Bill Text: TX SB1954 | 2021-2022 | 87th Legislature | Enrolled


Bill Title: Relating to the pledge or encumbrance of an insurer's assets under the Asset Protection Act.

Spectrum: Partisan Bill (Republican 2-0)

Status: (Passed) 2021-05-18 - Effective on 9/1/21 [SB1954 Detail]

Download: Texas-2021-SB1954-Enrolled.html
 
 
  S.B. No. 1954
 
 
 
 
AN ACT
  relating to the pledge or encumbrance of an insurer's assets under
  the Asset Protection Act.
         BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
         SECTION 1.  Section 422.002(a), Insurance Code, is amended
  to read as follows:
         (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.
         SECTION 2.  Sections 422.003(1) and (4), Insurance Code, are
  amended to read as follows:
               (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.
               (4)  "Policy reserve [Reserve] liabilities" means the
  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(a), Insurance Code, is amended
  to read as follows:
         (a)  This chapter does not apply to:
               (1)  variable contracts for which separate accounts are
  required to be maintained;
               (2)  a reinsurance agreement and [or] any trust account
  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; or
                     (B)  a court-appointed receiver is in charge of
  the insurer's affairs; [or]
               (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; or
               (6)  any pledge, encumbrance, or lien contemplated by
  or customarily included in the documentation for:
                     (A)  an investment or transaction authorized by:
                           (i)  Section 424.068, Subchapter D, Chapter
  424, or Section 425.121 or 425.151; or
                           (ii)  Section 424.068, Subchapter E, Chapter
  424, or Section 425.124, 425.125, 425.126, 425.127, 425.128,
  425.129, 425.130, 425.131, or 425.132; and
                     (B)  a custodial or trust agreement for an
  insurer's securities authorized by Section 423.103 that provides
  for a limited grant or lien or security interest for payment of fees
  and expenses due to a service provider or intermediary under the
  custodial or trust agreement.
         SECTION 4.  Subchapter A, Chapter 422, Insurance Code, is
  amended by adding Section 422.007 to read as follows:
         Sec. 422.007.  RULES. The commissioner may adopt rules
  regarding the provisions of this chapter.
         SECTION 5.  Section 422.051, Insurance Code, is amended by
  amending Subsection (a) and adding Subsections (b-1) and (b-2) to
  read as follows:
         (a)  An insurer shall at all times maintain unencumbered
  assets in an amount equal to the insurer's policy reserve
  liabilities.
         (b-1)  The calculation of the quantitative limits in
  Subsections (a) and (b) must be based on the statutory financial
  statements for the insurer most recently filed with the department
  as of the date compliance is determined. The date that a pledge or
  encumbrance is made is the date used to determine compliance with
  the limits in Subsection (b). 
         (b-2)  Compliance with the quantitative limits in Subsection
  (b) is achieved when, on the date of determination of compliance,
  the sum of the value of a proposed pledge or encumbrance, when added
  to the values of the sum of all previous and still outstanding
  pledges and encumbrances, does not exceed any quantitative limit in
  Subsection (b).
         SECTION 6.  Section 422.052, Insurance Code, is amended by
  amending Subsection (b) and adding Subsection (c) to read as
  follows:
         (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 described
  by Subsection (a) for a pledge or encumbrance permitted in a
  transaction approved by the commissioner under Section 1152.055.
         SECTION 7.  Section 422.053, Insurance Code, is amended to
  read as follows:
         Sec. 422.053.  CLAIMANT LIEN ON CERTAIN ASSETS. (a) A
  person, corporation, association, governmental entity, or any
  other legal 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:
               (1)  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
               (2)  a pledge or encumbrance of an asset permitted in a
  transaction approved by the commissioner under Section 1152.055.
         SECTION 8.  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 or the assets that are
  subject to a pledge or encumbrance of an asset described by Section
  422.053(b)(2). 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 9.  This Act takes effect September 1, 2021.
 
 
 
 
 
  ______________________________ ______________________________
     President of the Senate Speaker of the House     
 
         I hereby certify that S.B. No. 1954 passed the Senate on
  April 19, 2021, by the following vote:  Yeas 31, Nays 0.
 
 
  ______________________________
  Secretary of the Senate    
 
         I hereby certify that S.B. No. 1954 passed the House on      
  May 4, 2021, by the following vote:  Yeas 145, Nays 0, two present
  not voting.
 
 
  ______________________________
  Chief Clerk of the House   
 
 
 
  Approved:
 
  ______________________________ 
              Date
 
 
  ______________________________ 
            Governor
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