80R4620 PB-D

By: Ellis S.B. No. 859

A BILL TO BE ENTITLED

AN ACT

relating to required community investment by certain insurers; providing administrative and civil penalties.

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

SECTION 1. Subtitle B, Title 4, Insurance Code, is amended by adding Chapter 428 to read as follows: CHAPTER 428. COMMUNITY INVESTMENT BY INSURERS SUBCHAPTER A. GENERAL PROVISIONS

Sec. 428.001. LEGISLATIVE FINDINGS; PURPOSE. (a) The legislature finds that insurers are a major source of investment capital in this state. Many low-income communities in this state, both rural and urban, need greater access to investment capital for purposes such as small business and community economic development and affordable housing rehabilitation and construction. Financial institutions, another major source of investment capital in this state, are required by the Community Reinvestment Act of 1977 (12 U.S.C. Sec. 2901 et seq.) to address the credit needs of low-income communities in the areas they serve. Investments under that Act have helped revitalize low-income communities.

(b) The legislature further finds that insurers collect premiums from individuals and families throughout this state, including low-income communities. These premiums are part of an insurer's investable assets. Because insurance companies are separately regulated by each state, there has been no national requirement that a portion of insurers' investments be made in low-income communities. Thus, insurers have not invested sufficiently in low-income communities in this state. The lack of investment in low-income communities has inhibited economic growth and stability in this state and contributed to their overall economic decline. Insurers that write a significant amount of coverage in this state should be required to invest a part of their total investable assets in low-income communities. Those insurers that generate an average annual written premium of at least $15 million in this state have significant investable assets and have a continuing and affirmative obligation to invest in low-income communities of this state in such a way that those communities will be positively impacted. Investments authorized under this code or by rules adopted under this code are available to insurers in low-income communities. Those investments are overlooked business opportunities that offer competitive rates of return and do not compromise the financial interests of shareholders and policyholders.

(c) The purpose of this chapter is to require insurers to make safe and sound investments in low-income communities as an appropriate condition of maintaining a certificate of authority to engage in the business of insurance in this state.

Sec. 428.002. DEFINITIONS. In this chapter:

(1) "Area median income" has the meaning assigned by Section 2306.123, Government Code.

(2) "Community development corporation" means a private, nonprofit corporation organized to foster economic growth and revitalization, create small businesses, or develop affordable housing in a defined neighborhood or for a targeted population.

(3) "Community development credit union" means a credit union whose basic purpose is the stimulation of economic development activities and community revitalization efforts aimed at benefiting the community it serves, a majority of which are low-income or very low income residents.

(4) "Community development loan" means a line of credit, commitment, or letter of credit for affordable housing and economic development needs that are not being met by the private market.

(5) "Community development financial institution" means a person, other than an individual or a governmental entity, that:

(A) has a primary mission of promoting community development;

(B) serves an investment area or targeted population;

(C) provides development services in conjunction with equity investments or loans, directly or through a subsidiary or affiliate; and

(D) maintains, through representation on its governing board or otherwise, accountability to residents of its investment area or targeted populations.

(6) "Direct written premiums" means the gross amount of premiums paid by policyholders for issuance of policies of insurance insuring risks located in this state. The term does not include premiums for reinsurance.

(7) "Economically targeted investment" means an investment made by an insurer in a low-income or very low income community that benefits low-income or very low income individuals and has a positive impact on that community. The term includes:

(A) equity or debt investments:

(i) made through financial intermediaries, including community development financial institutions, community development corporations, loan pools or consortia, microenterprise development organizations, minority- and women-owned financial institutions, and low-income or community development credit unions that primarily lend or facilitate lending in low-income and very low income areas or to low-income and very low income individuals in order to promote community economic development or affordable housing development;

(ii) made in businesses or farms with gross annual revenues less than or equal to $1 million;

(iii) made in organizations promoting small and microenterprise businesses;

(iv) made in housing affordable to low-income and very low income households and in community economic development in low-income and very low income communities; or

(v) made in loan guaranty funds for low-income or very low income housing;

(B) community development loans;

(C) investments in projects eligible for the federal low-income housing tax credit;

(D) investments in state and municipal obligations that specifically support community economic development or affordable housing to benefit low-income and very low income individuals or communities;

(E) purchases of loans for multifamily affordable housing on the secondary market; and

(F) grants or deferred interest loans to nonprofit organizations engaging in any of the following activities:

(i) affordable rental housing rehabilitation and new construction;

(ii) supporting or developing facilities that promote community economic development in low-income and very low income areas or for low-income and very low income individuals, such as day-care facilities;

(iii) activities essential to the capacity of low-income and very low income individuals or communities to utilize credit or sustain economic development; or

(iv) small business or microenterprise development.

(8) "Insurer" means any entity authorized to engage in the business of insurance in this state as an insurance company or authorized to provide insurance in this state, including:

(A) a capital stock insurance company;

(B) a mutual insurance company;

(C) a title insurance company;

(D) a fraternal benefit society;

(E) a local mutual aid association;

(F) a statewide mutual assessment company;

(G) a county mutual insurance company;

(H) a Lloyd's plan;

(I) a reciprocal or interinsurance exchange;

(J) a stipulated premium company;

(K) a group hospital service company;

(L) a health maintenance organization;

(M) a farm mutual insurance company;

(N) a risk retention group; and

(O) an eligible surplus lines insurer.

(9) "Low income" means, in the case of an individual, an individual income, or, in the case of a geographic area, a median family income that is at least 50 percent and less than 80 percent of the adjusted area median income, adjusted for family size and revised annually.

(10) "Microenterprise" means a commercial business enterprise with 10 or fewer employees, one or more of whom owns the enterprise.

(11) "Small business" means a commercial business enterprise with gross annual revenues that do not exceed $1 million.

(12) "Very low income" means, in the case of an individual, an individual income, or, in the case of a geographic area, a median family income that is less than 50 percent of the adjusted area median income, adjusted for family size and revised annually. [Sections 428.003-428.050 reserved for expansion] SUBCHAPTER B. MANDATORY COMMUNITY INVESTMENT

Sec. 428.051. MINIMUM INVESTMENT PERCENTAGE. For purposes of this subchapter, the minimum investment percentage for each insurer admitted to engage in the business of insurance in this state and authorized to write life, health, or accident insurance in this state is one percent, and for each insurer admitted to engage in the business of insurance in this state and authorized to write insurance in this state other than life, health, or accident policies is one-half of one percent.

Sec. 428.052. METHOD OF INVESTMENT. Economically targeted investments may be made directly by insurers, through intermediaries, or through partnerships, consortia, or other entities organized by insurers or other financial institutions.

Sec. 428.053. ANNUAL REQUIRED INVESTMENT. (a) An admitted insurer that wrote at least $15 million of direct written premiums in the 2007 calendar year shall invest in economically targeted investments during the 2008 calendar year not less than an amount equal to the applicable investment percentage prescribed by Section 428.051 multiplied by the total of its 2007 calendar year direct written premiums.

(b) An admitted insurer that wrote an aggregate of at least $30 million of direct written premiums in the 2007 and 2008 calendar years shall invest in economically targeted investments during the 2009 calendar year not less than an amount equal to the applicable investment percentage prescribed by Section 428.051 multiplied by the total of its aggregate 2007 and 2008 calendar years' direct written premiums. Economically targeted investments made during the 2008 calendar year under Subsection (a) may be counted toward that requirement.

(c) An admitted insurer that has written an aggregate of at least $45 million of direct written premiums in the three preceding calendar years shall have economically targeted investments during the 2010 calendar year and each subsequent calendar year in an amount equal to not less than the applicable investment percentage prescribed by Section 428.051 multiplied by the total of its aggregate direct written premiums for the preceding three calendar years.

Sec. 428.054. REDUCTION IN REQUIRED INVESTMENT AMOUNT. The amount that an insurer is required to invest under Section 428.053 shall be reduced by $1 for each $1 that the insurer invests in economically targeted investments that are:

(1) loans to or equity investments in community development corporations engaged in promoting small or microenterprise business opportunities for low-income or very low income individuals through loans or equity investments; or

(2) loans to or equity investments in small businesses or farms with gross annual revenues of less than $1 million.

Sec. 428.055. EXEMPTION; VALUATION OF INVESTMENTS. (a) An insurer is not required to make economically targeted investments that are:

(1) of medium investment grade; and

(2) rated below 3, P3, or PSF3 by the Securities Valuation Office of the National Association of Insurance Commissioners.

(b) For the purpose of this chapter, investments shall be valued at actual cost.

Sec. 428.056. INSURER ANNUAL COMMUNITY INVESTMENT REPORT. (a) Each insurer shall submit to the department an annual community investment report that states:

(1) the type, number, and dollar amount of economically targeted investments;

(2) the location by address and census tract of where economically targeted investments are invested; and

(3) a computation of the value of the investments.

(b) The insurer shall provide the information required in the community investment report both in the aggregate and separately for low-income and very low income communities.

(c) The insurer may make the community investment report separately or as part of another annual report required to be submitted to the department.

(d) The commissioner may require additional information as is necessary to evaluate the investment performance of insurers and compliance with this chapter.

Sec. 428.057. COMMUNITY INVESTMENT PLAN. (a) The board of directors or other governing body of each insurer subject to this chapter shall:

(1) adopt an annual community investment plan; and

(2) file a copy of the plan with the department in the manner prescribed by rules adopted by the commissioner.

(b) A community investment plan must contain, at a minimum:

(1) a description of the specific community development needs to be addressed by the insurer's economically targeted investments;

(2) a list of the geographic areas in which the insurer intends to make economically targeted investments;

(3) a list of the specific types of economically targeted investments the insurer intends to make;

(4) an assessment of the insurer's previous efforts in making economically targeted investments;

(5) an identification of any obstacles to making economically targeted investments;

(6) strategies for overcoming any identified obstacles to making economically targeted investments that the insurer intends to take; and

(7) a statement of the insurer's community investment goals for the subsequent calendar year. [Sections 428.058-428.100 reserved for expansion] SUBCHAPTER C. POWERS AND DUTIES OF COMMISSIONER AND DEPARTMENT

Sec. 428.101. RULES. The commissioner shall adopt rules as necessary to implement this chapter.

Sec. 428.102. INFORMATION AVAILABLE ON DEPARTMENT INTERNET WEBSITE. (a) The commissioner shall biennially provide information on the department's Internet website regarding the aggregate insurer community investments made under this chapter. The information shall identify insurers that make investments that are innovative, responsive to community needs, not routinely provided by insurers, or have a high degree of positive impact on the economic welfare of low-income or very low income individuals, families, or communities in urban or rural areas of this state.

(b) The department shall also biennially provide information on the department's Internet website regarding:

(1) the aggregate amount of government obligations, including all obligations issued by this state or a political subdivision of this state, that is purchased by insurers as reported to the department and the National Association of Insurance Commissioners in the filing required under Section 802.056; and

(2) the aggregate amount of identified investments made in this state, as reported to the department and the National Association of Insurance Commissioners in the filing required under Section 802.056. [Sections 428.103-428.150 reserved for expansion] SUBCHAPTER D. ENFORCEMENT AND PENALTIES

Sec. 428.151. SHOW CAUSE ORDER. (a) If the commissioner has reason to believe that an insurer has failed to adequately make economically targeted investments in accordance with this chapter, the commissioner shall issue an order to show cause that contains:

(1) a statement of the charges against the insurer;

(2) a statement of the insurer's potential liability under Section 428.153; and

(3) a notice of a hearing, to be held at a time and place fixed in the notice, to determine whether the commissioner is to issue an order that the insurer pay any penalty assessed under Section 428.153 and to cease and desist from further noncompliance with this chapter.

(b) A hearing under Subsection (a) shall be conducted in accordance with Chapter 2001, Government Code.

(c) If, after hearing, the commissioner determines that the charges are justified, the commissioner shall issue an order specifying:

(1) the penalty that the insurer shall pay under Section 428.153;

(2) remedial actions as are appropriate to require compliance; and

(3) that the insurer shall cease and desist from engaging in investment practices that are found to be discriminatory or not in compliance with this chapter.

(d) An insurer affected by the commissioner's order may appeal the decision of the commissioner in the manner provided by Subchapter D, Chapter 36.

Sec. 428.152. PETITION BY INTERESTED PERSON. Any interested person may file a petition with the commissioner that alleges that an insurer has failed to adequately make economically targeted investments in accordance with this chapter to seek the issuance under Section 428.151 of an order to show cause directed at that insurer.

Sec. 428.153. ADMINISTRATIVE AND CIVIL PENALTIES. (a) An insurer determined to have violated this chapter is subject to administrative penalties in the manner provided by Chapter 84. Notwithstanding Section 84.022:

(1) for the first violation, the commissioner may set the penalty in an amount not to exceed $50,000 for each year in each three-year period during which the insurer was not in compliance; and

(2) for the second or a subsequent violation, the commissioner may set the penalty in an amount not to exceed $100,000 for each year in each three-year period during which the insurer was not in compliance.

(b) In addition to an administrative penalty assessed under Subsection (a), an insurer who fails to comply with a final order of the commissioner under this chapter is liable to the state for a civil penalty in an amount not to exceed $150,000.

(c) A penalty under this section may be assessed in addition to any other penalties provided by law.

Sec. 428.154. SUSPENSION OR REVOCATION OF CERTIFICATE OF AUTHORITY. In addition to other penalties provided by this chapter, the commissioner may suspend or revoke the certificate of authority of an insurer who fails to comply with an order issued under Section 428.151 and may suspend or revoke, wholly or partly, the certificate of authority of an insurer who receives more than one order to comply with this chapter.

SECTION 2. Not later than December 31, 2007, the commissioner of insurance shall issue bulletins adopting guidelines for the implementation of Chapter 428, Insurance Code, as added by this Act. The bulletins may specify or define appropriate economically targeted investments.

SECTION 3. An insurer subject to Chapter 428, Insurance Code, as added by this Act, is not required to make community investments as required by that chapter until the calendar year beginning January 1, 2008.

SECTION 4. 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.