Texas 2009 - 81st Regular

Texas Senate Bill SB1493 Compare Versions

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1	1	By: Williams S.B. No. 1493
2	2
3	3
4	4	A BILL TO BE ENTITLED
5	5	AN ACT
6	6	relating to certain amounts payable by and the operation of the
7	7	Texas Life, Accident, Health, and Hospital Service Insurance
8	8	Guaranty Association.
9	9	BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
10	10	SECTION 1. Subsection (c), Section 463.153, Insurance Code,
11	11	is amended to read as follows:
12	12	(c) The total amount of assessments on a member insurer for
13	13	each account under Section 463.105 may not exceed two percent of the
14	14	insurer's average annual premiums on the policies covered by the
15	15	account during the three calendar years preceding the year in which
16	16	the insurer became an impaired or insolvent insurer. If two or more
17	17	assessments are authorized in a calendar year with respect to
18	18	insurers that become impaired or insolvent in different calendar
19	19	years, the average annual premiums for purposes of the aggregate
20	20	assessment percentage limitation described by this subsection
21	21	shall be equal to the higher of the three-year average annual
22	22	premiums for the applicable subaccount or account as computed in
23	23	accordance with this section. If the maximum assessment and the
24	24	other assets of the association do not provide in a year an amount
25	25	sufficient to carry out the association's responsibilities, the
26	26	association shall make necessary additional assessments as soon as
27	27	this chapter permits.
28	28	SECTION 2. Subsection (b), Section 463.203, Insurance Code,
29	29	is amended to read as follows:
30	30	(b) This chapter does not provide coverage for:
31	31	(1) any part of a policy or contract not guaranteed by
32	32	the insurer or under which the risk is borne by the policy or
33	33	contract owner;
34	34	(2) a policy or contract of reinsurance, unless an
35	35	assumption certificate has been issued;
36	36	(3) any part of a policy or contract to the extent that
37	37	the rate of interest on which that part is based:
38	38	(A) as averaged over the period of four years
39	39	before the date the member insurer becomes impaired or insolvent
40	40	under this chapter, whichever is earlier, exceeds a rate of
41	41	interest determined by subtracting two percentage points from
42	42	Moody's Corporate Bond Yield Average averaged for the same
43	43	four-year period or for a lesser period if the policy or contract
44	44	was issued less than four years before the date the member insurer
45	45	becomes impaired or insolvent under this chapter, whichever is
46	46	earlier; and
47	47	(B) on and after the date the member insurer
48	48	becomes impaired or insolvent under this chapter, whichever is
49	49	earlier, exceeds the rate of interest determined by subtracting
50	50	three percentage points from Moody's Corporate Bond Yield Average
51	51	as most recently available;
52	52	(4) a portion of a policy or contract issued to a plan
53	53	or program of an employer, association, similar entity, or other
54	54	person to provide life, health, or annuity benefits to the entity's
55	55	employees, members, or others, to the extent that the plan or
56	56	program is self-funded or uninsured, including benefits payable by
57	57	an employer, association, or similar entity under:
58	58	(A) a multiple employer welfare arrangement as
59	59	defined by Section 3, Employee Retirement Income Security Act of
60	60	1974 (29 U.S.C. Section 1002);
61	61	(B) a minimum premium group insurance plan;
62	62	(C) a stop-loss group insurance plan; or
63	63	(D) an administrative services-only contract;
64	64	(5) any part of a policy or contract to the extent that
65	65	the part provides dividends, experience rating credits, or voting
66	66	rights, or provides that fees or allowances be paid to any person,
67	67	including the policy or contract owner, in connection with the
68	68	service to or administration of the policy or contract;
69	69	(6) a policy or contract issued in this state by a
70	70	member insurer at a time the insurer was not authorized to issue the
71	71	policy or contract in this state;
72	72	(7) an unallocated annuity contract issued to or in
73	73	connection with a benefit plan protected under the federal Pension
74	74	Benefit Guaranty Corporation, regardless of whether the Pension
75	75	Benefit Guaranty Corporation has not yet become liable to make any
76	76	payments with respect to the benefit plan;
77	77	(8) any part of an unallocated annuity contract that
78	78	is not issued to or in connection with a specific employee, a
79	79	benefit plan for a union or association of individuals, or a
80	80	governmental lottery;
81	81	(9) any part of a financial guarantee, funding
82	82	agreement, or guaranteed investment contract that:
83	83	(A) does not contain a mortality guarantee; and
84	84	(B) is not issued to or in connection with a
85	85	specific employee, a benefit plan, or a governmental lottery;
86	86	(10) a part of a policy or contract to the extent that
87	87	the assessments required by Subchapter D with respect to the policy
88	88	or contract are preempted by federal or state law;
89	89	(11) a contractual agreement that established the
90	90	member insurer's obligations to provide a book value accounting
91	91	guaranty for defined contribution benefit plan participants by
92	92	reference to a portfolio of assets that is owned by the benefit plan
93	93	or the plan's trustee in a case in which neither the benefit plan
94	94	sponsor nor its trustee is an affiliate of the member insurer; [or]
95	95	(12) a part of a policy or contract to the extent the
96	96	policy or contract provides for interest or other changes in value
97	97	that are to be determined by the use of an index or external
98	98	reference stated in the policy or contract, but that have not been
99	99	credited to the policy or contract, or as to which the policy or
100	100	contract owner's rights are subject to forfeiture, as of the date
101	101	the member insurer becomes an impaired or insolvent insurer under
102	102	this chapter, whichever date is earlier, subject to Subsection (c);
103	103	or
104	104	(13) a policy or contract providing any hospital,
105	105	medical, prescription drug, or other health care benefits under
106	106	Part C or Part D, Subchapter XVIII, Chapter 7, Title 42, United
107	107	States Code (Medicare Part C or Part D) or any regulations issued
108	108	under those parts.
109	109	SECTION 3. Section 463.204, Insurance Code, is amended to
110	110	read as follows:
111	111	Sec. 463.204. OBLIGATIONS EXCLUDED. A contractual
112	112	obligation does not include:
113	113	(1) death benefits in an amount in excess of $300,000
114	114	or a net cash surrender or net cash withdrawal value in an amount in
115	115	excess of $100,000 under one or more policies on a single life;
116	116	(2) an amount in excess of:
117	117	(A) $250,000 [$100,000] in the present value
118	118	under one or more annuity contracts issued with respect to a single
119	119	life under individual annuity policies or group annuity policies;
120	120	or
121	121	(B) $5 million in unallocated annuity contract
122	122	benefits with respect to a single contract owner regardless of the
123	123	number of those contracts;
124	124	(3) an amount in excess of the following amounts,
125	125	including any net cash surrender or cash withdrawal values, under
126	126	one or more accident, health, accident and health, or long-term
127	127	care insurance policies on a single life:
128	128	(A) $500,000 for basic hospital,
129	129	medical-surgical, or major medical insurance, as those terms are
130	130	defined by this code or rules adopted by the commissioner;
131	131	(B) $300,000 for disability and long-term care
132	132	insurance, as those terms are defined by this code or rules adopted
133	133	by the commissioner; or
134	134	(C) $200,000 for coverages that are not defined
135	135	as basic hospital, medical-surgical, major medical, disability, or
136	136	long-term care insurance;
137	137	(4) an amount in excess of $250,000 [$100,000] in
138	138	present value annuity benefits, in the aggregate, including any net
139	139	cash surrender and net cash withdrawal values, with respect to each
140	140	individual participating in a governmental retirement benefit plan
141	141	established under Section 401, 403(b), or 457, Internal Revenue
142	142	Code of 1986 (26 U.S.C. Sections 401, 403(b), and 457), covered by
143	143	an unallocated annuity contract or the beneficiary or beneficiaries
144	144	of the individual if the individual is deceased;
145	145	(5) an amount in excess of $250,000 [$100,000] in
146	146	present value annuity benefits, in the aggregate, including any net
147	147	cash surrender and net cash withdrawal values, with respect to each
148	148	payee of a structured settlement annuity or the beneficiary or
149	149	beneficiaries of the payee if the payee is deceased;
150	150	(6) aggregate benefits in an amount in excess of
151	151	$300,000 with respect to a single life, except with respect to:
152	152	(A) benefits paid under basic hospital,
153	153	medical-surgical, or major medical insurance policies, described
154	154	by Subdivision (3)(A), in which case the aggregate benefits are
155	155	$500,000; and
156	156	(B) benefits paid to one owner of multiple
157	157	nongroup policies of life insurance, whether the policy owner is an
158	158	individual, firm, corporation, or other person, and whether the
159	159	persons insured are officers, managers, employees, or other
160	160	persons, in which case the maximum benefits are $5 million
161	161	regardless of the number of policies and contracts held by the
162	162	owner;
163	163	(7) an amount in excess of $5 million in benefits, with
164	164	respect to either one plan sponsor whose plans own directly or in
165	165	trust one or more unallocated annuity contracts not included in
166	166	Subdivision (4) irrespective of the number of contracts with
167	167	respect to the contract owner or plan sponsor or one contract owner
168	168	provided coverage under Section 463.201(a)(3)(B), except that, if
169	169	one or more unallocated annuity contracts are covered contracts
170	170	under this chapter and are owned by a trust or other entity for the
171	171	benefit of two or more plan sponsors, coverage shall be afforded by
172	172	the association if the largest interest in the trust or entity
173	173	owning the contract or contracts is held by a plan sponsor whose
174	174	principal place of business is in this state, and in no event shall
175	175	the association be obligated to cover more than $5 million in
176	176	benefits with respect to all these unallocated contracts;
177	177	(8) any contractual obligations of the insolvent or
178	178	impaired insurer under a covered policy or contract that do not
179	179	materially affect the economic value of economic benefits of the
180	180	covered policy or contract; or
181	181	(9) punitive, exemplary, extracontractual, or bad
182	182	faith damages, regardless of whether the damages are:
183	183	(A) agreed to or assumed by an insurer or
184	184	insured; or
185	185	(B) imposed by a court.
186	186	SECTION 4. Subsection (b), Section 463.263, Insurance Code,
187	187	is amended to read as follows:
188	188	(b) The association is entitled to retain a portion of any
189	189	amount paid to the association under this section equal to the
190	190	percentage determined by dividing the aggregate amount of policy
191	191	owners' claims related to that insolvency for which the association
192	192	has provided statutory benefits by the aggregate amount of all
193	193	policy owners' claims in this state related to that insolvency, and
194	194	shall remit to the domiciliary receiver the amount paid to the
195	195	association less the amount [and] retained under this section.
196	196	SECTION 5. Chapter 463, Insurance Code, is amended by
197	197	adding Subchapter K to read as follows:
198	198	SUBCHAPTER K. REINSURANCE
199	199	Sec. 463.501. DEFINITIONS. In this subchapter:
200	200	(1) "Election date" means the date on which the
201	201	association elects to make an assumption under Section 463.503.
202	202	(2) "Order of liquidation" means an order described by
203	203	Section 443.151.
204	204	Sec. 463.502. APPLICABILITY. (a) Except as otherwise
205	205	provided by this subchapter, this subchapter does not alter or
206	206	modify the terms and conditions of any reinsurance contract.
207	207	(b) This subchapter does not:
208	208	(1) abrogate or limit any right of a reinsurer to claim
209	209	that the reinsurer is entitled to rescind a reinsurance contract;
210	210	(2) give a policyholder or beneficiary an independent
211	211	cause of action against a reinsurer that is not otherwise set forth
212	212	in the reinsurance contract;
213	213	(3) limit or affect the association's rights as a
214	214	creditor of the estate against the assets of the estate; or
215	215	(4) apply to reinsurance agreements covering property
216	216	or casualty risks.
217	217	Sec. 463.503. ASSUMPTION BY ASSOCIATION OF RIGHTS AND
218	218	OBLIGATIONS OF CEDING MEMBER INSURER. (a) Not later than the
219	219	180th day after the date of the order of liquidation, the
220	220	association may elect to succeed to the rights and obligations of
221	221	the ceding member insurer that relate to policies or annuities
222	222	covered wholly or partially by the association under one or more
223	223	reinsurance contracts entered into by the insolvent insurer and the
224	224	insolvent insurer's reinsurers and selected by the association. An
225	225	assumption by the association under this subsection takes effect on
226	226	the date of the order of liquidation.
227	227	(b) The election under Subsection (a) takes effect when the
228	228	association, or the National Organization of Life and Health
229	229	Insurance Guaranty Associations on behalf of the association, sends
230	230	written notice, return receipt requested, to the affected
231	231	reinsurers.
232	232	(c) To facilitate the earliest practicable decision about
233	233	whether to assume any of the reinsurance contracts, and to protect
234	234	the financial position of the estate, the receiver and each
235	235	reinsurer of the ceding member insurer shall make available on
236	236	request to the association, or to the National Organization of Life
237	237	and Health Insurance Guaranty Associations on the association's
238	238	behalf, as soon as possible after the commencement of formal
239	239	delinquency proceedings:
240	240	(1) copies of reinsurance contracts in force, and all
241	241	related files and records relevant to the determination of whether
242	242	those contracts should be assumed; and
243	243	(2) notices of:
244	244	(A) any defaults under the reinsurance
245	245	contracts; or
246	246	(B) any known event or condition that, with the
247	247	passage of time, could become a default under the reinsurance
248	248	contracts.
249	249	Sec. 463.504. ASSOCIATION OBLIGATIONS UNDER REINSURANCE
250	250	CONTRACTS. (a) With respect to the reinsurance contracts assumed
251	251	by the association that relate to policies or annuities covered
252	252	wholly or partially by the association, the association is
253	253	responsible for all unpaid premiums due under the reinsurance
254	254	contracts for periods both before and after the date of the order of
255	255	liquidation and shall be responsible for the performance of all
256	256	other obligations to be performed after the date of the order of
257	257	liquidation.
258	258	(b) The association may charge a policy or annuity covered
259	259	partially by the association, through reasonable allocation
260	260	methods, the costs for reinsurance in excess of the association's
261	261	obligations, and shall provide notice and an accounting of those
262	262	charges to the liquidator.
263	263	Sec. 463.505. LOSS PAYMENTS. (a) The association is
264	264	entitled to any amount payable by the reinsurer under a reinsurance
265	265	contract with respect to a loss or event that:
266	266	(1) occurs after the date of the order of liquidation;
267	267	and
268	268	(2) relates to a policy or annuity covered wholly or
269	269	partially by the association.
270	270	(b) On receipt of an amount described by Subsection (a), the
271	271	association is obliged to pay to the beneficiary under the affected
272	272	policy or annuity an amount equal to the lesser of:
273	273	(1) the amount received by the association under
274	274	Subsection (a); or
275	275	(2) the excess of the amount received by the
276	276	association under Subsection (a) over the amount equal to the
277	277	benefits paid by the association on account of the policy or
278	278	annuity, less the retention of the insurer applicable to the loss or
279	279	event.
280	280	Sec. 463.506. COMPUTATION OF NET BALANCE. (a) Not later
281	281	than the 30th day after the election date, the association and each
282	282	reinsurer under a reinsurance contract assumed by the association
283	283	shall compute the net balance due to or from the association under
284	284	the reinsurance contract, as of the election date, with respect to a
285	285	policy or annuity covered wholly or partially by the association.
286	286	(b) The computation must give full credit to all items paid
287	287	by the insurer or the insurer's receiver or the reinsurer before the
288	288	election date. The reinsurer shall pay the receiver any amounts due
289	289	for losses or events before the date of the order of liquidation,
290	290	subject to any set-off for premiums unpaid for periods before that
291	291	date, and the association or reinsurer shall pay any remaining
292	292	balance due to the other. The payment must be made not later than
293	293	the fifth day after the date on which the computation is completed.
294	294	(c) A dispute regarding the amounts due to the association
295	295	or the reinsurer shall be resolved by arbitration under the terms of
296	296	the affected reinsurance contract or, if the contract does not
297	297	contain an arbitration clause, as otherwise provided by law.
298	298	(d) If the receiver has received any amounts due to the
299	299	association under Section 463.505(a), the receiver shall remit
300	300	those amounts to the association as promptly as practicable.
301	301	Sec. 463.507. PROHIBITED ACTS BY REINSURER. If the
302	302	association, or the receiver on the association's behalf, pays, not
303	303	later than the 60th day after the election date, the unpaid premiums
304	304	due for periods before and after the election date that relate to
305	305	policies or annuities covered wholly or partially by the
306	306	association, the reinsurer may not:
307	307	(1) terminate a reinsurance contract for failure to
308	308	pay premium to the extent that the reinsurance contract relates to a
309	309	policy or annuity covered wholly or partially by the association;
310	310	or
311	311	(2) set off any unpaid amounts due under other
312	312	contracts, or unpaid amounts due from parties other than the
313	313	association, against amounts due to the association.
314	314	Sec. 463.508. RIGHTS AND OBLIGATIONS OF PARTIES.
315	315	(a) During the period from the date of the order of liquidation
316	316	until the election date, or, if the election date does not occur,
317	317	until the 180th day after the date of the order of liquidation:
318	318	(1) the association and the reinsurer have no rights
319	319	or obligations under a reinsurance contract that the association
320	320	has the right to assume under Section 463.503, whether for periods
321	321	before or after the date of the order of liquidation; and
322	322	(2) the reinsurer, the receiver, and the association
323	323	shall, to the extent practicable, provide to each other data and
324	324	records reasonably requested.
325	325	(b) After the association has elected to assume a
326	326	reinsurance contract, the parties' rights and obligations are
327	327	governed by this subchapter.
328	328	(c) If the association does not elect to assume a
329	329	reinsurance contract by the date described by Section 463.503(a),
330	330	the association has no rights or obligations with respect to the
331	331	reinsurance contract for periods before or after the date of the
332	332	order of liquidation.
333	333	Sec. 463.509. TRANSFERS OF REINSURANCE CONTRACTS TO
334	334	ASSUMING INSURERS. (a) In the case of a contract assumed under
335	335	Section 463.503, if a policy or annuity, or a covered obligation
336	336	with respect to the policy or annuity, is transferred to an assuming
337	337	insurer, reinsurance on the policy or annuity may also be
338	338	transferred by the association, subject to the requirements of this
339	339	section.
340	340	(b) Unless the reinsurer and the assuming insurer otherwise
341	341	agree, the transferred reinsurance contract may not cover any new
342	342	insurance policy or annuity in addition to those transferred.
343	343	(c) The obligations described by this subchapter do not
344	344	apply with respect to matters arising after the effective date of a
345	345	transfer under this section.
346	346	(d) The transferring party must give notice in writing,
347	347	return receipt requested, to the affected reinsurer not later than
348	348	the 30th day before the effective date of the transfer.
349	349	Sec. 463.510. EFFECT OF OTHER LAW OR CONTRACT PROVISION.
350	350	(a) This subchapter supersedes the provisions of any law, or of
351	351	any affected reinsurance contract, that provides for or requires
352	352	payment of reinsurance proceeds because of a loss or event that
353	353	occurs after the date of the order of liquidation, to:
354	354	(1) the receiver of the insolvent insurer; or
355	355	(2) any other person.
356	356	(b) The receiver remains entitled to any amounts payable by
357	357	the reinsurer under the reinsurance contract with respect to a loss
358	358	or event that occurs before the date of the order of liquidation,
359	359	subject to any applicable set-off provisions.
360	360	SECTION 6. (a) Except as provided by Subsection (b) of
361	361	this section, the change in law made by this Act applies only to an
362	362	insurer that first becomes an impaired or insolvent insurer on or
363	363	after the effective date of this Act. An insurer that becomes an
364	364	impaired or insolvent insurer before the effective date of this Act
365	365	is governed by the law as it existed immediately before that date,
366	366	and that law is continued in effect for that purpose.
367	367	(b) The change in law made by this Act to Subsection (c),
368	368	Section 463.153, Insurance Code, as amended by this Act, applies to
369	369	an assessment authorized on or after October 1, 2008, with respect
370	370	to an insurer that first became impaired or insolvent on or after
371	371	September 1, 2005.
372	372	SECTION 7. This Act takes effect September 1, 2009.