S.B. No. 1070
 
 
 
 
AN ACT
  relating to authorized reinsurance and financial statement credit
  and accounting for reinsurance.
         BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
  ARTICLE 1.  SHORT TITLE
         SECTION 1.01.  This Act shall be known as The Mattax Act.
  ARTICLE 2.  AUTHORIZED REINSURANCE; CREDIT AND ACCOUNTING FOR
  REINSURANCE
         SECTION 2.01.  The chapter heading to Chapter 493, Insurance
  Code, is amended to read as follows:
  CHAPTER 493.  AUTHORIZED REINSURANCE; CREDIT AND ACCOUNTING [FOR
  PROPERTY AND CASUALTY INSURERS]
         SECTION 2.02.  Section 493.002, Insurance Code, is amended
  by amending Subsection (a) and adding Subsection (a-1) to read as
  follows:
         (a)  Except as provided by Subsection (a-1) [(b)], this
  chapter applies to all insurers, including:
               (1)  a stock or mutual property and casualty insurance
  company;
               (2)  a Mexican casualty insurance company;
               (3)  a Lloyd's plan;
               (4)  a reciprocal or interinsurance exchange;
               (5)  a nonprofit legal service corporation;
               (6)  a county mutual insurance company;
               (7)  a farm mutual insurance company;
               (8)  a risk retention group; [and]
               (9)  any insurer writing a line of insurance regulated
  by Title 10;
               (10)  all life, health, and accident insurance
  companies regulated by the department, including:
                     (A)  a stock or mutual life, health, or accident
  insurance company;
                     (B)  a fraternal benefit society; and
                     (C)  a nonprofit hospital, medical, or dental
  service corporation, including a group hospital service
  corporation operating under Chapter 842; and
               (11)  a health maintenance organization operating
  under Chapter 843.
         (a-1)  A county mutual insurance company operating under
  Section 912.056(d) that does not directly or indirectly write or
  assume insurance in any manner in another state may not be allowed
  credit under Section 493.1033 for reinsurance ceded to a reinsurer
  qualifying under Sections 493.1033 and 493.1034 and is not subject
  to Section 493.1039.  This subsection does not prohibit a county
  mutual insurance company described by this subsection from ceding
  reinsurance to reinsurers qualifying under Sections 493.1033 and
  493.1034 under other provisions of this chapter.
         SECTION 2.03.  Section 493.051(b), Insurance Code, is
  amended to read as follows:
         (b)  An insurer authorized to engage in business in this
  state [that writes any line of insurance regulated by Title 10] may
  provide reinsurance under this chapter on any line of insurance in
  which the insurer is authorized to engage in this state [while the
  insurer is in compliance with law].
         SECTION 2.04.  Section 493.102(a), Insurance Code, is
  amended to read as follows:
         (a)  A ceding insurer may be allowed credit for reinsurance
  ceded, as an asset or as a deduction from liability, only if the
  reinsurance is ceded to an assuming insurer that:
               (1)  is authorized to engage in the business of
  insurance or reinsurance in this state;
               (2)  is accredited as a reinsurer in this state, as
  provided by Section 493.103; [or]
               (3)  subject to Subchapter D, maintains, in a qualified
  United States financial institution that has been granted the
  authority to operate with fiduciary powers, a trust fund to pay
  valid claims of:
                     (A)  the assuming insurer's United States
  policyholders and ceding insurers; and
                     (B)  the policyholders' and ceding insurers'
  assigns and successors in interest; or
               (4)  is certified as a reinsurer in this state under
  Section 493.1033 and maintains adequate collateral as determined by
  the commissioner.
         SECTION 2.05.  Subchapter C, Chapter 493, Insurance Code, is
  amended by adding Sections 493.1033, 493.1034, 493.1035, 493.1036,
  493.1037, 493.1038, and 493.1039 to read as follows:
         Sec. 493.1033.  CREDIT ALLOWED FOR CERTAIN CERTIFIED
  REINSURERS.  (a)  Credit shall be allowed when the reinsurance is
  ceded to an assuming insurer that:
               (1)  is certified by the commissioner as a reinsurer in
  this state; and
               (2)  secures its obligations in accordance with the
  requirements of this section and Sections 493.1034-493.1038.
         (b)  To be eligible for certification, the assuming insurer
  must:
               (1)  be domiciled and licensed to transact insurance or
  reinsurance in a jurisdiction listed as qualified on the list
  published by the commissioner under Section 493.1035;
               (2)  maintain minimum capital and surplus in an amount
  required by the commissioner by rule;
               (3)  maintain a financial strength rating from not
  fewer than two rating agencies determined to be acceptable in
  accordance with rules adopted by the commissioner;
               (4)  agree to submit to the jurisdiction of any court of
  competent jurisdiction in any state of the United States;
               (5)  appoint the commissioner as its agent for service
  of process in this state;
               (6)  provide security for 100 percent of the assuming
  insurer's liabilities for reinsurance ceded by United States ceding
  insurers if the assuming insurer resists enforcement of a final
  judgment of a court of the United States;
               (7)  meet application information filing requirements,
  as established by the commissioner by rule, for the initial
  application for certification and on an ongoing basis; and
               (8)  satisfy any other requirements for certification
  required by the commissioner by rule.
         (c)  In determining eligibility for certification under
  Subsection (b), the commissioner may defer to the certification
  granted and financial strength rating assigned by a National
  Association of Insurance Commissioners accredited jurisdiction.
         (d)  Credit for reinsurance under this section applies only
  to a reinsurance contract entered into or renewed on or after the
  effective date of the certification of the assuming insurer.
         Sec. 493.1034.  CERTAIN ASSOCIATIONS MAY BE CERTIFIED
  REINSURERS.  (a)  An association that includes incorporated and
  individual unincorporated underwriters may be a certified
  reinsurer under Section 493.1033. To be eligible for certification
  the association must satisfy the requirements of Section 493.1033
  and this section.
         (b)  The association must satisfy minimum capital and
  surplus requirements through the capital and surplus equivalents,
  net of liabilities, of the association and its members that must
  include a joint central fund in an amount determined by the
  commissioner to provide adequate protection that may be applied to
  any unsatisfied obligation of the association or any of its
  members.
         (c)  The incorporated members of the association may not be
  engaged in any business other than underwriting and are subject to
  the same level of regulation and solvency control by the
  association's domiciliary regulator as are the unincorporated
  members.
         (d)  Not later than the 90th day after the date the
  association's financial statements are due to be filed with the
  association's domiciliary regulator, the association shall provide
  to the commissioner:
               (1)  an annual certification by the association's
  domiciliary regulator of the solvency of each underwriter member;
  or
               (2)  if a certification described by Subdivision (1) is
  unavailable, financial statements, prepared by independent public
  accountants, of each underwriter member of the association.
         Sec. 493.1035.  QUALIFIED JURISDICTIONS.  (a)  The
  commissioner shall develop and publish a list of qualified
  jurisdictions in one of which an assuming insurer must be licensed
  and domiciled in order to be considered for certification by the
  commissioner under Section 493.1033 as a certified reinsurer.  In
  developing the list, the commissioner shall consider the list of
  qualified jurisdictions published through the National Association
  of Insurance Commissioners committee process.
         (b)  In order to determine whether a jurisdiction of an
  assuming insurer located outside of the United States is eligible
  to be recognized as a qualified jurisdiction under Subsection (a),
  the commissioner shall evaluate the appropriateness and
  effectiveness of the reinsurance supervisory system of the
  jurisdiction, both initially and on an ongoing basis, and consider
  the rights, benefits, and extent of reciprocal recognition afforded
  by the jurisdiction to reinsurers licensed and domiciled in the
  United States.
         (c)  In order to be qualified a jurisdiction must agree in
  writing to share information and cooperate with the commissioner
  with respect to all certified reinsurers doing business in the
  jurisdiction.
         (d)  A jurisdiction may not be recognized as a qualified
  jurisdiction if the commissioner has determined that the
  jurisdiction does not adequately and promptly enforce final United
  States judgments and arbitration awards. Additional factors may be
  considered in the discretion of the commissioner.
         (e)  If the commissioner approves under this section a
  jurisdiction as qualified that does not appear on the list of
  qualified jurisdictions published through the National Association
  of Insurance Commissioners committee process, the commissioner
  shall provide documentation in accordance with rules adopted by the
  commissioner.  The rules must include a requirement for a
  thoroughly documented justification of the approval.
         (f)  The commissioner shall include as a qualified
  jurisdiction under this section a United States jurisdiction that
  meets the requirements for accreditation under the National
  Association of Insurance Commissioners financial regulation
  standards and accreditation program.
         (g)  If a certified reinsurer's domiciliary jurisdiction
  ceases to be a qualified jurisdiction, the commissioner may suspend
  the reinsurer's certification indefinitely, instead of revoking
  the certification.
         Sec. 493.1036.  REQUIREMENTS FOR CERTIFIED REINSURER.  
  (a)  The commissioner shall assign a rating to each certified
  reinsurer after giving due consideration to the financial strength
  ratings assigned by rating agencies recognized by the commissioner
  by rule.
         (b)  The commissioner shall publish a list of the ratings
  assigned under this section for all certified reinsurers.
         (c)  A certified reinsurer shall secure obligations assumed
  from ceding insurers domiciled in the United States in accordance
  with the rating assigned by the commissioner under Subsection (a)
  and with the amount of security required by the commissioner by
  rule.
         (d)  For a domestic ceding insurer to qualify for full
  financial statement credit for reinsurance ceded to a certified
  reinsurer, the certified reinsurer must maintain security:
               (1)  in a form acceptable to the commissioner and
  consistent with the insurance laws of this state; or
               (2)  in a multibeneficiary trust in accordance with
  Subchapter D, except as otherwise provided.
         (e)  If a certified reinsurer maintains a trust under
  Subchapter D to secure its obligations, and chooses to secure its
  obligations incurred as a certified reinsurer with a
  multibeneficiary trust, the certified reinsurer shall maintain
  separate trust accounts for the obligations incurred under
  reinsurance agreements the certified reinsurer issued or renewed
  with reduced security as permitted by this section or comparable
  laws of other United States jurisdictions and for its obligations
  subject to Subchapter D.  It is a condition to the grant of
  certification under Section 493.1033 that the certified reinsurer
  has bound itself, by the language of the trust agreement and
  agreement with the insurance commissioner or other chief insurance
  regulatory official with principal regulatory oversight over each
  trust account, to fund, on termination of the trust account, out of
  the remaining surplus of the trust any deficiency of any other trust
  account described by this subsection.
         (f)  The minimum trusteed surplus requirements provided in
  Subchapter D do not apply to a multibeneficiary trust described by
  this section, except that the trust shall maintain a minimum
  trusteed surplus of $10 million.
         (g)  With respect to obligations incurred by a certified
  reinsurer under this section, if the security is insufficient, the
  commissioner:
               (1)  shall reduce the allowable credit by an amount
  proportionate to the deficiency; and
               (2)  may impose further reductions in allowable credit
  on finding that there is a material risk that the certified
  reinsurer's obligations will not be paid in full when due.
         (h)  For purposes of this section, a reinsurer whose
  certification has been revoked, suspended, or voluntarily
  surrendered or whose certification status has become inactive for
  any reason shall be treated as a reinsurer required to secure 100
  percent of its obligations, except that if the commissioner
  continues to assign to the reinsurer a higher financial strength
  rating as permitted by this section, the security requirement does
  not apply to a reinsurer whose certification has been suspended or
  whose certification status has become inactive.
         Sec. 493.1037.  CERTIFICATION BY NATIONAL ASSOCIATION OF
  INSURANCE COMMISSIONERS.  If an applicant for certification has
  been certified as a reinsurer in a National Association of
  Insurance Commissioners accredited jurisdiction:
               (1)  the commissioner may make a determination to defer
  to the accredited jurisdiction's certification and the financial
  strength rating assigned by that jurisdiction; and
               (2)  if the commissioner makes the determination
  authorized by Subdivision (1), the applicant shall be considered to
  be a certified reinsurer in this state.
         Sec. 493.1038.  SUSPENSION OR REVOCATION OF ACCREDITATION OR
  CERTIFICATION; INACTIVE STATUS.  (a)  A certified reinsurer that
  ceases to assume new business in this state may request to maintain
  its certification in inactive status to continue to qualify for a
  reduction in security for in-force business.  An inactive certified
  reinsurer shall continue to comply with all applicable requirements
  of this section, and the commissioner shall assign a financial
  strength rating that takes into account, if relevant, the reasons
  the reinsurer is not assuming new business.
         (b)  If an accredited or certified reinsurer ceases to meet
  the requirements for accreditation or certification, the
  commissioner may, after notice and opportunity for hearing, suspend
  or revoke the reinsurer's accreditation or certification.  A
  suspension or revocation may not take effect until after the date of
  the commissioner's order on the hearing, unless:
               (1)  the reinsurer waives its right to hearing;
               (2)  the commissioner's order is based on regulatory
  action by the reinsurer's domiciliary jurisdiction or the voluntary
  surrender or termination of the reinsurer's eligibility to transact
  insurance or reinsurance business in its domiciliary jurisdiction
  or in the primary certifying state of the reinsurer under this
  section; or
               (3)  the commissioner finds that an emergency requires
  immediate action and a court of competent jurisdiction has not
  stayed the commissioner's action.
         (c)  While a reinsurer's accreditation or certification is
  suspended, a reinsurance contract issued or renewed after the
  effective date of the suspension does not qualify for credit except
  to the extent that the reinsurer's obligations under the contract
  are secured in accordance with Subchapter D.
         (d)  If a reinsurer's accreditation or certification is
  revoked, credit for reinsurance may not be granted after the
  effective date of the revocation except to the extent that the
  reinsurer's obligations under the contract are secured in
  accordance with Section 493.1036 or Subchapter D.
         Sec. 493.1039.  CONCENTRATION RISK.  (a)  A ceding insurer
  shall manage its reinsurance recoverable proportionate to its book
  of business. A domestic ceding insurer shall notify the
  commissioner not later than the 30th day after the date reinsurance
  recoverable from any single assuming insurer, or group of
  affiliated assuming insurers, exceeds or is likely to exceed 50
  percent of the domestic ceding insurer's last reported surplus to
  policyholders.  The notification shall demonstrate that the
  exposure is safely managed by the domestic ceding insurer.
         (b)  A ceding insurer shall diversify its reinsurance
  program. A domestic ceding insurer shall notify the commissioner
  not later than the 30th day after the date the insurer cedes to any
  single assuming insurer, or group of affiliated assuming insurers,
  an amount that exceeds or is likely to exceed 20 percent of the
  ceding insurer's gross written premium in the prior calendar year.
  The notification shall demonstrate that the exposure is safely
  managed by the domestic ceding insurer.
         SECTION 2.06.  Section 493.151, Insurance Code, is amended
  to read as follows:
         Sec. 493.151.  APPLICABILITY OF SUBCHAPTER. This subchapter
  applies to:
               (1)  a trust that is used to qualify for a reinsurance
  credit under Section 493.102(a)(3) and as described by Sections
  493.1036(e) and (f); and
               (2)  [to] the assuming insurer that maintains the trust
  fund.
         SECTION 2.07.  Section 493.152, Insurance Code, is amended
  by amending Subsection (a) and adding Subsection (a-1) to read as
  follows:
         (a)  If the assuming insurer is a single insurer, the trust
  must:
               (1)  consist of a trusteed account representing the
  assuming insurer's liabilities attributable to business written in
  the United States; and
               (2)  include a trusteed surplus of at least $20
  million, except after the assuming insurer has permanently
  discontinued underwriting new business secured by the trust for not
  less than three calendar years, the insurance commissioner or other
  chief insurance regulatory official with principal regulatory
  oversight over the trust may authorize a reduction in the required
  trusteed surplus, but only after a finding, based on an assessment
  of the risk, that the new required surplus level is adequate for the
  protection of United States ceding insurers, policyholders, and
  claimants in light of reasonably foreseeable adverse loss
  development.
         (a-1)  The risk assessment described by Subsection (a)(2)
  may involve an actuarial review, including an independent analysis
  of reserves and cash flows, and must consider all material risk
  factors, including when applicable, the lines of business involved,
  the stability of the incurred loss estimates, and the effect of the
  surplus requirements on the assuming insurer's liquidity or
  solvency.  The minimum required trusteed surplus may not be reduced
  to an amount less than 30 percent of the assuming insurer's
  liabilities attributable to reinsurance ceded by United States
  ceding insurers.
         SECTION 2.08.  Section 493.153, Insurance Code, is amended
  to read as follows:
         Sec. 493.153.  FORM OF TRUST. (a)  The trust must be
  established in a form approved by the commissioner or an insurance
  commissioner or other chief insurance regulatory official of
  another state who, under the trust instrument, has principal
  regulatory oversight over the trust.
         (b)  A copy of the trust instrument and any amendment to the
  trust instrument must be filed with the insurance commissioner or
  other chief insurance regulatory official of each state in which
  the ceding insurer beneficiaries of the trust are domiciled.
         SECTION 2.09.  Section 493.155, Insurance Code, is amended
  by amending Subsection (b) and adding Subsections (c), (d), (e),
  and (f) to read as follows:
         (b)  To enable the commissioner to determine the sufficiency
  of the trust fund under Section 493.102(a)(3) and for purposes of
  Sections 493.1036(e) and (f), the assuming insurer shall report to
  the department not later than March 1 of each year information
  substantially the same as the information required to be reported
  by an authorized insurer on the National Association of Insurance
  Commissioners' Annual Statement form.
         (c)  Not later than February 28 of each year, if requested by
  a beneficiary of the trust fund, an assuming insurer that maintains
  a trust fund shall provide or make available to the assuming
  insurer's United States ceding insurers or those ceding insurers'
  assigns and successors in interest the following information:
               (1)  a copy of the trust instrument and any amendments
  to the trust instrument relating to the trust fund;
               (2)  a copy of the assuming insurer's annual and
  quarterly financial information, and the insurer's most recent
  audited financial statement provided to the commissioner,
  including any exhibits and schedules;
               (3)  any financial information provided to the
  department or commissioner by the assuming insurer, including any
  exhibits and schedules;
               (4)  a copy of any annual and quarterly financial
  information provided to the department or commissioner by the
  trustee of the trust fund maintained by the assuming insurer,
  including any exhibits and schedules; and
               (5)  a copy of the information required to be reported
  by the trustee under Subsection (a).
         (d)  If requested by a ceding insurer, the assuming insurer
  shall provide, in addition to the information under Subsection (c),
  a certification that:
               (1)  discloses the financial information provided to
  the commissioner relating to reinsurance liabilities attributable
  to the ceding insurer; and
               (2)  certifies that the amount of security held in
  trust on behalf of the ceding insurer is at least equal to those
  amounts as reflected in the report to the department under
  Subsection (a).
         (e)  The assuming insurer shall also provide, if requested by
  the ceding insurer, a certification that the trust, in aggregate:
               (1)  consists of sufficient assets to support the
  assuming insurer's trust obligations under applicable state laws
  and regulations; and
               (2)  includes a trusteed surplus of at least $20
  million.
         (f)  An assuming insurer may decline to release trade secrets
  or commercially sensitive information to a ceding insurer.
         SECTION 2.10.  Section 493.156(a), Insurance Code, is
  amended to read as follows:
         (a)  A ceding insurer may not be allowed credit under Section
  493.102(a)(3) for reinsurance ceded to an assuming insurer that is
  not authorized, [or] accredited, or certified to engage in the
  business of insurance or reinsurance in this state unless the
  assuming insurer agrees in the reinsurance contract:
               (1)  that, if the assuming insurer fails to perform the
  assuming insurer's obligations under the reinsurance contract, the
  assuming insurer, at the request of the ceding insurer, will:
                     (A)  submit to the jurisdiction of a court in any
  state of the United States;
                     (B)  comply with all requirements necessary to
  give the court jurisdiction; and
                     (C)  abide by the final decision of that court or,
  if the court's decision is appealed, of the appellate court; and
               (2)  to designate the commissioner or an attorney as an
  agent for service of process in any action, suit, or proceeding
  instituted by or on behalf of the ceding insurer.
         SECTION 2.11.  Subchapter D, Chapter 493, Insurance Code, is
  amended by adding Section 493.1561 to read as follows:
         Sec. 493.1561.  CERTAIN TRUSTEED ASSUMING REINSURERS;
  REQUIREMENTS FOR TRUST AGREEMENT. (a)  In this section,
  "commissioner" means the insurance commissioner or other chief
  insurance regulatory official with principal regulatory oversight
  over the trust.
         (b)  If the assuming insurer does not meet the requirements
  of Section 493.102(a)(1) or (2), the credit permitted by Section
  493.102(a)(3) or (4) may not be allowed unless the assuming insurer
  agrees in the trust agreement that:
               (1)  notwithstanding any other provisions in the trust
  agreement, the trustee shall comply with an order of the
  commissioner or a court ordering the trustee to transfer to the
  commissioner all assets of the trust fund if:
                     (A)  the trust fund is inadequate because the
  trust fund contains an amount that is less than the amount required
  by this subchapter; or
                     (B)  the grantor of the trust has been declared
  insolvent or placed into receivership, rehabilitation, or
  liquidation or a similar proceeding under the laws of the grantor's
  domiciliary state or country;
               (2)  claims in a proceeding described by Subdivision
  (1)(B) must be filed with the commissioner;
               (3)  the commissioner shall value the claims described
  by Subdivision (2) and distribute the assets of the trust under the
  laws of the trust's domiciliary state applicable to the liquidation
  of a domestic insurance company;
               (4)  if the commissioner determines that all or part of
  the trust assets are unnecessary to satisfy the claims of the
  grantor's ceding insurers domiciled in the United States, the
  commissioner shall return those unnecessary assets to the trustee
  for distribution in accordance with the trust agreement; and
               (5)  the grantor waives any right available under
  federal or state law that is inconsistent with this section.
         SECTION 2.12.  The following provisions are repealed:
               (1)  Chapter 492, Insurance Code; and
               (2)  Section 493.002(b), Insurance Code.
         SECTION 2.13.  (a)  The commissioner of insurance shall
  adopt rules to implement Chapter 493, Insurance Code, as amended by
  this article.  Rules adopted under this section apply only to a
  reinsurance contract that is entered into or renewed on or after
  January 1, 2018.
         (b)  It is the intent of the legislature that the
  commissioner of insurance ensure by rule that no duplicative
  reporting requirements are created in the implementation of this
  Act.
  ARTICLE 3.  CONFORMING AMENDMENTS
         SECTION 3.01.  Section 36.002, Insurance Code, is amended to
  read as follows:
         Sec. 36.002.  ADDITIONAL RULEMAKING AUTHORITY. The
  commissioner may adopt reasonable rules that are:
               (1)  necessary to effect the purposes of a provision
  of:
                     (A)  Subchapter B, Chapter 5;
                     (B)  Subchapter C, Chapter 1806;
                     (C)  Subchapter A, Chapter 2301;
                     (D)  Chapter 251, as that chapter relates to
  casualty insurance and fidelity, guaranty, and surety bond
  insurance;
                     (E)  Chapter 253;
                     (F)  Chapter 2008, 2251, or 2252; or
                     (G)  Subtitle B, Title 10; or
               (2)  appropriate to accomplish the purposes of a
  provision of:
                     (A)  Section 37.051(a), 403.002, [492.051(b) or
  (c),] 501.159, 941.003(b)(1) or (c), or 942.003(b)(1) or (c);
                     (B)  Subchapter H, Chapter 544;
                     (C)  Chapter 251, as that chapter relates to:
                           (i)  automobile insurance;
                           (ii)  casualty insurance and fidelity,
  guaranty, and surety bond insurance;
                           (iii)  fire insurance and allied lines;
                           (iv)  workers' compensation insurance; or
                           (v)  aircraft insurance;
                     (D)  Chapter 5, 252, 253, 254, 255, 256, 426, 493,
  494, 1804, 1805, 1806, 2171, 6001, 6002, or 6003;
                     (E)  Subtitle B, C, D, E, F, H, or I, Title 10;
                     (F)  Section 417.008, Government Code; or
                     (G)  Chapter 2154, Occupations Code.
         SECTION 3.02.  Section 422.005(a), Insurance Code, is
  amended to read as follows:
         (a)  This chapter does not apply to:
               (1)  variable contracts for which separate accounts are
  required to be maintained;
               (2)  a reinsurance agreement or any trust account
  related to the reinsurance agreement if the agreement and trust
  account meet the requirements of Chapter [492 or] 493;
               (3)  an assessment-as-needed company or insurance
  coverage written by an assessment-as-needed company;
               (4)  an insurer while:
                     (A)  the insurer is subject to a conservatorship
  order issued by the commissioner; or
                     (B)  a court-appointed receiver is in charge of
  the insurer's affairs; or
               (5)  an insurer's reserve assets that are held,
  deposited, pledged, or otherwise encumbered to secure, offset,
  protect, or meet the insurer's reserve liabilities established in a
  reinsurance agreement under which the insurer reinsures the
  insurance policy liabilities of a ceding insurer if:
                     (A)  the ceding insurer and the reinsurer are
  authorized to engage in business in this state; and
                     (B)  in accordance with a written agreement
  between the ceding insurer and the reinsurer, reserve assets
  substantially equal to the reserve liabilities the reinsurer must
  establish on the reinsured business are:
                           (i)  deposited by or withheld from the
  reinsurer and held in the custody of the ceding insurer, or
  deposited and held in a trust account with a state or national bank
  domiciled in this state, as security for the payment of the
  reinsurer's obligations under the reinsurance agreement;
                           (ii)  held subject to withdrawal by the
  ceding insurer; and
                           (iii)  held under the separate or joint
  control of the ceding insurer.
         SECTION 3.03.  Section 841.002, Insurance Code, is amended
  to read as follows:
         Sec. 841.002.  APPLICABILITY OF CHAPTER AND OTHER LAW.
  Except as otherwise expressly provided by this code, each insurance
  company incorporated or engaging in business in this state as a life
  insurance company, an accident insurance company, a life and
  accident insurance company, a health and accident insurance
  company, or a life, health, and accident insurance company is
  subject to:
               (1)  this chapter;
               (2)  Chapter 3;
               (3)  Chapters 425 and 493 [492];
               (4)  Title 7;
               (5)  Sections 1202.051, 1204.151, 1204.153, and
  1204.154;
               (6)  Subchapter A, Chapter 1202, Subchapters A and F,
  Chapter 1204, Subchapter A, Chapter 1273, Subchapters A, B, and D,
  Chapter 1355, and Subchapter A, Chapter 1366;
               (7)  Subchapter A, Chapter 1507;
               (8)  Chapters 1203, 1210, 1251-1254, 1301, 1351, 1354,
  1359, 1364, 1368, 1505, [1506,] 1651, 1652, and 1701; and
               (9)  Chapter 177, Local Government Code.
         SECTION 3.04.  Section 841.257, Insurance Code, is amended
  to read as follows:
         Sec. 841.257.  KINDS OF BUSINESS LIMITED. An insurance
  company authorized to engage in the business of insurance under
  this chapter or in accordance with Section 982.051 may not accept a
  risk or write an insurance policy in this state or any other state
  or country other than:
               (1)  a life, accident, or health insurance policy;
               (2)  reinsurance under [Sections 492.051(b) and (c) or]
  Chapter 493 by a life insurance company authorized to engage in the
  business of insurance in this state; or
               (3)  reinsurance under Chapter 494 by a domestic
  insurance company.
         SECTION 3.05.  Section 841.402(10), Insurance Code, is
  amended to read as follows:
               (10)  "Letter of credit" means a clean, unconditional,
  irrevocable letter of credit issued or confirmed by a qualified
  United States financial institution, as defined by Section
  493.104(b)(2)(C) [492.104(b)(2)(C)].
         SECTION 3.06.  Section 841.409(c), Insurance Code, is
  amended to read as follows:
         (c)  A limited purpose subsidiary life insurance company
  organized under this subchapter is considered to be licensed to
  transact the business of reinsurance for the purposes of Section
  493.051 [492.051], but may only reinsure risks of the company's
  affiliated companies.
         SECTION 3.07.  Section 841.412(b), Insurance Code, is
  amended to read as follows:
         (b)  Subject to compliance with Subsection (a) and
  notwithstanding Chapter 425, a limited purpose subsidiary life
  insurance company may reduce the amount of the company's excess
  reserves on account of:
               (1)  reinsurance that complies with Chapter 493 [492];
               (2)  a letter of credit that complies with Section
  493.104(b)(2)(C) [492.104(b)(2)(C)]; or
               (3)  guaranties from a holding company or an affiliated
  company as provided by Section 841.417.
         SECTION 3.08.  Sections 841.413(b) and (c), Insurance Code,
  are amended to read as follows:
         (b)  Unless otherwise approved in advance by the
  commissioner, a limited purpose subsidiary life insurance company
  may not assume or retain exposure to reinsurance losses for the
  company's own account that are not funded by:
               (1)  premium and other amounts payable by the ceding
  insurer to the limited purpose subsidiary life insurance company
  under the reinsurance contract, or any return on the investment of
  the premiums or other amounts;
               (2)  letters of credit that qualify under Section
  493.104(b)(2)(C) [492.104(b)(2)(C)]; or
               (3)  guaranties of a holding company or an affiliated
  company as provided by Section 841.417.
         (c)  A limited purpose subsidiary life insurance company may
  cede risks assumed under a reinsurance contract to one or more
  reinsurers through the purchase of reinsurance, subject to the
  prior approval of the commissioner.  The commissioner may approve a
  reinsurance contract under this subsection if the commissioner
  finds that:
               (1)  the proposed reinsurance complies with Chapter 493
  [492];
               (2)  the proposed reinsurer has sufficient liquidity,
  admitted assets, and policyholder surplus to support the
  liabilities assumed under the reinsurance contract; and
               (3)  the proposed reinsurance contract would not result
  in a hazardous financial condition for the limited purpose
  subsidiary life insurance company.
         SECTION 3.09.  Section 862.101(f), Insurance Code, is
  amended to read as follows:
         (f)  Reinsurance that is required or permitted by this
  section must comply with:
               (1)  Subchapter A, Chapter 491; and
               (2)  [Sections 492.051(b) and (c); and
               [(3)]  Chapter 493.
         SECTION 3.10.  Section 884.002(c), Insurance Code, is
  amended to read as follows:
         (c)  The following provisions of this code apply to a
  stipulated premium company:
               (1)  Article 21.47;
               (2)  Section 38.001;
               (3)  Chapter 86;
               (4)  Subchapter A, Chapter 401;
               (5)  Sections 401.051, 401.052, 401.054-401.062,
  401.151, 401.152, 401.155, and 401.156;
               (6)  Sections 403.001, 403.052, and 403.102;
               (7)  Subchapter A, Chapter 404;
               (8)  Section 421.001;
               (9)  Subchapter D, Chapter 425;
               (10)  Chapter 443;
               (11)  Chapter 493 [492], other than Section 493.051(b)
  [Sections 492.051(b) and (c)];
               (12)  Chapter 541;
               (13)  Sections 801.001-801.002;
               (14)  Sections 801.051-801.055;
               (15)  Section 801.057;
               (16)  Sections 801.101-801.102;
               (17)  Subchapter A, Chapter 821;
               (18)  Chapter 824;
               (19)  Chapter 828;
               (20)  Section 841.251;
               (21)  Section 841.259;
               (22)  Section 841.261;
               (23)  Section 841.703; and
               (24)  Chapter 4152.
         SECTION 3.11.  Section 884.402, Insurance Code, is amended
  to read as follows:
         Sec. 884.402.  ADDITIONAL COVERAGE. A stipulated premium
  company that, at the time it begins to issue coverages under this
  subchapter, possesses the amounts of capital and unencumbered
  surplus equal to or greater than the corresponding amounts required
  for organization of a life and health company under Sections
  841.052, 841.054, 841.204, 841.205, 841.301, and 841.302 may,
  subject to Section 884.403:
               (1)  issue any kind of life insurance coverage
  authorized by Chapter 3, 841, or 1701 or Title 7;
               (2)  issue any kind of health or accident insurance
  coverage authorized by:
                     (A)  Title 7;
                     (B)  Chapter 3, 704, 841, 846, 982, 1201, 1202,
  1203, 1210, 1251, 1252, 1253, 1254, 1301, 1351, 1354, 1359, 1364,
  1368, 1501, 1504, 1505, [1506,] 1552, 1575, 1576, 1579, 1581, 1625,
  1651, 1652, or 1701;
                     (C)  Chapter 493 [492], other than Section
  493.051(b) [Sections 492.051(b) and (c)];
                     (D)  Subchapter B, Chapter 38, Subchapter D,
  Chapter 425, Subchapter A or F, Chapter 1204, Subchapter A, Chapter
  1273, Subchapter A, B, or D, Chapter 1355, Subchapter A, Chapter
  1366, or Subchapter A, Chapter 1507;
                     (E)  Section 1204.151, 1204.153, 1204.154, or
  1451.051; or
                     (F)  Chapter 177, Local Government Code; or
               (3)  issue life insurance coverage through policies
  without cash surrender values or nonforfeiture values and that
  exceed $10,000 on one life.
         SECTION 3.12.  Section 964.052(d), Insurance Code, is
  amended to read as follows:
         (d)  A captive insurance company may take credit for reserves
  on risks or portions of risks ceded to reinsurers under [Subchapter
  C, Chapter 492, and] Subchapter C, Chapter 493.
         SECTION 3.13.  Section 1807.002(a), Insurance Code, is
  amended to read as follows:
         (a)  The following provisions do not apply to marine
  insurance:
               (1)  Sections 36.002, 37.051, 403.002, [492.051,] and
  501.159;
               (2)  Subchapter H, Chapter 544;
               (3)  Chapters 5, 252, 253, 493, 494, 1804, 1805, 1806,
  and 2171; and
               (4)  Subtitles B, C, D, E, F, H, and I.
         SECTION 3.14.  Section 4152.152, Insurance Code, is amended
  to read as follows:
         Sec. 4152.152.  PLACEMENT OF REINSURANCE WITH UNAUTHORIZED
  REINSURER. Unless the ceding insurer releases the broker in
  writing from the broker's obligations under this section, a broker
  who places reinsurance on behalf of an authorized ceding insurer
  with a reinsurer that is not authorized, accredited, or trusteed in
  this state under Chapter [492 or] 493 shall:
               (1)  exercise due diligence in inquiring into the
  financial condition of the reinsurer;
               (2)  disclose to the ceding insurer the broker's
  findings in connection with the inquiry under Subdivision (1); and
               (3)  make available to the ceding insurer a copy of the
  current financial statement of the reinsurer.
         SECTION 3.15.  Section 4152.214(a), Insurance Code, is
  amended to read as follows:
         (a)  Unless the ceding insurer releases the manager in
  writing from the manager's obligations under this section, a
  manager who places reinsurance on behalf of an authorized ceding
  insurer with a reinsurer that is not authorized, accredited, or
  trusteed in this state under Chapter [492 or] 493 shall:
               (1)  exercise due diligence in inquiring into the
  financial condition of the reinsurer;
               (2)  disclose to the ceding insurer the manager's
  findings in connection with the inquiry under Subdivision (1); and
               (3)  make available to the ceding insurer a copy of the
  current financial statement of the reinsurer.
  ARTICLE 4.  TRANSITION; EFFECTIVE DATE
         SECTION 4.01.  The changes in law made by this Act apply only
  to a reinsurance contract that is entered into or renewed on or
  after January 1, 2018. A reinsurance contract that is entered into
  or renewed before January 1, 2018, is governed by the law as it
  existed immediately before the effective date of this Act, and that
  law is continued in effect for that purpose.
         SECTION 4.02.  This Act takes effect September 1, 2017.
 
 
 
 
 
  ______________________________ ______________________________
     President of the Senate Speaker of the House     
 
         I hereby certify that S.B. No. 1070 passed the Senate on
  April 27, 2017, by the following vote: Yeas 31, Nays 0; and that
  the Senate concurred in House amendments on May 26, 2017, by the
  following vote: Yeas 31, Nays 0.
 
 
  ______________________________
  Secretary of the Senate    
 
         I hereby certify that S.B. No. 1070 passed the House, with
  amendments, on May 8, 2017, by the following vote: Yeas 145,
  Nays 0, two present not voting.
 
 
  ______________________________
  Chief Clerk of the House   
 
 
 
  Approved:
 
  ______________________________ 
              Date
 
 
  ______________________________ 
            Governor