79C12(3) AJA

 

CHAPTER 424.  INVESTMENTS FOR CERTAIN INSURERS

SUBCHAPTER A.  GENERAL PROVISIONS

Revised Law

Sec. 424.001.  DEFINITIONS.  In this chapter:

(1)  "Insurer" means any insurer organized under the laws of this state other than an insurer writing life, health, and accident insurance.

(2)  "Minimum capital and surplus" means the minimum amount of capital stock and minimum amount of surplus required of an insurer under Section 822.054 or 822.210.

(3)  "Securities valuation office" means the Securities Valuation Office of the National Association of Insurance Commissioners.  (V.T.I.C. Art. 2.10, Sec. (e) (part); Art. 2.10-5, Sec. 1(10).)

Source Law

[Art. 2.10]

(e)  No company except any writing life, health and accident insurance, organized under the laws of this state, [shall invest its funds over and above its minimum capital and its minimum surplus], as provided in Article 2.02, [except as otherwise provided in this Code, in any other manner than as follows:]

… .

[Art. 2.10-5]

Sec. 1.  In this article:

…

(10)  "Securities valuation office" means the Securities Valuation Office of the National Association of Insurance Commissioners.

Revisor's Note

(1)  The definition of "insurer" is derived from Section (e), V.T.I.C. Article 2.10, which was part of former V.T.I.C. Chapter 2, as are the other provisions revised in this chapter.  It is clear from former V.T.I.C. Article 2.01, revised in Chapter 822 of this code, that former Chapter 2, including the provisions revised in this chapter, applied to insurers organized under the laws of this state, other than life, health, and accident insurance companies.  As a result, it is appropriate to apply the definition of "insurer" derived from Section (e), Article 2.10, throughout this chapter.  The revised law is drafted accordingly.

(2)  Section (e), V.T.I.C. Article 2.10, refers to "[an insurer's] minimum capital and its minimum surplus, as provided in Article 2.02."  The revised law adds a definition of "minimum capital and surplus" for drafting convenience and to eliminate frequent, unnecessary repetition of the substance of the definition.  The revised law also substitutes a reference to "Section 822.054 or 822.210" for the reference to "Article 2.02" because the provisions of that article governing minimum capital and surplus are codified in those sections.

Revised Law

Sec. 424.002.  INAPPLICABILITY OF CERTAIN LAW.  The definition of "state" assigned by Section 311.005, Government Code, does not apply to this chapter. (New.)

Revisor's Note

Section 311.005(7), Government Code (Code Construction Act), defines "state" to include a district, commonwealth, territory, and insular possession of the United States.  That definition generally applies to the revised law.  However, it is clear that in the provisions of V.T.I.C. Chapter 2, revised in this chapter, the term "state" has a narrower meaning.  For example, Section (e), V.T.I.C. Article 2.10, revised in this chapter as Section 424.068, permits an insurer to invest in "commonwealths, territories or possessions of the United States," but provides additional limitations on those investments that are not provided for investments in states of the United States.  The revised law provides that the Code Construction Act definition does not apply in this chapter to ensure that no substantive change is made by the revision of the phrase "state of the United States" in the context of this chapter.

[Sections 424.003-424.050 reserved for expansion]

SUBCHAPTER B.  INVESTMENT OF FUNDS IN EXCESS

OF MINIMUM CAPITAL AND SURPLUS

Revised Law

Sec. 424.051.  GENERAL INVESTMENT AUTHORITY SPECIFIED BY LAW.  An insurer may not invest the insurer's funds in excess of minimum capital and surplus, except that an insurer may invest as otherwise authorized by this code.  (V.T.I.C. Art. 2.10, Sec. (e) (part).)

Source Law

(e)  No company …  shall invest its funds over and above its minimum capital and its minimum surplus … except as otherwise provided in this Code, in any other manner than as follows:

… .

Revised Law

Sec. 424.052.  ADDITIONAL GENERAL INVESTMENT AUTHORITY.  An insurer may make investments that are not otherwise authorized by this chapter or otherwise authorized by this code for the insurer if:

(1)  the investment is not specifically prohibited by law and does not exceed the limits prescribed by this code;

(2)  the amount of a single investment under this section does not exceed five percent of the insurer's capital and surplus in excess of the insurer's minimum capital and surplus; and

(3)  the aggregate amount of all investments made by the insurer under this section does not exceed five percent of the insurer's assets.  (V.T.I.C. Art. 2.10-1, Sec. (2).)

Source Law

(2)  Insurers may make additional investments which are not otherwise permitted by Article 2.08, Article 2.10, or Article 2.10-1 of this code, or which are not otherwise authorized by this code for such insurers, and which investments are not otherwise specifically prohibited by law, or which investments exceed the limits otherwise specified in this code, provided:

(a)  The amount of any one such investment may not exceed five percent of the insurer's capital and surplus in excess of the insurer's statutory minimum capital and surplus; and

(b)  The aggregate of the investments made under this Subsection (2) may not exceed five per cent of the insurer's assets.

Revisor's Note

(1)  Section (2), V.T.I.C. Article 2.10-1, refers to certain investments authorized by "Article 2.08, Article 2.10, or Article 2.10-1 … , or … otherwise authorized by this code."  The revised law substitutes a reference to an investment "otherwise authorized by this chapter or otherwise authorized by this code" and does not specifically reference investments authorized by V.T.I.C. Articles 2.10 and 2.10-1, which are revised in this chapter, or by V.T.I.C. Article 2.08, revised as Section 822.204 of this code, because those references are included within the substituted language.  In addition, the provisions revised in this chapter that are not specifically referenced in Section (2) are included in the reference in Section (2) to investments "otherwise authorized by this code."

(2)  Section (2)(a), V.T.I.C. Article 2.10-1, refers to an insurer's "statutory minimum capital and surplus."  The revised law omits the reference to "statutory" as unnecessary because "minimum capital and surplus" is defined in Section 424.001, for the purposes of this chapter, as the minimum amount of capital stock and minimum amount of surplus required of an insurer under the relevant statutes.

Revised Law

Sec. 424.053.  LIMITATION AS TO SINGLE ISSUER OR BORROWER.  (a)  Notwithstanding Sections 424.051, 424.056-424.071, and 424.074, the aggregate amount of an insurer's investments in all or any type of securities, loans, obligations, or evidences of indebtedness of a single issuer or borrower, other than investments described by Subsection (c), may not exceed five percent of the insurer's total assets.

(b)  For purposes of this section, a single issuer or borrower includes:

(1)  the issuer's or borrower's majority-owned subsidiaries;

(2)  the issuer's or borrower's parent; or

(3)  the majority-owned subsidiaries of the issuer's or borrower's parent.

(c)  This section does not apply to:

(1)  an authorized investment that is:

(A)  a direct obligation of or guaranteed by the full faith and credit of the United States, this state, or a political subdivision of this state; or

(B)  insured by an agency of the United States or this state; or

(2)  an investment described by Section 424.061 or 424.063.  (V.T.I.C. Art. 2.10, Sec. (g) (part).)

Source Law

(g)  Notwithstanding Subsections (a)-(e) of this article:

(1)  investment in all or any types of securities, loans, obligations, or evidences of indebtedness of a single issuer or borrower, including the issuer's or borrower's majority-owned subsidiaries or parent or the majority-owned subsidiaries of that parent, other than those authorized investments that either are direct obligations of or are guaranteed by the full faith and credit of the United States of America, this state, or a political subdivision of this state, or are insured by any agency of the United States of America or this state, may not in the aggregate exceed five percent of the insurer's total assets, other than investments described by Subsection (e)(5) or (e)(7) of this article; and

… .

Revisor's Note

Section (g), V.T.I.C. Article 2.10, refers to Section (e), Article 2.10.  Section (e) is revised as various sections in this chapter, including as Sections 424.001(1) and (2).  Throughout this subchapter, however, the revised law does not include in the revision of references to Section (e) or to Article 2.10 a reference to Sections 424.001(1) and (2) because those sections are definitional provisions that apply by their own terms throughout this chapter, and a reference to those sections is therefore unnecessary.

Revised Law

Sec. 424.054.  APPLICABILITY OF PERCENTAGE AUTHORIZATIONS AND LIMITATIONS.  (a)  The percentage authorizations and limitations established by Sections 424.051, 424.053-424.071, and 424.074 apply only at the time an investment is originally acquired or a transaction is entered into and do not apply to the insurer or the investment or transaction after that time.

(b)  An investment, once qualified under a law described by Subsection (a), remains qualified notwithstanding any refinancing, restructuring, or modification of the investment, except that an insurer may not refinance, restructure, or modify an investment solely to circumvent the requirements or limitations of a law described by Subsection (a).  (V.T.I.C. Art. 2.10, Sec. (f).)

Source Law

(f)  The percentage authorizations and limitations set forth in this article apply only at the time of the original acquisition of an investment or at the time a transaction is entered into and do not thereafter apply to the insurer or the investment or transaction except as provided by this subsection.  An investment, once qualified under this article, remains qualified notwithstanding any refinancing, restructuring, or modification of the investment; however, the insurer may not engage in that refinancing, restructuring, or modification solely to circumvent the requirements or limitations of this article.

Revised Law

Sec. 424.055.  WAIVER BY COMMISSIONER OF QUANTITATIVE LIMITATIONS.  (a)  Notwithstanding Sections 424.051, 424.056-424.071, and 424.074, the commissioner may waive a quantitative limitation on any investment authorized by those laws if:

(1)  the insurer seeks the waiver before making the investment;

(2)  a hearing is held to determine whether the waiver should be granted;

(3)  the applicant seeking the waiver establishes that unreasonable or unnecessary loss or harm will result to the insurer if the commissioner denies the waiver;

(4)  the excess investment will not have a material adverse effect on the insurer; and

(5)  the size of the investment is reasonable in relation to the insurer's assets, capital, surplus, and liabilities.

(b)  The commissioner's waiver must be in writing and may treat the resulting excess investment as a nonadmitted asset.  (V.T.I.C. Art. 2.10, Sec. (g) (part).)

Source Law

(g)  Notwithstanding Subsections (a)-(e) of this article:

…

(2)  the quantitative limitations regarding any investment authorized by this article may be waived by prior written approval of the commissioner if:

(A)  a hearing is held to determine whether approval should be granted;

(B)  the applicant seeking approval establishes that unreasonable or unnecessary loss or harm to the insurer will result if approval is withheld;

(C)  the excessive investment will not have a material adverse effect on the insurer;

(D)  the size of the investment is reasonable in relation to the insurer's assets, capital, surplus, and liabilities; and

(E)  the commissioner's prior authorization may treat the resulting excessive investment as an asset not admitted.

Revisor's Note

Section (g)(2), V.T.I.C. Article 2.10, states that the commissioner of insurance may waive the quantitative limitations for certain investments under that article by prior written approval if certain listed conditions are met, including a condition that "the commissioner's prior authorization may treat the resulting excessive investment as an asset not admitted."  It is clear from the context that the quoted language is not a condition for granting prior written approval, but rather is a separate grant of authority to the commissioner that results from granting that approval.  The revised law is drafted accordingly.

Revised Law

Sec. 424.056.  WRITTEN INVESTMENT PLAN.  (a)  Each insurer's board of directors or, if the insurer does not have a board of directors, the corresponding authority designated by the insurer's charter, bylaws, or plan of operation, shall adopt a written investment plan consistent with the requirements of:

(1)  this chapter;

(2)  Sections 822.204, 822.209, 861.258, and 862.002; and

(3)  other statutes governing investments by the insurer.

(b)  The investment plan must:

(1)  specify the diversification of the insurer's investments designed 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)  type of 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 insurer.

(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 insurer shall maintain the insurer's investment plan in the insurer'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.  (V.T.I.C. Art. 2.10, Secs. (a), (b), (c).)

Source Law

Art. 2.10.  (a)  The board of directors of each insurer, or the corresponding authority designated by the charter, bylaws, or plan of operations of an insurer that does not have a board of directors, shall adopt a written investment plan consistent with the requirements of this article and Articles 2.08, 2.09, 2.10-1, 2.10-2, 2.10-3, 2.10-4, 2.10-5, 6.08, 8.18, and 8.19 of this code and the other applicable statutes governing investments by the insurer.  The investment plan must:

(1)  specify the diversification of the insurer's investments designed to reduce the risk of large losses, by:

(A)  broad categories of investments, such as bonds and real estate loans;

(B)  kinds of investments, such as:

(i)  obligations of governments or business entities;

(ii)  mortgage-backed securities; and

(iii)  real estate loans on office, retail, industrial, or residential properties;

(C)  quality;

(D)  maturity;

(E)  type of industry; and

(F)  geographical areas, as to both domestic and foreign investments;

(2)  balance the 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 insurer.

(b)  At least annually, the board of directors or other authority shall review the adequacy of the investment plan and the implementation of the plan.

(c)  The insurer shall maintain the investment plan in its principal office and shall provide the plan to the commissioner or the commissioner's designee on request.  The commissioner or the commissioner's designee shall maintain the investment plan as a privileged and confidential document, and the plan is not subject to public disclosure.

Revisor's Note

Section (a), V.T.I.C. Article 2.10, refers to the requirements of "this article and Articles 2.08, 2.09, 2.10-1, 2.10-2, 2.10-3, 2.10-4, 2.10-5, 6.08, 8.18, and 8.19 of this code and the other applicable statutes governing investments by the insurer."  The revised law substitutes a reference to "this chapter" for the references to Articles 2.10-1, 2.10-2, 2.10-4, and 2.10-5, which are revised in this chapter.  Although V.T.I.C. Article 2.10-3A, which is also revised in this chapter, is not referenced in the quoted language, it was enacted by Chapter 1040, Acts of the 76th Legislature, Regular Session, 1999, to regulate transactions previously regulated under Article 2.10-3, which was repealed by that act.  Furthermore, Article 2.10-3A is included within the meaning of the reference to "other … statutes governing investments by the insurer," and it is therefore appropriate to include a reference to the revision of that article.  In addition, the revised law omits the reference to "applicable" with respect to other statutes governing investments by the insurer because a statute governs an investment only if the statute is applicable.

Revised Law

Sec. 424.057.  INVESTMENT RECORDS.  An insurer shall maintain investment records covering each transaction.  The insurer must be able to demonstrate at all times to the department that the insurer's investments are within the limitations imposed by the statutes listed in Section 424.056(a).  (V.T.I.C. Art. 2.10, Sec. (d).)

Source Law

(d)  The insurer shall maintain investment records covering each transaction.  At all times, the insurer must be able to demonstrate to the department that its investments are within the limitations prescribed by the statutes described by Subsection (a) of this article.

Revised Law

Sec. 424.058.  AUTHORIZED INVESTMENTS: FORM OF MINIMUM CAPITAL AND SURPLUS.  An insurer may invest the insurer's funds in excess of minimum capital and surplus in any manner authorized by Section 822.204 for investment of the insurer's minimum capital and surplus.  (V.T.I.C. Art. 2.10, Sec. (e) (part).)

Source Law

(e)  No company … shall invest its funds over and above its minimum capital and its minimum surplus … in any other manner than as follows:

(1)  as provided for the investment of its minimum capital and its minimum surplus in Article 2.08;

… .

Revised Law

Sec. 424.059.  AUTHORIZED INVESTMENTS: GOVERNMENT OBLIGATIONS.  An insurer may invest the insurer's funds in excess of minimum capital and surplus in a bond or other evidence of indebtedness of any state or of Canada or a province of Canada that:

(1)  is issued by the authority of law; and

(2)  at the time of purchase:

(A)  bears interest; and

(B)  is not in default as to principal or interest.  (V.T.I.C. Art. 2.10, Sec. (e) (part).)

Source Law

(e)  No company  … shall invest its funds over and above its minimum capital and its minimum surplus … in any other manner than as follows:

…

(2)  in bonds or other evidences of debt which at the time of purchase are interest-bearing and are issued by authority of law and are not in default as to principal or interest, of any state, Canada, or province of Canada, … .

Revised Law

Sec. 424.060.  AUTHORIZED INVESTMENTS: STOCK OF NATIONAL OR STATE BANK.  (a)  An insurer may invest the insurer's funds in excess of minimum capital and surplus in the stock of:

(1)  a national bank; or

(2)  a state bank of this state whose deposits are insured by the Federal Deposit Insurance Corporation.

(b)  Notwithstanding Subsection (a)(2):

(1)  not more than 35 percent of the total outstanding stock of a single state bank may be purchased by a single insurer; and

(2)  if an insurer has invested the insurer's funds in 35 percent of a state bank's stock under this section, no other insurer may invest funds in the bank's remaining stock.  (V.T.I.C. Art. 2.10, Sec. (e) (part).)

Source Law

(e)  No company  … shall invest its funds over and above its minimum capital and its minimum surplus … in any other manner than as follows:

…

(2)  … or in the stock of any National Bank, in stock of any State Bank of Texas whose deposits are insured by the Federal Deposit Insurance Corporation; provided, however, that if said funds are invested in the stock of a State Bank of Texas that not more than thirty-five per cent (35%) of the total outstanding stock of any one (1) State Bank of Texas may be so purchased by any one (1) insurance company; and provided further, that neither the insurance company whose funds are invested in said bank stock nor any other insurance company may invest its funds in the remaining stock of any such State Bank;

… .

Revised Law

Sec. 424.061.  AUTHORIZED INVESTMENTS: DEPOSITS IN CERTAIN FINANCIAL INSTITUTIONS.  (a)  Subject to this section, an insurer 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 insurer's deposits in a single bank, savings and loan association, or credit union may not exceed the greater of:

(1)  20 percent of the insurer'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.  (V.T.I.C. Art. 2.10, Sec. (e) (part).)

Source Law

(e)  No company … shall invest its funds over and above its minimum capital and its minimum surplus … in any other manner than as follows:

…

(5)  in any type or form of savings deposits, time deposits, certificates of deposit, NOW accounts, and money market accounts in solvent banks, savings and loan associations, credit unions, and branches of those financial institutions, organized under the laws of the United States or of a state, if made in accordance with the laws or regulations applicable to those entities, provided that the amount of the deposits in any one bank, savings and loan association, or credit union may not exceed the greater of:

(A)  20 percent of the insurer's capital and surplus;

(B)  the amount of federal or state deposit insurance coverage relating to that deposit;  or

(C)  10 percent of the amount of capital, surplus, and undivided profits of the entity receiving the deposits;

… .

Revisor's Note

Section (e)(5), V.T.I.C. Article 2.10, refers to any "type or form" of deposit in a financial institution.  The revised law omits the reference to "form" because, in this context, the term is included in the meaning of "type."

Revised Law

Sec. 424.062.  AUTHORIZED INVESTMENTS: CERTAIN OBLIGATIONS OF PARTNERSHIP OR CORPORATION.  (a)  Except as provided by this section, an insurer may invest the insurer's funds in excess of minimum capital and surplus in a stock, bond, debenture, bill of exchange, evidence of indebtedness, other commercial note or bill, or security of any partnership or dividend-paying corporation that:

(1)  is incorporated under the laws of the United States, this state, another state, Canada, or a province of Canada;

(2)  is solvent at the time of the investment; and

(3)  has not defaulted in the payment of any of the partnership's or corporation's obligations during the five years preceding the date of the investment.

(b)  Except as provided by Subsection (d), an insurer may invest the insurer's funds in excess of minimum capital and surplus, and all reserves required by law, in a stock, bond, or debenture of any solvent corporation that is incorporated under the laws of the United States, this state, another state, Canada, or a province of Canada.

(c)  Funds invested under Subsection (a) may not be invested in the stock of an oil, manufacturing, or mercantile corporation unless the corporation has, at the time of the investment:

(1)  a net worth of at least $250,000, if the corporation is organized under the laws of this state; or

(2)  a combined capital, surplus, and undivided profits of at least $2.5 million, if the corporation is not organized under the laws of this state.

(d)  An insurer may not invest the insurer's funds in:

(1)  the insurer's own stock or in any stock on account of which the holders or owners of the stock may be liable for an assessment other than taxes;  or

(2)  any stock, bond, or other security issued by a corporation with respect to which a majority of the stock having voting powers is directly or indirectly owned by or for the benefit of an officer or director of the insurer, unless the insurer has been in continuous operation for at least five years.  (V.T.I.C. Art. 2.10, Sec. (e) (part).)

Source Law

(e)  No company … shall invest its funds over and above its minimum capital and its minimum surplus … in any other manner than as follows:

…

(6)  in the stocks, bonds, debentures, bills of exchange, evidence of indebtedness, or other commercial notes or bills and securities of any solvent partnership or solvent dividend paying corporation at time of purchase, incorporated under the laws of this state, any other state, the United States, Canada, or any province of Canada, which has not defaulted in the payment of any of its obligations for a period of five (5) years, immediately preceding the date of the investment;  provided that:

(A)  such funds may not be invested in the stock of any oil, manufacturing or mercantile corporation organized under the laws of this state, unless such corporation has at the time of investment a net worth of not less than $250,000.00 nor in the stock of any oil, manufacturing or mercantile corporation not organized under the laws of this state, unless such corporation has a combined capital, surplus and undivided profits of not less than $2,500,000.00;

(B)  any such insurance company may invest its funds over and above its minimum capital stock, its minimum surplus, and all reserves required by law, in the stocks, bonds or debentures of any solvent corporation organized under the laws of this state, any other state, the United States, Canada, or any province of Canada;

(C)  no such insurance company shall invest any of its funds in its own stock or in any stock on account of which the holders or owners thereof may, in any event, be or become liable to any assessment, except for taxes;  and

(D)  no such insurance company shall invest any of its funds in stocks, bonds or other securities issued by a corporation if a majority of the stock having voting powers of such issuing corporation is owned, directly or indirectly, by or for the benefit of one or more officers or directors of such insurance company;  provided, however, that this paragraph shall not apply to any insurance company which has been in continuous operation for five (5) years;

… .

Revisor's Note

(1)  Section (e)(6), V.T.I.C. Article 2.10, authorizes an insurer to invest in certain partnerships or corporations that have not defaulted in the payment of any obligation during the five years "immediately preceding" the date of the investment.  The revised law omits the term "immediately" before "preceding" as unnecessary because in this context, "preceding" means "immediately preceding."

(2)  Section (e)(6)(C), V.T.I.C. Article 2.10, refers to investment in stock on account of which the holders or owners of the stock "may, in any event, be or become liable" for any assessment.  The revised law substitutes "may be liable" for the quoted language because the meaning of the quoted language is included within the meaning of "may be liable."

Revised Law

Sec. 424.063.  AUTHORIZED INVESTMENTS: MUTUAL FUNDS.  An insurer may invest the insurer's funds in excess of minimum capital and surplus in shares of a mutual fund engaged in business under the Investment Company Act of 1940 (15 U.S.C. Section 80a-1 et seq.), as amended, if:

(1)  the mutual fund is solvent and has at least $1 million of net assets as of the date of the mutual fund's latest annual or more recent certified audited financial statement; and

(2)  the amount of the insurer's investment in a single mutual fund does not exceed 15 percent of the insurer's capital and surplus.  (V.T.I.C. Art. 2.10, Sec. (e) (part).)

Source Law

(e)  No company … shall invest its funds over and above its minimum capital and its minimum surplus … in any other manner than as follows:

…

(7)  in shares of mutual funds doing business under the Investment Company Act of 1940 (15 U.S.C. Section 80a-1 et seq.), as amended, provided that:

(A)  mutual funds must be solvent with at least $1,000,000 of net assets as of the date of its latest annual or more recent certified audited financial statement; and

(B)  investment in any one mutual fund may not exceed 15 percent of the insurer's capital and surplus;

… .

Revised Law

Sec. 424.064.  AUTHORIZED INVESTMENTS: REAL PROPERTY.  (a)  Subject to this section, an insurer may invest the insurer's funds in excess of minimum capital and surplus in real property to the extent authorized by other provisions of this code.

(b)  An insurer with admitted assets of more than $500 million may own investment real property other than real property authorized by another provision of this code, or participations in that other investment real property, if the property is 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 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).

(c)  The amount invested by an insurer in a single investment real property and improvements, or in any interest in real property and improvements, may not exceed five percent of the insurer's admitted assets in excess of $500 million.  The total amount invested by an insurer in investment real property and improvements may not exceed 15 percent of the insurer's admitted assets in excess of $500 million.

(d)  Except as provided by Section 862.002, an insurer 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, single or multiunit family dwellings.

(e)  The investment authority granted by this section is in addition to and separate from the investment authority granted by Section 862.002, except that an insurer may not invest in any real property that, when added to properties acquired by the insurer under Section 862.002, would exceed the limitations prescribed by that section.

(f)  An insurer's admitted assets are determined from the insurer's annual statements that are made as of the December 31 that precedes the date of the determination and are filed with the department as required by law.  The value of any investment made under this section is subject to the appraisal requirement of Section 862.002.  (V.T.I.C. Art. 2.10, Sec. (e) (part).)

Source Law

(e)  No company … shall invest its funds over and above its minimum capital and its minimum surplus … in any other manner than as follows:

…

(11)  in real estate to the extent as elsewhere authorized by this Code; provided that:

(A)  any such company with admitted assets in excess of $500,000,000.00 may own other investment real property or participations therein, which must be materially enhanced in value by the construction of durable, permanent type buildings and other improvements costing an amount at least equal to the cost of such real property, exclusive of buildings and improvements at the time of acquisition, or by the construction of such buildings and improvements which must be commenced within two years of the date of acquisition of such real property;  however, nothing in this Article shall allow ownership of, development of, or equity interest in any residential property or subdivision, single or multiunit family dwelling property, or undeveloped real estate for the purpose of subdivision for or development of residential, single or multiunit family dwellings, except those properties acquired as provided in Article 6.08 of this Code, and such ownership, development, or equity interests shall be specifically prohibited;

(B)  the total amount invested by any such company in all such investment real property and improvements thereof shall not exceed fifteen per cent (15%) of its admitted assets which are in excess of $500,000,000.00;  however, the amount invested in any one such property and its improvements or interest therein shall not exceed five per cent (5%) of its admitted assets which are in excess of $500,000,000.00.  The admitted assets of the company at any time shall be determined from its annual statements made as of the last preceding December 31 and filed with the department as required by law.  The value of any investment made under this Article shall be subject to the appraisal provision set forth in Article 6.08 of this Code;

(C)  the investment authority granted by Paragraphs (A) and (B) of this subdivision is in addition to and separate and apart from that granted by Article 6.08 of this Code;  however, no such company shall make any investment in such real estate which, when added to those properties described in Article 6.08 of this Code, would be in excess of the limitations provided by Article 6.08 of this Code; and

… .

Revisor's Note

(1)  Section (e)(11)(B), V.T.I.C. Article 2.10, states that the value of an investment made under "this Article" is subject to the appraisal provision in V.T.I.C. Article 6.08, which is revised as Section 862.002 of this code.  The revised law substitutes "this section" for "this Article" because Section 862.002 deals with the appraisal of real property only, and the only part of V.T.I.C. Article 2.10 that relates to investments in real property is revised in this section.

(2)  Section (e)(11)(B), V.T.I.C. Article 2.10, provides that the admitted assets of certain insurers "at any time" are determined from the insurer's annual statements that are made as of the December 31 that precedes the date of the determination.  The revised law omits the reference to "at any time" because, in the context in which it is used, that reference does not add any substantive effect to the law.

(3)  Section (e)(11)(C), V.T.I.C. Article 2.10, refers to investment authority that is "separate and apart" from other investment authority.  The revised law omits the reference to "apart" because, in this context, the meaning of that term is included in the meaning of "separate."

Revised Law

Sec. 424.065.  ACTING AS REAL ESTATE BROKER OR SALESPERSON PROHIBITED.  An insurer defined in Section 822.001 or 822.201 or another insurer specifically made subject to Sections 424.051, 424.053-424.071, and 424.074 may not engage in the business of a broker or salesperson as defined by Chapter 1101, Occupations Code, except that the insurer may hold, improve, maintain, manage, rent, lease, sell, exchange, or convey any of the real property interests legally owned as investments under this code.  (V.T.I.C. Art. 2.10, Sec. (e) (part).)

Source Law

(e)  …

(11)  …

(D)  the insurance companies defined in Article 2.01 of this Code and other insurers specifically made subject to the provisions of this Article shall not engage in the business of a real estate broker or a real estate salesperson as defined by The Real Estate License Act (Article 6573a, Vernon's Texas Civil Statutes), except that such insurers may hold, improve, maintain, manage, rent, lease, sell, exchange, or convey any of the real property interests legally owned as investments under this Code;

… .

Revisor's Note

Section (e)(11)(D), V.T.I.C. Article 2.10, refers to "a real estate broker or a real estate salesperson as defined by The Real Estate License Act (Article 6573a, Vernon's Texas Civil Statutes)."  That statute was codified in 2001 as Chapter 1101, Occupations Code.  Section 1101.002, Occupations Code, defines the terms "broker" and "salesperson" rather than "real estate broker" and "real estate salesperson."  The revised law is drafted accordingly.

Revised Law

Sec. 424.066.  AUTHORIZED INVESTMENTS:  OBLIGATIONS SECURED BY REAL PROPERTY LOANS.  (a)  Subject to this section, an insurer may invest the insurer's funds in excess of minimum capital and surplus in a bond, note, or evidence of indebtedness, or a participation in a bond, 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 or in any state, commonwealth, territory, or possession of 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 insurer or one or more wholly owned subsidiaries of the insurer 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 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 real property 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 only to the extent the obligation is insured or guaranteed by:

(A)  this state;

(B)  the United States;

(C)  the Federal Housing Administration under the National Housing Act (12 U.S.C. Section 1701 et seq.), as amended; or

(D)  any other agency or instrumentality of the United States.

(c)  The term of an obligation secured by a first lien on a leasehold estate in real property and improvements located on the property may not 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 and improvements located on the property must be payable in equal monthly, quarterly, semiannual, or annual payments of principal plus accrued interest to the date of the principal payment.

(e)  An insurer's investment in a single obligation under this section may not exceed 10 percent of the insurer's capital and surplus.  An insurer's aggregate investments under this section may not exceed 30 percent of the insurer's assets.  (V.T.I.C. Art. 2.10, Sec. (e) (part).)

Source Law

(e)  No company … shall invest its funds over and above its minimum capital and its minimum surplus … in any other manner than as follows:

…

(3)  in bonds, notes, evidences of indebtedness or participations therein secured by a valid first lien upon real property or leasehold estate therein located in the United States of America, its states, commonwealths, territories, or possessions, provided that:

(A)  the amount of any such obligation secured by a first lien upon real property or leasehold estate therein shall not exceed ninety per cent (90%) of the value of such real property or leasehold estate therein, but the amount of such obligation may:

(i)  exceed ninety per cent (90%) but shall not exceed one hundred per cent (100%) of the value of such real property or leasehold estate therein if the insurer or one or more wholly owned subsidiaries of the insurer own in the aggregate a ten per cent (10%) or greater equity interest in such real property or leasehold estate therein;

(ii)  be ninety-five per cent (95%) of the value of such real property if it contains only a dwelling designed exclusively for occupancy by not more than four families for residential purposes, and the portion of the unpaid balance of such obligation which is in excess of an amount equal to ninety per cent (90%) of such value is guaranteed or insured by a mortgage insurance company licensed to do business in the State of Texas;  or

(iii)  be greater than ninety per cent (90%) of the value of such real property to the extent the obligation is insured or guaranteed by the United States of America, or an agency or instrumentality thereof, the Federal Housing Administration pursuant to the National Housing Act of 1934, as amended (12 U.S.C. Sec. 1701 et seq.), or the State of Texas;  and

(B)  the term of an obligation secured by a first lien upon a leasehold estate in real property and improvements situated thereon shall not exceed a period equal to four-fifths (4/5) of the then unexpired term of such leasehold estate, provided that:

(i)  the unexpired term of the leasehold estate must extend at least ten (10) years beyond the term of the obligation;  and

(ii)  each obligation shall be payable in equal monthly, quarterly, semi-annual, or annual payments of principal plus accrued interest to the date of such principal payment, so that under either method of repayment such obligation will fully amortize during a period of time not to exceed four-fifths (4/5) of the then unexpired term of the security leasehold estate;

(C)  the amount of any one such obligation may not exceed ten per cent (10%) of the insurer's capital and surplus;  and

(D)  the aggregate of investments made under this Subdivision (3) may not exceed thirty per cent (30%) of the insurer's assets;

… .

Revisor's Note

Section (e)(3)(A)(ii), V.T.I.C. Article 2.10, refers to a "mortgage insurance company" that is "licensed" to engage in business in this state.  The revised law substitutes "mortgage guaranty insurer" for "mortgage insurance company" for consistency with V.T.I.C. Article 21.50, revised as Chapter 3502, which regulates mortgage guaranty insurance.  The revised law also substitutes "authorized" for "licensed" because "certificate of authority" is the term used throughout this code in relation to an entity's authority to engage in business.

Revised Law

Sec. 424.067.  AUTHORIZED INVESTMENTS:  TRANSPORTATION EQUIPMENT.  An insurer may invest the insurer's funds in excess of minimum capital and surplus in:

(1)  an adequately secured equipment trust obligation, certificate, or other instrument evidencing an interest in transportation equipment wholly or partly located in the United States; and

(2)  a right to receive determined portions of rental, purchase, or other fixed obligatory payments for the use or purchase of the equipment.  (V.T.I.C. Art. 2.10, Sec. (e) (part).)

Source Law

(e)  No company … shall invest its funds over and above its minimum capital and its minimum surplus … in any other manner than as follows:

…

(12)  in equipment trust obligations or certificates that are adequately secured or in other adequately secured instruments evidencing an interest in transportation equipment in whole or in part within the United States and a right to receive determined portions of rental, purchase, or other fixed obligatory payments for the use or purchase of the transportation equipment; and

… .

Revised Law

Sec. 424.068.  AUTHORIZED INVESTMENTS:  INVESTMENT IN FOREIGN JURISDICTION.  (a)  In addition to the investments in Canada authorized by Sections 424.051, 424.058-424.071, and 424.074 and subject to this section, an insurer may invest the insurer's funds in excess of minimum capital and surplus in an investment in a foreign commonwealth, territory, or possession of the United States, a foreign country other than Canada, or a foreign security originating in one of those commonwealths, territories, possessions, or countries, if:

(1)  the investment is similar to investments the insurer is authorized by Sections 424.051, 424.058-424.071, and 424.074 to make within the United States or Canada; and

(2)  if a debt obligation, the investment is rated one or two by the securities valuation office.

(b)  The aggregate amount of an insurer's investments under Sections 424.051, 424.058-424.071, and 424.074 in a single foreign jurisdiction may not exceed:

(1)  as to a foreign jurisdiction that is given a sovereign debt rating of one by the securities valuation office, 10 percent of the insurer's admitted assets; or

(2)  as to any other foreign jurisdiction, five percent of the insurer's admitted assets.

(c)  The amount of investments made under this section may not exceed the sum of:

(1)  the amounts authorized by Section 424.073; and

(2)  20 percent of the insurer's assets.

(d)  The combined total of the amount of investments made under this section, the amount of similar investments made within the United States and Canada, and any amounts of investments authorized by Section 424.073 may not exceed any limitation prescribed by Sections 424.051, 424.058-424.071, and 424.074.  (V.T.I.C. Art. 2.10, Sec. (e) (part).)

Source Law

(e)  No company … shall invest its funds over and above its minimum capital and its minimum surplus … in any other manner than as follows:

…

(8)  in addition to the investments in Canada authorized in other subdivisions of this subsection, investments in other foreign countries, commonwealths, territories or possessions of the United States, or foreign securities originating in such foreign countries, commonwealths, territories or possessions of the United States, provided that:

(A)  such investments are similar to those authorized for investment within the United States or Canada by other provisions of this subsection and, if debt obligations, are rated one or two by the Securities Valuation Office of the National Association of Insurance Commissioners;

(B)  the aggregate amount of foreign investments held by the insurer under this subsection in a single foreign jurisdiction does not exceed either 10 percent of its admitted assets as to a foreign jurisdiction that has a sovereign debt rating of Securities Valuation Office 1 by the Securities Valuation Office of the National Association of Insurance Commissioners or five percent of its admitted assets as to any other foreign jurisdiction;

(C)  such investments when added to the amount of similar investments made within the United States and Canada and any amounts authorized by Article 2.10-2 of this Code do not result in the combined total of such investments exceeding the limitations specified elsewhere in this subsection;  and

(D)  such investments may not exceed the sum of:

(i)  the amounts authorized by Article 2.10-2 of this Code;  and

(ii)  20 percent of the insurer's assets;

… .

Revised Law

Sec. 424.069.  AUTHORIZED INVESTMENTS:  CERTAIN LOANS.  An insurer may invest the insurer's funds in excess of minimum capital and surplus in a loan on the pledge of any mortgage, stock, bond, or other evidence of indebtedness acceptable as an investment under Sections 424.051, 424.053-424.071, and 424.074, if the current value of the mortgage, stock, bond, or other evidence of indebtedness is at least 25 percent more than the amount of the loan.  (V.T.I.C. Art. 2.10, Sec. (e) (part).)

Source Law

(e)  No company … shall invest its funds over and above its minimum capital and its minimum surplus … in any other manner than as follows:

…

(9)  in loans upon the pledge of any mortgage, stock, bonds or other evidence of indebtedness acceptable as investments under the terms of this Article, if the current value of such mortgage, stock, bonds or other evidence of indebtedness is at least twenty-five per cent (25%) more than the amount loaned thereon;

… .

Revised Law

Sec. 424.070.  AUTHORIZED INVESTMENTS:  OBLIGATIONS OF LOCAL GOVERNMENTAL ENTITIES.  (a)  Subject to this section, an insurer may invest the insurer's funds in excess of minimum capital and surplus in a bond or other interest-bearing evidence of indebtedness of a:

(1)  county or subdivision of a county;

(2)  municipality;

(3)  road district;

(4)  turnpike district or authority;

(5)  water district;

(6)  school district;

(7)  sanitary or navigation district; or

(8)  municipally owned revenue water system, sewer system, or electric utility company with respect to which the municipality has appropriated, pledged, or otherwise provided for special revenues to meet the principal and interest payments of the bond or other evidence of indebtedness.

(b)  A bond or other evidence of indebtedness of a navigation district is an authorized investment under this section only if:

(1)  the navigation district is located wholly or partly in a county that has a population of at least 100,000; and

(2)  the interest due on the bond or other evidence of indebtedness has never been in default.  (V.T.I.C. Art. 2.10, Sec. (e) (part).)

Source Law

(e)  No company … shall invest its funds over and above its minimum capital and its minimum surplus … in any other manner than as follows:

…

(4)  in bonds or other interest-bearing evidences of debt of any county, municipality, road district, turnpike district or authority, water district, any subdivision of a county, incorporated city, town, school district, sanitary or navigation district, any municipally owned revenue water system, sewer system or electric utility company where special revenues to meet the principal and interest payments of such municipally owned revenue water system, sewer system or electric utility company bonds or other evidences of debt shall have been appropriated, pledged or otherwise provided for by such municipality, provided that:

(A)  before bonds or other evidences of debt of navigation districts shall be eligible investments such navigation district shall be located in whole or in part in a county containing a population of not less than 100,000 according to the last preceding Federal Census;  and

(B)  the interest due on such navigation bonds or other evidences of debt of navigation districts must never have been defaulted;

… .

Revisor's Note

(1)  Section (e)(4), V.T.I.C. Article 2.10, lists certain entities, including a "municipality, … incorporated city, [or] town."  The revised law omits the references to "incorporated city" and "town" as included within the meaning of "municipality."

(2)  Section (e)(4), V.T.I.C. Article 2.10, describes a population number that is to be determined according to the most recent federal census.  The revised law omits the reference to the federal census as unnecessary because Section 311.005(3), Government Code (Code Construction Act), applicable to the revised law, and Section 312.011(20), Government Code, define "population" as population according to the most recent federal decennial census.

Revised Law

Sec. 424.071.  AUTHORIZED INVESTMENTS:  THE UNIVERSITY OF TEXAS.  An insurer may invest the insurer's funds in excess of minimum capital and surplus in an interest-bearing note or bond of The University of Texas issued under the laws of this state.  (V.T.I.C. Art. 2.10, Sec. (e) (part).)

Source Law

(e)  No company … shall invest its funds over and above its minimum capital and its minimum surplus … in any other manner than as follows:

…

(10)  in interest-bearing notes or bonds of The University of Texas issued under the laws of this state;

… .

Revised Law

Sec. 424.072.  AUTHORIZED INVESTMENTS:  BONDS ISSUED, ASSUMED, OR GUARANTEED IN INTERNATIONAL MARKET.  An insurer may invest the insurer's funds in excess of minimum capital and surplus in bonds issued, assumed, or guaranteed by any of the following international financial institutions in which the United States is a member:

(1)  the Inter-American Development Bank;

(2)  the International Bank for Reconstruction and Development (the World Bank);

(3)  the African Development Bank;

(4)  the Asian Development Bank; or

(5)  the International Finance Corporation.  (V.T.I.C. Art. 2.10-1, Sec. (1).)

Source Law

Art. 2.10-1.  (1)  In addition to the securities authorized as investments in Article 2.10, a company may also invest its funds over and above its minimum capital and minimum surplus, as provided in Article 2.02, in bonds, issued, assumed, or guaranteed by certain international financial institutions in which the United States is a member, to wit:  the Inter-American Development Bank, the International Bank for Reconstruction and Development (the World Bank), the African Development Bank, the Asian Development Bank, and the International Finance Corporation.

Revisor's Note

(1)  Section (1), V.T.I.C. Article 2.10-1, authorizes an insurer to make certain investments "[i]n addition to the securities authorized as investments in Article 2.10."  The revised law omits the quoted language as unnecessary because an accepted general principle of statutory construction requires a statute to be given cumulative effect with other statutes unless it provides otherwise or unless the statutes are in conflict.  The general principle applies to this revision.

(2)  Section (1), V.T.I.C. Article 2.10-1, authorizes an insurer to invest its funds in excess of its minimum capital and surplus "as provided in Article 2.02," the relevant parts of which are codified as Sections 822.054 and 822.210 of this code.  The revised law omits the reference to Article 2.02 as unnecessary because Section 424.001 defines "minimum capital and surplus" for purposes of this chapter to mean the minimum amount of capital stock and minimum amount of surplus required of an insurer under those sections.

Revised Law

Sec. 424.073.  AUTHORIZED INVESTMENTS:  INSURER ENGAGED IN BUSINESS IN FOREIGN COUNTRY.  (a)  Subject to this section, an insurer authorized by the law of a foreign country to engage in a line of insurance in which the insurer is authorized to engage in this state may invest in foreign securities originating in the foreign country of the same kind as the domestic securities originating in the United States in which the insurer is authorized to invest under Sections 424.051, 424.053-424.071, and 424.074.

(b)  The aggregate amount of an insurer's investments made under this section in a single country may not exceed by more than 10 percent at any time the lesser of:

(1)  the amount of funds required by the law of the foreign country to be maintained in securities originating in that country; or

(2)  the amount of total unearned premium reserves, reinsurance reserves, loss reserves, and any other liabilities required by the law of this state to be carried by the insurer that are directly attributable to the particular insurance policies or contracts on residents or property located in the foreign country.

(c)  This section does not authorize an insurer to invest in a foreign security originating in a foreign country with respect to which the president of the United States or other federal authority has refused to exercise the authority to issue guarantees on projects in the country to citizens or corporations of the United States against loss by reason of inconvertibility of currency, expropriation, confiscation, war, revolution, or insurrection because the foreign country has failed to enter into arrangements for the security of American property as required by the president or other federal authority for the issuance of those guarantees. (V.T.I.C. Art. 2.10-2.)

Source Law

Art. 2.10-2.  In addition to the securities authorized as investments by Article 2.10 of the Insurance Code, any insurer subject to the provisions of Article 2.10 of the Insurance Code that is authorized by the law of a foreign country to engage in a line or lines of insurance which the insurer is authorized to transact in this state may invest in the same kinds of foreign securities originating in such foreign country as would be authorized by Article 2.10 of the Insurance Code (as the same now exists or may be amended in the future) for domestic securities originating in the United States of America;  provided, however, that the aggregate investment made under the provisions of this Article in any one country shall not exceed by more than 10% at any time the lesser of the following amounts:

(a)  The funds required by the law of the foreign country to be maintained in securities originating in such country.

(b)  The total unearned premium reserves, reinsurance reserves, loss reserves and other liabilities, if any, required by the law of this state to be carried by the insurer that are directly attributable to the particular policies or contracts of insurance on residents or property located in the foreign country.

Provided, however, this Article shall not constitute authority to invest in foreign securities originating in any foreign country where the President of the United States or other federal authority is authorized but has refused to issue on projects in the country guarantees to citizens or corporations of the United States of America guaranteeing against loss by reason of inconvertibility of currency, expropriation, confiscation, war, revolution or insurrection because of the omission or failure of such foreign country to enter into arrangements for the security of American property required by the federal authority for the issuance of such guarantees.

Revisor's Note

(1)  V.T.I.C. Article 2.10-2 authorizes an insurer to make certain investments "[i]n addition to the securities authorized as investments by Article 2.10 of the Insurance Code."  The revised law omits the quoted language as unnecessary for the reason stated in Revisor's Note (1) to Section 424.072.

(2)  V.T.I.C. Article 2.10-2 refers to V.T.I.C. Article 2.10 "as the same now exists or may be amended in the future."   The revised law omits this language as unnecessary because Section 311.027, Government Code (Code Construction Act), applicable to the revised law, provides that "[u]nless expressly provided otherwise, a reference to any portion of a statute or rule applies to all reenactments, revisions, or amendments of the statute or rule."

(3)  V.T.I.C. Article 2.10-2 refers to the "omission or failure" of a foreign country to enter into arrangements for the security of American property.  The revised law omits the reference to "omission" because in the context in which the term is used, its meaning is included within the meaning of "failure."

Revised Law

Sec. 424.074.  OTHER SPECIFICALLY AUTHORIZED INVESTMENTS.  An insurer may invest the insurer's funds in excess of minimum capital and surplus in:

(1)  a savings account as authorized by Chapter 65, Finance Code;

(2)  a bond or other indebtedness as authorized by Sections 435.045 and 435.046, Government Code;

(3)  a bond issued under Subchapter B, Chapter 1505, Government Code;

(4)  a bond as authorized by Subchapter B, Chapter 284, Transportation Code;

(5)  a municipal bond issued under Sections 51.038 and 51.039, Water Code;

(6)  an insured account or evidence of indebtedness as authorized by Section 1, Chapter 160, General Laws, Acts of the 43rd Legislature, Regular Session, 1933 (Article 842a, Vernon's Texas Civil Statutes);

(7)  an insured or guaranteed obligation as authorized by Chapter 230, Acts of the 49th Legislature, Regular Session, 1945 (Article 842a-1, Vernon's Texas Civil Statutes);

(8)  a bond issued under Section 1, Chapter 1, page 427, General Laws, Acts of the 46th Legislature, Regular Session, 1939 (Article 1269k-1, Vernon's Texas Civil Statutes);

(9)  a bond as authorized by Section 24, Chapter 110, Acts of the 51st Legislature, Regular Session, 1949 (Article 8280-133, Vernon's Texas Civil Statutes);

(10)  a bond as authorized by Section 19, Chapter 340, Acts of the 51st Legislature, Regular Session, 1949 (Article 8280-137, Vernon's Texas Civil Statutes);

(11)  a bond as authorized by Section 10, Chapter 398, Acts of the 51st Legislature, Regular Session, 1949 (Article 8280-138, Vernon's Texas Civil Statutes);

(12)  a bond as authorized by Section 18, Chapter 465, Acts of the 51st Legislature, Regular Session, 1949 (Article 8280-139, Vernon's Texas Civil Statutes); or

(13)  another investment specifically authorized by law.  (V.T.I.C. Art. 2.10, Sec. (e) (part).)

Source Law

(e)  No company … shall invest its funds over and above its minimum capital and its minimum surplus … in any other manner than as follows:

…

(13)  in:

(A)  insured accounts and evidences of indebtedness as defined and limited by Section 1, Chapter 618, page 1356, Acts of the 47th Legislature;

(B)  shares or share accounts as authorized by Chapter 65, Finance Code;

(C)  insured or guaranteed obligations as authorized in Chapter 230, Acts of the 49th Legislature, Regular Session, 1945 (Article 842a-1, Vernon's Texas Civil Statutes);

(D)  bonds issued under the provisions authorized by Section 9, Chapter 231, General Laws, Acts of the 43rd Legislature, Regular Session, 1933 (Article 1187a, Vernon's Texas Civil Statutes);

(E)  bonds issued under the authority of Section 1, Chapter 1, page 427, General Laws, Acts of the 46th Legislature, Regular Session, 1939 (Article 1269k-1, Vernon's Texas Civil Statutes);

(F)  bonds and other indebtedness as authorized by Sections 435.045 and 435.046, Government Code;

(G)  "Municipal Bonds" issued under Sections 51.038 and 51.039, Water Code;

(H)  bonds as authorized by Subchapter B, Chapter 284, Transportation Code;

(I)  bonds as authorized by Section 19, Chapter 340, Acts of the 51st Legislature, Regular Session, 1949;

(J)  bonds as authorized by Section 10, Chapter 398, Acts of the 51st Legislature, Regular Session, 1949;

(K)  bonds as authorized by Section 18, Chapter 465, Acts of the 51st Legislature, Regular Session, 1949;

(L)  bonds as authorized by Section 24, Chapter 110, Acts of the 51st Legislature, Regular Session, 1949;  and

(M)  such other investments as are now or may hereafter be specifically authorized by law.

Revisor's Note

(1)  Section (e)(13)(A), V.T.I.C. Article 2.10, refers to an insured account or evidence of indebtedness "as defined and limited by Section 1, Chapter 618, page 1356, Acts of the 47th Legislature."  The revised law substitutes a reference to an insured account or evidence of indebtedness "as authorized by Section 1, Chapter 160, General Laws, Acts of the 43rd Legislature, Regular Session, 1933 (Article 842a, Vernon's Texas Civil Statutes)" for the following reasons.  Section 1, Chapter 618, page 1356, Acts of the 47th Legislature, includes provisions that amend statutes originally enacted by Section 1, Chapter 160, General Laws, Acts of the 43rd Legislature, Regular Session, 1933 (Article 842a, Vernon's Texas Civil Statutes).  A cite to the original enactment includes any subsequent revision of the cited statutes and clarifies in which articles those statutes are found in Vernon's Texas Civil Statutes.

(2)  Section (e)(13)(B), V.T.I.C. Article 2.10, refers to "shares or share accounts" as authorized by Chapter 65, Finance Code.  The revised law substitutes a reference to a "savings account" because that is the term currently used by Chapter 65, Finance Code.

(3)  Section (e)(13)(D), V.T.I.C. Article 2.10, refers to a bond "issued under the provisions authorized by Section 9, Chapter 231, General Laws, Acts of the 43rd Legislature, Regular Session, 1933 (Article 1187a, Vernon's Texas Civil Statutes)."  That statute was codified in 1999 as Subchapter B, Chapter 1505, Government Code.  The revised law is drafted accordingly.

(4)  Sections (e)(13)(I)-(L), V.T.I.C. Article 2.10, refer to certain bonds as authorized by various provisions adopted during the Regular Session of the 51st Legislature in 1949.  The revised law adds cites to the articles in which those laws are found in Vernon's Texas Civil Statutes.

(5)  Section (e)(13)(M), V.T.I.C. Article 2.10, refers to "such other investments as are now or may hereafter be specifically authorized by law."  The revised law omits "as are now or may hereafter be" as unnecessary.  Section 311.027, Government Code (Code Construction Act), applicable to the revised law, states that a reference to a statute includes reenactments, revisions, or amendments of that statute.  Consequently, for purposes of the law revised in this section, an investment will be considered "authorized by law" regardless of whether the investment is authorized at the time this revision takes effect or is authorized by subsequent legislation.

[Sections 424.075-424.100 reserved for expansion]

SUBCHAPTER C.  INVESTMENT POOLS

Revised Law

Sec. 424.101.  DEFINITIONS.  In this subchapter:

(1)  "Business entity" means an association, corporation, joint stock company, joint venture, limited liability company, mutual fund trust, partnership, or other similar form of business organization, regardless of whether organized for profit.

(2)  "Obligation" means:

(A)  a bond, note, debenture, trust certificate, including an equipment certificate, or production payment;

(B)  a negotiable bank certificate of deposit, bankers' acceptance, credit tenant loan, or other loan secured by financing net leases;  or

(C)  any other evidence of indebtedness for the payment of money or participation certificates or other evidences of an interest in an obligation otherwise described by this subdivision, whether constituting a general obligation of the issuer or payable only out of certain revenues or certain funds pledged or otherwise dedicated for payment.

(3)  "Qualified bank" means a national bank, state bank, or trust company that is:

(A)  at all times adequately capitalized as determined by the standards adopted by the United States banking regulators; and

(B)  either a member of the Federal Reserve System or regulated by state banking laws.

(4)  "Repurchase transaction," "reverse repurchase transaction," and "securities lending transaction" have the meanings assigned by Section 424.151.  (V.T.I.C. Art. 2.10-5, Secs. 1(1), (5), (6), (7), (8), (9).)

Source Law

Art. 2.10-5

Sec. 1.  In this article:

(1)  "Business entity" means a corporation, limited liability company, association, partnership, joint stock company, joint venture, mutual fund trust, or other similar form of business organization, whether organized as for-profit or not-for-profit.

(5)  "Obligation" means:

(A)  a bond, note, debenture, trust certificate (including an equipment certificate), or production payment;

(B)  a negotiable bank certificate of deposit, bankers' acceptance, credit tenant loan, or other loan secured by financing net leases;  or

(C)  any other evidence of indebtedness for the payment of money or participation certificates or other evidences of an interest in an obligation described by this subdivision, whether constituting a general obligation of the issuer or payable only out of certain revenues or certain funds pledged or otherwise dedicated for payment.

(6)  "Qualified bank" means a national bank, state bank, or trust company that at all times is adequately capitalized as determined by the standards adopted by the United States banking regulators and that is either regulated by state banking laws or a member of the Federal Reserve System.

(7)  "Repurchase transaction" means a transaction in which an insurer purchases securities from a business entity that is obligated to repurchase the purchased securities or equivalent securities from the insurer at a specified price, either within a specified period or on demand.

(8)  "Reverse repurchase transaction" means a transaction in which an insurer sells securities to a business entity and is obligated to repurchase the securities sold or equivalent securities from the business entity at a specified price, either within a specified period or on demand.

(9)  "Securities lending transaction" means a transaction in which securities are loaned by an insurer to a business entity that is obligated to return the loaned securities or equivalent securities to the insurer, either within a specified period or on demand.

Revisor's Note

Sections 1(7), (8), and (9), V.T.I.C. Article 2.10-5, define the terms "repurchase transaction," "reverse repurchase transaction," and "securities lending transaction."  V.T.I.C. Article 2.10-3A, which regulates those activities, provides substantively identical definitions for those terms in Sections 1(2), (3), and (4), revised in this chapter in Section 424.151.  Consequently, for clarity and consistency, the revised law simply states that in this subchapter, the defined terms have the meanings assigned by Section 424.151.

Revised Law

Sec. 424.102.  AUTHORITY TO INVEST IN POOL.  An insurer may acquire investments and participate in an investment pool that is qualified under Section 424.103(b) and the investments of which are limited to investments authorized for:

(1)  a short-term investment pool under Section 424.104; or

(2)  an authorized investment pool under Section 424.107.  (V.T.I.C. Art. 2.10-5, Sec. 2.)

Source Law

Sec. 2.  An insurer may acquire investments and participate in an investment pool that is qualified under Section 5 of this article and the investments of which are limited to investments authorized for a short-term investment pool under Section 3 of this article or for an authorized investment pool under Section 4 of this article.

Revisor's Note

(1)  Section 2, V.T.I.C. Article 2.10-5, refers to an investment pool "qualified under Section 5" of that article.  Section 5 is revised in various sections in this subchapter.  Section 424.103(b) lists the requirements for an investment pool to be qualified and includes requirements that the pool manager and pooling agreement comply with this subchapter, the provisions of which are derived from the remaining portions of Section 5 and specify requirements for serving as the pool manager and for terms of the pooling agreement.  Therefore, the revised law substitutes a reference to "Section 424.103(b)" for the reference to "Section 5."

(2)  Section 2, V.T.I.C. Article 2.10-5, refers to investments authorized for a short-term investment pool under "Section 3" of that article.  Section 3 of that article is revised in Sections 424.104, 424.105, and 424.106.  However, Section 424.104 requires compliance with Sections 424.105 and 424.106.  Therefore, the revised law substitutes a reference to "Section 424.104" for the reference to "Section 3."

Revised Law

Sec. 424.103.  INVESTMENT POOL REQUIREMENTS AND QUALIFICATIONS.  (a)  An investment pool must be a business entity.

(b)  To be qualified, an investment pool must:

(1)  have a written pooling agreement and a pool manager that comply with the requirements of this subchapter; and

(2)  comply with Subsection (c).

(c)  The investment pool may not:

(1)  acquire securities issued, assumed, guaranteed, or insured by the investing insurer or an affiliate of the investing insurer;

(2)  borrow or incur indebtedness for borrowed money, except for securities lending and reverse repurchase transactions that meet the requirements of this subchapter; or

(3)  permit the aggregate value of securities loaned or sold to, purchased from, or invested in a single business entity at the time of the loan, sale, purchase, or investment to exceed 10 percent of the pool's total assets.  (V.T.I.C. Art. 2.10-5, Secs. 5(a), (b), (c), 6(a).)

Source Law

Sec. 5.  (a)  To be qualified, an investment pool must comply with the requirements established under this section.

(b)  The investment pool may not:

(1)  acquire securities issued, assumed, guaranteed, or insured by the investing insurer or an affiliate of the investing insurer;

(2)  borrow or incur an indebtedness for borrowed money, except for securities lending and reverse repurchase transactions that meet the requirements of this article; or

(3)  permit the aggregate value of securities then loaned or sold to, purchased from, or invested in any one business entity under this section to exceed 10 percent of the total assets of the investment pool.

(c)  The investment pool shall have a written pooling agreement.

Sec. 6.  (a)  An investment pool must be a business entity.

Revisor's Note

Section 5(a), V.T.I.C. Article 2.10-5, requires an investment pool to "comply with the requirements established under this section."  Those requirements are revised in part in provisions of this subchapter that pertain to pooling agreement and pool manager requirements and in part in Subsections (b) and (c) of this section.  The revised law is drafted accordingly.

Revised Law

Sec. 424.104.  AUTHORIZED INVESTMENTS FOR SHORT-TERM INVESTMENT POOL.  A short-term investment pool may contain only:

(1)  obligations described by Section 424.105;

(2)  money market funds described by Section 424.106; or

(3)  repurchase, reverse repurchase, and securities lending transactions that meet the requirements of Subchapter D.  (V.T.I.C. Art. 2.10-5, Sec. 3(a) (part).)

Source Law

Sec. 3.  (a)  A short-term investment pool may contain only:

(1)  … obligations that are rated one or two by the securities valuation office … and that have a remaining maturity of:

…

(2)  government money market mutual funds or class one money market mutual funds; or

(3)  securities lending, repurchase, and reverse repurchase transactions that meet the requirements imposed under Article 2.10-3 of this code.

Revisor's Note

Section 3(a)(3), V.T.I.C. Article 2.10-5, refers to certain transactions that meet the requirements of "Article 2.10-3 of this code."  V.T.I.C. Article 2.10-3 was repealed by Chapter 1040, Acts of the 76th Legislature, Regular Session, 1999.  That legislation also added V.T.I.C. Article 2.10-3A to regulate the transactions previously regulated under Article 2.10-3.  Consequently, the revised law substitutes a reference to the subchapter in which V.T.I.C. Article 2.10-3A is revised for the reference to V.T.I.C. Article 2.10-3.

Revised Law

Sec. 424.105.  SHORT-TERM INVESTMENT POOL:  CERTAIN SHORT-TERM OBLIGATIONS.  (a)  Obligations contained in a short-term investment pool must meet the requirements of this section.

(b)  The obligations must:

(1)  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

(2)  be issued by an issuer with outstanding obligations that have a rating described by Subdivision (1).

(c)  The obligations must have:

(1)  a remaining maturity of 397 days or less or a put that:

(A)  entitles the holder to receive the principal amount of the obligation; and

(B)  may be exercised through maturity at specified intervals not exceeding 397 days; or

(2)  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 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.

(d)  For purposes of this section, a current short-term index is:

(1)  a federal funds rate;

(2)  the prime rate;

(3)  the rate for treasury bills;

(4)  the London InterBank Offered Rate; or

(5)  the rate for commercial paper.  (V.T.I.C. Art. 2.10-5, Secs. 3(a) (part), (b), (c).)

Source Law

Sec. 3.  (a)  A short-term investment pool may contain only:

(1)  except as provided by Subsection (b) of this section, obligations that are rated one or two by the securities valuation office or that have a rating equivalent to a securities valuation office rating of one or two made by a statistical rating organization that is nationally recognized and recognized by the securities valuation office and that have a remaining maturity of:

(A)  397 days or less or a put that entitles the holder to receive the principal amount of the obligation and that may be exercised through maturity at specified intervals not exceeding 397 days;  or

(B)  three years or less and a floating interest rate that resets not less frequently than quarterly on the basis of a current short-term index acceptable under Subsection (c) of this section 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;

… .

(b)  In the absence of a one or two rating or equivalent rating, the issuer of an obligation under Subsection (a)(1) of this section must have outstanding obligations rated one or two by the securities valuation office or that have a rating equivalent to a securities valuation office rating of one or two made by a nationally recognized statistical rating organization recognized by the securities valuation office.

(c)  For purposes of this section, a current short-term index is:

(1)  a federal funds rate;

(2)  the prime rate;

(3)  the rate for treasury bills;

(4)  the London InterBank Offered Rate;  or

(5)  the rate for commercial paper.

Revised Law

Sec. 424.106.  SHORT-TERM INVESTMENT POOL:  CERTAIN MONEY MARKET FUNDS.  A short-term investment pool may contain 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.), as amended, that is:

(1)  a government money market fund that at all times:

(A)  invests only in obligations issued, guaranteed, or insured by the United States or collateralized repurchase agreements composed of those 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 at all times qualifies for investment using the bond class one reserve factor described by the Purposes and Procedures Manual of the securities valuation office.  (V.T.I.C. Art. 2.10-5, Secs. 1(2), (3), (4), 3(a) (part).)

Source Law

[Sec. 1]

(2)  "Class one money market mutual fund" means a mutual fund that at all times qualifies for investment using the bond class one reserve factor described by the purposes and procedures of the securities valuation office.

(3)  "Government money market mutual fund" means a money market mutual fund that at all times:

(A)  invests only in obligations issued, guaranteed, or insured by the United States or collateralized repurchase agreements composed of those obligations; and

(B)  is qualified for investment without a reserve under the purposes and procedures publication of the securities valuation office or any successor publication.

(4)  "Money market mutual fund" means a mutual fund that qualifies under 17 C.F.R. Part 270.2a-7, as authorized by the Investment Company Act of 1940 (15 U.S.C. Sections 80a-1 et seq.), as amended.

Sec. 3.  (a)  A short-term investment pool may contain only:

…

(2)  government money market mutual funds or class one money market mutual funds; or

… .

Revisor's Note

(1)  Section 1(2), V.T.I.C. Article 2.10-5, refers to "the purposes and procedures of the securities valuation office."  Other provisions revised in this chapter contain similar references.  Throughout this chapter, the revised law substitutes "Purposes and Procedures Manual of the securities valuation office" for the quoted language because that is the correct name of the publication.

(2)  Section 1(4), V.T.I.C. Article 2.10-5, defines "money market mutual fund" as a "mutual fund" that qualifies under "17 C.F.R. Part 270.2a-7, as authorized by the Investment Company Act of 1940 (15 U.S.C. Sections 80a-1 et seq.), as amended."  Because 17 C.F.R. Section 270.2a-7 does not define or use the term "money market mutual fund," but does prescribe requirements for a registered investment company that holds itself out as a "money market fund," the revised law substitutes "money market fund" for "money market mutual fund."

Revised Law

Sec. 424.107.  AUTHORIZED INVESTMENTS FOR AUTHORIZED INVESTMENT POOL; LIMITATION.  (a)  An authorized investment pool may contain only investments that a participating insurer is authorized to acquire by provisions of this code other than this subchapter.

(b)  The insurer's total of proportionate ownership interests in a single authorized investment held by an authorized investment pool and the insurer's direct investments in that authorized investment may not exceed the limit prescribed by the applicable authorizing provision.

(c)  In addition to the limitation described by Subsection (b), an insurer is subject to the limitations described by Section 424.108.  (V.T.I.C. Art. 2.10-5, Sec. 4.)

Source Law

Sec. 4.  Authorized investment pools are limited to investments that a participating insurer is authorized to acquire by other articles of this code.  The insurer's total of proportionate ownership interests in any one authorized investment held by an authorized investment pool, and direct investments in the same authorized investment, may not exceed the limit provided by the applicable authorizing article.  In addition to that limitation, an insurer is also subject to the overall limitations contained in Section 6(c) of this article.

Revised Law

Sec. 424.108.  GENERAL INSURER INVESTMENT LIMITATIONS.  An insurer may not acquire an investment in an investment pool if, as a result of and after making the investment, the aggregate amount of investments held by the insurer under this subchapter at the time of the investment:

(1)  in a single investment pool would exceed 10 percent of the insurer's admitted assets;

(2)  in all investment pools investing in investments authorized under Section 424.107 would exceed 25 percent of the insurer's admitted assets;  or

(3)  in all investment pools would exceed 35 percent of the insurer's admitted assets.  (V.T.I.C. Art. 2.10-5, Sec. 6(c).)

Source Law

(c)  An insurer shall not acquire an investment in an investment pool under this section if, as a result of and after giving effect to that investment, the aggregate amount of investments then held by the insurer under this article:

(1)  in any one investment pool would exceed 10 percent of its admitted assets;

(2)  in all investment pools investing in investments permitted under Section 4 of this article would exceed 25 percent of its admitted assets;  or

(3)  in all investment pools would exceed 35 percent of its admitted assets.

Revised Law

Sec. 424.109.  DESIGNATION OF POOL MANAGER; QUALIFICATIONS.  (a)  The pooling agreement for an investment pool must designate a pool manager.

(b)  The pool manager must be organized under the laws of the United States or a state and must be:

(1)  the investing insurer, an affiliated insurer, or a business entity affiliated with the insurer;

(2)  a qualified bank;

(3)  a business entity registered under the Investment Advisers Act of 1940 (15 U.S.C. Section 80b-1 et seq.), as amended;

(4)  the attorney-in-fact of a reciprocal or interinsurance exchange;  or

(5)  the United States manager or an affiliate or subsidiary of the United States manager of a United States branch of an alien insurer.  (V.T.I.C. Art. 2.10-5, Sec. 5(d).)

Source Law

(d)  The pooling agreement must designate a pool manager.  The pool manager must be organized under the laws of the United States or a state and must be:

(1)  the investing insurer, an affiliated insurer, or a business entity affiliated with the insurer;

(2)  a qualified bank;

(3)  a business entity registered under the Investment Advisers Act of 1940 (15 U.S.C. Sec. 80b-1 et seq.), as amended;

(4)  if a reciprocal insurer or interinsurance exchange, its attorney-in-fact;  or

(5)  if a United States branch of an alien insurer, its United States manager or an affiliate or subsidiary of its United States manager.

Revisor's Note

Section 5(d), V.T.I.C. Article 2.10-5, refers to a "reciprocal insurer or interinsurance exchange."  For consistency with terminology used throughout this code, the revised law substitutes "reciprocal or interinsurance exchange" for "reciprocal insurer or interinsurance exchange."

Revised Law

Sec. 424.110.  POOL MANAGER TO MAINTAIN ASSETS; CUSTODY AGREEMENT.  (a)  The pool manager shall maintain the assets of the investment pool in one or more accounts, in the name of or on behalf of the pool, under a custody agreement with a qualified bank.

(b)  The custody agreement must:

(1)  state and recognize the claims and rights of each participant;

(2)  acknowledge that the investment 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

(3)  contain an agreement that the pool's underlying assets may not be commingled with the general assets of the custodian qualified bank or any other person.  (V.T.I.C. Art. 2.10-5, Sec. 5(f).)

Source Law

(f)  The pool manager shall maintain the assets of the investment pool in one or more accounts, in the name of or on behalf of the investment pool, under a custody agreement with a qualified bank.  The custody agreement must:

(1)  state and recognize the claims and rights of each participant;

(2)  acknowledge that the underlying assets of the investment pool are held solely for the benefit of each participant in proportion to the aggregate amount of its investments in the investment pool;  and

(3)  contain an agreement that the underlying assets of the investment pool may not be commingled with the general assets of the custodian qualified bank or any other person.

Revised Law

Sec. 424.111.  POOLING AGREEMENT PROVISIONS.  The pooling agreement for an investment pool must provide that:

(1)  100 percent of the ownership interests in the pool must at all times be held by:

(A)  an insurer and the insurer's affiliated insurers;

(B)  for a pool investing solely in investments authorized under Section 424.104, the insurer and the insurer's subsidiaries and affiliates or any pension or profit-sharing plan of the insurer and the insurer's subsidiaries and affiliates;  or

(C)  for a United States branch of an alien insurer, subsidiaries or affiliates of the insurer's United States manager;

(2)  the pool's underlying assets are held solely for the benefit of each participant and may not be commingled with the general assets of the pool manager or any other person;

(3)  each participant owns an undivided interest in the pool's underlying assets in proportion to the aggregate amount of the participant's interest in the pool; and

(4)  a pool participant or, if a pool participant is insolvent, bankrupt, or in receivership, the participant's trustee, receiver, conservator, or other successor-in-interest may withdraw all or any portion of the participant's investment from the pool under the terms of the pooling agreement.  (V.T.I.C. Art. 2.10-5, Sec. 5(g).)

Source Law

(g)  The pooling agreement for the investment pool must also provide that:

(1)  100 percent of the ownership interests in the investment pool must at all times be held by:

(A)  an insurer and its affiliated insurers;

(B)  in the case of an investment pool investing solely in investments permitted under Section 3 of this article, the insurer and its subsidiaries and affiliates or any pension or profit-sharing plan of the insurer, its subsidiaries, and affiliates;  or

(C)  in the case of a United States branch of an alien insurer, affiliates or subsidiaries of its United States manager;

(2)  the underlying assets of the investment pool may not be commingled with the general assets of the pool manager or any other person;

(3)  each participant owns an undivided interest in the underlying assets of the investment pool in proportion to the aggregate amount of each pool participant's interest in the investment pool and the underlying assets of the investment pool are held solely for the benefit of each participant;  and

(4)  a pool participant or, in the event of the pool participant's insolvency, bankruptcy, or receivership, its trustee, receiver, conservator, or other successor-in-interest may withdraw all or any portion of its investment from the pool under the terms of the pooling agreement.

Revisor's Note

Section 5(g)(1)(B), V.T.I.C. Article 2.10-5, refers to investments permitted under "Section 3" of that article.  The revised law substitutes a reference to "Section 424.104" for the reason stated in Revisor's Note (2) to Section 424.102.

Revised Law

Sec. 424.112.  WITHDRAWALS AND DISTRIBUTIONS.  (a)  A pool participant must be able to make withdrawals on demand without penalty or other assessment on any business day, and settlement of funds must occur within a reasonable and customary period that does not exceed five business days after a withdrawal.

(b)  The pooling agreement must provide that the pool manager shall make a distribution to a pool participant, at the manager's discretion:

(1)  in cash in an amount equal to the fair market value at the time of the distribution of the participant's pro rata share of each of the pool's underlying assets;

(2)  in kind in an amount equal to a pro rata share of each underlying asset; or

(3)  in a combination of cash and in-kind distributions in an amount equal to a pro rata share of each underlying asset.

(c)  A distribution under Subsection (b) must be computed after subtracting all the investment pool's applicable fees and expenses.  (V.T.I.C. Art. 2.10-5, Secs. 6(d), (e), (f).)

Source Law

(d)  A pool participant must be able to make withdrawals on demand without penalty or other assessment on any business day, and settlement of funds must occur within a reasonable and customary period after a withdrawal not to exceed five business days.

(e)  The pooling agreement must provide that the pool manager shall make a distribution to a pool participant, at the discretion of the pool manager:

(1)  in cash the fair market value at the time of the distribution of the participant's pro rata share of each underlying asset of the investment pool;

(2)  in kind a pro rata share of each underlying asset;  or

(3)  in a combination of cash and in-kind distributions a pro rata share in each underlying asset.

(f)  A distribution under Subsection (e) of this section is computed in each case after subtracting all applicable fees and expenses of the investment pool.

Revised Law

Sec. 424.113.  INVESTMENT POOL RECORDS.  The pool manager shall compile and maintain:

(1)  detailed accounting records that show:

(A)  the cash receipts and disbursements reflecting each pool participant's proportionate investment in the investment pool; and

(B)  a complete description of all the pool's underlying assets, including the amount, interest rate, and maturity date, if any, of each of those assets and other appropriate designations; and

(2)  other records that, on a daily basis, allow third parties to verify each participant's investment in the pool.  (V.T.I.C. Art. 2.10-5, Sec. 5(e).)

Source Law

(e)  The pool manager shall compile and maintain:

(1)  detailed accounting records that set forth:

(A)  the cash receipts and disbursements reflecting each pool participant's proportionate investment in the investment pool; and

(B)  a complete description of all underlying assets of the investment pool, including the amount, interest rate, and maturity date, if any, of each of those assets and other appropriate designations; and

(2)  other records that, on a daily basis, allow third parties to verify each pool participant's investment in the investment pool.

Revised Law

Sec. 424.114.  INSPECTION OF RECORDS.  The pool manager shall make records of the investment pool available for inspection by the commissioner.  (V.T.I.C. Art. 2.10-5, Sec. 6(g).)

Source Law

(g)  The pool manager must make the records of the investment pool available for inspection by the commissioner.

Revised Law

Sec. 424.115.  REPORTS OF TRANSACTIONS BETWEEN POOL AND PARTICIPANT.  (a)  A transaction between an investment pool and a pool participant is not subject to Subchapter C, Chapter 823, except that before entering into a pool, an insurer subject to Chapter 823 shall give the commissioner the written notice required under Section 823.103.

(b)  The investment pool's investment activities and the transactions between the pool and a pool participant must be reported in the registration statement required by Subchapter B, Chapter 823.  (V.T.I.C. Art. 2.10-5, Sec. 6(b).)

Source Law

(b)  A transaction between the pool and a participant in the pool is not subject to Section 4, Article 21.49-1 of this code, except that, before entering into a pool, an insurer subject to Article 21.49-1 of this code shall file the notice required under Section 4(d)(2), Article 21.49-1 of this code.  Investment activities of the pool and transactions between pools and participants shall be reported annually in the registration statement required by Section 3, Article 21.49-1 of this code.

Revisor's Note

(1)  Section 6(b), V.T.I.C. Article 2.10-5, provides that a transaction between an investment pool and a pool participant is not subject to Section 4, V.T.I.C. Article 21.49-1, with certain exceptions.  Section 4, Article 21.49-1, is revised in various places in Chapter 823 of this code.  The provisions of that section that apply to transactions are revised as Subchapter C, Chapter 823.  The revised law is drafted accordingly.

(2)  Section 6(b), V.T.I.C. Article 2.10-5, refers to the registration statement required by Section 3, V.T.I.C. Article 21.49-1.  Section 3, Article 21.49-1, is revised in various places in Chapter 823 of this code.  The provisions of that section that contained registration requirements are revised as Subchapter B, Chapter 823.  The revised law is drafted accordingly.

[Sections 424.116-424.150 reserved for expansion]

SUBCHAPTER D.  DOLLAR ROLL, REPURCHASE, REVERSE REPURCHASE,

AND SECURITIES LENDING TRANSACTIONS

Revised Law

Sec. 424.151.  DEFINITIONS.  In this subchapter:

(1)  "Dollar roll transaction" means two simultaneous transactions with settlement dates not more than 96 days apart, in one of which an insurer sells to a business entity, and in the other of which the insurer 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 et seq., as amended.

(2)  "Repurchase transaction" means a transaction in which an insurer purchases securities from a business entity that is obligated to repurchase the purchased securities or equivalent securities from the insurer at a specified price, either within a specified period or on demand.

(3)  "Reverse repurchase transaction" means a transaction in which an insurer 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 insurer lends securities to a business entity that is obligated to return the loaned securities or equivalent securities to the insurer, either within a specified period or on demand.  (V.T.I.C. Art. 2.10-3A, Sec. 1.)

Source Law

Art. 2.10-3A

Sec. 1.  In this article:

(1)  "Dollar roll transaction" means two simultaneous transactions, with settlement dates not more than 96 days apart, in one of which an insurer sells to a business entity and in the other the insurer is obligated to purchase from the same business entity substantially similar securities of the following types:

(A)  mortgage-backed securities issued, assumed, or guaranteed by the Government National Mortgage Association, the Federal National Mortgage Association, or the Federal Home Loan Mortgage Corporation or their successor organizations; or

(B)  other mortgage-backed securities described under Section 106, Title I, Secondary Mortgage Market Enhancement Act of 1984 (15 U.S.C. Section 77r-1), as amended.

(2)  "Repurchase transaction" means a transaction in which an insurer purchases securities from a business entity that is obligated to repurchase the purchased securities or equivalent securities from the insurer at a specified price, either within a specified period or on demand.

(3)  "Reverse repurchase transaction" means a transaction in which an insurer 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 securities are loaned by an insurer to a business entity that is obligated to return the loaned securities or equivalent securities to the insurer, either within a specified period or on demand.

Revisor's Note

Section 1(1)(B), V.T.I.C. Article 2.10-3A, refers to "Section 106, Title I, Secondary Mortgage Market Enhancement Act of 1984 (15 U.S.C. Section 77r-1)."  The revised law omits the reference to "Section 106, Title I, Secondary Mortgage Market Enhancement Act of 1984" as unnecessary because it is simply a cite to the provisions in which 15 U.S.C. Section 77r-1 was originally enacted and does not add any meaning to the substance of the law.

Revised Law

Sec. 424.152.  TRANSACTIONS AUTHORIZED.  An insurer may engage in dollar roll, repurchase, reverse repurchase, and securities lending transactions as provided by this subchapter.  (V.T.I.C. Art. 2.10-3A, Sec. 2(a).)

Source Law

Sec. 2.  (a)  An insurer may engage in securities lending, repurchase, reverse repurchase, and dollar roll transactions as provided by this article.

Revised Law

Sec. 424.153.  PERIOD OF TRANSACTION.  An insurer must enter into a written agreement for each transaction under this subchapter, 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.  (V.T.I.C. Art. 2.10-3A, Sec. 2(b).)

Source Law

(b)  The insurer shall enter into a written agreement for each transaction, other than a dollar roll transaction, that requires each transaction to terminate not later than the first anniversary of the inception of the transaction.

Revised Law

Sec. 424.154.  CASH REQUIREMENTS.  With respect to cash received in a transaction under this subchapter, an insurer 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 insurer's general corporate purposes.  (V.T.I.C. Art. 2.10-3A, Sec. 3(a).)

Source Law

Sec. 3.  (a)  Cash received in a transaction under this article must be:

(1)  invested in accordance with this article and in a manner that recognizes the liquidity needs of the transaction;  or

(2)  used by the insurer for the insurer's general corporate purposes.

Revised Law

Sec. 424.155.  COLLATERAL REQUIREMENTS.  (a)  While a transaction under this subchapter is outstanding, the insurer or the insurer'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 the rights of a secured creditor to, the collateral.

(b)  The amount of collateral required for repurchase, reverse repurchase, and securities lending transactions is the amount required under the Purposes and Procedures Manual of the securities valuation office or a successor publication.  (V.T.I.C. Art. 2.10-3A, Secs. 3(b), (e).)

Source Law

(b)  While the transaction is outstanding, the insurer, or the insurer's agent or custodian, shall maintain, as to acceptable collateral received in a transaction under this section, either physically or through the book entry systems of the Federal Reserve, Depository Trust Company, Participants Trust Company, or other securities depositories approved by the commissioner:

(1)  possession of the acceptable collateral;

(2)  a perfected security interest in the acceptable collateral; or

(3)  in the case of a jurisdiction outside of the United States, title to, or rights of a secured creditor to, the acceptable collateral.

(e)  The amount of collateral required for a securities lending, repurchase, or reverse repurchase transaction is the amount required under the Purposes and Procedures Manual of the Securities Valuation Office or a successor publication.

Revisor's Note

Section 3(b), V.T.I.C. Article 2.10-3A, establishes certain requirements with respect to collateral received in a transaction under "this section."  The revised law applies those requirements to collateral received in a transaction under "this subchapter" because it is clear from the context in which "this section" appears that it is intended to refer to transactions authorized by Article 2.10-3A, revised as this subchapter.

Revised Law

Sec. 424.156.  PERCENTAGE LIMITATIONS.  (a)  An insurer may not enter into a transaction under this subchapter if, as a result of and after making the transaction, the aggregate amount of securities loaned or sold to or purchased from:

(1)  a single business entity counterparty under this subchapter would exceed five percent of the insurer's assets; or

(2)  all business entities under this subchapter would exceed 40 percent of the insurer's assets.

(b)  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.  (V.T.I.C. Art. 2.10-3A, Secs. 3(c), (d).)

Source Law

(c)  An insurer may not enter into a transaction under this article if, as a result of and after giving effect to the transaction, the aggregate amount of securities loaned, sold to, or purchased from:

(1)  any one business entity counterparty under this article would exceed five percent of the insurer's assets; or

(2)  all business entities under this article would exceed 40 percent of the insurer's assets.

(d)  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.

Revised Law

Sec. 424.157.  RULES.  The commissioner may adopt reasonable rules and issue reasonable orders as necessary to implement this subchapter.  (V.T.I.C. Art. 2.10-3A, Sec. 3(f).)

Source Law

(f)  The commissioner may adopt reasonable rules and orders consistent with, and as necessary to implement, this article.

Revisor's Note

(1)  Section 3(f), V.T.I.C. Article 2.10-3A, authorizes the commissioner of insurance to adopt rules and orders consistent with and as necessary to implement Article 2.10-3A.  For consistency with the terminology used in this code, the revised law substitutes "issue" for "adopt" in relation to orders.

(2)  Section 3(f), V.T.I.C. Article 2.10-3A, authorizes the commissioner of insurance to adopt reasonable rules and orders "consistent with" and as necessary to implement Article 2.10-3A.  A rule or order must be consistent with the law under which the rule is adopted or the order is issued.  The revised law, therefore, omits the quoted language as unnecessary.

[Sections 424.158-424.200 reserved for expansion]

SUBCHAPTER E.  RISK CONTROL TRANSACTIONS

Revised Law

Sec. 424.201.  DEFINITIONS.  In this subchapter:

(1)  "Acceptable collateral" means:

(A)  cash;

(B)  cash equivalents;

(C)  letters of credit and direct obligations; or

(D)  securities that are fully guaranteed as to principal and interest by the United States.

(2)  "Business entity" includes an association, bank, corporation, joint stock company, joint tenancy, joint venture, limited liability company, mutual fund, partnership, sole proprietorship, trust, 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 424.106.  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 a cap, floor, or option and to make payments as the seller of a different cap, floor, or option.

(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 insurer; 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 foreign jurisdiction 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 insurer 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 insurer's fiscal year and must be reduced by the market value of acceptable collateral held by the insurer or a custodian on the insurer's behalf.

(7)  "Derivative instrument":

(A)  means an agreement, option, or instrument, or a series or combination 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 interest; 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 insurer 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 an insurer would otherwise be authorized to invest in or receive under a provision of this subchapter other than this subdivision, or a debt obligation of the insurer.

(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 price or floor rate exceeds a reference level, performance, price, or value of one or more underlying interests.

(10)  "Forward" means an agreement to make or take delivery in the future of one or more underlying interests, or to effect a cash settlement, based on the actual or expected level, performance, price, or value of those interests.  The term does not include a future or a spot transaction effected within a customary settlement period, a when-issued purchase, or another similar cash market transaction.

(11)  "Future" means an agreement traded on a futures exchange to make or take delivery of one or more underlying interests, or to effect a cash settlement, based on the actual or expected level, performance, price, or value of those interests.

(12)  "Futures exchange" means a foreign or domestic exchange, contract market, or board of trade on which trading in futures is conducted and that, in the United States, is authorized to conduct that trading by the Commodity Futures Trading Commission or a successor to that agency.

(13)  "Hedging transaction" means a derivative transaction entered into and maintained to manage, with respect to an asset, liability, or portfolio of assets or liabilities, that an insurer has acquired or incurred or anticipates acquiring or incurring:

(A)  the risk of a change in value, yield, price, cash flow, or quantity; or

(B)  the currency exchange rate risk.

(14)  "Income generation transaction" means a derivative transaction entered into to generate income.  The term does not include a hedging transaction or a replication transaction.

(15)  "Market value" means the price for a security or derivative instrument obtained from a generally recognized source, the most recent quotation from a generally recognized source, or if a generally recognized source does not exist, the price determined under the terms of the instrument or in good faith by the insurer, as can be reasonably demonstrated to the commissioner on request, plus the amount of accrued but unpaid income on the security or instrument to the extent that amount is not included in the price as of the date the security or instrument is valued.

(16)  "Option" means an agreement giving the buyer the right to buy or receive, referred to as a "call option," to sell or deliver, referred to as a "put option," to enter into, extend, or terminate, or to effect a cash settlement based on the actual or expected level, performance, price, spread, or value of, one or more underlying interests.

(17)  "Over-the-counter derivative instrument" means a derivative instrument entered into with a business entity in a manner other than through a securities exchange or futures exchange or cleared through a qualified clearinghouse.

(18)  "Potential exposure" means:

(A)  as to a futures position, the amount of initial margin required for that position; or

(B)  as to a swap, collar, or forward, one-half of one percent multiplied by the notional amount multiplied by the square root of the remaining years to maturity.

(19)  "Qualified clearinghouse" means a clearinghouse that:

(A)  is subject to the rules of a securities exchange or a futures exchange; and

(B)  provides clearing services, including acting as a counterparty to each of the parties to a transaction in a manner that eliminates the parties' credit risk to each other.

(20)  "Replication transaction" means a derivative transaction or a combination of derivative transactions effected separately or in conjunction with cash market investments included in the insurer's investment portfolio to replicate the risks and returns of another authorized transaction, investment, or instrument or to operate as a substitute for cash market transactions.  The term does not include a hedging transaction.

(21)  "Securities exchange" means:

(A)  an exchange registered as a national securities exchange or a securities market registered under the Securities Exchange Act of 1934 (15 U.S.C. Section 78a et seq.), as amended;

(B)  the Private Offerings, Resales and Trading through Automated Linkages system; or

(C)  a designated offshore securities market as defined by 17 C.F.R. Section 230.902, as amended.

(22)  "Swap" means an agreement to exchange or to net payments at one or more times based on the actual or expected price, yield, level, performance, or value of one or more underlying interests.

(23)  "Swaption" means an option to purchase or sell a swap at a given price and time or at a series of prices and times.  The term does not include a swap with an embedded option.

(24)  "Underlying interest" means an asset, liability, or other interest underlying a derivative instrument or a combination of those assets, liabilities, or interests.  The term includes a security, currency, rate, index, commodity, or derivative instrument.

(25)  "Warrant" means an instrument under which the holder has the right to purchase or sell the underlying interest at a given price and time or at a series of prices and times stated in the warrant.  (V.T.I.C. Art. 2.10-4, Sec. 1.)

Source Law

Art. 2.10-4

Sec. 1.  In this article:

(1)  "Acceptable collateral" means:

(A)  cash;

(B)  cash equivalents;

(C)  letters of credit and direct obligations; and

(D)  securities that are fully guaranteed as to principal and interest by the United States.

(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, whether organized for profit or not for profit.

(3)  "Cap" means an agreement under which a seller is obligated 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, 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 money market funds as described by Article 2.10 of this code.  For purposes of this subdivision:

(A)  a short-term investment is an investment with a remaining term to maturity of one year or less; and

(B)  a highly rated investment is an investment rated:

(i)  "P-1" by Moody's Investors Service, Inc.;

(ii)  "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 that is not entered into under a written master agreement that provides for netting of payments owed by the respective parties:

(a)  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

(b)  zero if the liquidation of the derivative instrument would not result in a final cash payment to the insurer; or

(ii)  for an over-the-counter derivative instrument that is entered into under a written master agreement that provides for netting of payments owed by the respective parties and in which the domiciliary jurisdiction of the counterparty is either in the United States or in a foreign jurisdiction listed in the Purposes and Procedures Manual of the Securities Valuation Office as eligible for netting, the greater of:

(a)  zero; or

(b)  the net sum payable to the insurer in connection with all derivative instruments subject to the written master agreement on their liquidation in the event of default by the counterparty under the master agreement, if there are no conditions precedent to the obligations of the counterparty to make such a payment and no setoff of amounts payable under any other instrument or agreement.

(B)  For purposes of this subdivision, the market value or the net sum payable, as applicable, is determined at the end of the most recent quarter of the insurer's fiscal year and is reduced by the market value of acceptable collateral held by the insurer or a custodian on the insurer's behalf.

(7)  "Derivative instrument" means an agreement, option, or instrument, or any series or combination of agreements, options, or instruments, to make or take delivery of, or assume or relinquish, a specified amount of one or more underlying interests, or instead to make a cash settlement, or 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.  The term includes an option, a warrant not otherwise permitted to be held by the insurer under this article, a cap, a floor, a collar, a swap, a swaption, a forward, a future, and any other substantially similar agreement, option, or instrument or series or combinations of those agreements, options, or instruments.  The term does not include a collateralized mortgage obligation, another asset-backed security, a principal-protected structured security, a floating rate security, an instrument that an insurer is otherwise permitted to invest in or receive under this article other than under this definition, or any debt obligation of the insurer.

(8)  "Derivative transaction" means a transaction that involves 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 under which the seller is obligated to make payments to the buyer and in which each payment is based on the amount by which a predetermined number, sometimes called the floor rate or price, exceeds a reference price, level, performance, or value of one or more underlying interests.

(10)  "Forward" means an agreement to make or take delivery in the future of one or more underlying interests, or effect a cash settlement, based on the actual or expected price, level, performance, or value of those underlying interests.  The term does not include a future or a spot transaction effected within customary settlement periods, when-issued purchases, or other similar cash market transactions.

(11)  "Future" means an agreement that is traded on a futures exchange to make or take delivery of, or effect a cash settlement, based on the actual or expected price, level, performance, or value of, one or more underlying interests.

(12)  "Futures exchange" means a foreign or domestic exchange, contract market, or board of trade on which trading in futures is conducted and that, in the United States, is authorized to conduct that trading by the Commodities Futures Trading Commission or any successor organization.

(13)  "Hedging transaction" means a derivative transaction that is entered into and maintained to manage:

(A)  the risk of a change in the value, yield, price, cash flow, or quantity of assets or liabilities, or a portfolio of assets or liabilities, that the insurer has acquired or incurred or anticipates acquiring or incurring; or

(B)  the currency exchange rate risk related to assets or liabilities, or a portfolio of assets or liabilities, that an insurer has acquired or incurred or anticipates acquiring or incurring.

(14)  "Income generation transaction" means a derivative transaction that is entered into to generate income.  The term does not include a derivative transaction entered into as a hedging transaction or a replication transaction.

(15)  "Market value" means the price for a security or derivative instrument obtained from a generally recognized source or the most recent quotation from such a source or, if a generally recognized source does not exist, the price for the security or derivative instrument as determined under the terms of the instrument or in good faith by the insurer, as can be reasonably demonstrated to the commissioner on request, plus accrued but unpaid income on the security or derivative instrument to the extent not included in the price as of the applicable date.

(16)  "Option" means an agreement under which the buyer has the right to buy or receive, referred to as a "call option," sell or deliver, referred to as a "put option," enter into, extend or terminate, or effect a cash settlement based on the actual or expected price, spread, level, performance, or value of one or more underlying interests.

(17)  "Over-the-counter derivative instrument" means a derivative instrument entered into with a business entity other than through a securities exchange or futures exchange or cleared through a qualified clearinghouse.

(18)  "Potential exposure" means:

(A)  as to a futures position, the amount of initial margin required for that position; or

(B)  as to swaps, collars, and forwards, one-half percent times the notional amount times the square root of the remaining years to maturity.

(19)  "Qualified clearinghouse" means a clearinghouse that is subject to the rules of a securities exchange or a futures exchange and provides clearing services, including acting as a counterparty to each of the parties to a transaction in such a manner that the parties no longer have credit risk to each other.

(20)  "Replication transaction" means a derivative transaction or combination of derivative transactions effected either separately or in conjunction with cash market investments included in the insurer's investment portfolio to replicate the risks and returns of another authorized transaction, investment, or instrument or to operate as a substitute for a cash market transaction.  The term does not include a derivative transaction entered into by the insurer as a hedging transaction.

(21)  "Securities exchange" means:

(A)  an exchange registered as a national securities exchange or a securities market registered under the Securities Exchange Act of 1934 (15 U.S.C. Section 78a et seq.), as amended;

(B)  the Private Offerings Resales and Trading through Automated Linkages (PORTAL); or

(C)  a designated offshore securities market as defined by Securities Exchange Commission Regulation S, 17 C.F.R. Part 230, as amended.

(22)  "Swap" means an agreement to exchange or to net payments at one or more times based on the actual or expected price, yield, level, performance, or value of one or more underlying interests.

(23)  "Swaption" means an option to purchase or sell a swap at a given price and time or at a series of prices and times.  The term does not include a swap with an embedded option.

(24)  "Underlying interest" means the assets, liabilities, or other interests, or a combination of those assets, liabilities, or other interests, that underlie a derivative instrument.  The term includes securities, currencies, rates, indices, commodities, or derivative instruments.

(25)  "Warrant" means an instrument under which the holder has the right to purchase or sell the underlying interest at a given price and time or at a series of prices and times stated in the warrant.

Revisor's Note

Section (1)(21)(C), V.T.I.C. Article 2.10-4, refers to a designated offshore securities market as defined by "Securities Exchange Commission Regulation S, 17 C.F.R. Part 230, as amended."  For the reader's convenience, the revised law substitutes for the quoted language a more specific reference to 17 C.F.R. Section 230.902, which contains the definition of "designated offshore securities market."

Revised Law

Sec. 424.202.  RISK CONTROL TRANSACTIONS AUTHORIZED.  (a)  Except as provided by Subsection (b), an insurer may engage in a risk control transaction authorized by this subchapter to:

(1)  protect the insurer's assets against the risk of changing asset values or interest rates;

(2)  reduce risk; and

(3)  generate income.

(b)  An insurer with a statutory net capital and surplus as determined by the insurer's most recent financial statement required to be filed with the department that is less than the minimum amount of capital and surplus required for a new charter and certificate of authority for the same type of insurer may not engage in a transaction authorized under this subchapter.  (V.T.I.C. Art. 2.10-4, Secs. 2(a), 8(b), (c).)

Source Law

Sec. 2.  (a)  Except as provided by Section 8 of this article, an insurer may, for purposes of protecting the assets owned by the insurer against the risk of changing asset values or interest rates and for risk reduction and income generation, engage in risk control transactions authorized under this article.

[Sec. 8]

(b)  An insurer with a statutory net capital and surplus less than the minimum amount of capital and surplus required for a new charter and certificate of authority for the same type of insurer may not engage in the transactions authorized under this article.

(c)  For purposes of this section, net capital and surplus are determined by the most recent financial statement of the insurer required to be filed with the department.

Revised Law

Sec. 424.203.  NOTICE OF INTENT TO ENGAGE IN RISK CONTROL TRANSACTIONS REQUIRED.  (a)  Before an insurer with a statutory net capital and surplus of less than $10 million engages in a transaction authorized under this subchapter, the insurer shall file a written notice with the commissioner describing:

(1)  the need to engage in the transaction;

(2)  the lack of acceptable alternatives; and

(3)  the insurer's plan to engage in the transaction.

(b)  If the commissioner does not issue an order prohibiting an insurer who files a notice under Subsection (a) from engaging in the transaction on or before the 90th day after the date the commissioner receives the notice, the insurer may engage in the transaction described in the notice.

(c)  For purposes of this section, an insurer's net capital and surplus are determined by the insurer's most recent financial statement required to be filed with the department.  (V.T.I.C. Art. 2.10-4, Secs. 8(a), (c).)

Source Law

Sec. 8.  (a)  Before engaging in a transaction authorized under this article, an insurer that has a statutory net capital and surplus of less than $10 million shall file a written notice with the commissioner describing the need to engage in the transaction, the lack of acceptable alternatives, and the insurer's plan to engage in the transaction.  If the commissioner does not issue an order prohibiting the insurer from engaging in the transaction within 90 days after the date of receipt of the insurer's notice, the insurer may engage in the transaction described in the notice.

(c)  For purposes of this section, net capital and surplus are determined by the most recent financial statement of the insurer required to be filed with the department.

Revised Law

Sec. 424.204.  TRADING REQUIREMENTS FOR DERIVATIVE INSTRUMENTS.  Each derivative instrument must be:

(1)  traded on a securities exchange;

(2)  entered into with, or guaranteed by, a business entity;

(3)  issued or written by, or entered into with, the issuer of the underlying interest on which the derivative instrument is based; or

(4)  in the case of futures, traded through a broker who is:

(A)  registered as a futures commission merchant under the Commodity Exchange Act (7 U.S.C. Section 1 et seq.), as amended; or

(B)  exempt from that registration under 17 C.F.R. Section 30.10, adopted under the Commodity Exchange Act (7 U.S.C. Section 1 et seq.), as amended.  (V.T.I.C. Art. 2.10-4, Sec. 6.)

Source Law

Sec. 6.  Each derivative instrument must be:

(1)  traded on a securities exchange;

(2)  entered into with, or guaranteed by, a business entity;

(3)  issued or written by, or entered into with, the issuer of the underlying interest on which the derivative instrument is based; or

(4)  in the case of futures, traded through a broker who is registered as a futures commission merchant under the Commodity Exchange Act (7 U.S.C. Section 1 et seq.), as amended, or who is exempt from that registration under 17 C.F.R. Rule 30.10, adopted under the Commodity Exchange Act (7 U.S.C. Section 1 et seq.), as amended.

Revised Law

Sec. 424.205.  DERIVATIVE USE PLAN.  (a)  Before an insurer enters into a derivative transaction, the insurer's board of directors must approve a derivative use plan as part of the insurer's investment plan otherwise required by law.

(b)  The derivative use plan must:

(1)  describe investment objectives and risk constraints, such as counterparty exposure amounts;

(2)  define permissible transactions, identifying the risks to be hedged and the assets or liabilities being replicated; and

(3)  require compliance with the insurer's internal control procedures established under Section 424.206.  (V.T.I.C. Art. 2.10-4, Sec. 2(b).)

Source Law

(b)  Before entering into a derivative transaction, the board of directors of the insurer must approve a derivative use plan as part of the insurer's investment plan otherwise required by law.  The derivative use plan must:

(1)  describe investment objectives and risk constraints, such as counterparty exposure amounts;

(2)  define permissible transactions, identifying the risks to be hedged and the assets or liabilities being replicated; and

(3)  require compliance with the insurer's internal control procedures established under Subsection (c) of this section.

Revised Law

Sec. 424.206.  INTERNAL CONTROL PROCEDURES.  An insurer that enters into a derivative transaction shall establish written internal control procedures that require:

(1)  a quarterly report to the board of directors that reviews:

(A)  each derivative transaction entered into, outstanding, or closed out;

(B)  the results and effectiveness of the derivatives program; and

(C)  the credit risk exposure to each counterparty for over-the-counter derivative transactions based on the counterparty exposure amount;

(2)  a system for determining whether hedging or replication strategies used by the insurer have been effective;

(3)  a system of reports, at least as frequent as monthly, to the insurer's management, that include:

(A)  a description of each derivative transaction entered into, outstanding, or closed out during the period since the last report;

(B)  the purpose of each outstanding derivative transaction;

(C)  a performance review of the derivative instrument program; and

(D)  the counterparty exposure amount for each over-the-counter derivative transaction;

(4)  a written authorization that identifies the responsibilities and limitations of authority of each person authorized to effect and maintain derivative transactions; and

(5)  appropriate documentation for each transaction, including:

(A)  the purpose of the transaction;

(B)  the assets or liabilities to which the transaction relates;

(C)  the specific derivative instrument used in the transaction;

(D)  for an over-the-counter derivative transaction, the name of the counterparty and the counterparty exposure amount; and

(E)  for an exchange-traded derivative instrument, the name of the exchange and the name of the firm that handled the transaction.  (V.T.I.C. Art. 2.10-4, Sec. 2(c).)

Source Law

(c)  The insurer shall establish written internal control procedures that require:

(1)  a quarterly report to be made to the board of directors that reviews:

(A)  all derivative transactions entered into, outstanding, or closed out;

(B)  the results and effectiveness of the derivatives program; and

(C)  the credit risk exposure to each counterparty for over-the-counter derivative transactions based on the counterparty exposure amount;

(2)  a system for determining whether hedging or replication strategies used by the insurer have been effective;

(3)  a system of reports, at least as frequent as monthly, to the insurer's management, that include:

(A)  a description of each derivative transaction entered into, outstanding, or closed out during the period since the last report;

(B)  the purpose of each outstanding derivative transaction;

(C)  a performance review of the derivative instrument program; and

(D)  the counterparty exposure amount for over-the-counter derivative transactions;

(4)  written authorizations that identify the responsibilities and limitations of authority of persons authorized to effect and maintain derivative transactions; and

(5)  appropriate documentation for each transaction, including:

(A)  the purpose of the transaction;

(B)  the assets or liabilities to which the transaction relates;

(C)  the specific derivative instrument used in the transaction;

(D)  for over-the-counter derivative instrument transactions, the name of the counterparty and the counterparty exposure amount; and

(E)  for exchange-traded derivative instruments, the name of the exchange and the name of the firm that handled the transaction.

Revisor's Note

Section 2(c)(5)(D), V.T.I.C. Article 2.10-4, refers to "over-the-counter derivative instrument transactions."  For consistent use of the terminology, the revised law substitutes "over-the-counter derivative transaction" for "over-the-counter derivative instrument transactions."

Revised Law

Sec. 424.207.  ABILITY TO DEMONSTRATE HEDGING CHARACTERISTICS AND EFFECTIVENESS.  An insurer must be able to demonstrate to the commissioner on request the intended hedging characteristics and continuing effectiveness of a derivative transaction or combination of transactions through:

(1)  cash flow testing;

(2)  duration analysis; or

(3)  other appropriate analysis.  (V.T.I.C. Art. 2.10-4, Sec. 2(d).)

Source Law

(d)  The insurer must be able to demonstrate to the commissioner, on request, the intended hedging characteristics and ongoing effectiveness of the derivative transaction or combination of transactions through cash flow testing, duration analysis, or any other appropriate analysis.

Revised Law

Sec. 424.208.  OFFSETTING TRANSACTIONS.  (a)  Subject to this section, an insurer may purchase or sell one or more derivative instruments to wholly or partly offset a derivative instrument previously purchased or sold, without regard to the quantitative limitations of this subchapter.

(b)  An offsetting transaction under this section must use the same type of derivative instrument as the derivative instrument being offset.  (V.T.I.C. Art. 2.10-4, Sec. 2(f).)

Source Law

(f)  An insurer may purchase or sell one or more derivative instruments to offset, in whole or in part, a derivative instrument previously purchased or sold without regard to the quantitative limitations of this article if the offsetting transaction uses the same type of derivative instrument as the derivative instrument being offset.

Revised Law

Sec. 424.209.  INCLUSION OF COUNTERPARTY EXPOSURE AMOUNTS.  The insurer shall include all counterparty exposure amounts in determining compliance with the limitations of this subchapter. (V.T.I.C. Art. 2.10-4, Sec. 2(e).)

Source Law

(e)  The insurer shall include all counterparty exposure amounts in determining compliance with the limitations of this article.

Revised Law

Sec. 424.210.  OVERSIGHT BY COMMISSIONER.  (a)  Not later than the 10th day before the date an insurer is scheduled to enter into an initial hedging transaction, the insurer shall notify the commissioner in writing that:

(1)  the insurer's board of directors has adopted an investment plan that authorizes hedging transactions; and

(2)  each hedging transaction will comply with this subchapter.

(b)  If a hedging transaction does not comply with this subchapter or if continuing the transaction may create a hazardous financial condition for the insurer that affects the insurer's policyholders or creditors or the public, the commissioner may, after notice and an opportunity for a hearing, order the insurer to take action that the commissioner determines is reasonably necessary to:

(1)  remedy a hazardous financial condition; or

(2)  prevent an impending hazardous financial condition from occurring.  (V.T.I.C. Art. 2.10-4, Secs. 3(a), (d).)

Source Law

Sec. 3.  (a)  Not later than the 10th day before the date on which an insurer is scheduled to enter into an initial hedging transaction, the insurer shall notify the commissioner in writing that:

(1)  the insurer's board of directors has adopted an investment plan that authorizes hedging transactions; and

(2)  all hedging transactions will comply with this article.

(d)  If a hedging transaction entered into under this section is not in compliance with this article or, if continued, may create a hazardous financial condition to the insurer that affects the insurer's policyholders or creditors or the public, the commissioner may, after notice and an opportunity for a hearing, order the insurer to take action that the commissioner determines is reasonably necessary to:

(1)  rectify a hazardous financial condition; or

(2)  prevent an impending hazardous financial condition from occurring.

Revised Law

Sec. 424.211.  AUTHORITY TO ENTER INTO HEDGING TRANSACTION.  After providing notice under Section 424.210, an insurer may enter into a hedging transaction under this subchapter if as a result of and after making the transaction:

(1)  the aggregate statement value of all outstanding caps, floors, options, swaptions, and warrants not attached to another financial instrument purchased by the insurer under this subchapter, other than a collar, does not exceed 7.5 percent of the insurer's assets;

(2)  the aggregate statement value of all outstanding caps, floors, options, swaptions, and warrants written by the insurer under this subchapter, other than a collar, does not exceed three percent of the insurer's assets; and

(3)  the aggregate potential exposure of all outstanding collars, forwards, futures, and swaps entered into or acquired by the insurer under this subchapter does not exceed 6.5 percent of the insurer's assets.  (V.T.I.C. Art. 2.10-4, Sec. 3(c).)

Source Law

(c)  After the notice under Subsection (a) or (b), the insurer may enter into hedging transactions under this article, if as a result of and after giving effect to each hedging transaction:

(1)  the aggregate statement value of all outstanding options, caps, floors, swaptions, and warrants that are not attached to another financial instrument purchased by the insurer, but not including collars, under this article does not exceed seven and one-half percent of the insurer's assets;

(2)  the aggregate statement value of all outstanding options, swaptions, warrants, caps, and floors, but not including collars, written by the insurer under this article does not exceed three percent of the insurer's assets; and

(3)  the aggregate potential exposure of all outstanding collars, swaps, forwards, and futures entered into or acquired by the insurer under this article does not exceed six and one-half percent of the insurer's assets.

Revisor's Note

Section 3(c), V.T.I.C. Article 2.10-4, refers to providing notice under "Subsection (a) or (b)."  The revised law omits the reference to Subsection (b) because that provision is omitted from this revision for the reason stated in the revisor's note to the end of this subchapter.

Revised Law

Sec. 424.212.  AUTHORITY TO ENTER INTO INCOME GENERATION TRANSACTION.  An insurer may enter into an income generation transaction only if:

(1)  as a result of and after making the transaction, the sum of the following amounts does not exceed 10 percent of the insurer's assets:

(A)  the aggregate statement value of admitted assets that at the time of the transaction are subject to call or that generate the cash flows for payments the insurer is required to make under caps and floors sold by the insurer and that at the time of the transaction are outstanding under this subchapter;

(B)  the statement value of admitted assets underlying derivative instruments that at the time of the transaction are subject to calls sold by the insurer and outstanding under this subchapter; and

(C)  the purchase price of assets subject to puts that at the time of the transaction are outstanding under this subchapter; and

(2)  the transaction is a sale of:

(A)  a call option on assets that meets the requirements of Section 424.213;

(B)  a put option on assets that meets the requirements of Section 424.214;

(C)  a call option on a derivative instrument, including a swaption, that meets the requirements of Section 424.215;  or

(D)  a cap or floor that meets the requirements of Section 424.216.  (V.T.I.C. Art. 2.10-4, Secs. 4(a), (b), (c).)

Source Law

Sec. 4.  (a)  An insurer may enter into an income generation transaction only as provided by this section.

(b)  An insurer may enter into an income generation transaction only if, as a result of and after giving effect to the transaction, the aggregate statement value of admitted assets that are then subject to call or that generate the cash flows for payments required to be made by the insurer under caps and floors sold by the insurer and then outstanding under this article, plus the statement value of admitted assets underlying derivative instruments then subject to calls sold by the insurer and outstanding under this article, plus the purchase price of assets subject to puts then outstanding under this article, does not exceed 10 percent of the insurer's assets.

(c)  The transaction must be a sale of:

(1)  a call option on assets that meets the requirements of Subsection (d);

(2)  a put option on assets that meets the requirements of Subsection (e);

(3)  a call option on a derivative instrument, including a swaption that meets the requirements of Subsection (f);  or

(4)  a cap or floor that meets the requirements of Subsection (g).

Revised Law

Sec. 424.213.  LIMITATION ON SALE OF CALL OPTION ON ASSETS.  If an income generation transaction is a sale of a call option on assets, the insurer must, during the entire period the option is outstanding, hold, or have a currently exercisable right to acquire, the underlying assets.  (V.T.I.C. Art. 2.10-4, Sec. 4(d).)

Source Law

(d)  If the transaction is a sale of a call option on assets, the insurer must hold or have a currently exercisable right to acquire the underlying assets during the entire period that the option is outstanding.

Revised Law

Sec. 424.214.  LIMITATION ON SALE OF PUT OPTION ON ASSETS.  (a)  If an income generation transaction is a sale of a put option on assets, the insurer must:

(1)  during the entire period the option is outstanding, hold sufficient cash, cash equivalents, or interests in a short-term investment pool to purchase the underlying assets on exercise of the option; and

(2)  have the ability to hold the underlying assets in the insurer's portfolio.

(b)  If during the entire period the put option is outstanding the total market value of all put options sold by the insurer exceeds two percent of the insurer's assets, the insurer shall set aside, under a custodial or escrow agreement, cash or cash equivalents that have a market value equal to the amount of the insurer's put option obligations in excess of two percent of the insurer's assets.  (V.T.I.C. Art. 2.10-4, Sec. 4(e).)

Source Law

(e)  If the transaction is a sale of a put option on assets, the insurer must hold sufficient cash, cash equivalents, or interests in a short-term investment pool to be able to purchase the underlying assets on exercise of the option during the entire period that the option is outstanding, and must be able to hold the underlying assets in the insurer's portfolio.  If the total market value of all put options sold by the insurer exceeds two percent of the insurer's assets, the insurer shall set aside, under a custodial or escrow agreement, cash or cash equivalents that have a market value equal to the amount of the insurer's put option obligations in excess of two percent of the insurer's assets during the entire period the option is outstanding.

Revised Law

Sec. 424.215.  LIMITATION ON SALE OF CALL OPTION ON DERIVATIVE INSTRUMENT.  If an income generation transaction is a sale of a call option on a derivative instrument, including a swaption, the insurer must:

(1)  during the entire period the call option is outstanding, hold, or have a currently exercisable right to acquire, assets generating the cash flow necessary to make any payment for which the insurer is liable under the underlying derivative instrument; and

(2)  have the ability to enter into the underlying derivative transaction for the insurer's portfolio.  (V.T.I.C. Art. 2.10-4, Sec. 4(f).)

Source Law

(f)  If the transaction is a sale of a call option on a derivative instrument, including a swaption, the insurer must hold or have a currently exercisable right to acquire assets generating the cash flow necessary to make any payments for which the insurer is liable under the underlying derivative instrument during the entire period that the call option is outstanding, and must be able to enter into the underlying derivative transaction for the insurer's portfolio.

Revised Law

Sec. 424.216.  LIMITATION ON SALE OF CAP OR FLOOR.  If an income generation transaction is a sale of a cap or a floor, the insurer must, during the entire period the cap or floor is outstanding, hold, or have a currently exercisable right to acquire, assets generating the cash flow necessary to make any payment for which the insurer is liable under the cap or floor.  (V.T.I.C. Art. 2.10-4, Sec. 4(g).)

Source Law

(g)  If the transaction is a sale of a cap or a floor, the insurer must hold or have a currently exercisable right to acquire assets generating the cash flow necessary to make any payments for which the insurer is liable under the cap or floor during the entire period that the cap or floor is outstanding.

Revised Law

Sec. 424.217.  AUTHORITY TO ENTER REPLICATION TRANSACTION.  (a)  An insurer may enter into a replication transaction only with the prior written approval of the commissioner.

(b)  To be eligible for approval by the commissioner:

(1)  the insurer must be otherwise authorized to invest the insurer's funds under this chapter in the asset being replicated;  and

(2)  the asset being replicated must be subject to all the provisions of this subchapter relating to the making of the transaction by the insurer with respect to that kind of asset as if the transaction constituted a direct investment by the insurer in the replicated asset.

(c)  The commissioner may adopt rules regarding replication transactions as necessary to implement this section.  (V.T.I.C. Art. 2.10-4, Sec. 5.)

Source Law

Sec. 5.  (a)  An insurer may enter into a replication transaction only with the prior written approval of the commissioner.  To be eligible for approval by the commissioner:

(1)  the insurer must be otherwise authorized to invest its funds under this chapter in the asset being replicated;  and

(2)  the asset being replicated must be subject to all the provisions and limitations on the making of the transaction specified by this article relating to investments by the insurer as if the transaction constituted a direct investment by the insurer in the replicated asset.

(b)  The commissioner may adopt rules regarding replication transactions as necessary to implement this section.

Revisor's Note

(1)  Section 5(a)(1), V.T.I.C. Article 2.10-4, refers to an insurer authorized to invest its funds under "this chapter," meaning V.T.I.C. Chapter 2.  Chapter 2 is revised in various places throughout this code.  The parts of that chapter that authorize an insurer to invest its funds are revised in this chapter.  The revised law is drafted accordingly.

(2)  Section 5(a)(2), V.T.I.C. Article 2.10-4, refers to certain "provisions and limitations" of that article.  The revised law omits the reference to "limitations" as unnecessary because the meaning of that term is included within the meaning of "provisions."

Revised Law

Sec. 424.218.  RULES.  The commissioner may adopt rules consistent with this subchapter that prescribe reasonable limits, standards, and guidelines for:

(1)  the risk control transactions authorized under this subchapter; and

(2)  plans related to those transactions.  (V.T.I.C. Art. 2.10-4, Sec. 7.)

Source Law

Sec. 7.  The commissioner may adopt rules consistent with this article that prescribe reasonable limits, standards, and guidelines with respect to the risk-limiting transactions authorized under this article and plans related to those transactions.

Revisor's Note

Section 7, V.T.I.C. Article 2.10-4, refers to "risk-limiting transactions" authorized under this subchapter.  To be consistent with the terminology used in other provisions revised in this subchapter, the revised law substitutes a reference to "risk control transactions."

Revisor's Note

(End of Subchapter)

Section 3(b), V.T.I.C. Article 2.10-4, requires certain insurers to send notice to the commissioner of insurance by a date that has now passed.  Consequently, the revised law omits the requirement as executed.  The omitted law reads:

(b)  An insurer engaged in hedging transactions on September 1, 1999, shall send to the commissioner a notice containing the statements required by Subsection (a) of this section not later than October 1, 1999.