89R6007 DNC-D
By: Oliverson H.B. No. 3320
A BILL TO BE ENTITLED
AN ACT
relating to a property and casualty self-insurance pool for certain
religious institutions; authorizing fees; providing administrative
penalties.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Subtitle G, Title 10, Insurance Code, is amended
by adding Chapter 2214 to read as follows:
CHAPTER 2214. RELIGIOUS INSTITUTIONS SELF-INSURANCE POOL
SUBCHAPTER A. GENERAL PROVISIONS
Sec. 2214.001. DEFINITIONS. In this chapter:
(1) "Board" means the board of trustees of the pool.
(2) "Church" means a nonprofit religious organization
consisting of a group of religious believers.
(3) "Fund" means a trust fund established under
Section 2214.052.
(4) "Member" means a church, nonprofit religious
organization, or religious denomination entitled to pool coverage
and obligated for pool liabilities under a pool coverage agreement.
(5) "Nonprofit religious organization" means an
active corporation or other entity organized under Section
501(c)(3), Internal Revenue Code of 1986, as a nonprofit
organization defined as any one of the following:
(A) a church or religious house of worship;
(B) an organization formed for religious
purposes;
(C) a nonprofit institution affiliated with a
faith-based organization; or
(D) an integrated auxiliary organization of a
church.
(6) "Organizing party" means a church, nonprofit
religious organization, or religious denomination that has entered
into a pool creation agreement.
(7) "Person" means an individual, corporation, trust,
partnership, association, or any other legal entity.
(8) "Pool" means the Religious Institutions
Self-Insurance Pool authorized under this chapter.
(9) "Pool coverage" means the self-insured coverage
provided by the pool in accordance with this chapter.
(10) "Pool coverage agreement" means an indemnity
agreement under which a church, nonprofit religious organization,
or religious denomination is entitled to pool coverage in exchange
for the payment of premiums to the pool and is obligated for pool
liabilities.
(11) "Pool creation agreement" means an agreement
entered into under Section 2214.051.
(12) "Religious denomination" means a group of
individual churches or houses of worship that are identified using
the same terms and have a particular set of beliefs or spiritual or
religious values.
Sec. 2214.002. POOL NOT INSURANCE; APPLICABILITY OF
INSURANCE LAWS. The pool is not an insurer and pool coverage is not
insurance for purposes of this code. Except as provided by this
chapter, the pool is not subject to a provision of this code other
than this chapter.
Sec. 2214.003. PARTNERSHIP NOT CREATED. Notwithstanding
any other law, the pool is not a partnership under the laws of this
state.
Sec. 2214.004. POOL NOT COVERED BY GUARANTY ASSOCIATION.
The pool is not a member insurer of the Texas Property and Casualty
Insurance Guaranty Association.
Sec. 2214.005. RULES. The commissioner may adopt rules
necessary to implement this chapter.
SUBCHAPTER B. CREATION OF POOL
Sec. 2214.051. POOL CREATION AGREEMENT. (a) The pool may
be created by two or more churches or nonprofit religious
organizations or one or more religious denominations that enter
into an agreement described by Subsection (b).
(b) An agreement under Subsection (a) must be in the form of
an indemnity agreement signed by each organizing party
acknowledging and agreeing to the assumption of the obligations of
the pool under this chapter.
(c) Each organizing party that enters into the agreement
must have a positive net worth, be financially solvent, and be
capable of assuming the obligations of the pool.
Sec. 2214.052. TRUST FUND. The organizing parties shall
establish a trust fund to serve as the group self-insurance account
for the members.
Sec. 2214.053. SELECTION OF TEMPORARY BOARD. At the time
the organizing parties enter into the pool creation agreement, the
organizing parties shall select nine individuals to:
(1) serve as the temporary board; and
(2) draft a plan of operation for the pool.
Sec. 2214.054. POWERS OF TEMPORARY BOARD. The temporary
board may:
(1) solicit applications from prospective members to
participate in the pool on the date the pool begins providing pool
coverage;
(2) accept payment of premiums for the prospective
pool coverage; and
(3) take any other action necessary to complete and
submit an application for a certificate of authority under
Subchapter C.
Sec. 2214.055. DOMICILE. The pool must be domiciled in this
state.
SUBCHAPTER C. CERTIFICATE OF AUTHORITY
Sec. 2214.101. CERTIFICATE OF AUTHORITY. (a) The pool may
not provide pool coverage before the department issues a
certificate of authority to the pool.
(b) A certificate of authority issued under this subchapter
is continuous until:
(1) revoked or suspended by the commissioner; or
(2) the board voluntarily surrenders the certificate
in connection with the pool's dissolution under Section 2214.451.
(c) The temporary board appointed by the organizing parties
under Section 2214.053 shall submit to the department a written
application, in the form and manner prescribed by the commissioner,
for a certificate of authority.
Sec. 2214.102. APPLICATION CONTENTS. (a) An application
for a certificate of authority under this chapter must include:
(1) the pool creation agreement;
(2) the plan of operation; and
(3) evidence of the financial strength and liquidity
of the organizing parties to pay claims promptly and support the
pool's financial ability to satisfy the pool's obligations.
(b) The evidence described by Subsection (a)(3) must be in
the form of:
(1) either:
(A) financial statements, dated not later than
one year before the date the temporary board submits the
application and audited by an independent certified public
accountant, showing a combined net worth of the organizing parties
of at least $1 million; or
(B) financial documents, in the form and manner
prescribed by the commissioner, sufficient to verify the combined
net worth of the organizing parties is at least $1 million;
(2) current financial documents of each prospective
member that has applied to participate in the pool dated not later
than one year before the date the board submits the application;
(3) schedules of all prospective members showing:
(A) the ratio of current assets to current
liabilities of all prospective members combined to be greater than
one-to-one;
(B) the working capital of all prospective
members combined to be an amount establishing the financial
strength and liquidity of the pool to pay claims promptly; and
(C) the net worth of all prospective members
combined to be at least $1 million; and
(4) other financial information and documents as
required by the commissioner.
(c) The following items must be included with the
application:
(1) security as required by Section 2214.351(d);
(2) copies of excess insurance or reinsurance that
meets the requirements of Section 2214.355 and the commissioner;
(3) a bond covering each third-party administrator as
required by Section 2214.152;
(4) a certification from a designated depository
attesting to the amount of money on hand in the trust fund
established under Section 2214.052;
(5) copies of pool bylaws and any trust agreement or
other governance documents;
(6) an individual application, in the form and manner
prescribed by the commissioner, of each prospective member applying
to participate in the pool that includes a copy of the prospective
member's executed indemnity agreement;
(7) evidence of financial strength and liquidity of
the prospective members on the date the application is submitted to
satisfy the financial strength and liquidity requirements of this
chapter;
(8) proof that the pool will have the minimum annual
earned premium required by Section 2214.351 when the pool begins
operation;
(9) the current annual report or financial statement
of any casualty insurance company providing excess or reinsurance
coverage for the pool, if the statement is not already on file with
the department;
(10) the name, address, and telephone number of each
attorney representing the pool, each qualified actuary for the
pool, and each certified public accountant who will be auditing the
annual financial statements of the pool, as well as evidence of the
appointment of each by the board;
(11) the domicile address in this state where the
pool's books and records are maintained and the state from which the
pool's fund will be administered;
(12) proof of advance payment into the fund by each
prospective member of not less than 25 percent of the prospective
member's first year estimated annually earned premiums;
(13) a feasibility study or other analysis prepared by
a qualified actuary using actual loss history of the prospective
members;
(14) pro forma financial statements projecting the
first three years of operations of the pool based on a feasibility
study or other analysis prepared by a qualified actuary that
include a pro forma balance sheet, income statement, and statement
of cash flow, each of which are prepared in accordance with
generally accepted accounting principles; and
(15) a copy of the pool's premium billing policy
indicating whether the premium payments to the pool are to be paid
by members annually, monthly, quarterly, or any combination of
those periods.
(d) The application must be sworn to and subscribed before a
notary public.
Sec. 2214.103. APPLICATION APPROVAL. (a) The commissioner
shall approve an application for a certificate of authority if the
application and the proposed pool satisfy the requirements of this
subchapter and rules adopted under this chapter.
(b) The commissioner may deny without review an application
for a certificate of authority under this chapter that does not meet
the requirements of this subchapter.
Sec. 2214.104. FEES. (a) The commissioner may impose a fee
for an application for a certificate of authority under this
chapter in an amount necessary to cover the department's expenses
in reviewing the application.
(b) The commissioner may impose other fees in amounts
reasonable and necessary to defray the costs of administering this
chapter.
SUBCHAPTER D. OPERATION OF POOL
Sec. 2214.151. GOVERNANCE OF POOL; BOARD OF TRUSTEES. (a)
The pool is governed by a board of trustees composed of nine members
selected as provided by the plan of operation.
(b) Not later than the 15th day after the date the
commissioner approves the temporary board's application for a
certificate of authority, the initial regular board must be
selected as provided by the plan of operation. The members of the
initial regular board shall take office not later than the 30th day
after the date the application for the certificate of authority is
approved.
Sec. 2214.152. POOL ADMINISTRATION. (a) The board may
administer the pool by employing an administrator or contracting
with a third-party administrator.
(b) If the board employs an administrator to administer the
pool, the pool must purchase a bond, errors and omissions
insurance, directors' and officers' liability insurance, or another
security approved by the commissioner for the administration of the
pool.
(c) A third-party administrator contracted by the board and
whose acts are not covered by the pool's bond, errors and omissions
insurance, directors' and officers' liability insurance, or other
security approved by the commissioner and any person contracting
either directly or indirectly with the pool to provide claims
adjusting, underwriting, safety engineering, loss control,
marketing, investment advisory, or administrative services to the
pool or the members, other than bookkeeping, auditing, or claims
investigation services, shall:
(1) submit to the department:
(A) a safekeeping receipt or trust receipt from a
bank or savings and loan association doing business in this state
indicating the deposit and pledge to secure the performance of the
administrator's or person's obligations under the contract and this
chapter of:
(i) $50,000; or
(ii) bonds of the United States, this
state, or any political subdivision of this state having a par value
of $50,000; or
(B) a surety bond issued by a corporate surety
authorized to engage in business in this state of not less than
$50,000; and
(2) place all contractual terms, including fee
arrangements, in a written agreement that constitutes the entire
agreement between the parties and is signed by the administrator or
person and the pool.
SUBCHAPTER E. POOL COVERAGE
Sec. 2214.201. COVERAGE AUTHORIZED. (a) The pool's
certificate of authority authorizes the pool to provide coverage to
churches, nonprofit religious organizations, and religious
denominations on a self-insured basis for damage to or loss of a
structure or building.
(b) In addition to coverage authorized by Subsection (a),
pool coverage may include:
(1) premises liability coverage;
(2) contents coverage for furniture or equipment;
(3) wind and hail coverage;
(3) loss of use coverage; or
(4) medical payments coverage.
(c) Pool coverage is provided in the form of an indemnity
agreement entered into by the member under which the member is
entitled to pool coverage in exchange for the payment of premiums to
the pool and is obligated for pool liabilities as provided by
Section 2214.202.
Sec. 2214.202. MEMBER LIABILITY. To the extent required by
this chapter, each member is jointly and severally liable for
liabilities incurred by the pool for each fiscal year in which the
member is entitled to pool coverage.
Sec. 2214.203. RATES; APPEAL. (a) The board shall set
rates for pool coverage. The rates must be actuarially justified.
(b) The board shall file proposed rates with the department
and may use the rates beginning on the 90th day after the date of the
filing, unless the commissioner disapproves the use of the rates
within the 90-day period.
(c) The board shall prescribe a reasonable procedure for any
member aggrieved by the rates to request in writing a review of the
rating system for pool coverage. The board shall grant or deny the
request in writing not later than the 30th day after the date the
board receives the request.
(d) If the board rejects a request for review under
Subsection (c) or fails to grant or reject the request within the
30-day period described by that subsection, the party requesting
the review may appeal to the commissioner for a hearing not later
than the 30th day after the expiration of the 30-day period. After
the hearing, the commissioner may affirm, modify, or reverse an
action taken by the board with respect to rates.
Sec. 2214.204. RATE REVIEW. On the request of the
commissioner, the pool shall obtain a rate review conducted by a
national independent actuarial firm, provided that the
commissioner may not make more than two requests in any calendar
year for a rate review under this section. The firm shall report
its findings to the commissioner.
Sec. 2214.205. UNDERWRITING GUIDELINES; MEMBERSHIP
APPLICATION. (a) The board in the plan of operation shall
prescribe:
(1) underwriting guidelines and procedures for
evaluating risks; and
(2) procedures for eligible persons to apply to become
members.
(b) The board shall provide written notice to an applicant
for pool membership that the pool is not a member insurer covered by
the Texas Property and Casualty Insurance Guaranty Association.
SUBCHAPTER F. SOLICITATION OF POOL MEMBERSHIP
Sec. 2214.251. USE OF INSURANCE AGENT REQUIRED. Any person
soliciting applications for pool membership must hold a general
property and casualty agent license under Chapter 4051. A pool
employee or employee of a religious denomination or association of
nonprofit religious organizations is not required to hold an
agent's license if the solicitation of applications for pool
membership is not the employee's primary duty.
Sec. 2214.252. LIABILITY OF AGENT. An insurance agent or
other person involved in the soliciting or processing of
applications for pool membership is not liable for claims arising
out of the insolvency of the pool or the inability of the pool to pay
claims as they become due unless the claimant first exhausts all
remedies available to the claimant against the members as provided
by this chapter.
Sec. 2214.253. USE OF APPLICATION INFORMATION. (a) Except
as otherwise provided by this section, for purposes of soliciting,
selling, or negotiating the renewal or sale of group self-insurance
coverage, insurance products, or insurance services, an insurance
agent has the exclusive use of expirations, records, or other
written or electronic information directly related to an
application for pool coverage submitted to the agent or to a pool
coverage agreement arranged through the agent.
(b) The pool may not use expirations, records, or other
written or electronic information related to applications for pool
coverage to solicit, sell, or negotiate the renewal or sale of
insurance coverage, insurance products, or insurance services to
members, either directly or by providing the information to others,
without the express written consent of an insurance agent.
(c) The pool may use the expirations, records, or other
written or electronic information related to an application for
pool coverage to review the application, to issue a pool coverage
agreement, or for any other purpose necessary for arranging pool
coverage through an insurance agent. The pool may also use the
agent's expirations, records, or other written or electronic
information for any other purpose that does not involve the
soliciting, selling, or negotiating the renewal or sale of group
self-insurance coverage, insurance products, or insurance
services.
Sec. 2214.254. AGENT LOST COMMISSION CLAIMS. (a) An
insurance agent's claim for lost commissions shall be resolved in
accordance with dispute resolution terms in the applicable agent
contract. In the absence of any dispute resolution terms, the
parties shall attempt to resolve the dispute through mediation.
(b) If the claim is not resolved through mediation, the
parties may agree to submit the claim to binding arbitration. In
the absence of an agreement to resolve the claim through binding
arbitration, an insurance agent may bring an action against the
pool for the claim.
Sec. 2214.255. OTHER AGREEMENTS AUTHORIZED. The board or
pool administrator and an insurance agent may, in a written
agreement separate from the agency contract, mutually agree to
terms different from the provisions provided by this subchapter.
Sec. 2214.256. EXEMPTIONS FROM SUBCHAPTER. This subchapter
does not apply to:
(1) a pool coverage agreement provided by the pool on
request, individually or through a pool administrator;
(2) an insurance agent contract for the insurance
agent's exclusive representation of one pool member or prospective
pool member or a group of affiliated members or prospective
members, in which case the rights of the agent are determined by the
terms of the contract;
(3) a default by an insurance agent for nonpayment of
premiums under the insurance agent's contract with the pool; or
(4) a terminated insurance agent contract if the pool
is required by law to continue coverage for the member, in which
case the pool shall continue to pay the insurance agent commission
on the pool coverage agreements issued under that contract that the
pool is required to renew during the 36-month period following the
effective date of the termination, provided that the commission is
paid at the pool's prevailing commission rates in effect on the date
of renewal for that class or line of coverage in effect on the date
of renewal for agents whose contracts are not terminated.
SUBCHAPTER G. RECORDS
Sec. 2214.301. DEFINITIONS. In this subchapter:
(1) "Copy" includes a photograph or reproduction.
(2) "Record" means a book, record, document, account,
or voucher.
Sec. 2214.302. MAINTENANCE AND AVAILABILITY OF POOL
RECORDS. (a) The pool shall maintain and make available to the
department all pool records to allow the commissioner to determine
that the pool's financial condition, affairs, and operations are in
compliance with this chapter.
(b) Except as provided by Subsection (c), the pool shall
maintain in this state the original or a copy of a record for the
purpose of commissioner examination until the earlier of:
(1) the date the commissioner approves disposal of the
record; or
(2) the later of:
(A) the first day of the examination period
following the examination period in which the record is examined by
the commissioner; or
(B) the fifth anniversary of the creation of the
record.
(c) The pool shall permanently maintain an original or
certified copy of a record in which a member agrees to or
acknowledges the members' joint and several liability for
liabilities incurred by the pool.
Sec. 2214.303. CONFIDENTIALITY OF RECORDS. Except as
otherwise provided by this chapter, the pool's records and any
records of the department associated with the pool are confidential
and not subject to disclosure under Chapter 552, Government Code.
SUBCHAPTER H. FINANCIAL PROVISIONS
Sec. 2214.351. INITIAL FINANCIAL REQUIREMENTS. (a) To
maintain the pool's financial stability, the commissioner shall, at
times determined necessary by the commissioner, require two or more
members to maintain:
(1) a minimum combined net worth of $1 million; and
(2) a current assets to current liabilities ratio of
at least one-to-one.
(b) After the pool has been operating for three years and
has a total surplus of $3 million, the commissioner may waive any
requirements imposed under Subsection (a).
(c) The pool must maintain at least $750,000 in earned
premiums in the pool's first year of operation as documented in the
pool's audited financial statement prepared in accordance with
generally accepted accounting principles.
(d) During the pool's first year of operation, the board
shall submit to the department:
(1) a safekeeping receipt or trust receipt from a bank
or savings and loan association doing business in this state
indicating that the board has deposited and pledged:
(A) $100,000; or
(B) bonds of the United States, this state, or a
political subdivision of this state having a par value of $100,000;
or
(2) a surety bond issued by a corporate surety
authorized to engage in business in this state in an amount of
$100,000 to secure the pool's obligations.
Sec. 2214.352. EARNED PREMIUM REQUIREMENTS. Each year
after the pool's first year of operation, the pool shall maintain at
least $2 million in earned premiums as documented on the pool's
audited financial statement prepared in accordance with generally
accepted accounting principles.
Sec. 2214.353. SECURITY. Each year after the pool's first
year of operation, the pool's board shall submit to the department:
(1) a safekeeping receipt or trust receipt from a bank
or savings and loan association doing business in this state
indicating that the board has deposited and pledged:
(A) $250,000; or
(B) bonds of the United States, this state, or
any political subdivision of this state having a par value of
$250,000; or
(2) a surety bond issued by a corporate surety
authorized to engage in business in this state, in the amount of
$250,000 to secure the pool's obligations.
Sec. 2214.354. RESERVE ACCOUNT. (a) To maintain the
financial stability of the pool, the board shall annually assess
each member a reserve payment in an amount that is a percentage of
the premium owed by the member for that year.
(b) Before assessing a reserve payment under Subsection
(a), the board must obtain approval from the commissioner of the
percentage amount to be paid by all members.
(c) The board shall deposit all reserve payments into a
separate reserve account and shall maintain the account at all
times while the pool is in operation. The board may not withdraw
money from the reserve account without commissioner approval.
Sec. 2214.355. EXCESS INSURANCE AND REINSURANCE. (a) The
pool shall maintain, on a fiscal year basis, a contract of specific
excess insurance or reinsurance of not less than an amount that is
actuarially sound and approved by the commissioner. The maximum
retention under the contract may not exceed amounts provided by the
commissioner. The commissioner must approve an excess insurance or
reinsurance contract before use by the pool.
(b) Solely for purposes of authorizing the purchase of
reinsurance under this section, the pool is considered an insurer.
(c) The board may purchase excess insurance or reinsurance
from a domestic or foreign company, subject to Chapter 493 and
Financial Accounting Standards Board Statement No. 113, Accounting
and Reporting for Reinsurance of Short-Duration and Long-Duration
Contracts.
(d) To be eligible to write excess coverage for the pool, a
casualty insurer must have on file with the department the
insurer's current financial statement showing assets, including
any surplus to policyholders, at least equal to the current
commissioner requirements for admission of a new company to engage
in business in this state. The board may enter into a contract for
excess insurance coverage with an active underwriter of Lloyd's of
London with prior commissioner approval.
(e) In addition to the requirements described by Subsection
(c) or (d), as applicable, the board must purchase excess insurance
or reinsurance only from a company having an eligible rating of at
least:
(1) "A-" by A.M. Best Company, Inc.;
(2) "A-" by Fitch Ratings Ltd.;
(3) "A" by Weiss Ratings;
(4) "A-" by Standard & Poor's Financial Services LLC;
or
(5) "A3" by Moody's Investors Service, Inc.
Sec. 2214.356. FINANCIAL STATEMENTS AND REPORTS. The board
shall file with the department financial statements and financial
reports, including financial statements audited by an independent
certified public accountant and actuarial reports, as may be
required by the commissioner under rules adopted under this
chapter.
Sec. 2214.357. MEMBER REFUNDS. The board may declare as
refundable to members any money exceeding the amount necessary to
fulfill the pool's obligations. The board may distribute the
refund at board's discretion, in accordance with the plan of
operation, provided that:
(1) the amount of the refund does not exceed the
members' distributions payable and is recorded on the pool's
balance sheet as indicated by the most recently completed audited
financial statements of the pool; and
(2) the board provides written notice of the refund to
the department not later than the 10th day before the date the board
provides the refund.
Sec. 2214.358. INVESTMENTS. (a) The board may invest pool
money only in a security or other investment authorized by this
section that is interest-bearing, interest-accruing,
dividend-paying, or income-paying and that is not in default. A
pool investment is exclusively for the benefit of the pool and the
board shall deposit the investment's interest or income in the
fund.
(b) The board may invest pool money not needed for current
obligations in:
(1) a deposit in a federally insured bank or savings
and loan association that is:
(A) insured by the Federal Deposit Insurance
Corporation; or
(B) collateralized by direct obligations of the
United States;
(2) bonds or securities not in default as to principal
or interest that are obligations of the United States;
(3) pass-through mortgage-backed securities and
collateralized mortgage obligations issued by the Federal National
Mortgage Association, the Government National Mortgage
Association, the Federal Home Loan Mortgage Corporation, or the
Federal Housing Administration, provided that the collateralized
mortgage obligations have a minimum financial strength of "A" by
Moody's Investors Service, Inc., Standard & Poor's Financial
Services LLC, or Fitch Ratings Ltd.;
(4) obligations of this state or a political
subdivision of this state having a minimum financial strength of
"A" by Moody's Investors Service, Inc., Standard & Poor's Financial
Services LLC, or Fitch Ratings Ltd., provided that not more than 5
percent of the pool's assets are invested in any particular issue
and the type of investment does not exceed 15 percent of the pool's
assets in the aggregate;
(5) obligations of any state or a political
subdivision of that state having a minimum financial strength of
"A" by Moody's Investors Service, Inc., Standard & Poor's Financial
Services LLC, or Fitch Ratings Ltd., provided that not more than 5
percent of the pool's assets are invested in any particular issue
and the type of investment does not exceed 15 percent of the pool's
assets in the aggregate;
(6) commercial mortgage-backed securities with
purchases having a minimum final strength of "Aaa" by Moody's
Investors Service, Inc., "AAA" By Standard & Poor's Financial
Services LLC, or "AAA" by Fitch Ratings Ltd., provided that not more
than 2 percent of the pool's assets are invested in one issue and
this type of investment does not exceed 10 percent of the pool's
assets in the aggregate;
(7) asset-backed securities with purchases having a
minimum financial strength of "Aa" by Moody's Investors Service,
Inc., "AA" by Standard & Poor's Financial Services LLC, or "AA" by
Fitch Ratings Ltd., provided that no more than 5 percent of the
pool's assets are invested in one issue and this type of investment
does not exceed 10 percent of the pool's assets in the aggregate;
(8) repurchase agreements when the collateral for the
agreement is a direct obligation of the United States, provided
that the repurchase agreement:
(A) is in writing;
(B) has a specific maturity date;
(C) adequately identifies each security to which
the agreement applies; and
(D) states that in the event of default by the
party agreeing to repurchase the securities described in the
agreement at the term contained in the agreement, title to the
described securities passes immediately to the pool without
recourse;
(9) corporate bonds having a minimum financial
strength of "Baa" by Moody's Investors Service, Inc., "BBB" by
Standard & Poor's Financial Services LLC, or "BBB" by Fitch Ratings
Ltd., provided that:
(A) except as provided by Subsection (c),
corporate bonds of any particular issue or issuer constitute not
more than 5 percent of the pool's assets; and
(B) except as provided by Subsection (c), not
more than 50 percent of the pool's assets are invested in corporate
bonds of all types;
(10) mutual or trust fund institutions registered with
the Securities and Exchange Commission that have underlying
investments consisting solely of securities approved for
investment as provided by this section, provided that this
investment does not exceed 50 percent of the pool's assets in the
aggregate;
(11) individual equities, provided that:
(A) individual equities and any mutual funds or
exchange-traded funds do not exceed 15 percent of the pool's
assets;
(B) the pool holds a minimum of 5 different
issues in the equity sector to provide for diversification;
(C) no single issue constitutes more than 5
percent, at cost, of the pool's overall investment fund;
(D) market capitalization for each issue is of at
least $1 billion;
(E) each eligible issue pays a cash dividend; and
(F) the equity holdings are restricted to:
(i) high-quality, readily marketable
securities corporations that are domiciled in the United States and
that are actively traded on the major United States exchanges,
including the New York Stock Exchange and the National Association
of Securities Dealers Automated Quotation System; or
(ii) equities of foreign-domiciled
corporations that trade American depositary receipts on the major
United States exchanges; and
(12) a mutual fund or exchange-traded fund, provided
that:
(A) the mutual fund or exchanged-traded fund pays
a dividend and consists of securities that have an average market
capitalization of at least $1 billion;
(B) the same general quality requirements
described by Subdivision (11) are met; and
(C) the aggregate total of the investment, plus
any individual securities, does not exceed 15 percent of the pool's
assets.
(c) The board may invest in corporate bonds in excess of the
5 percent and 50 percent limitations specified under Subsections
(b)(9)(A) and (B) up to an additional 10 percent of the pool's
assets if the financial circumstances are acceptable to the
commissioner, such as an increase in market value after initial
purchase of a corporate bond, provided that:
(1) the initial purchase of corporate bonds was within
the limitations specified under Subsections (b)(9)(B) and (C); and
(2) in determining the financial condition of the
pool, the commissioner does not include as assets of the pool those
corporate bonds that exceed 50 percent of the pool's total assets.
(d) Except as provided by Subsection (e), the board may not
invest in rental assets, including:
(1) any item that is not actually owned by the pool;
(2) any item of which the ownership is subject to
resolution, rescission, or revocation on the pool's insolvency,
receivership, bankruptcy, statutory supervision, rehabilitation,
or liquidation or on the occurrence of any other contingency;
(3) any item for which the pool pays a regular or
periodic fee for the right to carry the item as an asset, whether
the fee is characterized as a rental fee, a management fee, or a
dividend not previously approved by the commissioner, or makes
another periodic payment for that right;
(4) any asset purchased for investment by the pool on
credit in which the interest rate paid by the pool on its credit
instrument is greater than the interest rate or yield generated by
the purchased asset;
(5) any asset on the pool's balance sheet subject to a
mortgage, lien, privilege, preference, pledge, charge, or other
encumbrance that is not accurately reflected in the liability
section of the pool's balance sheet; and
(6) any asset received by the pool as a contribution to
capital or surplus from any person that meets any of the criteria
described by Subdivisions (1) through (5) while in the hands of that
contributing person or on or after the moment of the contribution to
capital.
(e) Subsection (d)(3) does not apply to leases capitalized
under generally accepted accounting principles.
Sec. 2214.359. CONSECUTIVE NET LOSSES. (a) This section
applies if the pool has:
(1) three years of consecutive net losses on the pool's
audited financial statements; or
(2) two years of consecutive net losses on the pool's
audited financial statements of more than the greater of:
(A) $500,000; or
(B) five percent of the premium of the latest
audited financial statement.
(b) If a condition described by Subsection (a) exists, an
authorized representative of the board shall:
(1) attend a meeting with the department, the pool
administrator, and any third-party administrator to discuss the
financial condition of the pool and to advise the department of the
course of action the pool will take to obtain net incomes on
subsequently audited financial statements;
(2) file with the department a written plan signed by
the board describing the actions the pool will take to generate net
incomes on subsequently audited financial statements; and
(3) obtain an actuarial rate analysis, if an actuarial
rate analysis was not performed for the previous fiscal year.
Sec. 2214.360. INSOLVENCY PLAN. (a) In this section,
"insolvent" means the condition in which the pool has liabilities
greater than the pool's assets as determined in accordance with
generally accepted accounting principles.
(b) If the pool becomes insolvent, the board shall file with
the department, not later than the 60th day after the date the board
becomes aware of the insolvency, a written plan to resolve the
insolvency signed by the board. In determining whether the pool is
insolvent, intangible property such as patents, trade names, or
goodwill may not be considered to be assets of the pool.
(c) The insolvency plan must provide in detail the means by
which the board intends to eliminate the insolvency, including any
assessment of the members the board determines is necessary, the
timetable for implementing the plan, and the reporting that will be
made to the department regarding the progress of the plan, and
include any other information required by the commissioner.
(d) The commissioner shall review the insolvency plan and
notify the board of the plan's approval or disapproval not later
than the 30th day after the date the department receives the plan.
(e) The commissioner shall provide written notice to the
board of a determination that:
(1) the insolvency plan submitted by the board is
disapproved; or
(2) the pool is not implementing a plan approved by the
commissioner in accordance with the plan's terms.
Sec. 2214.361. SUPERVISION, CONSERVATORSHIP, OR
RECEIVERSHIP. (a) In this section:
(1) "Hazardous financial condition" means a condition
in which, based on the pool's present or reasonably anticipated
financial condition, the pool, although not yet financially
impaired or insolvent, is unlikely to be able to:
(A) meet the pool's obligations to members with
respect to known claims and reasonably anticipated claims; or
(B) pay other obligations in the normal course of
business.
(2) "Insolvent" has the meaning assigned by Section
2214.360.
(b) In addition to any other powers of the commissioner, if
the commissioner determines that the pool is insolvent, is
operating in a hazardous financial condition, or is otherwise
operating in violation of this chapter, the commissioner may take
any action against the pool that the commissioner could take
against an insurer under Chapter 441 or Chapter 443.
SUBCHAPTER I. COMMISSIONER EXAMINATION
Sec. 2214.401. EXAMINATION REQUIRED. (a) The commissioner
shall conduct an examination of the pool at least once every five
years and at other times as the commissioner considers necessary.
(b) The examination shall be conducted in the same manner as
an examination of an insurer under Chapter 401.
(c) In conducting an examination of the pool, the
commissioner has the same powers and duties with respect to the
pool, and with respect to other persons in relation to the pool's
affairs and condition, that the commissioner has with respect to an
insurer or other persons with respect to an insurer's affairs and
condition.
SUBCHAPTER J. DISSOLUTION OF POOL
Sec. 2214.451. APPLICATION FOR VOLUNTARY DISSOLUTION. (a)
If the members of the pool elect to dissolve the pool, the board
must apply to the commissioner in the form and manner prescribed by
the commissioner for the authority to dissolve.
(b) The commissioner shall approve or disapprove an
application to dissolve the pool not later than the 60th day after
the date the commissioner receives the application.
(c) The commissioner shall approve an application to
dissolve the pool if the pool:
(1) has no outstanding liabilities including incurred
but not reported liabilities; or
(2) is covered by an irrevocable commitment from an
authorized insurer that provides for payment of all outstanding
liabilities and related services, including payment of claims,
preparation of reports, and administration of transactions
associated with the period during which the pool provided pool
coverage.
Sec. 2214.452. DISTRIBUTION OF POOL ASSETS. On the pool's
dissolution and after payment of all outstanding liabilities and
indebtedness, the pool assets shall be distributed to the members
under a distribution plan submitted by the board to the department
and approved by the commissioner.
Sec. 2214.453. DISSOLUTION WITHOUT APPROVAL. (a)
Dissolution of the pool without authorization is prohibited.
(b) The dissolution of the pool violation of this section
does not absolve or release the pool, a member, or any individual or
entity that has executed an indemnity agreement in connection with
the pool from obligations incurred or entered into before the
dissolution.
SUBCHAPTER K. ENFORCEMENT
Sec. 2214.501. CONSUMER COMPLAINTS; ADMINISTRATIVE
PENALTY. (a) A consumer may file a complaint with the department
to report a suspected violation of this chapter or the failure of
the pool to meet its obligations under a pool coverage agreement or
the plan of operation.
(b) After investigating a complaint regarding the pool, the
commissioner may order the board to take a corrective action the
commissioner considers necessary instead of taking an enforcement
action under another provision of this subchapter.
Sec. 2214.502. CORRECTIVE ACTION PLAN. (a) The
commissioner may order the board to submit a corrective action plan
to remediate any noncompliance or financial issues affecting the
pool.
(b) The board shall submit the completed corrective action
plan to the commissioner for approval and include standards, time
frames, and other parameters acceptable to the commissioner.
(c) The corrective action plan may include:
(1) mandatory training;
(2) on-site or off-site monitoring and supervision of
the activities of the pool for a specific period of time to
determine progress regarding correction of deficiencies;
(3) the submission of written progress reports;
(4) the institution of measures to conserve or
generate additional funding for the pool; or
(5) the imposition of an administrative penalty under
Section 2214.504 for any future misconduct of the kind that
contributed to the need for the imposition of the corrective action
plan.
(d) Failure by the pool to comply with the corrective action
plan may result in:
(1) the imposition of an administrative penalty under
Section 2214.504;
(2) suspension or revocation of the pool's certificate
of authority; or
(3) placement of the pool into supervision.
Sec. 2214.503. CEASE AND DESIST ORDER; SUSPENSION OR
REVOCATION OF CERTIFICATE OF AUTHORITY. (a) If the commissioner
determines the pool has violated this chapter, a commissioner rule,
or any order or directive issued by the commissioner, the
commissioner may:
(1) order the pool to cease and desist from the conduct
constituting the violation; or
(2) suspend or revoke the pool's certificate of
authority.
(b) A cease and desist order issued under this section may
include a prohibition on issuing or renewing pool coverage.
Sec. 2214.504. ADMINISTRATIVE PENALTY. If the commissioner
determines that the pool or any trustee, member, officer,
administrator, or employee of the pool has violated this chapter,
any other applicable law relating to the pool, a commissioner rule,
or any order or directive issued by the commissioner, the
commissioner may impose an administrative penalty not to exceed
$2,000 for each violation. For a subsequent violation, the
commissioner may impose an administrative penalty not to exceed
$4,000.
SECTION 2. A board of trustees may not apply for a
certificate of authority under Section 2214.101, Insurance Code, as
added by this Act, before January 1, 2026.
SECTION 3. This Act takes effect September 1, 2025.