By: Lucio III (Senate Sponsor - Creighton) H.B. No. 2694
(In the Senate - Received from the House April 29, 2019;
April 29, 2019, read first time and referred to Committee on
Business & Commerce; May 9, 2019, reported adversely, with
favorable Committee Substitute by the following vote: Yeas 8,
Nays 0; May 9, 2019, sent to printer.)
Click here to see the committee vote
COMMITTEE SUBSTITUTE FOR H.B. No. 2694 By: Creighton
A BILL TO BE ENTITLED
AN ACT
relating to the authority of certain insurers to make investments
in bond exchange-traded funds.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Subchapter B, Chapter 424, Insurance Code, is
amended by adding Section 424.075 to read as follows:
Sec. 424.075. AUTHORIZED INVESTMENTS: BOND EXCHANGE-TRADED
FUNDS. (a) An insurer may invest the insurer's funds in excess of
minimum capital and surplus in shares of a bond exchange-traded
fund registered under the Investment Company Act of 1940 (15 U.S.C.
Section 80a-1 et seq.), as amended, if:
(1) the exchange-traded fund is solvent and reported
at least $100 million of net assets in the exchange-traded fund's
latest annual or more recent certified audited financial statement;
(2) the securities valuation office has designated the
exchange-traded fund as meeting the criteria to be placed on the
list promulgated by the securities valuation office of
exchange-traded funds eligible for reporting as a statutory
long-term bond obligation on Internal Revenue Service Form 1040,
Schedule D; and
(3) the amount of the insurer's investment in the
exchange-traded fund does not exceed 15 percent of the insurer's
capital and surplus.
(b) This section does not authorize an insurer to invest in
a bond exchange-traded fund that has:
(1) embedded structural features designed to deliver
performance that does not track the full unlevered and positive
return of the underlying index or exposure, including a leveraged
or inverse exchange-traded fund; or
(2) an expense ratio in excess of 100 basis points.
(c) An insurer may deposit with the department shares of a
bond exchange-traded fund described by Subsection (a) as a
statutory deposit if state law requires a statutory deposit from
the insurer.
SECTION 2. Subchapter C, Chapter 425, Insurance Code, is
amended by adding Section 425.1231 to read as follows:
Sec. 425.1231. AUTHORIZED INVESTMENTS: BOND
EXCHANGE-TRADED FUNDS. (a) An insurance company may invest the
insurer's funds in excess of minimum capital and surplus in shares
of a bond exchange-traded fund registered under the Investment
Company Act of 1940 (15 U.S.C. Section 80a-1 et seq.), as amended,
if:
(1) the exchange-traded fund is solvent and reported
at least $100 million of net assets in the exchange-traded fund's
latest annual or more recent certified audited financial statement;
(2) the securities valuation office has designated the
exchange-traded fund as meeting the criteria to be placed on the
list promulgated by the securities valuation office of
exchange-traded funds eligible for reporting as a statutory
long-term bond obligation on Internal Revenue Service Form 1040,
Schedule D; and
(3) the amount of the insurance company's investment
in the exchange-traded fund does not exceed 15 percent of the
insurance company's capital and surplus.
(b) This section does not authorize an insurance company to
invest in a bond exchange-traded fund that has:
(1) embedded structural features designed to deliver
performance that does not track the full unlevered and positive
return of the underlying index or exposure, including a leveraged
or inverse exchange-traded fund; or
(2) an expense ratio in excess of 100 basis points.
(c) A bond exchange-traded fund described by Subsection (a)
shall be considered a business entity for purposes of Section
425.110.
(d) An insurance company may deposit with the department
shares of a bond exchange-traded fund described by Subsection (a)
as a statutory deposit if state law requires a statutory deposit
from the insurance company.
SECTION 3. This Act takes effect September 1, 2019.
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