Bill Text: TX SB1070 | 2017-2018 | 85th Legislature | Comm Sub

NOTE: There are more recent revisions of this legislation. Read Latest Draft

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Bill Title: Relating to authorized reinsurance and financial statement credit and accounting for reinsurance.

Spectrum: Partisan Bill (Republican 2-0)

Status: (Passed) 2017-06-09 - Effective on 9/1/17 [SB1070 Detail]

Download: Texas-2017-SB1070-Comm_Sub.html

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By: Hancock S.B. No. 1070
(In the Senate - Filed February 23, 2017; March 7, 2017,
read first time and referred to Committee on Business & Commerce;
April 24, 2017, reported adversely, with favorable Committee
Substitute by the following vote: Yeas 9, Nays 0; April 24, 2017,
sent to printer.)
Click here to see the committee vote
COMMITTEE SUBSTITUTE FOR S.B. No. 1070 By: Hancock

A BILL TO BE ENTITLED
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. AUTHORIZED REINSURANCE; CREDIT AND ACCOUNTING FOR
REINSURANCE
SECTION 1.01. 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 1.02. Section 493.002(a), Insurance Code, is
amended to read as follows:
(a) This [Except as provided by Subsection (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.
SECTION 1.03. 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 1.04. 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 an amount of security based on the
rating assigned by the commissioner and based on the requirements
under Section 493.1036.
SECTION 1.05. 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
not less than $500 million;
(3) maintain a financial strength rating in accordance
with Section 493.1036;
(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; and
(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.
(c) 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 following
factors:
(1) the framework under which the assuming insurer is
regulated;
(2) the structure and authority of the domiciliary
regulator with regard to solvency regulation requirements and
financial surveillance;
(3) the substance of financial and operating standards
for assuming insurers in the domiciliary jurisdiction;
(4) the form and substance of financial reports
required to be filed or made publicly available by reinsurers in the
domiciliary jurisdiction and the accounting principles used in
those reports;
(5) the willingness of the domiciliary regulator to
cooperate with other regulators in the United States and, in
particular, the commissioner;
(6) the history of performance by assuming insurers in
the domiciliary jurisdiction;
(7) evidence of problems with the enforcement of final
United States judgments in the domiciliary jurisdiction; and
(8) any other information that shows that
qualification of the jurisdiction would be beneficial or harmful to
insurers or consumers in this state.
(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 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 determines that the jurisdiction
does not or may not adequately and promptly enforce final United
States judgments or arbitration awards.
(e) 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 based on the factors listed in Subsections (d)-(h).
(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 required security computed as a percentage of
those obligations according to the following chart:
Rating Security Required
Secure - 1 0%
Secure - 2 10%
Secure - 3 20%
Secure - 4 50%
Secure - 5 75%
Vulnerable - 6 100%
(d) A certified reinsurer must maintain financial strength
ratings from at least two of the rating agencies listed in
Subsection (e). The ratings must be based on interactive
communication between the rating agency and the certified
reinsurer, and may not be based solely on publicly available
information. The financial strength ratings are one factor in
determining the rating the commissioner assigns to the certified
reinsurer.
(e) The following rating agencies are acceptable for
purposes of Subsection (d):
(1) Standard & Poor's Financial Services LLC;
(2) Moody's Investors Service, Inc.;
(3) Fitch Ratings Ltd.;
(4) A.M. Best Company, Inc.; or
(5) another nationally recognized statistical rating
organization.
(f) A certified reinsurer must be rated on a legal entity
basis, giving due consideration to the group rating when
appropriate, except that an association that includes incorporated
and individual unincorporated underwriters that has been approved
to do business as a single certified reinsurer may be evaluated on
the basis of the association's group rating. The commissioner may
consider the following factors as part of the initial and ongoing
evaluation process in assigning a rating:
(1) a certified reinsurer's financial strength rating
from an acceptable rating agency as described by Subsection (e);
(2) the business practices of the certified reinsurer
in dealing with ceding insurers, including the certified
reinsurer's record of compliance with reinsurance contractual
terms and obligations;
(3) for a certified reinsurer domiciled in the United
States, a review of the most recent applicable annual statement
blanks:
(A) Schedule F for property and casualty
reinsurers; or
(B) Schedule S for life and health reinsurers;
(4) the market conduct and prompt payment of claims
history of the certified reinsurer under reinsurance agreements,
including the proportion of obligations that are more than 90 days
past due or in dispute;
(5) regulatory actions against the certified
reinsurer;
(6) the report of the independent auditor on the
financial statements of the insurance enterprise, on a basis
described in Subdivision (7);
(7) for a certified reinsurer not domiciled in the
United States, three years of audited financial statements filed
with the domiciliary regulator on one of the following accounting
bases:
(A) audited United States generally accepted
accounting principles (GAAP) basis, if available;
(B) audited International Financial Reporting
Standards (IFRS) basis, which must include an audited footnote
reconciling equity and net income to a United States generally
accepted accounting principles (GAAP) basis; or
(C) with the permission of the commissioner,
audited International Financial Reporting Standards (IFRS)
statements with reconciliation to United States generally accepted
accounting principles (GAAP) certified by an officer of the
certified reinsurer;
(8) actuarial opinion, as filed with the certified
reinsurer's domiciliary regulator;
(9) the liquidation priority of obligations to a
ceding insurer in the certified reinsurer's domiciliary
jurisdiction in the context of an insolvency proceeding; and
(10) a certified reinsurer's participation in a
liquidation, reorganization, or similar solvency-related
arrangement or proceeding, regardless of the characterization of
the arrangement or proceeding, that involves United States ceding
insurers.
(g) The maximum rating that the commissioner may assign a
certified reinsurer must correspond with the certified reinsurer's
financial strength rating based on the following table:
Rating Best S&P Moody’s Fitch
Secure - 1 A++ AAA Aaa AAA
Secure - 2 A+ A++, AA, AA- Aa1, Aa2, Aa3 AA+, AA, AA-
Secure - 3 A A+, A A1, A2 A+, A
Secure - 4 A- A- A3 A-
Secure - 5 B++, B+ BBB+, BBB, BBB- Baa1, Baa2, Baa3 BBB+, BBB, BBB-
Vulnerable - 6 B, B-, C++, C+, C, C-, D, E, F BB+, BB, BB-, B+, B, B-, CCC, CC, C, D, R Ba1, Ba2, Ba3, B1, B2, B3, Caa, Ca, C BB+, BB, BB-, B+, B, B-, CCC+, CC, CCC-, DD
(h) The commissioner shall use the lowest financial
strength rating a certified reinsurer receives from an approved
rating agency to establish the maximum rating that may be assigned
to the certified reinsurer. A reinsurer that fails to obtain or
maintain at least two financial strength ratings from acceptable
rating agencies is not eligible for certification.
(i) A certified reinsurer shall annually file information
with the commissioner for the commissioner's evaluation of the
certified reinsurer's compliance with the standards under this
section.
(j) 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.
(k) 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.
(l) 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.
(m) 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.
(n) 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 OTHER STATES. If an
applicant for certification has been certified as a reinsurer in
another state by the commissioner of insurance of that state:
(1) the commissioner may make a determination to use
the other state's certification and the financial strength rating
assigned by that state; 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 1.06. 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(k) and (l); and
(2) [to] the assuming insurer that maintains the trust
fund.
SECTION 1.07. 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 1.08. 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 1.09. 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(k) and (l), 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 commissioner 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 1.10. 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 1.11. 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 1.12. The following provisions are repealed:
(1) Chapter 492, Insurance Code; and
(2) Section 493.002(b), Insurance Code.
ARTICLE 2. CONFORMING AMENDMENTS
SECTION 2.01. 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 2.02. 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 2.03. 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 2.04. 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 2.05. 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 2.06. 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 2.07. 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 2.08. 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 2.09. 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 2.10. 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 2.11. 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 2.12. 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 2.13. 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 2.14. 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 2.15. 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 3. TRANSITION; EFFECTIVE DATE
SECTION 3.01. 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 3.02. This Act takes effect September 1, 2017.
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