HBA-TYH, ATS H.B. 2711 76(R)BILL ANALYSIS


Office of House Bill AnalysisH.B. 2711
By: Thompson
Insurance
7/13/1999
Enrolled



BACKGROUND AND PURPOSE 

Prior to the 76th Legislature, Article 21.39-B (Restriction on Transactions
with Funds and Assets) prohibited the director, member of a committee, or
officer, or the clerk of a domestic insurance company, who was 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 was a common practice for two or more domestic insurers
that operate together under a holding company or under an administrative
services agreement (to share costs) to operate a risk pool.  Insurers in
the risk pool had 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 were usually deposited into
one account.  Only after the funds have been deposited were they then
allocated to each participant in the pool.  This practice could have
violated the prohibition against depositing funds except in the corporate
name of the insurer even if funds were not misapplied. 

H.B. 2711 prohibits the official of a domestic insurer who is in charge of
the insurer's funds from depositing them, except in the insurer's corporate
name, in a pooling account with one or more affiliates, or in accordance
with a reinsurance agreement.  If the domestic insurer's funds are
deposited in a pooling account, only the domestic insurer and its
affiliates are authorized to hold funds in the pooling account.  Moreover,
the financial books and records of the companies in the pooling arrangement
must be detailed enough to identify specific insurance policies and
policyholders with premium funds received by the particular company issuing
the insurance.  A reinsurance agreement between a domestic insurer and its
affiliates must specifically authorize the deposit of premium funds to the
account of the affiliate that is assuming the reinsurance. 

RULEMAKING AUTHORITY

It is the opinion of the Office of House Bill Analysis that this bill does
not expressly delegate any additional rulemaking authority to a state
officer, department, agency, or institution. 

SECTION BY SECTION ANALYSIS

SECTION 1.  Amends Article 21.39-B, Insurance Code, to prohibit the
official of a domestic insurer who is in charge of the insurer's funds from
depositing them, except in the insurer's corporate name, in a pooling
account with one or more affiliates, or in accordance with a reinsurance
agreement. Authorizes only the domestic insurer and its affiliate, if the
domestic insurer's funds are deposited in a pooling account, to hold funds
in the pooling account.  Provides that the financial books and records of
the companies must be detailed enough to identify specific insurance
policies and policyholders with premium funds received by the particular
company issuing the insurance. Provides that a reinsurance agreement
between a domestic insurer and its affiliates must specifically authorize
the deposit of premium funds to the account of the affiliate that is
assuming the reinsurance.  Makes conforming changes. 

SECTION 2.  Effective date: September 1, 1999.

SECTION 3.  Emergency clause.