By Sibley S.B. No. 1901
75R8173 DLF-F
A BILL TO BE ENTITLED
1-1 AN ACT
1-2 relating to authorized investments of insurers.
1-3 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-4 SECTION 1. Article 3.33, Insurance Code, is amended by
1-5 amending Sections 2, 3, 4, and 5 and adding Sections 2A, 4A, 4B,
1-6 4C, 4D, 4E, 4F, 4G, 4H, and 4I to read as follows:
1-7 Sec. 2. PURPOSE. The purpose of this article is to protect
1-8 and further the interests of insureds, insurers, creditors, and the
1-9 public by providing standards for the development and
1-10 administration of plans for the investment of the assets of
1-11 insurers. [Such plans should seek a reasonable relationship of
1-12 liabilities and assets as to term and nature.]
1-13 Sec. 2A. DEFINITION. In this article, "Securities Valuation
1-14 Office" means the Securities Valuation Office of the National
1-15 Association of Insurance Commissioners.
1-16 Sec. 3. INSURERS' INVESTMENT PLANS. (a) The board of
1-17 directors of each insurer or corresponding authority designated by
1-18 the charter, bylaws, or plan of operations of an insurer which has
1-19 no board of directors shall:
1-20 (1) adopt a written investment plan consistent with
1-21 [the provision of] this article that:
1-22 (A) specifies the diversification of
1-23 investments, to reduce the risk of large losses, by:
1-24 (i) broad type of investment, such as
2-1 bonds and real estate loans;
2-2 (ii) kind, such as obligations of
2-3 governments or business entities, mortgage-backed securities, and
2-4 real estate loans on office, retail, industrial, or residential
2-5 properties;
2-6 (iii) quality;
2-7 (iv) maturity;
2-8 (v) industry; and
2-9 (vi) geographical area for both domestic
2-10 and foreign investments;
2-11 (B) balances safety of principal with yield and
2-12 growth;
2-13 (C) seeks a reasonable relationship of assets
2-14 and liabilities with respect to term and nature; and
2-15 (D) [which specifies quality, maturity, and
2-16 diversification of investments and] is appropriate for the business
2-17 conducted by the insurer and its capital and surplus; and
2-18 (2) at least annually, review the adequacy of such
2-19 investment plan and the implementation thereof.
2-20 (b) The insurer shall maintain the investment plan in its
2-21 principal office and shall provide same to the commissioner or the
2-22 commissioner's [his] designee upon request, and such plans shall be
2-23 maintained as a privileged and confidential document by the
2-24 commissioner [Commissioner of Insurance] or the commissioner's
2-25 [his] designee and it shall not be subject to public disclosure.
2-26 The insurer shall maintain investment records covering each
2-27 transaction. [Such investment records shall contain a reference to
3-1 the subsection of this article and, if appropriate, other provision
3-2 of law that authorizes the investment.] At all times, the insurer
3-3 shall be able to demonstrate that its investments are within the
3-4 limitations prescribed in this article.
3-5 Sec. 4. AUTHORIZED INVESTMENTS AND TRANSACTIONS [LOANS].
3-6 Subject to the limitations and restrictions [herein] contained in
3-7 this article, and unless otherwise specified, based on the
3-8 insurer's capital, surplus, and admitted assets as reported in the
3-9 insurer's most recently filed financial statement required by law,
3-10 the investments and loans described in this section and in Section
3-11 6, Article 21.49-1, of this code [the following subsections], and
3-12 none other, are authorized for the insurers subject to this
3-13 article. The following investments are authorized under this
3-14 article [hereto]:
3-15 (a) United States Government Bonds. Bonds, evidences
3-16 of indebtedness, or obligations of the United States of America, or
3-17 bonds, evidences of indebtedness, or obligations guaranteed as to
3-18 principal and interest by the full faith and credit of the United
3-19 States of America, and bonds, evidences of indebtedness, or
3-20 obligations of agencies and instrumentalities of the government of
3-21 the United States of America;
3-22 (b) Other Governmental Bonds. Bonds, evidences of
3-23 indebtedness, or obligations of governmental units in the United
3-24 States, Canada, or any province or city of Canada, and of the
3-25 instrumentalities of such governmental units; provided:
3-26 (1) such governmental unit or instrumentality is
3-27 not in default in the payment of principal or interest in any of
4-1 its obligations; and
4-2 (2) investments in the obligations of any one
4-3 governmental unit or instrumentality may not exceed 20 percent of
4-4 the insurer's capital and surplus;
4-5 (c) Obligations of Business Entities. Obligations,
4-6 including bonds or evidences of indebtedness, [or] participations
4-7 in those bonds or evidences of indebtedness, or asset-backed
4-8 securities, that are issued, assumed, guaranteed, or insured by any
4-9 business entity, including a sole proprietorship, a corporation,
4-10 an association, a general or limited partnership, a joint-stock
4-11 company, a joint venture, a trust, or any other form of business
4-12 organization, whether for-profit or not-for-profit, that is
4-13 organized under the laws of the United States, another state,
4-14 Canada, or any state, district, province, or territory of Canada,
4-15 subject to all conditions set forth below:
4-16 (1) an insurer may acquire obligations or a
4-17 counterparty exposure amount in any one business entity rated [one
4-18 or two] by the Securities Valuation Office [of the National
4-19 Association of Insurance Commissioners], but not to exceed 20
4-20 percent of the insurer's statutory capital and surplus [as reported
4-21 in the most recent annual statement filed with the department];
4-22 (2) subject to Subdivision (3) of this
4-23 subsection, an insurer may not acquire obligations, counterparty
4-24 exposure amount, or preferred stock of any business entity if,
4-25 after giving effect to the investment:
4-26 (A) the aggregate amount of the
4-27 investments held by the insurer that are rated three, four, five,
5-1 or six by the Securities Valuation Office would exceed 20 percent
5-2 of the insurer's assets;
5-3 (B) the aggregate amount of the
5-4 investments held by the insurer that are rated four, five, or six
5-5 by the Securities Valuation Office would exceed 10 percent of the
5-6 insurer's assets;
5-7 (C) the aggregate amount of the
5-8 investments held by the insurer that are rated five or six by the
5-9 Securities Valuation Office would exceed three percent of the
5-10 insurer's assets; or
5-11 (D) the aggregate amount of the
5-12 investments held by the insurer that are rated six by the
5-13 Securities Valuation Office would exceed one percent of the
5-14 insurer's assets [acquire obligations rated three or lower by the
5-15 Securities Valuation Office if, after giving effect to such an
5-16 acquisition, the aggregate amount of all obligations rated three or
5-17 lower then held by the domestic insurer does not exceed 20 percent
5-18 of its admitted assets. Not more than 10 percent of the admitted
5-19 assets of that insurer may consist of obligations rated four, five,
5-20 or six by the Securities Valuation Office. Not more than three
5-21 percent of the admitted assets of that insurer may consist of
5-22 obligations rated five or six by the Securities Valuation Office.
5-23 Not more than one percent of the admitted assets of that insurer
5-24 may consist of obligations rated six by the Securities Valuation
5-25 Office. Attaining or exceeding the limit in any one category does
5-26 not preclude an insurer from acquiring obligations in other
5-27 categories, subject to the specific and multi-category limits];
6-1 (3) if an insurer attains or exceeds the limit
6-2 of any one rating category referred to in Subdivision (2) of this
6-3 subsection, the insurer is not precluded from acquiring investments
6-4 in other rating categories subject to the specific and multiple
6-5 category limits applicable to those investments [an insurer may not
6-6 invest more than an aggregate of one percent of its admitted assets
6-7 in obligations rated three by the Securities Valuation Office that
6-8 are issued, assumed, guaranteed, or insured by any one business
6-9 entity, or more than one-half percent of its admitted assets in
6-10 obligations rated four, five, or six by the Securities Valuation
6-11 Office that are issued, assumed, guaranteed, or insured by any one
6-12 business entity. An insurer may not invest more than one percent
6-13 of its admitted assets in any obligations rated three, four, five,
6-14 or six by the Securities Valuation Office that are issued, assumed,
6-15 guaranteed, or insured by any one business entity];
6-16 (4) notwithstanding the foregoing, an insurer
6-17 may acquire an obligation of a business entity in which the insurer
6-18 already has one or more obligations if the obligation is acquired
6-19 in order to protect an investment previously made in that business
6-20 entity. Such acquired obligations may not exceed one-half percent
6-21 of the insurer's [admitted] assets; and
6-22 (5) this subsection does not prohibit an insurer
6-23 from acquiring an obligation or preferred stock as a result of a
6-24 restructuring of an already held obligation that is rated three,
6-25 four, five, or six [lower] by the Securities Valuation Office;
6-26 (d) International Market. Bonds issued, assumed, or
6-27 guaranteed by the Interamerican Development Bank, the International
7-1 Bank for Reconstruction and Development (the World Bank), the Asian
7-2 Development Bank, the State of Israel, the African Development
7-3 Bank, and the International Finance Corporation; provided:
7-4 (1) investments in the bonds of any one of the
7-5 entities specified above may not exceed 20 percent of the insurer's
7-6 capital and surplus; and
7-7 (2) the aggregate of all investments made under
7-8 this subsection may not exceed 20 percent of the insurer's assets;
7-9 (e) Policy Loans. Loans upon the security of the
7-10 insurer's own policies not in excess of the amount of the reserve
7-11 values thereof;
7-12 (f) Time and Savings Deposits. Any type or form of
7-13 savings deposits, time deposits, certificates of deposit, NOW
7-14 accounts, and money market accounts in solvent banks, savings and
7-15 loan associations, and credit unions and branches thereof,
7-16 organized under the laws of the United States of America or its
7-17 states, when made in accordance with the laws or regulations
7-18 applicable to such entities; provided the amount of the deposits in
7-19 any one bank, savings and loan association, or credit union will
7-20 not exceed the greater of:
7-21 (1) 20 [twenty] percent of the insurer's capital
7-22 and surplus;
7-23 (2) the amount of federal or state deposit
7-24 insurance coverage pertaining to such deposit; or
7-25 (3) 10 [ten] percent of the amount of capital,
7-26 surplus, and undivided profits of the entity receiving such
7-27 deposits;
8-1 (g) Insurer Investment Pools. Insurer investment
8-2 pools described by Section 4A of this article [Equipment Trusts.
8-3 Equipment trust obligations or certificates; provided:]
8-4 [(1) any such obligation or certificate is
8-5 secured by an interest in transportation equipment that is in whole
8-6 or in part within the United States of America;]
8-7 [(2) the obligation or certificate provides a
8-8 right to receive determined portions of rental, purchase, or other
8-9 fixed obligatory payments for the use or purchase of the
8-10 transportation equipment;]
8-11 [(3) the obligation is classified as an
8-12 obligation of a business entity and is subject to the limitations
8-13 on obligations of business entities set forth in Subsection (c) of
8-14 this section; and]
8-15 [(4) the aggregate of all investments made under
8-16 this subsection may not exceed 10 percent of the insurer's assets];
8-17 (h) Equity Interests. Equity interests described by
8-18 Section 4B of this article [Common Stock. Common stock of any
8-19 corporation organized under the laws of the United States of
8-20 America or any of its states, shares of mutual funds doing business
8-21 under the Investment Company Act of 1940 (15 U.S.C. Section 80a-1
8-22 et seq.), other than money market funds as defined in Subsection
8-23 (s) of this section, and shares in real estate investment trusts as
8-24 defined in the Internal Revenue Code of 1954 (26 U.S.C. Section
8-25 856); provided:]
8-26 [(1) any such corporation, other than a mutual
8-27 fund, must be solvent with at least $1,000,000 net worth as of the
9-1 date of its latest annual or more recent certified audited
9-2 financial statement or will have at least $1,000,000 of net worth
9-3 after completion of a securities offering which is being subscribed
9-4 to by the insurer;]
9-5 [(2) mutual funds, other than money market funds
9-6 as defined in Subsection (s) of this section, and real estate
9-7 investment trusts must be solvent with at least $1,000,000 of net
9-8 assets as of the date of its latest annual or more recent certified
9-9 audited financial statement;]
9-10 [(3) investments in any one corporation, mutual
9-11 fund, other than a money market fund as defined in Subsection (s)
9-12 of this section, or real estate investment trust may not exceed 15
9-13 percent of the insurer's capital and surplus; and]
9-14 [(4) the aggregate of all investments made under
9-15 this subsection may not exceed 25 percent of the insurer's assets];
9-16 (i) Preferred Stock. Preferred stock of business
9-17 entities described by Subsection (c) of this section [corporations
9-18 organized under the laws of the United States of America or any of
9-19 its states]; provided:
9-20 (1) investments in the preferred stock of any
9-21 one business entity may not exceed 20 percent of the insurer's
9-22 capital and surplus;
9-23 (2) the preferred stock is rated by the
9-24 Securities Valuation Office, and the aggregate investment in
9-25 preferred stock rated three, four, five, or six, when added to the
9-26 investments authorized under Subsection (c)(2) of this section, do
9-27 not result in the combined total of investments that exceeds the
10-1 limitations specified in Subsection (c)(2) [such corporation must
10-2 be solvent with at least $1,000,000 of net worth as of the date of
10-3 its latest annual or more recent certified audited financial
10-4 statement or will have at least $1,000,000 of net worth after
10-5 completion of a security offering which is being subscribed to by
10-6 the insurer];
10-7 [(2) investments in the preferred stock of any
10-8 one corporation will not exceed 20 percent of the insurer's capital
10-9 and surplus;]
10-10 (3) in the aggregate not more than 10 percent of
10-11 the insurer's assets may be invested in preferred stock, the
10-12 redemption and retirement of which is not provided for by a sinking
10-13 fund meeting the standards established by the National Association
10-14 of Insurance Commissioners [to value the preferred stock at cost];
10-15 and
10-16 (4) the aggregate of all investments made under
10-17 this subsection may not exceed 40 percent of the insurer's assets;
10-18 (j) Collateral Loans. Collateral loans secured by a
10-19 first lien upon or a valid and perfected first security interest in
10-20 an asset; provided:
10-21 (1) the amount of any such collateral loan will
10-22 not exceed 80 percent of the value of the collateral asset at any
10-23 time during the duration of the loan; and
10-24 (2) the asset used as collateral would be
10-25 authorized for direct investment by the insurer under other
10-26 provisions of this Section 4, except real property in Subsection
10-27 (l);
11-1 (k) Real Estate Loans. Notes, evidences of
11-2 indebtedness, or participations therein secured by a valid first
11-3 lien upon real property or leasehold estate therein located in the
11-4 United States of America; provided:
11-5 (1) the amount of any such obligation secured by
11-6 a first lien upon real property or leasehold estate therein shall
11-7 not exceed 90 percent of the value of such real property or
11-8 leasehold estate therein, but the amount of such obligation:
11-9 (A) may exceed 90 percent but shall not
11-10 exceed 100 percent of the value of such real property or leasehold
11-11 estate therein if the insurer or one or more wholly owned
11-12 subsidiaries of the insurer owns in the aggregate a 10 percent or
11-13 greater equity interest in such real property or leasehold estate
11-14 therein;
11-15 (B) may be 95 percent of the value of such
11-16 real property or leasehold estate therein if it contains only a
11-17 dwelling designed exclusively for occupancy by not more than four
11-18 families for residential purposes, and the portion of the unpaid
11-19 balance of such obligation which is in excess of an amount equal to
11-20 90 percent of such value is guaranteed or insured by a mortgage
11-21 insurance company qualified to do business in the State of Texas;
11-22 or
11-23 (C) may be greater than 90 percent of the
11-24 value of such real property or leasehold estate therein to the
11-25 extent the obligation is insured or guaranteed by the United States
11-26 of America, the Federal Housing Administration pursuant to the
11-27 National Housing Act of 1934, as amended (12 U.S.C. Section 1701 et
12-1 seq.), or the State of Texas; and
12-2 (2) the term of an obligation secured by a first
12-3 lien upon a leasehold estate in real property shall not exceed a
12-4 period equal to four-fifths of the then unexpired term of such
12-5 leasehold estate; provided the unexpired term of the leasehold
12-6 estate must extend at least 10 years beyond the term of the
12-7 obligation, and each obligation shall be payable in an installment
12-8 or installments of sufficient amount or amounts so that at any time
12-9 after the expiration of two-thirds of the original loan term, the
12-10 principal balance will be no greater than the principal balance
12-11 would have been if the loan had been amortized over the original
12-12 loan term in equal monthly, quarterly, semiannual, or annual
12-13 payments of principal and interest, it being required that under
12-14 any method of repayment such obligation will fully amortize during
12-15 a period of time not exceeding four-fifths of the then unexpired
12-16 term of the security leasehold estate; and
12-17 (3) if any part of the value of buildings is to
12-18 be included in the value of such real property or leasehold estate
12-19 therein to secure the obligations provided for in this subsection,
12-20 such buildings shall be covered by adequate property insurance,
12-21 including but not limited to fire and extended coverage insurance
12-22 issued by a company authorized to transact business in the State of
12-23 Texas or by a company recognized as acceptable for such purpose by
12-24 the insurance regulatory official of the state in which such real
12-25 estate is located, and the amount of insurance granted in the
12-26 policy or policies shall be not less than the unpaid balance of the
12-27 obligation or the insurable value of such buildings, whichever is
13-1 the lesser; the loss clause shall be payable to the insurer as its
13-2 interest may appear; and
13-3 (4) to the extent any note, evidence of
13-4 indebtedness, or participation therein under this subsection
13-5 represents an equity interest in the underlying real property, the
13-6 value of such equity interest shall be determined at the time of
13-7 execution of such note, evidence of indebtedness, or participation
13-8 therein and that portion shall be designated as an investment
13-9 subject to the provisions of Subsection (l)(2) of this section; and
13-10 (5) the amount of any one such obligation may
13-11 not exceed 25 percent of the insurer's capital and surplus; and
13-12 (6) a first lien on real property may be
13-13 purchased after its origination if the first lien is insured by a
13-14 mortgagee's title policy issued to the original mortgagee that
13-15 contains a provision that inures the policy to the use and benefit
13-16 of the owners of the evidence of debt indicated in the policy and
13-17 to any subsequent owners of that evidence of debt, and if the
13-18 insurer maintains evidence of assignments or other transfers of the
13-19 first lien on real property to the insurer. An assignment or other
13-20 transfer to the insurer, duly recorded in the county in which the
13-21 real property is located, shall be presumed to create legal
13-22 ownership of the first lien by the insurer;
13-23 (l) Real Estate. Real property fee simple or
13-24 leasehold estates located within the United States of America, as
13-25 follows:
13-26 (1) home and branch office real property or
13-27 participations therein, which must be materially enhanced in value
14-1 by the construction of durable, permanent-type buildings and other
14-2 improvements costing an amount at least equal to the cost of such
14-3 real property, exclusive of buildings and improvements at the time
14-4 of acquisition, or by the construction of such buildings and
14-5 improvements which must be commenced within two years of the date
14-6 of the acquisition of such real property; provided:
14-7 (A) at least 30 percent of the available
14-8 space in such building shall be occupied for the business purposes
14-9 of the insurer and its affiliates; and
14-10 (B) the aggregate investment in such home
14-11 and branch offices shall not exceed 20 percent of the insurer's
14-12 assets; and
14-13 (2) other investment property or participations
14-14 therein, which must be materially enhanced in value by the
14-15 construction of durable, permanent-type buildings and other
14-16 improvements costing an amount at least equal to the cost of such
14-17 real property, exclusive of buildings and improvements at the time
14-18 of acquisition, or by the construction of such buildings and
14-19 improvements which must be commenced within two years of the date
14-20 of acquisition of such real property; provided that such investment
14-21 in any one piece of property or interest therein, including the
14-22 improvements, fixtures, and equipment pertaining thereto may not
14-23 exceed five percent of the insurer's assets; provided, however,
14-24 nothing in this article shall allow ownership of, development of,
14-25 or equity interest in any residential property or subdivision,
14-26 single or multiunit family dwelling property, or undeveloped real
14-27 estate for the purpose of subdivision for or development of
15-1 residential, single, or multiunit family dwellings, except
15-2 acquisitions as provided in Subdivision (4) below, and such
15-3 ownership, development, or equity interests shall be specifically
15-4 prohibited;
15-5 (3) the admissible asset value of each such
15-6 investment in the properties acquired under Subdivisions (1) and
15-7 (2) of this subsection shall be subject to review and approval by
15-8 the Commissioner of Insurance. The commissioner shall have
15-9 discretion at the time such investment is made or any time when an
15-10 examination of the company is being made to cause any such
15-11 investment to be appraised by an appraiser, appointed by the
15-12 commissioner, and the reasonable expense of such appraisal shall be
15-13 paid by such insurance company and shall be deemed to be a part of
15-14 the expense of examination of such company; if the appraisal is
15-15 made upon application of the company, the expense of such appraisal
15-16 shall not be considered a part of the expense of examination of
15-17 such company; no insurance company may hereafter make any write-up
15-18 in the valuation of any of the properties described in Subdivision
15-19 (1) or (2) of this subsection unless and until it makes application
15-20 therefor and such increase in valuation shall be approved by the
15-21 commissioner; and
15-22 (4) other real property acquired:
15-23 (A) in good faith by way of security for
15-24 loans previously contracted or money due; or
15-25 (B) in satisfaction of debts previously
15-26 contracted for in the course of its dealings; or
15-27 (C) by purchase at sales under judgment or
16-1 decrees of court, or mortgage or other lien held by such insurer;
16-2 and
16-3 (5) regardless of the mode of acquisition
16-4 specified herein, upon sale of any such real property, the fee
16-5 title to the mineral estate or any portion thereof may be retained
16-6 by the insurance company indefinitely;
16-7 (m) Oil, Gas, and Minerals. In addition to and
16-8 without limitation on the purposes for which real property may be
16-9 acquired, secured, held, or retained pursuant to other provisions
16-10 of this section, every such insurance company may secure, hold,
16-11 retain, and convey production payments, producing royalties and
16-12 producing overriding royalties, or participations therein as an
16-13 investment for the production of income; provided:
16-14 (1) in no event may such company carry such
16-15 assets in an amount in excess of 90 percent of the appraised value
16-16 thereof; and
16-17 (2) no one investment under this subsection may
16-18 exceed 10 percent of the insurer's capital and surplus in excess of
16-19 statutory minimum capital and surplus applicable to that insurer,
16-20 and the aggregate of all such investments may not exceed 10 percent
16-21 of the insurer's assets as of December 31st next preceding the date
16-22 of such investment; and
16-23 (3) for the purposes of this subsection, the
16-24 following definitions apply:
16-25 (A) a production payment is defined to
16-26 mean a right to oil, gas, or other minerals in place or as produced
16-27 that entitles its owner to a specified fraction of production until
17-1 a specified sum of money, or a specified number of units of oil,
17-2 gas, or other minerals, has been received;
17-3 (B) a royalty and an overriding royalty
17-4 are each defined to mean a right to oil, gas, and other minerals in
17-5 place or as produced that entitles the owner to a specified
17-6 fraction of production without limitation to a specified sum of
17-7 money or a specified number of units of oil, gas, or other
17-8 minerals;
17-9 (C) "producing" is defined to mean
17-10 producing oil, gas, or other minerals in paying quantities,
17-11 provided that it shall be deemed that oil, gas, or other minerals
17-12 are being produced in paying quantities if a well has been "shut
17-13 in" and "shut-in royalties" are being paid;
17-14 (n) Foreign Countries and United States Territories.
17-15 In addition to the investments in Canada authorized in other
17-16 subsections of this section, investments in other foreign countries
17-17 or in commonwealths, territories, or possessions of the United
17-18 States; provided:
17-19 (1) such investments are substantially the same
17-20 types of investments as [similar to] those authorized for
17-21 investment within the United States of America or Canada by other
17-22 provisions of this section [and are rated one or two by the
17-23 Securities Valuation Office of the National Association of
17-24 Insurance Commissioners]; and
17-25 (2) such investments when added to the amount of
17-26 similar investments made within the United States and Canada do not
17-27 result in the combined total of such investments exceeding the
18-1 limitations specified in Subsections (a) through (m) and Subsection
18-2 (o) [(p)] of this section and Sections 4C, 4D, 4E, 4F, 4G, and 4H
18-3 of this article; and
18-4 (3) such investments may not exceed the sum of:
18-5 (A) the amount of the insurer's reserves
18-6 attributable to the insurance business in force in foreign [said]
18-7 countries, if any, and any additional investments required by any
18-8 foreign country as a condition to doing business therein; and
18-9 (B) 20 [five] percent of the insurer's
18-10 assets, of which not more than 10 percent of the insurer's assets
18-11 are investments denominated in foreign currency that are not hedged
18-12 in accordance with Section 4E of this section;
18-13 (o) Investments Not Otherwise Specified. Investments
18-14 which are not otherwise authorized by this article and which are
18-15 not specifically prohibited by statute, including that portion of
18-16 any investments which may exceed the limits specified in
18-17 Subsections (a) through (n) of this section and Sections 4C, 4D,
18-18 4E, 4F, and 4G of this article; provided:
18-19 (1) if any aggregate or individual specified
18-20 investment limitation in Subsections (a) through (n) of this
18-21 section and Sections 4C, 4D, 4E, 4F, and 4G of this article is
18-22 exceeded, then the excess portion of such investment shall be an
18-23 investment under this subsection; and
18-24 (2) the burden of establishing the value of such
18-25 investments shall be upon the insurer; and
18-26 (3) the amount of any one such investment may
18-27 not exceed 10 percent of the insurer's capital and surplus in
19-1 excess of the statutory minimum capital and surplus applicable to
19-2 that insurer; and
19-3 (4) the aggregate of all investments made under
19-4 this subsection may not exceed the lesser of either five percent of
19-5 the insurer's assets or the insurer's capital and surplus in excess
19-6 of the statutory minimum capital and surplus applicable to that
19-7 insurer;
19-8 (p) Other Authorized Investments. Those other
19-9 investments as follows:
19-10 (1) any investment held by an insurer on the
19-11 effective date of this Act, which was legally authorized at the
19-12 time it was made or acquired or which the insurer was authorized to
19-13 hold or possess immediately prior to such effective date, but which
19-14 does not conform to the requirements of the investments authorized
19-15 in Subsections (a) through (o) of this section, may continue to be
19-16 held by and considered as an authorized [admitted] asset or
19-17 transaction of the insurer; provided the investment or transaction
19-18 is disposed of at its maturity date, if any, or within the time
19-19 prescribed by the law under which it was acquired, if any; and
19-20 provided further, in no event shall the provisions of this
19-21 subdivision alter the legal or accounting status of such asset; and
19-22 (2) any other investment which may be authorized
19-23 by other provisions of this code or by other laws of this state for
19-24 the insurers which are subject to this article; [.]
19-25 (q) Securities Lending, Repurchase, Reverse
19-26 Repurchase, and Dollar Roll Transactions. Transactions made in
19-27 accordance with Section 4C of this article; [Special Limitations
20-1 for Certain Fixed Annuity Insurers. The quantitative limitations
20-2 imposed above in Subsections (b)(2), (c)(2), (f)(1), (g)(3),
20-3 (h)(3), (i)(2), and (k)(5) of this section shall not apply to any
20-4 insurer with assets in excess of $2,500,000,000 and that receives
20-5 more than 90 percent of its premium income from fixed rate annuity
20-6 contracts and that has more than 90 percent of its assets allocated
20-7 to its reserves held for fixed rate annuity contracts, excluding,
20-8 however, any premium income, assets, and reserves received from,
20-9 held for, or allocated to separate accounts from the computation of
20-10 the above percentages, and in lieu thereof, the following
20-11 quantitative limitations shall apply to such insurers:]
20-12 [(1) the limitation in Subsection (b)(2) of this
20-13 section shall be two percent of the insurer's assets;]
20-14 [(2) the limitation in Subsection (c)(2) of this
20-15 section shall be two percent of the insurer's assets;]
20-16 [(3) the limitation in Subsection (f)(1) of this
20-17 section shall be two percent of the insurer's assets;]
20-18 [(4) the limitation in Subsection (g)(3) of this
20-19 section shall be one percent of the insurer's assets;]
20-20 [(5) the limitation in Subsection (h)(3) of this
20-21 section shall be one percent of the insurer's assets;]
20-22 [(6) the limitation in Subsection (i)(2) of this
20-23 section shall be two percent of the insurer's assets; and]
20-24 [(7) the limitation in Subsection (k)(5) of this
20-25 section shall be two percent of the insurer's assets.]
20-26 (r) Premium Loans. Loans to finance the payment of
20-27 premiums for the insurer's own insurance policies or annuity
21-1 contracts; provided that the amount of any such loan does not
21-2 exceed the sum of: (i) the available cash value of such insurance
21-3 policy or annuity contract; and (ii) the amount of any escrowed
21-4 commissions payable relating to such insurance policy or annuity
21-5 contract for which the premium loan is made; [and]
21-6 (s) Money Market Mutual Funds. (1) A money [Money]
21-7 market mutual fund [funds] as defined by 17 CFR 270.2a-7 under the
21-8 Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.) that is
21-9 [meet the following additional conditions]:
21-10 (A) a money market mutual fund that:
21-11 (i) invests only in
21-12 obligations issued, guaranteed, or insured by the United States or
21-13 collateralized repurchase agreements composed of those obligations;
21-14 and
21-15 (ii) qualifies for
21-16 investment without a reserve under the Purposes and Procedures of
21-17 the Securities Valuation Office or any successor publication [the
21-18 funds invest 100 percent of total assets in United States treasury
21-19 bills, notes, and bonds, and collateralized repurchase agreements
21-20 composed of those obligations at all times]; or
21-21 (B) a money market mutual fund that
21-22 qualifies for investment using the bond class one reserve factor
21-23 under the Purposes and Procedures of the Securities Valuation
21-24 Office or any successor publication [the funds invest 100 percent
21-25 of total assets in other full faith and credit instruments of the
21-26 United States; or]
21-27 [(C) the funds invest at least 95 percent
22-1 of total assets in exempt securities, short-term debt instruments
22-2 with a maturity of 397 days or less, class one bonds, and
22-3 collateralized repurchase agreements composed of those securities
22-4 at all times];
22-5 (2) For purposes of complying with Section 4B of
22-6 this article [Subsection (h) of this section], money market funds
22-7 qualifying for listing within these categories must conform to the
22-8 Purposes and Procedures of the Securities Valuation Office or a
22-9 successor publication; [purpose and procedures manual of the
22-10 valuation of securities manual of the National Association of
22-11 Insurance Commissioners.]
22-12 (t) Time of Restrictions. The percentage
22-13 authorizations and limitations set forth in any and all of the
22-14 provisions of this article [section shall] apply only at the time
22-15 the investment is originally acquired or at the time a transaction
22-16 is entered into and does not apply to the insurer or the investment
22-17 or transaction after that time except as provided by Section 4I of
22-18 this article. In addition, any investment, once qualified under
22-19 any subsection of this section, remains qualified notwithstanding
22-20 any refinancing, restructuring, or modification of the investment;
22-21 and [of originally making such investments and shall not be
22-22 applicable to the company or such investment thereafter.]
22-23 (u) Risk Control Transactions. An insurer may use
22-24 risk control transactions described by Sections 4D, 4E, 4F, and 4G
22-25 of this article.
22-26 Sec. 4A. INSURER INVESTMENT POOLS. (a) An insurer may
22-27 acquire investments in qualified investment pools that:
23-1 (1) invest only in:
23-2 (A) except as provided by Subsection (k) of this
23-3 section, obligations that are rated one or two by the Securities
23-4 Valuation Office, or that have a rating equivalent to a Securities
23-5 Valuation Office rating of one or two made by a statistical rating
23-6 organization that is nationally recognized and recognized by the
23-7 Securities Valuation Office, and that have a remaining maturity of:
23-8 (i) 397 days or less or a put that
23-9 entitles the holder to receive the principal amount of the
23-10 obligation and that may be exercised through maturity at specified
23-11 intervals not exceeding 397 days; or
23-12 (ii) three years or less and a floating
23-13 interest rate that resets not less frequently than quarterly on the
23-14 basis of a current short-term index acceptable under Subsection (l)
23-15 of this section and is not subject to a maximum limit, if the
23-16 obligations do not have an interest rate that varies inversely to
23-17 market interest rate changes;
23-18 (B) securities lending, repurchase transactions,
23-19 and reverse repurchase transactions that meet the requirements of
23-20 Section 4C of this article; or
23-21 (C) money market mutual funds authorized by
23-22 Section 4(s) of this article; or
23-23 (2) invest only in investments that an insurer may
23-24 acquire under this article, if:
23-25 (A) the insurer's proportionate interest in the
23-26 amount invested in these investments does not exceed the applicable
23-27 limits of this article; and
24-1 (B) the aggregate amount of all investments in
24-2 all investment pools held under this section does not exceed 25
24-3 percent of the insurer's assets.
24-4 (b) An insurer may not acquire an investment in an
24-5 investment pool under this section if after giving effect to the
24-6 investment the aggregate amount of investments in all investment
24-7 pools held by the insurer would exceed 35 percent of the insurer's
24-8 assets.
24-9 (c) To be qualified for investment under this section:
24-10 (1) the investment pool may not:
24-11 (A) acquire securities issued, assumed,
24-12 guaranteed, or insured by the insurer or an affiliate of the
24-13 investing insurer;
24-14 (B) borrow or incur an indebtedness for borrowed
24-15 money, except for securities lending and reverse repurchase
24-16 transactions that meet the requirements of this article; or
24-17 (C) permit the aggregate value of securities
24-18 loaned or sold to, purchased from, or invested in any one business
24-19 entity to exceed 10 percent of the total assets of the investment
24-20 pool; and
24-21 (2) the investment pool must have a written pooling
24-22 agreement that complies with this section and that designates a
24-23 pool manager who satisfies the requirements of this section.
24-24 (d) The pool manager must be organized under the laws of the
24-25 United States or a state and must be:
24-26 (1) the investing insurer, an affiliated insurer, or a
24-27 business entity affiliated with the investing insurer;
25-1 (2) a custodian bank; or
25-2 (3) a business entity:
25-3 (A) registered under the Investment Advisors Act
25-4 of 1940 (15 U.S.C. Section 80b-1 et seq.), as amended;
25-5 (B) if a reciprocal insurer or interinsurance
25-6 exchange, its attorney-in-fact; or
25-7 (C) if a United States branch of an alien
25-8 insurer, its United States manager or an affiliate or subsidiary of
25-9 its United States manager.
25-10 (e) The pool manager, or an entity described by Subsection
25-11 (d)(1)-(3) of this section designated by the pool manager, shall
25-12 compile and maintain:
25-13 (1) detailed accounting records that set forth:
25-14 (A) the cash receipts and disbursements
25-15 reflecting each pool participant's proportionate investment in the
25-16 investment pool; and
25-17 (B) a complete description of all underlying
25-18 assets of the investment pool, including the amount, interest rate,
25-19 and maturity date, if any, of each of those assets and other
25-20 appropriate information; and
25-21 (2) other records that, on a daily basis, allow third
25-22 parties to verify each pool participant's investment in the
25-23 investment pool.
25-24 (f) The pool manager shall maintain the assets of the
25-25 investment pool in one or more accounts, in the name of or on
25-26 behalf of the investment pool, under a custody or trust agreement
25-27 with a custodian bank or at the principal office of the pool
26-1 manager. The agreement under which the assets are held must:
26-2 (1) state and recognize the claims and rights of each
26-3 participant;
26-4 (2) acknowledge that the underlying assets of the
26-5 investment pool are held solely for the benefit of each participant
26-6 in proportion to the aggregate amount of its investments in the
26-7 investment pool; and
26-8 (3) contain an agreement that the underlying assets of
26-9 the investment pool may not be commingled with the general assets
26-10 of the custodian bank or any other person.
26-11 (g) The pooling agreement for the investment pool must also
26-12 provide that:
26-13 (1) 100 percent of the interest in the investment pool
26-14 must at all times be held by:
26-15 (A) an insurer or the insurer's subsidiaries or
26-16 affiliates; or
26-17 (B) in the case of a United States branch of an
26-18 alien insurer, affiliates or subsidiaries of its United States
26-19 manager;
26-20 (2) the underlying assets of the investment pool may
26-21 not be commingled with the general assets of the pool manager or
26-22 any other person;
26-23 (3) each participant owns an undivided interest in the
26-24 underlying assets of the investment pool in proportion to the
26-25 aggregate amount of each pool participant's interest in the
26-26 investment pool and the underlying assets of the investment pool
26-27 are held solely for the benefit of each participant; and
27-1 (4) a pool participant or, in the event of the pool
27-2 participant's insolvency, bankruptcy, or receivership, its trustee,
27-3 receiver, conservator, or other successor-in-interest may withdraw
27-4 all or any portion of its investment from the pool under the terms
27-5 of the pooling agreement.
27-6 (h) A pool participant must be able to make withdrawals on
27-7 demand without penalty or other assessment on any business day, and
27-8 settlement of funds must occur within a reasonable and customary
27-9 period after a withdrawal. In the case of publicly traded
27-10 securities, the settlement of funds must occur not later than the
27-11 fifth business day after a withdrawal. In the case of any other
27-12 security or investment, the settlement of funds must occur not
27-13 later than the 10th business day after a withdrawal. A
27-14 distribution under this subsection is computed in each case after
27-15 subtracting all applicable fees and expenses of the investment
27-16 pool. The pooling agreement must provide that the pool manager
27-17 shall make a distribution to a pool participant, at the discretion
27-18 of the pool manager, either:
27-19 (1) in cash, the fair market value at the time of the
27-20 distribution of the participant's pro rata share of each underlying
27-21 asset of the investment pool;
27-22 (2) in kind, a pro rata share of each underlying
27-23 asset; or
27-24 (3) in a combination of cash and in kind
27-25 distributions, a pro rata share in each underlying asset.
27-26 (i) The pool manager shall make the records of the
27-27 investment pool available for inspection by the commissioner.
28-1 (j) A transaction between the pool and a participant in the
28-2 pool is not subject to Section 4, Article 21.49-1, of this code,
28-3 except that a pooling agreement is subject to the standards imposed
28-4 by Section 4(a), Article 21.49-1, of this code. Investment
28-5 activities of the pool and transactions between pools and
28-6 participants shall be reported annually in the registration
28-7 statement required by Section 3(b), Article 21.49-1, of this code.
28-8 (k) In the absence of a one or two rating or equivalent
28-9 rating, the issuer of an obligation under Subsection (a)(1) of this
28-10 section must have outstanding obligations rated one or two by the
28-11 Securities Valuation Office or that have a rating equivalent to a
28-12 Securities Valuation Office rating of one or two made by a
28-13 nationally recognized statistical rating organization recognized by
28-14 the Securities Valuation Office.
28-15 (l) For purposes of this section, a current short-term index
28-16 is:
28-17 (1) a federal funds rate;
28-18 (2) the prime rate;
28-19 (3) the rate for treasury bills;
28-20 (4) the London InterBank Offered Rate; or
28-21 (5) the rate for commercial paper.
28-22 (m) In this section, "affiliate" means, with respect to a
28-23 person, another person who directly or indirectly through one or
28-24 more intermediaries controls, is controlled by, or is under common
28-25 control with the person.
28-26 Sec. 4B. EQUITY INTERESTS. (a) Subject to the requirements
28-27 of this article, an insurer may acquire investments in equity
29-1 interests including:
29-2 (1) common stock;
29-3 (2) equity investment in an investment company, other
29-4 than a money market mutual fund subject to Section 4(s) of this
29-5 article;
29-6 (3) a real estate investment trust;
29-7 (4) a limited partnership interest;
29-8 (5) warrants or other rights to acquire equity
29-9 interests that are created by the person that owns or would issue
29-10 the equity to be acquired; and
29-11 (6) an equity interest in any business entity that is
29-12 organized under the laws of the United States, any state of the
29-13 United States, Canada, or any province or territory of Canada.
29-14 (b) If a market value from a generally recognized source is
29-15 not available for the equity interest, the business entity or other
29-16 investment must be subject to an annual audit by an independent
29-17 certified public accountant or subject to another method of
29-18 valuation acceptable to the commissioner.
29-19 (c) An insurer may not invest in a partnership, as a general
29-20 partner, except through an investment subsidiary.
29-21 (d) An insurer's investment in any one business entity,
29-22 other than a money market mutual fund defined in Section 4(s) of
29-23 this article may not exceed 15 percent of the insurer's capital and
29-24 surplus.
29-25 (e) The aggregate amount of all investments made by an
29-26 insurer under this section may not exceed 25 percent of the
29-27 insurer's assets.
30-1 (f) In this section, "business entity" means any of the
30-2 following entities, whether organized for profit or not-for-profit:
30-3 (1) a real estate investment trust;
30-4 (2) a corporation;
30-5 (3) a limited liability company;
30-6 (4) an association;
30-7 (5) a limited partnership;
30-8 (6) a joint venture;
30-9 (7) a mutual fund;
30-10 (8) a trust;
30-11 (9) a joint tenancy; or
30-12 (10) another similar form of business organization.
30-13 Sec. 4C. SECURITIES LENDING, REPURCHASE, REVERSE REPURCHASE,
30-14 AND DOLLAR ROLL TRANSACTIONS. (a) An insurer may engage in
30-15 securities lending, repurchase, reverse repurchase, and dollar roll
30-16 transactions. The insurer shall enter into a written agreement for
30-17 each transaction, other than a dollar roll transaction, that
30-18 requires the transaction to terminate not later than the first
30-19 anniversary of the date of the transaction's inception.
30-20 (b) The insurer shall invest cash received in a transaction
30-21 under this section in accordance with this article and in a manner
30-22 that recognizes the liquidity needs of the transaction or may use
30-23 the cash for its general corporate purposes.
30-24 (c) During the period a transaction under this section
30-25 remains outstanding, the insurer or its agent or custodian shall
30-26 maintain, as to acceptable collateral received in a transaction
30-27 under this section:
31-1 (1) possession of the acceptable collateral;
31-2 (2) a perfected security interest in the acceptable
31-3 collateral; or
31-4 (3) in the case of collateral located in a
31-5 jurisdiction outside the United States, title to, or rights of a
31-6 secured creditor to, the acceptable collateral.
31-7 (d) Collateral may be maintained as provided under
31-8 Subsection (c) of this section either physically or through an
31-9 acceptable book entry system. A book entry system of the Federal
31-10 Reserve, the Depository Trust Company, the Participants Trust
31-11 Company, or another securities depositor approved by the
31-12 commissioner is acceptable for purposes of this subsection.
31-13 (e) The limitations imposed by Section 4(c) and Section 5(a)
31-14 of this article do not apply to the business entity counterparty
31-15 exposure created by transactions under this section.
31-16 (f) An insurer may not enter into a transaction under this
31-17 section if, as a result of and after giving effect to the
31-18 transaction:
31-19 (1) the aggregate amount of securities loaned, sold
31-20 to, or purchased from any one business entity counterparty under
31-21 this section would exceed five percent of the insurer's assets; or
31-22 (2) the aggregate amount of all securities loaned,
31-23 sold to, or purchased from all business entities under this
31-24 subsection would exceed 40 percent of the insurer's assets.
31-25 (g) In computing the amount sold to or purchased from a
31-26 business entity counterparty under repurchase or reverse repurchase
31-27 transactions for purposes of Subsection (f)(1) of this section,
32-1 effect may be given to netting provisions under a master written
32-2 agreement.
32-3 (h) The amount of collateral required for securities
32-4 lending, repurchase, and reverse repurchase transactions is the
32-5 amount required under provisions of the Purposes and Procedures of
32-6 the Securities Valuation Office or a successor publication.
32-7 (i) In this section:
32-8 (1) "Dollar roll transaction" means two simultaneous
32-9 transactions with settlement dates not more than 96 days apart so
32-10 that in one transaction an insurer sells to a business entity, and
32-11 in the other transaction the insurer is obligated to purchase from
32-12 the same business entity, substantially similar securities of the
32-13 following types:
32-14 (A) mortgage-backed securities issued, assumed,
32-15 or guaranteed by:
32-16 (i) the Government National Mortgage
32-17 Association;
32-18 (ii) the Federal National Mortgage
32-19 Association;
32-20 (iii) the Federal Home Loan Mortgage
32-21 Corporation; or
32-22 (iv) a successor of any entity listed in
32-23 this paragraph; and
32-24 (B) other mortgage-backed securities referred to
32-25 in Section 106, the Secondary Mortgage Market Enhancement Act of
32-26 1984 (15 U.S.C. Section 77r-1), as amended.
32-27 (2) "Repurchase transaction" means a transaction in
33-1 which an insurer purchases securities from a business entity that
33-2 is obligated to repurchase the purchased securities or equivalent
33-3 securities from the insurer at a specified price, either within a
33-4 specified period or on demand.
33-5 (3) "Reverse repurchase transaction" means a
33-6 transaction in which an insurer sells securities to a business
33-7 entity and is obligated to repurchase the securities sold or
33-8 equivalent securities from the business entity at a specified
33-9 price, either within a specified period or on demand.
33-10 (4) "Securities lending transaction" means a
33-11 transaction in which securities are loaned by an insurer to a
33-12 business entity that is obligated to return the loaned securities
33-13 or equivalent securities to the insurer, either within a specified
33-14 period or on demand.
33-15 Sec. 4D. RISK CONTROL TRANSACTIONS. (a) An insurer may use
33-16 derivative instruments to engage in hedging transactions,
33-17 replication transactions, and income generation transactions in
33-18 accordance with this section and Sections 4E, 4F, and 4G.
33-19 (b) Before entering into a derivative transaction, the board
33-20 of directors of the insurer must approve a derivative use plan, as
33-21 part of the investment plan required by Section 3 of this article,
33-22 that:
33-23 (1) describes investment objectives and risk
33-24 constraints, such as credit limits;
33-25 (2) defines permissible transactions identifying the
33-26 risks to be hedged or the assets or liabilities to be replicated;
33-27 and
34-1 (3) requires compliance with internal control
34-2 procedures.
34-3 (c) The insurer must establish written internal control
34-4 procedures that:
34-5 (1) require a quarterly report to the board of
34-6 directors that reviews:
34-7 (A) all derivative transactions entered into,
34-8 outstanding, and closed out;
34-9 (B) the results and effectiveness of the
34-10 derivatives program; and
34-11 (C) the risk exposure for over-the-counter
34-12 derivative transactions that measures the credit risk exposure
34-13 using the counterparty exposure amount;
34-14 (2) provide for a system for determining whether the
34-15 hedging or replication strategies used have been effective;
34-16 (3) provide for a system of regular reports, provided
34-17 at least monthly, to management that include:
34-18 (A) a description of all derivative transactions
34-19 entered into, outstanding, and closed out during the period since
34-20 the last report;
34-21 (B) the purpose of the derivative transactions;
34-22 (C) the performance review of the derivative
34-23 instrument program; and
34-24 (D) the counterparty exposure amount for
34-25 over-the-counter derivative transactions;
34-26 (4) identify the responsibilities and limitations on
34-27 the authority of persons authorized to effect and maintain
35-1 derivative transactions; and
35-2 (5) require documentation of each transaction
35-3 including:
35-4 (A) the purpose of the transaction;
35-5 (B) the assets or liabilities to which the
35-6 transaction relates;
35-7 (C) the specific derivative instrument used in
35-8 the transaction;
35-9 (D) for over-the-counter derivative instrument
35-10 transactions, the name of the counterparty and the counterparty
35-11 exposure amount; and
35-12 (E) for exchange traded derivative instruments,
35-13 the name of the exchange and the name of the firm that handled the
35-14 transaction.
35-15 (d) An insurer shall demonstrate to the commissioner, on
35-16 request, the intended hedging characteristics and ongoing
35-17 effectiveness of the derivative transaction or combination of
35-18 transactions through cash flow testing, duration analysis, or other
35-19 appropriate analysis.
35-20 (e) An insurer may purchase or sell one or more derivative
35-21 instruments to offset, in whole or in part, any derivative
35-22 instrument previously sold or purchased, as appropriate, without
35-23 regard to the quantitative limitations of this section or Sections
35-24 4E, 4F, and 4G of this article, if the offsetting transaction uses
35-25 the same type of derivative instrument as the derivative instrument
35-26 being offset.
35-27 (f) Each derivative instrument must be:
36-1 (1) traded on a securities exchange;
36-2 (2) entered into with, or guaranteed by, a business
36-3 entity;
36-4 (3) issued or written by or entered into with the
36-5 issuer of the underlying interest on which the derivative
36-6 instrument is based; or
36-7 (4) in the case of futures, traded through a broker
36-8 who is registered as a futures commission merchant under the
36-9 Commodity Exchange Act or who has received exemptive relief from
36-10 registration under Rule 30.10 promulgated under the Commodity
36-11 Exchange Act.
36-12 (g) An insurer shall include all counterparty exposure
36-13 amounts in determining compliance with the limitations of Section
36-14 4(c) of this article.
36-15 (h) In this section and in Sections 4E, 4F, and 4G of this
36-16 article:
36-17 (1) "Acceptable collateral" means cash, cash
36-18 equivalents, letters of credit and direct obligations, or
36-19 securities that are fully guaranteed as to principal and interest
36-20 by the United States.
36-21 (2) "Business entity" includes any of the following
36-22 entities, whether organized for profit or not-for-profit:
36-23 (A) a sole proprietorship;
36-24 (B) a corporation;
36-25 (C) a limited liability company;
36-26 (D) an association;
36-27 (E) a partnership;
37-1 (F) a joint stock company;
37-2 (G) a joint venture;
37-3 (H) a mutual fund;
37-4 (I) a bank;
37-5 (J) a trust;
37-6 (K) a joint tenancy; or
37-7 (L) another similar form of business
37-8 organization.
37-9 (3) "Cap" means an agreement obligating a seller to
37-10 make to a buyer payments that are based on the amount by which a
37-11 reference price or level or the performance or value of one or more
37-12 underlying interests exceeds a predetermined number, sometimes
37-13 called the strike rate or strike price.
37-14 (4)(A) "Cash equivalents" means highly liquid and
37-15 readily marketable investments or securities that:
37-16 (i) have a remaining term to maturity of
37-17 one year or less; and
37-18 (ii) are rated "P-1" by Moody's Investors
37-19 Service, Inc., or "A-1" by Standard and Poor's Corporation, or have
37-20 an equivalent rating by a nationally recognized statistical rating
37-21 organization recognized by the Securities Valuation Office.
37-22 (B) The term includes money market mutual funds
37-23 described by Section 4(s) of this article.
37-24 (5) "Collar" means an agreement to:
37-25 (A) receive payments as the buyer of an option,
37-26 cap, or floor; and
37-27 (B) make payments as the seller of a different
38-1 option, cap, or floor.
38-2 (6)(A) "Counterparty exposure amount" means:
38-3 (i) for an over-the-counter derivative
38-4 instrument not entered into under or subject to a written master
38-5 agreement that provides for netting of payments owed by the
38-6 respective parties:
38-7 (aa) the market value of
38-8 the over-the-counter derivative instrument, if the liquidation of
38-9 the derivative instrument would result in a final cash payment to
38-10 the insurer; or
38-11 (bb) zero, if the
38-12 liquidation of the derivative instrument would not result in a
38-13 final cash payment to the insurer;
38-14 (ii) for over-the-counter derivative
38-15 instruments entered into under or subject to a written master
38-16 agreement that provides for netting of payments owed by the
38-17 respective parties, and with respect to which the domiciliary
38-18 jurisdiction of the counterparty is either within the United States
38-19 or, if not within the United States, within a foreign jurisdiction
38-20 listed in the Purposes and Procedures Manual of the Securities
38-21 Valuation Office as eligible for netting, the greater of zero or
38-22 the net sum payable to the insurer in connection with all
38-23 derivative instruments subject to the written master agreement on
38-24 their liquidation in the event of default by the counterparty under
38-25 the master agreement, assuming no conditions precedent to the
38-26 obligations of the counterparty to make such a payment and assuming
38-27 no setoff of amounts payable under any other instrument or
39-1 agreement.
39-2 (B) For purposes of this subdivision, market
39-3 value or the net sum payable is:
39-4 (i) determined at the end of the most
39-5 recent quarter of the insurer's fiscal year; and
39-6 (ii) reduced by the market value of
39-7 acceptable collateral held by the insurer or a custodian on the
39-8 insurer's behalf.
39-9 (7)(A) "Derivative instrument" means an agreement,
39-10 option, or instrument, or any series or combinations of agreements,
39-11 options, or instruments:
39-12 (i) to make or take delivery of, or assume
39-13 or relinquish, a specified amount of one or more underlying
39-14 interests, or to make a cash settlement in lieu of one or more
39-15 underlying interests; or
39-16 (ii) that have a price, performance,
39-17 value, or cash flow based primarily on the actual or expected
39-18 price, yield, level, performance, value, or cash flow of one or
39-19 more underlying interests.
39-20 (B) The term includes:
39-21 (i) an option;
39-22 (ii) a warrant not otherwise permitted to
39-23 be held by the insurer under this article;
39-24 (iii) a cap;
39-25 (iv) a floor;
39-26 (v) a collar;
39-27 (vi) a swap;
40-1 (vii) a swap option;
40-2 (viii) a forward;
40-3 (ix) a future;
40-4 (x) any other agreement, option, or
40-5 instrument substantially similar to an agreement, option, or
40-6 instrument described by this paragraph; or
40-7 (xi) any series or combinations of
40-8 agreements, options, or instruments described by this paragraph.
40-9 (C) The term does not include:
40-10 (i) collateralized mortgage obligations or
40-11 other asset-backed securities;
40-12 (ii) principal-protected structured
40-13 securities;
40-14 (iii) floating rate securities;
40-15 (iv) an instrument that an insurer is
40-16 otherwise permitted to invest in or receive under this article
40-17 other than under this section; or
40-18 (v) any debt obligations of the insurer.
40-19 (8) "Derivative transaction" means a transaction
40-20 involving the use of one or more derivative instruments. The term
40-21 does not include a dollar roll transaction, a repurchase
40-22 transaction, a reverse repurchase transaction, or a securities
40-23 lending transaction.
40-24 (9) "Floor" means an agreement obligating the seller
40-25 to make payments to the buyer in which each payment is based on the
40-26 amount by which a predetermined number, sometimes called the floor
40-27 rate or price, exceeds a reference price, level, performance, or
41-1 value of one or more underlying interests.
41-2 (10) "Forward" means an agreement to make or take
41-3 delivery in the future of one or more underlying interests, or to
41-4 effect a cash settlement, based on the actual or expected price,
41-5 level, performance, or value of the underlying interests. The term
41-6 does not include:
41-7 (A) a future; or
41-8 (B) a spot transaction effected within customary
41-9 settlement periods, a when-issued purchase, or another similar cash
41-10 market transaction.
41-11 (11) "Future" means an agreement traded on a futures
41-12 exchange to make or take delivery of, or effect a cash settlement
41-13 based on the actual or expected price, level, performance, or value
41-14 of, one or more underlying interests.
41-15 (12) "Futures exchange" means a foreign or domestic
41-16 exchange, contract market, or board of trade:
41-17 (A) on which trading in futures is conducted;
41-18 and
41-19 (B) that, if located in the United States, has
41-20 been authorized for trading in futures by the Commodities Futures
41-21 Trading Commission.
41-22 (13) "Hedging transaction" means a derivative
41-23 transaction that is entered into and maintained to manage:
41-24 (A) the risk of a change in the value, yield,
41-25 price, cash flow, or quantity of assets or liabilities or a
41-26 portfolio of assets or liabilities that the insurer has acquired or
41-27 incurred or anticipates acquiring or incurring; or
42-1 (B) the currency exchange rate risk related to
42-2 assets or liabilities or a portfolio of assets or liabilities that
42-3 an insurer has acquired or incurred or anticipates acquiring or
42-4 incurring.
42-5 (14) "Income generation transaction" means a
42-6 derivative transaction that is entered into to generate income.
42-7 The term does not include a derivative transaction that is entered
42-8 into as a hedging transaction or a replication.
42-9 (15) "Market value" means the total of:
42-10 (A) the price for the security or derivative
42-11 instrument:
42-12 (i) from a generally recognized source or
42-13 the most recent quotation from a generally recognized source; or
42-14 (ii) to the extent a generally recognized
42-15 source for a price does not exist, as determined under the terms
42-16 of the instrument or in good faith by the insurer as can be
42-17 reasonably demonstrated to the commissioner on request; and
42-18 (B) accrued but unpaid income on the price to
42-19 the extent it is not included in the price on the date that the
42-20 market price is determined.
42-21 (16) "Option" means an agreement under which a buyer
42-22 has the right, based on the actual or expected price, spread,
42-23 level, performance, or value of one or more underlying interests,
42-24 to:
42-25 (A) buy or receive (a call option);
42-26 (B) sell or deliver (a put option); or
42-27 (C) enter into, extend or terminate, or effect a
43-1 cash settlement.
43-2 (17) "Over-the-counter derivative instrument" means a
43-3 derivative instrument entered into with a business entity other
43-4 than through a securities exchange or futures exchange or cleared
43-5 through a qualified clearinghouse.
43-6 (18) "Potential exposure" means:
43-7 (A) as to a futures position, the amount of
43-8 initial margin required for that position; or
43-9 (B) as to swaps, collars, and forwards, one-half
43-10 percent multiplied by the notional amount multiplied by the square
43-11 root of the remaining years to maturity.
43-12 (19) "Qualified clearinghouse" means a clearinghouse
43-13 that:
43-14 (A) is subject to the rules of a securities
43-15 exchange or a futures exchange; and
43-16 (B) provides clearing services, including acting
43-17 as a counterparty to each of the parties to a transaction, so that
43-18 the parties no longer have credit risk to each other.
43-19 (20) "Replication transaction" means a derivative
43-20 transaction or combination of derivative transactions effected
43-21 either separately or in conjunction with cash market investments
43-22 included in the insurer's investment portfolio in order to
43-23 replicate the risks and returns of another authorized transaction,
43-24 investment, or instrument or to operate as a substitute for cash
43-25 market transactions. The term does not include a derivative
43-26 transaction entered into by the insurer as a hedging transaction.
43-27 (21) "Securities exchange" means:
44-1 (A) an exchange registered as a national
44-2 securities exchange or a securities market registered under the
44-3 Securities Exchange Act of 1934 (15 U.S.C. Section 78 et seq.), as
44-4 amended;
44-5 (B) Private Offerings Resales and Trading
44-6 through Automated Linkages (PORTAL); or
44-7 (C) a designated offshore securities market as
44-8 defined in Securities Exchange Commission Regulation S, 17 C.F.R.
44-9 Part 230, as amended.
44-10 (22) "Swap" means an agreement to exchange or to net
44-11 payments at one or more times based on the actual or expected
44-12 price, yield, level, performance, or value of one or more
44-13 underlying interests.
44-14 (23) "Swap option" means an option to purchase or sell
44-15 a swap at a given price and time or at a series of prices and
44-16 times. The term does not include a swap with an embedded option.
44-17 (24) "Underlying interest" means the assets,
44-18 liabilities, other interests, or a combination of assets,
44-19 liabilities, or other interests, underlying a derivative
44-20 instrument, such as any one or more securities, currencies, rates,
44-21 indices, commodities, or derivative instruments.
44-22 (25) "Warrant" means an instrument that gives the
44-23 holder the right to purchase or sell the underlying interest at a
44-24 given price and time or at a series of prices and times outlined in
44-25 the warrant agreement.
44-26 Sec. 4E. HEDGING TRANSACTIONS. (a) Not later than the 10th
44-27 day before the date an insurer enters into an initial hedging
45-1 transaction, the insurer shall notify the commissioner in writing.
45-2 The notice must:
45-3 (1) state that the insurer's board of directors has
45-4 adopted an investment plan that authorizes hedging transactions;
45-5 and
45-6 (2) acknowledge that all hedging transactions must
45-7 comply with this article.
45-8 (b) After an insurer provides the notice required by
45-9 Subsection (a) of this section, an insurer may enter into hedging
45-10 transactions under this section, if as a result of and after giving
45-11 effect to each transaction:
45-12 (1) the aggregate statement of value of all
45-13 outstanding caps, floors, swap options, warrants, and options other
45-14 than collars that are not attached to another financial instrument
45-15 purchased by the insurer under Section 4D of this article, this
45-16 section, and Sections 4F and 4G of this article does not exceed 7.5
45-17 percent of the insurer's assets;
45-18 (2) the aggregate statement value of all outstanding
45-19 swap options, warrants, caps, floors, and options, other than
45-20 collars, written by the insurer under Section 4D of this article,
45-21 this section, and Sections 4F and 4G of this article does not
45-22 exceed three percent of the insurer's assets; and
45-23 (3) the aggregate potential exposure of all
45-24 outstanding collars, swaps, forwards, and futures entered into or
45-25 acquired by the insurer under Section 4D of this article, this
45-26 section, and Sections 4F and 4G of this article does not exceed 6.5
45-27 percent of the insurer's assets.
46-1 (c) If the investment practices of an insurer relating to
46-2 transactions made under this section appear not to be in compliance
46-3 with this section or may create a hazardous financial condition to
46-4 the insurer that effects the insurer's policyholders or creditors
46-5 or the general public, the commissioner may, after notice and an
46-6 opportunity for a hearing, order the insurer to take any action
46-7 that may be reasonably necessary to:
46-8 (1) rectify a hazardous financial condition; or
46-9 (2) prevent an impending hazardous financial condition
46-10 from occurring.
46-11 Sec. 4F. INCOME GENERATION TRANSACTIONS. (a) An insurer
46-12 may enter into an income generation transaction only if:
46-13 (1) as a result of and after giving effect to the
46-14 transaction, the total of the following does not exceed 10 percent
46-15 of the insurer's assets:
46-16 (A) the aggregate statement value of admitted
46-17 assets that are subject to call or that generate the cash flows for
46-18 payments required to be made by the insurer under caps and floors
46-19 sold by the insurer and outstanding under Sections 4D and 4E of
46-20 this article, this section, and Section 4G of this article;
46-21 (B) the statement value of admitted assets
46-22 underlying derivative instruments subject to calls sold by the
46-23 insurer and outstanding under Sections 4D and 4E of this article,
46-24 this section, and Section 4G of this article;
46-25 (C) the statement value of admitted assets
46-26 underlying derivative instruments subject to calls sold by the
46-27 insurer and outstanding under Sections 4D and 4E of this article,
47-1 this section, and Section 4G of this article; and
47-2 (D) the purchase price of assets subject to puts
47-3 outstanding under Sections 4D and 4E of this article, this section,
47-4 and Section 4G of this article; and
47-5 (2) the transaction is one of the following types, is
47-6 covered in the manner specified in this section, and meets the
47-7 other requirements specified in this section:
47-8 (A) sales of call options on assets;
47-9 (B) sales of put options on assets;
47-10 (C) sales of call options on derivative
47-11 instruments, including swap options; and
47-12 (D) sales of caps and floors.
47-13 (b) An insurer may enter into sales of call options on
47-14 assets under this section only if the insurer holds or has a
47-15 currently exercisable right to acquire the underlying assets during
47-16 the entire period that the option is outstanding.
47-17 (c) An insurer may enter into sales of put options on assets
47-18 under this section only if the insurer holds sufficient cash, cash
47-19 equivalents, or interests in a short term investment pool to
47-20 purchase the underlying assets on exercise during the entire period
47-21 that the option is outstanding and has the ability to hold the
47-22 underlying assets in its portfolio. If the total market of all put
47-23 options exceeds two percent of the insurer's assets, the insurer
47-24 shall set aside under a custodial or escrow agreement cash or cash
47-25 equivalents with a market value equal to the amount of the
47-26 insurer's put option obligations in excess of two percent of the
47-27 insurer's assets during the entire period the option is
48-1 outstanding.
48-2 (d) An insurer may enter into sales of call options on
48-3 derivative instruments, including swap options, under this section
48-4 only if the insurer:
48-5 (1) holds or has an exercisable right to acquire
48-6 assets generating the cash flow to make any payments for which the
48-7 insurer is liable under the underlying derivative instruments
48-8 during the entire period that the call options are outstanding; and
48-9 (2) has the ability to enter into the underlying
48-10 derivative transactions for its portfolio.
48-11 (e) An insurer may enter into sales of caps and floors under
48-12 this section only if the insurer holds or has a currently
48-13 exercisable right to acquire assets generating the cash flow to
48-14 make any payments for which the insurer is liable under the caps
48-15 and floors during the entire period that the caps and floors are
48-16 outstanding.
48-17 Sec. 4G. REPLICATION TRANSACTIONS. (a) An insurer may
48-18 enter into replication transactions only with prior written
48-19 approval from the commissioner if:
48-20 (1) the insurer would otherwise be authorized to
48-21 invest its funds under this article in the asset being replicated;
48-22 (2) the asset being replicated is subject to all the
48-23 provisions and limitations on the making of the asset specified in
48-24 this article with respect to investments by the insurer as if the
48-25 transaction constituted a direct investment by the insurer in the
48-26 replicated asset; and
48-27 (3) the transaction satisfies any rules adopted by the
49-1 commissioner.
49-2 (b) The commissioner may adopt rules regarding replication
49-3 transactions as necessary to implement this section.
49-4 Sec. 4H. DISTRIBUTIONS, REINSURANCE, AND MERGER. (a) This
49-5 article does not:
49-6 (1) prohibit the acquisition by an insurer of
49-7 additional obligations, securities, or other assets if received as
49-8 a dividend or as a distribution of assets;
49-9 (2) apply to securities, obligations, or other assets
49-10 accepted incident to the workout, adjustment, restructuring, or
49-11 similar realization of any kind of investment, when considered by
49-12 the insurer's board of directors or by a committee appointed by the
49-13 board of directors to be in the best interests of the insurer, if
49-14 the debt or investment had previously qualified as an admitted
49-15 asset; or
49-16 (3) apply to assets acquired under a lawful agreement
49-17 of bulk reinsurance, merger, or consolidation if the assets
49-18 constituted legal and admissible investments for the ceding,
49-19 merged, or consolidated company.
49-20 (b) An obligation, security, or other asset acquired as
49-21 permitted by this section is not required to be qualified under any
49-22 other provision of this article.
49-23 Sec. 4I. QUALIFICATION OF INVESTMENTS. (a) The
49-24 qualification or disqualification of an investment under one
49-25 provision of this article does not prevent its qualification in
49-26 whole or in part under another provision. An insurer may elect
49-27 under which authorizing provision an investment is held if the
50-1 investment is authorized by more than one provision.
50-2 (b) Except as provided by Section 4(m)(2) of this article,
50-3 an investment or investment practice qualified under any provision
50-4 of this article at the time it was acquired or entered into by the
50-5 company continues to be qualified under that provision.
50-6 (c) An investment, in whole or in part, may be transferred
50-7 from time to time, at the election of the insurer, to the authority
50-8 of any other provision under which it qualifies, without regard to
50-9 whether the investment originally qualified under that provision.
50-10 Sec. 5. AGGREGATE DIVERSIFICATION REQUIREMENTS. (a) Except
50-11 as provided by Subsection (b) of this section, the [The] following
50-12 provisions govern and take precedence over [each and every
50-13 provision of] Section 4 of this article:
50-14 (1) [(a)] Investment in all or any types of
50-15 securities, loans, obligations, or evidences of indebtedness of a
50-16 single issuer or borrower (which shall include such issuer's or
50-17 borrower's majority-owned subsidiaries or parent or the
50-18 majority-owned subsidiaries of such parent), other than those
50-19 authorized investments that are either direct obligations of or
50-20 guaranteed by the full faith and credit of the United States of
50-21 America, the State of Texas, or a political subdivision thereof or
50-22 are insured by an agency of the United States of America or the
50-23 State of Texas shall not in the aggregate exceed five percent of
50-24 the insurer's assets except for those investments provided for in
50-25 Subsections (e) and (f) of Section 4 of this article; and
50-26 (2) [(b)] The aggregate investment in real property
50-27 authorized by Subsections (l), (m), (o), and (p) of Section 4 may
51-1 not exceed 33-1/3 percent of the insurer's assets; provided, in
51-2 the event an insurer acquires real property under Subdivision (4)
51-3 of Subsection (l) of Section 4 and such acquisition causes such
51-4 aggregate real estate to exceed the limitation set forth herein,
51-5 the insurer shall either dispose of sufficient excess real property
51-6 to come within such limitations within 10 years of such acquisition
51-7 or it may not thereafter admit as an asset the value of the real
51-8 property in excess of such limitation; should an insurer's real
51-9 property acquisitions exceed such 33-1/3 percent limitation, no
51-10 additional real property acquisitions under Subdivisions (1) and
51-11 (2) of Subsection (l), and Subsections (m), (o), and (p) of Section
51-12 4 of this article are authorized until such excess is removed.
51-13 (b) This section does not apply to investments described by
51-14 Sections 4(q), (t), and (v) of this article.
51-15 SECTION 2. Article 2.10, Insurance Code, is amended to read
51-16 as follows:
51-17 Art. 2.10. INVESTMENT OF FUNDS IN EXCESS OF MINIMUM CAPITAL
51-18 AND MINIMUM SURPLUS. No company except any writing life, health
51-19 and accident insurance, organized under the laws of this state,
51-20 shall invest its funds over and above its minimum capital and its
51-21 minimum surplus, as provided in Article 2.02, except as otherwise
51-22 provided in this Code, in any other manner than as follows:
51-23 1. As provided for the investment of its minimum
51-24 capital and its minimum surplus in Article 2.08;
51-25 2. In bonds or other evidences of debt which at the
51-26 time of purchase are interest-bearing and are issued by authority
51-27 of law and are not in default as to principal or interest, of any
52-1 of the States of the United States, or of Canada or any province of
52-2 Canada, or in the stock of any National Bank, in stock of any State
52-3 Bank of Texas whose deposits are insured by the Federal Deposit
52-4 Insurance Corporation; provided, however, that if said funds are
52-5 invested in the stock of a State Bank of Texas that not more than
52-6 thirty-five per cent (35%) of the total outstanding stock of any
52-7 one (1) State Bank of Texas may be so purchased by any one (1)
52-8 insurance company; and provided further, that neither the insurance
52-9 company whose funds are invested in said bank stock nor any other
52-10 insurance company may invest its funds in the remaining stock of
52-11 any such State Bank;
52-12 3. In bonds, notes, evidences of indebtedness or
52-13 participations therein secured by a valid first lien upon real
52-14 property or leasehold estate therein located in the United States
52-15 of America, its states, commonwealths, territories, or possessions,
52-16 provided:
52-17 (a) The amount of any such obligation secured by
52-18 a first lien upon real property or leasehold estate therein shall
52-19 not exceed ninety per cent (90%) of the value of such real property
52-20 or leasehold estate therein, but the amount of such obligation:
52-21 (1) May exceed ninety per cent (90%) but
52-22 shall not exceed one hundred per cent (100%) of the value of such
52-23 real property or leasehold estate therein if the insurer or one or
52-24 more wholly owned subsidiaries of the insurer own in the aggregate
52-25 a ten per cent (10%) or greater equity interest in such real
52-26 property or leasehold estate therein;
52-27 (2) May be ninety-five per cent (95%) of
53-1 the value of such real property if it contains only a dwelling
53-2 designed exclusively for occupancy by not more than four families
53-3 for residential purposes, and the portion of the unpaid balance of
53-4 such obligation which is in excess of an amount equal to ninety per
53-5 cent (90%) of such value is guaranteed or insured by a mortgage
53-6 insurance company licensed to do business in the State of Texas; or
53-7 (3) May be greater than ninety per cent
53-8 (90%) of the value of such real property to the extent the
53-9 obligation is insured or guaranteed by the United States of
53-10 America, or an agency or instrumentality thereof, the Federal
53-11 Housing Administration pursuant to the National Housing Act of
53-12 1934, as amended (12 U.S.C. Sec. 1701 et seq.), or the State of
53-13 Texas; and
53-14 (b) The term of an obligation secured by a first
53-15 lien upon a leasehold estate in real property and improvements
53-16 situated thereon shall not exceed a period equal to four-fifths
53-17 (4/5) of the then unexpired term of such leasehold estate,
53-18 provided:
53-19 (1) The unexpired term of the leasehold
53-20 estate must extend at least ten (10) years beyond the term of the
53-21 obligation; and
53-22 (2) Each obligation shall be payable in
53-23 equal monthly, quarterly, semi-annual, or annual payments of
53-24 principal plus accrued interest to the date of such principal
53-25 payment, so that under either method of repayment such obligation
53-26 will fully amortize during a period of time not to exceed
53-27 four-fifths (4/5) of the then unexpired term of the security
54-1 leasehold estate; and
54-2 (c) The amount of any one such obligation may
54-3 not exceed ten per cent (10%) of the insurer's capital and surplus;
54-4 and
54-5 (d) The aggregate of investments made under this
54-6 Section 3 may not exceed thirty per cent (30%) of the insurer's
54-7 assets;
54-8 4. In bonds or other interest-bearing evidences of
54-9 debt of any county, municipality, road district, turnpike district
54-10 or authority, water district, any subdivision of a county,
54-11 incorporated city, town, school district, sanitary or navigation
54-12 district, any municipally owned revenue water system, sewer system
54-13 or electric utility company where special revenues to meet the
54-14 principal and interest payments of such municipally owned revenue
54-15 water system, sewer system or electric utility company bonds or
54-16 other evidences of debt shall have been appropriated, pledged or
54-17 otherwise provided for by such municipality. Provided, before
54-18 bonds or other evidences of debt of navigation districts shall be
54-19 eligible investments such navigation district shall be located in
54-20 whole or in part in a county containing a population of not less
54-21 than 100,000 according to the last preceding Federal Census; and
54-22 provided further, that the interest due on such navigation bonds or
54-23 other evidences of debt of navigation districts must never have
54-24 been defaulted;
54-25 5. In the stocks, bonds, debentures, bills of exchange
54-26 or other commercial notes or bills and securities of any solvent
54-27 dividend paying corporation at time of purchase, incorporated under
55-1 the laws of this state, or of any other State of the United States,
55-2 or of the United States, or of Canada or any province of Canada,
55-3 which has not defaulted in the payment of any of its obligations
55-4 for a period of five (5) years, immediately preceding the date of
55-5 the investment; provided such funds may not be invested in the
55-6 stock of any oil, manufacturing or mercantile corporation organized
55-7 under the laws of this state, unless such corporation has at the
55-8 time of investment a net worth of not less than $250,000.00 nor in
55-9 the stock of any oil, manufacturing or mercantile corporation, not
55-10 organized under the laws of this state, unless such corporation has
55-11 a combined capital, surplus and undivided profits of not less than
55-12 $2,500,000.00; provided further:
55-13 (a) Any such insurance company may invest its
55-14 funds over and above its minimum capital stock, its minimum
55-15 surplus, and all reserves required by law, in the stocks, bonds or
55-16 debentures of any solvent corporation organized under the laws of
55-17 this state, or of any other State of the United States, or of the
55-18 United States or of Canada or any province of Canada.
55-19 (b) No such insurance company shall invest any
55-20 of its funds in its own stock or in any stock on account of which
55-21 the holders or owners thereof may, in any event, be or become
55-22 liable to any assessment, except for taxes.
55-23 (c) No such insurance company shall invest any
55-24 of its funds in stocks, bonds or other securities issued by a
55-25 corporation if a majority of the stock having voting powers of such
55-26 issuing corporation is owned, directly or indirectly, by or for the
55-27 benefit of one or more officers or directors of such insurance
56-1 company; provided, however, that this Section shall not apply to
56-2 any insurance company which has been in continuous operation for
56-3 five (5) years.
56-4 6. In shares of mutual funds doing business under the
56-5 Investment Company Act of 1940 (15 U.S.C. Section 80a-1 et seq.)
56-6 if:
56-7 (a) the mutual funds are solvent with at least
56-8 $1,000,000 of net assets as of the date of its latest annual or
56-9 more recent certified audited financial statement;
56-10 (b) investment in any one mutual fund does not
56-11 exceed 15 percent of the insurer's capital and surplus; and
56-12 (c) the aggregate of all investments made under
56-13 this subsection does not exceed 25 percent of the insurer's assets.
56-14 7. In addition to the investments in Canada authorized
56-15 in other provisions of this article, investments in other foreign
56-16 countries or in commonwealths, territories, or possessions of the
56-17 United States, or in foreign securities originating in such foreign
56-18 countries, commonwealths, territories, or possessions of the United
56-19 States if:
56-20 (a) the investments are similar to those
56-21 authorized for investment within the United States or Canada by
56-22 other provisions of this article and are rated one or two by the
56-23 Securities Valuation Office of the National Association of
56-24 Insurance Commissioners;
56-25 (b) the aggregate amount of foreign investments
56-26 held by the insurer under this subsection in a single foreign
56-27 jurisdiction does not exceed either:
57-1 (i) 10 percent of its admitted assets as
57-2 to a foreign jurisdiction that has a sovereign debt rating of SVO 1
57-3 by the Securities Valuation Office of the National Association of
57-4 Insurance Commissioners; or
57-5 (ii) five percent of its admitted assets
57-6 as to any other foreign jurisdiction;
57-7 (c) the investments, when added to the amount of
57-8 similar investments made within the United States and Canada and
57-9 any amounts authorized by Article 2.10-2 of this code, do not
57-10 result in the combined total of these investments exceeding the
57-11 limitations specified elsewhere in this article; and
57-12 (d) the investments do not exceed the total of:
57-13 (i) the amounts authorized by Article
57-14 2.10-2 of this code; and
57-15 (ii) 20 percent of the insurer's assets.
57-16 8. In loans upon the pledge of any mortgage, stock,
57-17 bonds or other evidence of indebtedness acceptable as investments
57-18 under the terms of this Article, if the current value of such
57-19 mortgage, stock, bonds or other evidence of indebtedness is at
57-20 least twenty-five per cent (25%) more than the amount loaned
57-21 thereon;
57-22 9 [7]. In interest-bearing notes or bonds of The
57-23 University of Texas issued under and by virtue of Chapter 40, Acts
57-24 of the 43rd Legislature, Second Called Session;
57-25 10 [8]. (a) In real estate to the extent as elsewhere
57-26 authorized by this Code;
57-27 (b) Any such company with admitted assets in
58-1 excess of $500,000,000.00 may own other investment real property or
58-2 participations therein, which must be materially enhanced in value
58-3 by the construction of durable, permanent type buildings and other
58-4 improvements costing an amount at least equal to the cost of such
58-5 real property, exclusive of buildings and improvements at the time
58-6 of acquisition, or by the construction of such buildings and
58-7 improvements which must be commenced within two years of the date
58-8 of acquisition of such real property; provided, however, nothing in
58-9 this Article shall allow ownership of, development of, or equity
58-10 interest in any residential property or subdivision, single or
58-11 multiunit family dwelling property, or undeveloped real estate for
58-12 the purpose of subdivision for or development of residential,
58-13 single or multiunit family dwellings, except those properties
58-14 acquired as provided in Article 6.08 of this Code, and such
58-15 ownership, development, or equity interests shall be specifically
58-16 prohibited;
58-17 (c) The total amount invested by any such
58-18 company in all such investment real property and improvements
58-19 thereof shall not exceed fifteen per cent (15%) of its admitted
58-20 assets which are in excess of $500,000,000.00, provided, however,
58-21 that the amount invested in any one such property and its
58-22 improvements or interest therein shall not exceed five per cent
58-23 (5%) of its admitted assets which are in excess of $500,000,000.00.
58-24 The admitted assets of the company at any time shall be determined
58-25 from its annual statements made as of the last preceding December
58-26 31 and filed with the State Board of Insurance as required by law.
58-27 The value of any investment made under this Article shall be
59-1 subject to the appraisal provision set forth in Paragraph 5 of
59-2 Article 6.08 of this Code;
59-3 (d) The investment authority granted by (b) and
59-4 (c) of this Paragraph 10 [8] is in addition to and separate and
59-5 apart from that granted by Article 6.08 of this Code, provided,
59-6 however, that no such company shall make any investment in such
59-7 real estate which, when added to those properties described in
59-8 Paragraph 1 of Article 6.08 of this Code, would be in excess of the
59-9 limitations provided by Paragraph 5 of Article 6.08 of this Code;
59-10 (e) The insurance companies defined in Article
59-11 2.01 of this Code and other insurers specifically made subject to
59-12 the provisions of this Article shall not engage in the business of
59-13 a real estate broker or a real estate salesman as defined by The
59-14 Real Estate License Act [Chapter 1, page 560, General Laws, Acts
59-15 of the 46th Legislature, 1939] (Article 6573a, Vernon's Texas
59-16 Civil Statutes), except that such insurers may hold, improve,
59-17 maintain, manage, rent, lease, sell, exchange, or convey any of the
59-18 real property interests legally owned as investments under this
59-19 Code;
59-20 11 [9]. In equipment trust obligations or certificates
59-21 that are adequately secured or in other adequately secured
59-22 instruments evidencing an interest in transportation equipment in
59-23 whole or in part within the United States and a right to receive
59-24 determined portions of rental, purchase, or other fixed obligatory
59-25 payments for the use or purchase of the transportation equipment;
59-26 12 [10]. In insured accounts and evidences of
59-27 indebtedness as defined and limited by Section 1, Chapter 618, page
60-1 1356, Acts of the 47th Legislature; in shares or share accounts as
60-2 authorized in Section 1, page 76, Acts 1939, 46th Legislature; in
60-3 insured or guaranteed obligations as authorized in Chapter 230,
60-4 page 315, Acts 1945, 49th Legislature; in bonds issued under the
60-5 provisions authorized by Section 9, Chapter 231, page 774, Acts
60-6 1933, 43rd Legislature; in bonds under authority of Section 1,
60-7 Chapter 1, page 427, Acts 1939, 46th Legislature; in bonds and
60-8 other indebtedness as authorized in Section 1, Chapter 3, page 494,
60-9 Acts 1939, 46th Legislature; in "Municipal Bonds" issued under and
60-10 by virtue of Chapter 280, Acts 1929, 41st Legislature; or in bonds
60-11 as authorized by Section 5, Chapter 122, page 219, Acts 1949, 51st
60-12 Legislature; or in bonds as authorized by Section 10, Chapter 159,
60-13 page 326, Acts 1949, 51st Legislature; or in bonds as authorized by
60-14 Section 19, Chapter 340, page 655, Acts 1949, 51st Legislature; or
60-15 in bonds as authorized by Section 10, Chapter 398, page 737, Acts
60-16 1949, 51st Legislature; or in bonds as authorized by Section 18,
60-17 Chapter 465, page 855, Acts 1949, 51st Legislature; or in shares or
60-18 share accounts authorized in Chapter 534, page 966, Acts 1949, 51st
60-19 Legislature; or in bonds as authorized by Section 24, Chapter 110,
60-20 page 193, Acts 1949, 51st Legislature; together with such other
60-21 investments as are now or may hereafter be specifically authorized
60-22 by law.
60-23 SECTION 3. The following laws are repealed:
60-24 (1) Section 7(e), Article 3.33, Insurance Code;
60-25 (2) Article 3.39-1, Insurance Code;
60-26 (3) Article 3.39-2, Insurance Code; and
60-27 (4) Section 5, Article 21.39-B, Insurance Code.
61-1 SECTION 4. This Act takes effect September 1, 1997.
61-2 SECTION 5. An insurer that on the effective date of this Act
61-3 is already engaged in hedging transactions governed by Section 4E,
61-4 Article 3.33, Insurance Code, as added by this Act, shall notify
61-5 the commissioner as required by that section not later than October
61-6 1, 1997.
61-7 SECTION 6. The importance of this legislation and the
61-8 crowded condition of the calendars in both houses create an
61-9 emergency and an imperative public necessity that the
61-10 constitutional rule requiring bills to be read on three several
61-11 days in each house be suspended, and this rule is hereby suspended.