By: Patterson S.B. No. 1388
A BILL TO BE ENTITLED
AN ACT
1-1 relating to reserves maintained by title insurers.
1-2 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-3 SECTION 1. Article 9.16, Insurance Code, is amended to read
1-4 as follows:
1-5 Art. 9.16. RESERVES
1-6 Sec. 1. STATUTORY PREMIUM RESERVE REQUIRED. (a) Each [(1)
1-7 Every] domestic title insurer [insurance company] doing a title
1-8 insurance business under [the provisions of] this chapter [Chapter]
1-9 shall establish and maintain a statutory [an unearned] premium
1-10 reserve during the period and for the uses and purposes [hereafter]
1-11 provided by this article, which shall at all times and for all
1-12 purposes be deemed and shall constitute unearned portions of the
1-13 original premium, and shall be charged as a reserve liability of
1-14 that insurer [such company] in determining its financial condition.
1-15 (b) The [(2) Such] reserve required under Subsection (a) of
1-16 this section shall be cumulative. The reserve [and] shall be
1-17 established and shall consist of the amounts required under this
1-18 article.
1-19 Sec. 2. AMOUNTS ADDED TO RESERVE FOR CALENDAR YEAR 1997;
1-20 REDUCTIONS. (a) The total charges of a domestic title insurer for
1-21 title insurance policies written or assumed on or after January 1,
1-22 1997, but before January 1, 1998, are computed by adding the
1-23 following, as set forth in the title insurer's annual statement:
2-1 (1) the direct premium written by the title insurer;
2-2 (2) the escrow and settlement service fees paid
2-3 directly to and collected by the title insurer;
2-4 (3) other title fees and service charges paid directly
2-5 to and collected by the title insurer, including fees for closing
2-6 protection letters; and
2-7 (4) premiums for reinsurance assumed less premiums for
2-8 reinsurance ceded during the year.
2-9 (b) The amount a domestic title insurer must set aside in
2-10 the statutory premium reserve for the 1997 calendar year is
2-11 computed by multiplying the total charges computed under Subsection
2-12 (a) of this section by:
2-13 (1) 6-2/10 percent if the insurer had $250 million or
2-14 more in direct premium written for the year 1996; or
2-15 (2) 3-1/2 percent if the insurer had less than $250
2-16 million in direct premium written for the year 1996.
2-17 (c) Additions to the statutory premium reserve set aside for
2-18 title insurance policies written or assumed during 1997 shall be
2-19 reduced over a 20-year period beginning in the year after the year
2-20 in which the policies are written or assumed, as provided by
2-21 Subsection (d) of this section, by:
2-22 (1) 26 percent of the additions in the first year
2-23 succeeding the year of addition;
2-24 (2) 20 percent of the additions in the second
2-25 succeeding year;
3-1 (3) 10 percent of the additions in the third
3-2 succeeding year;
3-3 (4) nine percent of the additions in the fourth
3-4 succeeding year;
3-5 (5) five percent of the additions in the fifth and
3-6 sixth succeeding years;
3-7 (6) three percent of the additions in the seventh,
3-8 eighth, and ninth succeeding years;
3-9 (7) two percent of the additions in the 10th through
3-10 14th succeeding years; and
3-11 (8) one percent of the additions in the last six
3-12 years.
3-13 (d) The annual reductions under Subsection (c) of this
3-14 section shall be made in increments of one-fourth of the
3-15 appropriate percentage of the additions each on March 31, June 30,
3-16 September 30, and December 31 of each year.
3-17 Sec. 3. AMOUNTS ADDED TO RESERVE IN CALENDAR YEARS AFTER
3-18 1997; REDUCTIONS. (a) Out of total charges for title insurance
3-19 policies written or assumed on or after January 1, 1998, a domestic
3-20 title insurer shall add to and set aside in the statutory premium
3-21 reserve an amount equal to the total of the following as set forth
3-22 in the title insurer's annual statement:
3-23 (1) $0.25 per $1,000 of net retained liability if the
3-24 insurer had $250 million or more in direct written premiums written
3-25 for the most recent calendar year; or
4-1 (2) $0.30 per $1,000 of net retained liability if the
4-2 insurer had less than $250 million in direct written premiums
4-3 written for the most recent calendar year.
4-4 (b) Additions to the statutory premium reserve set aside for
4-5 title insurance policies written or assumed after 1997 shall be
4-6 reduced over a 20-year period beginning in the year after the year
4-7 in which the policies are written or assumed in the manner and
4-8 under the same percentages applied under Sections 2(c) and (d) of
4-9 this article.
4-10 Sec. 4. TRANSITIONAL RELEASE; TRANSITIONAL CHARGE. (a) In
4-11 addition to the requirements imposed under Sections 2 and 3 of this
4-12 article, each domestic title insurer shall compute a total
4-13 statutory premium reserve balance for all policy years combined as
4-14 of December 31, 1996.
4-15 (b) The balance under Subsection (a) of this section shall
4-16 be computed as if Section 2 of this article were in effect during
4-17 the 20-year period ending December 31, 1996. That balance, less
4-18 the total actual statutory premium reserve balance carried by the
4-19 insurer on December 31, 1996, is the insurer's transitional charge
4-20 if the resulting amount is greater than zero or is the insurer's
4-21 transitional release if the resulting amount is zero or less.
4-22 (c) If the domestic title insurer has a transitional charge
4-23 under Subsection (b) of this section, in addition to the changes to
4-24 the statutory premium reserve otherwise required by this article,
4-25 the domestic title insurer shall add to its statutory premium
5-1 reserve, on December 31 of each year for 10 consecutive years
5-2 beginning on December 31, 1997, an amount equal to one-tenth of the
5-3 transitional charge.
5-4 (d) If the domestic title insurer has a transitional release
5-5 under Subsection (b) of this section, in addition to the changes to
5-6 statutory premium reserve otherwise required by this article, the
5-7 domestic title insurer shall reduce its statutory premium reserve,
5-8 on December 31 of each year for 10 consecutive years beginning on
5-9 December 31, 1997, by an amount equal to one-tenth of the
5-10 transitional release.
5-11 Sec. 5. RUNOFF BALANCE. (a) At the end of each calendar
5-12 year beginning in 1997, each domestic title insurer shall also
5-13 compute a total statutory premium reserve balance for all policy
5-14 years before January 1, 1997, combined. That balance shall be
5-15 computed as of the year-end evaluation date and as if Section 2 of
5-16 this article were in effect during the 20-year period ending
5-17 December 31, 1996. The balance computed under this subsection is
5-18 the runoff balance.
5-19 (b) The title insurer shall reduce its statutory premium
5-20 reserve by an amount equal to the difference between the runoff
5-21 balance computed under Subsection (a) of this section and the
5-22 runoff balance computed for the preceding calendar year.
5-23 (c) The reduction of the statutory premium reserve under
5-24 Subsection (b) of this section is in addition to any other changes
5-25 to the statutory premium reserve required by this article.
6-1 Sec. 6. ACTUARIAL CERTIFICATION. (a) Each domestic and
6-2 foreign title insurer shall file annually with the annual statement
6-3 required under Article 9.22 of this code an actuarial certification
6-4 made by a member in good standing of the American Academy of
6-5 Actuaries.
6-6 (b) The actuarial certification must conform to the annual
6-7 statement instructions for title insurers adopted by the National
6-8 Association of Insurance Commissioners and must include the
6-9 actuary's professional opinion of the insurer's reserves as of the
6-10 date of the annual statement. The reserves analyzed under this
6-11 section must include reserves for known claims, including adverse
6-12 development on known claims, and reserves for incurred but not
6-13 reported claims.
6-14 Sec. 7. SUPPLEMENTAL RESERVE. (a) Each domestic and
6-15 foreign title insurer shall establish a supplemental reserve in the
6-16 amount by which the actuarially certified reserves exceed the total
6-17 of the known claim reserve and statutory premium reserve as set
6-18 forth in the title insurer's annual statement, subject to
6-19 Subsection (b) of this section.
6-20 (b) The supplemental reserve required under this section
6-21 shall be phased in as follows:
6-22 (1) 25 percent of the otherwise applicable
6-23 supplemental reserve is required until December 31, 1996;
6-24 (2) 50 percent of the otherwise applicable
6-25 supplemental reserve is required until December 31, 1997;
7-1 (3) 75 percent of the otherwise applicable
7-2 supplemental reserve is required until December 31, 1998; and
7-3 (4) 100 percent of the supplemental reserve is
7-4 required after December 31, 1998 [following:]
7-5 [(a) The reserve which has been established pursuant
7-6 to Article 9.12 of this code; and]
7-7 [(b) Each insurer which has accumulated the maximum
7-8 unearned premium reserve of One Hundred Thousand Dollars ($100,000)
7-9 required by Article 9.12 of this code shall reserve a sum equal to
7-10 three (3%) percent of the premiums charged for title insurance
7-11 contracts; and]
7-12 [(c) Each insurer which has not accumulated the
7-13 maximum unearned premium reserve of One Hundred Thousand Dollars
7-14 ($100,000) required by Article 9.12 of this code shall reserve a
7-15 sum equal to five (5%) percent of the premiums charged for title
7-16 insurance contracts until the unearned premium reserve shall have
7-17 reached a total of One Hundred Thousand Dollars ($100,000) and
7-18 thereafter such insurer shall reserve a sum equal to three (3%)
7-19 percent of the premium charged for title insurance contracts; and]
7-20 [(d) Each domestic insurer shall reserve a sum equal
7-21 to ten (10%) percent of the risk rate charged for title insurance
7-22 contracts on property outside the State of Texas. This requirement
7-23 shall be cumulative of, and not in addition to, the reserve
7-24 requirement that might be imposed upon such insurer in such other
7-25 state or states.]
8-1 [(3) The term "premium" as used herein means the total
8-2 amount of premium as fixed and promulgated by the State Board of
8-3 Insurance in accordance with Article 9.07 of this Code for title
8-4 insurance contracts covering property in this state.]
8-5 [(4) The reserves as provided in Subdivision (2) of this
8-6 Article shall be reduced in the following manner, which reduction
8-7 may be used for any corporate purpose:]
8-8 [(a) As to insurers which have accumulated the maximum
8-9 unearned premium reserve of One Hundred Thousand Dollars ($100,000)
8-10 under the provisions of (2)(a) above, as of the effective date of
8-11 this act, such unearned premium shall be reduced at the rate of
8-12 one-twentieth (1/20) thereof per year.]
8-13 [(b) As to insurers which have accumulated reserves as
8-14 provided in (2)(b) and (2)(d) above, such unearned premium shall be
8-15 reduced at the end of each calendar year in which the title
8-16 insurance contract was issued at the rate of one-twentieth (1/20)
8-17 of such sum for the first year and a like amount at the end of each
8-18 calendar year thereafter for nineteen (19) consecutive years.]
8-19 [(c) As to insurers which have accumulated reserves as
8-20 provided in (2)(c) above, such unearned premium shall be reduced at
8-21 the rate of one-twentieth (1/20) of such sum per year beginning at
8-22 the end of the calendar year in which such One Hundred Thousand
8-23 Dollars ($100,000) shall have been accumulated and a like amount at
8-24 the end of each calendar year thereafter for nineteen (19)
8-25 consecutive years].
9-1 Sec. 8. FOREIGN COMPANIES. A [(5) Any] foreign title
9-2 insurer [insurance company] doing business in this state shall be
9-3 required to comply with the provisions of Section 6 and Section 7
9-4 of this article [Article unless by the laws of its state of
9-5 domicile, it is required to set aside and maintain unearned premium
9-6 reserve in substantially the same amount as required by this
9-7 Article].
9-8 Sec. 9. REEVALUATION OF RESERVE REQUIREMENTS. The
9-9 commissioner may reevaluate the adequacy of the statutory premium
9-10 reserves required under Section 3 of this article and may make
9-11 recommendations for legislative changes as the commissioner
9-12 considers appropriate.
9-13 Sec. 10. MAINTENANCE OF FUND. The statutory premium [(6)
9-14 Such] reserve and supplemental reserve fund shall be held in cash
9-15 or invested in first mortgage notes or other [such] securities [as
9-16 are] admissible for investment by title insurers [life insurance
9-17 companies] under Article 9.18 [the laws] of this code [state].
9-18 Sec. 11. EFFECT OF INSOLVENCY OR DISSOLUTION. [(7)] In the
9-19 event of the insolvency or dissolution of a title [any such]
9-20 insurer, the statutory premium [such] reserve and supplemental
9-21 reserve fund shall be used to protect title insurance contract
9-22 holders, even if [though] there are [be] no accrued title insurance
9-23 claims and even if [though] there are [be] unpaid obligations of
9-24 other types [sorts].
9-25 SECTION 2. This Act applies to reports made by domestic and
10-1 foreign title insurers beginning with reports due for calendar year
10-2 1997.
10-3 SECTION 3. The importance of this legislation and the
10-4 crowded condition of the calendars in both houses create an
10-5 emergency and an imperative public necessity that the
10-6 constitutional rule requiring bills to be read on three several
10-7 days in each house be suspended, and this rule is hereby suspended,
10-8 and that this Act take effect and be in force from and after its
10-9 passage, and it is so enacted.