INSURANCE CODE CHAPTER 425. RESERVES AND INVESTMENTS FOR LIFE INSURANCE COMPANIES AND RELATED ENTITIES
INSURANCE CODE
CHAPTER 425. RESERVES AND INVESTMENTS FOR LIFE INSURANCE COMPANIES
AND RELATED ENTITIES
SUBCHAPTER A. GENERAL PROVISIONS
§ 425.001. SECURITIES IN AMOUNT OF RESERVES REQUIRED.
The commissioner, after determining the amount of the reserves
required on all of a life insurance company's policies in force,
shall ensure that the company has at least that amount in securities
of the class and character required by the law of this state, after
all debts and claims against the company and the minimum capital
required by Chapter 841 or 982, as applicable, have been provided
for.
Added by Acts 2005, 79th Leg., Ch. 727, § 1, eff. April 1, 2007.
§ 425.002. CERTAIN INSURERS: DEPOSIT OF SECURITIES,
MONEY, OR PROPERTY IN AMOUNT OF LEGAL RESERVES. (a) Except as
provided by Subsection (b), a life insurance company incorporated
under the laws of this state may deposit with the department, for
the common benefit of all the holders of the company's policies and
annuity contracts and in an amount equal to the legal reserve on all
the company's outstanding policies and contracts in force,
securities of the character in which the law of this state permits
the company to invest, or against which the law of this state
permits the company to loan, the company's capital, surplus, or
reserves.
(b) A life insurance company may not make a new deposit of
securities after August 28, 1961, except to the extent expressly
required by Section 425.003.
(c) For purposes of this section, securities may be
physically delivered to the department without being accompanied by
a written transfer of a lien securing the securities. A life
insurance company may deposit registered or unregistered United
States government securities under this section.
(d) A life insurance company may deposit lawful money of the
United States instead of all or part of the securities described by
Subsection (a). A company may, for the purposes of the deposit
described by Subsection (a), convey to the department in trust the
real property in which any part of the company's reserve is lawfully
invested. If the company conveys the property, the department
shall hold the title to the property in trust until the company
deposits with the department securities to take the place of the
property, at which time the department shall reconvey the property
to the company.
(e) The department may have any securities or real property
appraised and valued before the securities or real property may be
deposited with or conveyed to the department under this
section. The life insurance company shall pay the reasonable
expense of the appraisal or valuation.
(f) For purposes of state, county, and municipal taxation,
the situs of the deposited securities is the municipality and
county in which the life insurance company's charter requires the
principal business office of the company making the deposit to be
located.
Added by Acts 2005, 79th Leg., Ch. 727, § 1, eff. April 1, 2007.
§ 425.003. CERTAIN INSURERS: REQUIRED DEPOSITS OF
SECURITIES; ADDITIONAL DEPOSITS AND WITHDRAWALS. (a) A life
insurance company that, before August 28, 1961, issued or assumed
the obligations of policies or annuity contracts that were
registered as provided by Article 3.18, as that article existed
before August 28, 1961, shall have on deposit with the department
securities of the character described by Section 425.002 in an
amount equal to or greater than the aggregate net value of the
company's outstanding registered policies and annuity contracts in
force.
(b) To comply with Subsection (a), a life insurance company
shall periodically make additional deposits of securities in
amounts of not less than $5,000. A company whose deposits exceed
the aggregate net value of the company's outstanding registered
policies and annuity contracts in force may periodically withdraw
the excess in amounts of not less than $5,000. A company may at any
time withdraw any of the company's deposited securities by
depositing in their place securities of equal value to the
securities replaced and of a character authorized by this chapter.
(c) A life insurance company may at any time collect the
interest, rents, and other income from the company's securities on
deposit.
(d) The net value of each policy or annuity contract subject
to this section is the policy's or contract's value according to the
standard prescribed by state law when the first premium on the
policy or contract is paid, minus the amount of any liens the life
insurance company has against the policy or contract not to exceed
the policy's or contract's value.
(e) The department shall hold a life insurance company's
securities on deposit with the department under this section in
trust for the benefit of all holders of the company's outstanding
policies and annuity contracts that were registered as provided by
Article 3.18, as that article existed before August 28, 1961.
(f) A life insurance company that has outstanding
registered policies or annuity contracts in force may not reinsure
all or any part of that outstanding business, other than in a
company authorized to engage in business in this state.
Added by Acts 2005, 79th Leg., Ch. 727, § 1, eff. April 1, 2007.
§ 425.004. RECORDS OF SECURITIES DEPOSITED WITH
DEPARTMENT; REPORT OF VALUE. Each life insurance company that is
required by Section 425.003 to have securities on deposit with the
department shall:
(1) keep records of:
(A) all of the company's outstanding registered
policies and annuity contracts in force; and
(B) the net value of those policies and
contracts; and
(2) not later than the 15th day after the last day of
each calendar month, file with the department a report stating
whether the value of the company's securities on deposit is equal to
or greater than the aggregate net value of the company's registered
policies and annuity contracts outstanding and in force at the end
of the preceding calendar month.
Added by Acts 2005, 79th Leg., Ch. 727, § 1, eff. April 1, 2007.
§ 425.005. DEPARTMENT DUTIES REGARDING DEPOSITED
SECURITIES; INSURANCE COMPANY ACCESS. (a) The department shall
keep securities deposited by a life insurance company under
Sections 425.002 and 425.003 in a secure safe-deposit, fireproof
box or vault in the municipality of, or a municipality near the
location of, the company's home office.
(b) The life insurance company's officers may, in
accordance with reasonable rules adopted by the commissioner, have
access to the securities to detach interest coupons, credit
payment, and exchange securities as provided by Section 425.003.
Added by Acts 2005, 79th Leg., Ch. 727, § 1, eff. April 1, 2007.
§ 425.006. ADDITIONAL RESERVES REQUIRED: SUBSTANDARD
OR EXTRA HAZARDOUS POLICIES. (a) If a life insurance company
engaged in business under the laws of this state has written or
assumed risks that are substandard or extra hazardous and has
charged more for the policies under which those risks are written or
assumed than the company's published premium rates, the
commissioner shall, in valuing those policies, compute and charge
extra reserves on the policies as necessary because of the extra
hazard assumed and the extra premium charged.
(b) If the commissioner determines, after notice and
hearing, that a particular risk or class of risks is substandard or
extra hazardous, a life insurance company may not, after the
determination is made, write or assume the particular risk or class
of risks unless the company charges an extra premium as necessary
because of the extra hazard assumed.
Added by Acts 2005, 79th Leg., Ch. 727, § 1, eff. April 1, 2007.
§ 425.007. SUBSCRIPTION TO OR UNDERWRITING PURCHASE OR
SALE OF SECURITIES OR PROPERTY PROHIBITED; CONTROL OF DISPOSITION
OF PROPERTY. (a) A life insurance company organized under the
laws of this state may not:
(1) subscribe to, or participate in, any underwriting
of the purchase or sale of securities or property;
(2) enter into a transaction described by Subdivision
(1) for a purpose described by Subdivision (1);
(3) sell on account of the company jointly with any
other person, firm, or corporation; or
(4) enter into any agreement to withhold from sale any
of the company's property.
(b) The disposition of the life insurance company's
property must be at all times within the control of the company's
board of directors.
Added by Acts 2005, 79th Leg., Ch. 727, § 1, eff. April 1, 2007.
§ 425.008. AUTHORIZED INVESTMENTS FOR FOREIGN
COMPANIES. A foreign company shall invest the company's assets in:
(1) securities or property of the same classes in
which the law of this state permits a domestic insurance company to
invest; or
(2) securities permitted by other law of this state
and approved by the commissioner as being of substantially the same
grade as securities or property in which a domestic insurance
company is permitted to invest.
Added by Acts 2005, 79th Leg., Ch. 727, § 1, eff. April 1, 2007.
§ 425.009. STUDENT LOANS. A foreign or domestic life
insurance company may make loans to a student enrolled in an
institution of higher education if the principal amount of the loan
is insured by:
(1) the federal government under the Higher Education
Act of 1965 (Pub. L. No. 89-329), as amended; or
(2) the Texas Guaranteed Student Loan Corporation
under Chapter 57, Education Code.
Added by Acts 2005, 79th Leg., Ch. 727, § 1, eff. April 1, 2007.
SUBCHAPTER B. STANDARD VALUATION LAW
§ 425.051. SHORT TITLE. This subchapter may be cited as
the Standard Valuation Law.
Added by Acts 2005, 79th Leg., Ch. 727, § 1, eff. April 1, 2007.
§ 425.052. DEFINITIONS. (a) In this subchapter,
"reserves" means reserve liabilities.
(b) As used in this subchapter:
(1) an "issue year basis" of valuation means a
valuation basis under which the interest rate used to determine the
minimum valuation standard for the entire duration of the annuity
or guaranteed interest contract is the calendar year valuation
interest rate for the year of issue or year of purchase of the
annuity or guaranteed interest contract; and
(2) a "change in fund basis" of valuation means a
valuation basis under which the interest rate used to determine the
minimum valuation standard applicable to each change in the fund
held under the annuity or guaranteed interest contract is the
calendar year valuation interest rate for the year of the change in
the fund.
Added by Acts 2005, 79th Leg., Ch. 727, § 1, eff. April 1, 2007.
§ 425.053. ANNUAL VALUATION OF RESERVES. (a) The
department shall annually value or have valued the reserves for all
outstanding life insurance policies and annuity and pure endowment
contracts of each life insurance company engaged in business in
this state. The department may certify the amount of those
reserves, specifying the mortality table or tables, rate or rates
of interest, and methods, including the net level premium method or
another method, used in computing those reserves.
(b) In computing reserves under Subsection (a), the
department may use group methods and approximate averages for
fractions of a year or otherwise.
(c) Instead of valuing the reserves as required by
Subsection (a) for a foreign or alien company, the department may
accept any valuation made by or for the insurance supervisory
official of another state or jurisdiction if:
(1) the valuation complies with the minimum standard
provided by this subchapter; and
(2) the official accepts as sufficient and valid for
all legal purposes a certificate of valuation made by the
department that states the valuation was made in a specified manner
according to which the aggregate reserves would be at least as large
as they would be if computed in the manner prescribed by the law of
that state or jurisdiction.
Added by Acts 2005, 79th Leg., Ch. 727, § 1, eff. April 1, 2007.
§ 425.054. ACTUARIAL OPINION REQUIRED. (a) For
purposes of this section, "qualified actuary" means:
(1) a qualified actuary, as that term is defined by
Section 802.002; or
(2) a person who, before September 1, 1993, satisfied
the requirements of the former State Board of Insurance to submit an
opinion under former Section 2A(a)(1), Article 3.28.
(b) In conjunction with the annual statement and in addition
to other information required by this subchapter, each life
insurance company engaged in business in this state shall annually
submit to the department the opinion of a qualified actuary as to
whether the reserves and related actuarial items held in support of
the policies and contracts specified by commissioner rule:
(1) are computed appropriately;
(2) are based on assumptions that satisfy contractual
provisions;
(3) are consistent with prior reported amounts; and
(4) comply with applicable laws of this state.
(c) The commissioner by rule shall specify the requirements
of an actuarial opinion under Subsection (b), including any matters
considered necessary to the opinion's scope.
(d) The opinion required by this section must:
(1) apply to all of the life insurance company's
business in force, including individual and group health insurance
plans; and
(2) be in the form and contain the substance specified
by commissioner rule and be acceptable to the commissioner.
(e) The commissioner may accept as an opinion required to be
submitted under Subsection (b) by a foreign or alien company the
opinion filed by that company with the insurance supervisory
official of another state if the commissioner determines that the
opinion filed in the other state reasonably meets the requirements
applicable to a company domiciled in this state.
(f) Except as exempted by or as otherwise provided by
commissioner rule, a life insurance company shall include in the
opinion required by Subsection (b) an opinion that states whether
the reserves and related actuarial items held in support of the
policies and contracts specified by commissioner rule adequately
provide for the company's obligations under the policies and
contracts, including the benefits under and expenses associated
with the policies and contracts.
(g) In making the opinion under Subsection (f), the reserves
and related actuarial items are considered in light of the assets
held by the life insurance company with respect to the reserves and
related actuarial items, including:
(1) the investment earnings on the assets; and
(2) the considerations anticipated to be received and
retained under the policies and contracts.
(h) The person who certifies the opinion required by
Subsection (b) must make the opinion required by Subsection (f).
(i) Rules adopted under this section may exempt life
insurance companies that would be exempt from the requirements of
this section under the most recently adopted regulation by the
National Association of Insurance Commissioners entitled "Model
Actuarial Opinion and Memorandum Regulation," or a successor to
that regulation, if the commissioner considers the exemption
appropriate.
Added by Acts 2005, 79th Leg., Ch. 727, § 1, eff. April 1, 2007.
§ 425.055. SUPPORTING MEMORANDUM FOR ACTUARIAL OPINION.
(a) A memorandum that, in form and substance, complies with the
commissioner's rules shall be prepared to support each actuarial
opinion required by Section 425.054.
(b) The commissioner may engage an actuary or other
financial specialist as defined by commissioner rule if:
(1) a life insurance company does not provide a
supporting memorandum at the request of the commissioner in the
time specified by rule; or
(2) the company provides a supporting memorandum, but
the commissioner determines that the supporting memorandum does not
meet the standards prescribed by rule or is otherwise unacceptable
to the commissioner.
(c) The actuary or other financial specialist under
Subsection (b) shall:
(1) review the actuarial opinion and the basis for the
opinion; and
(2) prepare the supporting memorandum.
(d) A life insurance company is responsible for the expense
of the actuary or other financial specialist under Subsection (b).
Added by Acts 2005, 79th Leg., Ch. 727, § 1, eff. April 1, 2007.
§ 425.056. LIMITATION ON LIABILITY FOR ACTUARIAL
OPINION. (a) Except in cases of fraud or wilful misconduct or as
provided by Subsection (b), a person who certifies an opinion under
Section 425.054 is not liable for damages to a person, other than
the life insurance company covered by the opinion, for an act,
error, omission, decision, or other conduct with respect to the
person's opinion.
(b) Subsection (a) does not apply to an administrative
penalty imposed under Chapter 84.
Added by Acts 2005, 79th Leg., Ch. 727, § 1, eff. April 1, 2007.
§ 425.057. DISCIPLINARY ACTION: COMPANY OR PERSON
CERTIFYING OPINION. A company or person that certifies an opinion
under Section 425.054 and that violates Section 425.054 or 425.055
or rules adopted under those sections is subject to disciplinary
action under Chapter 82.
Added by Acts 2005, 79th Leg., Ch. 727, § 1, eff. April 1, 2007.
§ 425.058. VALUATION OF POLICY OR CONTRACT: GENERAL
RULE. (a) Except as otherwise provided by Section 425.059,
425.060, 425.061, 425.062, or 425.063, the minimum standard for the
valuation of an outstanding life insurance policy or annuity or
pure endowment contract issued by a life insurance company on or
after the date on which Chapter 1105 applies to policies issued by
the company, as determined under Section 1105.002(a) or (b), is the
commissioners reserve valuation method described by Sections
425.064, 425.065, and 425.068, computed using the table prescribed
by this section and with interest at 3-1/2 percent or at the
following rate, if applicable:
(1) in the case of a policy or contract issued on or
after June 14, 1973, and before August 29, 1977, other than an
annuity or pure endowment contract, four percent;
(2) in the case of a single premium life insurance
policy issued on or after August 29, 1977, 5-1/2 percent; or
(3) in the case of a life insurance policy issued on or
after August 29, 1977, other than a single premium life insurance
policy, 4-1/2 percent.
(b) Except as provided by Subsection (c), for an ordinary
life insurance policy issued on the standard basis, excluding any
disability or accidental death benefits in the policy, the
applicable table is the Commissioners 1941 Standard Ordinary
Mortality Table, if the policy was issued before the date on which
Section 1105.152 would apply to the policy, as determined under
Section 1105.152(a) or (b), or the Commissioners 1958 Standard
Ordinary Mortality Table, if Section 1105.152 applies to the
policy. For a policy that is issued to insure a female risk:
(1) a modified net premium or present value for a
policy issued before August 29, 1977, may be computed according to
an age not more than three years younger than the insured's actual
age; and
(2) a modified net premium or present value for a
policy issued on or after August 29, 1977, may be computed according
to an age not more than six years younger than the insured's actual
age.
(c) For an ordinary life insurance policy issued on the
standard basis, excluding any disability or accidental death
benefits in the policy, and to which Subchapter B, Chapter 1105,
applies, the applicable table is:
(1) the Commissioners 1980 Standard Ordinary
Mortality Table;
(2) at the insurer's option for one or more specified
life insurance plans, the Commissioners 1980 Standard Ordinary
Mortality Table with Ten-Year Select Mortality Factors; or
(3) any ordinary mortality table adopted after 1980 by
the National Association of Insurance Commissioners that is
approved by commissioner rule for use in determining the minimum
standard valuation for a policy to which this subdivision applies.
(d) For an industrial life insurance policy issued on the
standard basis, excluding any disability or accidental death
benefits in the policy, the applicable table is:
(1) the 1941 Standard Industrial Mortality Table, if
the policy was issued before the date on which Section 1105.153
would apply to the policy as determined under Section 1105.153(a)
or (b); or
(2) if Section 1105.153 applies to the policy:
(A) the Commissioners 1961 Standard Industrial
Mortality Table; or
(B) any industrial mortality table adopted after
1980 by the National Association of Insurance Commissioners that is
approved by commissioner rule for use in determining the minimum
standard of valuation for a policy to which this subdivision
applies.
(e) For an individual annuity or pure endowment contract,
excluding any disability or accidental death benefits in the
policy, the applicable table is the 1937 Standard Annuity Mortality
Table, or at the insurer's option, the Annuity Mortality Table for
1949, Ultimate, or a modification of either table that is approved
by the commissioner.
(f) For a group annuity or pure endowment contract,
excluding any disability or accidental death benefits in the
policy, the applicable table is:
(1) the Group Annuity Mortality Table for 1951;
(2) a modification of that table approved by the
commissioner; or
(3) at the insurance company's option, a table or a
modification of a table prescribed for an individual annuity or
pure endowment contract by Subsection (e).
(g) For total and permanent disability benefits in or
supplementary to an ordinary policy or contract, the applicable
tables are:
(1) for a policy or contract issued on or after January
1, 1966:
(A) the tables of Period 2 disablement rates and
the 1930 to 1950 termination rates of the 1952 Disability Study of
the Society of Actuaries, with due regard to the type of benefit; or
(B) any table of disablement rates and
termination rates adopted after 1980 by the National Association of
Insurance Commissioners that are approved by commissioner rule for
use in determining the minimum standard of valuation for a policy to
which this subdivision applies;
(2) for a policy or contract issued on or after January
1, 1961, and before January 1, 1966:
(A) a table described by Subdivision (1); or
(B) at the insurance company's option, the Class
(3) Disability Table (1926); or
(3) for a policy issued before January 1, 1961, the
Class (3) Disability Table (1926).
(h) A table described by Subsection (g) must, for an active
life, be combined with a mortality table permitted for computing
the reserves for a life insurance policy.
(i) For accidental death benefits in or supplementary to a
policy, the applicable table is:
(1) for a policy issued on or after January 1, 1966:
(A) the 1959 Accidental Death Benefits Table; or
(B) any accidental death benefits table adopted
after 1980 by the National Association of Insurance Commissioners
that is approved by commissioner rule for use in determining the
minimum standard of valuation for a policy to which this
subdivision applies;
(2) for a policy issued on or after January 1, 1961,
and before January 1, 1966:
(A) a table described by Subdivision (1); or
(B) at the insurance company's option, the
Inter-Company Double Indemnity Mortality Table; or
(3) for a policy issued before January 1, 1961, the
Inter-Company Double Indemnity Mortality Table.
(j) A table described by Subsection (i) must be combined
with a mortality table permitted for computing the reserves for a
life insurance policy.
(k) For group life insurance, life insurance issued on the
substandard basis and other special benefits, the applicable table
is a table approved by the commissioner.
For expiration of Subsection (l), see Subsection (l)
(l) Notwithstanding any other law, the minimum reserve
requirements applicable to a policy issued under Chapter 1153 are
met if, in the aggregate, the reserves are maintained at 100 percent
of the 1980 Commissioner's Standard Ordinary Mortality Table, with
interest that does not exceed 5.5 percent. This subsection expires
September 1, 2013.
Added by Acts 2005, 79th Leg., Ch. 727, § 1, eff. April 1, 2007.
§ 425.059. VALUATION OF CERTAIN ANNUITIES AND PURE
ENDOWMENT CONTRACTS. (a) This section applies to an individual
annuity or pure endowment contract issued on or after January 1,
1979, and an annuity or pure endowment purchased on or after January
1, 1979, under a group annuity or pure endowment contract. This
section also applies to an annuity or pure endowment contract
issued by an insurer after the date specified in a written notice:
(1) that was filed with the State Board of Insurance
after June 14, 1973, but before January 1, 1979; and
(2) under which the insurance company filing the
notice elected to comply before January 1, 1979, with former
Section 4, Article 3.28, with respect to individual or group
annuities and pure endowment contracts as specified by the company
in the notice.
(b) Except as provided by Section 425.060, 425.061,
425.062, or 425.063, the minimum standard for the valuation of an
individual or group annuity or pure endowment contract, excluding
any disability or accidental death benefits in the contract, is the
commissioners reserve valuation method described by Sections
425.064 and 425.065, computed using the table prescribed by this
section and with interest at the following interest rate, as
applicable:
(1) for an individual annuity or pure endowment
contract issued before August 29, 1977, other than an individual
single premium immediate annuity contract, four percent;
(2) for an individual single premium immediate annuity
contract issued before August 29, 1977, six percent;
(3) for an individual annuity or pure endowment
contract issued on or after August 29, 1977, other than an
individual single premium immediate annuity contract or an
individual single premium deferred annuity or pure endowment
contract, 4-1/2 percent;
(4) for an individual single premium immediate annuity
contract issued on or after August 29, 1977, 7-1/2 percent;
(5) for an individual single premium deferred annuity
or pure endowment contract issued on or after August 29, 1977, 5-1/2
percent;
(6) for an annuity or pure endowment purchased before
August 29, 1977, under a group annuity or pure endowment contract,
six percent; or
(7) for an annuity or pure endowment purchased on or
after August 29, 1977, under a group annuity or pure endowment
contract, 7-1/2 percent.
(c) For an individual annuity or pure endowment contract
issued before August 29, 1977, the applicable table is:
(1) the 1971 Individual Annuity Mortality Table; or
(2) a modification of that table approved by the
commissioner.
(d) For an individual annuity or pure endowment contract
issued on or after August 29, 1977, including an individual single
premium immediate annuity contract, the applicable table is:
(1) the 1971 Individual Annuity Mortality Table;
(2) an individual annuity mortality table adopted
after 1980 by the National Association of Insurance Commissioners
that is approved by the commissioner by rule for use in determining
the minimum standard of valuation for a specified type of contract
to which this subsection applies; or
(3) a modification of one of those tables approved by
the commissioner.
(e) For an annuity or pure endowment purchased before August
29, 1977, under a group annuity or pure endowment contract, the
applicable table is:
(1) the 1971 Group Annuity Mortality Table; or
(2) a modification of that table approved by the
commissioner.
(f) For an annuity or pure endowment purchased on or after
August 29, 1977, under a group annuity or pure endowment contract,
the applicable table is:
(1) the 1971 Group Annuity Mortality Table;
(2) a group annuity mortality table adopted after 1980
by the National Association of Insurance Commissioners that is
approved by the commissioner by rule for use in determining the
minimum standard of valuation for an annuity or pure endowment to
which this subsection applies; or
(3) a modification of one of those tables approved by
the commissioner.
Added by Acts 2005, 79th Leg., Ch. 727, § 1, eff. April 1, 2007.
§ 425.060. APPLICABILITY OF CALENDAR YEAR STATUTORY
VALUATION INTEREST RATES. The calendar year statutory valuation
interest rates as defined by Sections 425.061, 425.062, and 425.063
are the interest rates used in determining the minimum standard for
the valuation of:
(1) a life insurance policy to which Subchapter B,
Chapter 1105, applies;
(2) an individual annuity or pure endowment contract
issued on or after January 1, 1982;
(3) an annuity or pure endowment purchased on or after
January 1, 1982, under a group annuity or pure endowment contract;
or
(4) the net increase, if any, in a calendar year after
January 1, 1982, in amounts held under a guaranteed interest
contract.
Added by Acts 2005, 79th Leg., Ch. 727, § 1, eff. April 1, 2007.
§ 425.061. COMPUTATION OF CALENDAR YEAR STATUTORY
VALUATION INTEREST RATE: GENERAL RULE. (a) For purposes of
Subsection (b):
(1) R1 is the lesser of R or.09;
(2) R2 is the greater of R or.09;
(3) R is the reference interest rate determined under
Section 425.063; and
(4) W is the weighting factor determined under Section
425.062.
(b) The calendar year statutory valuation interest rate
("I") is determined as provided by this section, with the results
rounded to the nearest one-quarter of one percent:
(1) for life insurance:
I =.03 + W(R1 -.03) + (W/2)(R2 -.09); and
(2) for a single premium immediate annuity or annuity
benefits involving life contingencies arising from another annuity
with a cash settlement option or from a guaranteed interest
contract with a cash settlement option, or for an annuity or
guaranteed interest contract without a cash settlement option, or
for an annuity or guaranteed interest contract with a cash
settlement option that is valued on a change in fund basis:
I =.03 + W(R -.03).
(c) For an annuity or guaranteed interest contract with a
cash settlement option that is valued on an issue year basis, other
than an annuity or contract described by Subsection (b)(2):
(1) the formula prescribed by Subsection (b)(1)
applies to an annuity or guaranteed interest contract with a
guarantee duration determined under Section 425.062(f) greater
than 10 years; and
(2) the formula prescribed by Subsection (b)(2)
applies to an annuity or guaranteed interest contract with a
guarantee duration determined under Section 425.062(f) of 10 years
or less.
(d) Notwithstanding Subsections (b) and (c), if the
calendar year statutory valuation interest rate for a life
insurance policy issued in a calendar year as determined under
Subsection (b) or (c), as applicable, would differ from the
corresponding actual rate for similar policies issued in the
preceding calendar year by less than one-half of one percent, the
calendar year statutory valuation interest rate for the policy is
the corresponding actual rate for the preceding calendar year. For
purposes of this subsection, the calendar year statutory valuation
interest rate for a life insurance policy issued in a calendar year
is determined for 1980 using the reference interest rate defined
for 1979, and is determined for each subsequent calendar year
regardless of whether Subchapter B, Chapter 1105, applies to the
policy.
Added by Acts 2005, 79th Leg., Ch. 727, § 1, eff. April 1, 2007.
§ 425.062. WEIGHTING FACTORS. (a) This section
prescribes the weighting factors referred to in the formulas
prescribed by Section 425.061.
(b) The weighting factor for a life insurance policy is
determined by the following table: Guarantee Duration (Years) Weighting Factor
10 or less .50
More than 10, but not more than 20 .45
More than 20 .35
(c) For purposes of Subsection (b), the guarantee duration
is the maximum number of years the life insurance can remain in
force on a basis guaranteed in the policy or under options to
convert to life insurance plans with premium rates or nonforfeiture
values, or both, that are guaranteed in the original policy.
(d) The weighting factor for a single premium immediate
annuity or for annuity benefits involving life contingencies
arising from another annuity with a cash settlement option or from a
guaranteed interest contract with a cash settlement option is.80.
(e) The weighting factor for an annuity or a guaranteed
interest contract, other than an annuity or contract to which
Subsection (d) applies, is determined by the following tables:
(1) For an annuity or guaranteed interest contract
that is valued on an issue year basis: Guarantee Duration (Years) Weighting Factor for Plan Type
A B C
5 or less: .80 .60 .50
More than 5, but not more
than 10: .75 .60 .50
More than 10, but not more
than 20: .65 .50 .45
More than 20: .45 .35 .35
(2) For an annuity or guaranteed interest contract
that is valued on a change in fund basis, the factors prescribed by
Subdivision (1) increased by:
Plan Type
A B C
.15 .25 .05
(3) For an annuity or guaranteed interest contract
that is valued on an issue year basis that does not guarantee
interest on considerations received more than one year after issue
or purchase, other than an annuity or contract that does not have a
cash settlement option, or an annuity or guaranteed interest
contract that is valued on a change in fund basis that does not
guarantee interest rates on considerations received more than 12
months after the valuation date, the factors prescribed by
Subdivision (1) or determined under Subdivision (2), as
appropriate, increased by:
Plan Type
A B C
.05 .05 .05
(f) For purposes of Subsection (e):
(1) for an annuity or guaranteed interest contract
with a cash settlement option, the guarantee duration is the number
of years for which the contract guarantees interest rates greater
than the calendar year statutory valuation interest rate for life
insurance policies with guarantee duration greater than 20 years;
and
(2) for an annuity or guaranteed interest contract
without a cash settlement option, the guarantee duration is the
number of years from the issue or purchase date to the date annuity
benefits are scheduled to begin.
(g) For purposes of Subsection (e):
(1) a policy is a "Plan Type A" policy if:
(A) the policyholder may withdraw funds at any
time, but only:
(i) with an adjustment to reflect changes
in interest rates or asset values after the insurance company
receives the funds;
(ii) without an adjustment described by
Subparagraph (i), provided that the withdrawal is in installments
over five years or more; or
(iii) as an immediate life annuity; or
(B) the policyholder is not permitted to withdraw
funds at any time;
(2) a policy is a "Plan Type B" policy if:
(A) before the expiration of the interest rate
guarantee:
(i) the policyholder may withdraw funds,
but only:
(a) with an adjustment to reflect
changes in interest rates or asset values after the insurance
company receives the funds; or
(b) without an adjustment described
by Subsubparagraph (a), provided that the withdrawal is in
installments over five years or more; or
(ii) the policyholder is not permitted to
withdraw funds; and
(B) on the expiration of the interest rate
guarantee, the policyholder may withdraw funds in a single sum or in
installments over less than five years, without an adjustment
described by Paragraph (A)(i); and
(3) a policy is a "Plan Type C" policy if the
policyholder may withdraw funds before the expiration of the
interest rate guarantee in a single sum or in installments over less
than five years:
(A) without an adjustment to reflect changes in
interest rates or asset values after the insurance company receives
the funds; or
(B) subject only to a fixed surrender charge that
is a percentage of the fund stipulated in the contract.
(h) An insurance company may elect to value an annuity or
guaranteed interest contract with a cash settlement option on an
issue year basis or on a change in fund basis. A company must value
an annuity or guaranteed interest contract without a cash
settlement option on an issue year basis.
Added by Acts 2005, 79th Leg., Ch. 727, § 1, eff. April 1, 2007.
§ 425.063. REFERENCE INTEREST RATE. (a) In this
section, "Moody's Corporate Bond Yield Average" means the Moody's
Corporate Bond Yield Average--Monthly Average Corporates, as
published by Moody's Investors Service, Inc.
(b) Except as provided by Subsection (g), the reference
interest rate for purposes of Section 425.061 is determined as
provided by Subsections (c)-(f).
(c) The reference interest rate for a life insurance policy
is the lesser of the average over a period of 36 months or the
average over a period of 12 months, ending on June 30 of the
calendar year preceding the year of issue, of the Moody's Corporate
Bond Yield Average.
(d) The reference interest rate is the average over a period
of 12 months, ending on June 30 of the calendar year of issue or year
of purchase, of the Moody's Corporate Bond Yield Average for:
(1) a single premium immediate annuity or annuity
benefits involving life contingencies arising from another annuity
with a cash settlement option or from a guaranteed interest
contract with a cash settlement option;
(2) an annuity or guaranteed interest contract with a
cash settlement option, other than an annuity or contract described
by Subdivision (1), that is valued on an issue year basis and has a
guarantee duration as determined under Section 425.062(f) of 10
years or less; or
(3) an annuity or guaranteed interest contract without
a cash settlement option.
(e) The reference interest rate is the lesser of the average
over a period of 36 months or the average over a period of 12 months,
ending on June 30 of the calendar year of issue or purchase, of the
Moody's Corporate Bond Yield Average for an annuity or guaranteed
interest contract with a cash settlement option, other than an
annuity or contract described by Subsection (d)(1), that is valued
on an issue year basis and has a guarantee duration as determined
under Section 425.062(f) greater than 10 years.
(f) The reference interest rate is the average over a period
of 12 months, ending on June 30 of the calendar year of the change in
the fund, of the Moody's Corporate Bond Yield Average, for an
annuity or guaranteed interest contract with a cash settlement
option, other than an annuity or contract described by Subsection
(d)(1), that is valued on a change in fund basis.
(g) At least annually, the commissioner shall:
(1) determine whether the reference interest rates
prescribed by Subsections (c), (d), (e), and (f) continue to be a
reasonably accurate approximation of the average yield achieved
from purchases in the United States in publicly quoted markets of
investment grade fixed term and fixed interest corporate
obligations for the periods referenced in Subsection (c), (d), (e),
or (f), as applicable; and
(2) if the commissioner determines that a reference
interest rate prescribed by Subsection (c), (d), (e), or (f) is not
a reasonably accurate approximation of the average yield described
by Subdivision (1), adopt rules in the manner prescribed by
Chapters 2001 and 2002, Government Code, to prescribe an
alternative method of determining a reference interest rate, as
appropriate, that is a reasonably accurate approximation of that
average yield.
Added by Acts 2005, 79th Leg., Ch. 727, § 1, eff. April 1, 2007.
§ 425.064. COMMISSIONERS RESERVE VALUATION METHOD.
(a) Except as otherwise provided by Sections 425.065 and 425.068
and subject to Subsection (b), for the life insurance and endowment
benefits of a policy that provides for a uniform amount of insurance
and that requires the payment of uniform premiums, the reserve
according to the commissioners reserve valuation method is the
difference, if greater than zero, of the present value on the date
of valuation of those future guaranteed benefits, minus the present
value on that date of any future modified net premiums for a policy
described by this subsection. The modified net premiums for a
policy described by this subsection are a uniform percentage of the
respective contract premiums for those benefits, so that the
present value on the policy's issue date of all the modified net
premiums is equal to the sum of:
(1) the present value on that date of those benefits;
and
(2) the difference, if greater than zero, between:
(A) a net level annual premium equal to the
present value on the policy's issue date of the benefits provided
for after the first policy year, divided by the present value on the
policy's issue date of an annuity of one per year, payable on the
first policy anniversary and on each subsequent policy anniversary
on which a premium becomes due; and
(B) a net one-year term premium for the benefits
provided for in the first policy year.
(b) A net level annual premium under Subsection (a)(2)(A)
may not exceed the net level annual premium on the 19-year premium
whole life plan for insurance of the same amount at an age that is
one year older than the age on the policy's issue date.
(c) This subsection applies only to a life insurance policy
issued on or after January 1, 1985, for which the contract premium
for the first policy year exceeds the contract premium for the
second year, for which a comparable additional benefit is not
provided in the first year for the excess premium, and that provides
an endowment benefit, a cash surrender value, or a combination of an
endowment benefit and cash surrender value, in an amount greater
than the excess premium. For purposes of this subsection, the
"assumed ending date" is the first policy anniversary on which the
sum of any endowment benefit and any cash surrender value available
on that date is greater than the excess premium. The reserve
according to the commissioners reserve valuation method for a
policy to which this subsection applies as of any policy
anniversary occurring on or before the assumed ending date is,
except as otherwise provided by Section 425.068, the greater of:
(1) the reserve as of the policy anniversary computed
as prescribed by Subsection (a); or
(2) the reserve as of the policy anniversary computed
as prescribed by Subsection (a) but with:
(A) the value prescribed by Subsection (a)(2)(A)
reduced by 15 percent of the amount of the excess first-year
premium;
(B) each present value of a benefit or premium
determined without reference to a premium or benefit provided under
the policy after the assumed ending date;
(C) the policy assumed to mature on the assumed
ending date as an endowment; and
(D) the cash surrender value provided on the
assumed ending date considered to be an endowment benefit.
(d) In making the comparison required by Subsection (c), the
mortality tables and interest bases described by Sections 425.058,
425.061, 425.062, and 425.063 must be used.
(e) Reserves according to the commissioners reserve
valuation method for the following policies, contracts, and
benefits must be computed by a method consistent with the
principles of this section:
(1) a life insurance policy that provides for a
varying amount of insurance or that requires the payment of varying
premiums;
(2) a group annuity or pure endowment contract
purchased under a retirement or deferred compensation plan
established or maintained by an employer, including a partnership
or sole proprietorship, by an employee organization, or by both,
other than a plan providing individual retirement accounts or
individual retirement annuities under Section 408, Internal
Revenue Code of 1986, and that section's subsequent amendments;
(3) disability or accidental death benefits in a
policy or contract; and
(4) all other benefits, other than life insurance and
endowment benefits in a life insurance policy or benefits provided
by any other annuity or pure endowment contract.
Added by Acts 2005, 79th Leg., Ch. 727, § 1, eff. April 1, 2007.
§ 425.065. COMMISSIONERS ANNUITY RESERVE VALUATION
METHOD. (a) This section applies to an annuity or pure endowment
contract other than a group annuity or pure endowment contract
purchased under a retirement or deferred compensation plan
established or maintained by an employer, including a partnership
or sole proprietorship, by an employee organization, or by both,
other than a plan providing individual retirement accounts or
individual retirement annuities under Section 408, Internal
Revenue Code of 1986, and that section's subsequent amendments.
(b) Reserves according to the commissioners annuity reserve
method for benefits under an annuity or pure endowment contract,
excluding any disability or accidental death benefits in the
contract, are the greatest of the respective excesses of the
present values on the valuation date of the future guaranteed
benefits under the contract at the end of each respective contract
year, including guaranteed nonforfeiture benefits, minus the
present value on the valuation date of any future valuation
considerations derived from future gross considerations that are
required by the contract terms and that become payable before the
end of the respective contract year. The future guaranteed
benefits must be determined by using the mortality table, if any,
and the interest rate or rates specified in the contract for
determining guaranteed benefits. The valuation considerations are
the portions of the respective gross considerations applied under
the contract terms to determine nonforfeiture values.
Added by Acts 2005, 79th Leg., Ch. 727, § 1, eff. April 1, 2007.
§ 425.066. MINIMUM AGGREGATE RESERVES. (a) An
insurance company's aggregate reserves for all life insurance
policies, excluding disability or accidental death benefits,
issued by the company on or after the date on which Chapter 1105
applies to policies issued by the company, as determined under
Section 1105.002(a) or (b), may not be less than the aggregate
reserves computed in accordance with the methods prescribed by
Sections 425.064, 425.065, 425.068, and 425.069 and the mortality
table or tables and interest rate or rates used in computing
nonforfeiture benefits for those policies.
(b) The aggregate reserves of an insurance company to which
this section applies for all policies, contracts, and benefits may
not be less than the aggregate reserves determined to be necessary
to issue a favorable opinion under Section 425.054.
Added by Acts 2005, 79th Leg., Ch. 727, § 1, eff. April 1, 2007.
§ 425.067. OPTIONAL RESERVE COMPUTATIONS.
(a) Reserves for a policy or contract issued by a life insurance
company before the date on which Chapter 1105 would apply to the
policy or contract, as determined under Section 1105.002(a) or (b),
may be computed, at the company's option, according to any standard
that produces greater aggregate reserves for all those policies and
contracts than the minimum reserves required by the laws applicable
to those policies and contracts immediately before that date.
(b) Reserves for any category, as established by the
commissioner, of policies, contracts, or benefits issued by a life
insurance company on or after the date on which Chapter 1105 applies
to policies, contracts, or benefits issued by the company, as
determined under Section 1105.002(a) or (b), may be computed, at
the company's option, according to any standard that produces
greater aggregate reserves for the category than the minimum
aggregate reserves computed according to the standard provided by
this subchapter, but the interest rate or rates used for those
policies and contracts, other than annuity and pure endowment
contracts, may not be higher than the corresponding interest rate
or rates used in computing any nonforfeiture benefits provided in
those policies or contracts.
(c) An insurance company that has adopted a standard of
valuation that produces greater minimum aggregate reserves than the
aggregate reserves computed according to the standard provided by
this subchapter may, with the commissioner's approval, adopt any
lower standard of valuation that produces aggregate reserves at
least equal to the minimum aggregate reserves computed according to
the standard provided by this subchapter.
(d) For purposes of this section, the holding of additional
reserves previously determined to be necessary to issue a favorable
opinion under Section 425.054 may not be considered to be the
adoption of a higher standard of valuation.
Added by Acts 2005, 79th Leg., Ch. 727, § 1, eff. April 1, 2007.
§ 425.068. RESERVE COMPUTATION: GROSS PREMIUM CHARGED
LESS THAN VALUATION NET PREMIUM. (a) If in a contract year the
gross premium charged by a life insurance company on a policy or
contract is less than the valuation net premium for the policy or
contract computed by the method used in computing the reserve on the
policy or contract but using the minimum valuation mortality
standards and interest rate, the minimum reserve required for the
policy or contract is the greater of:
(1) the reserve computed according to the mortality
table, interest rate, and method actually used for the policy or
contract; or
(2) the reserve computed by the method actually used
for the policy or contract but using the minimum valuation
mortality standards and interest rate and replacing the valuation
net premium with the actual gross premium in each contract year for
which the valuation net premium exceeds the actual gross premium.
(b) The minimum valuation mortality standards and interest
rate under Subsection (a) are the standards and rate provided by
Sections 425.058, 425.061, 425.062, and 425.063.
(c) This subsection applies only to a life insurance policy
issued on or after January 1, 1985, for which the gross premium for
the first policy year exceeds the gross premium for the second
policy year, for which a comparable additional benefit is not
provided in the first year for the excess premium, and that provides
an endowment benefit, a cash surrender value, or a combination of an
endowment benefit and cash surrender value, in an amount greater
than the excess premium. For a policy to which this subsection
applies, Subsections (a) and (b) shall be applied as if the method
actually used in computing the reserve for the policy were the
method described in Section 425.064, ignoring Section
425.064(c). The minimum reserve at each policy anniversary is the
greater of:
(1) the minimum reserve computed in accordance with
Section 425.064, including Section 425.064(c); or
(2) the minimum reserve computed in accordance with
this section.
Added by Acts 2005, 79th Leg., Ch. 727, § 1, eff. April 1, 2007.
§ 425.069. RESERVE COMPUTATION: INDETERMINATE PREMIUM
PLANS AND CERTAIN OTHER PLANS. (a) For a life insurance plan that
provides for future premium determination, the amounts of which are
to be determined by the insurance company based on estimates of
future experience, or a life insurance plan or annuity for which the
minimum reserves cannot be determined by the methods described by
Sections 425.064, 425.065, and 425.068, the reserves held must:
(1) be appropriate in relation to the benefits and the
pattern of premiums for the plan; and
(2) be computed by a method that is consistent with the
principles of this subchapter, as determined by commissioner rule.
(b) Notwithstanding any other provision of state law, the
commissioner must affirmatively approve a policy, contract, or
certificate that provides life insurance under a plan described by
Subsection (a) before the policy, contract, or certificate may be
marketed, issued, delivered, or used in this state.
Added by Acts 2005, 79th Leg., Ch. 727, § 1, eff. April 1, 2007.
§ 425.070. COMPUTATION OF RESERVE FOR CERTAIN POLICIES
BY CALENDAR YEAR OF ISSUE. (a) The reserve for a policy or
contract issued by a life insurance company before the date on which
Chapter 1105 would apply to the policy or contract, as determined
under Section 1105.002(a) or (b), must be computed in accordance
with the terms of the policy or contract and this section.
(b) For a policy issued before January 1, 1910, the
computation must be based on the American Experience Table of
Mortality and 4-1/2 percent annual interest.
(c) For a policy issued on or after January 1, 1910, and
before January 1, 1948, the computation must be based on:
(1) the Actuaries or Combined Experience Table of
Mortality and four percent annual interest, if the interest rate
guaranteed in the policy is four percent annually or higher; or
(2) the American Experience Table of Mortality and
the lower rate specified in the policy, if the policy was issued on
a reserve basis of an interest rate lower than four percent
annually.
(d) For a policy issued on or after January 1, 1948, the
computation must be based on the mortality table and interest rate
specified in the policy, provided that:
(1) the specified interest rate may not exceed 3-1/2
percent annually;
(2) the specified table for a policy, other than an
industrial life insurance policy, is the American Experience Table
of Mortality, the American Men Ultimate Table of Mortality, the
Commissioners 1941 Standard Ordinary Mortality Table, or, for a
policy issued after December 31, 1959, the Commissioners 1958
Standard Ordinary Mortality Table; and
(3) the specified table for an industrial life
insurance policy is the American Experience Table of Mortality, the
Standard Industrial Mortality Table, the Sub-Standard Industrial
Mortality Table, the 1941 Standard Industrial Mortality Table, or
the 1941 Sub-Standard Industrial Mortality Table, or, for a policy
issued after December 31, 1963, the Commissioners 1961 Standard
Industrial Mortality Table.
(e) For a policy, other than an industrial life insurance
policy, issued after December 31, 1959, to insure a female risk, the
computation must be based on any mortality table and interest rate
permitted under Subsection (d) and specified in the policy but may,
at the insurance company's option, be based on an age not more than
three years younger than the insured's actual age.
(f) Except as otherwise provided by Section 425.059 for
coverage purchased under a group annuity or pure endowment contract
to which that section applies, for a policy issued on a substandard
risk, an annuity contract, or a contract or policy for disability
benefits or accidental death benefits, the computation must be
based on the standards and methods adopted by the insurance company
and approved by the commissioner.
(g) For a group insurance policy issued before May 15, 1947,
the computation must be based on the American Men Ultimate Table of
Mortality with interest at the rate of three percent or 3-1/2
percent annually as provided by the policy. The reserve value of a
group insurance policy issued on or after May 15, 1947, and before
January 1, 1961, must be computed on the basis of either the
American Men Ultimate Table of Mortality or the Commissioners 1941
Standard Ordinary Mortality Table with interest at a rate not to
exceed 3-1/2 percent annually as provided by the policy. For a
group insurance policy issued on or after January 1, 1961, the
computation must be based on an interest rate not to exceed 3-1/2
percent annually and the mortality table adopted by the insurance
company with the commissioner's approval.
Added by Acts 2005, 79th Leg., Ch. 727, § 1, eff. April 1, 2007.
§ 425.071. LAPSE RATES IN MINIMUM STANDARD OF VALUATION.
(a) The minimum standard of valuation under this subchapter may
include lapse rates in the calculation of reserves for a secondary
guarantee in universal life contracts issued after December 31,
2006.
(b) For purposes of this section, a secondary guarantee
refers to specified conditions in a universal life contract that,
if satisfied, provide for death benefits to remain in effect
regardless of the accumulation value in the contract.
(c) Lapse rates authorized by this section may not exceed
two percent per year.
(d) The commissioner is authorized to adopt rules to
implement this section.
Added by Acts 2007, 80th Leg., R.S., Ch. 681, § 1, eff. June 15,
2007.
SUBCHAPTER C. AUTHORIZED INVESTMENTS AND TRANSACTIONS FOR CAPITAL
STOCK LIFE, HEALTH, AND ACCIDENT INSURERS
§ 425.101. DEFINITIONS. In this subchapter:
(1) "Assets" means the statutory accounting admitted
assets of an insurance company. The term includes lawful money of
the United States, whether in the form of cash or demand deposits in
solvent banks, savings and loan associations, credit unions, and
branches of those entities, organized under the laws of the United
States or a state of the United States, if held in accordance with
the laws or regulations applicable to those entities. The term
does not include the company's separate accounts that are subject
to Chapter 1152.
(2) "Securities valuation office" means the
Securities Valuation Office of the National Association of
Insurance Commissioners.
Added by Acts 2005, 79th Leg., Ch. 727, § 1, eff. April 1, 2007.
§ 425.102. INAPPLICABILITY OF CERTAIN LAW. The
definition of "state" assigned by Section 311.005, Government Code,
does not apply to this subchapter.
Added by Acts 2005, 79th Leg., Ch. 727, § 1, eff. April 1, 2007.
§ 425.103. APPLICABILITY OF SUBCHAPTER. (a) This
subchapter and rules adopted to interpret and implement this
subchapter apply to all domestic insurance companies as defined in
Section 841.001 and to other insurance companies specifically made
subject to this subchapter, including a stipulated premium company
that elects under Section 884.311 to be governed by this
subchapter.
(b) Subchapter D does not apply to an insurance company to
which this subchapter applies.
(c) This subchapter does not limit or restrict investments
in or transactions with or within subsidiaries and affiliates made
under Chapter 823.
Added by Acts 2005, 79th Leg., Ch. 727, § 1, eff. April 1, 2007.
§ 425.104. PURPOSE. The purpose of this subchapter is to
protect and further the interests of insureds, insurance companies,
creditors, and the public by providing standards for development
and administration of plans for investment of insurance companies'
assets.
Added by Acts 2005, 79th Leg., Ch. 727, § 1, eff. April 1, 2007.
§ 425.105. WRITTEN INVESTMENT PLAN. (a) Each insurance
company's board of directors or, if the company does not have a
board of directors, the corresponding authority designated by the
company's charter, bylaws, or plan of operation, shall adopt a
written investment plan consistent with this subchapter.
(b) The investment plan must:
(1) specify the diversification of the insurance
company's investments, so as to reduce the risk of large losses, by:
(A) broad categories, such as bonds and real
property loans;
(B) kinds, such as government obligations,
obligations of business entities, mortgage-backed securities, and
real property loans on office, retail, industrial, or residential
properties;
(C) quality;
(D) maturity;
(E) industry; and
(F) geographical areas, as to both domestic and
foreign investments;
(2) balance safety of principal with yield and growth;
(3) seek a reasonable relationship of assets and
liabilities as to term and nature; and
(4) be appropriate considering the capital and surplus
and the business conducted by the company.
(c) At least annually, the board of directors or
corresponding authority shall review the adequacy of the investment
plan and the implementation of the plan.
(d) An insurance company shall maintain the company's
investment plan in the company's principal office and provide the
plan to the commissioner or the commissioner's designee on
request. The commissioner or the commissioner's designee shall
maintain the plan as a privileged and confidential document. The
plan is not subject to public disclosure.
Added by Acts 2005, 79th Leg., Ch. 727, § 1, eff. April 1, 2007.
§ 425.106. INVESTMENT RECORDS; DEMONSTRATION OF
COMPLIANCE. An insurance company shall maintain investment
records covering each transaction. The company must be able to
demonstrate at all times that the company's investments are within
the limitations imposed by this subchapter.
Added by Acts 2005, 79th Leg., Ch. 727, § 1, eff. April 1, 2007.
§ 425.107. COMMUNITY INVESTMENT REPORT. (a) The
department shall, after consulting with the insurance industry of
this state and the office of public insurance counsel, develop a
report of insurance industry community investments in this state.
(b) The commissioner may request, and an insurance company
shall provide, information necessary to complete the report
required by this section.
(c) The department shall provide the report required by this
section to the legislature not later than December 1 of each
even-numbered year.
Added by Acts 2005, 79th Leg., Ch. 727, § 1, eff. April 1, 2007.
§ 425.108. AUTHORIZED INVESTMENTS AND TRANSACTIONS IN
GENERAL. (a) Subject to the limitations and restrictions imposed
by this subchapter, and, unless otherwise specified, based on the
insurance company's capital, surplus, and admitted assets as
reported in the company's most recently filed statutory financial
statement, the investments and transactions described by this
subchapter and Subchapter F, Chapter 823, are authorized
investments and transactions for a company subject to this
subchapter.
(b) An insurance company may not make an investment or enter
into a transaction that is not authorized by this subchapter or
Subchapter F, Chapter 823.
Added by Acts 2005, 79th Leg., Ch. 727, § 1, eff. April 1, 2007.
§ 425.109. AUTHORIZED INVESTMENTS: GOVERNMENT
OBLIGATIONS. (a) An insurance company may invest in:
(1) a bond, evidence of indebtedness, or other
obligation of the United States;
(2) a bond, evidence of indebtedness, or other
obligation guaranteed as to principal and interest by the full
faith and credit of the United States;
(3) a bond, evidence of indebtedness, or other
obligation of an agency or instrumentality of the United States
government; and
(4) subject to Subsections (b) and (c), a bond,
evidence of indebtedness, or other obligation of a governmental
unit in the United States, Canada, or any province or municipality
of Canada, or of an instrumentality of one of those governmental
units.
(b) An insurance company may not invest in a bond, evidence
of indebtedness, or other obligation under Subsection (a)(4) if the
governmental unit or instrumentality is in default in the payment
of principal of or interest on any of the governmental unit's or
instrumentality's obligations.
(c) An insurance company's investments in the obligations
of a single governmental unit or instrumentality under Subsection
(a)(4) may not exceed 20 percent of the company's capital and
surplus.
Added by Acts 2005, 79th Leg., Ch. 727, § 1, eff. April 1, 2007.
§ 425.110. AUTHORIZED INVESTMENTS: OBLIGATIONS OF AND
OTHER INVESTMENTS IN BUSINESS ENTITIES. (a) In this section:
(1) "Business entity" includes a sole proprietorship,
corporation, association, general or limited partnership, limited
liability company, joint-stock company, joint venture, trust, or
other form of business organization, regardless of whether
organized for profit, that is organized under the laws of the United
States, another state, Canada, or any district, province, or
territory of Canada.
(2) "Counterparty exposure amount" has the meaning
assigned by Section 425.125.
(b) Subject to this section, an insurance company may invest
in an obligation, including a bond or evidence of indebtedness, a
participation in a bond or evidence of indebtedness, or an
asset-backed security, that is issued, assumed, guaranteed, or
insured by a business entity.
(c) An insurance company's investments in the obligations
or counterparty exposure amounts of a single business entity rated
by the securities valuation office may not exceed 20 percent of the
company's statutory capital and surplus.
(d) An insurance company may not invest in an obligation,
counterparty exposure amount, or preferred stock of a business
entity if, after making the investment:
(1) the aggregate amount of those investments then
held by the company that are rated 3, 4, 5, or 6 by the securities
valuation office would exceed 20 percent of the company's assets;
(2) the aggregate amount of those investments then
held by the company that are rated 4, 5, or 6 by the securities
valuation office would exceed 10 percent of the company's assets;
(3) the aggregate amount of those investments then
held by the company that are rated 5 or 6 by the securities
valuation office would exceed three percent of the company's
assets; or
(4) the aggregate amount of those investments then
held by the company that are rated 6 by the securities valuation
office would exceed one percent of the company's assets.
(e) If an insurance company attains or exceeds the limit of
a rating category referred to in Subsection (d), the company is not
precluded from acquiring investments in other rating categories
subject to the specific and multiple category limits applicable to
those investments.
(f) Notwithstanding Subsections (c)-(e), an insurance
company may invest in an additional obligation of a business entity
in which the company holds one or more obligations if the investment
is made to protect an investment previously made in that business
entity. Obligations invested in under this subsection may not
exceed one-half percent of the company's assets.
(g) This section does not prohibit an insurance company from
investing in an obligation as a result of a restructuring of an
already held obligation or preferred stock that is rated 3, 4, 5, or
6 by the securities valuation office.
(h) An insurance company shall include all counterparty
exposure amounts in determining compliance with the limitations of
this section.
Added by Acts 2005, 79th Leg., Ch. 727, § 1, eff. April 1, 2007.
§ 425.111. AUTHORIZED INVESTMENTS: BONDS ISSUED,
ASSUMED, OR GUARANTEED IN INTERNATIONAL MARKET. (a) Subject to
this section, an insurance company may invest in bonds issued,
assumed, or guaranteed by:
(1) the Inter-American Development Bank;
(2) the International Bank for Reconstruction and
Development (the World Bank);
(3) the Asian Development Bank;
(4) the State of Israel;
(5) the African Development Bank; and
(6) the International Finance Corporation.
(b) An insurance company's investments in the bonds of a
single entity under this section may not exceed 20 percent of the
company's capital and surplus.
(c) The aggregate of all investments made by an insurance
company under this section may not exceed 20 percent of the
company's assets.
Added by Acts 2005, 79th Leg., Ch. 727, § 1, eff. April 1, 2007.
§ 425.112. AUTHORIZED INVESTMENTS: POLICY LOANS. An
insurance company may invest in loans on the security of the
company's own policies in an amount that does not exceed the amount
of the reserve values of those policies.
Added by Acts 2005, 79th Leg., Ch. 727, § 1, eff. April 1, 2007.
§ 425.113. AUTHORIZED INVESTMENTS: DEPOSITS IN CERTAIN
FINANCIAL INSTITUTIONS. (a) Subject to this section, an
insurance company may invest in any type of savings deposit, time
deposit, certificate of deposit, NOW account, or money market
account in a solvent bank, savings and loan association, or credit
union that is organized under the laws of the United States or a
state, or in a branch of one of those financial institutions.
(b) An investment under this section must be made in
accordance with the laws or regulations applicable to the bank,
savings and loan association, or credit union.
(c) The amount of an insurance company's deposits in a
single bank, savings and loan association, or credit union may not
exceed the greater of:
(1) 20 percent of the company's capital and surplus;
(2) the amount of federal or state deposit insurance
coverage that applies to the deposits; or
(3) 10 percent of the amount of capital, surplus, and
undivided profits of the financial institution receiving the
deposits.
Added by Acts 2005, 79th Leg., Ch. 727, § 1, eff. April 1, 2007.
§ 425.114. AUTHORIZED INVESTMENTS: INSURANCE COMPANY
INVESTMENT POOLS. (a) In this section, "affiliate" means, with
respect to a person, another person that, directly or indirectly
through one or more intermediaries, controls, is controlled by, or
is under common control with the person.
(b) Subject to Subsections (c)-(g), an insurance company
may acquire investments in an investment pool that invests only in:
(1) obligations that have a rating by the securities
valuation office of one or two, or an equivalent rating issued by a
nationally recognized statistical rating organization recognized
by the securities valuation office, or that are issued by an issuer
with outstanding obligations that have a securities valuation
office one or two rating or an equivalent rating described by this
subdivision, and that:
(A) have a remaining maturity of 397 days or less
or a put that:
(i) entitles the holder to receive the
principal amount of the obligation; and
(ii) may be exercised through maturity at
specified intervals not exceeding 397 days; or
(B) have a remaining maturity of three years or
less and a floating interest rate that resets at least quarterly on
the basis of a current short-term index (federal funds, prime rate,
treasury bills, London InterBank Offered Rate, or commercial paper)
and is not subject to a maximum limit, if the obligations do not
have an interest rate that varies inversely to market interest rate
changes;
(2) securities lending, repurchase, and reverse
repurchase transactions that meet the requirements of Section
425.121 and any applicable department rules;
(3) money market funds as authorized by Section
425.123, except that a short-term investment pool may not acquire
investments in a single business entity that exceed 10 percent of
the total assets of the pool; or
(4) investments that an insurance company may make
under this subchapter, if:
(A) the company's proportionate interest in the
amount invested in those investments does not exceed the limits of
this subchapter; and
(B) the aggregate amount of the company's
investments in all investment pools under this subdivision does not
exceed 25 percent of the company's assets.
(c) An insurance company may not acquire an investment in an
investment pool under Subsection (b) if, after making the
investment, the aggregate amount of the company's investments in
all investment pools would exceed 35 percent of the company's
assets.
(d) For an investment in an investment pool to be qualified
under this section, the pool may not:
(1) acquire securities issued, assumed, guaranteed,
or insured by an investing insurer or an affiliate of the investing
insurance company; or
(2) borrow or incur an indebtedness for borrowed
money, except for securities lending and reverse repurchase
transactions.
(e) For an investment pool to be qualified under this
section:
(1) the pool manager must:
(A) be organized under the laws of the United
States or a state and designated as the pool manager in a pooling
agreement; or
(B) be:
(i) the investing insurance company, an
affiliated insurance company, a business entity affiliated with the
investing company, a custodian bank, a business entity registered
under the Investment Advisers Act of 1940 (15 U.S.C. Section 80b-1
et seq.), as amended;
(ii) in the case of a reciprocal or
interinsurance exchange, the exchange's attorney-in-fact; or
(iii) in the case of a United States branch
of an alien insurance company, the United States manager or an
affiliate or subsidiary of the United States manager;
(2) the pool manager or an entity designated by the
pool manager of the type described by Subdivision (1)(B) must
maintain:
(A) detailed accounting records showing:
(i) the cash receipts and disbursements
reflecting each participant's proportionate investment in the
pool; and
(ii) a complete description of all the
pool's underlying assets, including the amount, interest rate,
maturity date, if any, and other appropriate designations; and
(B) other records that, on a daily basis, allow a
third party to verify each participant's investments in the pool;
and
(3) the assets of the pool must be held in one or more
accounts, in the name or on behalf of the pool, at the principal
office of the pool manager or under a custody agreement or trust
agreement with a custodian bank, provided that the agreement:
(A) states and recognizes the claims and rights
of each participant;
(B) acknowledges that the pool's underlying
assets are held solely for the benefit of each participant in
proportion to the aggregate amount of the participant's investments
in the pool; and
(C) contains an agreement that the pool's
underlying assets may not be commingled with the general assets of
the custodian bank or any other person.
(f) The pooling agreement for each investment pool must be
in writing and must provide that:
(1) 100 percent of the interests in the pool must be
held at all times by the insurance company, the company's
subsidiaries or affiliates, or, in the case of a United States
branch of an alien insurance company, the affiliates or
subsidiaries of the United States manager, and any unaffiliated
insurance company;
(2) the pool's underlying assets may not be commingled
with the general assets of the pool manager or any other person;
(3) in proportion to the aggregate amount of each pool
participant's interest in the pool:
(A) each participant owns an undivided interest
in the pool's underlying assets; and
(B) the pool's underlying assets are held solely
for the benefit of each participant;
(4) a participant, or, in the event of the
participant's insolvency, bankruptcy, or receivership, the
participant's trustee, receiver, conservator, or other successor
in interest, may withdraw all or part of the participant's
investment from the pool under the terms of the pooling agreement;
(5) a withdrawal may be made on demand without penalty
or other assessment on any business day, and settlement of funds
must occur within a reasonable and customary period after the
withdrawal, except that:
(A) in the case of publicly traded securities,
the settlement period may not exceed five business days; and
(B) in the case of securities and investments
other than publicly traded securities, the settlement period may
not exceed 10 business days;
(6) the amount of a distribution under Subdivision (5)
must be computed after subtracting all the pool's applicable fees
and expenses;
(7) the pool manager shall distribute to a
participant, at the manager's discretion:
(A) in cash, an amount that represents the fair
market value of the participant's pro rata share of each of the
pool's underlying assets;
(B) in kind, an amount that represents a pro rata
share of each underlying asset; or
(C) in a combination of cash and in-kind
distributions, an amount that represents a pro rata share in each
underlying asset; and
(8) the pool manager shall make the records of the pool
available for inspection by the commissioner.
(g) An investment in an investment pool is not considered to
be an affiliate transaction under Subchapter C, Chapter 823, but
each pooling agreement is subject to the standards of Section
823.101 and the reporting requirements of Section 823.052.
Added by Acts 2005, 79th Leg., Ch. 727, § 1, eff. April 1, 2007.
§ 425.115. AUTHORIZED INVESTMENTS: EQUITY INTERESTS.
(a) In this section, "business entity" means a real estate
investment trust, corporation, limited liability company,
association, limited partnership, joint venture, mutual fund,
trust, joint tenancy, or other similar form of business
organization, regardless of whether organized for profit.
(b) Subject to this section, an insurance company may invest
in an equity interest, including common stock, an equity investment
in an investment company other than a money market fund described by
Section 425.123, a real estate investment trust, a limited
partnership interest, a warrant, another right to acquire an equity
interest that is created by the person that owns or would issue the
equity in which the interest is acquired, and an equity interest in
a business entity that is organized under the laws of the United
States, a state of the United States, Canada, or a province or
territory of Canada.
(c) If a market value from a generally recognized source is
not available for an equity interest, the business entity or other
investment in which the interest is acquired must be subject to:
(1) an annual audit by an independent certified public
accountant; or
(2) another method of valuation acceptable to the
commissioner.
(d) An insurance company may not invest in a partnership as
a general partner except through an investment subsidiary.
(e) An insurance company's investments under this section
in a single business entity, other than a money market fund
described by Section 425.123, may not exceed 15 percent of the
company's capital and surplus.
(f) The aggregate amount of an insurance company's
investments under this section may not exceed 25 percent of the
company's assets.
Added by Acts 2005, 79th Leg., Ch. 727, § 1, eff. April 1, 2007.
§ 425.116. AUTHORIZED INVESTMENTS: PREFERRED STOCK.
(a) Subject to this section, an insurance company may invest in
preferred stock of a business entity, as defined by Section
425.110.
(b) An insurance company may invest in preferred stock only
if:
(1) the stock is rated by the securities valuation
office; and
(2) the sum of the company's aggregate investment in
preferred stock rated 3, 4, 5, or 6 and the company's investments
under Section 425.110(d) does not exceed the limitations specified
by Section 425.110(d).
(c) An insurance company's investments in the preferred
stock of a single business entity may not exceed 20 percent of the
company's capital and surplus.
(d) The aggregate amount of an insurance company's
investments in preferred stock as to which there is not a sinking
fund for the redemption and retirement of the stock that meets the
standards established by the National Association of Insurance
Commissioners may not exceed 10 percent of the company's assets.
(e) The aggregate amount of an insurance company's
investments under this section may not exceed 40 percent of the
company's assets.
Added by Acts 2005, 79th Leg., Ch. 727, § 1, eff. April 1, 2007.
§ 425.117. AUTHORIZED INVESTMENTS: COLLATERAL LOANS.
(a) Subject to this section, an insurance company may invest in a
collateral loan secured by:
(1) a first lien on an asset; or
(2) a valid and perfected first security interest in
an asset.
(b) The amount of a loan invested in under this section may
not exceed 80 percent of the value of the collateral asset at any
time during the duration of the loan.
(c) The asset used as collateral for a loan under this
section must be an asset, other than real property described by
Section 425.119, in which the insurance company is authorized by
this subchapter to directly invest.
Added by Acts 2005, 79th Leg., Ch. 727, § 1, eff. April 1, 2007.
§ 425.118. AUTHORIZED INVESTMENTS: OBLIGATIONS SECURED
BY REAL PROPERTY LOANS. (a) Subject to this section, an insurance
company may invest in a note, an evidence of indebtedness, or a
participation in a note or evidence of indebtedness that is secured
by a valid first lien on real property or a leasehold estate in real
property located in the United States.
(b) The amount of an obligation secured by a first lien on
real property or a leasehold estate in real property may exceed 90
percent of the value of the real property or leasehold estate only
if:
(1) the amount does not exceed 100 percent of the value
of the real property or leasehold estate and the insurance company
or one or more wholly owned subsidiaries of the company owns, in the
aggregate, a 10 percent or greater equity interest in the real
property or leasehold estate;
(2) the amount does not exceed 95 percent of the value
of the real property or leasehold estate and:
(A) the property contains only a dwelling
designed exclusively for occupancy by not more than four families
for residential purposes; and
(B) the portion of the unpaid balance of the
obligation that exceeds 90 percent of the value of the property or
leasehold estate is guaranteed or insured by a mortgage guaranty
insurer authorized to engage in business in this state; or
(3) the amount exceeds 90 percent of the value of the
real property or leasehold estate only to the extent the obligation
is insured or guaranteed by:
(A) the United States;
(B) the Federal Housing Administration under the
National Housing Act (12 U.S.C. Section 1701 et seq.), as amended;
or
(C) this state.
(c) The term of an obligation secured by a first lien on a
leasehold estate in real property may not, as of the date the
obligation is acquired, exceed a period equal to four-fifths of the
unexpired term of the leasehold estate, and the obligation must
fully amortize during that period. The term of the leasehold
estate may not expire sooner than the 10th anniversary of the
expiration date of the term of the obligation.
(d) An obligation secured by a first lien on a leasehold
estate in real property must be payable in one or more installments
of an amount or amounts sufficient to ensure that, at any time after
the expiration of two-thirds of the original term of the
obligation, the principal balance on the obligation is not greater
than the principal balance would have been if the obligation had
been amortized over the original term of the obligation in equal
monthly, quarterly, semiannual, or annual payments of principal and
interest.
(e) If any part of the value of buildings is to be included
in the value of real property or a leasehold estate in real property
to secure an obligation under this section:
(1) the buildings must be covered by adequate property
insurance, including fire and extended coverage insurance, issued
by:
(A) an insurer authorized to engage in business
in this state; or
(B) an insurer recognized as acceptable to issue
that coverage by the insurance regulatory official of the state in
which the real property is located;
(2) the amount of insurance provided by one or more
policies may not be less than the lesser of:
(A) the unpaid balance of the obligation; or
(B) the insurable value of the buildings; and
(3) the loss clause under each policy must be payable
to the insurance company as the company's interest may appear.
(f) To the extent that a note, evidence of indebtedness, or
participation in a note or evidence of indebtedness under this
section represents an equity interest in the underlying real
property:
(1) the value of that equity interest must be
determined at the time the note, evidence of indebtedness, or
participation is executed; and
(2) the portion of the obligation that represents an
equity interest in the property must be designated as an investment
subject to Section 425.119(c).
(g) An insurance company's investment in a single
obligation under this section may not exceed 25 percent of the
company's capital and surplus.
(h) An insurance company may purchase a first lien on real
property after the origination of the lien if:
(1) the first lien is insured by a mortgagee's title
policy issued to the original mortgagee that contains a provision
that inures the policy to the use and benefit of the owners of the
evidence of indebtedness indicated in the policy and to any
subsequent owners of that evidence of indebtedness; and
(2) the company maintains evidence of an assignment or
other transfer of the first lien on real property to the company.
(i) For purposes of Subsection (h)(2), an assignment or
other transfer to the insurance company that is duly recorded in the
county in which the real property is located is presumed to create
legal ownership of the first lien by the company.
Added by Acts 2005, 79th Leg., Ch. 727, § 1, eff. April 1, 2007.
§ 425.119. AUTHORIZED INVESTMENTS: REAL PROPERTY.
(a) Subject to this section, an insurance company may invest in a
real property fee simple or leasehold estate located in the United
States.
(b) An insurance company may invest in home and branch
office real property or a participation in home or branch office
real property. At least 30 percent of the available space in a
building used as a home or branch office must be occupied for the
business purposes of the company and the company's affiliates. A
company's aggregate investment in home and branch office real
property may not exceed 20 percent of the company's assets.
(c) An insurance company may invest in real property other
than home and branch office real property or participations in home
and branch office real property. A company's investment under this
subsection in a single piece of property or in an interest in a
single piece of property, including improvements, fixtures, and
equipment relating to the property, may not exceed five percent of
the company's assets.
(d) Investment real property held under Subsection (b) or
(c) must be materially enhanced in value by:
(1) the construction of durable, permanent-type
buildings and other improvements that cost an amount at least equal
to the cost of the real property, excluding buildings and
improvements at the time the real property is acquired; or
(2) the construction, commenced before the second
anniversary of the date the real property is acquired, of buildings
and improvements described by Subdivision (1).
(e) The admissible asset value of each investment in real
property under Subsection (b) or (c) is subject to review and
approval by the commissioner. The commissioner may, at the time
the investment is made or any time the insurance company is being
examined, have the investment appraised by an appraiser appointed
by the commissioner. The company shall pay the reasonable expense
of the appraisal. The expense of the appraisal is considered to be
a part of the expense of examination of the company unless the
company applies for the appraisal to be made. A company may not
increase the valuation of real property described by Subsection (b)
or (c) unless:
(1) the company applies for the increase in valuation;
and
(2) the commissioner approves the increase.
(f) Except as provided by Subsection (g), an insurance
company may not own, develop, or hold an equity interest in any
residential property or subdivision, single or multiunit family
dwelling property, or undeveloped real property to subdivide for or
develop residential or single or multiunit family dwellings.
(g) An insurance company may invest in other real property
acquired:
(1) in good faith to secure a loan previously
contracted for, or for money due;
(2) in satisfaction of a debt previously contracted
for in the course of the company's dealings; or
(3) by purchase at a sale under a judgment or decree of
a court or under a mortgage or other lien held by the company.
(h) Regardless of the manner in which an insurance company
acquires real property under this section, on the sale of the
property, the company may retain indefinitely the fee title to the
mineral estate or any portion of the mineral estate.
Added by Acts 2005, 79th Leg., Ch. 727, § 1, eff. April 1, 2007.
§ 425.120. AUTHORIZED INVESTMENTS: OIL, GAS, AND
MINERALS. (a) In this section:
(1) "Producing" means producing oil, gas, or other
minerals in paying quantities. A well that has been shut in is
considered to be producing oil, gas, or other minerals in paying
quantities if shut-in royalties are being paid.
(2) "Production payment" means a right to oil, gas, or
other minerals in place or as produced that entitles the owner of
the right to a specified fraction of production until the owner
receives a specified amount of money, or a specified number of units
of oil, gas, or other minerals.
(3) "Royalty" or "overriding royalty" means a right to
oil, gas, and other minerals in place or as produced that entitles
the owner of the right to a specified fraction of production without
limitation to a specified amount of money or a specified number of
units of oil, gas, or other minerals.
(b) Subject to this section, in addition to and without
limitation on the purposes for which real property may be acquired,
secured, held, or retained under other provisions of this
subchapter, an insurance company may secure, hold, retain, and
convey production payments, producing royalties, and producing
overriding royalties, or participations in production payments,
producing royalties, or producing overriding royalties as an
investment for the production of income.
(c) An insurance company may not carry an asset described by
Subsection (b) in an amount that exceeds 90 percent of the appraised
value of the asset.
(d) A single investment under this section may not exceed 10
percent of the amount of the insurance company's capital and
surplus that exceeds the statutory minimum capital and surplus
applicable to the company.
(e) The aggregate amount of an insurance company's
investments under this section may not exceed 10 percent of the
company's assets as of December 31 preceding the date of the
investment.
Added by Acts 2005, 79th Leg., Ch. 727, § 1, eff. April 1, 2007.
§ 425.121. AUTHORIZED INVESTMENTS: SECURITIES LENDING,
REPURCHASE, REVERSE REPURCHASE, AND DOLLAR ROLL TRANSACTIONS.
(a) In this section:
(1) "Dollar roll transaction" means two simultaneous
transactions with settlement dates not more than 96 days apart, in
one of which an insurance company sells to a business entity, and in
the other of which the company is obligated to purchase from the
same business entity, substantially similar securities that are:
(A) mortgage-backed securities issued, assumed,
or guaranteed by the Government National Mortgage Association, the
Federal National Mortgage Association, the Federal Home Loan
Mortgage Corporation, or a successor to one of those organizations;
or
(B) other mortgage-backed securities referred to
in 15 U.S.C. Section 77r-1, as amended.
(2) "Repurchase transaction" means a transaction in
which an insurance company purchases securities from a business
entity that is obligated to repurchase the purchased securities or
equivalent securities from the company at a specified price, either
within a specified period or on demand.
(3) "Reverse repurchase transaction" means a
transaction in which an insurance company sells securities to a
business entity and is obligated to repurchase the sold securities
or equivalent securities from the business entity at a specified
price, either within a specified period or on demand.
(4) "Securities lending transaction" means a
transaction in which an insurance company lends securities to a
business entity that is obligated to return the loaned securities
or equivalent securities to the company, either within a specified
period or on demand.
(b) Subject to this section, an insurance company may engage
in securities lending, repurchase, reverse repurchase, and dollar
roll transactions.
(c) An insurance company must enter into a written agreement
for each transaction under this section, other than a dollar roll
transaction. The agreement must require that the transaction
terminate on or before the first anniversary of the transaction's
inception.
(d) With respect to cash received in a transaction under
this section, an insurance company shall:
(1) invest the cash in accordance with this subchapter
and in a manner that recognizes the liquidity needs of the
transaction; or
(2) use the cash for the company's general corporate
purposes.
(e) While a transaction under this section is outstanding,
the insurance company or the company's agent or custodian shall
maintain, as to acceptable collateral received in the transaction,
either physically or through the book-entry system of the Federal
Reserve, Depository Trust Company, Participants Trust Company, or
another securities depository approved by the commissioner:
(1) possession of the collateral;
(2) a perfected security interest in the collateral;
or
(3) in the case of a jurisdiction outside of the United
States, title to, or rights of a secured creditor to, the
collateral.
(f) The limitations of Sections 425.110 and 425.157(b) do
not apply to the business entity counterparty exposure created by a
transaction under this section. An insurance company may not enter
into a transaction under this section if, as a result of and after
making the transaction:
(1) the aggregate amount of securities loaned or sold
to or purchased from any one business entity counterparty under
this section would exceed five percent of the company's assets; or
(2) the aggregate amount of all securities loaned or
sold to or purchased from all business entities under this section
would exceed 40 percent of the company's assets.
(g) For purposes of Subsection (f)(1), in computing the
amount sold to or purchased from a business entity counterparty
under a repurchase or reverse repurchase transaction, effect may be
given to netting provisions under a master written agreement.
(h) The amount of collateral required for securities
lending, repurchase, and reverse repurchase transactions is the
amount required under the Purposes and Procedures Manual of the
securities valuation office or a successor publication.
Added by Acts 2005, 79th Leg., Ch. 727, § 1, eff. April 1, 2007.
§ 425.122. AUTHORIZED INVESTMENTS: PREMIUM LOANS.
(a) Subject to Subsection (b), an insurance company may make loans
to finance the payment of premiums for the company's own insurance
policies or annuity contracts.
(b) The amount of a loan under this section may not exceed
the sum of:
(1) the available cash value of the insurance policy
or annuity contract for which the premium loan is made; and
(2) the amount of any escrowed commissions payable
relating to the insurance policy or annuity contract.
Added by Acts 2005, 79th Leg., Ch. 727, § 1, eff. April 1, 2007.
§ 425.123. AUTHORIZED INVESTMENTS: MONEY MARKET
FUNDS. (a) An insurance company may invest in a money market fund
as described by 17 C.F.R. Section 270.2a-7 under the Investment
Company Act of 1940 (15 U.S.C. Section 80a-1 et seq.), that is:
(1) a government money market fund that:
(A) invests only in obligations issued,
guaranteed, or insured by the United States government or
collateralized repurchase agreements composed of these
obligations; and
(B) qualifies for investment without a reserve
under the Purposes and Procedures Manual of the securities
valuation office or a successor publication; or
(2) a class one money market fund that qualifies for
investment using the bond class one reserve factor described by the
Purposes and Procedures Manual of the securities valuation office
or a successor publication.
(b) For purposes of complying with Section 425.115, a money
market fund that qualifies for listing in the categories prescribed
by Subsection (a) must conform to the Purposes and Procedures
Manual of the securities valuation office or a successor
publication.
Added by Acts 2005, 79th Leg., Ch. 727, § 1, eff. April 1, 2007.
§ 425.124. AUTHORIZED INVESTMENTS: RISK CONTROL
TRANSACTIONS. Subject to Sections 425.126-425.132, an insurance
company may use derivative instruments, as defined by Section
425.125, to engage in hedging transactions, replication
transactions, and income generation transactions, as those terms
are defined by Section 425.125.
Added by Acts 2005, 79th Leg., Ch. 727, § 1, eff. April 1, 2007.
§ 425.125. RISK CONTROL TRANSACTIONS: DEFINITIONS. In
Sections 425.124-425.132:
(1) "Acceptable collateral" means cash, cash
equivalents, letters of credit, and direct obligations, or
securities that are fully guaranteed as to principal and interest
by the United States government.
(2) "Business entity" includes a sole proprietorship,
corporation, limited liability company, association, partnership,
joint stock company, joint venture, mutual fund, bank, trust, joint
tenancy, or other similar form of business organization, regardless
of whether organized for profit.
(3) "Cap" means an agreement obligating the seller to
make payments to the buyer, with each payment based on the amount by
which a reference price or level or the performance or value of one
or more underlying interests exceeds a predetermined number that is
sometimes called the strike rate or strike price.
(4) "Cash equivalent" means an investment or security
that is short-term, highly rated, highly liquid, and readily
marketable. The term includes a money market fund described by
Section 425.123. For purposes of this subdivision, an investment
or security is:
(A) short-term if it has a remaining term to
maturity of one year or less; and
(B) highly rated if it has:
(i) a rating of "P-1" by Moody's Investors
Service, Inc.;
(ii) a rating of "A-1" by the Standard and
Poor's Division of the McGraw Hill Companies, Inc.; or
(iii) an equivalent rating by a nationally
recognized statistical rating organization recognized by the
securities valuation office.
(5) "Collar" means an agreement to receive payments as
the buyer of an option, cap, or floor and to make payments as the
seller of a different option, cap, or floor.
(6)(A) "Counterparty exposure amount" means:
(i) for an over-the-counter derivative
instrument not entered into under a written master agreement that
provides for netting of payments owed by the respective parties,
the market value of the over-the-counter derivative instrument, if
the liquidation of the derivative instrument would result in a
final cash payment to the insurer, or zero, if the liquidation of
the derivative instrument would not result in a final cash payment
to the insurance company; or
(ii) for an over-the-counter derivative
instrument entered into under a written master agreement that
provides for netting of payments owed by the respective parties,
and for which the counterparty's domiciliary jurisdiction is within
the United States or a jurisdiction outside the United States that
is listed in the Purposes and Procedures Manual of the securities
valuation office as eligible for netting, the greater of zero or the
net sum payable to the company in connection with all derivative
instruments subject to the written master agreement on the
liquidation of the instruments in the event of the counterparty's
default under the master agreement, if there is no condition
precedent to the counterparty's obligation to make the payment and
if there is no setoff of amounts payable under another instrument or
agreement.
(B) For purposes of this subdivision, market
value or the net sum payable, as applicable, must be determined at
the end of the most recent quarter of the insurance company's fiscal
year and must be reduced by the market value of acceptable
collateral held by the company or a custodian on the company's
behalf.
(7) "Derivative instrument":
(A) means an agreement, option, or instrument, or
a series or combinations of agreements, options, or instruments:
(i) to make or take delivery of, or assume
or relinquish, a specified amount of one or more underlying
interests, or to make a cash settlement instead of making or taking
delivery of, or assuming or relinquishing, a specified amount of an
underlying instrument; or
(ii) that has a price, performance, value,
or cash flow based primarily on the actual or expected price, yield,
level, performance, value, or cash flow of one or more underlying
interests;
(B) includes an option, a warrant not otherwise
permitted to be held by the insurance company under this
subchapter, a cap, a floor, a collar, a swap, a swaption, a forward,
a future, any other substantially similar agreement, option, or
instrument, and a series or combination of those agreements,
options, or instruments; and
(C) does not include a collateralized mortgage
obligation, another asset-backed security, a principal-protected
structured security, a floating rate security, an instrument that a
company would otherwise be authorized to invest in or receive under
a provision of this subchapter other than Sections 425.124-425.132,
or a debt obligation of the company.
(8) "Derivative transaction" means a transaction
involving the use of one or more derivative instruments. The term
does not include a dollar roll transaction, repurchase transaction,
reverse repurchase transaction, or securities lending transaction.
(9) "Floor" means an agreement obligating the seller
to make payments to the buyer, each of which is based on the amount
by which a predetermined number that is sometimes called the floor
rate or floor price exceeds a reference price, level, performance,
or value of one or more underlying interests.
(10) "Forward" means an agreemen