1-1     By:  Averitt (Senate Sponsor - Sibley)                H.B. No. 3042
 1-2           (In the Senate - Received from the House May 10, 1999;
 1-3     May 10, 1999, read first time and referred to Committee on Economic
 1-4     Development; May 11, 1999, reported favorably by the following
 1-5     vote:  Yeas 5, Nays 0; May 11, 1999, sent to printer.)
 1-6                            A BILL TO BE ENTITLED
 1-7                                   AN ACT
 1-8     relating to investment requirements for certain insurance
 1-9     companies.
1-10           BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-11           SECTION 1.  Article 2.10, Insurance Code, is amended to read
1-12     as follows:
1-13           Art. 2.10.  INVESTMENT OF FUNDS IN EXCESS OF MINIMUM CAPITAL
1-14     AND MINIMUM SURPLUS.  (a)  The board of directors of each insurer,
1-15     or the corresponding authority designated by the charter, bylaws,
1-16     or plan of operations of an insurer that does not have a board of
1-17     directors, shall adopt a written investment plan consistent with
1-18     the requirements of this article and Articles 2.08, 2.09, 2.10-1,
1-19     2.10-2, 2.10-3, 2.10-4, 2.10-5, 6.08, 8.18, and 8.19 of this code
1-20     and the other applicable statutes governing investments by the
1-21     insurer.  The investment plan must:
1-22                 (1)  specify the diversification of the insurer's
1-23     investments designed to reduce the risk of large losses, by:
1-24                       (A)  broad categories of investments, such as
1-25     bonds and real estate loans;
1-26                       (B)  kinds of investments, such as:
1-27                             (i)  obligations of governments or business
1-28     entities;
1-29                             (ii)  mortgage-backed securities; and
1-30                             (iii)  real estate loans on office, retail,
1-31     industrial, or residential properties;
1-32                       (C)  quality;
1-33                       (D)  maturity;
1-34                       (E)  type of industry; and
1-35                       (F)  geographical areas, as to both domestic and
1-36     foreign investments;
1-37                 (2)  balance the safety of principal with yield and
1-38     growth;
1-39                 (3)  seek a reasonable relationship of assets and
1-40     liabilities as to term and nature; and
1-41                 (4)  be appropriate considering the capital and surplus
1-42     and the business conducted by the insurer.
1-43           (b)  At least annually, the board of directors or other
1-44     authority shall review the adequacy of the investment plan and the
1-45     implementation of the plan.
1-46           (c)  The insurer shall maintain the investment plan in its
1-47     principal office and shall provide the plan to the commissioner or
1-48     the commissioner's designee on request. The commissioner or the
1-49     commissioner's designee shall maintain the investment plan as a
1-50     privileged and confidential document, and the plan is not subject
1-51     to public disclosure.
1-52           (d)  The insurer shall maintain investment records covering
1-53     each transaction.  At all times, the insurer must be able to
1-54     demonstrate to the department that its investments are within the
1-55     limitations prescribed by the statutes described by Subsection (a)
1-56     of this article.
1-57           (e)  No company except any writing life, health and accident
1-58     insurance, organized under the laws of this state, shall invest
1-59     its funds over and above its minimum capital and its minimum
1-60     surplus, as provided in Article 2.02, except as otherwise provided
1-61     in this Code, in any other manner than as follows:
1-62                 (1)  as [1.  As] provided for the investment of its
1-63     minimum capital and its minimum surplus in Article 2.08;
1-64                 (2)  in [2.  In] bonds or other evidences of debt which
 2-1     at the time of purchase are interest-bearing and are issued by
 2-2     authority of law and are not in default as to principal or
 2-3     interest,  of any state [of the States of the United States], [or
 2-4     of] Canada, or [any] province of Canada, or in the stock of any
 2-5     National Bank, in stock of any State Bank of Texas whose deposits
 2-6     are insured by the Federal Deposit Insurance Corporation;
 2-7     provided, however, that if said funds are invested in the stock of
 2-8     a State Bank of Texas that not more than thirty-five per cent (35%)
 2-9     of the total outstanding stock of any one (1) State Bank of Texas
2-10     may be so purchased by any one (1) insurance company; and provided
2-11     further, that neither the insurance company whose funds are
2-12     invested in said bank stock nor any other insurance company may
2-13     invest its funds in the remaining stock of any such State Bank;
2-14                 (3)  in [3.  In] bonds, notes, evidences of
2-15     indebtedness or participations therein secured by a valid first
2-16     lien upon real property or  leasehold estate therein located in the
2-17     United States of America, its states, commonwealths, territories,
2-18     or possessions, provided that:
2-19                       (A)  the [(a)  The] amount of any such obligation
2-20     secured by a first lien upon real property or leasehold estate
2-21     therein shall not  exceed ninety per cent (90%) of the value of
2-22     such real property or leasehold estate therein, but the amount of
2-23     such obligation may:
2-24                             (i)  [(1)  May] exceed ninety per cent
2-25     (90%) but shall not exceed one hundred per cent (100%) of the value
2-26     of such real property or  leasehold estate therein if the insurer
2-27     or one or more wholly owned subsidiaries of the insurer own in the
2-28     aggregate a ten per cent (10%) or greater equity interest in such
2-29     real property or leasehold estate therein;
2-30                             (ii)  [(2)  May] be ninety-five per cent
2-31     (95%) of the value of such real property if it contains only a
2-32     dwelling designed exclusively for occupancy by not more than four
2-33     families for residential purposes, and the portion of the unpaid
2-34     balance of such obligation which is in excess of an amount equal to
2-35     ninety per cent (90%) of such value is guaranteed or insured by a
2-36     mortgage insurance company licensed to do business in the State of
2-37     Texas; or
2-38                             (iii)  [(3)  May] be greater than ninety
2-39     per cent (90%) of the value of such real property to the extent the
2-40     obligation is insured or guaranteed by the United States of
2-41     America, or an agency or instrumentality thereof, the Federal
2-42     Housing Administration pursuant to the National Housing Act of
2-43     1934, as amended (12 U.S.C. Sec. 1701 et seq.), or the State of
2-44     Texas; and
2-45                       (B)  the [(b)  The] term of an obligation secured
2-46     by a first lien upon a leasehold estate in real property and
2-47     improvements situated  thereon shall not exceed a period equal to
2-48     four-fifths (4/5) of the then unexpired term of such leasehold
2-49     estate, provided that:
2-50                             (i)  the [(1)  The] unexpired term of the
2-51     leasehold estate must extend at least ten (10) years beyond the
2-52     term of the obligation; and
2-53                             (ii)  each [(2)  Each] obligation shall be
2-54     payable in equal monthly, quarterly, semi-annual, or annual
2-55     payments of principal plus accrued interest to the date of such
2-56     principal payment, so that under either method of repayment such
2-57     obligation will fully amortize during a period of time not to
2-58     exceed four-fifths (4/5) of the then unexpired term of the security
2-59     leasehold estate; [and]
2-60                       (C)  the [(c)  The] amount of any one such
2-61     obligation may not exceed ten per cent (10%) of the insurer's
2-62     capital and surplus; and
2-63                       (D)  the [(d)  The] aggregate of investments made
2-64     under this Subdivision (3) [Section 3] may not exceed thirty per
2-65     cent (30%) of the insurer's assets;
2-66                 (4)  in [4.  In] bonds or other interest-bearing
2-67     evidences of debt of any county, municipality, road district,
2-68     turnpike district or authority, water district, any subdivision of
2-69     a county, incorporated city, town, school district, sanitary or
 3-1     navigation district, any municipally owned revenue water system,
 3-2     sewer system or electric utility company where special revenues to
 3-3     meet the principal and interest payments of such municipally owned
 3-4     revenue water system, sewer system or electric utility company
 3-5     bonds or other evidences of debt shall have been appropriated,
 3-6     pledged or otherwise provided for by such municipality, provided
 3-7     that:
 3-8                       (A)  [.  Provided,] before bonds or other
 3-9     evidences of debt of navigation districts shall be eligible
3-10     investments such navigation district shall be located in whole or
3-11     in part in a county containing a population of not less than
3-12     100,000 according to the last preceding Federal Census; and
3-13                       (B)  [provided further, that] the interest due on
3-14     such navigation bonds or other evidences of debt of navigation
3-15     districts must never have been defaulted;
3-16                 (5)  in any type or form of savings deposits, time
3-17     deposits, certificates of deposit, NOW accounts, and money market
3-18     accounts in solvent banks, savings and loan associations, credit
3-19     unions, and branches of those financial institutions, organized
3-20     under the laws of the United States or of a state, if made in
3-21     accordance with the laws or regulations applicable to those
3-22     entities, provided that the amount of the deposits in any one bank,
3-23     savings and loan association, or credit union may not exceed the
3-24     greater of:
3-25                       (A)  20 percent of the insurer's capital and
3-26     surplus;
3-27                       (B)  the amount of federal or state deposit
3-28     insurance coverage relating to that deposit; or
3-29                       (C)  10 percent of the amount of capital,
3-30     surplus, and undivided profits of the entity receiving the
3-31     deposits;
3-32                 (6)  in [5.  In] the stocks, bonds, debentures, bills
3-33     of exchange, evidence of indebtedness, or other commercial notes or
3-34     bills and securities of any solvent partnership or solvent dividend
3-35     paying corporation at time of purchase, incorporated under the laws
3-36     of this state, [or of] any other state [State of the United
3-37     States], [or of] the United States, [or of] Canada, or any province
3-38     of Canada, which has not defaulted in the payment of any of its
3-39     obligations for a period of five (5) years, immediately preceding
3-40     the date of the investment;  provided that:
3-41                       (A)  such funds may not be invested in the stock
3-42     of any oil, manufacturing or mercantile corporation organized under
3-43     the laws of this state, unless such corporation has at the time of
3-44     investment a net worth of not less than $250,000.00 nor in the
3-45     stock of any oil, manufacturing or mercantile corporation not
3-46     organized under the laws of this state, unless such corporation has
3-47     a combined capital, surplus and undivided profits of not less than
3-48     $2,500,000.00;
3-49                       (B)  any [provided further: (a) Any] such
3-50     insurance company may invest its funds over and above its minimum
3-51     capital stock, its minimum surplus, and all reserves required by
3-52     law, in the stocks, bonds or debentures of any solvent corporation
3-53     organized under the laws of this state, [or of] any other state
3-54     [State of the United States], [or of] the United States, [or of]
3-55     Canada, or any province of Canada;
3-56                       (C)  no [. (b)  No] such insurance company shall
3-57     invest any of its funds in its own stock or in any stock on account
3-58     of which the holders or owners thereof may, in any event, be or
3-59     become liable to any assessment, except for taxes; and
3-60                       (D)  no [. (c)  No] such insurance company shall
3-61     invest any of its funds in stocks, bonds or other securities issued
3-62     by a corporation if a majority of the stock having voting powers of
3-63     such issuing corporation is owned, directly or indirectly, by or
3-64     for the benefit of one or more officers or directors of such
3-65     insurance company;  provided, however, that this paragraph
3-66     [Section] shall not apply to any insurance company which has been
3-67     in continuous operation for five (5) years;
3-68                 (7)  in [. 6. In] shares of mutual funds doing business
3-69     under the Investment Company Act of 1940 (15 U.S.C. Section 80a-1
 4-1     et seq.), as amended, provided that:
 4-2                       (A) [(a)]  mutual funds must be solvent with at
 4-3     least $1,000,000 of net assets as of the date of its latest annual
 4-4     or more recent certified audited financial statement; and
 4-5                       (B) [(b)]  investment in any one mutual fund may
 4-6     not exceed 15 percent of the insurer's capital and surplus;
 4-7                 (8)  in [and]
 4-8           [(c)  the aggregate of all investments made under this
 4-9     subsection shall not exceed 25 percent of the insurer's assets.]
4-10                 [7.  In] addition to the investments in Canada
4-11     authorized in other subdivisions [subsections] of this subsection
4-12     [section], investments in other foreign countries, [or in]
4-13     commonwealths, territories or possessions of the United States, or
4-14     [in] foreign securities originating in such foreign countries,
4-15     commonwealths, territories or possessions of the United States,
4-16     provided that:
4-17                       (A) [(a)]  such investments are similar to those
4-18     authorized for investment within the United States or Canada by
4-19     other provisions of this subsection [section] and, if debt
4-20     obligations, are rated one or two by the Securities Valuation
4-21     Office of the National Association of Insurance Commissioners;
4-22     [and]
4-23                       (B) [(b)]  the aggregate amount of foreign
4-24     investments held by the insurer under this subsection in a single
4-25     foreign jurisdiction does not exceed either 10 percent of its
4-26     admitted assets as to a foreign jurisdiction that has a sovereign
4-27     debt rating of Securities Valuation Office 1 by the Securities
4-28     Valuation Office of the National Association of Insurance
4-29     Commissioners or five percent of its admitted assets as to any
4-30     other foreign jurisdiction;  [and]
4-31                       (C) [(c)]  such investments when added to the
4-32     amount of similar investments made within the United States and
4-33     Canada and any amounts authorized by Article 2.10-2 of this Code do
4-34     not result in the combined total of such investments exceeding the
4-35     limitations  specified elsewhere in this subsection [section]; and
4-36                       (D) [(d)]  such investments may not exceed the
4-37     sum of:
4-38                             (i)  the amounts authorized by Article
4-39     2.10-2 of this Code; and
4-40                             (ii)  20 percent of the insurer's assets;
4-41                 (9)  in [.  8.  In] loans upon the pledge of any
4-42     mortgage, stock, bonds or other evidence of indebtedness acceptable
4-43     as investments under the terms of this Article, if the current
4-44     value of such mortgage, stock, bonds or other evidence of
4-45     indebtedness is at least twenty-five per cent (25%) more than the
4-46     amount loaned thereon;
4-47                 (10)  in [9.  In] interest-bearing notes or bonds of
4-48     The University of Texas issued under the laws of this state [and by
4-49     virtue of Chapter 40, Acts of the 43rd Legislature, Second Called
4-50     Session];
4-51                 (11)  in [10.  (a) In] real estate to the extent as
4-52     elsewhere authorized by this Code; provided that:
4-53                       (A)  any [(b)  Any] such company with admitted
4-54     assets in excess of $500,000,000.00 may own other investment real
4-55     property or participations therein, which must be materially
4-56     enhanced in value by the construction of durable, permanent type
4-57     buildings and other improvements costing an amount at least equal
4-58     to the cost of such real property, exclusive of buildings and
4-59     improvements at the time of acquisition, or by the construction of
4-60     such buildings and improvements which must be commenced within two
4-61     years of the date of acquisition of such real property;
4-62     [provided,] however, nothing in this Article shall allow ownership
4-63     of, development of, or equity interest in any residential property
4-64     or subdivision, single or multiunit family dwelling property, or
4-65     undeveloped real estate for the purpose of subdivision for or
4-66     development of residential, single or multiunit family dwellings,
4-67     except those properties acquired as provided in Article 6.08 of
4-68     this Code, and such ownership, development, or equity interests
4-69     shall be specifically prohibited;
 5-1                       (B)  the [(c)  The] total amount invested by any
 5-2     such company in all such investment real property and improvements
 5-3     thereof shall not exceed fifteen per cent (15%) of its admitted
 5-4     assets which are in excess of $500,000,000.00; [, provided,]
 5-5     however, [that] the amount invested in any one such property and
 5-6     its improvements or interest therein shall not exceed five per cent
 5-7     (5%) of its admitted assets which are in excess of $500,000,000.00.
 5-8     The admitted assets of the company at any time shall be determined
 5-9     from its annual statements made as of the last preceding December
5-10     31 and filed with the department [State Board of Insurance] as
5-11     required by law.  The value of any investment made under this
5-12     Article shall be subject to the appraisal provision set forth in
5-13     [Paragraph 5 of] Article 6.08 of this Code;
5-14                       (C)  the [(d)  The] investment authority granted
5-15     by Paragraphs (A) and (B) [(b) and (c)] of this subdivision
5-16     [Paragraph 10] is in addition to and separate and apart from that
5-17     granted by Article 6.08 of this Code; [, provided,] however, [that]
5-18     no such company shall make any investment in such real estate
5-19     which, when added to those properties described in [Paragraph 1 of]
5-20     Article 6.08 of this Code, would be in excess of the limitations
5-21     provided by [Paragraph 5 of] Article 6.08 of this Code; and
5-22                       (D)  the [(e)  The] insurance companies defined
5-23     in Article 2.01 of this Code and other insurers specifically made
5-24     subject to the provisions of this Article shall not engage in the
5-25     business of a real estate broker or a real estate salesperson
5-26     [salesman] as defined by The Real Estate License Act [Chapter 1,
5-27     page 560, General Laws, Acts of the 46th Legislature, 1939]
5-28     (Article 6573a, Vernon's Texas Civil Statutes), except that such
5-29     insurers may hold, improve, maintain, manage, rent, lease, sell,
5-30     exchange, or convey any of the real property interests legally
5-31     owned as investments under this Code;
5-32                 (12)  in [11.  In] equipment trust obligations or
5-33     certificates that are adequately secured or in other adequately
5-34     secured instruments evidencing an interest in transportation
5-35     equipment in whole or in part within the United States and a right
5-36     to receive determined portions of rental, purchase, or other fixed
5-37     obligatory payments for the use or purchase of the transportation
5-38     equipment; and
5-39                 (13)  in:
5-40                       (A)  [12.  In] insured accounts and evidences of
5-41     indebtedness as defined and limited by Section 1, Chapter 618, page
5-42     1356, Acts of the 47th Legislature;
5-43                       (B)  [in] shares or share accounts as authorized
5-44     by Chapter 65, Finance Code [in Section 1, page 76, Acts 1939, 46th
5-45     Legislature];
5-46                       (C)  [in] insured or guaranteed obligations as
5-47     authorized in Chapter 230, [page 315,] Acts of the [1945,] 49th
5-48     Legislature, Regular Session, 1945 (Article 842a-1, Vernon's Texas
5-49     Civil Statutes);
5-50                       (D)  [in] bonds issued under the provisions
5-51     authorized by Section 9, Chapter 231, General Laws [page 774], Acts
5-52     of the [1933,] 43rd Legislature, Regular Session, 1933 (Article
5-53     1187a, Vernon's Texas Civil Statutes);
5-54                       (E)  [in] bonds issued under the authority of
5-55     Section 1, Chapter 1, page 427, General Laws, Acts of the [1939,]
5-56     46th Legislature, Regular Session, 1939 (Article 1269k-1, Vernon's
5-57     Texas Civil Statutes);
5-58                       (F)  [in] bonds and other indebtedness as
5-59     authorized by Sections 435.045 and 435.046, Government Code [in
5-60     Section 1, Chapter 3, page 494, Acts 1939, 46th Legislature];
5-61                       (G)  [in] "Municipal Bonds" issued under Sections
5-62     51.038 and 51.039, Water Code [and by virtue of Chapter 280, Acts
5-63     1929, 41st Legislature];
5-64                       (H)  [or in] bonds as authorized by Subchapter B,
5-65     Chapter 284, Transportation Code [Section 5, Chapter 122, page 219,
5-66     Acts 1949, 51st Legislature];
5-67                       (I)  [or in bonds as authorized by Section 10,
5-68     Chapter 159, page 326, Acts 1949, 51st Legislature; or in] bonds as
5-69     authorized  by Section 19, Chapter 340, [page 655,] Acts of the
 6-1     [1949,] 51st Legislature, Regular Session, 1949;
 6-2                       (J)  [or in] bonds as authorized by Section 10,
 6-3     Chapter 398, [page 737,] Acts of the [1949,] 51st Legislature,
 6-4     Regular Session, 1949;
 6-5                       (K)  [or in] bonds as authorized by Section 18,
 6-6     Chapter 465, [page 855,] Acts of the [1949,] 51st Legislature,
 6-7     Regular Session, 1949;
 6-8                       (L)  [or in shares or share accounts authorized
 6-9     in Chapter 534, page 966, Acts 1949, 51st Legislature; or in] bonds
6-10     as authorized by Section 24, Chapter 110, [page 193,] Acts of the
6-11     [1949,] 51st Legislature, Regular Session, 1949; and
6-12                       (M)  [together with] such other investments as
6-13     are now or may hereafter be specifically authorized by law.
6-14           (f)  The percentage authorizations and limitations set forth
6-15     in this article apply only at the time of the original acquisition
6-16     of an investment or at the time a transaction is entered into and
6-17     do not thereafter apply to the insurer or the investment or
6-18     transaction except as provided by this subsection.  An investment,
6-19     once qualified under this article, remains qualified
6-20     notwithstanding any refinancing, restructuring, or modification of
6-21     the investment; however, the insurer may not engage in that
6-22     refinancing, restructuring, or modification solely to  circumvent
6-23     the requirements or limitations of this article.
6-24           (g)  Notwithstanding Subsections (a)-(e) of this article:
6-25                 (1)  investment in all or any types of securities,
6-26     loans, obligations, or evidences of indebtedness of a single issuer
6-27     or borrower, including the issuer's or borrower's majority-owned
6-28     subsidiaries or parent or the majority-owned subsidiaries of that
6-29     parent, other than those authorized investments that either are
6-30     direct obligations of or are guaranteed by the full faith and
6-31     credit of the United States of America, this state, or a political
6-32     subdivision of this state, or are insured by any agency of the
6-33     United States of America or this state, may not in the aggregate
6-34     exceed five percent of the insurer's total assets, other than
6-35     investments described by Subsection (e)(5) or (e)(7) of this
6-36     article; and
6-37                 (2)  the quantitative limitations regarding any
6-38     investment authorized by this article may be waived by prior
6-39     written approval of the commissioner if:
6-40                       (A)  a hearing is held to determine whether
6-41     approval should be granted;
6-42                       (B)  the applicant seeking approval establishes
6-43     that unreasonable or unnecessary loss or harm to the insurer will
6-44     result if approval is withheld;
6-45                       (C)  the excessive investment will not have a
6-46     material adverse effect on the insurer;
6-47                       (D)  the size of the investment is reasonable in
6-48     relation to the insurer's assets, capital, surplus, and
6-49     liabilities; and
6-50                       (E)  the commissioner's prior authorization may
6-51     treat the resulting excessive investment as an asset not admitted.
6-52           SECTION 2.  Chapter 2, Insurance Code, is amended by adding
6-53     Article 2.10-3A to read as follows:
6-54           Art. 2.10-3A.  SECURITIES LENDING; REPURCHASE, REVERSE
6-55     REPURCHASE, AND DOLLAR ROLL TRANSACTIONS
6-56           Sec. 1.  DEFINITIONS.  In this article:
6-57                 (1)  "Dollar roll transaction" means two simultaneous
6-58     transactions, with settlement dates not more than 96 days apart, in
6-59     one of which an insurer sells to a business entity and in the other
6-60     the insurer is obligated to purchase from the same business entity
6-61     substantially similar securities of the following types:
6-62                       (A)  mortgage-backed securities issued, assumed,
6-63     or guaranteed by the Government National Mortgage Association, the
6-64     Federal National Mortgage Association, or the Federal Home Loan
6-65     Mortgage Corporation or their successor organizations; or
6-66                       (B)  other mortgage-backed securities described
6-67     under  Section 106, Title I, Secondary Mortgage Market Enhancement
6-68     Act of 1984 (15 U.S.C. Section 77r-1), as amended.
6-69                 (2)  "Repurchase transaction" means a transaction in
 7-1     which an insurer purchases securities from a business entity that
 7-2     is obligated to repurchase the purchased securities or equivalent
 7-3     securities from the insurer at a specified price, either within a
 7-4     specified period or on demand.
 7-5                 (3)  "Reverse repurchase transaction" means a
 7-6     transaction in which an insurer sells securities to a business
 7-7     entity and is obligated to repurchase the sold securities or
 7-8     equivalent securities from the business entity at a specified
 7-9     price, either within a specified period or on demand.
7-10                 (4)  "Securities lending transaction" means a
7-11     transaction in which securities are loaned by an insurer to a
7-12     business entity that is obligated to return the loaned securities
7-13     or equivalent securities to the insurer, either within a specified
7-14     period or on demand.
7-15           Sec. 2.  TRANSACTIONS AUTHORIZED.  (a)  An insurer may engage
7-16     in securities lending, repurchase, reverse repurchase, and dollar
7-17     roll transactions as provided by this article.
7-18           (b)  The insurer shall enter into a written agreement for
7-19     each transaction, other than a dollar roll transaction, that
7-20     requires each transaction to terminate not later than the first
7-21     anniversary of the inception of the transaction.
7-22           Sec. 3.  TRANSACTION REQUIREMENTS.  (a)  Cash received in a
7-23     transaction under this article must be:
7-24                 (1)  invested in accordance with this article and in a
7-25     manner that recognizes the liquidity needs of the transaction; or
7-26                 (2)  used by the insurer for the insurer's general
7-27     corporate purposes.
7-28           (b)  While the transaction is outstanding, the insurer, or
7-29     the insurer's agent or custodian, shall maintain, as to acceptable
7-30     collateral received in a transaction under this section, either
7-31     physically or through the book entry systems of the Federal
7-32     Reserve, Depository Trust Company, Participants Trust Company, or
7-33     other securities depositories approved by the commissioner:
7-34                 (1)  possession of the acceptable collateral;
7-35                 (2)  a perfected security interest in the acceptable
7-36     collateral; or
7-37                 (3)  in the case of a jurisdiction outside of the
7-38     United States, title to, or rights of a secured creditor to, the
7-39     acceptable collateral.
7-40           (c)  An insurer may not enter into a transaction under this
7-41     article if, as a result of and after giving effect to the
7-42     transaction, the aggregate amount of securities loaned, sold to, or
7-43     purchased from:
7-44                 (1)  any one business entity counterparty under this
7-45     article would exceed five percent of the insurer's assets; or
7-46                 (2)  all business entities under this article would
7-47     exceed 40 percent of the insurer's assets.
7-48           (d)  In computing the amount sold to or purchased from a
7-49     business entity counterparty under a repurchase or reverse
7-50     repurchase transaction, effect may be given to netting provisions
7-51     under a master written agreement.
7-52           (e)  The amount of collateral required for a securities
7-53     lending, repurchase, or reverse repurchase transaction is the
7-54     amount required under the Purposes and Procedures Manual of the
7-55     Securities Valuation Office or a successor publication.
7-56           (f)  The commissioner may adopt reasonable rules and orders
7-57     consistent with, and as necessary to implement, this article.
7-58           SECTION 3.  Article 2.10-4, Insurance Code, is amended to
7-59     read as follows:
7-60           Art. 2.10-4.  RISK-LIMITING PROVISIONS
7-61           Sec. 1.  DEFINITIONS.  In this article:
7-62                 (1)  "Acceptable collateral" means:
7-63                       (A)  cash;
7-64                       (B)  cash equivalents;
7-65                       (C)  letters of credit and direct obligations;
7-66     and
7-67                       (D)  securities that are fully guaranteed as to
7-68     principal and interest by the United States.
7-69                 (2)  "Business entity" includes a sole proprietorship,
 8-1     corporation, limited liability company, association, partnership,
 8-2     joint stock company, joint venture, mutual fund, bank, trust, joint
 8-3     tenancy, or other similar form of business organization, whether
 8-4     organized for profit or not for profit.
 8-5                 (3)  "Cap" means an agreement under which a seller is
 8-6     obligated to make payments to the buyer with each payment based on
 8-7     the amount by which a reference price or level or the performance
 8-8     or value of one or more underlying interests exceeds a
 8-9     predetermined number, sometimes called the strike rate or strike
8-10     price.
8-11                 (4)  "Cash equivalent" means an investment or security
8-12     that is short-term, highly rated, highly liquid, and readily
8-13     marketable.  The term includes money market funds as described by
8-14     Article 2.10 of this code.  For purposes of this subdivision:
8-15                       (A)  a short-term investment is an investment
8-16     with a remaining term to maturity of one year or less; and
8-17                       (B)  a highly rated investment is an investment
8-18     rated:
8-19                             (i)  "P-1" by Moody's Investors Service,
8-20     Inc.;
8-21                             (ii)  "A-1" by the Standard and Poor's
8-22     Division of the McGraw Hill Companies, Inc.; or
8-23                             (iii)  an equivalent rating by a nationally
8-24     recognized statistical rating organization recognized by the
8-25     Securities Valuation Office.
8-26                 (5)  "Collar" means an agreement to receive payments as
8-27     the buyer of an option, cap, or floor and to make payments as the
8-28     seller of a different option, cap, or floor.
8-29                 (6)(A)  "Counterparty exposure amount" means:
8-30                             (i)  for an over-the-counter derivative
8-31     instrument that is not entered into under a written master
8-32     agreement that provides for netting of payments owed by the
8-33     respective parties:
8-34                                            (a)  the market value of the
8-35     over-the-counter derivative instrument if the liquidation of the
8-36     derivative instrument would result in a final cash payment to the
8-37     insurer; or
8-38                                            (b)  zero if the liquidation
8-39     of the derivative instrument would not result in a final cash
8-40     payment to the insurer; or
8-41                             (ii)  for an over-the-counter derivative
8-42     instrument that is entered into under a written master agreement
8-43     that provides for netting of payments owed by the respective
8-44     parties and in which the domiciliary jurisdiction of the
8-45     counterparty is either in the United States or in a foreign
8-46     jurisdiction listed in the Purposes and Procedures Manual of the
8-47     Securities Valuation Office as eligible for netting, the greater
8-48     of:
8-49                                            (a)  zero; or
8-50                                            (b)  the net sum payable to
8-51     the insurer in connection with all derivative instruments subject
8-52     to the written master agreement on their liquidation in the event
8-53     of default by the counterparty under the master agreement, if there
8-54     are no conditions precedent to the obligations of the counterparty
8-55     to make such a payment and no setoff of amounts payable under any
8-56     other instrument or agreement.
8-57                       (B)  For purposes of this subdivision, the market
8-58     value or the net sum payable, as applicable, is determined at the
8-59     end of the most recent quarter of the insurer's fiscal year and is
8-60     reduced by the market value of acceptable collateral held by the
8-61     insurer or a custodian on the insurer's behalf.
8-62                 (7)  "Derivative instrument" means an agreement,
8-63     option, or instrument, or any series or combination of agreements,
8-64     options, or instruments, to make or take delivery of, or assume or
8-65     relinquish, a specified amount of one or more underlying interests,
8-66     or instead to make a cash settlement, or that has a price,
8-67     performance, value, or cash flow based primarily on the actual or
8-68     expected price, yield, level, performance, value, or cash flow of
8-69     one or more underlying interests.  The term includes an option, a
 9-1     warrant not otherwise permitted to be held by the insurer under
 9-2     this article, a cap, a floor, a collar, a swap, a swaption, a
 9-3     forward, a future, and any other substantially similar agreement,
 9-4     option, or instrument or series or combinations of those
 9-5     agreements, options, or instruments.  The term does not include a
 9-6     collateralized mortgage obligation, another asset-backed security,
 9-7     a principal-protected structured security, a floating rate
 9-8     security, an instrument that an insurer is otherwise permitted to
 9-9     invest in or receive under this article other than under this
9-10     definition, or any debt obligation of the insurer.
9-11                 (8)  "Derivative transaction" means a transaction that
9-12     involves the use of one or more derivative instruments.  The term
9-13     does not include a dollar roll transaction, repurchase transaction,
9-14     reverse repurchase transaction, or securities lending transaction.
9-15                 (9)  "Floor" means an agreement under which the seller
9-16     is obligated to make payments to the buyer and in which each
9-17     payment is based on the amount by which a predetermined number,
9-18     sometimes called the floor rate or price, exceeds a reference
9-19     price, level, performance, or value of one or more underlying
9-20     interests.
9-21                 (10)  "Forward" means an agreement to make or take
9-22     delivery in the future of one or more underlying interests, or
9-23     effect a cash settlement, based on the actual or expected price,
9-24     level, performance, or value of those underlying interests.  The
9-25     term does not include a future or a spot transaction effected
9-26     within customary settlement periods, when-issued purchases, or
9-27     other similar cash market transactions.
9-28                 (11)  "Future" means an agreement that is traded on a
9-29     futures exchange to make or take delivery of, or effect a cash
9-30     settlement, based on the actual or expected price, level,
9-31     performance, or value of, one or more underlying interests.
9-32                 (12)  "Futures exchange" means a foreign or domestic
9-33     exchange, contract market, or board of trade on which trading in
9-34     futures is conducted and that, in the United States, is authorized
9-35     to conduct that trading by the Commodities Futures Trading
9-36     Commission or any successor organization.
9-37                 (13)  "Hedging transaction" means a derivative
9-38     transaction that is entered into and maintained to manage:
9-39                       (A)  the risk of a change in the value, yield,
9-40     price, cash flow, or quantity of assets or liabilities, or a
9-41     portfolio of assets or liabilities, that the insurer has acquired
9-42     or incurred or anticipates acquiring or incurring; or
9-43                       (B)  the currency exchange rate risk related to
9-44     assets or liabilities, or a portfolio of assets or liabilities,
9-45     that an insurer has acquired or incurred or anticipates acquiring
9-46     or incurring.
9-47                 (14)  "Income generation transaction" means a
9-48     derivative transaction that is entered into to generate income.
9-49     The term does not include a derivative transaction entered into as
9-50     a hedging transaction or a replication transaction.
9-51                 (15)  "Market value" means the price for a security or
9-52     derivative instrument obtained from a generally recognized source
9-53     or the most recent quotation from such a source or, if a generally
9-54     recognized source does not exist, the price for the security or
9-55     derivative instrument as determined under the terms of the
9-56     instrument or in good faith by the insurer, as can be reasonably
9-57     demonstrated to the commissioner on request, plus accrued but
9-58     unpaid income on the security or derivative instrument to the
9-59     extent not included in the price as of the applicable date.
9-60                 (16)  "Option" means an agreement under which the buyer
9-61     has the right to buy or receive, referred to as a "call option,"
9-62     sell or deliver, referred to as a "put option," enter into, extend
9-63     or terminate, or effect a cash settlement based on the actual or
9-64     expected price, spread, level, performance, or value of one or more
9-65     underlying interests.
9-66                 (17)  "Over-the-counter derivative instrument" means a
9-67     derivative instrument entered into with a business entity other
9-68     than through a securities exchange or futures exchange or cleared
9-69     through a qualified clearinghouse.
 10-1                (18)  "Potential exposure" means:
 10-2                      (A)  as to a futures position, the amount of
 10-3    initial margin required for that position; or
 10-4                      (B)  as to swaps, collars, and forwards, one-half
 10-5    percent times the notional amount times the square root of the
 10-6    remaining years to maturity.
 10-7                (19)  "Qualified clearinghouse" means a clearinghouse
 10-8    that is subject to the rules of a securities exchange or a futures
 10-9    exchange and provides clearing services, including acting as a
10-10    counterparty to each of the parties to a transaction in such a
10-11    manner that the parties no longer have credit risk to each other.
10-12                (20)  "Replication transaction" means a derivative
10-13    transaction or combination of derivative transactions effected
10-14    either separately or in conjunction with cash market investments
10-15    included in the insurer's investment portfolio to replicate the
10-16    risks and returns of another authorized transaction, investment, or
10-17    instrument or to operate as a substitute for a cash market
10-18    transaction.  The term does not include a derivative transaction
10-19    entered into by the insurer as a hedging transaction.
10-20                (21)  "Securities exchange" means:
10-21                      (A)  an exchange registered as a national
10-22    securities exchange or a securities market registered under the
10-23    Securities Exchange Act of 1934 (15 U.S.C. Section 78a et seq.), as
10-24    amended;
10-25                      (B)  the Private Offerings Resales and Trading
10-26    through Automated Linkages (PORTAL); or
10-27                      (C)  a designated offshore securities market as
10-28    defined by Securities Exchange Commission Regulation S, 17 C.F.R.
10-29    Part 230, as amended.
10-30                (22)  "Swap" means an agreement to exchange or to net
10-31    payments at one or more times based on the actual or expected
10-32    price, yield, level, performance, or value of one or more
10-33    underlying interests.
10-34                (23)  "Swaption" means an option to purchase or sell a
10-35    swap at a given price and time or at a series of prices and times.
10-36    The term does not include a swap with an embedded option.
10-37                (24)  "Underlying interest" means the assets,
10-38    liabilities, or other interests, or a combination of those assets,
10-39    liabilities, or other interests, that underlie a derivative
10-40    instrument.  The term includes securities, currencies, rates,
10-41    indices, commodities, or derivative instruments.
10-42                (25)  "Warrant" means an instrument under which the
10-43    holder has the right to purchase or sell the underlying interest at
10-44    a given price and time or at a series of prices and times stated in
10-45    the warrant.
10-46          Sec. 2.  AUTHORIZED RISK CONTROL TRANSACTIONS; GENERAL
10-47    REQUIREMENTS RELATING TO DERIVATIVE TRANSACTIONS.  (a)  Except as
10-48    provided by Section 8 of this article, an [Subject to the rules and
10-49    regulations promulgated by the State Board of Insurance and the
10-50    limitations contained in Subsections (b) and (d) of this article
10-51    with respect to assets owned by an insurer, an] insurer may, for
10-52    purposes of protecting the [such] assets owned by the insurer
10-53    against the risk of changing asset values or interest rates and for
10-54    risk reduction and income generation, engage in risk control
10-55    transactions authorized under this article [only, buy put options
10-56    or sell call options and terminate the same, buy or sell interest
10-57    rate futures contracts and options on interest rate futures
10-58    contracts, or utilize such other instruments or devices as are
10-59    consistent with this article and are traded on an established
10-60    exchange regulated by the Securities and Exchange Commission or the
10-61    Commodities Futures Trading Commission].
10-62          (b)  Before entering into a derivative transaction, the board
10-63    of directors of the insurer must approve a derivative use plan as
10-64    part of the insurer's investment plan otherwise required  by law.
10-65    The derivative use plan must:
10-66                (1)  describe investment objectives and risk
10-67    constraints, such as counterparty exposure amounts;
10-68                (2)  define permissible transactions, identifying the
10-69    risks to be hedged and the assets or liabilities being replicated;
 11-1    and
 11-2                (3)  require compliance with the insurer's internal
 11-3    control procedures established under Subsection (c) of this
 11-4    section.
 11-5          (c)  The insurer shall establish written internal control
 11-6    procedures that require:
 11-7                (1)  a quarterly report to be made to the board of
 11-8    directors that reviews:
 11-9                      (A)  all derivative transactions entered into,
11-10    outstanding, or closed out;
11-11                      (B)  the results and effectiveness of the
11-12    derivatives program; and
11-13                      (C)  the credit risk exposure to each
11-14    counterparty for over-the-counter derivative transactions based on
11-15    the counterparty exposure amount;
11-16                (2)  a system for determining whether hedging or
11-17    replication strategies used by the insurer have been effective;
11-18                (3)  a system of reports, at least as frequent as
11-19    monthly, to the insurer's management, that include:
11-20                      (A)  a description of each derivative transaction
11-21    entered into, outstanding, or closed out during the period since
11-22    the last report;
11-23                      (B)  the purpose of each outstanding derivative
11-24    transaction;
11-25                      (C)  a performance review of the derivative
11-26    instrument program; and
11-27                      (D)  the counterparty exposure amount for
11-28    over-the-counter derivative transactions;
11-29                (4)  written authorizations that identify the
11-30    responsibilities and limitations of authority of persons authorized
11-31    to effect and maintain derivative transactions; and
11-32                (5)  appropriate documentation for each transaction,
11-33    including:
11-34                      (A)  the purpose of the transaction;
11-35                      (B)  the assets or liabilities to which the
11-36    transaction relates;
11-37                      (C)  the specific derivative instrument used in
11-38    the transaction;
11-39                      (D)  for over-the-counter derivative instrument
11-40    transactions, the name of the counterparty and the counterparty
11-41    exposure amount; and
11-42                      (E)  for exchange-traded derivative instruments,
11-43    the name of the exchange and the name of the firm that handled the
11-44    transaction.
11-45          (d)  The insurer must be able to demonstrate to the
11-46    commissioner, on request, the intended hedging characteristics and
11-47    ongoing effectiveness of the derivative transaction or combination
11-48    of transactions through cash flow testing, duration analysis, or
11-49    any other appropriate analysis.
11-50          (e)  The insurer shall include all counterparty exposure
11-51    amounts in determining compliance with the limitations of this
11-52    article.
11-53          (f)  An insurer may purchase or sell one or more derivative
11-54    instruments to offset, in whole or in part, a derivative instrument
11-55    previously purchased or sold without regard to the quantitative
11-56    limitations of this article if the offsetting transaction uses the
11-57    same type of derivative instrument as the derivative instrument
11-58    being offset.
11-59          Sec. 3.  REQUIREMENTS RELATING TO HEDGING TRANSACTIONS.  (a)
11-60    Not later than the 10th day before the date on which an insurer is
11-61    scheduled to enter into an initial hedging transaction, the insurer
11-62    shall notify the commissioner in writing that:
11-63                (1)  the insurer's board of directors has adopted an
11-64    investment plan that authorizes hedging transactions; and
11-65                (2)  all hedging transactions will comply with this
11-66    article.
11-67          (b)  An insurer engaged in hedging transactions on September
11-68    1, 1999, shall send to the commissioner a notice containing the
11-69    statements required by Subsection (a) of this section not later
 12-1    than October 1, 1999.
 12-2          (c)  After the notice under Subsection (a) or (b), the
 12-3    insurer may enter into hedging transactions under this article, if
 12-4    as a result of and after giving effect to each hedging transaction:
 12-5                (1)  the aggregate statement value of all outstanding
 12-6    options, caps, floors, swaptions, and warrants that are not
 12-7    attached to another financial instrument purchased by the insurer,
 12-8    but not including collars, under this article does not exceed seven
 12-9    and one-half percent of the insurer's assets;
12-10                (2)  the aggregate statement value of all outstanding
12-11    options, swaptions, warrants, caps, and floors, but not including
12-12    collars, written by the insurer under this article does not exceed
12-13    three percent of the insurer's assets; and
12-14                (3)  the aggregate potential exposure of all
12-15    outstanding collars, swaps, forwards, and futures entered into or
12-16    acquired by the insurer under this article does not exceed six and
12-17    one-half percent of the insurer's assets.
12-18          (d)  If a hedging transaction entered into under this section
12-19    is not in compliance with this article or, if continued, may create
12-20    a hazardous financial condition to the insurer that affects the
12-21    insurer's policyholders or creditors or the public, the
12-22    commissioner may, after notice and an opportunity for a hearing,
12-23    order the insurer to take action that the commissioner determines
12-24    is reasonably necessary to:
12-25                (1)  rectify a hazardous financial condition; or
12-26                (2)  prevent an impending hazardous financial condition
12-27    from occurring.
12-28          Sec. 4.  REQUIREMENTS RELATING TO INCOME GENERATION
12-29    TRANSACTIONS.  (a)  An insurer may enter into an income generation
12-30    transaction only as provided by this section.
12-31          (b)  An insurer may enter into an income generation
12-32    transaction only if, as a result of and after giving effect to the
12-33    transaction, the aggregate statement value of admitted assets that
12-34    are then subject to call or that generate the cash flows for
12-35    payments required to be made by the insurer under caps and floors
12-36    sold by the insurer and then outstanding under this article, plus
12-37    the statement value of admitted assets underlying derivative
12-38    instruments then subject to calls sold by the insurer and
12-39    outstanding under this article, plus the purchase price of assets
12-40    subject to puts then outstanding under this article, does not
12-41    exceed 10 percent of the insurer's assets.
12-42          (c)  The transaction must be a sale of:
12-43                (1)  a call option on assets that meets the
12-44    requirements of Subsection (d);
12-45                (2)  a put option on assets that meets the requirements
12-46    of Subsection (e);
12-47                (3)  a call option on a derivative instrument,
12-48    including a swaption that meets the requirements of Subsection (f);
12-49    or
12-50                (4)  a cap or floor that meets the requirements of
12-51    Subsection (g).
12-52          (d)  If the transaction is a sale of a call option on assets,
12-53    the insurer must hold or have a currently exercisable right to
12-54    acquire the underlying assets during the entire period that the
12-55    option is outstanding.
12-56          (e)  If the transaction is a sale of a put option on assets,
12-57    the insurer must hold sufficient cash, cash equivalents, or
12-58    interests in a short-term investment pool to be able to purchase
12-59    the underlying assets on exercise of the option during the entire
12-60    period that the option is outstanding, and must be able to hold the
12-61    underlying assets in the insurer's portfolio.  If the total market
12-62    value of all put options sold by the insurer exceeds two percent of
12-63    the insurer's assets, the insurer shall set aside, under a
12-64    custodial or escrow agreement, cash or cash equivalents that have a
12-65    market value equal to the amount of the insurer's put option
12-66    obligations in excess of two percent of the insurer's assets during
12-67    the entire period the option is outstanding.
12-68          (f)  If the transaction is a sale of a call option on a
12-69    derivative instrument, including a swaption, the insurer must hold
 13-1    or have a currently exercisable right to acquire assets generating
 13-2    the cash flow necessary to make any payments for which the insurer
 13-3    is liable under the underlying derivative instrument during the
 13-4    entire period that the call option is outstanding, and must be able
 13-5    to enter into the underlying derivative transaction for the
 13-6    insurer's portfolio.
 13-7          (g)  If the transaction is a sale of a cap or a floor, the
 13-8    insurer must hold or have a currently exercisable right to acquire
 13-9    assets generating the cash flow necessary to make any payments for
13-10    which the insurer is liable under the cap or floor during the
13-11    entire period that the cap or floor is outstanding.
13-12          Sec. 5.  REQUIREMENTS RELATING TO REPLICATION TRANSACTIONS.
13-13    (a)  An insurer may enter into a replication transaction only with
13-14    the prior written approval of the commissioner.  To be eligible for
13-15    approval by the commissioner:
13-16                (1)  the insurer must be otherwise  authorized to
13-17    invest its funds under this chapter in the asset being replicated;
13-18    and
13-19                (2)  the asset being replicated must be subject to all
13-20    the provisions and limitations on the making of the transaction
13-21    specified by this article relating to investments by the insurer as
13-22    if the transaction constituted a direct investment by the insurer
13-23    in the replicated asset.
13-24          (b)  The commissioner may adopt rules regarding replication
13-25    transactions as necessary to implement this section.
13-26          Sec. 6.  TRADING REQUIREMENTS.  Each derivative instrument
13-27    must be:
13-28                (1)  traded on a securities exchange;
13-29                (2)  entered into with, or guaranteed by, a business
13-30    entity;
13-31                (3)  issued or written by, or entered into with, the
13-32    issuer of the underlying interest on which the derivative
13-33    instrument is based; or
13-34                (4)  in the case of futures, traded through a broker
13-35    who is registered as a futures commission merchant under the
13-36    Commodity Exchange Act (7 U.S.C. Section 1 et seq.), as amended, or
13-37    who is exempt from that registration under 17 C.F.R. Rule 30.10,
13-38    adopted under the Commodity Exchange Act (7 U.S.C. Section 1 et
13-39    seq.), as amended  [An insurer may engage in the purchase of put
13-40    options or sale of call options and terminate such option, only
13-41    with regard to:]
13-42                [(1)  securities owned by the insurer; or]
13-43                [(2)  securities which the insurer may obtain through
13-44    exercise of warrants or conversion rights held by the insurer.]
13-45          [(c)  Subject to the rules and regulations promulgated by the
13-46    State Board of Insurance and the limitations contained in
13-47    Subsection (d) of this article with respect to cash flows
13-48    reasonably anticipated to be available for investment purposes
13-49    within the succeeding 12 months, which anticipation cannot exceed
13-50    an amount equal to 10 percent of such insurer's admitted assets, an
13-51    insurer may, for purposes of protecting such cash flows against the
13-52    risk of changing asset values or interest rates and for risk
13-53    reduction only, buy or sell interest rate futures contracts and
13-54    options on interest rate futures contracts or utilize such other
13-55    instruments or devices as are consistent with this article and are
13-56    traded on an established exchange regulated by the Securities and
13-57    Exchange Commission or the Commodities Futures Trading Commission.]
13-58          [(d)  An insurer may engage in the practices authorized by
13-59    this article only if prior thereto the board of directors of such
13-60    insurer has adopted a written policy which specifies:]
13-61                [(1)  the types of risk-limiting practices approved for
13-62    such insurer;]
13-63                [(2)  the aggregate maximum limits in such instruments,
13-64    which maximum limits must be reasonably related to the insurer's
13-65    business needs and its capacity to fulfill its obligations
13-66    thereunder;]
13-67                [(3)  the specific assets or class of assets or cash
13-68    flows for which risk-limiting practices may be employed; and]
13-69                [(4)  that the insurer's accounting or investment
 14-1    records shall specifically identify the assets or cash flows for
 14-2    which each risk-limiting practice is used].
 14-3          Sec. 7.  RULES.  [(e)] The commissioner may [State Board of
 14-4    Insurance is hereby authorized to] adopt [such reasonable] rules
 14-5    consistent [and regulations, not inconsistent] with [the provisions
 14-6    of] this article that[, which] prescribe reasonable limits,
 14-7    standards, and guidelines with respect to the [such] risk-limiting
 14-8    transactions authorized under this article [devices] and plans
 14-9    related to those transactions [thereto].
14-10          Sec. 8.  NOTICE TO COMMISSIONER.  (a)  Before engaging in a
14-11    transaction authorized under this article, an insurer that has a
14-12    statutory net capital and surplus of less than $10 million shall
14-13    file a written notice with the commissioner describing the need to
14-14    engage in the transaction, the lack of acceptable alternatives, and
14-15    the insurer's plan to engage in the transaction.  If the
14-16    commissioner does not issue an order prohibiting the insurer from
14-17    engaging in the transaction within 90 days after the date of
14-18    receipt of the insurer's notice, the insurer may engage in the
14-19    transaction described in the notice.
14-20          (b)  An insurer with a statutory net capital and surplus less
14-21    than the minimum amount of capital and surplus required for a new
14-22    charter and certificate of authority for the same type of insurer
14-23    may not engage in the transactions authorized under this article.
14-24          (c)  For purposes of this section, net capital and surplus
14-25    are determined by the most recent financial statement of the
14-26    insurer required to be filed with the department.
14-27          SECTION 4.  Article 2.10-3, Insurance Code, is repealed.
14-28          SECTION 5.  This Act takes effect September 1, 1999.
14-29          SECTION 6.  The importance of this legislation and the
14-30    crowded condition of the calendars in both houses create an
14-31    emergency and an imperative public necessity that the
14-32    constitutional rule requiring bills to be read on three several
14-33    days in each house be suspended, and this rule is hereby suspended.
14-34                                 * * * * *