Bill Text: TX HB3161 | 2011-2012 | 82nd Legislature | Comm Sub
NOTE: There are more recent revisions of this legislation. Read Latest Draft
Bill Title: Relating to limited purpose subsidiary life insurance companies.
Spectrum: Bipartisan Bill
Status: (Passed) 2011-06-17 - Effective immediately [HB3161 Detail]
Download: Texas-2011-HB3161-Comm_Sub.html
Bill Title: Relating to limited purpose subsidiary life insurance companies.
Spectrum: Bipartisan Bill
Status: (Passed) 2011-06-17 - Effective immediately [HB3161 Detail]
Download: Texas-2011-HB3161-Comm_Sub.html
By: Hancock | H.B. No. 3161 |
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relating to limited purpose subsidiary life insurance companies. | ||
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS: | ||
SECTION 1. Chapter 841, Insurance Code, is amended by adding a new | ||
Subchapter P to read as follows: | ||
Subchapter P. | ||
Limited Purpose Subsidiary Life Insurance Companies | ||
§841.801. Purpose. The purpose of this subchapter is to | ||
authorize the establishment of domestic Limited Purpose Subsidiary | ||
Life Insurance Companies ("Limited Purpose Company" or "LPS") in | ||
order to allow that such Limited Purpose Companies may issue | ||
securities and otherwise access financial markets and alternative | ||
sources of capital through securitizations and other transactions. | ||
§841.802 Definitions. For purposes of this subchapter, the | ||
following definitions shall apply: | ||
(1) "Affiliated companies" means: | ||
(A) domestic life insurance companies that are | ||
directly or indirectly wholly owned subsidiaries of the same | ||
holding company; or | ||
(B) controlled persons. | ||
(2) "Ceding insurer" means either a domestic life insurance | ||
company that is the parent of the Limited Purpose Subsidiary or an | ||
affiliated company of a Limited Purpose Subsidiary and that cedes | ||
risk to the LPS pursuant to a reinsurance contract. | ||
(3) "Commissioner" means the insurance commissioner. | ||
(4) "Controlled Person" means a person organized or | ||
authorized to do business under the laws of this State who is | ||
controlled directly or indirectly by a holding company. | ||
(5) "Guaranty" means an agreement to pay specified | ||
obligations of the limited purpose subsidiary by a holding company | ||
or affiliated company of the limited purpose subsidiary approved by | ||
the commissioner that is not a ceding insurer and the guarantor has | ||
sufficient equity, less the equity of all ceding insurers that are | ||
subsidiaries of the guarantor, to satisfy the agreement during the | ||
life of the guaranty. | ||
(6) "Holding Company" means a person who directly or | ||
indirectly controls an insurer. | ||
(7) "Insurance securitization" or "securitization" means a | ||
transaction or a group of related transactions, which may include | ||
capital market offerings, that are effected through related risk | ||
transfer instruments and facilitating administrative agreements | ||
where all or part of the result of such transactions is used to fund | ||
the LPS's obligations under a reinsurance contract with a ceding | ||
insurer and by which proceeds are: | ||
(A) obtained by an LPS, directly or indirectly, | ||
through the issuance of securities by the LPS or any other person; | ||
or | ||
(B) provided through one or more letters of credit or | ||
other assets for the benefit of the LPS, which the commissioner | ||
authorizes the LPS to treat as admitted assets for purposes of the | ||
LPS's annual statement where all or any part of such proceeds, | ||
letters of credit, or assets, as applicable, is used to fund the | ||
LPS's obligations under a reinsurance contract with a ceding | ||
insurer. | ||
(8) "Insurer" for purposes of this chapter, means a domestic | ||
life insurance company organized under chapter 841. | ||
(9) "Letters of credit" means clean, unconditional, | ||
irrevocable letters of credit issued or confirmed by a qualified | ||
United States financial institution as defined in section | ||
492.104(b)(2)(C) of this code. | ||
(10) "LPS" means a limited purpose subsidiary life | ||
insurance company organized pursuant to this subchapter, that is | ||
wholly owned by a life insurance company or an affiliated company | ||
and that is issued a certificate of authority by the commissioner | ||
pursuant to this chapter. | ||
(11) "LPS security" means: | ||
(A) A security issued by an LPS; or | ||
(B) A security issued by a third party, the proceeds of | ||
which are obtained directly or indirectly by an LPS. | ||
(12) "Management" means the board of directors, managing | ||
board, or other individual or individuals vested with overall | ||
responsibility for the management of the affairs of the LPS. | ||
(13) "Material" means a transaction or series of | ||
transactions involving amounts equal to or exceeding 3 percent of | ||
the LPS's admitted assets less any letters of credit, guaranties | ||
and intangible assets included as an admitted asset of the LPS. | ||
(14) "Organizational documents" means an LPS's articles of | ||
incorporation and bylaws. | ||
(15) "Organizing company" means the company that organizes | ||
an LPS pursuant to this subchapter. | ||
(16) "Parent" means a person, as defined in Section | ||
823.002(7) of this code, that directly or indirectly through one or | ||
more intermediaries wholly owns or is an affiliated company of an | ||
LPS. | ||
(17) "Person" has the same meaning as defined in Section | ||
823.002(7) of this code. | ||
(18) "Reinsurance contract" means a contract between an LPS | ||
and a ceding insurer pursuant to which the LPS agrees to provide | ||
reinsurance to the ceding insurer for risks. | ||
(19) "Risk" means risks associated with life insurance | ||
policies and annuity contracts written by the ceding insurer or | ||
assumed by the ceding insurer from an affiliated company which were | ||
written by the affiliated company and for which the ceding insurer | ||
holds statutory reserves for those policies. | ||
(20) "Security" means the same as defined in Article | ||
581-4(a), Vernon' Civil Statutes, and shall also include any form | ||
of debt obligation, surplus note, derivative, or other financial | ||
instrument that the commissioner designates as a "security" for | ||
purposes of this chapter. | ||
(21) "Surplus note" means an unsecured subordinated debt | ||
obligation. | ||
§841.803. Organizational Documents of a LPS. | ||
(a) Either a wholly owned domestic insurer authorized to | ||
transact the business of insurance pursuant to chapter 841 or an | ||
affiliated company organized or authorized to conduct business | ||
under the laws of this State may organize a domestic limited purpose | ||
subsidiary life insurance company pursuant to the provisions of | ||
this chapter. | ||
(b) The limited purpose subsidiary life insurance company | ||
may reinsure risks of the organizing company, reinsure risks of | ||
affiliated companies, and access alternative forms of financing. | ||
(c) An LPS's organizational documents shall limit the LPS's | ||
authority to transact the business of reinsurance to reinsure only | ||
the risks of a ceding insurer and shall state that the LPS shall not | ||
otherwise engage in the business of insurance. | ||
(d) An LPS's organizational documents shall provide that | ||
the LPS shall always be either wholly owned by a domestic insurer | ||
authorized to transact the business of insurance pursuant to | ||
chapter 841 or an affiliated company organized or authorized to do | ||
business under the laws of this State. | ||
§841.804. Certificate of Authority Required. No LPS shall | ||
do any reinsurance business in this state unless it obtains from the | ||
commissioner a certificate of authority pursuant to this rule. | ||
§841.805. Application for Certificate of Authority. (a) To | ||
obtain a charter for a domestic LPS, the incorporators must pay to | ||
the department the charter fee in an amount determined under | ||
Chapter 202 and file with the department: | ||
(1) An application for charter on the form and containing | ||
the information prescribed by the commissioner; | ||
(2) the company's articles of incorporation; | ||
(3) an affidavit made by two or more of the incorporators | ||
that states that: | ||
(A) the minimum capital and surplus requirements of | ||
this subchapter are satisfied; | ||
(B) the capital and surplus are the bona fide property | ||
of the company; | ||
(C) the information in the articles of incorporation | ||
is true and correct; | ||
(4) Submit any other statements or documents required by the | ||
commissioner to evaluate the LPS's application for a certificate of | ||
authority. | ||
§841.806. Investment by Organizing Company. If the | ||
organizing company is a domestic life insurance company, it may | ||
invest funds from its surplus in a limited purpose subsidiary life | ||
insurance company organized pursuant to this section. | ||
§841.807. Officers and Directors. The organizing company's | ||
officers and directors may serve as officers and directors of a | ||
limited purpose subsidiary life insurance company organized | ||
pursuant to this section. | ||
§841.808. Issuance of Certificate of Authority. (a) The | ||
commissioner may issue a certificate of authority to an LPS, | ||
authorizing the LPS to transact reinsurance business as an LPS in | ||
this state based on the findings required in Section 841.061 of this | ||
code. | ||
(b) In conjunction with the issuance of a certificate of | ||
authority to an LPS, the commissioner may issue an order that | ||
includes any provisions, terms, and conditions regarding the | ||
organization, licensing, and operation of the LPS that the | ||
commissioner deems appropriate and that are not inconsistent with | ||
the provisions of this chapter. | ||
§841.809. Scope of Certificate of Authority. (a) An LPS | ||
that has been issued a certificate of authority may reinsure only | ||
the risks of a ceding insurer. | ||
(b) An LPS shall not otherwise engage in the business of | ||
insurance. | ||
(c) An LPS may purchase reinsurance to cede the risks | ||
assumed under a reinsurance contract. | ||
(d) A limited purpose subsidiary life insurance company | ||
organized pursuant to this section shall be deemed to be licensed to | ||
transact the business of reinsurance for the purposes of section | ||
492.051, but may only reinsure risks of its affiliated companies. | ||
§841.810. Capital and Surplus. (a) An LPS shall not be | ||
issued a certificate of authority unless it possesses and | ||
thereafter maintains unimpaired paid-in capital and surplus of not | ||
less than the amounts required by Section 841.054(a) of this code. | ||
§841.811. Dividends and Distributions. An LPS may pay | ||
dividends and distributions that do not decrease the capital of the | ||
LPS below the minimum capital and surplus amount required by | ||
section 841.810. | ||
§841.812. Reports of Securitizations. An LPS shall provide | ||
the commissioner with a copy of a complete set of executed | ||
documentation of an insurance securitization no later than 45 days | ||
after the closing on the transactions for such securitization. | ||
§841.813. Foreclosure on Collateral. An LPS shall notify | ||
the commissioner immediately of any action by a ceding insurer or | ||
any other person to foreclose on or otherwise take possession of | ||
collateral provided by the LPS to secure any obligation of the LPS. | ||
§841.814. Filing Reports with the National Association of | ||
Insurance Commissioners. Notwithstanding section 802.051 of this | ||
code, or any other law, an LPS shall not be required to file any | ||
report, notice, or other document with the National Association of | ||
Insurance Commissioners unless required by the commissioner. | ||
§841.815. Securitization Agreements. The LPS | ||
securitization, the security-offering memorandum or other document | ||
issued to prospective investors regarding the offer and sale of a | ||
surplus note or other security shall include a disclosure that all | ||
or part of the proceeds of such insurance securitization will be | ||
used to fund the LPS's obligations to the ceding insurer. | ||
§841.816. Admitted assets. | ||
(a) Admitted assets of a limited purpose subsidiary life | ||
insurance company shall include assets approved by the commissioner | ||
which shall be deemed to be, and reported as, admitted assets of the | ||
LPS. | ||
(b) In addition to the investments authorized under | ||
Subchapters C, and D of chapter 425 of this Code and notwithstanding | ||
any other law, admitted assets of the LPS shall include proceeds | ||
from a securitization, premium and other amounts payable by a | ||
ceding insurer to the LPS, letters of credit, guaranties of a | ||
holding company, guaranties of an affiliated company,, and any | ||
other assets approved by the commissioner, which shall be deemed to | ||
be, and reported as, admitted assets of the LPS. | ||
§841.817 Securities. | ||
(a) An LPS security shall not be subject to regulation as an | ||
insurance or reinsurance contract. | ||
(b) An investor in such a security or a holder of such a | ||
security shall not be considered to be transacting the business of | ||
insurance in this state solely by reason of having an interest in | ||
the security. | ||
(c) The underwriter's placement or selling agents and their | ||
partners, commissioners, officers, members, managers, employees, | ||
agents, representatives, and advisors involved in an insurance | ||
securitization by an LPS shall not be considered to be insurance | ||
producers or brokers or to be conducting business as an insurance or | ||
reinsurance company or as an insurance agency, brokerage, | ||
intermediary, advisory, or consulting business solely by virtue of | ||
their underwriting activities in connection with such | ||
securitization. | ||
§841.818. Permitted Reinsurance. | ||
(a) An LPS may reinsure, pursuant to a reinsurance contract, | ||
only the risks of a ceding insurer. | ||
(b) Unless otherwise approved in advance by the | ||
commissioner, an LPS may not assume or retain exposure to | ||
reinsurance losses for its own account that are not funded by one or | ||
more of the following: | ||
(1) Proceeds from a securitization; | ||
(2) Premium and other amounts payable by the ceding | ||
insurer to the LPS pursuant to the reinsurance contract; | ||
(3) Letters of credit; | ||
(4) Guaranties of a holding or affiliated company; or | ||
(5) Any return on investment of the items in | ||
subsections (1) or (2. | ||
(c) An LPS may cede risks assumed through a reinsurance | ||
contract to one or more reinsurers through the purchase of | ||
reinsurance, subject to the prior approval of the commissioner. | ||
(d) An LPS may enter into contracts and conduct other | ||
commercial activities related or incidental to and necessary to | ||
fulfill the purposes of a reinsurance contract, an insurance | ||
securitization, and this chapter. Such contracts and activities | ||
may include but are not limited to: | ||
(1) entering into reinsurance contracts; | ||
(2) issuing LPS securities; | ||
(3) complying with the terms of these contracts or | ||
securities; | ||
(4) entering into trust, guaranteed investment | ||
contract, swap, or other derivative, tax, administration, services | ||
reimbursement, or fiscal agent transactions; | ||
(5) complying with trust indenture, reinsurance, or | ||
retrocession; or | ||
(6) entering into other agreements necessary or | ||
incidental to effect a reinsurance contract or an insurance | ||
securitization in compliance with this chapter. | ||
(e) Unless otherwise approved in advance by the | ||
commissioner, a reinsurance contract shall not contain any | ||
provision for payment by the LPS in discharge of its obligations | ||
under the reinsurance contract to any person other than the ceding | ||
insurer or any receiver of the ceding insurer. | ||
§841.825. Other Laws Not Applicable. The deposit | ||
requirements in subchapter H of this chapter shall not apply to an | ||
LPS. | ||
SECTION 2. This Act shall be effective January 1, 2012. |