By: Williams S.B. No. 1493
A BILL TO BE ENTITLED
AN ACT
relating to certain amounts payable by and the operation of the
Texas Life, Accident, Health, and Hospital Service Insurance
Guaranty Association.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Subsection (c), Section 463.153, Insurance Code,
is amended to read as follows:
(c) The total amount of assessments on a member insurer for
each account under Section 463.105 may not exceed two percent of the
insurer's average annual premiums on the policies covered by the
account during the three calendar years preceding the year in which
the insurer became an impaired or insolvent insurer. If two or more
assessments are authorized in a calendar year with respect to
insurers that become impaired or insolvent in different calendar
years, the average annual premiums for purposes of the aggregate
assessment percentage limitation described by this subsection
shall be equal to the higher of the three-year average annual
premiums for the applicable subaccount or account as computed in
accordance with this section. If the maximum assessment and the
other assets of the association do not provide in a year an amount
sufficient to carry out the association's responsibilities, the
association shall make necessary additional assessments as soon as
this chapter permits.
SECTION 2. Subsection (b), Section 463.203, Insurance Code,
is amended to read as follows:
(b) This chapter does not provide coverage for:
(1) any part of a policy or contract not guaranteed by
the insurer or under which the risk is borne by the policy or
contract owner;
(2) a policy or contract of reinsurance, unless an
assumption certificate has been issued;
(3) any part of a policy or contract to the extent that
the rate of interest on which that part is based:
(A) as averaged over the period of four years
before the date the member insurer becomes impaired or insolvent
under this chapter, whichever is earlier, exceeds a rate of
interest determined by subtracting two percentage points from
Moody's Corporate Bond Yield Average averaged for the same
four-year period or for a lesser period if the policy or contract
was issued less than four years before the date the member insurer
becomes impaired or insolvent under this chapter, whichever is
earlier; and
(B) on and after the date the member insurer
becomes impaired or insolvent under this chapter, whichever is
earlier, exceeds the rate of interest determined by subtracting
three percentage points from Moody's Corporate Bond Yield Average
as most recently available;
(4) a portion of a policy or contract issued to a plan
or program of an employer, association, similar entity, or other
person to provide life, health, or annuity benefits to the entity's
employees, members, or others, to the extent that the plan or
program is self-funded or uninsured, including benefits payable by
an employer, association, or similar entity under:
(A) a multiple employer welfare arrangement as
defined by Section 3, Employee Retirement Income Security Act of
1974 (29 U.S.C. Section 1002);
(B) a minimum premium group insurance plan;
(C) a stop-loss group insurance plan; or
(D) an administrative services-only contract;
(5) any part of a policy or contract to the extent that
the part provides dividends, experience rating credits, or voting
rights, or provides that fees or allowances be paid to any person,
including the policy or contract owner, in connection with the
service to or administration of the policy or contract;
(6) a policy or contract issued in this state by a
member insurer at a time the insurer was not authorized to issue the
policy or contract in this state;
(7) an unallocated annuity contract issued to or in
connection with a benefit plan protected under the federal Pension
Benefit Guaranty Corporation, regardless of whether the Pension
Benefit Guaranty Corporation has not yet become liable to make any
payments with respect to the benefit plan;
(8) any part of an unallocated annuity contract that
is not issued to or in connection with a specific employee, a
benefit plan for a union or association of individuals, or a
governmental lottery;
(9) any part of a financial guarantee, funding
agreement, or guaranteed investment contract that:
(A) does not contain a mortality guarantee; and
(B) is not issued to or in connection with a
specific employee, a benefit plan, or a governmental lottery;
(10) a part of a policy or contract to the extent that
the assessments required by Subchapter D with respect to the policy
or contract are preempted by federal or state law;
(11) a contractual agreement that established the
member insurer's obligations to provide a book value accounting
guaranty for defined contribution benefit plan participants by
reference to a portfolio of assets that is owned by the benefit plan
or the plan's trustee in a case in which neither the benefit plan
sponsor nor its trustee is an affiliate of the member insurer; [or]
(12) a part of a policy or contract to the extent the
policy or contract provides for interest or other changes in value
that are to be determined by the use of an index or external
reference stated in the policy or contract, but that have not been
credited to the policy or contract, or as to which the policy or
contract owner's rights are subject to forfeiture, as of the date
the member insurer becomes an impaired or insolvent insurer under
this chapter, whichever date is earlier, subject to Subsection (c);
or
(13) a policy or contract providing any hospital,
medical, prescription drug, or other health care benefits under
Part C or Part D, Subchapter XVIII, Chapter 7, Title 42, United
States Code (Medicare Part C or Part D) or any regulations issued
under those parts.
SECTION 3. Section 463.204, Insurance Code, is amended to
read as follows:
Sec. 463.204. OBLIGATIONS EXCLUDED. A contractual
obligation does not include:
(1) death benefits in an amount in excess of $300,000
or a net cash surrender or net cash withdrawal value in an amount in
excess of $100,000 under one or more policies on a single life;
(2) an amount in excess of:
(A) $250,000 [$100,000] in the present value
under one or more annuity contracts issued with respect to a single
life under individual annuity policies or group annuity policies;
or
(B) $5 million in unallocated annuity contract
benefits with respect to a single contract owner regardless of the
number of those contracts;
(3) an amount in excess of the following amounts,
including any net cash surrender or cash withdrawal values, under
one or more accident, health, accident and health, or long-term
care insurance policies on a single life:
(A) $500,000 for basic hospital,
medical-surgical, or major medical insurance, as those terms are
defined by this code or rules adopted by the commissioner;
(B) $300,000 for disability and long-term care
insurance, as those terms are defined by this code or rules adopted
by the commissioner; or
(C) $200,000 for coverages that are not defined
as basic hospital, medical-surgical, major medical, disability, or
long-term care insurance;
(4) an amount in excess of $250,000 [$100,000] in
present value annuity benefits, in the aggregate, including any net
cash surrender and net cash withdrawal values, with respect to each
individual participating in a governmental retirement benefit plan
established under Section 401, 403(b), or 457, Internal Revenue
Code of 1986 (26 U.S.C. Sections 401, 403(b), and 457), covered by
an unallocated annuity contract or the beneficiary or beneficiaries
of the individual if the individual is deceased;
(5) an amount in excess of $250,000 [$100,000] in
present value annuity benefits, in the aggregate, including any net
cash surrender and net cash withdrawal values, with respect to each
payee of a structured settlement annuity or the beneficiary or
beneficiaries of the payee if the payee is deceased;
(6) aggregate benefits in an amount in excess of
$300,000 with respect to a single life, except with respect to:
(A) benefits paid under basic hospital,
medical-surgical, or major medical insurance policies, described
by Subdivision (3)(A), in which case the aggregate benefits are
$500,000; and
(B) benefits paid to one owner of multiple
nongroup policies of life insurance, whether the policy owner is an
individual, firm, corporation, or other person, and whether the
persons insured are officers, managers, employees, or other
persons, in which case the maximum benefits are $5 million
regardless of the number of policies and contracts held by the
owner;
(7) an amount in excess of $5 million in benefits, with
respect to either one plan sponsor whose plans own directly or in
trust one or more unallocated annuity contracts not included in
Subdivision (4) irrespective of the number of contracts with
respect to the contract owner or plan sponsor or one contract owner
provided coverage under Section 463.201(a)(3)(B), except that, if
one or more unallocated annuity contracts are covered contracts
under this chapter and are owned by a trust or other entity for the
benefit of two or more plan sponsors, coverage shall be afforded by
the association if the largest interest in the trust or entity
owning the contract or contracts is held by a plan sponsor whose
principal place of business is in this state, and in no event shall
the association be obligated to cover more than $5 million in
benefits with respect to all these unallocated contracts;
(8) any contractual obligations of the insolvent or
impaired insurer under a covered policy or contract that do not
materially affect the economic value of economic benefits of the
covered policy or contract; or
(9) punitive, exemplary, extracontractual, or bad
faith damages, regardless of whether the damages are:
(A) agreed to or assumed by an insurer or
insured; or
(B) imposed by a court.
SECTION 4. Subsection (b), Section 463.263, Insurance Code,
is amended to read as follows:
(b) The association is entitled to retain a portion of any
amount paid to the association under this section equal to the
percentage determined by dividing the aggregate amount of policy
owners' claims related to that insolvency for which the association
has provided statutory benefits by the aggregate amount of all
policy owners' claims in this state related to that insolvency, and
shall remit to the domiciliary receiver the amount paid to the
association less the amount [and] retained under this section.
SECTION 5. Chapter 463, Insurance Code, is amended by
adding Subchapter K to read as follows:
SUBCHAPTER K. REINSURANCE
Sec. 463.501. DEFINITIONS. In this subchapter:
(1) "Election date" means the date on which the
association elects to make an assumption under Section 463.503.
(2) "Order of liquidation" means an order described by
Section 443.151.
Sec. 463.502. APPLICABILITY. (a) Except as otherwise
provided by this subchapter, this subchapter does not alter or
modify the terms and conditions of any reinsurance contract.
(b) This subchapter does not:
(1) abrogate or limit any right of a reinsurer to claim
that the reinsurer is entitled to rescind a reinsurance contract;
(2) give a policyholder or beneficiary an independent
cause of action against a reinsurer that is not otherwise set forth
in the reinsurance contract;
(3) limit or affect the association's rights as a
creditor of the estate against the assets of the estate; or
(4) apply to reinsurance agreements covering property
or casualty risks.
Sec. 463.503. ASSUMPTION BY ASSOCIATION OF RIGHTS AND
OBLIGATIONS OF CEDING MEMBER INSURER. (a) Not later than the
180th day after the date of the order of liquidation, the
association may elect to succeed to the rights and obligations of
the ceding member insurer that relate to policies or annuities
covered wholly or partially by the association under one or more
reinsurance contracts entered into by the insolvent insurer and the
insolvent insurer's reinsurers and selected by the association. An
assumption by the association under this subsection takes effect on
the date of the order of liquidation.
(b) The election under Subsection (a) takes effect when the
association, or the National Organization of Life and Health
Insurance Guaranty Associations on behalf of the association, sends
written notice, return receipt requested, to the affected
reinsurers.
(c) To facilitate the earliest practicable decision about
whether to assume any of the reinsurance contracts, and to protect
the financial position of the estate, the receiver and each
reinsurer of the ceding member insurer shall make available on
request to the association, or to the National Organization of Life
and Health Insurance Guaranty Associations on the association's
behalf, as soon as possible after the commencement of formal
delinquency proceedings:
(1) copies of reinsurance contracts in force, and all
related files and records relevant to the determination of whether
those contracts should be assumed; and
(2) notices of:
(A) any defaults under the reinsurance
contracts; or
(B) any known event or condition that, with the
passage of time, could become a default under the reinsurance
contracts.
Sec. 463.504. ASSOCIATION OBLIGATIONS UNDER REINSURANCE
CONTRACTS. (a) With respect to the reinsurance contracts assumed
by the association that relate to policies or annuities covered
wholly or partially by the association, the association is
responsible for all unpaid premiums due under the reinsurance
contracts for periods both before and after the date of the order of
liquidation and shall be responsible for the performance of all
other obligations to be performed after the date of the order of
liquidation.
(b) The association may charge a policy or annuity covered
partially by the association, through reasonable allocation
methods, the costs for reinsurance in excess of the association's
obligations, and shall provide notice and an accounting of those
charges to the liquidator.
Sec. 463.505. LOSS PAYMENTS. (a) The association is
entitled to any amount payable by the reinsurer under a reinsurance
contract with respect to a loss or event that:
(1) occurs after the date of the order of liquidation;
and
(2) relates to a policy or annuity covered wholly or
partially by the association.
(b) On receipt of an amount described by Subsection (a), the
association is obliged to pay to the beneficiary under the affected
policy or annuity an amount equal to the lesser of:
(1) the amount received by the association under
Subsection (a); or
(2) the excess of the amount received by the
association under Subsection (a) over the amount equal to the
benefits paid by the association on account of the policy or
annuity, less the retention of the insurer applicable to the loss or
event.
Sec. 463.506. COMPUTATION OF NET BALANCE. (a) Not later
than the 30th day after the election date, the association and each
reinsurer under a reinsurance contract assumed by the association
shall compute the net balance due to or from the association under
the reinsurance contract, as of the election date, with respect to a
policy or annuity covered wholly or partially by the association.
(b) The computation must give full credit to all items paid
by the insurer or the insurer's receiver or the reinsurer before the
election date. The reinsurer shall pay the receiver any amounts due
for losses or events before the date of the order of liquidation,
subject to any set-off for premiums unpaid for periods before that
date, and the association or reinsurer shall pay any remaining
balance due to the other. The payment must be made not later than
the fifth day after the date on which the computation is completed.
(c) A dispute regarding the amounts due to the association
or the reinsurer shall be resolved by arbitration under the terms of
the affected reinsurance contract or, if the contract does not
contain an arbitration clause, as otherwise provided by law.
(d) If the receiver has received any amounts due to the
association under Section 463.505(a), the receiver shall remit
those amounts to the association as promptly as practicable.
Sec. 463.507. PROHIBITED ACTS BY REINSURER. If the
association, or the receiver on the association's behalf, pays, not
later than the 60th day after the election date, the unpaid premiums
due for periods before and after the election date that relate to
policies or annuities covered wholly or partially by the
association, the reinsurer may not:
(1) terminate a reinsurance contract for failure to
pay premium to the extent that the reinsurance contract relates to a
policy or annuity covered wholly or partially by the association;
or
(2) set off any unpaid amounts due under other
contracts, or unpaid amounts due from parties other than the
association, against amounts due to the association.
Sec. 463.508. RIGHTS AND OBLIGATIONS OF PARTIES.
(a) During the period from the date of the order of liquidation
until the election date, or, if the election date does not occur,
until the 180th day after the date of the order of liquidation:
(1) the association and the reinsurer have no rights
or obligations under a reinsurance contract that the association
has the right to assume under Section 463.503, whether for periods
before or after the date of the order of liquidation; and
(2) the reinsurer, the receiver, and the association
shall, to the extent practicable, provide to each other data and
records reasonably requested.
(b) After the association has elected to assume a
reinsurance contract, the parties' rights and obligations are
governed by this subchapter.
(c) If the association does not elect to assume a
reinsurance contract by the date described by Section 463.503(a),
the association has no rights or obligations with respect to the
reinsurance contract for periods before or after the date of the
order of liquidation.
Sec. 463.509. TRANSFERS OF REINSURANCE CONTRACTS TO
ASSUMING INSURERS. (a) In the case of a contract assumed under
Section 463.503, if a policy or annuity, or a covered obligation
with respect to the policy or annuity, is transferred to an assuming
insurer, reinsurance on the policy or annuity may also be
transferred by the association, subject to the requirements of this
section.
(b) Unless the reinsurer and the assuming insurer otherwise
agree, the transferred reinsurance contract may not cover any new
insurance policy or annuity in addition to those transferred.
(c) The obligations described by this subchapter do not
apply with respect to matters arising after the effective date of a
transfer under this section.
(d) The transferring party must give notice in writing,
return receipt requested, to the affected reinsurer not later than
the 30th day before the effective date of the transfer.
Sec. 463.510. EFFECT OF OTHER LAW OR CONTRACT PROVISION.
(a) This subchapter supersedes the provisions of any law, or of
any affected reinsurance contract, that provides for or requires
payment of reinsurance proceeds because of a loss or event that
occurs after the date of the order of liquidation, to:
(1) the receiver of the insolvent insurer; or
(2) any other person.
(b) The receiver remains entitled to any amounts payable by
the reinsurer under the reinsurance contract with respect to a loss
or event that occurs before the date of the order of liquidation,
subject to any applicable set-off provisions.
SECTION 6. (a) Except as provided by Subsection (b) of
this section, the change in law made by this Act applies only to an
insurer that first becomes an impaired or insolvent insurer on or
after the effective date of this Act. An insurer that becomes an
impaired or insolvent insurer before the effective date of this Act
is governed by the law as it existed immediately before that date,
and that law is continued in effect for that purpose.
(b) The change in law made by this Act to Subsection (c),
Section 463.153, Insurance Code, as amended by this Act, applies to
an assessment authorized on or after October 1, 2008, with respect
to an insurer that first became impaired or insolvent on or after
September 1, 2005.
SECTION 7. This Act takes effect September 1, 2009.