By: Cook, Oliverson H.B. No. 4498
A BILL TO BE ENTITLED
AN ACT
relating to the transfer and statutory novation of insurance
policies from a transferring insurer to an assuming insurer through
an insurance business transfer plan; authorizing fees.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Subtitle A, Title 6, Insurance Code, is amended
by adding Chapter 806 to read as follows:
CHAPTER 806. INSURANCE BUSINESS TRANSFERS
SUBCHAPTER A. GENERAL PROVISIONS
Sec. 806.001. DEFINITIONS. In this chapter:
(1) "Affiliate" means a person that directly or
indirectly through one or more intermediaries controls, is
controlled by, or is under common control with a specified person.
(2) "Applicant" means an assuming insurer, a
transferring insurer, or a reinsurer applying under Subchapter B.
(3) "Assuming insurer" means an insurer domiciled in
this state that assumes or seeks to assume policies from a
transferring insurer under this chapter. An assuming insurer may
be a captive insurance company established under Chapter 964.
(4) "Implementation order" means an order issued by
the court under Section 806.104.
(5) "Insurance business transfer" means a transfer and
novation by a transferring insurer to an assuming insurer made
under this chapter.
(6) "Insurance business transfer plan" means the plan
submitted to the department to accomplish an insurance business
transfer, including any associated transfer of assets and rights
from or on behalf of the transferring insurer to the assuming
insurer.
(7) "Insurer" means an insurance or surety company,
including a reinsurance company. The term includes a corporation,
company, partnership, association, society, order, individual, or
aggregation of individuals engaging in or proposing or attempting
to engage in any kind of insurance or surety business, including the
exchanging of reciprocal or interinsurance contracts between
individuals, partnerships, and corporations.
(8) "Policy" means a policy, annuity contract,
certificate of insurance, or a contract of reinsurance under which
the insurer agrees to assume an obligation, risk, or both of the
policyholder or to make payments on behalf of, or to, the
policyholder or the policyholder's beneficiaries. The term
includes property, casualty, life, health, and any other line of
insurance the commissioner finds is suitable for an insurance
business transfer.
(9) "Policyholder" means an insured or a reinsured
under a policy that is part of the subject business.
(10) "Subject business" means the policy or policies
that are the subject of the insurance business transfer plan.
(11) "Transfer and novation" means the transfer of
insurance obligations, risks, or both of existing or in-force
policies from a transferring insurer to an assuming insurer that is
intended to effect a novation of the transferred policies that
results in the assuming insurer becoming directly liable to the
policyholders of the transferring insurer on the extinguishment of
the transferring insurer's insurance obligations, risks, or both
under the transferred policies.
(12) "Transferring insurer" means an insurer or
reinsurer that transfers and novates or seeks to transfer and
novate obligations, risks, or both under one or more policies to an
assuming insurer under an insurance business transfer plan.
Sec. 806.002. CONSENT TO ONGOING COMMISSIONER OVERSIGHT.
An insurer subject to this chapter is considered to consent to the
jurisdiction of the commissioner with regard to ongoing oversight
of operations, management, and solvency relating to the transferred
business, including the authority of the commissioner to conduct
financial analysis and examinations.
Sec. 806.003. AUTHORITY OF COURT. Notwithstanding any
other law, a court may issue an order, process, or judgment that is
necessary or appropriate to carry out this chapter. This chapter
may not be construed to preclude a court from, on the court's own
motion, taking any action or making any determination necessary or
appropriate to enforce or implement an order or rule of the court or
to prevent an abuse of power.
Sec. 806.004. NOTICE REQUIREMENTS. (a) When notice is
required to be given by the applicant under this chapter and except
as otherwise permitted or directed by a court or the commissioner,
the applicant shall provide the notice not later than the 45th day
after the date of the event that requires notice:
(1) to the chief insurance regulator in each
jurisdiction in which:
(A) the applicant holds or has ever held a
certificate of authority; and
(B) policies that are part of the subject
business were issued or policyholders currently reside;
(2) to the National Conference of Insurance Guaranty
Funds, the National Organization of Life and Health Insurance
Guaranty Associations, and each state insurance guaranty
association for a state in which:
(A) the applicant holds or has ever held a
certificate of authority; and
(B) policies that are part of the subject
business were issued or policyholders currently reside;
(3) to each reinsurer of the applicant:
(A) under the notice provisions of each
reinsurance agreement applicable to the policies that are part of
the subject business; or
(B) if a reinsurance agreement does not have a
notice provision, by an internationally recognized delivery
service;
(4) to each policyholder holding a policy that is part
of the subject business, at the policyholder's last known address
as indicated by the records of the applicant or to the address to
which premium notices or other policy documents are sent, and for a
notice of transfer, to the transferring insurer's agents or brokers
of record on the subject business; and
(5) by publication in:
(A) a newspaper of general circulation in the
state in which the applicant has the applicant's principal place of
business; and
(B) each publication required by the
commissioner.
(b) If notice is provided in accordance with this section,
an intended recipient of the notice is considered to have received
the notice for purposes of this chapter, regardless of whether the
recipient received actual notice, and the intended recipient may
not raise notice to challenge an order issued under this chapter.
(c) The commissioner shall provide the required notice in
accordance with this section on behalf of an applicant for which the
commissioner has been named as receiver.
(d) Notice under this section may be provided by first-class
mail, facsimile, or electronic means.
Sec. 806.005. RULEMAKING AUTHORITY. The commissioner may
adopt rules consistent with this chapter as necessary to implement
this chapter.
Sec. 806.006. CONFIDENTIALITY. The status of any part of an
application for an insurance business transfer as confidential at
the time of application, including any documents, materials,
communications, or other information submitted to the commissioner
in contemplation of the application, is not affected by the process
provided by this chapter.
SUBCHAPTER B. INITIAL APPLICATION; COMMISSIONER REVIEW
Sec. 806.051. COMMISSIONER AND COURT APPROVAL REQUIRED.
After obtaining an independent expert report under Section 806.052,
an applicant shall file an insurance business transfer plan with:
(1) the commissioner for review and approval under
this subchapter; and
(2) a court for approval under Subchapter C on
receiving the commissioner's approval.
Sec. 806.052. INDEPENDENT EXPERT; REPORT. (a) The
commissioner shall appoint an independent expert from a list of at
least two nominees, submitted jointly by the transferring insurer
and the assuming insurer, to assist the commissioner and the court
in connection with the commissioner's and the court's review of a
proposed insurance business transfer. The commissioner may, in the
commissioner's sole discretion, reject the nominees and appoint
another person as the independent expert.
(b) The independent expert must be an impartial person who:
(1) has no financial interest in either the assuming
insurer or transferring insurer;
(2) has not been employed by or acted as an officer,
director, consultant, or other independent contractor for either
the assuming insurer or transferring insurer during the preceding
12 months;
(3) is not appointed by the commissioner to assist in
any capacity in an insurer rehabilitation or delinquency
proceeding;
(4) receives no compensation in connection with the
applicable transaction under this chapter, other than a fee based
on a fixed or hourly basis that is not contingent on the approval or
completion of the insurance business transfer; and
(5) provides proof of insurance coverage that is
satisfactory to the commissioner.
(c) The independent expert shall submit a report to the
commissioner in the form and manner prescribed by the commissioner
regarding the proposed insurance business transfer. The report
must include:
(1) a summary of the terms of the insurance business
transfer plan to the extent relevant to the independent expert's
report;
(2) the scope of the independent expert's report;
(3) an analysis of the transferring insurer's
actuarial review of reserves for the subject business to determine
the reserve adequacy;
(4) an analysis of the financial conditions of the
transferring insurer and the assuming insurer and the effect the
transfer will have on the financial condition of each company;
(5) a review of the plans or proposals the assuming
insurer has with respect to the administration of the policies
subject to the transfer;
(6) a statement as to whether the transfer has a
material adverse impact on the policyholders, reinsurers, and
claimants of the transferring insurer and the assuming insurer;
(7) an analysis of the assuming insurer's corporate
governance structure to ensure that there is proper board and
management oversight and expertise to manage the subject business;
(8) the independent expert's opinion of the likely
effects of the transfer on policyholders, reinsurers, and
claimants, distinguishing between:
(A) transferring policyholders, reinsurers, and
claimants;
(B) policyholders, reinsurers, and claimants of
the transferring insurer whose policies will not be transferred;
and
(C) policyholders, reinsurers, and claimants of
the assuming insurer;
(9) consideration of whether the security positions of
policyholders that are affected by the transfer are materially
adversely affected by the transfer;
(10) a statement of the independent expert's
professional qualifications and a description of the experience
that qualifies the independent expert as an expert suitable for the
appointment;
(11) a statement of whether the independent expert
has, or has had, a direct or indirect interest in the transferring
insurer or the assuming insurer or an affiliate of the transferring
insurer or the assuming insurer;
(12) a list and summary of each document, report, and
other material information the independent expert considered in
preparing the report and whether any information requested was not
provided;
(13) the extent to which the independent expert relied
on information provided by or the judgment of another person;
(14) each person on whom the independent expert has
relied and why, in the independent expert's opinion, that reliance
is reasonable;
(15) for each opinion that the independent expert
expresses in the report, the facts and circumstances supporting the
opinion; and
(16) any other information the commissioner requests
be included in the report for purposes of reviewing the transfer.
Sec. 806.053. APPLICATION REQUIREMENTS. (a) An insurance
business transfer plan submitted for commissioner approval must
include the following information or an explanation of why the
information is not included:
(1) the name, address, and telephone number and the
direct and indirect controlling persons, if any, of the
transferring insurer and the assuming insurer;
(2) a summary of the plan;
(3) identification and description of the subject
business;
(4) the most recent audited financial statements and
statutory annual and quarterly reports of the transferring insurer
and the assuming insurer filed with each insurer's domiciliary
regulator;
(5) the most recent actuarial report and opinion that
quantify the liabilities associated with the subject business;
(6) pro forma financial statements showing the
projected statutory balance sheet, results of operations, and cash
flows of the assuming insurer for the three years following the
proposed transfer and novation;
(7) officers' certificates of the transferring insurer
and the assuming insurer attesting that each has obtained all
required internal approvals and authorizations regarding the plan
and completed all necessary and appropriate actions relating to the
plan;
(8) a proposal for plan implementation and
administration, including the form of notice to be provided under
the plan to a policyholder whose policy is part of the subject
business;
(9) a full description of how notice will be provided;
(10) a description of any reinsurance arrangements
that would pass to the assuming insurer under the plan;
(11) a description of any guarantee or additional
reinsurance that will cover the subject business following the
transfer and novation;
(12) a description of the assuming insurer's proposed
investment policies and any contemplated third-party claims
management and administration arrangements;
(13) a description of how the transferring insurer and
the assuming insurer will be licensed for guaranty association
coverage purposes;
(14) evidence of approval of or non-objection to the
transfer from the chief insurance regulator of the state of the
transferring insurer's domicile; and
(15) the report of the independent expert prepared
under Section 806.052.
(b) The commissioner may require an insurance business
transfer plan submitted under Subsection (a) to include additional
information the commissioner considers necessary for the plan's
review and approval.
Sec. 806.054. COMMISSIONER REVIEW. (a) Not later than the
60th business day after the date of receipt of a complete insurance
business transfer plan, the commissioner shall review the plan and
determine whether the applicant is authorized to submit the plan to
a court. The commissioner may extend the review period for an
additional 30 business days.
(b) The commissioner shall authorize the submission of the
insurance business transfer plan to the court unless the
commissioner finds that the transfer would have a material adverse
impact on the interests of policyholders, reinsurers, or claimants
that are part of the subject business.
(c) If the commissioner determines that the insurance
business transfer would have a material adverse impact on the
interests of policyholders, reinsurers, or claimants that are part
of the subject business, the commissioner shall notify the
applicant and specify any modifications, supplements, amendments,
or additional information or documentation with respect to the
insurance business transfer plan that the applicant must provide to
the commissioner before the commissioner will approve the plan's
submission to a court.
(d) If the commissioner determines that the insurance
business transfer plan may be submitted to a court, the
commissioner shall provide that determination in writing to the
applicant.
Sec. 806.055. CONSEQUENCES OF MATERIAL ADVERSE IMPACT
DETERMINATION. (a) Not later than the 30th day after the date the
commissioner notifies the applicant of a material adverse impact
under Section 806.054, the applicant may file an amended insurance
business transfer plan providing the modifications, supplements,
amendments, or additional information or documentation requested
by the commissioner. The applicant may request in writing an
extension of time of an additional 30 days.
(b) If the applicant does not make an amended filing within
the time period provided by Subsection (a), including any extension
of time granted by the commissioner, the insurance business
transfer plan filing terminates and a subsequent filing by the
applicant:
(1) is considered a new filing; and
(2) must comply with all provisions of this chapter as
if the previous filing had never been made.
(c) The commissioner's time for review as provided under
Section 806.054 for an amended insurance business transfer plan
received under Subsection (a) commences on the date the
commissioner receives all modifications, supplements, amendments,
or additional information or documentation requested by the
commissioner under Section 806.054(c).
SUBCHAPTER C. APPLICATION FOR COURT APPROVAL
Sec. 806.101. APPLICATION. (a) Not later than the 30th
day after the date an applicant receives notice from the
commissioner under Section 806.054(d) that the applicant may submit
the insurance business transfer plan to a court, the applicant
shall file a verified petition with a district court in a county
with a population of more than one million seeking approval of the
plan. On written request by the applicant, the commissioner may
extend the period for filing the petition for an additional 30 days.
(b) The applicant's petition must:
(1) include the insurance business transfer plan;
(2) identify any documents and witnesses that the
applicant intends to present at a hearing regarding the petition;
and
(3) state each reason the applicant asks the court to
find no material adverse impact to policyholders, reinsurers, or
claimants affected by the proposed insurance business transfer.
(c) Not later than the 30th day after the date of filing of
the petition, the applicant shall file a request for the court to
enter a preliminary scheduling order, which must include a date and
time for a status conference. The status conference must occur not
later than the 14th day after the date the comment period required
by Section 806.102 concludes.
(d) The commissioner must be a party to the proceedings
before the court concerning a petition filed under this section and
shall be served with copies of all filings as required by the Texas
Rules of Civil Procedure. The commissioner's position in the
proceedings is not limited by the commissioner's initial review of
the insurance business transfer plan that is the subject of the
petition.
Sec. 806.102. NOTICE AND COMMENT PERIOD. (a) Not later
than the 45th day after receipt of the preliminary scheduling order
under Section 806.101(c), the applicant shall provide notice of the
application for court approval of the insurance business transfer
plan. The notice commences a comment period that expires on the
61st day after the date the notice is provided.
(b) The notice provided to policyholders under this section
must include:
(1) the date and time of the status conference;
(2) the name, address, and telephone number of the
assuming insurer and the transferring insurer;
(3) a statement that a policyholder may comment on or
object to the transfer and novation;
(4) the procedures and deadline for submitting
comments or objections on the insurance business transfer plan;
(5) a summary of any effect that the transfer and
novation will have on the policyholder's rights;
(6) a statement that the assuming insurer is
authorized, as provided by this chapter, to assume the subject
business and that court approval of the insurance business transfer
plan will extinguish all rights of policyholders under policies
that are part of the subject business against the transferring
insurer;
(7) a statement that policyholders will not have the
opportunity to opt out of or otherwise reject the transfer and
novation;
(8) contact information for the department from which
the policyholder may obtain additional information; and
(9) either:
(A) information on how an electronic copy of the
insurance business transfer plan may be accessed; or
(B) if policyholders are unable to readily access
electronic copies, hard copies by first-class mail.
Sec. 806.103. PARTICIPATION IN COURT PROCEEDINGS.
(a) Only a party to the insurance business transfer plan, or a
third party or other person who files a request to provide comments
or objections or to be heard in the matter on the basis that the
person believes the person will be materially adversely affected by
approval and implementation of the plan, may present evidence or
comments to the court at a hearing.
(b) Participation by a third party does not confer standing
as a party on that third party.
(c) Each person participating in the hearing shall:
(1) follow the process established by the court; and
(2) pay the person's own costs and attorney fees.
Sec. 806.104. COURT APPROVAL OF PLAN. (a) The applicant
shall present the insurance business transfer plan for approval by
the court following the expiration of the comment period under
Section 806.102.
(b) At any time before the court issues an order approving
the insurance business transfer plan, the applicant may withdraw
the plan without prejudice.
(c) If the court finds that the implementation of the
insurance business transfer plan would not materially adversely
affect the interests of policyholders, reinsurers, or claimants
that are part of the subject business, the court shall enter a
judgment and implementation order. The judgment and implementation
order must:
(1) order implementation of the plan;
(2) order a statutory novation with respect to all
policyholders or reinsured persons and their respective policies
and reinsurance agreements under the subject business:
(A) extinguishing all rights of policyholders
under policies that are part of the subject business against the
transferring insurer; and
(B) providing that:
(i) the transferring insurer has no further
rights, obligations, or liabilities with respect to those policies;
and
(ii) the assuming insurer has all rights,
obligations, and liabilities as if the assuming insurer were the
original insurer of those policies;
(3) release the transferring insurer from all
obligations or liabilities under policies that are part of the
subject business;
(4) authorize and order the transfer of property or
liabilities, including the ceded reinsurance of transferred
policies and contracts on the subject business, notwithstanding any
nonassignment provisions in any reinsurance contract;
(5) order the applicant to provide notice of the
transfer and novation in accordance with Section 806.004; and
(6) make other provisions with respect to incidental,
consequential, and supplementary matters as necessary to ensure the
plan is fully and effectively carried out.
(d) On filing of the court's order under Subsection (c), the
subject business vests in and becomes the liabilities of the
assuming insurer.
Sec. 806.105. COURT DISAPPROVAL OF PLAN. If the court finds
that the insurance business transfer plan should not be approved,
the court by order may:
(1) deny the petition; or
(2) provide the applicant leave to file an amended
insurance business transfer plan and petition.
Sec. 806.106. RIGHT TO APPEAL. This chapter may not be
construed to affect a party's right to appeal an order of the court.
SUBCHAPTER D. FEES AND COSTS
Sec. 806.151. FILING FEE. At the time of filing an
application with the commissioner for review and approval of an
insurance business transfer plan, an applicant shall pay a
nonrefundable fee to the department of $10,000.
Sec. 806.152. COMMISSIONER COSTS. (a) The commissioner
may retain independent attorneys, appraisers, actuaries, certified
public accountants, authorized consultants, or other professionals
and specialists to assist the commissioner in connection with the
review of an insurance business transfer plan under this chapter.
(b) An applicant shall reimburse the commissioner for any
cost incurred under Subsection (a).
Sec. 806.153. INDEPENDENT EXPERT COSTS AND FEES. (a) The
transferring insurer and the assuming insurer are jointly obligated
to pay any compensation, costs, and expenses of the independent
expert, and any consultants retained by the independent expert and
approved by the commissioner, incurred in fulfilling the
obligations of the independent expert under this chapter.
(b) This chapter may not be construed to create a duty of the
independent expert to any party other than the commissioner or the
court.
Sec. 806.154. FAILURE TO PAY COSTS OR FEES. (a) A fee or
cost provided by this subchapter must be paid not later than the
30th day after the date of demand for payment.
(b) If a party fails to pay a required fee or cost within the
time period described by Subsection (a), the commissioner may:
(1) if the court has not filed an implementation
order, request that the court dismiss the petition for approval of
the insurance business transfer plan; or
(2) if the court has filed an implementation order,
suspend or revoke the assuming insurer's certificate of authority
to transact insurance business in this state.
Sec. 806.155. DEPOSIT OF AMOUNTS COLLECTED. The department
shall deposit any amounts collected under this chapter relating to
the review of an insurance business transfer plan application to
the credit of the Texas Department of Insurance operating account.
SECTION 2. The changes in law made by this Act apply only to
an insurance business transfer under a contract entered into or
agreement made on or after the effective date of this Act.
SECTION 3. This Act takes effect September 1, 2023.