79C25(4) AJA

 

CHAPTER 493.  REINSURANCE FOR PROPERTY AND

CASUALTY INSURERS

SUBCHAPTER A.  GENERAL PROVISIONS

Revised Law

Sec. 493.001.  DEFINITIONS.  In this chapter:

(1)  "Assuming insurer" means an insurer that, under a reinsurance contract, incurs an obligation to a ceding insurer, the performance of which is contingent on the ceding insurer incurring liability or loss under the ceding insurer's insurance contract with a third person.

(2)  "Qualified United States financial institution" means an institution that:

(A)  is organized or, in the case of a United States branch or agency office of a foreign banking organization, licensed, under the laws of the United States or any state of the United States; and

(B)  is regulated, supervised, and examined by a federal or state authority that has regulatory authority over banks and trust companies.  (V.T.I.C. Art. 5.75-1, Secs. (e)(1) (part), (2) (part), (j).)

Source Law

(e)  Qualified United States Financial Institutions.  (1)  For the purposes of Subsection (d)(3), a "qualified United States financial institution" means an institution that:

(A)  is organized or, in the case of a United States office of a foreign banking organization, licensed, under the laws of the United States or any state thereof;

(B)  is regulated, supervised, and examined by United States federal or state authorities having regulatory authority over banks and trust companies; …

(2)  A "qualified United States financial institution" means, … an institution that:

(A)  is organized, or, in the case of a United States branch or agency office of a foreign banking organization, licensed, under the laws of the United States or any state thereof and …; and

(B)  is regulated, supervised, and examined by federal or state authorities having regulatory authority over banks and trust companies.

(j)  "Assuming insurer" means the insurer who under a contract of reinsurance incurs to the ceding insurer an obligation of which the performance is contingent on incurring of liability or loss by the ceding insurer under its contract or contracts of insurance made with third persons.

Revised Law

Sec. 493.002.  APPLICABILITY OF CHAPTER.  (a)  Except as provided by Subsection (b), this chapter applies to all insurers, including:

(1)  a stock or mutual property and casualty insurance company;

(2)  a Mexican casualty insurance company;

(3)  a Lloyd's plan;

(4)  a reciprocal or interinsurance exchange;

(5)  a nonprofit legal service corporation;

(6)  a county mutual insurance company;

(7)  a farm mutual insurance company;

(8)  a risk retention group; and

(9)  any insurer writing a line of insurance regulated by Title 10.

(b)  This chapter does not apply to a ceding insurer domiciled in another state that regulates credit for reinsurance under statutes, rules, or regulations substantially similar in substance and effect to this chapter if the ceding insurer on request provides the commissioner with:

(1)  evidence of the similarity in the form of those statutes, rules, or regulations; and

(2)  an interpretation of the standards used by the state of domicile.  (V.T.I.C. Art. 5.75-1, Sec. (a) (part).)

Source Law

(a)  …  This article applies to all insurers, including stock and mutual property and casualty insurers, Mexican casualty companies, Lloyd's plan insurers, reciprocal or interinsurance exchanges, nonprofit legal service corporations, county mutual insurance companies, farm mutual insurance companies, risk retention groups, or any insurer writing any line of insurance regulated by this chapter… .  This article does not apply to ceding insurers domiciled in another state that regulates credit for reinsurance under statutes, rules, or regulations substantially similar in substance and effect to this article.  To qualify for this exception, the ceding insurer must provide the Commissioner on request with evidence of the similarity in the form of statutes, rules, or regulations and an interpretation of the standards used by the state of domicile… .

Revisor's Note

(1)  V.T.I.C. Article 5.75 provides that the "subchapter," meaning Subchapter F, V.T.I.C. Chapter 5, applies to certain kinds of insurance and insurers.  The text of the article was originally enacted by Section 4, Chapter 539, Acts of the 51st Legislature, Regular Session, 1949, and was codified in 1951 as Article 5.75 in Subchapter F, V.T.I.C. Chapter 5.  The original 1949 enactment provided that the "act" applied to certain kinds of insurance and insurers and consisted only of the provisions revised as Chapter 1805.  Although V.T.I.C. Article 5.75-1, which was enacted by Chapter 117, Acts of the 54th Legislature, Regular Session, 1955, as Article 5.76 and was later renumbered, is currently included in Subchapter F, that article was not included in the 1949 enactment from which Article 5.75 is derived.  In addition, Article 5.75-1 includes specific applicability provisions.  It is clear from the history of Subchapter F and the language of Article 5.75-1 that the legislature did not intend for the reference in Article 5.75 to "[t]his subchapter" to refer to Article 5.75-1.  The revised law is drafted accordingly.

(2)  Section (a), V.T.I.C. Article 5.75-1, refers to a "Lloyd's plan insurer."  For consistent use of terminology in this code, the revised law substitutes "Lloyd's plan" for "Lloyd's plan insurer."

(3)  Section (a), V.T.I.C. Article 5.75-1, refers to any line of insurance regulated by "this chapter," meaning V.T.I.C. Chapter 5, which regulates lines of property and casualty insurance.  That chapter has been revised in part in various titles of this code.  The relevant provisions of Chapter 5 that regulate those lines of property and casualty insurance are revised in Title 10 of this code.  For that reason, throughout this chapter, the revised law substitutes a reference to "Title 10" for the reference to "this chapter."

Revised Law

Sec. 493.003.  RULES.  The commissioner may adopt necessary and reasonable rules under this chapter to protect the public interest.  (V.T.I.C. Art. 5.75-1, Sec. (m).)

Source Law

(m)  The State Board of Insurance may adopt necessary and reasonable rules under this article to protect the public interest.

Revisor's Note

Section (m), V.T.I.C. Article 5.75-1, refers to the State Board of Insurance. Chapter 685, Acts of the 73rd Legislature, Regular Session, 1993, abolished the board and transferred its functions to the commissioner of insurance and the Texas Department of Insurance.  Throughout this chapter, references to the board have been changed appropriately.

Revisor's Note

(End of Subchapter)

Section (a), V.T.I.C. Article 5.75-1, refers to the cumulative effect of that article.  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.  The omitted law reads:

(a)  …  This Article is supplementary to and cumulative of other provisions of this Code pertaining to reinsurance to the extent those provisions are not in conflict with this article.

[Sections 493.004-493.050 reserved for expansion]

SUBCHAPTER B.  REINSURANCE

Revised Law

Sec. 493.051.  REINSURANCE AUTHORIZED.  (a)  An insurer authorized to engage in the business of insurance in this state may reinsure, in any solvent assuming insurer, any risk or part of a risk that both insurers are authorized by law to assume.

(b)  An insurer authorized to engage in business in this state that writes any line of insurance regulated by Title 10 may provide reinsurance under this chapter while the insurer is in compliance with law.  (V.T.I.C. Art. 5.75-1, Secs. (a) (part), (k).)

Source Law

Art. 5.75-1.  (a)  Any insurer licensed to do the business of insurance in this state may reinsure in any solvent assuming insurer any risk or part of a risk that both are authorized to assume under authority of law. …

(k)  Each company authorized to do business in this state, writing any line of insurance regulated by this chapter, and while in compliance with all laws applicable to it, may provide reinsurance as provided by Subsection (a) of this article.

Revisor's Note

(1)  Section (a), V.T.I.C. Article 5.75-1, refers to an insurer "licensed to do the business of insurance in this state."  The revised law 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.  Similar changes have been made throughout this chapter.

(2)  Section (k), V.T.I.C. Article 5.75-1, refers to compliance of an insurer with "all laws applicable to it."  Because an insurer can comply only with laws applicable to the insurer, the revised law omits as unnecessary the reference to the law being "applicable" to the insurer.

Revised Law

Sec. 493.052.  LIMITATION ON REINSURANCE OF ENTIRE OUTSTANDING BUSINESS.  (a)  An insurer may not reinsure the insurer's entire outstanding business in an assuming insurer unless the assuming insurer is authorized to engage in the business of insurance in this state.

(b)  Before the date of reinsurance:

(1)  the reinsurance contract must be submitted to the commissioner; and

(2)  the commissioner must approve the contract as fully protecting the interests of all policyholders.  (V.T.I.C. Art. 5.75-1, Sec. (a) (part).)

Source Law

(a)  …  No such company shall have the power to reinsure its entire outstanding business to an assuming insurer unless the assuming insurer is licensed in this state and until the contract therefor shall be submitted to the Commissioner and approved as protecting fully the interests of all the policyholders… .

Revised Law

Sec. 493.053.  FILING OF REINSURANCE SCHEDULES.  The commissioner shall require each insurer to file reinsurance schedules:

(1)  when the insurer makes the insurer's annual report; and

(2)  at other times as the commissioner directs.  (V.T.I.C. Art. 5.75-1, Sec. (h).)

Source Law

(h)  The State Board of Insurance shall require schedules of reinsurance to be filed by every insurer at the time of making the annual report and at such other times as the board may direct.

Revised Law

Sec. 493.054.  ACCOUNTING FOR REINSURANCE CONTRACTS.  (a)  An insurer shall account for reinsurance contracts and shall record the contracts in the insurer's financial statements in a manner that accurately reflects the effect of the contracts on the insurer's financial condition.

(b)  A reinsurance contract may contain a provision allowing the offset of mutual debts and credits between the ceding insurer and the assuming insurer, whether arising out of one or more reinsurance contracts.

(c)  The commissioner may adopt reasonable rules relating to:

(1)  the accounting and financial statement requirements of this section and the treatment of reinsurance contracts between insurers, including minimum risk transfer standards, asset debits or credits, reinsurance debits or credits, and reserve debits or credits relating to the transfer of all or any part of an insurer's risks or liabilities by reinsurance contracts; and

(2)  any contingencies arising from reinsurance contracts.  (V.T.I.C. Art. 5.75-1, Sec. (n).)

Source Law

(n)  An insurer shall account for reinsurance agreements and shall record those agreements in the insurer's financial statements in a manner that accurately reflects the effect of the reinsurance agreements on the financial condition of the insurer.  The State Board of Insurance may adopt reasonable rules relating to the accounting and financial statement requirements of this subsection and the treatment of reinsurance agreements between insurers, including minimum risk transfer standards, asset debits or credits, reinsurance debits or credits, and reserve debits or credits relating to the transfer of all or any part of an insurer's risks or liabilities by reinsurance agreements and to any contingencies arising from reinsurance agreements.  Reinsurance agreements may contain a provision allowing the offset of mutual debts and credits between the ceding insurer and the assuming insurer whether arising out of one or more reinsurance agreements.

Revisor's Note

Section (n), V.T.I.C. Article 5.75-1, refers to "reinsurance agreements."  For consistent use of terminology throughout this code, the revised law substitutes "contract" for "agreement."  Similar changes have been made throughout this chapter.

Revised Law

Sec. 493.055.  LIMITATION ON RIGHTS AGAINST REINSURER.  A person does not have a right against a reinsurer that is not specifically stated in:

(1)  the reinsurance contract; or

(2)  a specific agreement between the reinsurer and the person.  (V.T.I.C. Art. 5.75-1, Sec. (g).)

Source Law

(g)  A person does not have any rights against a reinsurer that are not specifically set forth in the contract of reinsurance or in a specific agreement between the reinsurer and the person.

[Sections 493.056-493.100 reserved for expansion]

SUBCHAPTER C.  CREDIT FOR REINSURANCE

Revised Law

Sec. 493.101.  EXCLUSIVE PROCEDURE FOR TAKING CREDIT FOR REINSURANCE.  A ceding insurer may take a credit for reinsurance, as an asset or as a deduction from liability, only as provided by this chapter.  (V.T.I.C. Art. 5.75-1, Sec. (a) (part).)

Source Law

(a)  … A credit for reinsurance, either as an asset or a deduction from liability, may not be taken by the ceding insurer except as provided by this article. …

Revised Law

Sec. 493.102.  CREDIT FOR REINSURANCE GENERALLY.  (a)  A ceding insurer may be allowed credit for reinsurance ceded, as an asset or as a deduction from liability, only if the reinsurance is ceded to an assuming insurer that:

(1)  is authorized to engage in the business of insurance  or reinsurance in this state;

(2)  is accredited as a reinsurer in this state, as provided by Section 493.103; or

(3)  subject to Subchapter D, maintains, in a qualified United States financial institution that has been granted the authority to operate with fiduciary powers, a trust fund to pay valid claims of:

(A)  the assuming insurer's United States policyholders and ceding insurers; and

(B)  the policyholders' and ceding insurers' assigns and successors in interest.

(b)  Notwithstanding Subsection (a), a ceding insurer may be allowed credit for reinsurance ceded to an assuming insurer that does not meet the requirements of that subsection, but only with respect to the insurance of risks located in a jurisdiction in which the reinsurance is required by the jurisdiction's law, including regulations, to be ceded to an assuming insurer that does not meet the requirements of that subsection.  (V.T.I.C. Art. 5.75-1, Secs. (b) (part), (e)(2) (part).)

Source Law

(b)  Credit for reinsurance shall be allowed a ceding insurer as either an asset or a deduction from liability on account of reinsurance ceded only when:

(1)  the reinsurance is ceded to an assuming insurer which is licensed to transact insurance or reinsurance in this state; or

(2)  the reinsurance is ceded to an assuming insurer which is accredited as a reinsurer in this state… .

(3)  the reinsurance is ceded to an assuming insurer which maintains a trust fund in a qualified United States financial institution, as defined in Subsection (e)(2), for the payment of the valid claims of its United States policyholders and ceding insurers, their assigns, and successors in interest… . or

(4)  the reinsurance is ceded to an assuming insurer not meeting the requirements of Subdivision (1), (2), or (3), but only with respect to the insurance of risks located in a jurisdiction where such reinsurance is required by applicable law or regulation of that jurisdiction to be ceded to an assuming insurer that does not meet the requirements of Subdivision (1), (2), or (3) of this subsection.

[(e)]

(2)  [A "qualified United States financial institution" means,] for the purposes of those provisions of this law specifying those institutions that are eligible to act as a fiduciary of a trust, [an institution that:

(A)  is organized, or, in the case of a United States branch or agency office of a foreign banking organization, licensed, under the laws of the United States or any state thereof and] has been granted the authority to operate with fiduciary powers[; and

(B)  is regulated, supervised, and examined by federal or state authorities having regulatory authority over banks and trust companies.]

Revisor's Note

Section (b)(4), V.T.I.C. Article 5.75-1, refers to reinsurance required by "applicable" law. Because reinsurance necessarily can be required only by an applicable law, the revised law omits "applicable" as unnecessary.

Revised Law

Sec. 493.103.  ACCREDITED REINSURER.  For purposes of Section 493.102(a)(2), an insurer is accredited as a reinsurer in this state if the insurer:

(1)  submits to this state's jurisdiction;

(2)  submits to this state's authority to examine the insurer's books and records;

(3)  is domiciled and authorized to engage in the business of insurance or reinsurance in at least one state or, if the insurer is a United States branch of an alien assuming insurer, is entered through and authorized to engage in the business of insurance or reinsurance in at least one state;

(4)  annually files with the department a copy of the annual statement the insurer files with the insurance department of the insurer's state of domicile; and

(5)  maintains a surplus as regards policyholders in an amount of at least $20 million.  (V.T.I.C. Art. 5.75-1, Sec. (b) (part).)

Source Law

(b)  …

(2)  …  An accredited reinsurer is one which:  submits to this state's jurisdiction; submits to this state's authority to examine its books and records; is domiciled and licensed to transact insurance or reinsurance in at least one state, or in the case of a United States branch of an alien assuming insurer is entered through and licensed to transact insurance or reinsurance in at least one state; files annually a copy of its annual statement, filed with the insurance department of its state of domicile, with the State Board of Insurance; and maintains a surplus as regards policyholders in an amount not less than $20 million; or

…

Revised Law

Sec. 493.104.  CREDIT FOR FUNDS SECURING REINSURANCE OBLIGATIONS.  (a)  Subject to Subsection (b), any asset or deduction from liability for reinsurance ceded to an assuming insurer that does not meet the requirements of Section 493.102 shall be allowed in an amount that does not exceed the liabilities carried by the ceding insurer and in the amount of funds held by or on behalf of the ceding insurer under a reinsurance contract with the assuming insurer, including funds held in trust for the ceding insurer, as security for the payment of obligations under the contract.

(b)  The funds held as security:

(1)  must be held in the United States subject to withdrawal solely by and under the exclusive control of the ceding insurer or, in the case of a trust, held in a qualified United States financial institution that has been granted the authority to operate with fiduciary powers; and

(2)  may be in the form of:

(A)  cash;

(B)  securities that:

(i)  are readily marketable over a national exchange;

(ii)  have a maturity date of not later than one year;

(iii)  are listed by the Securities Valuation Office of the National Association of Insurance Commissioners; and

(iv)  qualify as admitted assets;

(C)  subject to Section 493.105, a clean, irrevocable, unconditional letter of credit, issued or confirmed by a qualified United States financial institution that has been determined by the commissioner or the Securities Valuation Office of the National Association of Insurance Commissioners to meet the standards of financial condition and standing that are considered necessary and appropriate to regulate the quality of financial institutions whose letters of credit will be acceptable to the commissioner; or

(D)  another form of security acceptable to the commissioner.  (V.T.I.C. Art. 5.75-1, Secs. (d) (part), (e)(1) (part).)

Source Law

(d)  Any asset or deduction from liability for the reinsurance ceded to an assuming insurer not meeting the requirements of Subsection (b) shall be allowed in an amount not exceeding the liabilities carried by the ceding insurer, and such asset or deduction shall be in the amount of funds held by or on behalf of the ceding insurer, including funds held in trust for the ceding insurer, under a reinsurance contract with such assuming insurer as security for the payment of obligations thereunder, if such security is held in the United States subject to withdrawal solely by and under the exclusive control of the ceding insurer or, in the case of a trust, held in a qualified United States financial institution, as defined in Subsection (e).  This security may be in the form of:

(1)  cash;

(2)  securities readily marketable over a national exchange with a maturity date of not more than one year listed by the Securities Valuation Office of the National Association of Insurance Commissioners and qualifying as admitted assets;

(3)  clean, irrevocable, unconditional letters of credit, issued or confirmed by a qualified United States financial institution, as defined in Subsection (e)(1)… .

(4)  any other form of security acceptable to the Commissioner.

[(e)]

(1)  [For the purposes of Subsection (d)(3), a "qualified United States financial institution" means an institution that:

(A)  is organized or, in the case of a United States office of a foreign banking organization, licensed, under the laws of the United States or any state thereof;

(B)  is regulated, supervised, and examined by United States federal or state authorities having regulatory authority over banks and trust companies;] and

(C)  has been determined by either the Commissioner or the Securities Valuation Office of the National Association of Insurance Commissioners to meet such standards of financial condition and standing as are considered necessary and appropriate to regulate the quality of financial institutions whose letters of credit will be acceptable to the Commissioner.

[(2)  A "qualified United States financial institution" means, for the purposes of those provisions of this law specifying those institutions that are eligible to act as a fiduciary of a trust, an institution that:

(A)  … . has been granted the authority to operate with fiduciary powers; and … .]

Revised Law

Sec. 493.105.  ACCEPTABILITY OF CERTAIN LETTERS OF CREDIT.  A letter of credit issued or confirmed by an institution that meets the standards prescribed by Section 493.104(b)(2)(C) as of the date the letter is issued or confirmed, but later fails to meet those standards, continues to be acceptable as security under Section 493.104 until the earlier of:

(1)  the letter's expiration;

(2)  the letter's extension, renewal, modification, or amendment after the date the institution fails to meet those standards; or

(3)  the expiration of the three-month period after the date the institution fails to meet those standards.  (V.T.I.C. Art. 5.75-1, Sec. (d) (part).)

Source Law

(d)  …

(3)  …

Letters of credit meeting applicable standards of issuer acceptability as of the dates of their issuance or confirmation shall, notwithstanding the issuing or confirming institution's subsequent failure to meet applicable standards of issuer acceptability, continue to be acceptable as security until their expiration, extension, renewal, modification or amendment, whichever first occurs; provided, however, such letter of credit shall be replaced within three months after the date of the institution's failure to meet applicable standards of issuer acceptability… .

Revised Law

Sec. 493.106.  CREDIT FOR REINSURANCE:  DIRECT PAYMENT ON LIABILITY REQUIRED.  (a)  A ceding insurer may not be given credit for reinsurance ceded, as an asset or as a deduction from liability, in an accounting or financial statement unless the reinsurance is payable by the assuming insurer:

(1)  on the liability of the ceding insurer under the contracts reinsured, without diminution because of the ceding insurer's insolvency; and

(2)  directly to the ceding insurer or to the ceding insurer's domiciliary liquidator or receiver.

(b)  Subsection (a)(2) does not apply if:

(1)  the reinsurance contract specifically provides that, if the ceding insurer is insolvent, the reinsurance is payable to a payee other than one described by Subsection (a)(2); or

(2)  the assuming insurer, with the direct insured's consent, has assumed the ceding insurer's policy obligations to the payee as the assuming insurer's direct obligations to the payee under the policy as a substitute for the ceding insurer's obligations.  (V.T.I.C. Art. 5.75-1, Sec. (i).)

Source Law

(i)  Credit may not be given in the accounting and financial statements, either as an asset or a deduction from liability, unless the reinsurance is payable by the assuming insurer on the basis of the liability of the ceding insurer under the contracts reinsured without diminution because of the insolvency of the ceding insurer, and is payable directly to the ceding insurer or to its domiciliary liquidator or receiver, except:

(1)  where the contract of reinsurance specifically provides another payee of the reinsurance in the event of insolvency of the ceding insurer; or

(2)  where the assuming insurer, with the consent of the direct insured, has assumed the policy obligations of the ceding insurer as direct obligations of the assuming insurer to the payee under the policies and in substitution for the obligations of the ceding insurer to the payee.

Revised Law

Sec. 493.107.  REQUEST FOR INFORMATION FROM ASSUMING INSURER.  (a)  The commissioner may request that an assuming insurer not meeting the requirements of Section 493.102 file:

(1)  financial statements certified and audited by an independent certified public accountant;

(2)  a certified copy of the certificate or letter of authority from the domiciliary jurisdiction; and

(3)  information on the principals and management of the assuming insurer.

(b)  If an assuming insurer does not comply with a request under this section, the commissioner may issue a directive prohibiting all authorized insurers from taking credit for business ceded to the assuming insurer after the effective date of the directive.

(c)  An unauthorized insurer that is included in the most recent quarterly listing published by the International Insurers Department of the National Association of Insurance Commissioners is considered to have complied with a request under this section.  (V.T.I.C. Art. 5.75-1, Sec. (o).)

Source Law

(o)  The Commissioner may request the filing of financial statements certified and audited by an independent certified public accountant, certified copies of the certificate or letter of authority from the domiciliary jurisdiction, and information on the principals and management of any assuming insurer that does not meet the requirements of Subsection (b) of this article.  The failure of an assuming insurer that does not meet the requirements of Subsection (b) of this article to comply with a request for information by the Commissioner may result in the Commissioner issuing a directive prohibiting all licensed insurers from taking credit for business ceded with any such assuming insurer after the effective date of such directive.  A nonlicensed insurer that is included in the most recent quarterly listing published by the Non-admitted Insurers Information Office of the National Association of Insurance Commissioners is considered to have complied with a request for information by the Commissioner.

Revisor's Note

Section (o), V.T.I.C. Article 5.75-1, refers to the "Non-admitted Insurers Information Office" of the National Association of Insurance Commissioners.  The name of that office has been changed to the International Insurers Department.  The revised law is drafted accordingly.

[Sections 493.108-493.150 reserved for expansion]

SUBCHAPTER D.  REQUIREMENTS FOR TRUST CREDIT ALLOWANCE

Revised Law

Sec. 493.151.  APPLICABILITY OF SUBCHAPTER.  This subchapter applies to a trust that is used to qualify for a reinsurance credit under Section 493.102(a)(3) and to the assuming insurer that maintains the trust fund.  (New.)

Revisor's Note

The revision of the requirements for a trust that is used to satisfy the conditions for taking a credit for reinsurance and the related duties of the assuming insurer have been compiled in this subchapter for clarity.  This section is added to the revised law for drafting convenience and to eliminate frequent, unnecessary repetition of the substance of the section throughout the subchapter.

Revised Law

Sec. 493.152.  COMPOSITION OF TRUST.  (a)  If the assuming insurer is a single insurer, the trust must:

(1)  consist of a trusteed account representing the assuming insurer's liabilities attributable to business written in the United States; and

(2)  include a trusteed surplus of at least $20 million.

(b)  If the assuming insurer is a group of insurers that includes an unincorporated individual insurer:

(1)  the trust must:

(A)  consist of a trusteed account representing the group's liabilities attributable to business written in the United States; and

(B)  include a trusteed surplus of at least $100 million; and

(2)  the group shall make available to the department an annual certification by the group's domiciliary regulator and its independent public accountants of each underwriter's solvency.

(c)  If the assuming insurer is a group of incorporated insurers under common administration that has continuously engaged in the business of insurance for at least three years, is under the supervision of the Department of Trade and Industry of the United Kingdom, and has an aggregate policyholders' surplus of $10 billion:

(1)  the trust must:

(A)  consist of a trusteed account representing the group's several liabilities attributable to business written in the United States under reinsurance contracts issued in the name of the group; and

(B)  include a trusteed surplus of not less than $100 million held jointly for the benefit of United States insurers that have ceded business to any member of the group; and

(2)  each member of the group shall make available to the department an annual certification by the member's domiciliary regulator and its independent public accountants of each member's solvency.  (V.T.I.C. Art. 5.75-1, Sec. (b) (part).)

Source Law

(b)  …

(3)  …  In the case of a single assuming insurer, the trust shall consist of a trusteed account representing the assuming insurer's liabilities attributable to business written in the United States and, in addition, include a trusteed surplus of not less than $20 million.  In the case of a group of insurers, which group includes unincorporated individual insurers, the trust shall consist of a trusteed account representing the group's liabilities attributable to business written in the United States and, in addition, include a trusteed surplus of not less than $100 million; and the group shall make available to the State Board of Insurance an annual certification by the group's domiciliary regulator and its independent public accountants of the solvency of each underwriter. In the case of a group of incorporated insurers under common administration which has continuously transacted an insurance business for at least three years, which is under the supervision of the Department of Trade and Industry of the United Kingdom, and which has aggregate policyholder's surplus of $10 billion, the trust shall consist of a trusteed account representing the group's several liabilities attributable to business written in the United States pursuant to reinsurance contracts issued in the name of the group and, in addition, include a trusteed surplus of not less than $100 million which shall be held jointly for the benefit of United States insurers ceding business to any member of the group, and each member of the group shall make available to the State Board of Insurance an annual certification by the member's domiciliary regulator and its independent public accountants of the solvency of each member… .

Revised Law

Sec. 493.153.  FORM OF TRUST.  The trust must be established in a form approved by the commissioner.  (V.T.I.C. Art. 5.75-1, Sec. (b) (part).)

Source Law

(b)  …

(3)  …  Such trust shall be established in a form approved by the State Board of Insurance… .

Revised Law

Sec. 493.154.  TERMS OF TRUST.  (a)  The trust instrument must provide that contested claims are valid and enforceable on the final order of any court in the United States.

(b)  The trust must vest legal title to the trust's assets in the trustees of the trust for:

(1)  the trust's United States policyholders and ceding insurers; and

(2)  the policyholders' and ceding insurers' assigns and successors in interest.

(c)  The trust must remain in effect as long as the assuming insurer has outstanding obligations under a reinsurance contract subject to the trust.  (V.T.I.C. Art. 5.75-1, Sec. (b) (part).)

Source Law

(b)  …

(3)  …  The trust instrument shall provide that contested claims shall be valid and enforceable upon the final order of any court of competent jurisdiction in the United States.  The trust shall vest legal title to its assets in the trustees of the trust for its United States policyholders and ceding insurers, their assigns, and successors in interest… .  The trust described herein must remain in effect for as long as the assuming insurer shall have outstanding obligations due under the reinsurance agreements subject to the trust… .

Revisor's Note

Section (b)(3), V.T.I.C. Article 5.75-1, refers to a court "of competent jurisdiction."  The revised law omits the quoted language as unnecessary because the general laws of civil jurisdiction govern which courts have jurisdiction over the matter.  For example, see Sections 24.007-24.011, Government Code, for the general jurisdiction of district courts.  Similar changes have been made throughout this chapter.

Revised Law

Sec. 493.155.  REPORTS AND CERTIFICATION.  (a)  Not later than February 28 of each year, the trustees of the trust shall:

(1)  report to the department in writing, showing the balance of the trust and listing the trust's investments at the end of the preceding year; and

(2)  certify the date of termination of the trust, if termination is planned, or certify that the trust will not expire before December 31 of the year of the report.

(b)  To enable the commissioner to determine the sufficiency of the trust fund under Section 493.102(a)(3), the assuming insurer shall report to the department not later than March 1 of each year information substantially the same as the information required to be reported by an authorized insurer on the National Association of Insurance Commissioners' Annual Statement form. (V.T.I.C. Art. 5.75-1, Sec. (b) (part).)

Source Law

(b)  …

(3)  …  The trusteed assuming insurer shall report annually not later than March 1 to the State Board of Insurance information substantially the same as that required to be reported on the NAIC Annual Statement form by licensed insurers to enable the State Board of Insurance to determine the sufficiency of the trust fund… .  Not later than February 28 of each year the trustees of the trust shall report to the State Board of Insurance in writing setting forth the balance of the trust and listing the trust's investments at the preceding year end and shall certify the date of termination of the trust, if so planned, or certify that the trust shall not expire prior to the next following December 31; …

Revised Law

Sec. 493.156.  CERTAIN TRUSTEED ASSUMING INSURERS:  REQUIREMENTS FOR REINSURANCE CONTRACT.  (a)  A ceding insurer may not be allowed credit under Section 493.102(a)(3) for reinsurance ceded to an assuming insurer that is not authorized or accredited to engage in the business of insurance or reinsurance in this state unless the assuming insurer agrees in the reinsurance contract:

(1)  that, if the assuming insurer fails to perform the assuming insurer's obligations under the reinsurance contract, the assuming insurer, at the request of the ceding insurer, will:

(A)  submit to the jurisdiction of a court in any state of the United States;

(B)  comply with all requirements necessary to give the court jurisdiction; and

(C)  abide by the final decision of that court or, if the court's decision is appealed, of the appellate court; and

(2)  to designate the commissioner or an attorney as an agent for service of process in any action, suit, or proceeding instituted by or on behalf of the ceding insurer.

(b)  This section is not intended to conflict with or override a provision in a reinsurance contract that requires the parties to arbitrate the parties' disputes.  (V.T.I.C. Art. 5.75-1, Sec. (c).)

Source Law

(c)  If the assuming insurer is not licensed or accredited to transact insurance or reinsurance in this state, the credit permitted by Subsection (b)(3) of this article shall not be allowed unless the assuming insurer agrees in the reinsurance agreements:

(1)  that in the event of the failure of the assuming insurer to perform its obligations under the terms of the reinsurance agreement, the assuming insurer, at the request of the ceding insurer, shall submit to the jurisdiction of any court of competent jurisdiction in any State of the United States, will comply with all requirements necessary to give such court jurisdiction, and will abide by the final decision of such court or of any Appellate Court in the event of an appeal; and

(2)  to designate the State Board of Insurance or a designated attorney as its true and lawful attorney upon whom may be served any lawful process in any action, suit or proceeding instituted by or on behalf of the ceding company.  This provision, however, is not intended to conflict with or override the obligation of the parties to a reinsurance agreement to arbitrate their disputes, if such an obligation is created in the agreement.

Revisor's Note

Section (c)(2), V.T.I.C. Article 5.75-1, refers to a "true and lawful attorney" for service of "lawful" process.  The revised law omits the references to "true" and "lawful" as unnecessary because those terms do not add to the clear meaning of the law.  The revised law substitutes "agent" for "attorney" because agent is the term more commonly used to refer to a person designated for service of process.

Revised Law

Sec. 493.157.  EXAMINATION OF TRUST AND ASSUMING INSURER.  The trust and the assuming insurer are subject to examination as determined by the commissioner.  (V.T.I.C. Art. 5.75-1, Sec. (b) (part).)

Source Law

(b)  …

(3)  …  The trust and the assuming insurer shall be subject to examination as determined by the State Board of Insurance… .

Revisor's Note

(End of Chapter)

Section (f), V.T.I.C. Article 5.75-1, provides that Sections (a)-(e) of that article apply to a reinsurance agreement that has "an inception, anniversary, or renewal date not less than four months after the effective date of this statute."  Article 5.75-1 was substantially revised and Subsection (f) was added by Chapter 1082, Acts of the 71st Legislature, Regular Session, 1989.  Those changes took effect September 1, 1989.  The revised law omits Section (f) as executed because any reinsurance agreement entered into on or before January 1, 1990, has expired or been renewed or the first anniversary of the agreement has occurred.  The omitted law reads:

(f)  Subsections (a) through (e) of this article shall apply to all reinsurance agreements having an inception, anniversary, or renewal date not less than four months after the effective date of this statute.