surplus and admitted assets as reported in the most recently filed
4-8 statutory financial statement, the investments and transactions
4-9 [loans] described in the following subsections, and in Section 6,
4-10 Article 21.49-1, and none other, are authorized for the insurers
4-11 subject hereto:
4-12 (a) United States Government Bonds. Bonds, evidences
4-13 of indebtedness or obligations of the United States of America, or
4-14 bonds, evidences of indebtedness or obligations guaranteed as to
4-15 principal and interest by the full faith and credit of the United
4-16 States of America, and bonds, evidences of indebtedness, or
4-17 obligations of agencies and instrumentalities of the government of
4-18 the United States of America;
4-19 (b) Other Governmental Bonds. Bonds, evidences of
4-20 indebtedness or obligations of governmental units in the United
4-21 States, Canada, or any province or city of Canada, and of the
4-22 instrumentalities of such governmental units; provided:
4-23 (1) such governmental unit or instrumentality is
4-24 not in default in the payment of principal or interest in any of
4-25 its obligations; and
4-26 (2) investments in the obligations of any one
4-27 governmental unit or instrumentality may not exceed 20 percent of
5-1 the insurer's capital and surplus;
5-2 (c) Obligations of Business Entities. Obligations,
5-3 including bonds or evidences of indebtedness, or participations in
5-4 those bonds or evidences of indebtedness, or asset-backed
5-5 securities, that are issued, assumed, guaranteed, or insured by any
5-6 business entity, including a sole proprietorship, a corporation, an
5-7 association, a general or limited partnership, a limited liability
5-8 company, a joint-stock company, a joint venture, a trust, or any
5-9 other form of business organization, whether for-profit or
5-10 not-for-profit, that is organized under the laws of the United
5-11 States, another state, Canada, or any state, district, province, or
5-12 territory of Canada, subject to all conditions set forth below:
5-13 (1) an insurer may acquire obligations or
5-14 counterparty exposure amounts, as defined in Subsection (u), in any
5-15 one business entity rated [one or two] by the Securities Valuation
5-16 Office of the National Association of Insurance Commissioners, but
5-17 not to exceed 20 percent of the insurer's statutory capital and
5-18 surplus [as reported in the most recent annual statement filed with
5-19 the department];
5-20 (2) an insurer shall not acquire an obligation,
5-21 counterparty exposure amount or preferred stock of any business
5-22 entity if, after giving effect to the investment:
5-23 (A) the aggregate amount of such
5-24 investments then held by the insurer that are rated 3, 4, 5, or 6
5-25 by the Securities Valuation Office of the National Association of
5-26 Insurance Commissioners would exceed 20 percent of its assets;
5-27 (B) the aggregate amount of such
6-1 investments then held by the insurer that are rated 4, 5, or 6 by
6-2 the Securities Valuation Office would exceed 10 percent of its
6-3 assets;
6-4 (C) the aggregate amount of such
6-5 investments then held by the insurer that are rated 5 or 6 by the
6-6 Securities Valuation Office would exceed three percent of its
6-7 assets; or
6-8 (D) the aggregate amount of such
6-9 investments then held by the insurer that are rated 6 by the
6-10 Securities Valuation Office would exceed one percent of its assets.
6-11 If an insurer attains or exceeds the limit of any one rating
6-12 category referred to in this subsection, the insurer shall not be
6-13 precluded from acquiring investments in other rating categories
6-14 subject to the specific and multiple category limits applicable to
6-15 those investments [an insurer may acquire obligations rated three
6-16 or lower by the Securities Valuation Office if, after giving effect
6-17 to such an acquisition, the aggregate amount of all obligations
6-18 rated three or lower then held by the domestic insurer does not
6-19 exceed 20 percent of its admitted assets. Not more than 10 percent
6-20 of the admitted assets of that insurer may consist of obligations
6-21 rated four, five, or six by the Securities Valuation Office. Not
6-22 more than three percent of the admitted assets of that insurer may
6-23 consist of obligations rated five or six by the Securities
6-24 Valuation Office. Not more than one percent of the admitted assets
6-25 of that insurer may consist of obligations rated six by the
6-26 Securities Valuation Office. Attaining or exceeding the limit in
6-27 any one category does not preclude an insurer from acquiring
7-1 obligations in other categories, subject to the specific and
7-2 multi-category limits;]
7-3 [(3) an insurer may not invest more than an
7-4 aggregate of one percent of its admitted assets in obligations
7-5 rated three by the Securities Valuation Office that are issued,
7-6 assumed, guaranteed, or insured by any one business entity, or more
7-7 then one-half percent of its admitted assets in obligations rated
7-8 four, five, or six by the Securities Valuation Office that are
7-9 issued, assumed, guaranteed, or insured by any one business entity.
7-10 An insurer may not invest more than one percent of its admitted
7-11 assets in any obligations rated three, four, five, or six by the
7-12 Securities Valuation Office that are issued, assumed, guaranteed,
7-13 or insured by any one business entity];
7-14 (3) [(4)] notwithstanding the foregoing, an
7-15 insurer may acquire an obligation of a business entity in which the
7-16 insurer already holds [has] one or more obligations if the
7-17 obligation is acquired in order to protect an investment previously
7-18 made in that business entity, but[. Such acquired] obligations so
7-19 acquired may not exceed one-half percent of the insurer's
7-20 [admitted] assets; and
7-21 (4) [(5)] this subsection does not prohibit an
7-22 insurer from acquiring an obligation as a result of a restructuring
7-23 of an already held obligation or preferred stock that is rated 3,
7-24 4, 5 or 6 [three or lower] by the Securities Valuation Office;
7-25 (d) International Market. Bonds issued, assumed, or
7-26 guaranteed by the Interamerican Development Bank, the International
7-27 Bank for Reconstruction and Development (the World Bank), the Asian
8-1 Development Bank, the State of Israel, the African Development
8-2 Bank, and the International Finance Corporation; provided:
8-3 (1) investments in the bonds of any one of the
8-4 entities specified above may not exceed 20 percent of the insurer's
8-5 capital and surplus; and
8-6 (2) the aggregate of all investments made under
8-7 this subsection may not exceed 20 percent of the insurer's assets;
8-8 (e) Policy Loans. Loans upon the security of the
8-9 insurer's own policies not in excess of the amount of the reserve
8-10 values thereof;
8-11 (f) Time and Savings Deposits. Any type or form of
8-12 savings deposits, time deposits, certificates of deposit, NOW
8-13 accounts, and money market accounts in solvent banks, savings and
8-14 loan associations, and credit unions and branches thereof,
8-15 organized under the laws of the United States of America or its
8-16 states, when made in accordance with the laws or regulations
8-17 applicable to such entities; provided the amount of the deposits in
8-18 any one bank, savings and loan association, or credit union will
8-19 not exceed the greater of:
8-20 (1) 20 [twenty] percent of the insurer's capital
8-21 and surplus;
8-22 (2) the amount of federal or state deposit
8-23 insurance coverage pertaining to such deposit; or
8-24 (3) 10 [ten] percent of the amount of capital,
8-25 surplus, and undivided profits of the entity receiving such
8-26 deposits;
8-27 (g) Insurer Investment Pools. For the purposes of
9-1 this Subsection (g), the following definition shall apply:
9-2 (A) "Affiliate" means, as to any person, another
9-3 person that, directly or indirectly through one or more
9-4 intermediaries, controls, is controlled by, or is under common
9-5 control with the person.
9-6 (1) An insurer may acquire investments in
9-7 investment pools that:
9-8 (A) invest only in:
9-9 (i) obligations
9-10 that are rated 1 or 2 by the SecuritiesValuation Office or have an
9-11 equivalent of a Securities Valuation Office 1 or 2 rating (or, in
9-12 the absence of a 1 or 2 rating or equivalent rating, the issuer has
9-13 outstanding obligations with a Securities Valuation Office 1 or 2
9-14 or equivalent rating) by a nationally recognized statistical rating
9-15 organization recognized by the Securities Valuation Office and
9-16 have:
9-17 (a) a
9-18 remaining maturity of 397 days or less or a put that entitles the
9-19 holder to receive the principal amount of the obligation which put
9-20 may be exercised through maturity at specified intervals not
9-21 exceeding 397 days; or
9-22 (b) a
9-23 remaining maturity of three years or less and a floating interest
9-24 rate that resets no less frequently than quarterly on the basis of
9-25 a current short-term index (federal funds, prime rate, treasury
9-26 bills, London InterBank Offered Rate (LIBOR) or commercial paper)
9-27 and is subject to no maximum limit, if the obligations do not have
10-1 an interest rate that varies inversely to market interest rate
10-2 changes;
10-3 (ii) securities
10-4 lending, repurchase and reverse repurchasetransactions that meet
10-5 the requirements of Subsection (q) and any applicable regulations
10-6 of the department; or
10-7 (iii) money
10-8 market mutual funds as authorized in Subsection (s); provided that
10-9 this short-term investment pool shall not acquire investments in
10-10 any one business entity that exceed 10 percent of the total assets
10-11 of the investment pool;
10-12 (B) invest only in
10-13 investments which an insurer may acquire under this article, if the
10-14 insurer's proportionate interest in the amount invested in these
10-15 investments does not exceed the applicable limits of this article,
10-16 and the aggregate amount of all investments in such other
10-17 investment pools may not exceed 25 percent of the insurer's assets.
10-18 (2) An insurer shall not acquire an
10-19 investment in an investment pool under this subsection if after
10-20 giving effect to the investment, the aggregate amount of
10-21 investments in all investment pools then held by the insurer would
10-22 exceed 35 percent of its assets.
10-23 (3) For an investment in an investment
10-24 pool to be qualified under this article, the investment pool shall
10-25 not:
10-26 (A) acquire securities
10-27 issued, assumed, guaranteed or insured by the insurer or an
11-1 affiliate of the insurer;
11-2 (B) borrow or incur any
11-3 indebtedness for borrowed money, except for securities lending and
11-4 reverse repurchase transactions.
11-5 (4) For an investment pool to be qualified
11-6 under this article:
11-7 (A) the manager of the
11-8 investment pool shall:
11-9 (i) be
11-10 organized under the laws of the United States or a state and
11-11 designated as the pool manager in a pooling agreement;
11-12 (ii) be the
11-13 insurer, an affiliated insurer, a business entity affiliated with
11-14 the insurer, a custodian bank, a business entity registered under
11-15 the Investment Advisors Act of 1940 (15 U.S.C. Section 80a-1 et
11-16 seq.), as amended, or, in the case of a reciprocal insurer or
11-17 interinsurance exchange, its attorney-in-fact or, in the case of a
11-18 United States branch of an alien insurer, its United States manager
11-19 or affiliates or subsidiaries of its United States manager;
11-20 (B) the pool manager or an
11-21 entity designated by the pool manager of the type set forth in
11-22 (4)(A)(ii) shall maintain detailed accounting records setting
11-23 forth:
11-24 (i) the
11-25 case receipts and disbursements reflecting each participant's
11-26 proportionate investment in the investment pool;
11-27 (ii) a
12-1 complete description of all underlying assets of the investment
12-2 pool (including amount, interest rate, maturity date (if any) and
12-3 other appropriate designations); and
12-4 (iii) other
12-5 records which, on a daily basis, allow third parties to verify each
12-6 participant's investments in the investment pool;
12-7 (C) the assets of the
12-8 investment pool shall be held in one or more accounts, in the name
12-9 or on behalf of the investment pool, either (i) under a custody
12-10 agreement or trust agreement with a custodian bank or (ii) at the
12-11 principal office of the pool manager. The applicable agreement
12-12 shall:
12-13 (i) state
12-14 and recognize the claims and rights of each participant;
12-15 (ii) acknowledge
12-16 that the underlying assets of the investmentpool are held solely
12-17 for the benefit of each participant in proportion to the aggregate
12-18 amount of its investments in the investment pool; and
12-19 (iii) contain
12-20 an agreement that the underlying assets of theinvestment pool shall
12-21 not be commingled with the general assets of the custodian bank or
12-22 any other person.
12-23 (5) The pooling agreement for each
12-24 investment pool shall be in writing and shall provide that:
12-25 (A) the insurer, its
12-26 subsidiaries, affiliates or, in the case of a United States branch
12-27 of an alien insurer, affiliates or subsidiaries of its United
13-1 States manager, and any unaffiliated insurer shall, at all times,
13-2 hold 100 percent of the interests in the investment pool;
13-3 (B) the underlying assets
13-4 of the investment pool shall not be commingled with the general
13-5 assets of the pool manager or any other person;
13-6 (C) in proportion to the
13-7 aggregate amount of each pool participant's interest in the
13-8 investment pool:
13-9 (i) each
13-10 participant owns an undivided interest in the underlying assets or
13-11 the investment pool; and
13-12 (ii) the
13-13 underlying assets of the investment pool are held solely for the
13-14 benefit of each participant;
13-15 (D) a participant, or, in
13-16 the event of the participant's insolvency, bankruptcy, or
13-17 receivership, its trustee, receiver, conservator or other
13-18 successor-in-interest, may withdraw all or any portion of its
13-19 investment from the investment pool under the terms of the pooling
13-20 agreement;
13-21 (E) withdrawals may be made
13-22 on demand without penalty or other assessment on any business day,
13-23 but settlement of funds shall occur within a reasonable and
13-24 customary period thereafter provided: (i) in the case of publicly
13-25 traded securities, settlement shall not exceed five business days,
13-26 and (ii) in the case of all other securities and investments,
13-27 settlement shall not exceed 10 business days. Distributions under
14-1 this paragraph shall be calculated in each case net of all then
14-2 applicable fees and expenses of the investment pool. The pooling
14-3 agreement shall provide that the pool manager shall distribute to a
14-4 participant, at the discretion of the pool manager:
14-5 (i) in
14-6 cash, the then fair market value of the participant's pro rata
14-7 share of each underlying asset of the investment pool;
14-8 (ii) in
14-9 kind, a pro rata share of each underlying asset; or
14-10 (iii) in a
14-11 combination of cash and in kind distributions, a pro rata share in
14-12 each underlying asset; and
14-13 (F) the pool manager shall
14-14 make the records of the investment pool available for inspection by
14-15 the commissioner.
14-16 (6) An investment in an investment pool
14-17 shall not be deemed to be an affiliate transaction under Section 4,
14-18 Article 21.49-1, of this code; however each pooling agreement shall
14-19 be subject to the standards of Section 4(a), Article 21.49-1, of
14-20 this code and the reporting requirements of Section 3(b), Article
14-21 21.49-1, of this code. [Equipment Trusts. Equipment trust
14-22 obligations or certificates; provided:]
14-23 [(1) any such obligation or certificate is secured by
14-24 an interest in transportation equipment that is in whole or in part
14-25 within the United States of America;]
14-26 [(2) the obligation or certificate provides a right to
14-27 receive determined portions of rental, purchase, or other fixed
15-1 obligatory payments for the use or purchase of the transportation
15-2 equipment;]
15-3 [(3) the obligation is classified as an obligation of
15-4 a business entity and is subject to the limitations on obligations
15-5 of business entities set forth in Subsection (c) of this section;
15-6 and]
15-7 [(4) the aggregate of all investments made under this
15-8 subsection may not exceed 10 percent of the insurer's assets;]
15-9 (h) Equity Interests. Equity interests including
15-10 common stock, equity investment in an investment company (other
15-11 than a money market mutual fund as defined in Subsection (s) of
15-12 this section), real estate investment trust, limited partnership
15-13 interests, warrants or other rights to acquire equity interests
15-14 that are created by the person that owns or would issue the equity
15-15 to be acquired, and equity interests in any business entity that is
15-16 organized under the laws of the United States, any of its states,
15-17 Canada or any province or territory of Canada provided:
15-18 (1) if no market value from a generally
15-19 recognized source is available for the equity interest, the
15-20 business entity or other investment shall be subject to an annual
15-21 audit by an independent certified public accountant or subject to
15-22 another method of valuation acceptable to the commissioner; and
15-23 (2) an insurer shall not be permitted to invest
15-24 in a partnership, as a general partner, except through an
15-25 investment subsidiary;
15-26 (3) such investments in any one business entity
15-27 other than a money market fund defined in Subsection (s) may not
16-1 exceed 15 percent of the insurer's capital and surplus;
16-2 (4) the aggregate amount of all investments made
16-3 under this subsection may not exceed 25 percent of the insurer's
16-4 assets.
16-5 For purposes of this subsection, a business entity shall mean
16-6 a real estate investment trust, corporation, limited liability
16-7 company, association, limited partnership, joint venture, mutual
16-8 fund, trust, joint tenancy or other similar form of business
16-9 organization, whether organized for profit or not-for-profit.
16-10 [Common Stock. Common stock of any corporation organized under the
16-11 laws of the United States of America or any of its states, shares
16-12 of mutual funds doing business under the Investment Company Act or
16-13 1940 (15 U.S.C. Section 80a-1 et seq.), other than money market
16-14 funds as defined in Subsection (s) of this section, and shares in
16-15 real estate investment trusts as defined in the Internal Revenue
16-16 Code of 1954 (26 U.S.C. Section 856); provided:]
16-17 [(1) any such corporation, other than a mutual fund,
16-18 must be solvent with at least $1,000,000 net worth as of the date
16-19 of its latest annual or more recent certified audited financial
16-20 statement or will have at least $1,000,000 of net worth after
16-21 completion of a securities offering which is being subscribed to by
16-22 the insurer;]
16-23 [(2) mutual funds, other than money market funds as
16-24 defined in Subsection (s) of this section, and real estate
16-25 investment trusts must be solvent with at least $1,000,000 of net
16-26 assets as of the date of its latest annual or more recent certified
16-27 audited financial statement;]
17-1 [(3) investments in any one corporation, mutual fund,
17-2 other than a money market fund as defined in Subsection (s) of this
17-3 section, or real estate investment trust may not exceed 15 percent
17-4 of the insurer's capital and surplus; and]
17-5 [(4) the aggregate of all investments made under this
17-6 subsection may not exceed 25 percent of the insurer's assets;]
17-7 (i) Preferred Stock. Preferred stock of business
17-8 entities as described in Subsection (c) of this section
17-9 [corporations organized under the laws of the United States of
17-10 America or any of its states]; provided:
17-11 (1) investments in the preferred stock of any
17-12 one business entity will not exceed 20 percent of the insurer's
17-13 capital and surplus;
17-14 (2) the preferred stock is rated by the
17-15 Securities Valuation Office, and the aggregate investment in
17-16 preferred stock rated 3, 4, 5, or 6, when added to the investments
17-17 under Subsection (c)(2) do not result in the combined total of such
17-18 investments exceeding the limitations specified in Subsection
17-19 (c)(2);
17-20 [(1) such corporation must be solvent with at least
17-21 $1,000,000 of net worth as of the date of its latest annual or more
17-22 recent certified audited financial statement or will have at least
17-23 $1,000,000 of net worth after completion of a security offering
17-24 which is being subscribed to by the insurer;]
17-25 [(2) investments in the preferred stock of any one
17-26 corporation will not exceed 20 percent of the insurer's capital and
17-27 surplus;]
18-1 (3) in the aggregate not more than 10 percent of
18-2 the insurer's assets may be invested in preferred stock, the
18-3 redemption and retirement of which is not provided for by a sinking
18-4 fund meeting the standards established by the National Association
18-5 of Insurance Commissioners [to value the preferred stock at cost];
18-6 and
18-7 (4) the aggregate of all investments made under
18-8 this subsection may not exceed 40 percent of the insurer's assets;
18-9 (j) Collateral Loans. Collateral loans secured by a
18-10 first lien upon or a valid and perfected first security interest in
18-11 an asset; provided:
18-12 (1) the amount of any such collateral loan will
18-13 not exceed 80 percent of the value of the collateral asset at any
18-14 time during the duration of the loan; and
18-15 (2) the asset used as collateral would be
18-16 authorized for direct investment by the insurer under other
18-17 provisions of this Section 4, except real property in Subsection
18-18 (l);
18-19 (k) Real Estate Loans. Notes, evidences of
18-20 indebtedness, or participations therein secured by a valid first
18-21 lien upon real property or leasehold estate therein located in the
18-22 United States of America; provided:
18-23 (1) the amount of any such obligation secured by
18-24 a first lien upon real property or leasehold estate therein shall
18-25 not exceed 90 percent of the value of such real property or
18-26 leasehold estate therein, but the amount of such obligation:
18-27 (A) may exceed 90 percent but shall not
19-1 exceed 100 percent of the value of such real property or leasehold
19-2 estate therein if the insurer or one or more wholly owned
19-3 subsidiaries of the insurer owns in the aggregate a 10 percent or
19-4 greater equity interest in such real property or leasehold estate
19-5 therein;
19-6 (B) may be 95 percent of the value of such
19-7 real property or leasehold estate therein if it contains only a
19-8 dwelling designed exclusively for occupancy by not more than four
19-9 families for residential purposes, and the portion of the unpaid
19-10 balance of such obligation which is in excess of an amount equal to
19-11 90 percent of such value is guaranteed or insured by a mortgage
19-12 insurance company qualified to do business in the State of Texas;
19-13 or
19-14 (C) may be greater than 90 percent of the
19-15 value of such real property or leasehold estate therein to the
19-16 extent the obligation is insured or guaranteed by the United States
19-17 of America, the Federal Housing Administration pursuant to the
19-18 National Housing Act of 1934, as amended (12 U.S.C. Section 1701 et
19-19 seq.), or the State of Texas; and
19-20 (2) the term of an obligation secured by a first
19-21 lien upon a leasehold estate in real property shall not exceed a
19-22 period equal to four-fifths of the then unexpired term of such
19-23 leasehold estate; provided the unexpired term of the leasehold
19-24 estate must extend at least 10 years beyond the term of the
19-25 obligation, and each obligation shall be payable in an installment
19-26 or installments of sufficient amount or amounts so that at any time
19-27 after the expiration of two-thirds of the original loan term, the
20-1 principal balance will be no greater than the principal balance
20-2 would have been if the loan had been amortized over the original
20-3 loan term in equal monthly, quarterly, semiannual, or annual
20-4 payments of principal and interest, it being required that under
20-5 any method of repayment such obligation will fully amortize during
20-6 a period of time not exceeding four-fifths of the then unexpired
20-7 term of the security leasehold estate; and
20-8 (3) if any part of the value of buildings is to
20-9 be included in the value of such real property or leasehold estate
20-10 therein to secure the obligations provided for in this subsection,
20-11 such buildings shall be covered by adequate property insurance,
20-12 including but not limited to fire and extended coverage insurance
20-13 issued by a company authorized to transact business in the State of
20-14 Texas or by a company recognized as acceptable for such purpose by
20-15 the insurance regulatory official of the state in which such real
20-16 estate is located, and the amount of insurance granted in the
20-17 policy or policies shall be not less than the unpaid balance of the
20-18 obligation or the insurable value of such buildings, whichever is
20-19 the lesser; the loss clause shall be payable to the insurer as its
20-20 interest may appear; and
20-21 (4) to the extent any note, evidence of
20-22 indebtedness, or participation therein under this subsection
20-23 represents an equity interest in the underlying real property, the
20-24 value of such equity interest shall be determined at the time of
20-25 execution of such note, evidence of indebtedness, or participation
20-26 therein and that portion shall be designated as an investment
20-27 subject to the provisions of Subsection (l)(2) of this section; and
21-1 (5) the amount of any one such obligation may
21-2 not exceed 25 percent of the insurer's capital and surplus; and
21-3 (6) a first lien on real property may be
21-4 purchased after its origination if the first lien is insured by a
21-5 mortgagee's title policy issued to the original mortgagee that
21-6 contains a provision that inures the policy to the use and benefit
21-7 of the owners of the evidence of debt indicated in the policy and
21-8 to any subsequent owners of that evidence of debt, and if the
21-9 insurer maintains evidence of assignments or other transfers of the
21-10 first lien on real property to the insurer. An assignment or other
21-11 transfer to the insurer, duly recorded in the county in which the
21-12 real property is located, shall be presumed to create legal
21-13 ownership of the first lien by the insurer;
21-14 (l) Real Estate. Real property fee simple or
21-15 leasehold estates located within the United States of America, as
21-16 follows:
21-17 (1) home and branch office real property or
21-18 participations therein, which must be materially enhanced in value
21-19 by the construction of durable, permanent-type buildings and other
21-20 improvements costing an amount at least equal to the cost of such
21-21 real property, exclusive of buildings and improvements at the time
21-22 of acquisition, or by the construction of such buildings and
21-23 improvements which must be commenced within two years of the date
21-24 of the acquisition of such real property; provided:
21-25 (A) at least 30 percent of the available space
21-26 in such building shall be occupied for the business purposes of the
21-27 insurer and its affiliates; and
22-1 (B) the aggregate investment in such home and
22-2 branch offices shall not exceed 20 percent of the insurer's assets;
22-3 and
22-4 (2) other investment property or participations
22-5 therein, which must be materially enhanced in value by the
22-6 construction of durable, permanent-type buildings and other
22-7 improvements costing an amount at least equal to the cost of such
22-8 real property, exclusive of buildings and improvements at the time
22-9 of acquisition, or by the construction of such buildings and
22-10 improvements which must be commenced within two years of the date
22-11 of acquisition of such real property; provided that such investment
22-12 in any one piece of property or interest therein, including the
22-13 improvements, fixtures, and equipment pertaining thereto may not
22-14 exceed five percent of the insurer's assets; provided, however,
22-15 nothing in this article shall allow ownership of, development of,
22-16 or equity interest in any residential property or subdivision,
22-17 single or multiunit family dwelling property, or undeveloped real
22-18 estate for the purpose of subdivision for or development of
22-19 residential, single, or multiunit family dwellings, except
22-20 acquisitions as provided in Subdivision (4) below, and such
22-21 ownership, development, or equity interests shall be specifically
22-22 prohibited;
22-23 (3) the admissible asset value of each such
22-24 investment in the properties acquired under Subdivisions (1) and
22-25 (2) of this subsection shall be subject to review and approval by
22-26 the Commissioner of Insurance. The commissioner shall have
22-27 discretion at the time such investment is made or any time when an
23-1 examination of the company is being made to cause any such
23-2 investment to be appraised by an appraiser, appointed by the
23-3 commissioner, and the reasonable expense of such appraisal shall be
23-4 paid by such insurance company and shall be deemed to be a part of
23-5 the expense of examination of such company; if the appraisal is
23-6 made upon application of the company, the expense of such appraisal
23-7 shall not be considered a part of the expense of examination of
23-8 such company; no insurance company may hereafter make any write-up
23-9 in the valuation of any of the properties described in Subdivision
23-10 (1) or (2) of this subsection unless and until it makes application
23-11 therefor and such increase in valuation shall be approved by the
23-12 commissioner; and
23-13 (4) other real property acquired:
23-14 (A) in good faith by way of security for
23-15 loans previously contracted or money due; or
23-16 (B) in satisfaction of debts previously
23-17 contracted for in the course of its dealings; or
23-18 (C) by purchase at sales under judgment or
23-19 decrees of court, or mortgage or other lien held by such insurer;
23-20 and
23-21 (5) regardless of the mode of acquisition
23-22 specified herein, upon sale of any such real property, the fee
23-23 title to the mineral estate or any portion thereof may be retained
23-24 by the insurance company indefinitely;
23-25 (m) Oil, Gas, and Minerals. In addition to and
23-26 without limitation on the purposes for which real property may be
23-27 acquired, secured, held, or retained pursuant to other provisions
24-1 of this section, every such insurance company may secure, hold,
24-2 retain, and convey production payments, producing royalties and
24-3 producing overriding royalties, or participations therein as an
24-4 investment for the production of income; provided:
24-5 (1) in no event may such company carry such
24-6 assets in an amount in excess of 90 percent of the appraised value
24-7 thereof; and
24-8 (2) no one investment under this subsection may
24-9 exceed 10 percent of the insurer's capital and surplus in excess of
24-10 statutory minimum capital and surplus applicable to that insurer,
24-11 and the aggregate of all such investments may not exceed 10 percent
24-12 of the insurer's assets as of December 31st next preceding the date
24-13 of such investment; and
24-14 (3) for the purposes of this subsection, the
24-15 following definitions apply:
24-16 (A) a production payment is defined to
24-17 mean a right to oil, gas, or other minerals in place or as produced
24-18 that entitles its owner to a specified fraction of production until
24-19 a specified sum of money, or a specified number of units of oil,
24-20 gas, or other minerals, has been received;
24-21 (B) a royalty and an overriding royalty
24-22 are each defined to mean a right to oil, gas, and other minerals in
24-23 place or as produced that entitles the owner to a specified
24-24 fraction of production without limitation to a specified sum of
24-25 money or a specified number of units of oil, gas, or other
24-26 minerals;
24-27 (C) "producing" is defined to mean
25-1 producing oil, gas, or other minerals in paying quantities,
25-2 provided that it shall be deemed that oil, gas, or other minerals
25-3 are being produced in paying quantities if a well has been "shut
25-4 in" and "shut-in royalties" are being paid;
25-5 (n) Foreign Countries and United States Territories.
25-6 In addition to the investments in Canada authorized in other
25-7 subsections of this section, investments in other foreign countries
25-8 or in commonwealths, territories, or possessions of the United
25-9 States; provided:
25-10 (1) such investments are substantially the same
25-11 types as [similar to] those authorized for investment within the
25-12 United States of America or Canada by other provisions of this
25-13 section [and are rated one or two by the Securities Valuation
25-14 Office of the National Association of Insurance Commissioners]; and
25-15 (2) such investments when added to the amount of
25-16 similar investments made within the United States and Canada do not
25-17 result in the combined total of such investments exceeding the
25-18 limitations specified in Subsections (a) through (m), (o), (q) and
25-19 (u) [(p)] of this section; and
25-20 (3) such investments may not exceed the sum of:
25-21 (A) the amount of insurer's reserves
25-22 attributable to the insurance business in force in foreign [said]
25-23 countries, if any, and any additional investments required by any
25-24 foreign country as a condition to doing business therein; and
25-25 (B) 20 [five] percent of the insurer's
25-26 assets of which no more than 10 percent of the insurer's assets may
25-27 be investments denominated in foreign currency that are not hedged
26-1 pursuant to the provisions of Subsection (u);
26-2 (o) Investments Not Otherwise Specified. Investments
26-3 which are not otherwise authorized by this article and which are
26-4 not specifically prohibited by statute, including that portion of
26-5 any investments which may exceed the limits specified in
26-6 Subsections (a) through (n), (q) and (u) of this section; provided:
26-7 (1) if any aggregate or individual specified
26-8 investment limitation in Subsections (a) through (n), (q) and (u)
26-9 of this section is exceeded, then the excess portion of such
26-10 investment shall be an investment under this subsection; and
26-11 (2) the burden of establishing the value of such
26-12 investments shall be upon the insurer; and
26-13 (3) the amount of any one such investment may
26-14 not exceed 10 percent of the insurer's capital and surplus in
26-15 excess of the statutory minimum capital and surplus applicable to
26-16 that insurer; and
26-17 (4) the aggregate of all investments made under
26-18 this subsection may not exceed the lesser of either five percent of
26-19 the insurer's assets or the insurer's capital and surplus in excess
26-20 of the statutory minimum capital and surplus applicable to that
26-21 insurer;
26-22 (p) Other Authorized Investments. Those other
26-23 investments as follows:
26-24 (1) any investment held by an insurer on the
26-25 effective date of this Act, which was legally authorized at the
26-26 time it was made or acquired or which the insurer was authorized to
26-27 hold or possess immediately prior to such effective date, but which
27-1 does not conform to the requirements of the investments authorized
27-2 in Subsections (a) through (o) of this section, may continue to be
27-3 held by and considered as an authorized [admitted] asset or
27-4 transaction of the insurer; provided the investment or transaction
27-5 is disposed of at its maturity date, if any, or within the time
27-6 prescribed by the law under which it was acquired, if any; and
27-7 provided further, in no event shall the provisions of this
27-8 subdivision alter the legal or accounting status of such asset; and
27-9 (2) any other investment which may be authorized
27-10 by other provisions of this code or by other laws of this state for
27-11 the insurers which are subject to this article.
27-12 (q) Securities Lending, Repurchase, Reverse Repurchase
27-13 and Dollar Roll Transactions. (a) For purposes of this subsection
27-14 (q), the following definitions shall apply:
27-15 (1) "Repurchase transaction" means a transaction
27-16 in which an insurer purchases securities from a business entity
27-17 that is obligated to repurchase the purchased securities or
27-18 equivalent securities from the insurer at a specified price, either
27-19 within a specified period of time or upon demand.
27-20 (2) "Reverse repurchase transaction" means a
27-21 transaction in which an insurer sells securities to a business
27-22 entity and is obligated to repurchase the sold securities or
27-23 equivalent securities from the business entity at a specified
27-24 price, either within a specified period of time or upon demand.
27-25 (3) "Securities lending transaction" means a
27-26 transaction in which securities are loaned by an insurer to a
27-27 business entity that is obligated to return the loaned securities
28-1 or equivalent securities to the insurer, either within a specified
28-2 period of time or upon demand.
28-3 (4) "Dollar roll transaction" means two
28-4 simultaneous transactions with settlement dates no more than 96
28-5 days apart so that in one transaction an insurer sells to a
28-6 business entity, and in the other transaction the insurer is
28-7 obligated to purchase from the same business entity, substantially
28-8 similar securities of the following types:
28-9 (A) mortgage-backed securities issued,
28-10 assumed or guaranteed by the Government National Mortgage
28-11 Association, the Federal National Mortgage Association or the
28-12 Federal Home Loan Mortgage Corporation or their respective
28-13 successors; and
28-14 (B) other mortgage-backed securities
28-15 referred to in Section 106 of Title I of the Secondary Mortgage
28-16 Market Enhancement Act of 1984 (15 U.S.C. Section 77r-1), as
28-17 amended.
28-18 (b) An insurer may engage in securities lending,
28-19 repurchase, reverse repurchase and dollar roll transactions as set
28-20 forth herein. The insurer shall enter into a written agreement for
28-21 all transactions, except dollar roll transactions, that shall
28-22 require each transaction terminate no more than one year from its
28-23 inception.
28-24 (c) Cash received in a transaction under this
28-25 section shall be invested in accordance with this article and in a
28-26 manner that recognizes the liquidity needs of the transaction or
28-27 used by the insurer for its general corporate purposes. For so
29-1 long as the transaction remains outstanding, the insurer, its agent
29-2 or custodian shall maintain, as to acceptable collateral received
29-3 in a transaction under this subsection, either physically or
29-4 through the book entry systems of the Federal Reserve, Depository
29-5 Trust Company, Participants Trust Company or other securities
29-6 depositories approved by the commissioner:
29-7 (1) possession of the acceptable
29-8 collateral;
29-9 (2) a perfected security interest in the
29-10 acceptable collateral; or
29-11 (3) in the case of a jurisdiction outside
29-12 of the United States, title to, or rights of a secured creditor to,
29-13 the acceptable collateral; and
29-14 (d) The limitations of section 4(c) and section
29-15 5(a) shall not apply to the business entity counterparty exposure
29-16 created by transactions under this section. An insurer shall not
29-17 enter into a transaction under this subsection if, as a result of
29-18 and after giving effect to the transaction:
29-19 (1) the aggregate amount of securities
29-20 then loaned, sold to, or purchased from, any one business entity
29-21 counterparty under this subsection would exceed 5 percent of its
29-22 assets. In calculating the amount sold to or purchased from a
29-23 business entity counterparty under repurchase or reverse repurchase
29-24 transactions, effect may be given to netting provisions under a
29-25 master written agreement; or
29-26 (2) the aggregate amount of all securities
29-27 then loaned, sold to or purchased from all business entities under
30-1 this subsection would exceed 40 percent of its assets.
30-2 (e) The amount of collateral required for
30-3 securities lending, repurchase and reverse repurchase transactions
30-4 is the amount required pursuant to the provisions of the Purposes
30-5 and Procedures of the Securities Valuation Office or such successor
30-6 publication.
30-7 (f) Article 3.39-1 shall not apply to
30-8 transactions authorized by this Subsection (q). [Special
30-9 Limitations for Certain Fixed Annuity Insurers. The quantitative
30-10 limitations imposed above in Subsections (b)(2), (c)(2), (f)(1),
30-11 (g)(3), (h)(3), (i)(2), and (k)(5) of this section shall not apply
30-12 to any insurer with assets in excess of $2,500,000,000 and that
30-13 receives more than 90 percent of its premium income from fixed rate
30-14 annuity contracts and that has more than 90 percent of its assets
30-15 allocated to its reserves held for fixed rate annuity contracts,
30-16 excluding, however, any premium income, assets, and reserves
30-17 received from, held for, or allocated to separate accounts from the
30-18 computation of the above percentages, and in lieu thereof, the
30-19 following quantitative limitations shall apply to such insurers:]
30-20 [(1) the limitation in Subsection (b)(2) of this
30-21 section shall be two percent of the insurer's assets;]
30-22 [(2) the limitation in Subsection (c)(2) of this
30-23 section shall be two percent of the insurer's assets;]
30-24 [(3) the limitation in Subsection (f)(1) of this
30-25 section shall be two percent of the insurer's assets;]
30-26 [(4) the limitation in Subsection (g)(3) of this
30-27 section shall be one percent of the insurer's assets;]
31-1 [(5) the limitation in Subsection (h)(3) of this
31-2 section shall be one percent of the insurer's assets;]
31-3 [(6) the limitation in Subsection (i)(2) of this
31-4 section shall be two percent of the insurer's assets; and]
31-5 [(7) the limitation in Subsection (k)(5) of this
31-6 section shall be two percent of the insurer's assets.]
31-7 (r) Premium Loans. Loans to finance the payment of
31-8 premiums for the insurer's own insurance policies or annuity
31-9 contracts; provided that the amount of any such loan does not
31-10 exceed the sum of: (i) the available cash value of such insurance
31-11 policy or annuity contract; and (ii) the amount of any escrowed
31-12 commissions payable relating to such insurance policy or annuity
31-13 contract for which the premium loan is made; and
31-14 (s) Money Market Funds. (1) Money market mutual
31-15 funds as defined by 17 CFR 270.2a-7 under the Investment Company
31-16 Act of 1940 (15 U.S.C. 80a-1 et seq.) that may be either of the
31-17 following [meet the following additional conditions]:
31-18 (A) government money market mutual fund
31-19 which is a money market mutual fund that:
31-20 (i) invests only in
31-21 obligations issued, guaranteed or insured by the federal government
31-22 of the United States or collateralized repurchase agreements
31-23 composed of these obligations; and
31-24 (ii) qualifies for
31-25 investment without a reserve under the Purposes and Procedures of
31-26 the Securities Valuation Office or any successor publication; or
31-27 (B) class one money market mutual fund
32-1 which is a money market mutual fund that qualifies for investment
32-2 using the bond class one reserve factor under the Purposes and
32-3 Procedures of the Securities Valuation Office or any successor
32-4 publication. [the funds invest 100 percent of total assets in
32-5 United States treasury bills, notes, and bonds, and collateralized
32-6 repurchase agreements composed of those obligations at all times;]
32-7 [(B) the funds invest 100 percent of total
32-8 assets in other full faith and credit instruments of the United
32-9 States; or]
32-10 [(C) the funds invest at least 95 percent
32-11 of total assets in exempt securities, short-term debt instruments
32-12 with a maturity of 397 days or less, class one bonds, and
32-13 collateralized repurchase agreements composed of those securities
32-14 at all times;]
32-15 (2) For purposes of complying with Subsection
32-16 (h) of this section, money market funds qualifying for listing
32-17 within these categories must conform to the Purposes and Procedures
32-18 [purposes and procedures manual] of the Securities Valuation Office
32-19 or such successor publication; [valuation of securities manual of
32-20 the National Association of Insurance Commissioners.]
32-21 (t) The percentage authorizations and limitations set
32-22 forth in any or [and] all of the provisions of this Article 3.33
32-23 [section] shall apply only at the time of the original acquisition
32-24 of an investment or at the time a transaction is entered into and
32-25 shall not be applicable to the insurer or such investment or
32-26 transaction [originally making such investments and shall not be
32-27 applicable to the company or such investment] thereafter except as
33-1 provided in Subsection (w) of this section. In addition, any
33-2 investment, once qualified under any subsection of this section,
33-3 shall remain qualified notwithstanding any refinancing,
33-4 restructuring or modification of such investment provided that, the
33-5 insurer shall not engage in any such refinancing, restructuring or
33-6 modification of any investment for the purpose of circumventing the
33-7 requirements or limitations of this article.
33-8 (u) Risk Control Transactions. An insurer may use
33-9 derivative instruments to engage in hedging transactions,
33-10 replication transactions and income generation transactions as set
33-11 forth herein.
33-12 (1) For the purposes of this Subsection (u), the
33-13 following definitions shall apply:
33-14 (A) "Acceptable collateral" means cash,
33-15 cash equivalents, letters or credit and direct obligations, or
33-16 securities that are fully guaranteed as to principal and interest
33-17 by, the government of the United States.
33-18 (B) "Business entity" includes a sole
33-19 proprietorship, corporation, limited liability company,
33-20 association, partnership, joint stock company, joint venture,
33-21 mutual fund, bank, trust, joint tenancy or other similar form of
33-22 business organization, whether organized for-profit or
33-23 not-for-profit.
33-24 (C) "Cap" means an agreement obligating
33-25 the seller to make payments to the buyer with each payment based on
33-26 the amount by which a reference price or level or the performance
33-27 or value of one or more underlying interests exceeds a
34-1 predetermined number, sometimes called the strike rate or strike
34-2 price.
34-3 (D) "Cash equivalents" means short-term,
34-4 highly rated, highly liquid and readily marketable investments or
34-5 securities, which includes money market funds as defined in
34-6 Subsection (s). For purposes of this definition:
34-7 (i) "short-term" means
34-8 investments with a remaining term to maturity of one year or less;
34-9 and
34-10 (ii) "highly rated" means
34-11 an investment rated "P-1" by Moody's Investors Service, Inc., or
34-12 "A-1" by the Standard and Poor's Division of the McGraw Hill
34-13 Companies, Inc., or its equivalent rating by a nationally
34-14 recognized statistical rating organization recognized by the
34-15 Securities Valuation Office.
34-16 (E) "Collar" means an agreement to receive
34-17 payments as the buyer of an option, cap or floor and to make
34-18 payments as the seller of a different option, cap or floor.
34-19 (F) "Counterparty exposure amount" means:
34-20 (i) for an over-the-counter
34-21 derivative instrument not entered into pursuant to a written master
34-22 agreement which provides for netting of payments owed by the
34-23 respective parties:
34-24 (a) the
34-25 market value of the over-the-counter derivative instrument if the
34-26 liquidation of the derivative instrument would result in a final
34-27 cash payment to the insurer; or
35-1 (b) zero if
35-2 the liquidation of the derivative instrument would not result in a
35-3 final cash payment to the insurer;
35-4 (ii) for over-the-counter
35-5 derivative instruments entered into pursuant to a written master
35-6 agreement which provides for netting of payments owed by the
35-7 respective parties, and the domiciliary jurisdiction of the
35-8 counterparty is either within the United States, or if not within
35-9 the United States, is within a foreign (not United States)
35-10 jurisdiction listed in the Purposes and Procedures Manual of the
35-11 Securities Valuation Office as eligible for netting, the greater of
35-12 zero or the net sum payable to the insurer in connection with all
35-13 derivative instruments subject to the written master agreement upon
35-14 their liquidation in the event of default by the counterparty
35-15 pursuant to the master agreement (assuming no conditions precedent
35-16 to the obligations of the counterparty to make such a payment and
35-17 assuming no setoff of amounts payable pursuant to any other
35-18 instrument or agreement);
35-19 (iii) for purposes of this
35-20 definition, market value or the net sum payable, as the case may
35-21 be, shall be determined at the end of the most recent quarter of
35-22 the insurer's fiscal year and shall be reduced by the market value
35-23 of acceptable collateral held by the insurer or a custodian on the
35-24 insurer's behalf.
35-25 (G) "Derivative instrument" means any
35-26 agreement, option or instrument, or any series or combinations
35-27 thereof:
36-1 (i) to make or take
36-2 delivery of, or assume or relinquish, a specified amount of one or
36-3 more underlying interests, or to make a cash settlement in lieu
36-4 thereof; or
36-5 (ii) that have a price,
36-6 performance, value or cash flow based primarily upon the actual or
36-7 expected price, yield, level, performance, value or cash flow of
36-8 one or more underlying interests.
36-9 Derivative instruments include options, warrants not
36-10 otherwise permitted to be held by the insurer under this article,
36-11 caps, floors, collars, swaps, swaptions, forwards, futures and any
36-12 other agreements, options or instruments substantially similar
36-13 thereto, or any series or combinations thereof.
36-14 Derivative instruments do not include collateralized mortgage
36-15 obligations, other asset-backed securities, principal-protected
36-16 structured securities, floating rate securities, or instruments
36-17 which an insurer is otherwise permitted to invest in or receive
36-18 under this article other than under this subsection, and any debt
36-19 obligations of the insurer.
36-20 (H) "Derivative transaction" means a
36-21 transaction involving the use of one or more derivative
36-22 instruments. Dollar roll transactions, repurchase transactions,
36-23 reverse repurchase transactions and securities lending transactions
36-24 shall not be included as derivative transactions for purposes of
36-25 this subsection.
36-26 (I) "Floor" means an agreement obligating
36-27 the seller to make payments to the buyer in which each payment is
37-1 based on the amount by which a predetermined number, sometimes
37-2 called the floor rate or price, exceeds a reference price, level,
37-3 performance or value of one or more underlying interests.
37-4 (J) "Forward" means an agreement (other
37-5 than a future) to make or take delivery in the future of one or
37-6 more underlying interests, or effect a cash settlement, based on
37-7 the actual or expected price, level, performance or value of such
37-8 underlying interests, but shall not mean or include spot
37-9 transactions effected within customary settlement periods,
37-10 when-issued purchases or other similar cash market transactions.
37-11 (K) "Future" means an agreement, traded on
37-12 a futures exchange, to make or take delivery of, or effect a cash
37-13 settlement based on the actual or expected price, level,
37-14 performance or value of, one or more underlying interests.
37-15 (L) "Futures exchange" means a foreign or
37-16 domestic exchange, contract market or board of trade on which
37-17 trading in futures is conducted and, in the United States, which
37-18 has been authorized for such trading by the Commodities Futures
37-19 Trading Commission or any successor thereof.
37-20 (M) "Hedging transaction" means a
37-21 derivative transaction which is entered into and maintained to
37-22 manage:
37-23 (i) the risk of a change in
37-24 the value, yield, price, cash flow or quantity of assets or
37-25 liabilities (or a portfolio of assets and/or liabilities) which the
37-26 insurer has acquired or incurred or anticipates acquiring or
37-27 incurring; or
38-1 (ii) the currency exchange
38-2 rate risk related to assets or liabilities (or a portfolio of
38-3 assets and/or liabilities) which an insurer has acquired or
38-4 incurred or anticipates acquiring or incurring.
38-5 (N) "Income generation transaction" means
38-6 a derivative transaction which is entered into to generate income.
38-7 A derivative transaction which is entered into as a hedging
38-8 transaction or a replication transaction shall not be considered an
38-9 income generation transaction.
38-10 (O) "Market value" means the price for the
38-11 security or derivative instrument obtained from a generally
38-12 recognized source or the most recent quotation from such a source
38-13 or, to the extent no generally recognized source exists, the price
38-14 for the security or derivative instrument as determined pursuant to
38-15 the terms of the instrument or in good faith by the insurer as can
38-16 be reasonably demonstrated to the Commissioner upon request, plus
38-17 accrued but unpaid income thereon to the extent not included in the
38-18 price as of the date.
38-19 (P)"Option" means an agreement giving the
38-20 buyer the right to buy or receive (a "call option"), sell or
38-21 deliver (a "put option"), enter into, extend or terminate or effect
38-22 a cash settlement based on the actual or expected price, spread,
38-23 level, performance or value of one or more underlying interests.
38-24 (Q) "Over-the-counter derivative
38-25 instrument" means a derivative instrument entered into with a
38-26 business entity, other than through a securities exchange, futures
38-27 exchange, or cleared through a qualified clearinghouse.
39-1 (R) "Potential exposure" means:
39-2 (i) as to a futures
39-3 position, the amount of initial margin required for that position;
39-4 or
39-5 (ii) as to swaps, collars
39-6 and forwards, one-half percent times the notional amount times the
39-7 square root of the remaining years to maturity.
39-8 (S) "Qualified clearinghouse" means a
39-9 clearinghouse subject to the rules of a securities exchange or a
39-10 futures exchange, which provides clearing services, including
39-11 acting as a counterparty to each of the parties to a transaction
39-12 such that the parties not longer have credit risk to each other.
39-13 (T) "Replication transaction" means a
39-14 derivative transaction or combination of derivative transactions
39-15 effected either separately or in conjunction with cash market
39-16 investments included in the insurer's investment portfolio in order
39-17 to replicate the risks and returns of another authorized
39-18 transaction, investment or instrument and/or operate as a
39-19 substitute for cash market transactions. A derivative transaction
39-20 entered into by the insurer as a hedging transaction shall not be
39-21 considered a replication transaction.
39-22 (U) "Securities exchange" means:
39-23 (i) an exchange registered
39-24 as a national securities exchange or a securities market registered
39-25 under the Securities Exchange Act of 1934 (15 U.S.C. Section 78 et
39-26 seq.), as amended;
39-27 (ii) Private Offerings
40-1 Resales and Trading through Automated Linkages (PORTAL); or
40-2 (iii) a designated offshore
40-3 securities market as defined in Securities Exchange Commission
40-4 Regulation S, 17 C.F.R. Part 230, as amended.
40-5 (V) "Swap" means an agreement to exchange
40-6 or to net payments at one or more times based on the actual or
40-7 expected price, yield, level, performance or value of one or more
40-8 underlying interests.
40-9 (W) "Swaption" means an option to purchase
40-10 or sell a swap at a given price and time or at a series of prices
40-11 and times. A swaption does not mean a swap with an embedded
40-12 option.
40-13 (X) "Underlying interest" means the
40-14 assets, liabilities or other interests, or a combination thereof,
40-15 underlying a derivative instrument, such as any one or more
40-16 securities, currencies, rates, indices, commodities or derivatives
40-17 instruments.
40-18 (Y) "Warrant" means an instrument that
40-19 gives the holder the right to purchase or sell the underlying
40-20 interest at a given price and time or at a series of prices and
40-21 times outlined in the warrant agreement.
40-22 (2) Prior to entering into any derivative
40-23 transaction, the board of directors of the insurer shall approve a
40-24 derivative use plan, as part of the investment plan required in
40-25 Section 3 of this article, that:
40-26 (A) describes investment objectives and
40-27 risk constraints, such as counterparty exposure amounts;
41-1 (B) defines permissible transactions
41-2 identifying the risks to be hedged, the assets or liabilities being
41-3 replicated; and
41-4 (C) requires compliance with internal
41-5 control procedures.
41-6 (3) The insurer shall establish written internal
41-7 control procedures that provide for:
41-8 (A) a quarterly report to the board of
41-9 directors that reviews:
41-10 (i) all derivative
41-11 transactions entered into, outstanding or closed out;
41-12 (ii) the results and
41-13 effectiveness of the derivatives program; and
41-14 (iii) the credit risk
41-15 exposure to each counterparty for over-the-counter derivative
41-16 transactions based upon the counterparty exposure amount;
41-17 (B) a system for determining whether
41-18 hedging or replication strategies utilized have been effective;
41-19 (C) a system of regular reports (not less
41-20 frequently than monthly) to management including:
41-21 (i) a description of all
41-22 the derivative transactions entered into, outstanding or closed out
41-23 during the period since the last report;
41-24 (ii) the purpose of each
41-25 outstanding derivative transaction;
41-26 (iii) a performance review
41-27 of the derivative instrument program; and
42-1 (iv) the counterparty
42-2 exposure amount for over-the-counter derivative transactions;
42-3 (D) written authorizations that identify
42-4 the responsibilities and limitations of authority of persons
42-5 authorized to effect and maintain derivative transactions;
42-6 (E) documentation appropriate for each
42-7 transaction including:
42-8 (i) the purpose of the
42-9 transaction;
42-10 (ii) the assets or
42-11 liabilities to which the transaction relates;
42-12 (iii) the specific
42-13 derivative instrument used in the transaction;
42-14 (iv) for over-the-counter
42-15 derivative instrument transactions, the name of the counterparty
42-16 and the counterparty exposure amount; and
42-17 (v) for exchange-traded
42-18 derivative instruments, the name of the exchange and the name of
42-19 the firm that handled the transaction.
42-20 (4) An insurer shall be able to demonstrate to
42-21 the commissioner, upon request, the intended hedging
42-22 characteristics and ongoing effectiveness of the derivative
42-23 transaction or combination of transactions through cash flow
42-24 testing, duration analysis or other appropriate analysis.
42-25 (5) An insurer shall include all counterparty
42-26 exposure amounts in determining compliance with the limitations of
42-27 Subsection (c).
43-1 (6)(a) Ten days prior to entering into the
43-2 initial hedging transaction, the insurer shall notify the
43-3 commissioner in writing that: (i) the insurer's board of
43-4 directors has adopted an investment plan which authorizes hedging
43-5 transactions, and (ii) all hedging transactions will comply with
43-6 this Subsection (u). Insurers already engaged in hedging
43-7 transactions shall notify the commissioner as set forth in the
43-8 preceding sentence within 30 days of the effective date of this
43-9 Subsection (u). Thereafter, an insurer may enter into hedging
43-10 transactions under this subsection, if as a result of and after
43-11 giving effect to each such transaction:
43-12 (A) the aggregate statement
43-13 value of all outstanding options (other than collars), caps,
43-14 floors, swaptions and warrants (not attached to another financial
43-15 instrument purchased by the insurer) pursuant to this subsection
43-16 does not exceed 7.5 percent of its assets;
43-17 (B) the aggregate statement
43-18 value of all outstanding options (other than collars), swaptions,
43-19 warrants, caps and floors written by the insurer pursuant to this
43-20 subsection does not exceed three percent of its assets; and
43-21 (C) the aggregate potential
43-22 exposure of all outstanding collars, swaps, forwards and futures
43-23 entered into or acquired by the insurer pursuant to this subsection
43-24 does not exceed 6.5 percent of its assets.
43-25 (b) Whenever the derivative transactions
43-26 entered into under this Subsection (u)(6), are not in compliance
43-27 with this Subsection (u) or, if continued, may now or subsequently,
44-1 crate a hazardous financial condition to the insurer which affects
44-2 its policyholders, creditors or the general public, the
44-3 commissioner may, after notice and an opportunity for a hearing,
44-4 order the insurer to take such action as may be reasonably
44-5 necessary to (i) rectify a hazardous financial condition, or
44-6 (ii) to prevent an impending hazardous financial condition from
44-7 occurring.
44-8 (7) An insurer may only enter into an income
44-9 generation transaction if:
44-10 (A) as a result of and after giving effect
44-11 to the transaction, the aggregate statement value of admitted
44-12 assets that are then subject to call or that generate the cash
44-13 flows for payments required to be made by the insurer under caps
44-14 and floors sold by the insurer and then outstanding under this
44-15 subsection, plus the statement value of admitted assets underlying
44-16 derivative instruments then subject to calls sold by the insurer
44-17 and outstanding under this subsection, plus the purchase price of
44-18 assets subject to puts then outstanding under this subsection does
44-19 not exceed 10 percent of its assets; and
44-20 (B) the transaction is one of the
44-21 following types, is covered in the manner specified below and meets
44-22 the other requirements specified below:
44-23 (i) sales of call options
44-24 on assets, provided that the insurer holds or has a currently
44-25 exercisable right to acquire the underlying assets during the
44-26 entire period that the option is outstanding;
44-27 (ii) sales of put options
45-1 on assets, provided that the insurer holds sufficient cash, cash
45-2 equivalents or interests in a short-term investment pool to
45-3 purchase the underlying assets upon exercise during the entire
45-4 period that the option is outstanding, and has the ability to hold
45-5 the underlying assets in its portfolio. If the total market value
45-6 of all put options sold by the insurer exceeds two percent of the
45-7 insurer's assets, the insurer shall set aside pursuant to a
45-8 custodial or escrow agreement cash or cash equivalents having a
45-9 market value equal to the amount of its put option obligations in
45-10 excess of two percent of the insurer's assets during the entire
45-11 period the option is outstanding;
45-12 (iii) sales of call options
45-13 on derivative instruments (including swaptions), provided that the
45-14 insurer holds or has a currently exercisable right to acquire
45-15 assets generating the cash flow to make any payments for which the
45-16 insurer is liable pursuant to the underlying derivative instruments
45-17 during the entire period that the call options are outstanding and
45-18 has the ability to enter into the underlying derivative
45-19 transactions for its portfolio; and
45-20 (iv) sales of caps and
45-21 floors, provided that the insurer holds or has a currently
45-22 exercisable right to acquire assets generating the cash flow to
45-23 make any payments for which the insurer is liable pursuant to the
45-24 caps and floors during the entire period that the caps and floors
45-25 are outstanding.
45-26 (8)(a) An insurer may enter into replication
45-27 transactions only with prior written approval from the
46-1 Commissioner, provided that:
46-2 (A) the insurer would
46-3 otherwise be authorized to invest its funds under this article in
46-4 the asset being replicated; and
46-5 (B) the asset being
46-6 replicated is subject to all the provisions and limitations on the
46-7 making thereof specified in this article with respect to
46-8 investments by the insurer as if the transaction constituted a
46-9 direct investment by the insurer in the replicated asset.
46-10 (b) The commissioner may adopt such rules
46-11 and regulations regarding replication transactions as may be fair
46-12 and reasonable to implement this Subsection (u)(8).
46-13 (9) An insurer may purchase or sell one or more
46-14 derivative instruments to offset, in whole or in part, any
46-15 derivative instrument previously purchased or sold, as the case my
46-16 be, without regard to the quantitative limitations of this
46-17 subsection, provided that such offsetting transaction utilizes the
46-18 same type of derivative instrument as the derivative instrument
46-19 being offset.
46-20 (10) Trading Requirements. Each derivative
46-21 instrument shall be:
46-22 (A) traded on a securities exchange;
46-23 (B) entered into with, or guaranteed by, a
46-24 business entity;
46-25 (C) issued or written by or entered into
46-26 with the issuer of the underlying interest on which the derivative
46-27 instrument is based; or
47-1 (D) in the case of futures, traded through
47-2 a broker which is registered as a futures commission merchant under
47-3 the Commodity Exchange Act or which has received exemptive relief
47-4 from such registration under Rule 30.10 promulgated under the
47-5 Commodity Exchange Act.
47-6 (11) Article 3.39-2 shall not apply to
47-7 transactions authorized by this Subsection (u).
47-8 (v) Distributions, Reinsurance, and Merger. No
47-9 provision of this article prohibits the acquisition by an insurer
47-10 of additional obligations, securities, or other assets if received
47-11 as a dividend or as a distribution of assets nor does this article
47-12 apply to securities, obligations, or other assets accepted incident
47-13 to the workout, adjustment, restructuring or similar realization of
47-14 any kind of investment or transaction when deemed by the insurer's
47-15 board of directors or by a committee appointed by the board of
47-16 directors to be in the best interest of the insurer, if the
47-17 investment or transaction had previously been authorized, nor does
47-18 this article apply to assets acquired pursuant to a lawful
47-19 agreement of bulk reinsurance, merger, or consolidation if such
47-20 assets constituted legal and authorized investments for the ceding,
47-21 merged or consolidated company. No obligation, security or other
47-22 asset acquired as permitted by this subsection need by qualified
47-23 under any other subsection of this article.
47-24 (w) Qualification of Investments. The qualification
47-25 or disqualification of an investment under one subsection of this
47-26 section does not prevent its qualification in whole or in part
47-27 under another subsection, and an investment authorized by more than
48-1 one subsection may be held under whichever authorizing subsection
48-2 the insurer elects. An investment or transaction qualified under
48-3 any subsection at the time it was acquired or entered into by the
48-4 insurer shall continue to be qualified under that subsection. An
48-5 investment, in whole or in part, may be transferred from time to
48-6 time, at the election of the insurer, to the authority of any
48-7 subsection under which it then qualifies, whether or not it
48-8 originally qualified thereunder.
48-9 SECTION 5. Section 5, Article 3.33, Insurance Code, is
48-10 amended to read as follows:
48-11 Sec. 5. Aggregate Diversification Requirements. The
48-12 following provisions govern and take precedence over each and every
48-13 provision of Section 4, except Subsections (q), (t) and (v):
48-14 (a) Investment in all or any types of securities,
48-15 loans, obligations, or evidences of indebtedness of a single issuer
48-16 or borrower (which shall include such issuer's or borrower's
48-17 majority-owned subsidiaries or parent or the majority-owned
48-18 subsidiaries of such parent), other than those authorized
48-19 investments that are either direct obligations of or guaranteed by
48-20 the full faith and credit of the United States of America, the
48-21 State of Texas, or a political subdivision thereof or are insured
48-22 by an agency of the United States of America or the State of Texas
48-23 shall not in the aggregate exceed five percent of the insurer's
48-24 assets except for those investments provided for in Subsections (e)
48-25 and (f) of Section 4 of this article; and
48-26 (b) The aggregate investment in real property
48-27 authorized by Subsections (l), (m), (o), and (p) of Section 4 may
49-1 not exceed 33 1/3 percent of the insurer's assets; provided, in
49-2 the event an insurer acquires real property under Subdivision (4)
49-3 of Subsection (l) of Section 4 and such acquisition causes such
49-4 aggregate real estate to exceed the limitation set forth herein,
49-5 the insurer shall either dispose of sufficient excess real property
49-6 to come within such limitations within 10 years of such acquisition
49-7 or it may not thereafter admit as an asset the value of the real
49-8 property in excess of such limitation; should an insurer's real
49-9 property acquisitions exceed such 33 1/3 percent limitation, no
49-10 additional real property acquisitions under Subdivisions (1) and
49-11 (2) of Subsection (l), and Subsections (m), (o), and (p) of Section
49-12 4 of this article are authorized until such excess is removed.
49-13 SECTION 6. Section 7, Article 3.33, Insurance Code, is
49-14 amended to read as follows:
49-15 Sec. 7. Accounting Provisions. (a) The term "assets" as
49-16 used in this article shall mean the statutory accounting admitted
49-17 assets of the insurer, including lawful money of the United States,
49-18 whether in the form of cash or demand deposits in solvent banks,
49-19 savings and loan associations, and credit unions and branches
49-20 thereof, organized under the laws of the United States of America
49-21 or its states, when held in accordance with the laws or regulations
49-22 applicable to such entities, less the insurer's separate accounts
49-23 that are subject to Part III of Article 3.39, Article 3.72, Article
49-24 3.73, and Article 3.75 of this code.
49-25 (b) Each insurer shall maintain reasonable, adequate, and
49-26 accurate evidence of its ownership of its assets and investments.
49-27 (c) The ownership of governmental or corporate securities
50-1 shall be evidenced as provided for in Article 21.39-B, Section 4,
50-2 of this code.
50-3 (d) Other than investments made as a participation in a
50-4 partnership or joint venture, or as otherwise provided in Article
50-5 21.39-B of this code, investments shall be held solely in the name
50-6 of the insurer.
50-7 [(e) An insurer's participation in a partnership or joint
50-8 venture shall be limited to those partnerships or joint ventures
50-9 whose purposes are for investment in properties authorized under
50-10 Subsections (k), (l), and (m) of Section 4 of this article, and the
50-11 whole of the insurer's participation therein shall be designated
50-12 under such subsections.]
50-13 SECTION 7. Article 2.10, Insurance Code, is amended to read
50-14 as follows:
50-15 Art. 2.10. Investment of Funds in Excess of Minimum Capital
50-16 and Minimum Surplus. No company except any writing life, health
50-17 and accident insurance, organized under the laws of this state,
50-18 shall invest its funds over and above its minimum capital and its
50-19 minimum surplus, as provided in Article 2.02, except as otherwise
50-20 provided in this Code, in any other manner than as follows:
50-21 1. As provided for the investment of its minimum
50-22 capital and its minimum surplus in Article 2.08;
50-23 2. In bonds or other evidences of debt which at the
50-24 time of purchase are interest-bearing and are issued by authority
50-25 of law and are not in default as to principal or interest, of any
50-26 of the States of the United States, or of Canada, or any province
50-27 of Canada, or in the stock of any National Bank, in stock of any
51-1 State Bank of Texas whose deposits are insured by the Federal
51-2 Deposit Insurance Corporation; provided, however, that if said
51-3 funds are invested in the stock of a State Bank of Texas that not
51-4 more than thirty-five per cent (35%) of the total outstanding stock
51-5 of any one (1) State Bank of Texas may be so purchased by any one
51-6 (1) insurance company; and provided further, that neither the
51-7 insurance company whose funds are invested in said bank stock nor
51-8 any other insurance company may invest its funds in the remaining
51-9 stock of any such State Bank;
51-10 3. In bonds, notes, evidences of indebtedness or
51-11 participations therein secure by a valid first lien upon real
51-12 property or leasehold estate therein located in the United States
51-13 of America, its states, commonwealths, territories, or possessions,
51-14 provided:
51-15 (a) The amount of any such obligation secured by
51-16 a first lien upon real property or leasehold estate therein shall
51-17 not exceed ninety per cent (90%) of the value of such real property
51-18 or leasehold estate therein, but the amount of such obligation:
51-19 (1) May exceed ninety per cent (90%) but
51-20 shall not exceed one hundred per cent (100%) of the value of such
51-21 real property or leasehold estate therein if the insurer or one or
51-22 more wholly owned subsidiaries of the insurer own in the aggregate
51-23 a ten per cent (10%) or greater equity interest in such real
51-24 property or leasehold estate therein;
51-25 (2) May be ninety-five per cent (95%) of
51-26 the value of such real property if it contains only a dwelling
51-27 designed exclusively for occupancy by not more than four families
52-1 for residential purposes, and the portion of the unpaid balance of
52-2 such obligation which is in excess of an amount equal to ninety per
52-3 cent (90%) of such value is guaranteed or insured by a mortgage
52-4 insurance company licensed to do business in the State of Texas; or
52-5 (3) May be greater than ninety per cent
52-6 (90%) of the value of such real property to the extent the
52-7 obligation is insured or guaranteed by the United States of
52-8 America, or an agency or instrumentality thereof, the Federal
52-9 Housing Administration pursuant to the National Housing Act of
52-10 1934, as amended (12 U.S.C. Sec. 1701 et seq.), or the State of
52-11 Texas; and
52-12 (b) The term of an obligation secured by a first
52-13 lien upon a leasehold estate in real property and improvements
52-14 situated thereon shall not exceed a period equal to four-fifths
52-15 (4/5) of the then unexpired term of such leasehold estate,
52-16 provided:
52-17 (1) The unexpired term of the leasehold
52-18 estate must extend at least ten (10) years beyond the term of the
52-19 obligation; and
52-20 (2) Each obligation shall be payable in
52-21 equal monthly, quarterly, semi-annual, or annual payments of
52-22 principal plus accrued interest to the date of such principal
52-23 payment, so that under either method of repayment such obligation
52-24 will fully amortize during a period of time not to exceed
52-25 four-fifths (4/5) of the then unexpired term of the security
52-26 leasehold estate; and
52-27 (c) The amount of any one such obligation may
53-1 not exceed ten per cent (10%) of the insurer's capital and surplus;
53-2 and
53-3 (d) The aggregate of investments made under this
53-4 Section 3 may not exceed thirty per cent (30%) of the insurer's
53-5 assets;
53-6 4. In bonds or other interest-bearing evidences of
53-7 debt of any county, municipality, road district, turnpike district
53-8 or authority, water district, any subdivision of a county,
53-9 incorporated city, town, school district, sanitary or navigation
53-10 district, any municipally owned revenue water system, sewer system
53-11 or electric utility company where special revenues to meet the
53-12 principal and interest payments of such municipally owned revenue
53-13 water system, sewer system or electric utility company bonds or
53-14 other evidences of debt shall have been appropriated, pledged or
53-15 otherwise provided for by such municipality. Provided, before
53-16 bonds or other evidences of debt of navigation districts shall be
53-17 eligible investments such navigation district shall be located in
53-18 whole or in part in a county containing a population of not less
53-19 than 100,000 according to the last preceding Federal Census; and
53-20 provided further, that the interest due on such navigation bonds or
53-21 other evidences of debt of navigation districts must never have
53-22 been defaulted;
53-23 5. In the stocks, bonds, debentures, bills of exchange
53-24 or other commercial notes or bills and securities of any solvent
53-25 dividend paying corporation at time of purchase, incorporated under
53-26 the laws of this state, or of any other State of the United States,
53-27 or of the United States, or of Canada, or any province of Canada,
54-1 which has not defaulted in the payment of any of its obligations
54-2 for a period of five (5) years, immediately preceding the date of
54-3 the investment; provided such funds may not be invested in the
54-4 stock of any oil, manufacturing or mercantile corporation organized
54-5 under the laws of this state, unless such corporation has at the
54-6 time of investment a net worth of not less than $250,000.00 nor in
54-7 the stock of any oil, manufacturing or mercantile corporation not
54-8 organized under the laws of this state, unless such corporation has
54-9 a combined capital, surplus and undivided profits of not less than
54-10 $2,500,000.00; provided further:
54-11 (a) Any such insurance company may invest its
54-12 funds over and above its minimum capital stock, its minimum
54-13 surplus, and all reserves required by law, in the stocks, bonds or
54-14 debentures of any solvent corporation organized under the laws of
54-15 this state, or of any other State of the United States, or of the
54-16 United States, or of Canada, or any province of Canada.
54-17 (b) No such insurance company shall invest any
54-18 of its funds in its own stock or in any stock on account of which
54-19 the holders or owners thereof may, in any event, be or become
54-20 liable to any assessment, except for taxes.
54-21 (c) No such insurance company shall invest any
54-22 of its funds in stocks, bonds or other securities issued by a
54-23 corporation if a majority of the stock having voting powers of such
54-24 issuing corporation is owned, directly or indirectly, by or for the
54-25 benefit of one or more officers or directors of such insurance
54-26 company; provided, however, that this Section shall not apply to
54-27 any insurance company which has been in continuous operation for
55-1 five (5) years.
55-2 6. In shares of mutual funds doing business under the
55-3 Investment Company Act of 1940 (15 U.S.C. Section 80a-1 et seq.),
55-4 provided:
55-5 (a) mutual funds must be solvent with at least
55-6 $1,000,000 of net assets as of the date of its latest annual or
55-7 more recent certified audited financial statement; and
55-8 (b) investment in any one mutual fund may not
55-9 exceed 15 percent of the insurer's capital and surplus; and
55-10 (c) the aggregate of all investments made under
55-11 this subsection shall not exceed 25 percent of the insurer's
55-12 assets.
55-13 7. In addition to the investments in Canada authorized
55-14 in other subsections of this section, investments in other foreign
55-15 countries or in commonwealths, territories or possessions of the
55-16 United States, or in foreign securities originating in such foreign
55-17 countries, commonwealths, territories or possessions of the United
55-18 States, provided:
55-19 (a) such investments are similar to those
55-20 authorized for investment within the United States or Canada by
55-21 other provisions of this section and, if debt obligations, are
55-22 rated one or two by the Securities Valuation Office of the National
55-23 Association of Insurance Commissioners; and
55-24 (b) the aggregate amount of foreign investments
55-25 held by the insurer under this subsection in a single foreign
55-26 jurisdiction does not exceed either 10 percent of its admitted
55-27 assets as to a foreign jurisdiction that has a sovereign debt
56-1 rating of Securities Valuation Office 1 by the Securities Valuation
56-2 Office of the National Association of Insurance Commissioners or
56-3 five percent of its admitted assets as to any other foreign
56-4 jurisdiction; and
56-5 (c) such investments when added to the amount of
56-6 similar investments made within the United States and Canada and
56-7 any amounts authorized by Article 2.10-2 do not result in the
56-8 combined total of such investments exceeding the limitations
56-9 specified elsewhere in this section; and
56-10 (d) such investments may not exceed the sum of:
56-11 (i) the amounts authorized by Article
56-12 2.10-2; and
56-13 (ii) 20 percent of the insurer's assets.
56-14 8. In loans upon the pledge of any mortgage, stock,
56-15 bonds or other evidence of indebtedness acceptable as investments
56-16 under the terms of this Article, if the current value of such
56-17 mortgage, stock, bonds or other evidence of indebtedness is at
56-18 least twenty-five per cent (25%) more than the amount loaned
56-19 thereon;
56-20 9 [7]. In interest-bearing notes or bonds of The
56-21 University of Texas issued under and by virtue of Chapter 40, Acts
56-22 of the 43rd Legislature, Second Called Session;
56-23 10 [8]. (a) In real estate to the extent as elsewhere
56-24 authorized by this Code;
56-25 (b) Any such company with admitted assets in
56-26 excess of $500,000,000.00 may own other investment real property or
56-27 participations therein, which must be materially enhanced in value
57-1 by the construction of durable, permanent type buildings and other
57-2 improvements costing an amount at least equal to the cost of such
57-3 real property, exclusive of buildings and improvements at the time
57-4 of acquisition, or by the construction of such buildings and
57-5 improvements which must be commenced within two years of the date
57-6 of acquisition of such real property; provided, however, nothing in
57-7 this Article shall allow ownership of, development of, or equity
57-8 interest in any residential property or subdivision, single or
57-9 multiunit family dwelling property, or undeveloped real estate for
57-10 the purpose of subdivision for or development of residential,
57-11 single or multiunit family dwellings, except those properties
57-12 acquired as provided in Article 6.08 of this Code, and such
57-13 ownership, development, or equity interests shall be specifically
57-14 prohibited;
57-15 (c) The total amount invested by any such
57-16 company in all such investment real property and improvements
57-17 thereof shall not exceed fifteen per cent (15%) of its admitted
57-18 assets which are in excess of $500,000,000.00, provided, however,
57-19 that the amount invested in any one such property and its
57-20 improvements or interest therein shall not exceed five per cent
57-21 (5%) of its admitted assets which are in excess of $500,000,000.00.
57-22 The admitted assets of the company at any time shall be determined
57-23 from its annual statements made as of the last preceding December
57-24 31 and filed with the State Board of Insurance as required by law.
57-25 The value of any investment made under this Article shall be
57-26 subject to the appraisal provision set forth in Paragraph 5 of
57-27 Article 6.08 of this Code;
58-1 (d) The investment authority granted by (b) and
58-2 (c) of this Paragraph 10 [8] is in addition to and separate and
58-3 apart from that granted by Article 6.08 of this Code, provided,
58-4 however, that no such company shall make any investment in such
58-5 real estate which, when added to those properties described in
58-6 Paragraph 1 of Article 6.08 of this Code, would be in excess of the
58-7 limitations provided by Paragraph 5 of Article 6.08 of this Code;
58-8 (e) The insurance companies defined in Article
58-9 2.01 of this Code and other insurers specifically made subject to
58-10 the provisions of this Article shall not engage in the business of
58-11 a real estate broker or a real estate salesman as defined by
58-12 Chapter 1, page 560, General Laws, Acts of the 46th Legislature,
58-13 1939 (Article 6573a, Vernon's Texas Civil Statutes), except that
58-14 such insurers may hold, improve, maintain, manage, rent, lease,
58-15 sell, exchange, or convey any of the real property interests
58-16 legally owned as investments under this Code;
58-17 11 [9]. In equipment trust obligations or certificates
58-18 that are adequately secured or in other adequately secured
58-19 instruments evidencing an interest in transportation equipment in
58-20 whole or in part within the United States and a right to receive
58-21 determined portions of rental, purchase, or other fixed obligatory
58-22 payments for the use or purchase of the transportation equipment;
58-23 12 [10]. In insured accounts and evidences of
58-24 indebtedness as defined and limited by Section 1, Chapter 618, page
58-25 1356, Acts of the 47th Legislature; in shares or share accounts as
58-26 authorized in Section 1, page 76, Acts 1939, 46th Legislature; in
58-27 insured or guaranteed obligations as authorized in Chapter 230,
59-1 page 315, Acts 1945, 49th Legislature; in bonds issued under the
59-2 provisions authorized by Section 9, Chapter 231, page 774, Acts
59-3 1933, 43rd Legislature; in bonds under authority of Section 1,
59-4 Chapter 1, page 427, Acts 1939, 46th Legislature; in bonds and
59-5 other indebtedness as authorized in Section 1, Chapter 3, page 494,
59-6 Acts 1939, 46th Legislature; in "Municipal Bonds" issued under and
59-7 by virtue of Chapter 280, Acts 1929, 41st Legislature; or in bonds
59-8 as authorized by Section 5, Chapter 122, page 219, Acts 1949, 51st
59-9 Legislature; or in bonds as authorized by Section 10, Chapter 159,
59-10 page 326, Acts 1949, 51st Legislature; or in bonds as authorized by
59-11 Section 19, Chapter 340, page 655, Acts 1949, 51st Legislature; or
59-12 in bonds as authorized by Section 10, Chapter 398, page 737, Acts
59-13 1949, 51st Legislature; or in bonds as authorized by Section 18,
59-14 Chapter 465, page 855, Acts 1949, 51st Legislature; or in shares or
59-15 share accounts authorized in Chapter 534, page 966, Acts 1949, 51st
59-16 Legislature; or in bonds as authorized by Section 24, Chapter 110,
59-17 page 193, Acts 1949, 51st Legislature; together with such other
59-18 investments as are now or may hereafter be specifically authorized
59-19 by law.
59-20 SECTION 8. Article 9.18, Insurance Code, is amended to read
59-21 as follows:
59-22 Art. 9.18. Admissible Investments for Title Insurance
59-23 Companies. Investments of all title insurance companies operating
59-24 under the provisions of this Act shall be held in cash or may be
59-25 invested in the following:
59-26 (a) Any corporation organized under this Act having
59-27 the right to do a title insurance business may invest as much as 50
60-1 percent of its capital stock in an abstract plant or plants,
60-2 provided that the valuation to be placed upon such plant or plants
60-3 shall be approved by the Board; provided, however, that if such
60-4 corporation maintains with the Board the deposit of One Hundred
60-5 Thousand Dollars ($100,000) in securities as provided in Article
60-6 9.12 of this Act, such of its capital in excess of 50 percent, as
60-7 deemed necessary to its business by its board of directors may be
60-8 invested in abstract plants; and provided further, that a
60-9 corporation created or operating under the provisions of this Act
60-10 may own or acquire more than one abstract plant in any one county
60-11 but only one abstract plant in any one county is admissible as an
60-12 investment.
60-13 (b) Those securities set forth in Article 3.39,
60-14 Insurance Code, and in authorized investments for title insurance
60-15 companies under the laws of any other state in which the affected
60-16 company may be authorized to do business from time to time.
60-17 (c) Real estate or any interest therein which may be:
60-18 (1) required for its convenient accommodation in
60-19 the transaction of its business with reasonable regard to future
60-20 needs;
60-21 (2) acquired in connection with a claim under a
60-22 policy of title insurance;
60-23 (3) acquired in satisfaction or on account of
60-24 loans, mortgages, liens, judgments or decrees, previously owing to
60-25 it in the course of its business;
60-26 (4) acquired in part payment of the
60-27 consideration of the sale of real property owned by it if the
61-1 transaction shall result in a net reduction in the company's
61-2 investment in real estate;
61-3 (5) reasonably necessary for the purpose of
61-4 maintaining or enhancing the sale value of real property previously
61-5 acquired or held by it under Subparagraphs (1), (2), (3) or (4) of
61-6 this Section; provided, however, that no title insurance company
61-7 shall hold any real estate acquired under Subparagraphs (2), (3) or
61-8 (4) for more than ten (10) years without written approval of the
61-9 Board.
61-10 (d) First mortgage notes secured by:
61-11 (1) abstract plants and connected personalty
61-12 within or without the State of Texas;
61-13 (2) stock of title insurance agents within or
61-14 without the State of Texas;
61-15 (3) construction contract or contracts for the
61-16 purpose of building an abstract plant and connected personalty;
61-17 (4) any combination of two or more of items (1),
61-18 (2), and (3).
61-19 In no event shall the amount of any first mortgage note
61-20 exceed 80 percent of the appraised value of the security for such
61-21 note as set out above.
61-22 (e) The shares of any federal home loan bank in the
61-23 amount necessary to qualify for membership and any additional
61-24 amounts approved by the Commissioner.
61-25 (f) Investments in foreign securities that are
61-26 substantially of the same kinds, classes, and investment-grade as
61-27 those eligible for investment under other provisions of this
62-1 Article. Unless the investment is also authorized under Subsection
62-2 (b) of this Article the aggregate amount of foreign investments
62-3 made under this Section may not exceed:
62-4 (1) five percent of the insurer's admitted assets at
62-5 the last year end;
62-6 (2) two percent of the insurer's admitted assets at
62-7 the last year end invested in the securities of all entities
62-8 domiciled in any one foreign country; and
62-9 (3) one-half of one percent of the insurer's admitted
62-10 assets at the last year end invested in the securities of any one
62-11 individual entity domiciled in a foreign country.
62-12 Any investments which do not qualify under this Article and
62-13 which were owned by the title insurance company on October 1, 1967,
62-14 continue to qualify.
62-15 If any otherwise valid investment which qualifies under the
62-16 provisions of this Article shall exceed in amount any of the
62-17 limitations on investment contained in this Article, it shall be
62-18 inadmissible only to the extent that it exceeds such limitation.
62-19 (g) Securities Lending, Repurchase, Reverse Repurchase
62-20 and Dollar Roll Transactions as provided for in Section 4(q),
62-21 Article 3.33, of this code and Money Market Funds as provided for
62-22 in Section 4(s), Article 3.33, of this code.
62-23 SECTION 9. Article 3.39-1 and Article 3.39-2, Insurance
62-24 Code, are repealed.
62-25 SECTION 10. Section 5, Article 21.39-B, Insurance Code, is
62-26 repealed.
62-27 SECTION 11. This Act takes effect September 1, 1997.
63-1 SECTION 12. The importance of this legislation and the
63-2 crowded condition of the calendars in both houses create an
63-3 emergency and an imperative public necessity that the
63-4 constitutional rule requiring bills to be read on three several
63-5 days in each house be suspended, and this rule is hereby suspended.
63-6 * * * * *