87R8801 MWC-F
By: Oliverson H.B. No. 4518
A BILL TO BE ENTITLED
AN ACT
relating to the pledge or encumbrance of an insurer's assets under
the Asset Protection Act.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Section 422.002(a), Insurance Code, is amended
to read as follows:
(a) The purposes of this chapter are to:
(1) require an insurer to maintain unencumbered assets
in an amount equal to the insurer's policy reserve liabilities;
(2) provide preferential claims against assets in
favor of an owner, beneficiary, assignee, certificate holder, or
third-party beneficiary of an insurance policy; and
(3) prevent the pledge or encumbrance of assets in
excess of certain amounts without a prior written order of the
commissioner.
SECTION 2. Sections 422.003(1) and (4), Insurance Code, are
amended to read as follows:
(1) "Asset" means any property in which an insurer
owns a legal or equitable interest that is reported as an asset in
the domestic insurer's statutory financial statements most
recently filed with the department.
(4) "Policy reserve [Reserve] liabilities" means the
liabilities that an insurer is required under this code to
establish for all of the insurer's outstanding insurance policies.
SECTION 3. Section 422.005(a), Insurance Code, is amended
to read as follows:
(a) This chapter does not apply to:
(1) variable contracts for which separate accounts are
required to be maintained;
(2) a reinsurance agreement and [or] any trust account
related to the reinsurance agreement if the reinsurance agreement
and related trust account meet the requirements of Chapter 493;
(3) an assessment-as-needed company or insurance
coverage written by an assessment-as-needed company;
(4) an insurer while:
(A) the insurer is subject to a conservatorship
order issued by the commissioner; or
(B) a court-appointed receiver is in charge of
the insurer's affairs; [or]
(5) an insurer's reserve assets that are held,
deposited, pledged, or otherwise encumbered to secure, offset,
protect, or meet the insurer's policy reserve liabilities
established in a reinsurance agreement under which the insurer
reinsures the insurance policy liabilities of a ceding insurer if:
(A) the ceding insurer and the reinsurer are
authorized to engage in business in this state; and
(B) in accordance with a written agreement
between the ceding insurer and the reinsurer, reserve assets
substantially equal to the policy reserve liabilities the reinsurer
must establish on the reinsured business are:
(i) deposited by or withheld from the
reinsurer and held in the custody of the ceding insurer, or
deposited and held in a trust account with a state or national bank
domiciled in this state, as security for the payment of the
reinsurer's obligations under the reinsurance agreement;
(ii) held subject to withdrawal by the
ceding insurer; and
(iii) held under the separate or joint
control of the ceding insurer; or
(6) any pledge, encumbrance, or lien contemplated by
or customarily included in the documentation for:
(A) an investment or transaction authorized by:
(i) Section 424.068, Subchapter D, Chapter
424, or Section 425.121 or 425.151; or
(ii) Section 424.068, Subchapter E, Chapter
424, or Section 425.124, 425.125, 425.126, 425.127, 425.128,
425.129, 425.130, 425.131, or 425.132; and
(B) a custodial or trust agreement for an
insurer's securities authorized by Section 423.103 that provides
for a limited grant or lien or security interest for payment of fees
and expenses due to a service provider or intermediary under the
custodial or trust agreement.
SECTION 4. Subchapter A, Chapter 422, Insurance Code, is
amended by adding Section 422.007 to read as follows:
Sec. 422.007. RULES. The commissioner may adopt rules
regarding the provisions of this chapter.
SECTION 5. Section 422.051, Insurance Code, is amended by
amending Subsection (a) and adding Subsections (b-1) and (b-2) to
read as follows:
(a) An insurer shall at all times maintain unencumbered
assets in an amount equal to the insurer's policy reserve
liabilities.
(b-1) The calculation of the quantitative limits in
Subsections (a) and (b) must be based on the statutory financial
statements for the insurer most recently filed with the department
as of the date compliance is determined. The date that a pledge or
encumbrance is made is the date used to determine compliance with
the limits in Subsection (b).
(b-2) Compliance with the quantitative limits in Subsection
(b) is achieved when, on the date of determination of compliance,
the sum of the value of a proposed pledge or encumbrance, when added
to the values of the sum of all previous and still outstanding
pledges and encumbrances, does not exceed any quantitative limit in
Subsection (b).
SECTION 6. Section 422.052, Insurance Code, is amended by
amending Subsection (b) and adding Subsection (c) to read as
follows:
(b) Annually, or more often as required by the commissioner,
the insurer shall file with the commissioner a statement sworn to by
the insurer's chief executive officer that:
(1) title to assets that equal the amount of the
insurer's policy reserve liabilities and that are not pledged or
otherwise encumbered is vested in the insurer;
(2) the only assets of the insurer that are pledged or
otherwise encumbered are those identified and reported in the sworn
statement, and no other assets of the insurer are pledged or
otherwise encumbered; and
(3) the terms of the transaction pledging or otherwise
encumbering the assets are those reported in the sworn statement.
(c) The insurer is not required to file the report described
by Subsection (a) for a pledge or encumbrance permitted in a
transaction approved by the commissioner under Section 1152.055.
SECTION 7. Section 422.053, Insurance Code, is amended to
read as follows:
Sec. 422.053. CLAIMANT LIEN ON CERTAIN ASSETS. (a) A
person, corporation, association, governmental entity, or any
other legal entity that accepts as security for an insurer's debt or
other obligation a pledge or encumbrance of an asset of the insurer
that is not made in accordance with this chapter is considered to
have accepted the asset subject to a superior, preferential, and
automatically perfected lien in favor of a claimant of the insurer.
(b) Subsection (a) does not apply to:
(1) an asset of an insurer in conservatorship or
receivership if the commissioner in the conservatorship
proceeding, or the court in which the receivership is pending,
approves the pledge or encumbrance of the asset; or
(2) a pledge or encumbrance of an asset permitted in a
transaction approved by the commissioner under Section 1152.055.
SECTION 8. Section 422.054, Insurance Code, is amended to
read as follows:
Sec. 422.054. PREFERENTIAL CLAIMS ON LIQUIDATION. If an
insurer is involuntarily or voluntarily liquidated, a claimant of
the insurer has a prior and preferential claim against all assets of
the insurer other than the assets that have been pledged or
encumbered in accordance with this chapter or the assets that are
subject to a pledge or encumbrance of an asset described by Section
422.053(b)(2). All claimants have equal status, and their prior
and preferential claim is superior to any claim or cause of action
against the insurer by any other person, corporation, association,
or legal entity.
SECTION 9. This Act takes effect September 1, 2021.