1-1 By: Patterson S.B. No. 1388
1-2 (In the Senate - Filed March 13, 1997; March 19, 1997, read
1-3 first time and referred to Committee on Economic Development;
1-4 April 22, 1997, reported adversely, with favorable Committee
1-5 Substitute by the following vote: Yeas 9, Nays 0; April 22, 1997,
1-6 sent to printer.)
1-7 COMMITTEE SUBSTITUTE FOR S.B. No. 1388 By: Patterson
1-8 A BILL TO BE ENTITLED
1-9 AN ACT
1-10 relating to reserves maintained by title insurers.
1-11 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-12 SECTION 1. Article 9.16, Insurance Code, is amended to read
1-13 as follows:
1-14 Art. 9.16. RESERVES
1-15 Sec. 1. STATUTORY PREMIUM RESERVE REQUIRED. (a) Each [(1)
1-16 Every] domestic title insurer [insurance company] doing a title
1-17 insurance business under [the provisions of] this chapter [Chapter]
1-18 shall establish and maintain a statutory [an unearned] premium
1-19 reserve during the period and for the uses and purposes [hereafter]
1-20 provided by this article, which shall at all times and for all
1-21 purposes be deemed and shall constitute unearned portions of the
1-22 original premium, and shall be charged as a reserve liability of
1-23 that insurer [such company] in determining its financial condition.
1-24 (b) The [(2) Such] reserve required under Subsection (a) of
1-25 this section shall be cumulative. The reserve [and] shall be
1-26 established and shall consist of the amounts required under this
1-27 article.
1-28 Sec. 2. AMOUNTS ADDED TO RESERVE FOR CALENDAR YEAR 1997;
1-29 REDUCTIONS. (a) The total charges of a domestic title insurer for
1-30 title insurance policies written or assumed on or after January 1,
1-31 1997, but before January 1, 1998, are computed by adding the
1-32 following, as set forth in the title insurer's annual statement:
1-33 (1) the direct premium written by the title insurer;
1-34 (2) the escrow and settlement service fees paid
1-35 directly to and collected by the title insurer;
1-36 (3) other title fees and service charges paid directly
1-37 to and collected by the title insurer, including fees for closing
1-38 protection letters; and
1-39 (4) premiums for reinsurance assumed less premiums for
1-40 reinsurance ceded during the year.
1-41 (b) The amount a domestic title insurer must set aside in
1-42 the statutory premium reserve for the 1997 calendar year is
1-43 computed by multiplying the total charges computed under Subsection
1-44 (a) of this section by:
1-45 (1) 6-2/10 percent if the insurer had $250 million or
1-46 more in direct premium written for the year 1996; or
1-47 (2) 3-1/2 percent if the insurer had less than $250
1-48 million in direct premium written for the year 1996.
1-49 (c) Additions to the statutory premium reserve set aside for
1-50 title insurance policies written or assumed during 1997 shall be
1-51 reduced over a 20-year period beginning in the year after the year
1-52 in which the policies are written or assumed, as provided by
1-53 Subsection (d) of this section, by:
1-54 (1) 26 percent of the additions in the first year
1-55 succeeding the year of addition;
1-56 (2) 20 percent of the additions in the second
1-57 succeeding year;
1-58 (3) 10 percent of the additions in the third
1-59 succeeding year;
1-60 (4) nine percent of the additions in the fourth
1-61 succeeding year;
1-62 (5) five percent of the additions in the fifth and
1-63 sixth succeeding years;
1-64 (6) three percent of the additions in the seventh,
2-1 eighth, and ninth succeeding years;
2-2 (7) two percent of the additions in the 10th through
2-3 14th succeeding years; and
2-4 (8) one percent of the additions in the last six
2-5 years.
2-6 (d) The annual reductions under Subsection (c) of this
2-7 section shall be made in increments of one-fourth of the
2-8 appropriate percentage of the additions each on March 31, June 30,
2-9 September 30, and December 31 of each year.
2-10 Sec. 3. AMOUNTS ADDED TO RESERVE IN CALENDAR YEARS AFTER
2-11 1997; REDUCTIONS. (a) Out of total charges for title insurance
2-12 policies written or assumed on or after January 1, 1998, a domestic
2-13 title insurer shall add to and set aside in the statutory premium
2-14 reserve an amount equal to the total of the following as set forth
2-15 in the title insurer's annual statement:
2-16 (1) $0.25 per $1,000 of net retained liability if the
2-17 insurer had $250 million or more in direct written premiums written
2-18 for the most recent calendar year; or
2-19 (2) $0.30 per $1,000 of net retained liability if the
2-20 insurer had less than $250 million in direct written premiums
2-21 written for the most recent calendar year.
2-22 (b) Additions to the statutory premium reserve set aside for
2-23 title insurance policies written or assumed after 1997 shall be
2-24 reduced over a 20-year period beginning in the year after the year
2-25 in which the policies are written or assumed in the manner and
2-26 under the same percentages applied under Sections 2(c) and (d) of
2-27 this article.
2-28 Sec. 4. TRANSITIONAL RELEASE; TRANSITIONAL CHARGE. (a) In
2-29 addition to the requirements imposed under Sections 2 and 3 of this
2-30 article, each domestic title insurer shall compute a total
2-31 statutory premium reserve balance for all policy years combined as
2-32 of December 31, 1996.
2-33 (b) The balance under Subsection (a) of this section shall
2-34 be computed as if Section 2 of this article were in effect during
2-35 the 20-year period ending December 31, 1996. That balance, less
2-36 the total actual statutory premium reserve balance carried by the
2-37 insurer on December 31, 1996, is the insurer's transitional charge
2-38 if the resulting amount is greater than zero or is the insurer's
2-39 transitional release if the resulting amount is zero or less.
2-40 (c) If the domestic title insurer has a transitional charge
2-41 under Subsection (b) of this section, in addition to the changes to
2-42 the statutory premium reserve otherwise required by this article,
2-43 the domestic title insurer shall add to its statutory premium
2-44 reserve, on December 31 of each year for 10 consecutive years
2-45 beginning on December 31, 1997, an amount equal to one-tenth of the
2-46 transitional charge.
2-47 (d) If the domestic title insurer has a transitional release
2-48 under Subsection (b) of this section, in addition to the changes to
2-49 statutory premium reserve otherwise required by this article, the
2-50 domestic title insurer shall reduce its statutory premium reserve,
2-51 on December 31 of each year for 10 consecutive years beginning on
2-52 December 31, 1997, by an amount equal to one-tenth of the
2-53 transitional release.
2-54 Sec. 5. RUNOFF BALANCE. (a) At the end of each calendar
2-55 year beginning in 1997, each domestic title insurer shall also
2-56 compute a total statutory premium reserve balance for all policy
2-57 years before January 1, 1997, combined. That balance shall be
2-58 computed as of the year-end evaluation date and as if Section 2 of
2-59 this article were in effect during the 20-year period ending
2-60 December 31, 1996. The balance computed under this subsection is
2-61 the runoff balance.
2-62 (b) The title insurer shall reduce its statutory premium
2-63 reserve by an amount equal to the difference between the runoff
2-64 balance computed under Subsection (a) of this section and the
2-65 runoff balance computed for the preceding calendar year.
2-66 (c) The reduction of the statutory premium reserve under
2-67 Subsection (b) of this section is in addition to any other changes
2-68 to the statutory premium reserve required by this article.
2-69 Sec. 6. ACTUARIAL CERTIFICATION. (a) Each domestic and
3-1 foreign title insurer shall file annually with the annual statement
3-2 required under Article 9.22 of this code an actuarial certification
3-3 made by a member in good standing of the American Academy of
3-4 Actuaries.
3-5 (b) The actuarial certification must conform to the annual
3-6 statement instructions for title insurers adopted by the National
3-7 Association of Insurance Commissioners and must include the
3-8 actuary's professional opinion of the insurer's reserves as of the
3-9 date of the annual statement. The reserves analyzed under this
3-10 section must include reserves for known claims, including adverse
3-11 development on known claims, and reserves for incurred but not
3-12 reported claims.
3-13 Sec. 7. SUPPLEMENTAL RESERVE. (a) Each domestic and
3-14 foreign title insurer shall establish a supplemental reserve in the
3-15 amount by which the actuarially certified reserves exceed the total
3-16 of the known claim reserve and statutory premium reserve as set
3-17 forth in the title insurer's annual statement, subject to
3-18 Subsection (b) of this section.
3-19 (b) The supplemental reserve required under this section
3-20 shall be phased in as follows:
3-21 (1) 25 percent of the otherwise applicable
3-22 supplemental reserve is required until December 31, 1996;
3-23 (2) 50 percent of the otherwise applicable
3-24 supplemental reserve is required until December 31, 1997;
3-25 (3) 75 percent of the otherwise applicable
3-26 supplemental reserve is required until December 31, 1998; and
3-27 (4) 100 percent of the supplemental reserve is
3-28 required after December 31, 1998 [following:]
3-29 [(a) The reserve which has been established pursuant
3-30 to Article 9.12 of this code; and]
3-31 [(b) Each insurer which has accumulated the maximum
3-32 unearned premium reserve of One Hundred Thousand Dollars ($100,000)
3-33 required by Article 9.12 of this code shall reserve a sum equal to
3-34 three (3%) percent of the premiums charged for title insurance
3-35 contracts; and]
3-36 [(c) Each insurer which has not accumulated the
3-37 maximum unearned premium reserve of One Hundred Thousand Dollars
3-38 ($100,000) required by Article 9.12 of this code shall reserve a
3-39 sum equal to five (5%) percent of the premiums charged for title
3-40 insurance contracts until the unearned premium reserve shall have
3-41 reached a total of One Hundred Thousand Dollars ($100,000) and
3-42 thereafter such insurer shall reserve a sum equal to three (3%)
3-43 percent of the premium charged for title insurance contracts; and]
3-44 [(d) Each domestic insurer shall reserve a sum equal
3-45 to ten (10%) percent of the risk rate charged for title insurance
3-46 contracts on property outside the State of Texas. This requirement
3-47 shall be cumulative of, and not in addition to, the reserve
3-48 requirement that might be imposed upon such insurer in such other
3-49 state or states.]
3-50 [(3) The term "premium" as used herein means the total
3-51 amount of premium as fixed and promulgated by the State Board of
3-52 Insurance in accordance with Article 9.07 of this Code for title
3-53 insurance contracts covering property in this state.]
3-54 [(4) The reserves as provided in Subdivision (2) of this
3-55 Article shall be reduced in the following manner, which reduction
3-56 may be used for any corporate purpose:]
3-57 [(a) As to insurers which have accumulated the maximum
3-58 unearned premium reserve of One Hundred Thousand Dollars ($100,000)
3-59 under the provisions of (2)(a) above, as of the effective date of
3-60 this act, such unearned premium shall be reduced at the rate of
3-61 one-twentieth (1/20) thereof per year.]
3-62 [(b) As to insurers which have accumulated reserves as
3-63 provided in (2)(b) and (2)(d) above, such unearned premium shall be
3-64 reduced at the end of each calendar year in which the title
3-65 insurance contract was issued at the rate of one-twentieth (1/20)
3-66 of such sum for the first year and a like amount at the end of each
3-67 calendar year thereafter for nineteen (19) consecutive years.]
3-68 [(c) As to insurers which have accumulated reserves as
3-69 provided in (2)(c) above, such unearned premium shall be reduced at
4-1 the rate of one-twentieth (1/20) of such sum per year beginning at
4-2 the end of the calendar year in which such One Hundred Thousand
4-3 Dollars ($100,000) shall have been accumulated and a like amount at
4-4 the end of each calendar year thereafter for nineteen (19)
4-5 consecutive years].
4-6 Sec. 8. FOREIGN COMPANIES. A [(5) Any] foreign title
4-7 insurer [insurance company] doing business in this state shall be
4-8 required to comply with the provisions of Section 6 and Section 7
4-9 of this article [Article unless by the laws of its state of
4-10 domicile, it is required to set aside and maintain unearned premium
4-11 reserve in substantially the same amount as required by this
4-12 Article].
4-13 Sec. 9. REEVALUATION OF RESERVE REQUIREMENTS. The
4-14 commissioner may reevaluate the adequacy of the statutory premium
4-15 reserves required under Section 3 of this article and may make
4-16 recommendations for legislative changes as the commissioner
4-17 considers appropriate.
4-18 Sec. 10. MAINTENANCE OF FUND. The statutory premium [(6)
4-19 Such] reserve and supplemental reserve fund shall be held in cash
4-20 or invested in first mortgage notes or other [such] securities [as
4-21 are] admissible for investment by title insurers [life insurance
4-22 companies] under Article 9.18 [the laws] of this code [state].
4-23 Sec. 11. EFFECT OF INSOLVENCY OR DISSOLUTION. [(7)] In the
4-24 event of the insolvency or dissolution of a title [any such]
4-25 insurer, the statutory premium [such] reserve and supplemental
4-26 reserve fund shall be used to protect title insurance contract
4-27 holders, even if [though] there are [be] no accrued title insurance
4-28 claims and even if [though] there are [be] unpaid obligations of
4-29 other types [sorts].
4-30 SECTION 2. This Act applies to reports made by domestic and
4-31 foreign title insurers beginning with reports due for calendar year
4-32 1997.
4-33 SECTION 3. The importance of this legislation and the
4-34 crowded condition of the calendars in both houses create an
4-35 emergency and an imperative public necessity that the
4-36 constitutional rule requiring bills to be read on three several
4-37 days in each house be suspended, and this rule is hereby suspended,
4-38 and that this Act take effect and be in force from and after its
4-39 passage, and it is so enacted.
4-40 * * * * *