By Van de Putte H.B. No. 1680
75R7056 PB-F
A BILL TO BE ENTITLED
1-1 AN ACT
1-2 relating to the investment authority of certain insurers.
1-3 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-4 SECTION 1. Chapter 2, Insurance Code, is amended by adding
1-5 Article 2.10-5 to read as follows:
1-6 Art. 2.10-5. INVESTMENT AUTHORITY
1-7 Sec. 1. DEFINITIONS. In this article:
1-8 (1) "Business entity" means a corporation, limited
1-9 liability company, association, partnership, joint stock company,
1-10 joint venture, mutual fund trust, or other similar form of business
1-11 organization, whether organized as for-profit or not-for-profit.
1-12 (2) "Class one money market mutual fund" means a
1-13 mutual fund that at all times qualifies for investment using the
1-14 bond class one reserve factor described by the purposes and
1-15 procedures publication of the securities valuation office.
1-16 (3) "Government money market mutual fund" means a
1-17 money market mutual fund that at all times:
1-18 (A) invests only in obligations issued,
1-19 guaranteed, or insured by the United States or collateralized
1-20 repurchase agreements composed of those obligations; and
1-21 (B) is qualified for investment without a
1-22 reserve under the purposes and procedures publication of the
1-23 securities valuation office or any successor publication.
1-24 (4) "Money market mutual fund" means a mutual fund
2-1 that qualifies under 17 C.F.R. Part 270.2a-7, as authorized by the
2-2 Investment Company Act of 1940 (15 U.S.C. Section 80a-1 et seq.),
2-3 as amended.
2-4 (5) "Obligation" means:
2-5 (A) a bond, note, debenture, trust certificate,
2-6 including an equipment certificate, or production payment;
2-7 (B) a negotiable bank certificate of deposit,
2-8 bankers' acceptance, credit tenant loan, or other loan secured by
2-9 financing net leases; or
2-10 (C) any other evidence of indebtedness for the
2-11 payment of money, or participation certificates or other evidences
2-12 of an interest in an obligation described by this subdivision,
2-13 whether constituting a general obligation of the issuer or payable
2-14 only out of certain revenues or certain funds pledged or otherwise
2-15 dedicated for payment.
2-16 (6) "Qualified bank" means a national bank, state
2-17 bank, or trust company that at all times is adequately capitalized
2-18 as determined by the standards adopted by the United States banking
2-19 regulators and that is either regulated by state banking laws or is
2-20 a member of the Federal Reserve System.
2-21 (7) "Repurchase transaction" means a transaction in
2-22 which an insurer purchases securities from a business entity that
2-23 is obligated to repurchase the purchased securities or equivalent
2-24 securities from the insurer at a specified price, either within a
2-25 specified period or on demand.
2-26 (8) "Reverse repurchase transaction" means a
2-27 transaction in which an insurer sells securities to a business
3-1 entity and is obligated to repurchase the securities sold or
3-2 equivalent securities from the business entity at a specified
3-3 price, either within a specified period or on demand.
3-4 (9) "Securities lending transaction" means a
3-5 transaction in which securities are loaned by an insurer to a
3-6 business entity that is obligated to return the loaned securities
3-7 or equivalent securities to the insurer, either within a specified
3-8 period or on demand.
3-9 (10) "Securities valuation office" means the
3-10 Securities Valuation Office of the National Association of
3-11 Insurance Commissioners.
3-12 Sec. 2. AUTHORITY TO INVEST. An insurer may acquire
3-13 investments and participate in an investment pool that is qualified
3-14 under Section 5 of this article and the investments of which are
3-15 limited to investments authorized for a short-term investment pool
3-16 under Section 3 of this article or for another investment pool
3-17 under Section 4 of this article.
3-18 Sec. 3. SHORT-TERM INVESTMENT POOLS. (a) A short-term
3-19 investment pool may contain only:
3-20 (1) except as provided by Subsection (b) of this
3-21 section, obligations that are rated one or two by the securities
3-22 valuation office or that have a rating equivalent to a securities
3-23 valuation office rating of one or two made by a statistical rating
3-24 organization that is nationally recognized and recognized by the
3-25 securities valuation office, and that have a remaining maturity of:
3-26 (A) 397 days or less or a put that entitles the
3-27 holder to receive the principal amount of the obligation and that
4-1 may be exercised through maturity at specified intervals not
4-2 exceeding 397 days; or
4-3 (B) three years or less and a floating interest
4-4 rate that resets not less frequently than quarterly on the basis of
4-5 a current short-term index acceptable under Subsection (c) of this
4-6 section and is not subject to a maximum limit, if the obligations
4-7 do not have an interest rate that varies inversely to market
4-8 interest rate changes;
4-9 (2) government money market mutual funds or class one
4-10 money market mutual funds; or
4-11 (3) securities lending, repurchase transactions, and
4-12 reverse repurchase transactions that meet the requirements imposed
4-13 under Article 2.10-3 of this code.
4-14 (b) In the absence of a one or two rating or equivalent
4-15 rating, the issuer of an obligation under Subsection (a)(1) of this
4-16 section must have outstanding obligations rated one or two by the
4-17 securities valuation office or that have a rating equivalent to a
4-18 securities valuation office rating of one or two made by a
4-19 nationally recognized statistical rating organization recognized by
4-20 the securities valuation office.
4-21 (c) For purposes of this section, a current short-term index
4-22 is:
4-23 (1) a federal funds rate;
4-24 (2) the prime rate;
4-25 (3) the rate for treasury bills;
4-26 (4) the London InterBank Offered Rate; or
4-27 (5) the rate for commercial paper.
5-1 Sec. 4. OTHER INVESTMENT POOLS. Other investment pools are
5-2 limited to investments that an insurer is authorized to acquire
5-3 other than under this article, if the insurer's proportionate
5-4 interest in the amount of those investments does not exceed the
5-5 applicable limits established under this article.
5-6 Sec. 5. QUALIFICATIONS FOR INVESTMENT POOL. (a) To be
5-7 qualified, an investment pool must comply with the requirements
5-8 established under this section.
5-9 (b) The investment pool may not:
5-10 (1) acquire securities issued, assumed, guaranteed, or
5-11 insured by the insurer or an affiliate of the investing insurer;
5-12 (2) borrow or incur an indebtedness for borrowed
5-13 money, except for securities lending and reverse repurchase
5-14 transactions that meet the requirements of this article; or
5-15 (3) permit the aggregate value of securities loaned or
5-16 sold to, purchased from, or invested in any one business entity to
5-17 exceed 10 percent of the total assets of the investment pool.
5-18 (c) The investment pool must have a written pooling
5-19 agreement.
5-20 (d) The pooling agreement must designate a pool manager.
5-21 The pool manager must be organized under the laws of the United
5-22 States or a state, and must be:
5-23 (1) the investing insurer, an affiliated insurer, or a
5-24 business entity affiliated with the investing insurer;
5-25 (2) a qualified bank; or
5-26 (3) a business entity:
5-27 (A) registered under the Investment Advisors Act
6-1 of 1940 (15 U.S.C. Section 80a-1 et seq.), as amended;
6-2 (B) if a reciprocal insurer or interinsurance
6-3 exchange, its attorney-in-fact; or
6-4 (C) if a United States branch of an alien
6-5 insurer, its United States manager or an affiliate or subsidiary of
6-6 its United States manager.
6-7 (e) The pool manager shall compile and maintain:
6-8 (1) detailed accounting records that set forth:
6-9 (A) the cash receipts and disbursements
6-10 reflecting each pool participant's proportionate investment in the
6-11 investment pool; and
6-12 (B) a complete description of all underlying
6-13 assets of the investment pool, including the amount, interest rate,
6-14 and maturity date, if any, of each of those assets and other
6-15 appropriate information; and
6-16 (2) other records that, on a daily basis, allow third
6-17 parties to verify each pool participant's investment in the
6-18 investment pool.
6-19 (f) The pool manager shall maintain the assets of the
6-20 investment pool in one or more accounts, in the name of or on
6-21 behalf of the investment pool, under a custody agreement with a
6-22 qualified bank. The custody agreement must:
6-23 (1) state and recognize the claims and rights of each
6-24 participant;
6-25 (2) acknowledge that the underlying assets of the
6-26 investment pool are held solely for the benefit of each participant
6-27 in proportion to the aggregate amount of its investments in the
7-1 investment pool; and
7-2 (3) contain an agreement that the underlying assets of
7-3 the investment pool may not be commingled with the general assets
7-4 of the custodian qualified bank or any other person.
7-5 (g) The pooling agreement for the investment pool must also
7-6 provide that:
7-7 (1) 100 percent of the interest in the investment pool
7-8 must at all times be held by:
7-9 (A) an insurer and its affiliated insurers;
7-10 (B) in the case of an investment pool investing
7-11 solely in investments permitted under Section 3 of this article,
7-12 the insurer and its subsidiaries and affiliates, or any pension or
7-13 profit-sharing plan of the insurer, its subsidiaries, and
7-14 affiliates; or
7-15 (C) in the case of a United States branch of an
7-16 alien insurer, affiliates or subsidiaries of its United States
7-17 manager;
7-18 (2) the underlying assets of the investment pool may
7-19 not be commingled with the general assets of the pool manager or
7-20 any other person;
7-21 (3) each participant owns an undivided interest in the
7-22 underlying assets of the investment pool in proportion to the
7-23 aggregate amount of each pool participant's interest in the
7-24 investment pool and the underlying assets of the investment pool
7-25 are held solely for the benefit of each participant; and
7-26 (4) a pool participant or, in the event of the pool
7-27 participant's insolvency, bankruptcy, or receivership, its trustee,
8-1 receiver, conservator, or other successor-in-interest, may withdraw
8-2 all or any portion of its investment from the pool under the terms
8-3 of the pooling agreement.
8-4 Sec. 6. ADDITIONAL REQUIREMENTS; LIMITATIONS. (a) An
8-5 investment pool must be a business entity.
8-6 (b) A transaction between the pool and a participant in the
8-7 pool is not subject to Section 4, Article 21.49-1, of this code,
8-8 except that, before entering into a pool, an insurer subject to
8-9 Article 21.49-1 shall file the notice required under Section
8-10 4(d)(2), Article 21.49-1, of this code. Investment activities of
8-11 the pool and transactions between pools and participants shall be
8-12 reported annually in the registration statement required by Section
8-13 3, Article 21.49-1, of this code.
8-14 (c) An insurer may not acquire an investment in an
8-15 investment pool under this section if, as a result of and after
8-16 giving effect to that investment, the aggregate amount of
8-17 investments then held by the insurer under this article:
8-18 (1) in any one investment pool would exceed 10 percent
8-19 of its admitted assets;
8-20 (2) in all investment pools investing in investments
8-21 permitted under Section 4 of this article would exceed 25 percent
8-22 of its admitted assets; or
8-23 (3) in all investment pools would exceed 35 percent of
8-24 its admitted assets.
8-25 (d) A pool participant must be able to make withdrawals on
8-26 demand without penalty or other assessment on any business day, and
8-27 settlement of funds must occur within a reasonable and customary
9-1 period after a withdrawal not to exceed five business days.
9-2 (e) The pooling agreement must provide that the pool manager
9-3 shall make a distribution to a pool participant, at the discretion
9-4 of the pool manager, either:
9-5 (1) in cash, the fair market value at the time of the
9-6 distribution of the participant's pro rata share of each underlying
9-7 asset of the investment pool;
9-8 (2) in kind, a pro rata share of each underlying
9-9 asset; or
9-10 (3) in a combination of cash and in kind
9-11 distributions, a pro rata share in each underlying asset.
9-12 (f) A distribution under Subsection (e) is computed in each
9-13 case after subtracting all applicable fees and expenses of the
9-14 investment pool.
9-15 (g) The pool manager shall make the records of the
9-16 investment pool available for inspection by the commissioner.
9-17 SECTION 2. This Act takes effect September 1, 1997.
9-18 SECTION 3. The importance of this legislation and the
9-19 crowded condition of the calendars in both houses create an
9-20 emergency and an imperative public necessity that the
9-21 constitutional rule requiring bills to be read on three several
9-22 days in each house be suspended, and this rule is hereby suspended.