By Thompson H.B. No. 2711
A BILL TO BE ENTITLED
1-1 AN ACT
1-2 relating to restrictions on the deposit and investment of funds of
1-3 a domestic insurance company.
1-4 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-5 SECTION 1. Article 21.39-B, Insurance Code, is amended to
1-6 read as follows:
1-7 Art. 21.39-B. RESTRICTION ON TRANSACTIONS WITH FUNDS AND
1-8 ASSETS
1-9 Sec. 1. Any director, member of a committee, or officer, or
1-10 any clerk of a domestic company, who is charged with the duty of
1-11 handling or investing its funds, shall not:
1-12 (1) [deposit or] invest such funds, except in the
1-13 corporate name of such company, provided, however, that securities
1-14 kept under a custodial agreement or trust agreement with a bank,
1-15 federal home loan bank, or trust company may be issued in the name
1-16 of a nominee of such bank, federal home loan bank, or trust company
1-17 if such bank, federal home loan bank, or trust company has
1-18 corporate trust powers and is duly authorized to act as a custodian
1-19 or trustee and is organized under the laws of the United States of
1-20 America or any state thereof and either (i) is a member of the
1-21 Federal Reserve System, (ii) is a member of or is eligible to
1-22 receive deposits which are insured by the Federal Deposit Insurance
1-23 Corporation, (iii) maintains an account with a Federal Reserve Bank
1-24 and is subject to supervision and examination by the Board of
2-1 Governors of the Federal Reserve System, or (iv) is subject to
2-2 supervision and examination by the Federal Housing Finance Board;
2-3 (2) deposit such funds except in the corporate name of
2-4 such company, or in a pooling account with one or more affiliates,
2-5 or in accordance with a reinsurance agreement;
2-6 (3) [(2)] borrow the funds of such company;
2-7 (4) [(3)] be interested in any way in any loan,
2-8 pledge, security, or property of such company, except as
2-9 stockholder; or
2-10 (5) [(4)] take or receive to his own use any fee,
2-11 brokerage, commission, gift, or other consideration for, or on
2-12 account of, a loan made by or on behalf of such company.
2-13 Sec. 2. If funds of a domestic company are deposited in a
2-14 pooling account, only the domestic company and its affiliate, as
2-15 defined in Article 21.49-1 of this code, may hold funds in a
2-16 pooling account. The accounting and operational records and books
2-17 of the companies must be adequately detailed to identify specific
2-18 insurance policies and policyholders with premium funds received by
2-19 the particular company issuing the insurance. A reinsurance
2-20 agreement between the domestic company and one or more affiliates
2-21 must specifically authorize the deposit of premium funds to the
2-22 account of the affiliate which is assuming the reinsurance.
2-23 Sec. 3 [Sec. 2]. The State Board of Insurance may promulgate
2-24 such regulations as may be deemed necessary to carry out the
2-25 provisions of this article.
2-26 Sec. 4 [Sec. 3]. The provisions of this article are
2-27 applicable to all domestic insurance companies subject to
3-1 regulation by the Insurance Code, as amended, and any provision of
3-2 exemption or any provision of inapplicability or applicability
3-3 limiting such regulation in any chapter of the code are not in
3-4 limitation of the provisions of this article, and in the event of
3-5 conflict between this article and any other article of the code or
3-6 in the event of any ambiguity, the provisions of this article shall
3-7 govern. As used herein, the term "insurance companies" includes
3-8 stock companies, reciprocals or inter-insurance exchanges, Lloyds
3-9 associations, fraternal benefit societies, stipulated premium
3-10 companies, and mutual companies of all kinds, including state-wide
3-11 mutual assessment corporations, local mutual aids, burial
3-12 associations, and county mutual insurance companies and farm mutual
3-13 insurance companies and all other organizations, corporations, or
3-14 persons transacting an insurance business, unless such insurance
3-15 companies are by statute specifically, by naming this article,
3-16 exempted from the operation of this article.
3-17 Sec. 5 [Sec. 4]. (a) A domestic insurance company may
3-18 evidence its ownership of securities either through definitive
3-19 certificates or through uncertificated securities as defined by the
3-20 Business & Commerce Code and as provided by Section 6 of this
3-21 article. The insurance company may deposit or arrange through its
3-22 agents, brokers, or dealers for the deposit of securities held in
3-23 or purchased for its general account or its separate accounts in
3-24 either a clearing corporation or the Federal Reserve Book Entry
3-25 System. When securities are deposited with a clearing corporation
3-26 directly or deposited indirectly through a participating custodian
3-27 bank, certificates representing securities of the same class of the
4-1 same issuer may be merged and held in bulk in the name of nominee
4-2 of such clearing corporation with any other securities deposited
4-3 with such clearing corporation by any person, regardless of the
4-4 ownership of such securities, and certificates representing
4-5 securities of small denominations may be merged into one or more
4-6 certificates of larger denominations. The records of any agent,
4-7 broker, dealer, or member banks through which an insurance company
4-8 holds securities in the Federal Reserve Book Entry System and the
4-9 record of any custodian banks through which an insurance company
4-10 holds securities in a clearing corporation shall at all times show
4-11 that such securities are held for such insurance company and for
4-12 which accounts thereof. To be eligible to act as a participating
4-13 custodian bank under this subsection, a bank must enter a custodial
4-14 agreement with the insurance company for which it is to act as a
4-15 participating custodian bank.
4-16 (b) As used in this article, a clearing corporation is:
4-17 (1) a corporation defined in Section 8.102(c) of the
4-18 Business & Commerce Code; or
4-19 (2) a clearance system that:
4-20 (A) is organized or operating under the law of
4-21 one or more foreign countries;
4-22 (B) provides for the book entry settlement and
4-23 custody of internationally traded securities; and
4-24 (C) has been organized and in operation for a
4-25 period of not less than 15 consecutive years.
4-26 (c) Whenever an insurance company is required to deposit
4-27 securities as a condition of commencing or continuing to do an
5-1 insurance business in this state, such deposit may be made through
5-2 the use of a clearing corporation or the Federal Reserve Book Entry
5-3 System. Securities deposited with a clearing corporation or held
5-4 in the Federal Reserve Book Entry System and used to meet the
5-5 deposit requirements under the insurance laws of this state shall
5-6 be under the control of the commissioner and shall not be withdrawn
5-7 by the insurance company without the approval of the commissioner.
5-8 Any insurance company making a deposit in this manner shall provide
5-9 to the commissioner evidence issued by its custodian or member bank
5-10 through which such insurance company has deposited securities with
5-11 a clearing corporation or in the Federal Reserve Book Entry System
5-12 or when making the deposit directly with the clearing corporation
5-13 as a participant, respectively, in order to establish that the
5-14 securities are actually recorded in an account in the name of the
5-15 custodian or direct participant or member bank, and shall also
5-16 provide to the commissioner evidence that the records of the
5-17 custodian, participant, or member bank and clearing corporation
5-18 reflect that such securities are held subject to the order of the
5-19 commissioner.
5-20 (d) The State Board of Insurance by rule may prescribe a
5-21 reasonable maximum limit on the percentage of a domestic insurance
5-22 company's assets that may be deposited in a clearing corporation as
5-23 defined by Subsection (b)(2) of this section, but the maximum limit
5-24 may not exceed five percent of a company's total assets as
5-25 reflected by its annual statement filed with the State Board of
5-26 Insurance for the year preceding the year for which the limit is
5-27 prescribed.
6-1 (e) A domestic insurance company may deposit assets in a
6-2 clearing corporation defined by Subsection (b)(2) of this section
6-3 only if the insurance company:
6-4 (1) is a member of an insurance company holding
6-5 company system with total assets of at least $5 billion as
6-6 reflected by annual statements of member companies for the
6-7 preceding year;
6-8 (2) uses that clearing corporation only as a
6-9 depository for investments in internationally traded securities;
6-10 (3) has a total investment in those internationally
6-11 traded securities that does not exceed the company's policyholders'
6-12 surplus; and
6-13 (4) does not use those securities deposited with that
6-14 clearing corporation as security for reinsurance.
6-15 Sec. 6. The State Board of Insurance shall adopt rules
6-16 authorizing a domestic insurance company to demonstrate ownership
6-17 of an uncertificated security consistent with common practices of
6-18 securities exchanges and markets. The rules shall establish:
6-19 (1) standards for the types of uncertificated
6-20 securities that may be held;
6-21 (2) the manner in which ownership of the security may
6-22 be demonstrated; and
6-23 (3) adequate financial safeguards relating to the
6-24 ownership of uncertificated securities.
6-25 SECTION 2. This Act takes effect September 1, 1999.
6-26 SECTION 3. The importance of this legislation and the
6-27 crowded condition of the calendars in both houses create an
7-1 emergency and an imperative public necessity that the
7-2 constitutional rule requiring bills to be read on three several
7-3 days in each house be suspended, and this rule is hereby suspended.