Bill Text: TX HB3754 | 2021-2022 | 87th Legislature | Introduced
NOTE: There are more recent revisions of this legislation. Read Latest Draft
Bill Title: Relating to regulation of the pledge or encumbrance of an insurer's assets under the Asset Protection Act.
Spectrum: Partisan Bill (Republican 1-0)
Status: (Introduced - Dead) 2021-05-03 - Laid on the table subject to call [HB3754 Detail]
Download: Texas-2021-HB3754-Introduced.html
Bill Title: Relating to regulation of the pledge or encumbrance of an insurer's assets under the Asset Protection Act.
Spectrum: Partisan Bill (Republican 1-0)
Status: (Introduced - Dead) 2021-05-03 - Laid on the table subject to call [HB3754 Detail]
Download: Texas-2021-HB3754-Introduced.html
By: Oliverson | H.B. No. 3754 |
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relating to the regulation of the pledging or encumbering of | ||
domestic insurers' assets in accordance with marketplace | ||
practices. | ||
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS: | ||
SECTION 1. Section 422.002, Insurance Code, is amended to | ||
read as follows: | ||
Sec. 422.002. PURPOSES. (a) The purposes of this chapter | ||
are to: | ||
(1) require an insurer to maintain unencumbered assets | ||
in an amount equal to the insurer's policy reserve liabilities; | ||
(2) provide preferential claims against assets in | ||
favor of an owner, beneficiary, assignee, certificate holder, or | ||
third-party beneficiary of an insurance policy; and | ||
(3) prevent the pledge or encumbrance of assets in | ||
excess of certain amounts without a prior written order of the | ||
commissioner. | ||
(b) This chapter and the powers granted and functions | ||
authorized by this chapter shall be exercised to accomplish the | ||
purposes of this chapter. | ||
SECTION 2. Section 422.003, Insurance Code, is amended to | ||
read as follows: | ||
Sec. 422.003. DEFINITIONS. In this chapter: | ||
(1) "Asset" means any property in which an insurer | ||
owns a legal or equitable interest that is reported as an asset in | ||
the domestic insurer's statutory financial statements most | ||
recently filed with the department of insurance. | ||
(2) "Claimant" means an owner, beneficiary, assignee, | ||
certificate holder, or third-party beneficiary of an insurance | ||
benefit or right arising from the coverage of an insurance policy to | ||
which this chapter applies. | ||
(3) "Reserve assets" means the assets of an insurer | ||
that are authorized investments for policy reserve liabilities | ||
under this code. | ||
(4) " |
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liabilities that an insurer is required under this code to | ||
establish for all of the insurer's outstanding insurance policies. | ||
SECTION 3. Section 422.005, Insurance Code, is amended to | ||
read as follows: | ||
Sec. 422.005. EXEMPTIONS. (a) This chapter does not apply | ||
to: | ||
(1) variable contracts for which separate accounts are | ||
required to be maintained; | ||
(2) a reinsurance agreement |
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related to the reinsurance agreement if the reinsurance agreement | ||
and related trust account meet the requirements of Chapter 493; | ||
(3) an assessment-as-needed company or insurance | ||
coverage written by an assessment-as-needed company; | ||
(4) an insurer while: | ||
(A) the insurer is subject to a conservatorship | ||
order issued by the commissioner; |
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(B) a court-appointed receiver is in charge of | ||
the insurer's affairs; | ||
(5) an insurer's reserve assets that are held, | ||
deposited, pledged, or otherwise encumbered to secure, offset, | ||
protect, or meet the insurer's policy reserve liabilities | ||
established in a reinsurance agreement under which the insurer | ||
reinsures the insurance policy liabilities of a ceding insurer if: | ||
(A) the ceding insurer and the reinsurer are | ||
authorized to engage in business in this state; and | ||
(B) in accordance with a written agreement | ||
between the ceding insurer and the reinsurer, reserve assets | ||
substantially equal to the policy reserve liabilities the reinsurer | ||
must establish on the reinsured business are: | ||
(i) deposited by or withheld from the | ||
reinsurer and held in the custody of the ceding insurer, or | ||
deposited and held in a trust account with a state or national bank | ||
domiciled in this state, as security for the payment of the | ||
reinsurer's obligations under the reinsurance agreement; | ||
(ii) held subject to withdrawal by the | ||
ceding insurer; and | ||
(iii) held under the separate or joint | ||
control of the ceding insurer |
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(6) any pledge, encumbrance or lien contemplated by or | ||
customarily included in the documentation for: | ||
(A) an investment or transaction authorized by | ||
Sections 424.068, Subchapter D of Chapter 424, 425.121 and 425.151 | ||
of the insurance code, or their successor provisions, regarding a | ||
foreign investment, securities lending, a repurchase, a reverse | ||
repurchase, or a dollar roll transaction, or authorized by 424.068, | ||
Subchapter E of 424, 425.124 through 425.132, or 425.151 of the | ||
insurance code, or their successor provisions, regarding a foreign | ||
investment or risk control transaction; and | ||
(B) a custodial or trust agreement for an | ||
insurer's securities authorized by Section 423.103 of the | ||
insurance code, or its successor provisions, that provides for a | ||
limited grant of a lien or security interest for payment of fees and | ||
expenses due to a service provider or intermediary under the | ||
custodial or trust agreement. | ||
(b) Notwithstanding this section, the commissioner may | ||
examine any asset, reinsurance agreement, or deposit arrangement | ||
described by Subsection (a)(5) at any time, in accordance with the | ||
commissioner's authority under this code to examine an insurer. | ||
SECTION 4. Section 422.051, Insurance Code, is amended to | ||
read as follows: | ||
Sec. 422.051. RESTRICTIONS ON ENCUMBRANCE OF ASSETS. (a) | ||
An insurer shall at all times maintain unencumbered assets in an | ||
amount equal to the insurer's policy reserve liabilities. | ||
(b) An insurer may not pledge or otherwise encumber: | ||
(1) the insurer's assets in an amount that exceeds the | ||
amount of the insurer's capital and surplus; or | ||
(2) more than 10 percent of the insurer's reserve | ||
assets. | ||
(c) The calculation of the quantitative limits in (a) and | ||
(b) shall be based on the statutory financial statements for the | ||
insurer most recently filed with the department of insurance as of | ||
the date of determination of compliance. The date that a pledge or | ||
encumbrance is made shall be the applicable date used to determine | ||
compliance with the limits in (b). Compliance with the quantitative | ||
limits in (b) shall be achieved when, on the date of determination | ||
of compliance, the sum of the value of a proposed pledge or | ||
encumbrance, when added with the values of all previous and still | ||
outstanding pledges and encumbrances, does not exceed any | ||
quantitative limit in (b). | ||
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section, on application made to the commissioner, the commissioner | ||
may issue a written order approving the pledge or encumbrance of an | ||
insurer's asset in any amount if the commissioner determines that | ||
the pledge or encumbrance will not adversely affect the insurer's | ||
solvency. | ||
SECTION 5. Section 422.052, Insurance Code, is amended to | ||
read as follows: | ||
Sec. 422.052. REPORT TO COMMISSIONER. (a) Not later than | ||
the 10th day after the date an insurer pledges or otherwise | ||
encumbers an asset, the insurer shall report in writing to the | ||
commissioner: | ||
(1) the amount and identity of the pledged or | ||
encumbered asset; and | ||
(2) the terms of the transaction. | ||
(b) Annually, or more often as required by the commissioner, | ||
the insurer shall file with the commissioner a statement sworn to by | ||
the insurer's chief executive officer that: | ||
(1) title to assets that equal the amount of the | ||
insurer's policy reserve liabilities and that are not pledged or | ||
otherwise encumbered is vested in the insurer; | ||
(2) the only assets of the insurer that are pledged or | ||
otherwise encumbered are those identified and reported in the sworn | ||
statement, and no other assets of the insurer are pledged or | ||
otherwise encumbered; and | ||
(3) the terms of the transaction pledging or otherwise | ||
encumbering the assets are those reported in the sworn statement. | ||
(c) The insurer is not required to file the report required | ||
under subsection (a) of this section for pledges or encumbrances | ||
permitted in a transaction approved by the commissioner under | ||
Section 1152.055. | ||
SECTION 6. Section 422.053, Insurance Code, is amended to | ||
read as follows: | ||
Sec. 422.053. CLAIMANT LIEN ON CERTAIN ASSETS. (a) A | ||
person, corporation, association, or other legal or governmental | ||
entity that accepts as security for an insurer's debt or other | ||
obligation a pledge or encumbrance of an asset of the insurer that | ||
is not made in accordance with this chapter is considered to have | ||
accepted the asset subject to a superior, preferential, and | ||
automatically perfected lien in favor of a claimant of the insurer. | ||
(b) Subsection (a) does not apply to: (i) an asset of an | ||
insurer in conservatorship or receivership if the commissioner in | ||
the conservatorship proceeding, or the court in which the | ||
receivership is pending, approves the pledge or encumbrance of the | ||
asset; or (ii) pledges or encumbrances |
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transaction approved by the commissioner under Section 1152.055. | ||
SECTION 7. Section 422.054, Insurance Code, is amended to | ||
read as follows: | ||
Sec. 422.054. PREFERENTIAL CLAIMS ON LIQUIDATION. If an | ||
insurer is involuntarily or voluntarily liquidated, a claimant of | ||
the insurer has a prior and preferential claim against all assets of | ||
the insurer other than the assets that have been pledged or | ||
encumbered in accordance with this chapter |
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subject to pledges or encumbrances described in Section | ||
422.053(b)(ii). All claimants have equal status, and their prior | ||
and preferential claim is superior to any claim or cause of action | ||
against the insurer by any other person, corporation, association, | ||
or legal entity. | ||
SECTION 8. Section 422.055, Insurance Code, is added to | ||
read as follows: | ||
Sec. 422.055. RULEMAKING AUTHORITY. The department of | ||
insurance may adopt rules regarding the provisions of this chapter. | ||
SECTION 9. This Act takes effect September 1, 2021. |