Bill Text: TX HB3161 | 2011-2012 | 82nd Legislature | Engrossed
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-Engrossed.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-Engrossed.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 Subchapter P to read as follows: | ||
SUBCHAPTER P. LIMITED PURPOSE SUBSIDIARY LIFE INSURANCE COMPANIES | ||
Sec. 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. | ||
Sec. 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 three 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. | ||
Sec. 841.803. ORGANIZATIONAL DOCUMENTS OF AN 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. | ||
Sec. 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. | ||
Sec. 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. | ||
Sec. 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. | ||
Sec. 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. | ||
Sec. 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. | ||
Sec. 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. | ||
Sec. 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. | ||
Sec. 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. | ||
Sec. 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. | ||
Sec. 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. | ||
Sec. 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. | ||
Sec. 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. | ||
Sec. 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. | ||
Sec. 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. | ||
Sec. 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. | ||
Sec. 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. |