By: Hancock H.B. No. 3161
A BILL TO BE ENTITLED
AN ACT
relating to limited purpose subsidiary life insurance companies.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Chapter 841, Insurance Code, is amended by
adding Subchapter P to read as follows:
SUBCHAPTER P. LIMITED PURPOSE SUBSIDIARY LIFE INSURANCE COMPANIES
Sec. 841.801. PURPOSE. The purpose of this subchapter is to
authorize the establishment of domestic limited purpose subsidiary
life insurance companies ("limited purpose company" or "LPS") in
order to allow that such limited purpose companies may issue
securities and otherwise access financial markets and alternative
sources of capital through securitizations and other transactions.
Sec. 841.802. DEFINITIONS. For purposes of this subchapter,
the following definitions shall apply:
(1) "Affiliated companies" means:
(A) domestic life insurance companies that are
directly or indirectly wholly owned subsidiaries of the same
holding company; or
(B) controlled persons.
(2) "Ceding insurer" means either a domestic life
insurance company that is the parent of the limited purpose
subsidiary or an affiliated company of a limited purpose subsidiary
and that cedes risk to the LPS pursuant to a reinsurance contract.
(3) "Commissioner" means the insurance commissioner.
(4) "Controlled person" means a person organized or
authorized to do business under the laws of this state who is
controlled directly or indirectly by a holding company.
(5) "Guaranty" means an agreement to pay specified
obligations of the limited purpose subsidiary by a holding company
or affiliated company of the limited purpose subsidiary approved by
the commissioner that is not a ceding insurer and the guarantor has
sufficient equity, less the equity of all ceding insurers that are
subsidiaries of the guarantor, to satisfy the agreement during the
life of the guaranty.
(6) "Holding company" means a person who directly or
indirectly controls an insurer.
(7) "Insurance securitization" or "securitization"
means a transaction or a group of related transactions, which may
include capital market offerings, that are effected through related
risk transfer instruments and facilitating administrative
agreements where all or part of the result of such transactions is
used to fund the LPS's obligations under a reinsurance contract
with a ceding insurer and by which proceeds are:
(A) obtained by an LPS, directly or indirectly,
through the issuance of securities by the LPS or any other person;
or
(B) provided through one or more letters of
credit or other assets for the benefit of the LPS, which the
commissioner authorizes the LPS to treat as admitted assets for
purposes of the LPS's annual statement where all or any part of such
proceeds, letters of credit, or assets, as applicable, is used to
fund the LPS's obligations under a reinsurance contract with a
ceding insurer.
(8) "Insurer" for purposes of this chapter, means a
domestic life insurance company organized under Chapter 841.
(9) "Letters of credit" means clean, unconditional,
irrevocable letters of credit issued or confirmed by a qualified
United States financial institution as defined in Section
492.104(b)(2)(C) of this code.
(10) "LPS" means a limited purpose subsidiary life
insurance company organized pursuant to this subchapter, that is
wholly owned by a life insurance company or an affiliated company
and that is issued a certificate of authority by the commissioner
pursuant to this chapter.
(11) "LPS security" means:
(A) a security issued by an LPS; or
(B) a security issued by a third party, the
proceeds of which are obtained directly or indirectly by an LPS.
(12) "Management" means the board of directors,
managing board, or other individual or individuals vested with
overall responsibility for the management of the affairs of the
LPS.
(13) "Material" means a transaction or series of
transactions involving amounts equal to or exceeding three percent
of the LPS's admitted assets less any letters of credit, guaranties
and intangible assets included as an admitted asset of the LPS.
(14) "Organizational documents" means an LPS's
articles of incorporation and bylaws.
(15) "Organizing company" means the company that
organizes an LPS pursuant to this subchapter.
(16) "Parent" means a person, as defined in Section
823.002(7) of this code, that directly or indirectly through one or
more intermediaries wholly owns or is an affiliated company of an
LPS.
(17) "Person" has the same meaning as defined in
Section 823.002(7) of this code.
(18) "Reinsurance contract" means a contract between
an LPS and a ceding insurer pursuant to which the LPS agrees to
provide reinsurance to the ceding insurer for risks.
(19) "Risk" means risks associated with life insurance
policies and annuity contracts written by the ceding insurer or
assumed by the ceding insurer from an affiliated company which were
written by the affiliated company and for which the ceding insurer
holds statutory reserves for those policies.
(20) "Security" means the same as defined in Article
581-4(a), Vernon' Civil Statutes, and shall also include any form
of debt obligation, surplus note, derivative, or other financial
instrument that the commissioner designates as a "security" for
purposes of this chapter.
(21) "Surplus note" means an unsecured subordinated
debt obligation.
Sec. 841.803. ORGANIZATIONAL DOCUMENTS OF AN LPS. (a)
Either a wholly owned domestic insurer authorized to transact the
business of insurance pursuant to Chapter 841 or an affiliated
company organized or authorized to conduct business under the laws
of this state may organize a domestic limited purpose subsidiary
life insurance company pursuant to the provisions of this chapter.
(b) The limited purpose subsidiary life insurance company
may reinsure risks of the organizing company, reinsure risks of
affiliated companies, and access alternative forms of financing.
(c) An LPS's organizational documents shall limit the LPS's
authority to transact the business of reinsurance to reinsure only
the risks of a ceding insurer and shall state that the LPS shall not
otherwise engage in the business of insurance.
(d) An LPS's organizational documents shall provide that
the LPS shall always be either wholly owned by a domestic insurer
authorized to transact the business of insurance pursuant to
Chapter 841 or an affiliated company organized or authorized to do
business under the laws of this state.
Sec. 841.804. CERTIFICATE OF AUTHORITY REQUIRED. No LPS
shall do any reinsurance business in this state unless it obtains
from the commissioner a certificate of authority pursuant to this
rule.
Sec. 841.805. APPLICATION FOR CERTIFICATE OF AUTHORITY.
(a) To obtain a charter for a domestic LPS, the incorporators must
pay to the department the charter fee in an amount determined under
Chapter 202 and file with the department:
(1) an application for charter on the form and
containing the information prescribed by the commissioner;
(2) the company's articles of incorporation;
(3) an affidavit made by two or more of the
incorporators that states that:
(A) the minimum capital and surplus requirements
of this subchapter are satisfied;
(B) the capital and surplus are the bona fide
property of the company;
(C) the information in the articles of
incorporation is true and correct;
(4) submit any other statements or documents required
by the commissioner to evaluate the LPS's application for a
certificate of authority.
Sec. 841.806. INVESTMENT BY ORGANIZING COMPANY. If the
organizing company is a domestic life insurance company, it may
invest funds from its surplus in a limited purpose subsidiary life
insurance company organized pursuant to this section.
Sec. 841.807. OFFICERS AND DIRECTORS. The organizing
company's officers and directors may serve as officers and
directors of a limited purpose subsidiary life insurance company
organized pursuant to this section.
Sec. 841.808. ISSUANCE OF CERTIFICATE OF AUTHORITY. (a)
The commissioner may issue a certificate of authority to an LPS,
authorizing the LPS to transact reinsurance business as an LPS in
this state based on the findings required in Section 841.061 of this
code.
(b) In conjunction with the issuance of a certificate of
authority to an LPS, the commissioner may issue an order that
includes any provisions, terms, and conditions regarding the
organization, licensing, and operation of the LPS that the
commissioner deems appropriate and that are not inconsistent with
the provisions of this chapter.
Sec. 841.809. SCOPE OF CERTIFICATE OF AUTHORITY. (a) An
LPS that has been issued a certificate of authority may reinsure
only the risks of a ceding insurer.
(b) An LPS shall not otherwise engage in the business of
insurance.
(c) An LPS may purchase reinsurance to cede the risks
assumed under a reinsurance contract.
(d) A limited purpose subsidiary life insurance company
organized pursuant to this section shall be deemed to be licensed to
transact the business of reinsurance for the purposes of Section
492.051, but may only reinsure risks of its affiliated companies.
Sec. 841.810. CAPITAL AND SURPLUS. (a) An LPS shall not be
issued a certificate of authority unless it possesses and
thereafter maintains unimpaired paid-in capital and surplus of not
less than the amounts required by Section 841.054(a) of this code.
Sec. 841.811. DIVIDENDS AND DISTRIBUTIONS. An LPS may pay
dividends and distributions that do not decrease the capital of the
LPS below the minimum capital and surplus amount required by
Section 841.810.
Sec. 841.812. REPORTS OF SECURITIZATIONS. An LPS shall
provide the commissioner with a copy of a complete set of executed
documentation of an insurance securitization no later than 45 days
after the closing on the transactions for such securitization.
Sec. 841.813. FORECLOSURE ON COLLATERAL. An LPS shall
notify the commissioner immediately of any action by a ceding
insurer or any other person to foreclose on or otherwise take
possession of collateral provided by the LPS to secure any
obligation of the LPS.
Sec. 841.814. FILING REPORTS WITH THE NATIONAL ASSOCIATION
OF INSURANCE COMMISSIONERS. Notwithstanding Section 802.051 of
this code, or any other law, an LPS shall not be required to file any
report, notice, or other document with the National Association of
Insurance Commissioners unless required by the commissioner.
Sec. 841.815. SECURITIZATION AGREEMENTS. The LPS
securitization, the security-offering memorandum or other document
issued to prospective investors regarding the offer and sale of a
surplus note or other security shall include a disclosure that all
or part of the proceeds of such insurance securitization will be
used to fund the LPS's obligations to the ceding insurer.
Sec. 841.816. ADMITTED ASSETS. (a) Admitted assets of a
limited purpose subsidiary life insurance company shall include
assets approved by the commissioner which shall be deemed to be, and
reported as, admitted assets of the LPS.
(b) In addition to the investments authorized under
Subchapters C, and D of Chapter 425 of this code and notwithstanding
any other law, admitted assets of the LPS shall include proceeds
from a securitization, premium and other amounts payable by a
ceding insurer to the LPS, letters of credit, guaranties of a
holding company, guaranties of an affiliated company, and any other
assets approved by the commissioner, which shall be deemed to be,
and reported as, admitted assets of the LPS.
Sec. 841.817. SECURITIES. (a) An LPS security shall not be
subject to regulation as an insurance or reinsurance contract.
(b) An investor in such a security or a holder of such a
security shall not be considered to be transacting the business of
insurance in this state solely by reason of having an interest in
the security.
(c) The underwriter's placement or selling agents and their
partners, commissioners, officers, members, managers, employees,
agents, representatives, and advisors involved in an insurance
securitization by an LPS shall not be considered to be insurance
producers or brokers or to be conducting business as an insurance or
reinsurance company or as an insurance agency, brokerage,
intermediary, advisory, or consulting business solely by virtue of
their underwriting activities in connection with such
securitization.
Sec. 841.818. PERMITTED REINSURANCE. (a) An LPS may
reinsure, pursuant to a reinsurance contract, only the risks of a
ceding insurer.
(b) Unless otherwise approved in advance by the
commissioner, an LPS may not assume or retain exposure to
reinsurance losses for its own account that are not funded by one or
more of the following:
(1) proceeds from a securitization;
(2) premium and other amounts payable by the ceding
insurer to the LPS pursuant to the reinsurance contract;
(3) letters of credit;
(4) guaranties of a holding or affiliated company; or
(5) any return on investment of the items in
Subsections (1) or (2).
(c) An LPS may cede risks assumed through a reinsurance
contract to one or more reinsurers through the purchase of
reinsurance, subject to the prior approval of the commissioner.
(d) An LPS may enter into contracts and conduct other
commercial activities related or incidental to and necessary to
fulfill the purposes of a reinsurance contract, an insurance
securitization, and this chapter. Such contracts and activities
may include but are not limited to:
(1) entering into reinsurance contracts;
(2) issuing LPS securities;
(3) complying with the terms of these contracts or
securities;
(4) entering into trust, guaranteed investment
contract, swap, or other derivative, tax, administration, services
reimbursement, or fiscal agent transactions;
(5) complying with trust indenture, reinsurance, or
retrocession; or
(6) entering into other agreements necessary or
incidental to effect a reinsurance contract or an insurance
securitization in compliance with this chapter.
(e) Unless otherwise approved in advance by the
commissioner, a reinsurance contract shall not contain any
provision for payment by the LPS in discharge of its obligations
under the reinsurance contract to any person other than the ceding
insurer or any receiver of the ceding insurer.
Sec. 841.825. OTHER LAWS NOT APPLICABLE. The deposit
requirements in Subchapter H of this chapter shall not apply to an
LPS.
SECTION 2. This Act shall be effective January 1, 2012.