80R14255 DLF-F

By: Eiland H.B. No. 3839

Substitute the following for H.B. No. 3839:

By: Eiland C.S.H.B. No. 3839

A BILL TO BE ENTITLED

AN ACT

relating to premium tax credits for certain investments; providing an administrative penalty.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:

SECTION 1. Subtitle B, Title 3, Insurance Code, is amended by adding Chapter 229 to read as follows: CHAPTER 229. PREMIUM TAX CREDIT FOR CERTAIN INVESTMENTS IN INSURANCE-CAPITAL COMPANIES SUBCHAPTER A. GENERAL PROVISIONS

Sec. 229.001. GENERAL DEFINITIONS. In this chapter:

(1) "Allocation date" means the date on which certified investors are allocated premium tax credits.

(2) "Certified capital" means cash invested by a certified investor that fully funds the purchase price of an equity interest in a certified insurance-capital company or a qualified debt instrument issued by that company.

(3) "Certified insurance-capital company" means a partnership, corporation, or trust or limited liability company, whether organized on a profit or nonprofit basis, that:

(A) has as its business activity the investment of cash in a qualified insurance carrier or carriers; and

(B) is certified as meeting the criteria of this chapter.

(4) "Certified investor" means an insurance company or other person that has state premium tax liability and that contributes certified capital pursuant to an allocation of premium tax credits under this chapter.

(5) "Early stage carrier" means an insurance carrier or proposed insurance carrier described by Section 229.152.

(6) "First tier coastal county" means:

(A) Aransas County;

(B) Brazoria County;

(C) Calhoun County;

(D) Cameron County;

(E) Chambers County;

(F) Galveston County;

(G) Jefferson County;

(H) Kenedy County;

(I) Kleberg County;

(J) Matagorda County;

(K) Nueces County;

(L) Refugio County;

(M) San Patricio County; or

(N) Willacy County.

(7) "Person" means an individual or entity, including a corporation, general or limited partnership, or trust or limited liability company.

(8) "Premium tax credit allocation claim" means a claim for allocation of premium tax credits.

(9) "Qualified debt instrument" means a debt instrument issued by a certified insurance-capital company, at par value or a premium, that:

(A) has an original maturity date that is a date on or after the fifth anniversary of the date of issuance;

(B) has a repayment schedule that is not faster than a level principal amortization over five years; and

(C) does not have interest, distribution, or payment features that are related to:

(i) the profitability of the company; or

(ii) the performance of the company's investment portfolio.

(10) "Qualified insurance carrier" means a business described by Section 229.201.

(11) "Qualified investment" means the investment of cash by a certified insurance-capital company in a qualified insurance carrier for the purchase of any debt, debt participation, or hybrid security.

(12) "Second tier coastal county" means:

(A) Bee County;

(B) Brooks County;

(C) Fort Bend County;

(D) Goliad County;

(E) Hardin County;

(F) Harris County;

(G) Hildago County;

(H) Jackson County;

(I) Jim Wells County;

(J) Liberty County;

(K) Live Oak County;

(L) Orange County;

(M) Victoria County; or

(N) Wharton County.

(13) "State premium tax liability" means:

(A) any liability incurred by any person under Chapter 221, 222, 223, or 224; or

(B) if the tax liability imposed under Chapter 222, 223, or 224 is eliminated or reduced, any tax liability imposed on an insurer or other person that had premium tax liability under Subchapter A, Chapter 4, or Article 9.59 as those laws existed on January 1, 2003.

Sec. 229.002. DEFINITION OF AFFILIATE. In this chapter, "affiliate" of another person means:

(1) a person that is an affiliate for purposes of Section 823.003;

(2) a person that directly or indirectly:

(A) beneficially owns 10 percent or more of the outstanding voting securities or other voting or management interests of the other person, whether through rights, options, convertible interests, or otherwise; or

(B) controls or holds power to vote 10 percent or more of the outstanding voting securities or other voting or management interests of the other person;

(3) a person 10 percent or more of the outstanding voting securities or other voting or management interests of which are directly or indirectly:

(A) beneficially owned by the other person, whether through rights, options, convertible interests, or otherwise; or

(B) controlled or held with power to vote by the other person;

(4) a partnership in which the other person is a general partner;

(5) an officer, director, employee, or agent of the other person; or

(6) an immediate family member of an officer, director, employee, or agent described by Subdivision (5). [Sections 229.003-229.050 reserved for expansion] SUBCHAPTER B. ADMINISTRATION AND PROMOTION

Sec. 229.051. ADMINISTRATION BY COMPTROLLER AND COMMISSIONER. (a) Except as provided by Subsection (b), the comptroller shall administer this chapter in a manner consistent with Subchapter B, Chapter 4.

(b) The commissioner shall administer the licensing of any qualified insurance carrier described by Section 229.201 and adopt carrier licensing rules under Section 229.053.

Sec. 229.052. RULES AND FORMS ADOPTED BY COMPTROLLER. The comptroller shall adopt rules and forms as necessary to implement this subchapter, including rules that:

(1) establish the application procedures for certified insurance-capital companies;

(2) facilitate the transfer or assignment of premium tax credits by certified investors; and

(3) provide for the allocation of tax credits from certified insurance-capital companies created by Subchapter B, Chapter 4, and that may include provisions for the early allocation of those credits.

Sec. 229.053. RULES AND FORMS ADOPTED BY COMMISSIONER. The commissioner shall adopt rules and forms as necessary to implement this chapter, including rules that:

(1) require as a condition of holding a certificate of authority that qualified insurance carriers implement catastrophe management plans to ensure the payment of insured claims resulting from not less than two reasonably anticipated probable maximum loss events;

(2) require that qualified insurance carriers offer coverage for wind exposure, subject to a premium limit equal to 10 percent of the insurer's aggregate premiums, at rates that comply with Article 1.02 beginning not later than the third anniversary of the date the carrier obtained the carrier's certificate of authority to operate in this state;

(3) establish initial equity and capitalization requirements that must be at least $10 million in initial capital for qualifying insurance carriers;

(4) establish the percentage maximum limitation of business that may be written outside of first and second tier coastal counties, which may not exceed 50 percent of the qualified insurance carrier's business;

(5) require the filing of rate information; and

(6) provide for penalties, in addition to and cumulative of the penalties provided by this chapter, that require the disgorgement of capital and surplus to replenish the state's general revenue if a qualified insurance carrier receives an investment of certified capital but fails to use that capital to write a substantial amount of insurance business in one or more first or second tier coastal counties.

Sec. 229.054. REPORTS TO LEGISLATURE. (a) The comptroller shall prepare a biennial report concerning the results of the implementation of this chapter. The report must include:

(1) the number of certified insurance-capital companies holding certified capital under this chapter;

(2) the amount of certified capital invested in each certified insurance-capital company;

(3) the amount of certified capital the certified insurance-capital company invested in qualified insurance carriers as of January 1, 2009, and the cumulative total for each subsequent year;

(4) the total amount of tax credits granted under this chapter for each year that credits have been granted;

(5) the performance of each certified insurance-capital company with respect to renewal and reporting requirements imposed under this chapter; and

(6) with respect to the qualified insurance carriers in which certified insurance-capital companies have invested:

(A) the total number of jobs created by the investment and the average wages paid for the jobs;

(B) the total number of jobs retained as a result of the investment and the average wages paid for the jobs; and

(C) the certified insurance-capital companies that have been decertified or that have failed to renew the certification and the reason for any decertification.

(b) The commissioner shall prepare a biennial report concerning the results of the implementation of this chapter. The report must include:

(1) the number and identity of the qualified insurance carriers created under this chapter;

(2) the amount of premiums sold to Texas consumers and the insured property value covered by qualified insurance carriers;

(3) information related to the rates charged consumers by qualified insurance carriers; and

(4) information related to the capital adequacy and catastrophe management programs implemented by qualified insurance carriers.

(c) The comptroller and commissioner shall file the reports with the governor, the lieutenant governor, and the speaker of the house of representatives not later than December 15 of each even-numbered year.

Sec. 229.055. PROMOTION OF PROGRAM. The Texas Economic Development and Tourism Office shall promote the program established under this chapter in the Texas Business and Community Economic Development Clearinghouse established under Section 481.167, Government Code. [Sections 229.056-229.100 reserved for expansion] SUBCHAPTER C. APPLICATION FOR AND GENERAL OPERATION OF CERTIFIED INSURANCE-CAPITAL COMPANIES

Sec. 229.101. APPLICATION FOR CERTIFICATION. (a) An applicant for certification must file the application in the form prescribed by the comptroller. The application must be accompanied by a nonrefundable application fee of $7,500.

(b) The application must include an audited balance sheet of the applicant, with an unqualified opinion from an independent certified public accountant, as of a date not more than 35 days before the date of the application.

Sec. 229.102. QUALIFICATION. To qualify as a certified insurance-capital company:

(1) the applicant must have, at the time of application for certification, an equity capitalization of at least $500,000 in unencumbered cash or cash equivalents;

(2) at least two principals or persons employed to manage the funds of the applicant must have at least four years of experience in the venture capital industry; and

(3) the applicant must satisfy any additional requirement imposed by the comptroller by rule.

Sec. 229.103. MANAGEMENT BY AND CERTAIN OWNERSHIP INTERESTS OF INSURANCE ENTITIES PROHIBITED. (a) An insurer, group of insurers, or other persons who may have state premium tax liability or the insurer's or person's affiliates may not directly or indirectly:

(1) manage a certified insurance-capital company;

(2) beneficially own, whether through rights, options, convertible interests, or otherwise, more than 10 percent of the outstanding voting securities of a certified insurance-capital company; or

(3) control the direction of investments for a certified insurance-capital company.

(b) Subsection (a) applies without regard to whether the insurer or other person or the affiliate of the insurer or other person is authorized by or engages in business in this state.

(c) Subsections (a) and (b) do not preclude an insurer, certified investor, or any other party from exercising its legal rights and remedies, including interim management of a certified insurance-capital company, if authorized by law, with respect to a certified insurance-capital company that is in default of the company's statutory or contractual obligations to the insurer, certified investor, or other party.

(d) This chapter does not limit an insurer's ownership of nonvoting equity interests in a certified insurance-capital company.

Sec. 229.104. ACTION ON APPLICATION. (a) The comptroller shall:

(1) review the application, organizational documents, and business history of each applicant; and

(2) ensure that the applicant satisfies the requirements of this chapter.

(b) Not later than the 30th day after the date an application is filed, the comptroller shall:

(1) issue the certification; or

(2) refuse to issue the certification and communicate in detail to the applicant the grounds for the refusal, including suggestions for the removal of those grounds.

Sec. 229.105. CONTINUATION OF CERTIFICATION. To continue to be certified, a certified insurance-capital company must make qualified investments according to the schedule established by Section 229.151.

Sec. 229.106. REPORTS TO COMPTROLLER; AUDITED FINANCIAL STATEMENT. (a) Each certified insurance-capital company shall report to the comptroller as soon as practicable after the receipt of certified capital:

(1) the name of each certified investor from whom the certified capital was received, including the certified investor's insurance premium tax identification number;

(2) the amount of each certified investor's investment of certified capital and premium tax credits; and

(3) the date on which the certified capital was received.

(b) Not later than January 31 of each year, each certified insurance-capital company shall report to the comptroller:

(1) the amount of the company's certified capital at the end of the preceding year;

(2) whether or not the company has invested more than 25 percent of the company's total certified capital in a single carrier;

(3) each qualified investment that the company made during the preceding year and, with respect to each qualified investment, the number of employees of the qualified insurance carrier at the time the qualified investment was made; and

(4) any other information required by the comptroller, including any information required by the comptroller to comply with Section 229.054.

(c) Not later than April 1 of each year, each certified insurance-capital company shall provide to the comptroller an annual audited financial statement that includes the opinion of an independent certified public accountant. The audit must address the methods of operation and conduct of the business of the company to determine whether:

(1) the company is complying with this chapter and the rules adopted under this chapter;

(2) the funds received by the company have been invested as required within the time provided by Section 229.151; and

(3) the company has invested the funds in qualified insurance carriers and other specifically authorized investments.

Sec. 229.107. RENEWAL FEE; LATE FEE; EXCEPTION. (a) Not later than January 31 of each year, each certified insurance-capital company shall pay a nonrefundable renewal fee of $5,000 to the comptroller.

(b) If a certified insurance-capital company fails to pay the renewal fee on or before the date specified by Subsection (a), the company must pay, in addition to the renewal fee, a late fee of $5,000 to continue the company's certification.

(c) A renewal fee is not required within six months of the date on which a certified insurance-capital company's initial certification is issued under Section 229.104(b).

Sec. 229.108. OFFERING MATERIAL USED BY CERTIFIED CAPITAL COMPANY. Any offering material involving the sale of securities of the certified insurance-capital company must include the following statement:

"By authorizing the formation of a certified insurance-capital company, the State of Texas does not endorse the quality of management or the potential for earnings of the company and is not liable for damages or losses to a certified investor in the company. Use of the word "certified" in an offering does not constitute a recommendation or endorsement of the investment by the comptroller of public accounts. If applicable provisions of law are violated, the State of Texas may require forfeiture of unused premium tax credits and repayments of used premium tax credits." [Sections 229.109-229.150 reserved for expansion] SUBCHAPTER D. INVESTMENT BY CERTIFIED INSURANCE-CAPITAL COMPANIES

Sec. 229.151. SCHEDULE OF INVESTMENT. (a) Before the third anniversary of a certified insurance-capital company's allocation date, the company must make qualified investments in one or more qualified insurance carriers in an amount cumulatively equal to at least 30 percent of the company's certified capital, subject to Section 229.152(b).

(b) Before the fifth anniversary of a certified insurance-capital company's allocation date, the company must make qualified investments in one or more qualified insurance carriers in an amount cumulatively equal to at least 50 percent of the company's certified capital, subject to Section 229.152(b).

Sec. 229.152. INVESTMENT IN EARLY STAGE CARRIER REQUIRED. (a) In this section, "early stage carrier" means a qualified insurer or proposed insurer that:

(1) is involved, at the time of a certified insurance-capital company's first investment, in activities related to the organization of the carrier, such as its original incorporation or development of a proposed business model;

(2) was initially organized less than two years before the date of the certified insurance-capital company's first investment; or

(3) during the fiscal year immediately preceding the year of the certified insurance-capital company's first investment, had gross revenues of not more than $2 million as determined in accordance with generally accepted accounting principles.

(b) A certified insurance-capital company must place 50 percent of the amount of qualified investments required by Section 229.151 in early stage carriers.

Sec. 229.153. INVESTMENT IN EXISTING QUALIFIED INSURANCE CARRIERS. A certified insurance-capital company may invest up to 50 percent of the amount of qualified investments in an existing qualified insurance carrier or carriers that do not qualify as early stage carriers under Section 229.152.

Sec. 229.154. CERTIFIED CAPITAL NOT INVESTED IN QUALIFIED INVESTMENTS. A certified insurance-capital company shall invest any certified capital not invested in qualified investments only in:

(1) cash deposited with a federally insured financial institution;

(2) certificates of deposit in a federally insured financial institution;

(3) investment securities that are:

(A) obligations of the United States or agencies or instrumentalities of the United States; or

(B) obligations that are guaranteed fully as to principal and interest by the United States;

(4) debt instruments rated at least "A" or the equivalent by a nationally recognized credit rating organization, or issued by, or guaranteed with respect to payment by, an entity whose unsecured indebtedness is rated at least "A" or the equivalent by a nationally recognized credit rating organization, and which indebtedness is not subordinated to other unsecured indebtedness of the issuer or the guarantor;

(5) obligations of this state or a municipality or political subdivision of this state; or

(6) any other investment approved in advance in writing by the comptroller.

Sec. 229.155. COMPUTATION OF AMOUNT OF INVESTMENTS. (a) The aggregate cumulative amount of all qualified investments made by a certified insurance-capital company after the company's allocation date shall be considered in the computation of the percentage requirements under this subchapter.

(b) A certified insurance-capital company may invest proceeds received from a qualified investment in another qualified investment, and that investment counts toward any requirement of this chapter with respect to investments of certified capital.

Sec. 229.156. LIMIT ON QUALIFIED INVESTMENT. A certified insurance-capital company may not make a qualified investment at a cost to the company that is greater than 50 percent of the company's total certified capital at the time of investment.

Sec. 229.157. DISTRIBUTIONS BY CERTIFIED INSURANCE-CAPITAL COMPANY. (a) In this section, "qualified distribution" means any distribution or payment from certified capital by a certified insurance-capital company in connection with:

(1) the reasonable costs and expenses of forming, syndicating, managing, and operating the company, provided that the distribution or payment is not made directly or indirectly to a certified investor, including:

(A) reasonable and necessary fees paid for professional services, including legal and accounting services, related to the company's formation and operation; and

(B) an annual management fee in an amount that does not exceed 2.5 percent of the company's certified capital; and

(2) a projected increase in federal or state taxes, including penalties and interest related to state and federal income taxes, of the company's equity owners resulting from the earnings or other tax liability of the company to the extent that the increase is related to the ownership, management, or operation of the company.

(b) A certified insurance-capital company may make a qualified distribution at any time. To make a distribution or payment other than a qualified distribution, a company must have made qualified investments in an amount cumulatively equal to 100 percent of the company's certified capital.

(c) If an insurance carrier in which a qualified investment is made relocates the carrier's principal business operations to another state during the term of the certified insurance-capital company's investment in the business, the cumulative amount of qualified investments made by the certified insurance-capital company for purposes of satisfying the requirements of Subsection (b) only is reduced by the amount of the certified insurance-capital company's qualified investments in the carrier that has relocated.

(d) Subsection (c) does not apply if the insurance carrier demonstrates that the carrier has returned the carrier's principal business operations to this state not later than the 90th day after the date of the relocation.

Sec. 229.158. REPAYMENT OF DEBT. Notwithstanding Section 229.157(b), a certified insurance-capital company may make repayments of principal and interest on the company's indebtedness without any restriction, including repaying the company's indebtedness on which certified investors earned premium tax credits. [Sections 229.159-229.200 reserved for expansion] SUBCHAPTER E. QUALIFIED INSURANCE CARRIER

Sec. 229.201. DEFINITION OF QUALIFIED INSURANCE CARRIER; EXEMPTION FROM CERTAIN RATE-FILING REQUIREMENTS. (a) In this chapter, "qualified insurance carrier" means a carrier that complies with this section at the time of a certified insurance-capital company's first investment in the carrier.

(b) A qualified insurance carrier must:

(1) be legally domiciled in this state and intend to remain domiciled in this state after receipt of the certified insurance-capital company's investment;

(2) have the carrier's principal business operations located in this state and intend to maintain business operations in this state after receipt of the certified insurance-capital company's investment;

(3) hold a certificate of authority issued by the commissioner to engage in business as a property and casualty insurance company, subject to Chapter 822, Section 229.202, and rules adopted under Section 229.053 or, in the case of an early stage carrier, apply for such a certificate within 12 months of receipt of any funding from a certified insurance-capital company; and

(4) receive from private sources matching capital funds that may, subject to Subsection (c), be in the form of a surplus debenture and that match dollar-for-dollar all investments of certified capital received from certified insurance-capital companies.

(c) If a surplus debenture is used as part of the capital structure as described by Subsection (b)(4), the debenture must provide for:

(1) the repayment of principal not earlier than the fifth anniversary of the date of the debenture; and

(2) an interest rate that does not exceed the London Inter-Bank Offered Rate plus two percent, subject to a maximum interest rate of seven percent.

(d) A qualified insurance carrier must agree to use the qualified investment to:

(1) write commercial and personal property insurance in one or more first or second tier coastal counties;

(2) in the case of a proposed or start-up carrier, support the establishment or creation of a carrier to conduct the business of insurance in one or more first or second tier coastal counties; and

(3) support business operations in this state and the economic development of the state and its seacoast.

(e) An early stage carrier or qualified insurance carrier is exempt from the rate filing requirements of Subchapters C and D, Chapter 2251, except that the carrier shall file with the department a schedule of the amounts the carrier charges a policyholder or an applicant for a policy, regardless of the term the carrier uses to refer to those charges, including "rate," "policy fee," "inspection fee," or "initial charge."

(f) A qualified insurance carrier must:

(1) employ in this state at least 80 percent of the carrier's employees; or

(2) pay to employees in this state 80 percent of the carrier's payroll.

Sec. 229.202. REQUIREMENT TO CONDUCT FIRST OR SECOND TIER COASTAL COUNTY INSURANCE BUSINESS. (a) A qualified insurance carrier shall at all times be primarily engaged in the business of selling commercial and personal property insurance in one or more first or second tier coastal counties and may not sell more than 50 percent of its insurance business in other counties.

(b) The failure to comply with Subsection (a) may result in penalties under Section 229.303 and the recapture and forfeiture of premium tax credits under Section 229.351.

Sec. 229.203. LOCATION OF PRINCIPAL BUSINESS OPERATIONS. If, before the 90th day after the date a certified insurance-capital company makes an investment in a qualified insurance carrier, the qualified insurance carrier moves its principal business operations from this state, the investment may not be considered a qualified investment for purposes of the percentage requirements under this chapter.

Sec. 229.204. EVALUATION OF BUSINESS BY COMPTROLLER. (a) A certified insurance-capital company may, before making an investment in an entity, request a written opinion from the comptroller as to whether the entity in which the company proposes to invest is a qualified insurance carrier or an early stage carrier.

(b) The department shall provide information requested by the comptroller necessary for making a determination as to whether an entity meets the definition of a qualified insurance carrier or an early stage carrier, as applicable.

(c) Not later than the 30th business day after the date of the receipt of a request under Subsection (a), the comptroller shall:

(1) determine whether the entity meets the definition of a qualified insurance carrier or an early stage carrier, as applicable, and notify the certified insurance-capital company of the determination and provide an explanation of the determination; or

(2) notify the company that an additional 15 days will be needed to review the request and make the determination.

(d) If the comptroller fails to notify the certified insurance-capital company with respect to the proposed investment within the period specified by Subsection (c), the entity in which the company proposes to invest is considered to be a qualified insurance carrier or an early stage carrier, as appropriate, only for purposes of the applicability of the tax credits under Subchapter F and not for any other purpose.

Sec. 229.205. CONTINUATION OF CLASSIFICATION AS QUALIFIED INSURANCE CARRIER; FOLLOW-ON INVESTMENTS AUTHORIZED. (a) A business that is classified as a qualified insurance carrier at the time of the first investment in the carrier by a certified insurance-capital company:

(1) remains classified as a qualified insurance carrier; and

(2) may receive follow-on investments from any certified insurance-capital company.

(b) Except as provided by Subsection (c), a follow-on investment made under Subsection (a) is a qualified investment even though the insurance carrier may not meet the definition of a qualified insurance carrier at the time of the follow-on investment.

(c) A follow-on investment does not qualify as a qualified investment if, at the time of the follow-on investment, the qualified insurance carrier no longer has the carrier's principal business operations in this state. [Sections 229.206-229.250 reserved for expansion] SUBCHAPTER F. PREMIUM TAX CREDIT

Sec. 229.251. PREMIUM TAX CREDIT. (a) A certified investor who makes an investment of certified capital shall earn in the year of investment a vested credit against state premium tax liability equal to 100 percent of the certified investor's investment of certified capital, subject to the limits imposed by this chapter.

(b) Beginning with the tax report due March 1, 2011, for the 2010 tax year, a certified investor may take up to 25 percent of the vested premium tax credit in any taxable year of the certified investor. The credit may not be applied to estimated payments due in 2010.

Sec. 229.252. LIMIT ON PREMIUM TAX CREDIT. (a) The credit to be applied against state premium tax liability of a certified investor in any one year may not exceed the state premium tax liability of the investor for the taxable year.

(b) A certified investor may carry forward any unused credit against state premium tax liability indefinitely until the premium tax credits are used.

Sec. 229.253. PREMIUM TAX CREDIT ALLOCATION CLAIM REQUIRED. (a) A certified investor must prepare and execute a premium tax credit allocation claim on a form provided by the comptroller.

(b) The certified insurance-capital company must have filed the claim with the comptroller on the date on which the comptroller accepted premium tax credit allocation claims on behalf of certified investors under the comptroller's rules.

(c) The premium tax credit allocation claim form must include an affidavit of the certified investor under which the certified investor becomes legally bound and irrevocably committed to make an investment of certified capital in a certified insurance-capital company in the amount allocated, even if the amount allocated is less than the amount of the claim, subject only to the receipt of an allocation under Section 229.255.

(d) A certified investor may not claim a premium tax credit under Section 229.251 for an investment that has not been funded, without regard to whether the certified investor has committed to fund the investment.

Sec. 229.254. TOTAL LIMIT ON PREMIUM TAX CREDITS. (a) The total amount of certified capital for which premium tax credits may be allowed under this chapter for all years in which premium tax credits are allowed is $200 million.

(b) The total amount of certified capital for which premium tax credits may be allowed for all certified investors under this chapter may not exceed the amount that would entitle all certified investors in certified capital companies to take total credits of $50 million in a year.

(c) A certified insurance-capital company and the company's affiliates may not file premium tax credit allocation claims in excess of the maximum amount of certified capital for which premium tax credits may be allowed as provided by this section.

Sec. 229.255. ALLOCATION OF PREMIUM TAX CREDIT. (a) If the total premium tax credits claimed by all certified investors exceed the total limits on premium tax credits established by Section 229.254(a), the comptroller shall allocate the total amount of premium tax credits allowed under this chapter to certified investors in certified capital companies on a pro rata basis in accordance with this section.

(b) The pro rata allocation for each certified investor shall be the product of:

(1) a fraction, the numerator of which is the amount of the premium tax credit allocation claim filed on behalf of the investor and the denominator of which is the total amount of all premium tax credit allocation claims filed on behalf of all certified investors; and

(2) the total amount of certified capital for which premium tax credits may be allowed under this chapter.

(c) The maximum amount of certified capital for which premium tax credit allocation may be allowed on behalf of a single certified investor and the investor's affiliates, whether by one or more certified insurance-capital companies, may not exceed the greater of:

(1) $10 million; or

(2) 15 percent of the maximum aggregate amount available under Section 229.254(a).

Sec. 229.256. TREATMENT OF CREDITS AND CAPITAL. In any situation under this code or another insurance law of this state in which the assets of a certified investor are examined or considered, the certified capital may be treated as an admitted asset, subject to the applicable statutory valuation procedures.

Sec. 229.257. TRANSFERABILITY OF CREDIT. (a) A certified investor may transfer or assign premium tax credits only in compliance with the rules adopted under Section 229.052.

(b) The transfer or assignment of a premium tax credit does not affect the schedule for taking the premium tax credit under this chapter.

Sec. 229.258. IMPACT OF PREMIUM TAX CREDIT ON INSURANCE RATEMAKING. A certified investor is not required to reduce the amount of premium tax included by the investor in connection with ratemaking for an insurance contract written in this state because of a reduction in the investor's premium tax derived from premium tax credits granted under this chapter.

Sec. 229.259. RETALIATORY TAX. A tax credit allowed under this chapter and similar tax credits allowed by other states are not to be used in the computation of retaliatory taxes under Chapter 281. [Sections 229.260-229.300 reserved for expansion] SUBCHAPTER G. ENFORCEMENT

Sec. 229.301. ANNUAL REVIEW BY COMPTROLLER. (a) The comptroller shall conduct an annual review of each certified insurance-capital company to:

(1) ensure that the company:

(A) continues to satisfy the requirements of this chapter; and

(B) has not made any investment in violation of this chapter; and

(2) determine the eligibility status of the company's qualified investments.

(b) Each certified insurance-capital company shall pay the cost of the annual review according to a reasonable fee schedule adopted by the comptroller.

Sec. 229.302. DECERTIFICATION OF CERTIFIED INSURANCE-CAPITAL COMPANY. (a) A material violation of Section 229.105, 229.106, 229.107, 229.151, 229.152, 229.154, 229.155, 229.156, 229.202, 229.203, or 229.205 is grounds for decertification of a certified insurance-capital company.

(b) If the comptroller determines that a certified insurance-capital company is not in compliance with a law listed in Subsection (a), the comptroller shall notify the company's officers in writing that the company may be subject to decertification after the 120th day after the date the notice is mailed unless the company:

(1) corrects the deficiencies; and

(2) returns to compliance with that law.

(c) The comptroller may decertify a certified insurance–capital company, after opportunity for hearing, if the comptroller finds that the company is not in compliance with a law listed in Subsection (a) at the end of the period established by Subsection (b).

(d) Decertification under this section is effective on receipt of notice of decertification by the certified insurance-capital company.

(e) The comptroller shall notify any appropriate state agency of a decertification of a certified insurance-capital company.

Sec. 229.303. ADMINISTRATIVE PENALTY. (a) The comptroller may impose an administrative penalty on a certified insurance-capital company that violates this chapter.

(b) The amount of the penalty may not exceed $25,000. Each day a violation continues or occurs is a separate violation for the purpose of imposing the penalty. The amount of the penalty shall be based on:

(1) the seriousness of the violation, including the nature, circumstances, extent, and gravity of the violation;

(2) the economic harm caused by the violation;

(3) the history of previous violations;

(4) the amount necessary to deter a future violation;

(5) efforts to correct the violation; and

(6) any other matter that justice may require.

(c) A certified insurance-capital company assessed a penalty under this chapter may request a redetermination as provided by Chapter 111, Tax Code.

(d) The attorney general may sue to collect the penalty.

(e) A proceeding to impose the penalty is a contested case under Chapter 2001, Government Code. [Sections 229.304-229.350 reserved for expansion] SUBCHAPTER H. RECAPTURE AND FORFEITURE OF PREMIUM TAX CREDITS

Sec. 229.351. RECAPTURE AND FORFEITURE OF PREMIUM TAX CREDIT FOLLOWING DECERTIFICATION. (a) Decertification of a certified insurance-capital company may, in accordance with this section, cause:

(1) the recapture of premium tax credits previously claimed by the company's certified investors; and

(2) the forfeiture of future premium tax credits to be claimed by the investors.

(b) Decertification of a certified insurance-capital company on or before the third anniversary of the company's allocation date causes the recapture of any premium tax credits previously claimed and the forfeiture of any future premium tax credits to be claimed by a certified investor with respect to the company.

(c) For a certified insurance-capital company that meets the requirements for continued certification under Sections 229.105 and 229.151(a) and subsequently fails to meet the requirements for continued certification under Section 229.151(b):

(1) any premium tax credit that has been or will be taken by a certified investor on or before the third anniversary of the allocation date is not subject to recapture or forfeiture; and

(2) any premium tax credit that has been or will be taken by a certified investor after the third anniversary of the company's allocation date is subject to recapture or forfeiture.

(d) For a certified insurance-capital company that has met the requirements for continued certification under Sections 229.105 and 229.151 and is subsequently decertified:

(1) any premium tax credit that has been or will be taken by a certified investor on or before the fifth anniversary of the allocation date is not subject to recapture or forfeiture; and

(2) any premium tax credit to be taken after the fifth anniversary of the allocation date is subject to forfeiture only if the company is decertified on or before the fifth anniversary of the company's allocation date.

(e) For a certified insurance-capital company that has invested an amount cumulatively equal to 100 percent of the company's certified capital in qualified investments, any premium tax credit claimed or to be claimed by a certified investor is not subject to recapture or forfeiture under this section.

Sec. 229.352. NOTICE OF RECAPTURE AND FORFEITURE OF PREMIUM TAX CREDIT. The comptroller shall send written notice to the address of each certified investor whose premium tax credit is subject to recapture or forfeiture, using the address shown on the investor's last premium tax filing.

Sec. 229.353. INDEMNITY AGREEMENTS AND INSURANCE AUTHORIZED. (a) A certified insurance-capital company may agree to indemnify, or purchase insurance for the benefit of, a certified investor for losses resulting from the recapture or forfeiture of premium tax credits under Section 229.351.

(b) Any guaranty, indemnity, bond, insurance policy, or other payment undertaking made under this section may not be provided by more than one certified investor of the certified insurance-capital company or affiliate of the certified investor.

SECTION 2. Article 4.51(12), Insurance Code, is amended to read as follows:

(12) "Qualified investment" means the investment of cash by a certified capital company in a qualified business for the purchase of any debt, debt participation, equity, or hybrid security of any nature or description, including:

(A) surplus debentures issued by qualified insurance carriers authorized by Subchapter E, Chapter 229, provided that the surplus debentures do not have voting rights and do not constitute a majority of the issuing entity's capital structure; and

(B) a debt instrument or security that has the characteristics of debt but that provides for conversion into equity or equity participation instruments such as options or warrants.

SECTION 3. Subchapter B, Chapter 4, Insurance Code, is amended by adding Article 4.515 to read as follows:

Art. 4.515. INVESTMENT IN CERTAIN SURPLUS DEBENTURES. Notwithstanding Article 4.51(9)(F) of this code, the limitation on a qualified business does not include investments in surplus debentures issued by qualified insurance carriers authorized by Subchapter E, Chapter 229, provided that the surplus debentures:

(1) do not have voting rights; and

(2) do not constitute a majority of the issuing entity's capital structure.

SECTION 4. As soon as practicable after the effective date of this Act, the comptroller and the commissioner of insurance shall adopt rules as required by Sections 229.052 and 229.053, Insurance Code, as added by this Act.

SECTION 5. (a) The comptroller shall:

(1) begin accepting applications for certification as a certified insurance-capital company not later than November 1, 2007; and

(2) accept premium tax credit allocation claims on behalf of certified investors on a date not later than January 1, 2008.

(b) Not later than January 16, 2008, the comptroller shall notify each certified insurance-capital company of the amount of tax credits allocated to each certified investor. Each certified insurance-capital company shall notify each certified investor of the investor's premium tax credit allocation.

(c) If a certified insurance-capital company does not receive an investment of certified capital equaling the amount of premium tax credits allocated to a certified investor for which it filed a premium tax credit allocation claim before the end of the 10th business day after the date of receipt of notice of allocation under Subsection (b) of this section, the company shall notify the comptroller by overnight common carrier delivery service and that portion of capital allocated to the certified investor shall be forfeited. The comptroller shall reallocate the forfeited capital among the certified investors in the other certified insurance-capital companies that originally received an allocation so that the result after reallocation is the same as if the initial allocation under this section had been performed without considering the premium tax credit allocation claims that were subsequently forfeited.

SECTION 6. This Act takes effect immediately if it receives a vote of two-thirds of all the members elected to each house, as provided by Section 39, Article III, Texas Constitution. If this Act does not receive the vote necessary for immediate effect, this Act takes effect September 1, 2007.