82R11113 TRH-F
By: Van de Putte S.B. No. 1735
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 I to read as follows:
SUBCHAPTER I. LIMITED PURPOSE SUBSIDIARY LIFE INSURANCE COMPANIES
Sec. 841.401. DEFINITIONS. In this subchapter:
(1) "Affiliated company" means a domestic life
insurance company that is classified as an affiliate under Section
823.003.
(2) "Material transaction" means a transaction or
series of transactions involving an amount equal to or greater than
three percent of a subsidiary company's admitted assets, less any
letters of credit and intangible assets included as an admitted
asset of the subsidiary company.
(3) "Parent" means a person that directly or
indirectly controls, as described by Section 823.005, a subsidiary
company.
(4) "Reinsurance contract" means a contract in which a
subsidiary company agrees to provide reinsurance for risks of the
domestic life insurance company to the domestic life insurance
company that organized the subsidiary company.
(5) "Risk" means risk associated with life insurance
policies and contracts written or assumed by a domestic life
insurance company, for which the domestic life insurance company
holds direct statutory reserves as required by Subchapter B,
Chapter 425.
(6) "Securitization" means a transaction or group of
related transactions to fund a subsidiary company's obligations
under a reinsurance contract, including a capital market offering,
that is effected through related risk transfer instruments and in
which proceeds are:
(A) obtained by a subsidiary company through the
issuance of securities by the subsidiary company or another person;
or
(B) provided through a letter of credit or other
asset for the benefit of the subsidiary company, authorized by the
commissioner to be treated as admitted assets for the purpose of the
subsidiary company's annual statements.
(7) "Security" has the meaning assigned by Section 4,
The Securities Act (Article 581-4, Vernon's Texas Civil Statutes).
The term also includes any form of debt obligation, surplus note,
derivative, or other financial instrument that the commissioner
designates as a security for purposes of this subchapter.
(8) "Subsidiary company" means a life insurance
company organized under this subchapter that is wholly owned by the
domestic life insurance company that organized the subsidiary
company.
(9) "Surplus note" means an unsecured subordinated
debt obligation.
Sec. 841.402. ORGANIZATION. (a) A domestic life insurance
company may organize a subsidiary company to which the domestic
life insurance company cedes risk under a reinsurance contract.
(b) A subsidiary company organized under this subchapter:
(1) must be wholly owned by the domestic life
insurance company that organized the subsidiary company; and
(2) may not issue stock to any organization or
individual other than the domestic life insurance company that
organized the subsidiary company.
(c) Except as provided by Subsection (d), a subsidiary
company may not engage in the business of insurance.
(d) A subsidiary company may:
(1) reinsure risks of:
(A) the domestic life insurance company that
organized the subsidiary company; or
(B) an affiliated company; and
(2) access alternative forms of financing.
(e) A domestic life insurance company may invest funds from
its surplus in a subsidiary company organized by the domestic life
insurance company.
(f) An officer or director of a domestic life insurance
company may serve as an officer or director of a subsidiary company
organized by the domestic life insurance company.
Sec. 841.403. CERTIFICATE OF AUTHORITY REQUIRED. A
subsidiary company may engage in the limited business of insurance
in this state, as described by Section 841.402(d), only if the
subsidiary company holds a certificate of authority issued under
this subchapter.
Sec. 841.404. APPLICATION FOR CERTIFICATE OF AUTHORITY.
To obtain a certificate of authority for a subsidiary company, the
domestic life insurance company that organizes a subsidiary company
shall:
(1) pay to the department:
(A) a fee in an amount prescribed by the
commissioner; and
(B) the reasonable expenses and costs incurred by
the department in examining the subsidiary company's application;
and
(2) file with the department:
(A) an application for a certificate of authority
on a form containing information required by the department;
(B) the subsidiary company's articles of
incorporation;
(C) an affidavit made by two or more of the
incorporators of the subsidiary company stating that:
(i) the subsidiary company is able to
satisfy the minimum capital and surplus requirements of this
subchapter;
(ii) the subsidiary company's capital and
surplus are the bona fide property of the subsidiary company;
(iii) the information contained in the
subsidiary's articles of incorporation is true and correct; and
(iv) the subsidiary company's investment
policy takes into consideration the liquidity of the subsidiary
company's assets and the reasonable preservation, administration,
and management of the assets with respect to the risks associated
with the subsidiary company's reinsurance contract;
(D) a copy of the subsidiary company's
reinsurance contract with the domestic life insurance company that
organized the subsidiary company, and any other agreement securing
the subsidiary company's obligations under the reinsurance
contract; and
(E) any other statement or document required by
the department.
Sec. 841.405. ISSUANCE OF CERTIFICATE OF AUTHORITY. (a)
The commissioner may issue a certificate of authority to a
subsidiary company authorizing the subsidiary company to engage in
the reinsurance business if:
(1) the commissioner finds that the terms of the
subsidiary company's reinsurance contract and any related
transactions comply with this chapter and all other applicable
provisions of this code or rules adopted under this code; and
(2) the subsidiary company maintains at least $700,000
of unimpaired paid-in capital and $700,000 of surplus.
(b) In conjunction with the issuance of a certificate of
authority under Subsection (a), the commissioner may issue any
order relating to the organization, licensing, or operation of the
subsidiary company that the commissioner deems appropriate.
Sec. 841.406. REINSURANCE. (a) A subsidiary company may
purchase reinsurance under which the risks assumed under a
reinsurance contract with the domestic life insurance company that
organized the subsidiary company are ceded to the reinsurer.
(b) Unless approved in advance by the commissioner, a
subsidiary company may not assume or retain exposure to reinsurance
losses for the account of the subsidiary company, unless the
exposure is funded by:
(1) proceeds from a securitization;
(2) premium and other amounts payable to the domestic
life insurance company that organized the subsidiary company under
the applicable reinsurance contract;
(3) a letter of credit;
(4) a guarantee of a parent organization; or
(5) a return on investment of the items described by
Subdivision (1) or (2).
(c) A subsidiary company may enter into a contract or
conduct other commercial activities necessary to fulfill the
purposes of a reinsurance contract, an insurance securitization, or
this chapter, if the activity is approved in advance by the
commissioner. Commercial activities described by this subsection
include:
(1) entering into a reinsurance contract;
(2) issuing securities;
(3) complying with the terms of contracts or
securities;
(4) entering into a trust, guaranteed investment
contract, swap, or other derivative, tax, administration, service
reimbursement, or fiscal agent transaction;
(5) complying with trust indenture, reinsurance, or
retrocession; or
(6) entering into another agreement necessary or
incidental to effect a reinsurance contract or an insurance
securitization in compliance with this chapter.
(d) Unless otherwise approved in advance by the
commissioner, a reinsurance contract may not contain a provision
for payment by the subsidiary company to any person other than the
domestic life insurance company that organized the subsidiary
company, or any receiver of that company, for the discharge of the
subsidiary company's obligations under the reinsurance contract.
Sec. 841.407. REVOCATION OF CERTIFICATE OF AUTHORITY. The
department shall revoke a subsidiary company's certificate of
authority if the subsidiary company fails to maintain unimpaired
paid-in capital and surplus in the amounts required under Section
841.405(a)(2).
Sec. 841.408. DIVIDENDS AND DISTRIBUTIONS. (a) A
subsidiary company may pay a dividend or distribution if the
dividend or distribution:
(1) does not decrease the subsidiary company's
unimpaired paid-in capital and surplus below the minimum amounts
required under Section 841.405(a)(2); and
(2) does not impair the subsidiary company's ability
to fulfill the subsidiary company's obligations under the
reinsurance contract.
(b) A subsidiary company shall notify the commissioner at
least 15 days before the subsidiary company issues a dividend or
distribution. The notice must include:
(1) the amount of the dividend or distribution to be
issued; and
(2) a statement signed by an officer of the subsidiary
company that the dividend or distribution meets the requirements of
Subsection (a).
Sec. 841.409. REQUIRED REPORTS AND NOTICE BY SUBSIDIARY
COMPANY. (a) Not later than the 45th day after the closing date of a
securitization, a subsidiary company shall provide the
commissioner with a copy of a complete set of executed documents for
the issuance of the securitization.
(b) In the event of a material change in the financial
condition or management of a subsidiary company, the subsidiary
company shall notify the commissioner in writing not later than the
fifth day after the date the material change occurs.
(c) A subsidiary company shall file with the commissioner:
(1) an annual actuarial opinion prepared by an actuary
employed by the subsidiary company that complies with the
requirements of Section 425.054, regarding the subsidiary
company's reserves for all risks assumed by the subsidiary company
under the subsidiary company's reinsurance contract;
(2) a biennial actuarial opinion prepared by an
independent actuary that complies with the rules of the
commissioner, regarding the methods and assumptions used by the
subsidiary company to set reserves; and
(3) an annual report of the subsidiary company's
risk-based capital level as of the end of the preceding calendar
year.
(d) A subsidiary company shall notify the commissioner
immediately of any action by a domestic life insurance company or
other person to foreclose on, or otherwise take possession of,
collateral provided by the subsidiary company to secure an
obligation of the subsidiary company.
(e) Notwithstanding Section 802.052 or any other law, a
subsidiary company is not required to file a report, notice, or
other document with the National Association of Insurance
Commissioners unless required by the commissioner.
Sec. 841.410. PRIOR APPROVAL OF CERTAIN PAYMENTS. (a) A
subsidiary company shall submit to the commissioner for prior
approval a written request for authorization to make a payment of
interest on, or a repayment of principal of, surplus notes and other
debt obligations issued by the subsidiary company.
(b) The commissioner shall approve the payment described by
Subsection (a) unless the commissioner determines that the payment
would impair the ability of the subsidiary company or another
person to fulfill the obligations of the subsidiary company or
other person.
Sec. 841.411. SECURITIZATION AGREEMENTS. A document issued
by a subsidiary company to prospective investors regarding the
offer and sale of a surplus note or other security must include a
disclosure that all or part of the proceeds of the securitization
will be used to fund the subsidiary company's obligations under a
reinsurance contract with the domestic life insurance company that
organized the subsidiary company.
Sec. 841.412. ADMITTED ASSETS. (a) The admitted assets of a
subsidiary company must include:
(1) proceeds from a securitization;
(2) a premium or other amount payable to the
subsidiary company by the domestic life insurance company that
organized the subsidiary company;
(3) a letter of credit;
(4) a guarantee of a parent company; or
(5) any other asset approved by the commissioner.
(b) Except as provided by Subsection (c), the commissioner
may reduce the amount of admitted assets previously approved by the
commissioner, if the commissioner determines that the value of
those assets has decreased.
(c) The commissioner may not reduce the amount of admitted
assets previously approved by the commissioner if the asset is
covered by the Accounting Practices and Procedures Manual of the
National Association of Insurance Commissioners.
(d) The commissioner shall notify a subsidiary company at
least 30 days before the commissioner reduces the amount of
previously approved admitted assets under Subsection (b). The
notice provided by the commissioner under this subsection must
identify the reasons for the reduction and give the subsidiary
company an opportunity to remedy any issues or deficiencies
identified by the commissioner.
Sec. 841.413. LOANS. (a) A subsidiary company may not make
a loan or an investment in another entity unless:
(1) the commissioner first approves the loan or
investment; and
(2) the loan is evidenced by documentation approved by
the commissioner.
(b) A subsidiary company may issue a loan from the
subsidiary company's minimum capital and surplus.
Sec. 841.414. SECURITIES. (a) A security issued by a
subsidiary company is not subject to regulation as an insurance or
reinsurance contract, and an investor or holder of a security
issued by a subsidiary company may not be considered to be
conducting the business of insurance in this state solely by reason
of having an interest in the security.
(b) An underwriter's placement or selling agent, partner,
commissioner, officer, member, manager, employee, representative,
or advisor involved in an insurance securitization by a subsidiary
company may not be considered to be an insurance producer or broker,
or to be conducting the business of insurance or reinsurance,
solely by virtue of participating in underwriting activities
relating to the securitization.
Sec. 841.415. CERTIFICATION OF ACTUARIAL OFFICER. (a) At
the time a domestic life insurance company files for a certificate
of authority for a subsidiary company under Section 841.404, and by
not later than the March 31 following the date on which the domestic
life insurance company cedes business to the subsidiary company,
the domestic life insurance company shall file with the
commissioner a certification by a senior actuarial officer that the
domestic life insurance company's transactions with a subsidiary
company are not being used to an unfair advantage in the pricing of
the domestic life insurance company's products.
(b) A domestic life insurance company may not be deemed as
having an unfair advantage if the pricing of the policies and
contracts reinsured by the subsidiary company:
(1) reflects, at the time the policies and contracts
were issued, a reasonable long-term estimate of the cost to the
domestic life insurance company of an alternative third-party
transaction; and
(2) uses current pricing assumptions.
(c) A domestic life insurance company shall maintain
documentation between examinations conducted under Subsection (a)
that sets forth the methods by which the senior actuarial officer
arrived at the conclusions in the certification.
SECTION 2. This Act takes effect January 1, 2012.