By: Hancock H.B. No. 3161
 
 
 
A BILL TO BE ENTITLED
 
AN ACT
  relating to limited purpose subsidiary life insurance companies.
         BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
  SECTION 1.  Chapter 841, Insurance Code, is amended by adding a new
  Subchapter P to read as follows:
  Subchapter P.
  Limited Purpose Subsidiary Life Insurance Companies
         §841.801.  Purpose. The purpose of this subchapter is to
  authorize the establishment of domestic Limited Purpose Subsidiary
  Life Insurance Companies ("Limited Purpose Company" or "LPS") in
  order to allow that such Limited Purpose Companies may issue
  securities and otherwise access financial markets and alternative
  sources of capital through securitizations and other transactions.
         §841.802 Definitions. For purposes of this subchapter, the
  following definitions shall apply:
         (1)  "Affiliated companies" means:
               (A)  domestic life insurance companies that are
  directly or indirectly wholly owned subsidiaries of the same
  holding company; or
               (B)  controlled persons.
         (2)  "Ceding insurer" means either a domestic life insurance
  company that is the parent of the Limited Purpose Subsidiary or an
  affiliated company of a Limited Purpose Subsidiary and that cedes
  risk to the LPS pursuant to a reinsurance contract.
         (3)  "Commissioner" means the insurance commissioner.
         (4)  "Controlled Person" means a person organized or
  authorized to do business under the laws of this State who is
  controlled directly or indirectly by a holding company.
         (5)  "Guaranty" means an agreement to pay specified
  obligations of the limited purpose subsidiary by a holding company
  or affiliated company of the limited purpose subsidiary approved by
  the commissioner that is not a ceding insurer and the guarantor has
  sufficient equity, less the equity of all ceding insurers that are
  subsidiaries of the guarantor, to satisfy the agreement during the
  life of the guaranty.
         (6)  "Holding Company" means a person who directly or
  indirectly controls an insurer.
         (7)  "Insurance securitization" or "securitization" means a
  transaction or a group of related transactions, which may include
  capital market offerings, that are effected through related risk
  transfer instruments and facilitating administrative agreements
  where all or part of the result of such transactions is used to fund
  the LPS's obligations under a reinsurance contract with a ceding
  insurer and by which proceeds are:
               (A)  obtained by an LPS, directly or indirectly,
  through the issuance of securities by the LPS or any other person;
  or
               (B)  provided through one or more letters of credit or
  other assets for the benefit of the LPS, which the commissioner
  authorizes the LPS to treat as admitted assets for purposes of the
  LPS's annual statement where all or any part of such proceeds,
  letters of credit, or assets, as applicable, is used to fund the
  LPS's obligations under a reinsurance contract with a ceding
  insurer.
         (8)  "Insurer" for purposes of this chapter, means a domestic
  life insurance company organized under chapter 841.
         (9)  "Letters of credit" means clean, unconditional,
  irrevocable letters of credit issued or confirmed by a qualified
  United States financial institution as defined in section
  492.104(b)(2)(C) of this code.
         (10)  "LPS" means a limited purpose subsidiary life
  insurance company organized pursuant to this subchapter, that is
  wholly owned by a life insurance company or an affiliated company
  and that is issued a certificate of authority by the commissioner
  pursuant to this chapter.
         (11)  "LPS security" means:
               (A)  A security issued by an LPS; or
               (B)  A security issued by a third party, the proceeds of
  which are obtained directly or indirectly by an LPS.
         (12)  "Management" means the board of directors, managing
  board, or other individual or individuals vested with overall
  responsibility for the management of the affairs of the LPS.
         (13)  "Material" means a transaction or series of
  transactions involving amounts equal to or exceeding 3 percent of
  the LPS's admitted assets less any letters of credit, guaranties
  and intangible assets included as an admitted asset of the LPS.
         (14)  "Organizational documents" means an LPS's articles of
  incorporation and bylaws.
         (15)  "Organizing company" means the company that organizes
  an LPS pursuant to this subchapter.
         (16)  "Parent" means a person, as defined in Section
  823.002(7) of this code, that directly or indirectly through one or
  more intermediaries wholly owns or is an affiliated company of an
  LPS.
         (17)  "Person" has the same meaning as defined in Section
  823.002(7) of this code.
         (18)  "Reinsurance contract" means a contract between an LPS
  and a ceding insurer pursuant to which the LPS agrees to provide
  reinsurance to the ceding insurer for risks.
         (19)  "Risk" means risks associated with life insurance
  policies and annuity contracts written by the ceding insurer or
  assumed by the ceding insurer from an affiliated company which were
  written by the affiliated company and for which the ceding insurer
  holds statutory reserves for those policies.
         (20)  "Security" means the same as defined in Article
  581-4(a), Vernon' Civil Statutes, and shall also include any form
  of debt obligation, surplus note, derivative, or other financial
  instrument that the commissioner designates as a "security" for
  purposes of this chapter.
         (21)  "Surplus note" means an unsecured subordinated debt
  obligation.
         §841.803.  Organizational Documents of a LPS.
         (a)  Either a wholly owned domestic insurer authorized to
  transact the business of insurance pursuant to chapter 841 or an
  affiliated company organized or authorized to conduct business
  under the laws of this State may organize a domestic limited purpose
  subsidiary life insurance company pursuant to the provisions of
  this chapter.
         (b)  The limited purpose subsidiary life insurance company
  may reinsure risks of the organizing company, reinsure risks of
  affiliated companies, and access alternative forms of financing.
         (c)  An LPS's organizational documents shall limit the LPS's
  authority to transact the business of reinsurance to reinsure only
  the risks of a ceding insurer and shall state that the LPS shall not
  otherwise engage in the business of insurance.
         (d)  An LPS's organizational documents shall provide that
  the LPS shall always be either wholly owned by a domestic insurer
  authorized to transact the business of insurance pursuant to
  chapter 841 or an affiliated company organized or authorized to do
  business under the laws of this State.
         §841.804.  Certificate of Authority Required.  No LPS shall
  do any reinsurance business in this state unless it obtains from the
  commissioner a certificate of authority pursuant to this rule.
         §841.805.  Application for Certificate of Authority.  (a)  To
  obtain a charter for a domestic LPS, the incorporators must pay to
  the department the charter fee in an amount determined under
  Chapter 202 and file with the department:
         (1)  An application for charter on the form and containing
  the information prescribed by the commissioner;
         (2)  the company's articles of incorporation;
         (3)  an affidavit made by two or more of the incorporators
  that states that:
               (A)  the minimum capital and surplus requirements of
  this subchapter are satisfied;
               (B)  The capital and surplus are the bona fide property
  of the company;
               (C)  the information in the articles of incorporation
  is true and correct;
         (4)  Submit any other statements or documents required by the
  commissioner to evaluate the LPS's application for a certificate of
  authority.
         §841.806.  Investment by Organizing Company.  If the
  organizing company is a domestic life insurance company, it may
  invest funds from its surplus in a limited purpose subsidiary life
  insurance company organized pursuant to this section.
         §841.807.  Officers and Directors.  The organizing company's
  officers and directors may serve as officers and directors of a
  limited purpose subsidiary life insurance company organized
  pursuant to this section.
         §841.808.  Issuance of Certificate of Authority.  (a)  The
  commissioner may issue a certificate of authority to an LPS,
  authorizing the LPS to transact reinsurance business as an LPS in
  this state based on the findings required in Section 841.061 of this
  code.
         (b)  In conjunction with the issuance of a certificate of
  authority to an LPS, the commissioner may issue an order that
  includes any provisions, terms, and conditions regarding the
  organization, licensing, and operation of the LPS that the
  commissioner deems appropriate and that are not inconsistent with
  the provisions of this chapter.
         §841.809.  Scope of Certificate of Authority.  (a)  An LPS
  that has been issued a certificate of authority may reinsure only
  the risks of a ceding insurer.
         (b)  An LPS shall not otherwise engage in the business of
  insurance.
         (c)  An LPS may purchase reinsurance to cede the risks
  assumed under a reinsurance contract.
         (d)  A limited purpose subsidiary life insurance company
  organized pursuant to this section shall be deemed to be licensed to
  transact the business of reinsurance for the purposes of section
  492.051, but may only reinsure risks of its affiliated companies.
         §841.810.  Capital and Surplus.  (a)  An LPS shall not be
  issued a certificate of authority unless it possesses and
  thereafter maintains unimpaired paid-in capital and surplus of not
  less than the amounts required by Section 841.054(a) of this code.
         §841.811.  Dividends and Distributions.  An LPS may pay
  dividends an distributions that do not decrease the capital of the
  LPS below the minimum capital and surplus amount required by
  section 841.810.
         §841.812.  Reports of Securitizations.  An LPS shall provide
  the commissioner with a copy of a complete set of executed
  documentation of an insurance securitization no later than 45 days
  after the closing on the transactions for such securitization.
         §841.813.  Foreclosure on Collateral.  An LPS shall notify
  the commissioner immediately of any action by a ceding insurer or
  any other person to foreclose on or otherwise take possession of
  collateral provided by the LPS to secure any obligation of the LPS.
         §841.814.  Filing Reports with the National Association of
  Insurance Commissioners.  Notwithstanding section 802.051 of this
  code, or any other law, an LPS shall not be required to file any
  report, notice, or other document with the National Association of
  Insurance Commissioners unless required by the commissioner.
         §841.815.  Securitization Agreements.  The LPS
  securitization, the security-offering memorandum or other document
  issued to prospective investors regarding the offer and sale of a
  surplus note or other security shall include a disclosure that all
  or part of the proceeds of such insurance securitization will be
  used to fund the LPS's obligations to the ceding insurer.
         §841.816.  Admitted assets.
         (a)  Admitted assets of a limited purpose subsidiary life
  insurance company shall include assets approved by the commissioner
  which shall be deemed to be, and reported as, admitted assets of the
  LPS.
         (b)  In addition to the investments authorized under
  Subchapters C, and D of chapter 425 of this Code and notwithstanding
  any other law, admitted assets of the LPS shall include proceeds
  from a securitization, premium and other amounts payable by a
  ceding insurer to the LPS, letters of credit, guaranties of a
  holding company, guaranties of an affiliated company,, and any
  other assets approved by the commissioner, which shall be deemed to
  be, and reported as, admitted assets of the LPS.
         §841.817 Securities.
         (a)  An LPS security shall not be subject to regulation as an
  insurance or reinsurance contract.
         (b)  An investor in such a security or a holder of such a
  security shall not be considered to be transacting the business of
  insurance in this state solely by reason of having an interest in
  the security.
         (c)  The underwriter's placement or selling agents and their
  partners, commissioners, officers, members, managers, employees,
  agents, representatives, and advisors involved in an insurance
  securitization by an LPS shall not be considered to be insurance
  producers or brokers or to be conducting business as an insurance or
  reinsurance company or as an insurance agency, brokerage,
  intermediary, advisory, or consulting business solely by virtue of
  their underwriting activities in connection with such
  securitization.
         §841.818.  Permitted Reinsurance.
         (a)  An LPS may reinsure, pursuant to a reinsurance contract,
  only the risks of a ceding insurer.
         (b)  Unless otherwise approved in advance by the
  commissioner, an LPS may not assume or retain exposure to
  reinsurance losses for its own account that are not funded by one or
  more of the following:
               (1)  Proceeds from a securitization;
               (2)  Premium and other amounts payable by the ceding
  insurer to the LPS pursuant to the reinsurance contract;
               (3)  Letters of credit;
               (4)  Guaranties of a holding or affiliated company; or
               (5)  Any return on investment of the items in
  subsections (1) or (2.
         (c)  An LPS may cede risks assumed through a reinsurance
  contract to one or more reinsurers through the purchase of
  reinsurance, subject to the prior approval of the commissioner.
         (d)  An LPS may enter into contracts and conduct other
  commercial activities related or incidental to and necessary to
  fulfill the purposes of a reinsurance contract, an insurance
  securitization, and this chapter.  Such contracts and activities
  may include but are not limited to:
               (1)  entering into reinsurance contracts;
               (2)  issuing LPS securities;
               (3)  complying with the terms of these contracts or
  securities;
               (4)  entering into trust, guaranteed investment
  contract, swap, or other derivative, tax, administration, services
  reimbursement, or fiscal agent transactions;
               (5)  complying with trust indenture, reinsurance, or
  retrocession; or
               (6)  entering into other agreements necessary or
  incidental to effect a reinsurance contract or an insurance
  securitization in compliance with this chapter.
         (e)  Unless otherwise approved in advance by the
  commissioner, a reinsurance contract shall not contain any
  provision for payment by the LPS in discharge of its obligations
  under the reinsurance contract to any person other than the ceding
  insurer or any receiver of the ceding insurer.
         §841.825.  Other Laws Not Applicable.  The deposit
  requirements in subchapter H of this chapter shall not apply to an
  LPS.
         SECTION 2.  This Act shall be effective January 1, 2012.