84R11360 LED-F
By: Frullo H.B. No. 3238
A BILL TO BE ENTITLED
AN ACT
relating to the regulation of funding agreements, guaranteed
investment contracts, and synthetic guaranteed investment
contracts issued by a life insurer.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Section 443.301, Insurance Code, is amended to
read as follows:
Sec. 443.301. PRIORITY OF DISTRIBUTION. The priority of
payment of distributions on unsecured claims must be in accordance
with the order in which each class of claims is set forth in this
section. Every claim in each class shall be paid in full, or
adequate funds retained for their payment, before the members of
the next class receive payment, and all claims within a class must
be paid substantially the same percentage of the amount of the
claim. Except as provided by Subsections (a)(2), (a)(3), (i), and
(k), subclasses may not be established within a class. No claim by a
shareholder, policyholder, or other creditor shall be permitted to
circumvent the priority classes through the use of equitable
remedies. The order of distribution of claims shall be:
(a) Class 1. (1) The costs and expenses of administration
expressly approved or ratified by the liquidator, including the
following:
(A) the actual and necessary costs of preserving
or recovering the property of the insurer;
(B) reasonable compensation for all services
rendered on behalf of the administrative supervisor or receiver;
(C) any necessary filing fees;
(D) the fees and mileage payable to witnesses;
(E) unsecured loans obtained by the receiver; and
(F) expenses, if any, approved by the
rehabilitator of the insurer and incurred in the course of the
rehabilitation that are unpaid at the time of the entry of the order
of liquidation.
(2) The reasonable expenses of a guaranty association,
including overhead, salaries and other general administrative
expenses allocable to the receivership to include administrative
and claims handling expenses and expenses in connection with
arrangements for ongoing coverage, other than expenses incurred in
the performance of duties under Section 462.002(3), 463.108,
463.111, 463.113, 463.353, or 2602.113 or similar duties under the
statute governing a similar organization in another state. In the
case of the Texas Property and Casualty Insurance Guaranty
Association and other property and casualty guaranty associations,
the expenses shall include loss adjustment expenses, including
adjusting and other expenses and defense and cost containment
expenses. In the event that there are insufficient assets to pay
all of the costs and expenses of administration under Subsection
(a)(1) and the expenses of a guaranty association, the costs and
expenses under Subsection (a)(1) shall have priority over the
expenses of a guaranty association. In this event, the expenses of
a guaranty association shall be paid on a pro rata basis after the
payment of costs and expenses under Subsection (a)(1) in full.
(3) For purposes of Subsection (a)(1)(E), any
unsecured loan obtained by the receiver, unless by its terms it
otherwise provides, has priority over all other costs of
administration. Absent agreement to the contrary, all claims in
this subclass share pro rata.
(4) Except as expressly approved by the receiver, any
expenses arising from a duty to indemnify the directors, officers,
or employees of the insurer are excluded from this class and, if
allowed, are Class 5 claims.
(b) Class 2. (1) All claims under policies of insurance
and annuity contracts, including funding agreements, guaranteed
investment contracts, synthetic guaranteed investment contracts,
third-party claims, claims under nonassessable policies for
unearned premium, claims of obligees and, subject to the discretion
of the receiver, completion contractors under surety bonds and
surety undertakings other than bail bonds, mortgage or financial
guaranties, or other forms of insurance offering protection against
investment risk, claims by principals under surety bonds and surety
undertakings for wrongful dissipation of collateral by the insurer
or its agents, and claims incurred during the extension of coverage
provided for in Section 443.152. For purposes of this subdivision,
"annuity contract," "funding agreement," "guaranteed investment
contract," and "synthetic guaranteed investment contract" have the
meanings assigned by Section 1154.003.
(2) All other claims incurred in fulfilling the
statutory obligations of a guaranty association not included in
Class 1, including indemnity payments on covered claims and, in the
case of the Life, Accident, Health, and Hospital Service Insurance
Guaranty Association or another life and health guaranty
association, all claims as a creditor of the impaired or insolvent
insurer for all payments of and liabilities incurred on behalf of
covered claims or covered obligations of the insurer and for the
funds needed to reinsure those obligations with a solvent insurer.
(3) Claims for benefits under a health care plan
issued by a health maintenance organization.
(4) Claims under insurance policies or contracts for
benefits issued by an unauthorized insurer.
(5) Notwithstanding any provision of this chapter, the
following claims are excluded from Class 2 priority:
(A) obligations of the insolvent insurer arising
out of reinsurance contracts;
(B) obligations, excluding unearned premium
claims on policies other than reinsurance agreements, incurred
after:
(i) the expiration date of the insurance
policy;
(ii) the policy has been replaced by the
insured or canceled at the insured's request; or
(iii) the policy has been canceled as
provided by this chapter;
(C) obligations to insurers, insurance pools, or
underwriting associations and their claims for contribution,
indemnity, or subrogation, equitable or otherwise;
(D) any claim that is in excess of any applicable
limits provided in the insurance policy issued by the insurer;
(E) any amount accrued as punitive or exemplary
damages unless expressly covered under the terms of the policy;
(F) tort claims of any kind against the insurer
and claims against the insurer for bad faith or wrongful settlement
practices; and
(G) claims of the guaranty associations for
assessments not paid by the insurer, which must be paid as claims in
Class 5.
(c) Class 3. Claims of the federal government not included
in Class 2.
(d) Class 4. Debts due employees for services or benefits
to the extent that the debts do not exceed $5,000 or two months
salary, whichever is the lesser, and represent payment for services
performed within one year before the entry of the initial order of
receivership. This priority is in lieu of any other similar
priority that may be authorized by law as to wages or compensation
of employees.
(e) Class 5. Claims of other unsecured creditors not
included in Classes 1 through 4, including claims under reinsurance
contracts, claims of guaranty associations for assessments not paid
by the insurer, and other claims excluded from Class 2.
(f) Class 6. Claims of any state or local governments,
except those specifically classified elsewhere in this section.
Claims of attorneys for fees and expenses owed them by an insurer
for services rendered in opposing a formal delinquency proceeding.
In order to prove the claim, the claimant must show that the insurer
that is the subject of the delinquency proceeding incurred the fees
and expenses based on its best knowledge, information, and belief,
formed after reasonable inquiry, indicating opposition was in the
best interests of the insurer, was well grounded in fact, and was
warranted by existing law or a good faith argument for the
extension, modification, or reversal of existing law, and that
opposition was not pursued for any improper purpose, such as to
harass or to cause unnecessary delay or needless increase in the
cost of the litigation.
(g) Class 7. Claims of any state or local government for a
penalty or forfeiture, but only to the extent of the pecuniary loss
sustained from the act, transaction, or proceeding out of which the
penalty or forfeiture arose, with reasonable and actual costs
occasioned thereby. The balance of the claims must be treated as
Class 9 claims under Subsection (i).
(h) Class 8. Except as provided in Sections 443.251(b) and
(d), late filed claims that would otherwise be classified in
Classes 2 through 7.
(i) Class 9. Surplus notes, capital notes or contribution
notes or similar obligations, premium refunds on assessable
policies, and any other claims specifically assigned to this class.
Claims in this class are subject to any subordination agreements
related to other claims in this class that existed before the entry
of the liquidation order.
(j) Class 10. Interest on allowed claims of Classes 1
through 9, according to the terms of a plan proposed by the
liquidator and approved by the receivership court.
(k) Class 11. Claims of shareholders or other owners
arising out of their capacity as shareholders or other owners, or
any other capacity, except as they may be qualified in Class 2, 5,
or 10. Claims in this class are subject to any subordination
agreements related to other claims in this class that existed
before the entry of the liquidation order.
SECTION 2. Subtitle C, Title 7, Insurance Code, is amended
by adding Chapter 1154 to read as follows:
CHAPTER 1154. FUNDING AGREEMENTS, GUARANTEED INVESTMENT CONTRACTS,
AND SYNTHETIC GUARANTEED INVESTMENT CONTRACTS
SUBCHAPTER A. GENERAL PROVISIONS
Sec. 1154.001. SHORT TITLE. This chapter may be cited as
the Act for the Regulation of Funding Agreements, Guaranteed
Investment Contracts, and Synthetic Guaranteed Investment
Contracts.
Sec. 1154.002. PURPOSE; LEGISLATIVE INTENT; CONSTRUCTION.
(a) The purpose of this chapter is to:
(1) promote the public welfare by regulating funding
agreements, guaranteed investment contracts, and synthetic
guaranteed investment contracts; and
(2) clarify and codify the existing law pertaining to
funding agreements, guaranteed investment contracts, and synthetic
guaranteed investment contracts.
(b) This chapter shall be liberally construed.
Sec. 1154.003. DEFINITIONS. In this chapter:
(1) "Allocated group annuity contract" means a group
annuity contract or group annuity certificate under which the life
insurer establishes and maintains individual account records and
investment account balances for the group participants to allocate
and guarantee a specific payment amount to each group member.
(2) "Annuity contract" means a contract, including a
funding agreement, guaranteed investment contract, and synthetic
guaranteed investment contract, issued by a life insurer, with or
without a mortality or morbidity contingency, under which:
(A) the owner deposits cash or assets in one or
more installments with the life insurer; and
(B) the owner or a beneficiary designated by the
owner has a right to receive periodic payments for a specified
future term.
(3) "Funding agreement" means a type of annuity
contract under which a life insurer:
(A) accepts and accumulates funds, including
noncash assets; and
(B) makes one or more payments at a future date in
amounts that are not based on mortality or morbidity contingencies.
(4) "Governmental body" means a federal, state,
municipal, local, or foreign court, tribunal, governmental
department, commission, board, bureau, agency, authority,
instrumentality, regulatory body, or quasi-regulatory body.
(5) "Group" means a group to which a group life
insurance policy may be issued under Subchapter B, Chapter 1131.
(6) "Group annuity certificate" means a certificate
issued to a group member in connection with the group member's group
annuity contract.
(7) "Group annuity contract" means an annuity contract
issued to a group and not an individual.
(8) "Guaranteed investment contract" means a type of
annuity contract issued by a life insurer:
(A) that is a funding vehicle typically issued to
a retirement plan; and
(B) under which the life insurer accepts a
deposit or series of deposits from the purchaser and guarantees to
pay a specified interest rate of return on the funds deposited
during a specified period.
(9) "Life insurer" means an insurance company
authorized to engage in the business of life insurance, including
issuing annuity contracts, in this state.
(10) "Synthetic guaranteed investment contract" means
a group annuity contract or other agreement issued by a life insurer
that, wholly or partly, establishes the life insurer's obligations
by reference to a segregated portfolio of assets that the life
insurer does not own.
(11) "Unallocated group annuity contract" means a
group annuity contract or group annuity certificate that is not
issued to and owned by an individual, except to the extent of any
annuity benefits guaranteed to an individual by an insurer under
the contract or certificate.
Sec. 1154.004. APPLICABILITY OF CERTAIN OTHER LAW.
Chapters 521, 1107, 1115, and 1131 do not apply to funding
agreements or guaranteed investment contracts without mortality or
morbidity contingencies.
Sec. 1154.005. RULES. The commissioner may adopt rules to
implement or clarify this chapter.
SUBCHAPTER B. FUNDING AGREEMENTS
Sec. 1154.051. ESTABLISHMENT OF FUNDING AGREEMENTS. (a) A
life insurer may issue a funding agreement to generate an income
stream for the purchaser of the agreement or fund a future liability
of the purchaser or the purchaser's designee. A life insurer may
issue a funding agreement to:
(1) an accredited investor, as defined by 17 C.F.R.
Section 230.501; or
(2) a governmental body.
(b) A life insurer that issues a funding agreement in this
state engages in the business of insurance for the purpose of
regulation.
SUBCHAPTER C. GUARANTEED INVESTMENT CONTRACTS
Sec. 1154.101. ESTABLISHMENT OF GUARANTEED INVESTMENT
CONTRACTS. A life insurer may issue a guaranteed investment
contract to provide a benefit in a fixed amount or a variable amount
or a fixed amount and a variable amount. A life insurer may issue a
guaranteed investment contract to a group as an allocated or
unallocated group annuity contract.
SECTION 3. This Act takes effect September 1, 2015.