AN ACT
1-1 relating to the investment authority of certain insurers.
1-2 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-3 SECTION 1. Chapter 2, Insurance Code, is amended by adding
1-4 Article 2.10-5 to read as follows:
1-5 Art. 2.10-5. INVESTMENT AUTHORITY
1-6 Sec. 1. DEFINITIONS. In this article:
1-7 (1) "Business entity" means a corporation, limited
1-8 liability company, association, partnership, joint stock company,
1-9 joint venture, mutual fund trust, or other similar form of business
1-10 organization, whether organized as for-profit or not-for-profit.
1-11 (2) "Class one money market mutual fund" means a
1-12 mutual fund that at all times qualifies for investment using the
1-13 bond class one reserve factor described by the purposes and
1-14 procedures of the securities valuation office.
1-15 (3) "Government money market mutual fund" means a
1-16 money market mutual fund that at all times:
1-17 (A) invests only in obligations issued,
1-18 guaranteed, or insured by the United States or collateralized
1-19 repurchase agreements composed of those obligations; and
1-20 (B) is qualified for investment without a
1-21 reserve under the purposes and procedures publication of the
1-22 securities valuation office or any successor publication.
1-23 (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. Sections 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 a
2-20 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.
3-1 (8) "Reverse repurchase transaction" means a
3-2 transaction in which an insurer sells securities to a business
3-3 entity and is obligated to repurchase the securities sold or
3-4 equivalent securities from the business entity at a specified
3-5 price, either within a specified period or on demand.
3-6 (9) "Securities lending transaction" means a
3-7 transaction in which securities are loaned by an insurer to a
3-8 business entity that is obligated to return the loaned securities
3-9 or equivalent securities to the insurer, either within a specified
3-10 period or on demand.
3-11 (10) "Securities valuation office" means the
3-12 Securities Valuation Office of the National Association of
3-13 Insurance Commissioners.
3-14 Sec. 2. AUTHORITY TO INVEST. An insurer may acquire
3-15 investments and participate in an investment pool that is qualified
3-16 under Section 5 of this article and the investments of which are
3-17 limited to investments authorized for a short-term investment pool
3-18 under Section 3 of this article or for an authorized investment
3-19 pool under Section 4 of this article.
3-20 Sec. 3. SHORT-TERM INVESTMENT POOLS. (a) A short-term
3-21 investment pool may contain only:
3-22 (1) except as provided by Subsection (b) of this
3-23 section, obligations that are rated one or two by the securities
3-24 valuation office or that have a rating equivalent to a securities
3-25 valuation office rating of one or two made by a statistical rating
4-1 organization that is nationally recognized and recognized by the
4-2 securities valuation office and that have a remaining maturity of:
4-3 (A) 397 days or less or a put that entitles the
4-4 holder to receive the principal amount of the obligation and that
4-5 may be exercised through maturity at specified intervals not
4-6 exceeding 397 days; or
4-7 (B) three years or less and a floating interest
4-8 rate that resets not less frequently than quarterly on the basis of
4-9 a current short-term index acceptable under Subsection (c) of this
4-10 section and is not subject to a maximum limit, if the obligations
4-11 do not have an interest rate that varies inversely to market
4-12 interest rate changes;
4-13 (2) government money market mutual funds or class one
4-14 money market mutual funds; or
4-15 (3) securities lending, repurchase, and reverse
4-16 repurchase transactions that meet the requirements imposed under
4-17 Article 2.10-3 of this code.
4-18 (b) In the absence of a one or two rating or equivalent
4-19 rating, the issuer of an obligation under Subsection (a)(1) of this
4-20 section must have outstanding obligations rated one or two by the
4-21 securities valuation office or that have a rating equivalent to a
4-22 securities valuation office rating of one or two made by a
4-23 nationally recognized statistical rating organization recognized by
4-24 the securities valuation office.
4-25 (c) For purposes of this section, a current short-term index
5-1 is:
5-2 (1) a federal funds rate;
5-3 (2) the prime rate;
5-4 (3) the rate for treasury bills;
5-5 (4) the London InterBank Offered Rate; or
5-6 (5) the rate for commercial paper.
5-7 Sec. 4. AUTHORIZED INVESTMENT POOLS. Authorized investment
5-8 pools are limited to investments that a participating insurer is
5-9 authorized to acquire by other articles of this code. The
5-10 insurer's total of proportionate ownership interests in any one
5-11 authorized investment held by an authorized investment pool, and
5-12 direct investments in the same authorized investment, may not
5-13 exceed the limit provided by the applicable authorizing article.
5-14 In addition to that limitation, an insurer is also subject to the
5-15 overall limitations contained in Section 6(c) of this article.
5-16 Sec. 5. QUALIFICATIONS FOR AN INVESTMENT POOL. (a) To be
5-17 qualified, an investment pool must comply with the requirements
5-18 established under this section.
5-19 (b) The investment pool may not:
5-20 (1) acquire securities issued, assumed, guaranteed, or
5-21 insured by the investing insurer or an affiliate of the investing
5-22 insurer;
5-23 (2) borrow or incur an indebtedness for borrowed
5-24 money, except for securities lending and reverse repurchase
5-25 transactions that meet the requirements of this article; or
6-1 (3) permit the aggregate value of securities then
6-2 loaned or sold to, purchased from, or invested in any one business
6-3 entity under this section to exceed 10 percent of the total assets
6-4 of the investment pool.
6-5 (c) The investment pool shall have a written pooling
6-6 agreement.
6-7 (d) The pooling agreement must designate a pool manager.
6-8 The pool manager must be organized under the laws of the United
6-9 States or a state and must be:
6-10 (1) the investing insurer, an affiliated insurer, or a
6-11 business entity affiliated with the insurer;
6-12 (2) a qualified bank;
6-13 (3) a business entity registered under the Investment
6-14 Advisers Act of 1940 (15 U.S.C. Sec. 80b-1 et seq.), as amended;
6-15 (4) if a reciprocal insurer or interinsurance
6-16 exchange, its attorney-in-fact; or
6-17 (5) if a United States branch of an alien insurer, its
6-18 United States manager or an affiliate or subsidiary of its United
6-19 States manager.
6-20 (e) The pool manager shall compile and maintain:
6-21 (1) detailed accounting records that set forth:
6-22 (A) the cash receipts and disbursements
6-23 reflecting each pool participant's proportionate investment in the
6-24 investment pool; and
6-25 (B) a complete description of all underlying
7-1 assets of the investment pool, including the amount, interest rate,
7-2 and maturity date, if any, of each of those assets and other
7-3 appropriate designations; and
7-4 (2) other records that, on a daily basis, allow third
7-5 parties to verify each pool participant's investment in the
7-6 investment pool.
7-7 (f) The pool manager shall maintain the assets of the
7-8 investment pool in one or more accounts, in the name of or on
7-9 behalf of the investment pool, under a custody agreement with a
7-10 qualified bank. The custody agreement must:
7-11 (1) state and recognize the claims and rights of each
7-12 participant;
7-13 (2) acknowledge that the underlying assets of the
7-14 investment pool are held solely for the benefit of each participant
7-15 in proportion to the aggregate amount of its investments in the
7-16 investment pool; and
7-17 (3) contain an agreement that the underlying assets of
7-18 the investment pool may not be commingled with the general assets
7-19 of the custodian qualified bank or any other person.
7-20 (g) The pooling agreement for the investment pool must also
7-21 provide that:
7-22 (1) 100 percent of the ownership interests in the
7-23 investment pool must at all times be held by:
7-24 (A) an insurer and its affiliated insurers;
7-25 (B) in the case of an investment pool investing
8-1 solely in investments permitted under Section 3 of this article,
8-2 the insurer and its subsidiaries and affiliates or any pension or
8-3 profit-sharing plan of the insurer, its subsidiaries, and
8-4 affiliates; or
8-5 (C) in the case of a United States branch of an
8-6 alien insurer, affiliates or subsidiaries of its United States
8-7 manager;
8-8 (2) the underlying assets of the investment pool may
8-9 not be commingled with the general assets of the pool manager or
8-10 any other person;
8-11 (3) each participant owns an undivided interest in the
8-12 underlying assets of the investment pool in proportion to the
8-13 aggregate amount of each pool participant's interest in the
8-14 investment pool and the underlying assets of the investment pool
8-15 are held solely for the benefit of each participant; and
8-16 (4) a pool participant or, in the event of the pool
8-17 participant's insolvency, bankruptcy, or receivership, its trustee,
8-18 receiver, conservator, or other successor-in-interest may withdraw
8-19 all or any portion of its investment from the pool under the terms
8-20 of the pooling agreement.
8-21 Sec. 6. ADDITIONAL REQUIREMENTS; LIMITATIONS. (a) An
8-22 investment pool must be a business entity.
8-23 (b) A transaction between the pool and a participant in the
8-24 pool is not subject to Section 4, Article 21.49-1 of this code,
8-25 except that, before entering into a pool, an insurer subject to
9-1 Article 21.49-1 of this code shall file the notice required under
9-2 Section 4(d)(2), Article 21.49-1 of this code. Investment
9-3 activities of the pool and transactions between pools and
9-4 participants shall be reported annually in the registration
9-5 statement required by Section 3, Article 21.49-1 of this code.
9-6 (c) An insurer shall not acquire an investment in an
9-7 investment pool under this section if, as a result of and after
9-8 giving effect to that investment, the aggregate amount of
9-9 investments then held by the insurer under this article:
9-10 (1) in any one investment pool would exceed 10 percent
9-11 of its admitted assets;
9-12 (2) in all investment pools investing in investments
9-13 permitted under Section 4 of this article would exceed 25 percent
9-14 of its admitted assets; or
9-15 (3) in all investment pools would exceed 35 percent of
9-16 its admitted assets.
9-17 (d) A pool participant must be able to make withdrawals on
9-18 demand without penalty or other assessment on any business day, and
9-19 settlement of funds must occur within a reasonable and customary
9-20 period after a withdrawal not to exceed five business days.
9-21 (e) The pooling agreement must provide that the pool manager
9-22 shall make a distribution to a pool participant, at the discretion
9-23 of the pool manager:
9-24 (1) in cash the fair market value at the time of the
9-25 distribution of the participant's pro rata share of each underlying
10-1 asset of the investment pool;
10-2 (2) in kind a pro rata share of each underlying asset;
10-3 or
10-4 (3) in a combination of cash and in-kind distributions
10-5 a pro rata share in each underlying asset.
10-6 (f) A distribution under Subsection (e) of this section is
10-7 computed in each case after subtracting all applicable fees and
10-8 expenses of the investment pool.
10-9 (g) The pool manager must make the records of the investment
10-10 pool available for inspection by the commissioner.
10-11 SECTION 2. The importance of this legislation and the
10-12 crowded condition of the calendars in both houses create an
10-13 emergency and an imperative public necessity that the
10-14 constitutional rule requiring bills to be read on three several
10-15 days in each house be suspended, and this rule is hereby suspended.
_______________________________ _______________________________
President of the Senate Speaker of the House
I hereby certify that S.B. No. 1111 passed the Senate on
April 23, 1997, by a viva-voce vote.
_______________________________
Secretary of the Senate
I hereby certify that S.B. No. 1111 passed the House on
May 5, 1997, by a non-record vote.
_______________________________
Chief Clerk of the House
Approved:
_______________________________
Date
_______________________________
Governor