Bill Text: TX HB3161 | 2011-2012 | 82nd Legislature | Enrolled
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-Enrolled.html
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 I to read as follows: | ||
SUBCHAPTER I. LIMITED PURPOSE SUBSIDIARY LIFE INSURANCE COMPANIES | ||
Sec. 841.401. PURPOSE. The purpose of this subchapter is to | ||
authorize the establishment of domestic limited purpose subsidiary | ||
life insurance companies to enable those companies to support | ||
excess reserves for certain life insurance policies. | ||
Sec. 841.402. DEFINITIONS. In this subchapter: | ||
(1) "Affiliated company" means: | ||
(A) domestic life insurance companies that are | ||
directly or indirectly wholly owned subsidiaries of the same | ||
holding company; or | ||
(B) controlled persons. | ||
(2) "Appointed actuary" means the actuary who is | ||
appointed by a limited purpose subsidiary life insurance company to | ||
render the actuarial opinion required by Subchapter B, Chapter 425. | ||
(3) "Ceding insurer" means a company that cedes risk | ||
to a limited purpose subsidiary life insurance company under a | ||
reinsurance contract and that is: | ||
(A) a domestic life insurance company that is the | ||
parent of a limited purpose subsidiary life insurance company; or | ||
(B) an affiliated company of a limited purpose | ||
subsidiary life insurance company. | ||
(4) "Controlled person" means a person organized or | ||
authorized to do business under the laws of this state that is | ||
controlled directly or indirectly by a holding company. | ||
(5) "Excess reserves" means the amount of statutory | ||
reserves determined to be redundant by the appointed actuary for | ||
life insurance policies whose reserves are calculated under 28 | ||
T.A.C. Chapter 3, Subchapter EE. Excess reserves may not be an | ||
amount greater than the difference between the reserves calculated | ||
using 28 T.A.C. Chapter 3, Subchapter EE, and the reserves | ||
calculated using generally accepted accounting principles. | ||
(6) "Guarantor" means a holding company or an | ||
affiliated company under Section 841.417 of the limited purpose | ||
subsidiary life insurance company that is a party to a guaranty. | ||
(7) "Guaranty" means a commissioner-approved | ||
agreement by a guarantor with sufficient equity and financial | ||
strength to pay, during the life of the guaranty, an amount equal to | ||
the specified obligations of a limited purpose subsidiary life | ||
insurance company, less the equity of all ceding insurers that are | ||
subsidiaries of the guarantor, to satisfy the agreement. | ||
(8) "Holding company" means a person that directly or | ||
indirectly controls an insurer. | ||
(9) "Insurer" means a domestic life insurance company | ||
organized under this chapter. | ||
(10) "Letter of credit" means a clean, unconditional, | ||
irrevocable letter of credit issued or confirmed by a qualified | ||
United States financial institution, as defined by Section | ||
492.104(b)(2)(C). | ||
(11) "Limited purpose subsidiary life insurance | ||
company" means a limited purpose subsidiary life insurance company | ||
organized under this subchapter: | ||
(A) that is wholly owned by a life insurance | ||
company or an affiliated company; and | ||
(B) to which the commissioner issues a | ||
certificate of authority under this chapter. | ||
(12) "Material transaction" means a transaction or | ||
series of transactions involving amounts equal to or exceeding | ||
three percent of a limited purpose subsidiary life insurance | ||
company's admitted assets. | ||
(13) "Organizational document" means a limited | ||
purpose subsidiary life insurance company's articles of | ||
incorporation and the company's bylaws. | ||
(14) "Organizing company" means the company that | ||
organizes a limited purpose subsidiary life insurance company under | ||
this subchapter. | ||
(15) "Parent" means a person that directly or | ||
indirectly controls through one or more intermediaries, or wholly | ||
owns, a limited purpose subsidiary life insurance company. | ||
(16) "Person" has the meaning assigned by Section | ||
823.002. | ||
(17) "Reinsurance contract" means a contract between a | ||
limited purpose subsidiary life insurance company and a ceding | ||
insurer under which the limited purpose subsidiary life insurance | ||
company agrees to provide reinsurance to the ceding insurer for | ||
certain risks. | ||
(18) "Risk" means a risk associated with life | ||
insurance policies written on or after the effective date of this | ||
chapter by a ceding insurer, or assumed by a ceding insurer from an | ||
affiliated company under life insurance policies which were written | ||
on or after the effective date of this chapter, by the affiliated | ||
company and for which the ceding insurer calculates statutory | ||
reserves for those policies pursuant to 28 T.A.C. Chapter 3, | ||
Subchapter EE. | ||
Sec. 841.403. ORGANIZATIONAL DOCUMENTS. (a) A wholly | ||
owned domestic insurer authorized to transact the business of | ||
insurance under this chapter or an affiliated company organized or | ||
authorized to conduct business under the laws of this state may | ||
organize a limited purpose subsidiary life insurance company under | ||
this subchapter. | ||
(b) A limited purpose subsidiary life insurance company may | ||
reinsure risks of the organizing company and of an affiliated | ||
company. | ||
(c) A limited purpose subsidiary life insurance company's | ||
organizational documents must: | ||
(1) limit the company's authority to transact the | ||
business of insurance to reinsuring only the risks of a ceding | ||
insurer; | ||
(2) provide that the limited purpose subsidiary life | ||
insurance company may not otherwise engage in the business of | ||
insurance; and | ||
(3) provide that the limited purpose subsidiary life | ||
insurance company must always be wholly owned by a domestic insurer | ||
authorized to transact the business of insurance under this chapter | ||
or by an affiliated company organized or authorized to do business | ||
under the laws of this state. | ||
Sec. 841.404. CERTIFICATE OF AUTHORITY REQUIRED. A limited | ||
purpose subsidiary life insurance company may not engage in the | ||
business of reinsurance in this state unless the limited purpose | ||
subsidiary life insurance company obtains from the commissioner a | ||
certificate of authority under this subchapter. | ||
Sec. 841.405. APPLICATION FOR CERTIFICATE OF AUTHORITY. To | ||
obtain a charter for a limited purpose subsidiary life insurance | ||
company, the incorporators of the company shall pay to the | ||
department a charter fee in an amount determined under Chapter 202 | ||
and file with the department: | ||
(1) an application for charter on the form prescribed | ||
by, and containing the information prescribed by, the commissioner; | ||
(2) the company's articles of incorporation; | ||
(3) an affidavit made by the company's president, vice | ||
president, treasurer, or chief financial officer stating 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; | ||
(D) the proposed organization and operation of | ||
the limited purpose subsidiary life insurance company comply with | ||
all applicable provisions of this subchapter; | ||
(E) the limited purpose subsidiary life | ||
insurance company's investment policy reflects and takes into | ||
account the liquidity of assets and the reasonable preservation, | ||
administration, and management of those assets with respect to the | ||
risks associated with the reinsurance contract; and | ||
(F) any reinsurance contract and any arrangement | ||
for securing the limited purpose subsidiary life insurance | ||
company's obligations under the reinsurance contract, including | ||
any agreements or other documentation to implement the arrangement; | ||
(4) a business plan that includes pro forma financial | ||
statement projections that demonstrate how the limited purpose | ||
subsidiary life insurance company will comply with Section 841.412; | ||
(5) a copy of any proposed guaranty that demonstrates | ||
how compliance with Sections 841.412 and 841.417 will be achieved; | ||
(6) an opinion of a qualified independent actuary | ||
acceptable to the commissioner that the methodology and assumptions | ||
used to set and discount reserves make good and sufficient | ||
provision for the risk assumed by the limited purpose subsidiary | ||
life insurance company, including significant stress tests on key | ||
assumptions; and | ||
(7) any other statement or document required by the | ||
commissioner to evaluate the limited purpose subsidiary life | ||
insurance company's application for a certificate of authority. | ||
Sec. 841.406. INVESTMENT OF CERTAIN SURPLUS BY ORGANIZING | ||
COMPANY. If the company that organizes a limited purpose | ||
subsidiary life insurance company is a domestic life insurance | ||
company, the organizing company may invest funds from the | ||
organizing company's surplus in the limited purpose subsidiary life | ||
insurance company. | ||
Sec. 841.407. OFFICERS AND DIRECTORS. The officers and | ||
directors of a company that organizes a limited purpose subsidiary | ||
life insurance company may serve as officers and directors of the | ||
limited purpose subsidiary life insurance company. | ||
Sec. 841.408. ISSUANCE OF CERTIFICATE OF AUTHORITY. (a) | ||
The commissioner may issue a certificate of authority to a limited | ||
purpose subsidiary life insurance company, authorizing the company | ||
to transact reinsurance business in this state as a limited purpose | ||
subsidiary life insurance company based on a finding that: | ||
(1) the company's application meets the criteria | ||
contained in this subsection; | ||
(2) the proposed plan of the limited purpose | ||
subsidiary life insurance company provides for viable operation of | ||
the company, including a determination by the commissioner that the | ||
limited purpose subsidiary life insurance company applicant has | ||
sufficiently strong financial support; | ||
(3) the guaranties meet the requirements of Section | ||
841.417; | ||
(4) the terms of any reinsurance arrangement, | ||
including the reinsurance contract and related transactions, | ||
comply with this subchapter and all applicable insurance laws and | ||
rules; | ||
(5) the proposed application and reinsurance | ||
arrangement is not hazardous to any ceding insurer; and | ||
(6) the proposed application and reinsurance contract | ||
will always fund authorized investments that comply with Section | ||
841.412, including statutory reserves for life insurance with | ||
invested assets at least equal to the amount of reserves required | ||
under generally accepted accounting principles. | ||
(b) In conjunction with the issuance of a certificate of | ||
authority under this section, the commissioner may issue an order | ||
that includes any provisions, terms, and conditions regarding the | ||
organization, licensing, and operation of the limited purpose | ||
subsidiary life insurance company that the commissioner deems | ||
appropriate and that are not inconsistent with this chapter, | ||
including requesting from the company information to monitor the | ||
financial strength of guarantors and requiring the periodic | ||
reporting and monitoring of assets behind any guaranties issued. | ||
Sec. 841.409. SCOPE OF CERTIFICATE OF AUTHORITY. (a) A | ||
limited purpose subsidiary life insurance company that has been | ||
issued a certificate of authority may reinsure only the risks of a | ||
ceding insurer. A limited purpose subsidiary life insurance | ||
company may not otherwise engage in the business of insurance. | ||
(b) A limited purpose subsidiary life insurance company may | ||
purchase reinsurance to cede the risks assumed under a reinsurance | ||
contract. | ||
(c) A limited purpose subsidiary life insurance company | ||
organized under this subchapter is considered to be licensed to | ||
transact the business of reinsurance for the purposes of Section | ||
492.051, but may only reinsure risks of the company's affiliated | ||
companies. | ||
(d) A limited purpose subsidiary life insurance company | ||
shall provide the commissioner with notice of any change in the | ||
company's business plan required by Section 841.405, including any | ||
material change in the methods used to comply with Section 841.413. | ||
Sec. 841.410. CAPITAL AND SURPLUS. (a) The commissioner | ||
may not issue a certificate of authority to a limited purpose | ||
subsidiary life insurance company unless the company possesses and | ||
maintains unimpaired paid-in capital and surplus of not less than | ||
$10 million. | ||
(b) A limited purpose subsidiary life insurance company | ||
shall comply with the risk-based capital requirements adopted by | ||
the commissioner by rule. | ||
(c) A limited purpose subsidiary life insurance company | ||
shall maintain risk-based capital in an amount that is at least | ||
equal to 300 percent of the authorized control level of risk-based | ||
capital adopted by the commissioner. | ||
Sec. 841.411. FORECLOSURE ON COLLATERAL. A limited purpose | ||
subsidiary life insurance company shall immediately notify the | ||
commissioner of any action by a ceding insurer or any other person | ||
to foreclose on, or otherwise take possession of, collateral | ||
provided by the limited purpose subsidiary life insurance company | ||
to secure an obligation of the company. | ||
Sec. 841.412. MINIMUM AUTHORIZED INVESTMENT REQUIREMENT | ||
AFTER CREDIT FOR REINSURANCE; LETTERS OF CREDIT; GUARANTIES. (a) A | ||
limited purpose subsidiary life insurance company shall hold | ||
investments authorized under Subchapters C and D, Chapter 425, | ||
exclusive of investments in affiliates, in an amount that at least | ||
equals the sum of: | ||
(1) the minimum capital and surplus requirements of | ||
Section 841.410; | ||
(2) the risk-based capital requirements adopted by the | ||
commissioner; and | ||
(3) reserves calculated using generally accepted | ||
accounting principles. | ||
(b) Subject to compliance with Subsection (a) and | ||
notwithstanding Chapter 425, a limited purpose subsidiary life | ||
insurance company may reduce the amount of the company's excess | ||
reserves on account of: | ||
(1) reinsurance that complies with Chapter 492; | ||
(2) a letter of credit that complies with Section | ||
492.104(b)(2)(C); or | ||
(3) guaranties from a holding company or an affiliated | ||
company as provided by Section 841.417. | ||
(c) Notwithstanding Subsection (b), a limited purpose | ||
subsidiary life insurance company may hold guaranties from a | ||
holding company or an affiliated company as provided by Section | ||
841.417 as an admitted asset with an offsetting increase in special | ||
surplus funds to support excess reserves only. | ||
Sec. 841.413. PERMITTED REINSURANCE. (a) A limited | ||
purpose subsidiary life insurance company may only reinsure the | ||
risks of a ceding insurer under a reinsurance contract. | ||
(b) Unless otherwise approved in advance by the | ||
commissioner, a limited purpose subsidiary life insurance company | ||
may not assume or retain exposure to reinsurance losses for the | ||
company's own account that are not funded by: | ||
(1) premium and other amounts payable by the ceding | ||
insurer to the limited purpose subsidiary life insurance company | ||
under the reinsurance contract, or any return on the investment of | ||
the premiums or other amounts; | ||
(2) letters of credit that qualify under Section | ||
492.104(b)(2)(C); or | ||
(3) guaranties of a holding company or an affiliated | ||
company as provided by Section 841.417. | ||
(c) A limited purpose subsidiary life insurance company may | ||
cede risks assumed under a reinsurance contract to one or more | ||
reinsurers through the purchase of reinsurance, subject to the | ||
prior approval of the commissioner. The commissioner may approve a | ||
reinsurance contract under this subsection if the commissioner | ||
finds that: | ||
(1) the proposed reinsurance complies with Chapter | ||
492; | ||
(2) the proposed reinsurer has sufficient liquidity, | ||
admitted assets, and policyholder surplus to support the | ||
liabilities assumed under the reinsurance contract; and | ||
(3) the proposed reinsurance contract would not result | ||
in a hazardous financial condition for the limited purpose | ||
subsidiary life insurance company. | ||
(d) A limited purpose subsidiary life insurance company may | ||
enter into contracts and conduct other commercial activities | ||
related or incidental to, and necessary to fulfill the purposes of, | ||
a reinsurance contract. | ||
Sec. 841.414. REPORTS ON RESERVES AND RISK-BASED CAPITAL. | ||
(a) A limited purpose subsidiary life insurance company annually | ||
shall file an opinion of the appointed actuary acceptable to the | ||
commissioner concerning the methods and assumptions used to set | ||
reserves. The opinion must demonstrate that the limited purpose | ||
subsidiary life insurance company holds risk-based capital and | ||
invested admitted assets that are at least equal to reserves | ||
specified by generally accepted accounting principles. | ||
(b) The commissioner may reject the opinion of the appointed | ||
actuary if the commissioner determines that accepting the opinion | ||
would be hazardous to policyholders, enrollees, creditors, or the | ||
public. | ||
(c) A limited purpose subsidiary life insurance company | ||
annually shall file with the commissioner a report of the limited | ||
purpose subsidiary life insurance company's risk-based capital | ||
level as of the end of the preceding calendar year containing the | ||
information required by the risk-based capital instructions | ||
adopted by the commissioner. | ||
Sec. 841.415. OTHER LAWS NOT APPLICABLE. The deposit | ||
requirements in Subchapter H do not apply to a limited purpose | ||
subsidiary life insurance company. | ||
Sec. 841.416. APPLICABILITY OF OTHER LAW. Except as | ||
specifically provided by law, all provisions of this code apply to a | ||
limited purpose subsidiary life insurance company formed under this | ||
subchapter. | ||
Sec. 841.417. GUARANTY REQUIREMENTS. (a) A guaranty may | ||
not be used to comply with this chapter without the prior written | ||
approval of the commissioner. | ||
(b) Before approving a guaranty, the commissioner must find | ||
that: | ||
(1) the guarantor has capital and surplus of $100 | ||
million, exclusive of investments in subsidiaries and affiliates; | ||
(2) the guarantor has admitted assets backing capital | ||
and surplus in an amount sufficient to fulfill the guaranty, and the | ||
sufficiency on an ongoing basis is demonstrated to the satisfaction | ||
of the commissioner; | ||
(3) the guarantor and all affiliates are in good | ||
standing with the department; | ||
(4) the guarantor has provided all information | ||
requested by the commissioner; and | ||
(5) the guarantor is otherwise acceptable to the | ||
commissioner. | ||
(c) Notwithstanding Subsection (b), the commissioner may | ||
allow, subject to the commissioner's prior approval, an affiliated | ||
company of the holding company to serve as guarantor. The | ||
commissioner may approve an affiliated company as a guarantor on a | ||
finding that the affiliated company possesses the independent | ||
financial means to discharge the guaranty using the affiliated | ||
company's own financial resources. | ||
Sec. 841.418. SUNSET PROVISION. This subchapter is valid | ||
for business sold only until January 1 of the year in which | ||
principle-based reserve requirements become operative in Texas | ||
under the adoption of the National Association of Insurance | ||
Commissioners' 2009 amendments to the NAIC Model Standard Valuation | ||
Law. After that January 1, the limited purpose subsidiary life | ||
insurance company may not assume new risks of a ceding insurer | ||
relating to business sold after that date. | ||
Sec. 841.419. CERTIFICATION OF ACTUARIAL OFFICER. (a) At | ||
the time a limited purpose subsidiary life insurance company files | ||
an application for a certificate of authority under this | ||
subchapter, and not later than March 1 of each year that a limited | ||
purpose subsidiary life insurance company is in operation and is | ||
ceded new business from a ceding insurer, a senior actuarial | ||
officer of each ceding insurer shall file with the commissioner a | ||
certification that the ceding insurer's transactions with the | ||
limited purpose subsidiary life insurance company are not being | ||
used to gain an unfair advantage in the pricing of the ceding | ||
insurer's products. | ||
(b) A ceding insurer may not be deemed to have an unfair | ||
advantage if the pricing of the policies and contracts reinsured by | ||
the limited purpose subsidiary life insurance company reflects, at | ||
the time the policies and contracts were issued, a reasonable | ||
long-term estimate of the cost to the ceding insurer of an | ||
alternative third-party transaction, and uses current pricing | ||
assumptions. | ||
(c) The ceding insurer shall keep documentation between | ||
examinations that sets forth the manner in which a senior actuarial | ||
officer arrived at the conclusions in the certification. | ||
Sec. 841.420. ACCOUNTING AND FINANCIAL REPORTING. The | ||
commissioner shall prescribe accounting and financial reporting | ||
requirements with regard to the limited purpose subsidiary life | ||
insurance company and any insurer as defined by Section 841.402 | ||
that organizes a limited purpose subsidiary life insurance company. | ||
SECTION 2. This Act takes effect immediately if it receives | ||
a vote of two-thirds of all the members elected to each house, as | ||
provided by Section 39, Article III, Texas Constitution. If this | ||
Act does not receive the vote necessary for immediate effect, this | ||
Act takes effect September 1, 2011. | ||
______________________________ | ______________________________ | |
President of the Senate | Speaker of the House | |
I certify that H.B. No. 3161 was passed by the House on May 5, | ||
2011, by the following vote: Yeas 146, Nays 0, 1 present, not | ||
voting; and that the House concurred in Senate amendments to H.B. | ||
No. 3161 on May 25, 2011, by the following vote: Yeas 142, Nays 0, | ||
2 present, not voting. | ||
______________________________ | ||
Chief Clerk of the House | ||
I certify that H.B. No. 3161 was passed by the Senate, with | ||
amendments, on May 23, 2011, by the following vote: Yeas 31, | ||
Nays 0 | ||
. | ||
______________________________ | ||
Secretary of the Senate | ||
APPROVED: __________________ | ||
Date | ||
__________________ | ||
Governor |