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.