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 a new
Subchapter P to read as follows:
Subchapter P.
Limited Purpose Subsidiary Life Insurance Companies
§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.
§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 3 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.
§841.803. Organizational Documents of a 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.
§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.
§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.
§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.
§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.
§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.
§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.
§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.
§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.
§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.
§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.
§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.
§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.
§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.
§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.
§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.
§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.