SRC-DBM H.B. 2711 76(R)   BILL ANALYSIS


Senate Research Center   H.B. 2711
By: Thompson (Carona)
Economic Development
5/13/1999
Engrossed


DIGEST 

Currently, Article 21.39-B, Insurance Code, prohibits the director, member
of a committee, or officer, or the clerk of a domestic company, who is
charged with the duty of handling or investing its funds, from depositing
or investing those funds, except in the corporate name of the insurer.
Despite this prohibition, it is a common practice for two or more domestic
insurers that operate together under a holding company or under an
administrative services agreement to operate a risk pool.  Insurers in the
risk pool spread the risk they assumed when they agreed to cover a
particular group by having the pool or affiliates of the parent insurers
reinsure the policies.  The funds of the pool are usually deposited into
one account.  Only after the funds have been deposited are they then
allocated to each participant in the pool.  This practice may violate the
prohibition against depositing funds except in the corporate name of the
insurer, even if the funds are not misapplied.  H.B. 2711 would set forth
restrictions on the deposit and investment of funds of a domestic insurance
company. 

PURPOSE

As proposed, H.B. 2711 sets forth restrictions on the deposit and
investment of funds of a domestic insurance company. 

RULEMAKING AUTHORITY

This bill does not grant any additional rulemaking authority to a state
officer, institution, or agency. 

SECTION BY SECTION ANALYSIS

SECTION 1.  Amends Sections 1-5, Article 21.39-B, Insurance Code, as
follows: 

Sec. 1.  Prohibits any director, member of committee, or officer, or any
clerk or a domestic company, who is charged with the duty of handling or
investing its funds from investing such funds, except in a certain manner;
or deposit such funds except in the corporate name of such company, or in a
pooling account with one or more affiliates, or in accordance with a
reinsurance agreement.  Makes conforming changes.   

Sec. 2.  Authorizes only a domestic company and its affiliate, as defined
in Article 21.49-1 of this code, to hold funds in a pooling account, if
funds of a domestic company are deposited in a pooling account.  Requires
the accounting and operational records and books of the companies to be
adequately detailed to identify specific insurance policies and
policyholders with premium funds received by the particular company issuing
the insurance. Requires a reinsurance agreement between the domestic
company and one or more affiliates to be specifically authorize the deposit
of premium funds to the account of the affiliate which is assuming the
reinsurance.   

 Sec. 3 - 5.  Makes conforming changes.

SECTION 2.Effective date: September 1, 1999.

SECTION 3.Emergency clause.