By: Lucio III (Senate Sponsor - Creighton) H.B. No. 2694
         (In the Senate - Received from the House April 29, 2019;
  April 29, 2019, read first time and referred to Committee on
  Business & Commerce; May 9, 2019, reported adversely, with
  favorable Committee Substitute by the following vote:  Yeas 8,
  Nays 0; May 9, 2019, sent to printer.)
Click here to see the committee vote
 
  COMMITTEE SUBSTITUTE FOR H.B. No. 2694 By:  Creighton
 
 
A BILL TO BE ENTITLED
 
AN ACT
 
  relating to the authority of certain insurers to make investments
  in bond exchange-traded funds.
         BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
         SECTION 1.  Subchapter B, Chapter 424, Insurance Code, is
  amended by adding Section 424.075 to read as follows:
         Sec. 424.075.  AUTHORIZED INVESTMENTS: BOND EXCHANGE-TRADED
  FUNDS.  (a)  An insurer may invest the insurer's funds in excess of
  minimum capital and surplus in shares of a bond exchange-traded
  fund registered under the Investment Company Act of 1940 (15 U.S.C.
  Section 80a-1 et seq.), as amended, if:
               (1)  the exchange-traded fund is solvent and reported
  at least $100 million of net assets in the exchange-traded fund's
  latest annual or more recent certified audited financial statement;
               (2)  the securities valuation office has designated the
  exchange-traded fund as meeting the criteria to be placed on the
  list promulgated by the securities valuation office of
  exchange-traded funds eligible for reporting as a statutory
  long-term bond obligation on Internal Revenue Service Form 1040,
  Schedule D; and
               (3)  the amount of the insurer's investment in the
  exchange-traded fund does not exceed 15 percent of the insurer's
  capital and surplus.
         (b)  This section does not authorize an insurer to invest in
  a bond exchange-traded fund that has:
               (1)  embedded structural features designed to deliver
  performance that does not track the full unlevered and positive
  return of the underlying index or exposure, including a leveraged
  or inverse exchange-traded fund; or
               (2)  an expense ratio in excess of 100 basis points.
         (c)  An insurer may deposit with the department shares of a
  bond exchange-traded fund described by Subsection (a) as a
  statutory deposit if state law requires a statutory deposit from
  the insurer.
         SECTION 2.  Subchapter C, Chapter 425, Insurance Code, is
  amended by adding Section 425.1231 to read as follows:
         Sec. 425.1231.  AUTHORIZED INVESTMENTS: BOND
  EXCHANGE-TRADED FUNDS.  (a)  An insurance company may invest the
  insurer's funds in excess of minimum capital and surplus in shares
  of a bond exchange-traded fund registered under the Investment
  Company Act of 1940 (15 U.S.C. Section 80a-1 et seq.), as amended,
  if:
               (1)  the exchange-traded fund is solvent and reported
  at least $100 million of net assets in the exchange-traded fund's
  latest annual or more recent certified audited financial statement;
               (2)  the securities valuation office has designated the
  exchange-traded fund as meeting the criteria to be placed on the
  list promulgated by the securities valuation office of
  exchange-traded funds eligible for reporting as a statutory
  long-term bond obligation on Internal Revenue Service Form 1040,
  Schedule D; and
               (3)  the amount of the insurance company's investment
  in the exchange-traded fund does not exceed 15 percent of the
  insurance company's capital and surplus.
         (b)  This section does not authorize an insurance company to
  invest in a bond exchange-traded fund that has:
               (1)  embedded structural features designed to deliver
  performance that does not track the full unlevered and positive
  return of the underlying index or exposure, including a leveraged
  or inverse exchange-traded fund; or
               (2)  an expense ratio in excess of 100 basis points.
         (c)  A bond exchange-traded fund described by Subsection (a)
  shall be considered a business entity for purposes of Section
  425.110.
         (d)  An insurance company may deposit with the department
  shares of a bond exchange-traded fund described by Subsection (a)
  as a statutory deposit if state law requires a statutory deposit
  from the insurance company.
         SECTION 3.  This Act takes effect September 1, 2019.
 
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