81R2184 PB-D
By: Ellis S.B. No. 148
A BILL TO BE ENTITLED
AN ACT
relating to required community investment by certain insurers;
providing administrative and civil penalties.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Subtitle B, Title 4, Insurance Code, is amended
by adding Chapter 428 to read as follows:
CHAPTER 428. COMMUNITY INVESTMENT BY INSURERS
SUBCHAPTER A. GENERAL PROVISIONS
Sec. 428.001. LEGISLATIVE FINDINGS; PURPOSE. (a) The
legislature finds that insurers are a major source of investment
capital in this state. Many low-income communities in this state,
both rural and urban, need greater access to investment capital for
purposes such as small business and community economic development
and affordable housing rehabilitation and construction. Financial
institutions, another major source of investment capital in this
state, are required by the Community Reinvestment Act of 1977 (12
U.S.C. Sec. 2901 et seq.) to address the credit needs of low-income
communities in the areas they serve. Investments under that Act
have helped revitalize low-income communities.
(b) The legislature further finds that insurers collect
premiums from individuals and families throughout this state,
including low-income communities. These premiums are part of an
insurer's investable assets. Because insurance companies are
separately regulated by each state, there has been no national
requirement that a portion of insurers' investments be made in
low-income communities. Thus, insurers have not invested
sufficiently in low-income communities in this state. The lack of
investment in low-income communities has inhibited economic growth
and stability in this state and contributed to their overall
economic decline. Insurers that write a significant amount of
coverage in this state should be required to invest a part of their
total investable assets in low-income communities. Those insurers
that generate an average annual written premium of at least $15
million in this state have significant investable assets and have a
continuing and affirmative obligation to invest in low-income
communities of this state in such a way that those communities will
be positively impacted. Investments authorized under this code or
by rules adopted under this code are available to insurers in
low-income communities. Those investments are overlooked business
opportunities that offer competitive rates of return and do not
compromise the financial interests of shareholders and
policyholders.
(c) The purpose of this chapter is to require insurers to
make safe and sound investments in low-income communities as an
appropriate condition of maintaining a certificate of authority to
engage in the business of insurance in this state.
Sec. 428.002. DEFINITIONS. In this chapter:
(1) "Area median income" means the area median income
determined for an area under Section 2306.123, Government Code.
(2) "Community development corporation" means a
private, nonprofit corporation organized to foster economic growth
and revitalization, create small businesses, or develop affordable
housing in a defined neighborhood or for a targeted population.
(3) "Community development credit union" means a
credit union whose basic purpose is the stimulation of economic
development activities and community revitalization efforts aimed
at benefiting the community it serves, a majority of which are
low-income or very low income residents.
(4) "Community development loan" means a line of
credit, commitment, or letter of credit for affordable housing and
economic development needs that are not being met by the private
market.
(5) "Community development financial institution"
means a person, other than an individual or a governmental entity,
that:
(A) has a primary mission of promoting community
development;
(B) serves an investment area or targeted
population;
(C) provides development services in conjunction
with equity investments or loans, directly or through a subsidiary
or affiliate; and
(D) maintains, through representation on its
governing board or otherwise, accountability to residents of its
investment area or targeted populations.
(6) "Direct written premiums" means the gross amount
of premiums paid by policyholders for issuance of policies of
insurance insuring risks located in this state. The term does not
include premiums for reinsurance.
(7) "Economically targeted investment" means an
investment made by an insurer in a low-income or very low income
community that benefits low-income or very low income individuals
and has a positive impact on that community. The term includes:
(A) equity or debt investments:
(i) made through financial intermediaries,
including community development financial institutions, community
development corporations, loan pools or consortia, microenterprise
development organizations, minority- and women-owned financial
institutions, and low-income or community development credit
unions that primarily lend or facilitate lending in low-income and
very low income areas or to low-income and very low income
individuals in order to promote community economic development or
affordable housing development;
(ii) made in businesses or farms with gross
annual revenues less than or equal to $1 million;
(iii) made in organizations promoting small
and microenterprise businesses;
(iv) made in housing affordable to
low-income and very low income households and in community economic
development in low-income and very low income communities; or
(v) made in loan guaranty funds for
low-income or very low income housing;
(B) community development loans;
(C) investments in projects eligible for the
federal low-income housing tax credit;
(D) investments in state and municipal
obligations that specifically support community economic
development or affordable housing to benefit low-income and very
low income individuals or communities;
(E) purchases of loans for multifamily
affordable housing on the secondary market; and
(F) grants or deferred interest loans to
nonprofit organizations engaging in any of the following
activities:
(i) affordable rental housing
rehabilitation and new construction;
(ii) supporting or developing facilities
that promote community economic development in low-income and very
low income areas or for low-income and very low income individuals,
such as day-care facilities;
(iii) activities essential to the capacity
of low-income and very low income individuals or communities to
utilize credit or sustain economic development; or
(iv) small business or microenterprise
development.
(8) "Insurer" means any entity authorized to engage in
the business of insurance in this state as an insurance company or
authorized to provide insurance in this state, including:
(A) a capital stock insurance company;
(B) a mutual insurance company;
(C) a title insurance company;
(D) a fraternal benefit society;
(E) a local mutual aid association;
(F) a statewide mutual assessment company;
(G) a county mutual insurance company;
(H) a Lloyd's plan;
(I) a reciprocal or interinsurance exchange;
(J) a stipulated premium company;
(K) a group hospital service company;
(L) a health maintenance organization;
(M) a farm mutual insurance company;
(N) a risk retention group; and
(O) an eligible surplus lines insurer.
(9) "Low income" means, in the case of an individual,
an individual income, or, in the case of a geographic area, a median
family income that is at least 50 percent and less than 80 percent
of the adjusted area median income, adjusted for family size and
revised annually.
(10) "Microenterprise" means a commercial business
enterprise with 10 or fewer employees, one or more of whom owns the
enterprise.
(11) "Small business" means a commercial business
enterprise with gross annual revenues that do not exceed $1
million.
(12) "Very low income" means, in the case of an
individual, an individual income, or, in the case of a geographic
area, a median family income that is less than 50 percent of the
adjusted area median income, adjusted for family size and revised
annually.
[Sections 428.003-428.050 reserved for expansion]
SUBCHAPTER B. MANDATORY COMMUNITY INVESTMENT
Sec. 428.051. MINIMUM INVESTMENT PERCENTAGE. For purposes
of this subchapter, the minimum investment percentage for each
insurer admitted to engage in the business of insurance in this
state and authorized to write life, health, or accident insurance
in this state is one percent, and for each insurer admitted to
engage in the business of insurance in this state and authorized to
write insurance in this state other than life, health, or accident
policies is one-half of one percent.
Sec. 428.052. METHOD OF INVESTMENT. Economically targeted
investments may be made directly by insurers, through
intermediaries, or through partnerships, consortia, or other
entities organized by insurers or other financial institutions.
Sec. 428.053. ANNUAL REQUIRED INVESTMENT. (a) An admitted
insurer that wrote at least $15 million of direct written premiums
in the 2009 calendar year shall invest in economically targeted
investments during the 2010 calendar year not less than an amount
equal to the applicable investment percentage prescribed by Section
428.051 multiplied by the total of its 2009 calendar year direct
written premiums.
(b) An admitted insurer that wrote an aggregate of at least
$30 million of direct written premiums in the 2009 and 2010 calendar
years shall invest in economically targeted investments during the
2011 calendar year not less than an amount equal to the applicable
investment percentage prescribed by Section 428.051 multiplied by
the total of its aggregate 2009 and 2010 calendar years' direct
written premiums. Economically targeted investments made during
the 2010 calendar year under Subsection (a) may be counted toward
that requirement.
(c) An admitted insurer that has written an aggregate of at
least $45 million of direct written premiums in the three preceding
calendar years shall have economically targeted investments during
the 2012 calendar year and each subsequent calendar year in an
amount equal to not less than the applicable investment percentage
prescribed by Section 428.051 multiplied by the total of its
aggregate direct written premiums for the preceding three calendar
years.
Sec. 428.054. REDUCTION IN REQUIRED INVESTMENT AMOUNT. The
amount that an insurer is required to invest under Section 428.053
shall be reduced by $1 for each $1 that the insurer invests in
economically targeted investments that are:
(1) loans to or equity investments in community
development corporations engaged in promoting small or
microenterprise business opportunities for low-income or very low
income individuals through loans or equity investments; or
(2) loans to or equity investments in small businesses
or farms with gross annual revenues of less than $1 million.
Sec. 428.055. EXEMPTION; VALUATION OF INVESTMENTS. (a) An
insurer is not required to make economically targeted investments
that are:
(1) of medium investment grade; and
(2) rated below 3, P3, or PSF3 by the Securities
Valuation Office of the National Association of Insurance
Commissioners.
(b) For the purpose of this chapter, investments shall be
valued at actual cost.
Sec. 428.056. INSURER ANNUAL COMMUNITY INVESTMENT REPORT.
(a) Each insurer shall submit to the department an annual community
investment report that states:
(1) the type, number, and dollar amount of
economically targeted investments;
(2) the location by address and census tract of where
economically targeted investments are invested; and
(3) a computation of the value of the investments.
(b) The insurer shall provide the information required in
the community investment report both in the aggregate and
separately for low-income and very low income communities.
(c) The insurer may make the community investment report
separately or as part of another annual report required to be
submitted to the department.
(d) The commissioner may require additional information as
is necessary to evaluate the investment performance of insurers and
compliance with this chapter.
Sec. 428.057. COMMUNITY INVESTMENT PLAN. (a) The board of
directors or other governing body of each insurer subject to this
chapter shall:
(1) adopt an annual community investment plan; and
(2) file a copy of the plan with the department in the
manner prescribed by rules adopted by the commissioner.
(b) A community investment plan must contain, at a minimum:
(1) a description of the specific community
development needs to be addressed by the insurer's economically
targeted investments;
(2) a list of the geographic areas in which the
insurer intends to make economically targeted investments;
(3) a list of the specific types of economically
targeted investments the insurer intends to make;
(4) an assessment of the insurer's previous efforts in
making economically targeted investments;
(5) an identification of any obstacles to making
economically targeted investments;
(6) strategies for overcoming any identified
obstacles to making economically targeted investments that the
insurer intends to take; and
(7) a statement of the insurer's community investment
goals for the subsequent calendar year.
[Sections 428.058-428.100 reserved for expansion]
SUBCHAPTER C. POWERS AND DUTIES OF COMMISSIONER AND DEPARTMENT
Sec. 428.101. RULES. The commissioner shall adopt rules as
necessary to implement this chapter.
Sec. 428.102. INFORMATION AVAILABLE ON DEPARTMENT INTERNET
WEBSITE. (a) The commissioner shall biennially provide
information on the department's Internet website regarding the
aggregate insurer community investments made under this chapter.
The information shall identify insurers that make investments that
are innovative, responsive to community needs, not routinely
provided by insurers, or have a high degree of positive impact on
the economic welfare of low-income or very low income individuals,
families, or communities in urban or rural areas of this state.
(b) The department shall also biennially provide
information on the department's Internet website regarding:
(1) the aggregate amount of government obligations,
including all obligations issued by this state or a political
subdivision of this state, that is purchased by insurers as
reported to the department and the National Association of
Insurance Commissioners in the filing described by Section 802.056;
and
(2) the aggregate amount of identified investments
made in this state, as reported to the department and the National
Association of Insurance Commissioners in the filing described by
Section 802.056.
[Sections 428.103-428.150 reserved for expansion]
SUBCHAPTER D. ENFORCEMENT AND PENALTIES
Sec. 428.151. SHOW CAUSE ORDER. (a) If the commissioner
has reason to believe that an insurer has failed to adequately make
economically targeted investments in accordance with this chapter,
the commissioner shall issue an order to show cause that contains:
(1) a statement of the charges against the insurer;
(2) a statement of the insurer's potential liability
under Section 428.153; and
(3) a notice of a hearing, to be held at a time and
place fixed in the notice, to determine whether the commissioner is
to issue an order that the insurer pay any penalty assessed under
Section 428.153 and to cease and desist from further noncompliance
with this chapter.
(b) A hearing under Subsection (a) shall be conducted in
accordance with Chapter 2001, Government Code.
(c) If, after hearing, the commissioner determines that the
charges are justified, the commissioner shall issue an order
specifying:
(1) the penalty that the insurer shall pay under
Section 428.153;
(2) remedial actions as are appropriate to require
compliance; and
(3) that the insurer shall cease and desist from
engaging in investment practices that are found to be
discriminatory or not in compliance with this chapter.
(d) An insurer affected by the commissioner's order may
appeal the decision of the commissioner in the manner provided by
Subchapter D, Chapter 36.
Sec. 428.152. PETITION BY INTERESTED PERSON. Any
interested person may file a petition with the commissioner that
alleges that an insurer has failed to adequately make economically
targeted investments in accordance with this chapter to seek the
issuance under Section 428.151 of an order to show cause directed at
that insurer.
Sec. 428.153. ADMINISTRATIVE AND CIVIL PENALTIES. (a) An
insurer determined to have violated this chapter is subject to
administrative penalties in the manner provided by Chapter 84.
Notwithstanding Section 84.022:
(1) for the first violation, the commissioner may set
the penalty in an amount not to exceed $50,000 for each year in each
three-year period during which the insurer was not in compliance;
and
(2) for the second or a subsequent violation, the
commissioner may set the penalty in an amount not to exceed $100,000
for each year in each three-year period during which the insurer was
not in compliance.
(b) In addition to an administrative penalty assessed under
Subsection (a), an insurer who fails to comply with a final order of
the commissioner under this chapter is liable to the state for a
civil penalty in an amount not to exceed $150,000.
(c) A penalty under this section may be assessed in addition
to any other penalties provided by law.
Sec. 428.154. SUSPENSION OR REVOCATION OF CERTIFICATE OF
AUTHORITY. In addition to other penalties provided by this
chapter, the commissioner may suspend or revoke the certificate of
authority of an insurer who fails to comply with an order issued
under Section 428.151 and may suspend or revoke, wholly or partly,
the certificate of authority of an insurer who receives more than
one order to comply with this chapter.
SECTION 2. Not later than December 31, 2009, the
commissioner of insurance shall issue bulletins adopting
guidelines for the implementation of Chapter 428, Insurance Code,
as added by this Act. The bulletins may specify or define
appropriate economically targeted investments.
SECTION 3. An insurer subject to Chapter 428, Insurance
Code, as added by this Act, is not required to make community
investments as required by that chapter until the calendar year
beginning January 1, 2010.
SECTION 4. This Act takes effect immediately if it receives
a vote of two-thirds of all the members elected to each house, as
provided by Section 39, Article III, Texas Constitution. If this
Act does not receive the vote necessary for immediate effect, this
Act takes effect September 1, 2009.