By Davis H.B. No. 2430 75R6856 PB-D A BILL TO BE ENTITLED 1-1 AN ACT 1-2 relating to community investment by certain insurers. 1-3 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS: 1-4 SECTION 1. The Insurance Code is amended by adding Chapter 1-5 27 to read as follows: 1-6 CHAPTER 27. COMMUNITY INVESTMENT BY INSURERS 1-7 SUBCHAPTER A. GENERAL PROVISIONS 1-8 Art. 27.01. LEGISLATIVE FINDINGS; PURPOSE. (a) The 1-9 legislature finds that insurers are a major source of investment 1-10 capital in this state. Financial institutions, another major 1-11 source of investment capital in this state, are required by the 1-12 Community Reinvestment Act of 1977 (12 U.S.C. Section 2901 et 1-13 seq.) to address the credit needs of low-income communities in the 1-14 areas they serve. Because insurance companies are separately 1-15 regulated by each state, there has been no national requirement 1-16 that a portion of insurers' investments be made in low-income 1-17 communities. 1-18 (b) The purpose of this chapter is to require insurers to 1-19 make safe and sound investments in certain low-income communities 1-20 that have historically been subject to redlining and other 1-21 discrimination in the issuance and availability of insurance as an 1-22 appropriate condition of maintaining a certificate of authority to 1-23 engage in the business of insurance in this state. 1-24 Art. 27.02. DEFINITIONS. In this chapter: 2-1 (1) "Area median income" has the meaning assigned by 2-2 Section 2306.123, Government Code. 2-3 (2) "Direct written premiums" means the gross amount 2-4 of premiums paid by policyholders for issuance of policies of 2-5 insurance insuring risks located in this state. The term does not 2-6 include premiums for reinsurance. 2-7 (3) "Economically targeted investment" means an 2-8 investment made by an insurer in a low-income community that has 2-9 historically been subject to redlining and other discrimination in 2-10 the issuance and availability of insurance and that benefits the 2-11 residents of that community by having a positive impact on that 2-12 community. The term includes: 2-13 (A) equity or debt investments; 2-14 (B) community development loans; 2-15 (C) investments in projects eligible for the 2-16 federal low-income housing tax credit; 2-17 (D) investments in state and municipal 2-18 obligations that specifically support community economic 2-19 development or affordable housing to benefit low-income 2-20 individuals or communities; 2-21 (E) purchases of loans for multifamily 2-22 affordable housing on the secondary market; and 2-23 (F) grants or deferred interest loans made to 2-24 appropriate community programs and operated by nonprofit 2-25 organizations. 2-26 (4) "Insurer" means any entity authorized to do 2-27 business in this state as an insurance company or authorized to 3-1 provide insurance in this state, including: 3-2 (A) a capital stock company; 3-3 (B) a mutual company; 3-4 (C) a title insurance company; 3-5 (D) a fraternal benefit society; 3-6 (E) a local mutual aid association; 3-7 (F) a statewide mutual assessment company; 3-8 (G) a county mutual insurance company; 3-9 (H) a Lloyd's plan company; 3-10 (I) a reciprocal or interinsurance exchange; 3-11 (J) a stipulated premium insurance company; 3-12 (K) a group hospital service company; 3-13 (L) a health maintenance organization; 3-14 (M) a farm mutual insurance company; and 3-15 (N) a risk retention group. 3-16 (5) "Low income" means, in the case of an individual, 3-17 an individual income, or, in the case of a geographic area, a 3-18 median family income, that is at least 50 percent and less than 80 3-19 percent of the adjusted area median income, adjusted for family 3-20 size and revised annually. 3-21 (6) "Redlining" means the practice of denying a 3-22 service, commodity, good, or other thing of value or failing to 3-23 offer a service, commodity, good, or other thing of value to a 3-24 person solely because of the person's: 3-25 (A) race; 3-26 (B) age; 3-27 (C) disability; 4-1 (D) marital status; 4-2 (E) sex; 4-3 (F) national origin; 4-4 (G) religion; or 4-5 (H) residence in a specific geographic area. 4-6 (Articles 27.03-27.10 reserved for expansion 4-7 SUBCHAPTER B. MANDATORY COMMUNITY INVESTMENT 4-8 Art. 27.11. ANNUAL REQUIRED INVESTMENT. (a) Each admitted 4-9 insurer that wrote at least $15 million of direct written premiums 4-10 in the 1997 calendar year shall annually invest in economically 4-11 targeted investments in areas of this state that historically were 4-12 subject to redlining in the business of insurance. 4-13 (b) An admitted insurer that wrote an aggregate of at least 4-14 $30 million of direct written premiums in the 1997 and 1998 4-15 calendar years shall invest in economically targeted investments 4-16 during the 1999 calendar year not less than an amount equal to the 4-17 applicable investment percentage determined under Article 27.12 of 4-18 this code multiplied by the total of its aggregate 1997 and 1998 4-19 calendar years' direct written premiums. Economically targeted 4-20 investments made during the 1998 calendar year under Subsection (a) 4-21 of this article may be counted toward that requirement. 4-22 (c) An admitted insurer that has written an aggregate of at 4-23 least $45 million of direct written premiums in the three preceding 4-24 calendar years shall have economically targeted investments during 4-25 the 2000 calendar year and each subsequent calendar year in an 4-26 amount equal to not less than the applicable investment percentage 4-27 determined under Article 27.12 of this code multiplied by the total 5-1 of its aggregate direct written premiums for the preceding three 5-2 calendar years. 5-3 Art. 27.12. DETERMINATION OF MINIMUM INVESTMENT PERCENTAGE 5-4 BY COMMISSIONER. In determining an appropriate minimum investment 5-5 percentage for purposes of this chapter, the commissioner shall 5-6 consider the history of discrimination and redlining that occurred 5-7 in this state in the delivery or renewal of: 5-8 (1) policies of life, health, or accident insurance; 5-9 and 5-10 (2) insurance other than life, health, or accident 5-11 policies. 5-12 Art. 27.13. METHOD OF INVESTMENT. Economically targeted 5-13 investments may be made directly by insurers, through 5-14 intermediaries, or through partnerships, consortia, or other 5-15 entities organized by insurers or other financial institutions. 5-16 Art. 27.14. EXEMPTION; VALUATION OF INVESTMENTS. (a) An 5-17 insurer is not required to make economically targeted investments 5-18 that: 5-19 (1) are of medium investment grade; and 5-20 (2) are rated below 3, P3, or PSF3 by the Securities 5-21 Valuation Office of the National Association of Insurance 5-22 Commissioners. 5-23 (b) For the purposes of this chapter, investments shall be 5-24 valued at actual cost. 5-25 Art. 27.15. ANNUAL COMMUNITY INVESTMENT REPORT. (a) Each 5-26 insurer shall submit to the department an annual community 5-27 investment report that states: 6-1 (1) the type, number, and dollar amount of 6-2 economically targeted investments; 6-3 (2) the location by address and census tract of where 6-4 economically targeted investments are invested; and 6-5 (3) a computation of the value of the investments. 6-6 (b) The insurer may make the community investment report 6-7 separately or as part of another annual report required to be 6-8 submitted to the department. 6-9 (c) The commissioner may require additional information as 6-10 is necessary to evaluate the investment performance of insurers and 6-11 compliance with this chapter. 6-12 Art. 27.16. RULES. The commissioner shall adopt rules as 6-13 necessary to implement this subchapter. 6-14 (Articles 27.17-27.30 reserved for expansion) 6-15 SUBCHAPTER C. ENFORCEMENT AND PENALTIES 6-16 Art. 27.31. SHOW CAUSE ORDER. (a) If the commissioner has 6-17 reason to believe that an insurer has failed to adequately make 6-18 economically targeted investments in accordance with this chapter, 6-19 the commissioner shall issue an order to show cause that contains: 6-20 (1) a statement of the charges against the insurer; 6-21 (2) a statement of the insurer's potential liability 6-22 under Article 27.32 of this code; and 6-23 (3) a notice of a hearing, to be held at a time and 6-24 place stated in the notice, to determine whether the commissioner 6-25 is to issue an order that the insurer: 6-26 (A) pay any penalty assessed under Article 27.32 6-27 of this code; and 7-1 (B) cease and desist from further noncompliance 7-2 with this chapter. 7-3 (b) A hearing under Subsection (a) of this article shall be 7-4 conducted in accordance with Chapter 2001, Government Code. 7-5 (c) If, after a hearing, the commissioner determines that 7-6 the charges are justified, the commissioner shall issue an order 7-7 specifying: 7-8 (1) the penalty that the insurer shall pay under 7-9 Article 27.32 of this code; 7-10 (2) remedial actions as are appropriate to require 7-11 compliance; and 7-12 (3) that the insurer shall cease and desist from 7-13 engaging in investment practices that are found to be 7-14 discriminatory or not in compliance with this chapter. 7-15 (d) An insurer affected by the commissioner's order may 7-16 appeal the decision of the commissioner in the manner provided by 7-17 Article 1.04 of this code. 7-18 Art. 27.32. PENALTIES. (a) An insurer determined to have 7-19 violated this chapter is subject to administrative penalties in the 7-20 manner provided by Article 1.10E of this code. 7-21 (b) A penalty under this article may be assessed in addition 7-22 to any other penalties provided by law. 7-23 Art. 27.33. SUSPENSION OR REVOCATION OF CERTIFICATE OF 7-24 AUTHORITY. In addition to other penalties provided by this 7-25 chapter, the commissioner may suspend or revoke the certificate of 7-26 authority of an insurer who fails to comply with an order issued 7-27 under Article 27.31 of this code and may suspend or revoke, in 8-1 whole or in part, the certificate of authority of an insurer who 8-2 receives more than one order to comply with this chapter. 8-3 SECTION 2. Not later than December 31, 1997, the 8-4 commissioner of insurance shall issue bulletins adopting 8-5 guidelines for the implementation of Chapter 27, Insurance Code, as 8-6 added by this Act. The bulletins may specify or define appropriate 8-7 economically targeted investments. 8-8 SECTION 3. (a) Except as provided by Subsection (b) of this 8-9 section, this Act takes effect September 1, 1997. 8-10 (b) An insurer subject to Chapter 27, Insurance Code, as 8-11 added by this Act, is not required to make community investments as 8-12 required by that chapter until the calendar year beginning January 8-13 1, 1998. 8-14 SECTION 4. The importance of this legislation and the 8-15 crowded condition of the calendars in both houses create an 8-16 emergency and an imperative public necessity that the 8-17 constitutional rule requiring bills to be read on three several 8-18 days in each house be suspended, and this rule is hereby suspended.