79C4(3) AJA

 

CHAPTER 401. AUDITS AND EXAMINATIONS

SUBCHAPTER A.  INDEPENDENT AUDIT OF FINANCIAL STATEMENTS

Revised Law

Sec. 401.001.  DEFINITIONS.  In this subchapter:

(1)  "Accountant" means an independent certified public accountant or accounting firm that meets the requirements of Section 401.011.

(2)  "Affiliate" has the meaning assigned by Section 823.003.

(3)  "Health maintenance organization" means a health maintenance organization authorized to engage in business in this state.

(4)  "Insurer" means an insurer authorized to engage in business in this state, including:

(A)  a life, health, or accident insurance company;

(B)  a fire and marine insurance company;

(C)  a general casualty company;

(D)  a title insurance company;

(E)  a fraternal benefit society;

(F)  a mutual life insurance company;

(G)  a local mutual aid association;

(H)  a statewide mutual assessment company;

(I)  a mutual insurance company other than a mutual life insurance company;

(J)  a farm mutual insurance company;

(K)  a county mutual insurance company;

(L)  a Lloyd's plan;

(M)  a reciprocal or interinsurance exchange;

(N)  a group hospital service corporation;

(O)  a stipulated premium company; and

(P)  a nonprofit legal services corporation.

(5)  "Subsidiary" has the meaning assigned by Section 823.003.  (V.T.I.C. Art. 1.15A, Secs. 3(1), (2), (5), (6).)

Source Law

Sec. 3.  In this article:

(1)  "Accountant" means an independent certified public accountant or accounting firm that meets the requirements of Section 12 of this article.

(2)  "Affiliate" has the meaning assigned by Subsection (a) of Section 2 of Article 21.49-1 of this code.

(5)  "Insurer" means an insurer authorized to do business under the law of this state and includes life, health, and accident insurance companies, fire and marine companies, general casualty companies, title insurance companies, fraternal benefit societies, mutual life insurance companies, local mutual aid associations, statewide mutual assessment companies, mutual insurance companies other than life, farm mutual insurance companies, county mutual insurance companies, Lloyd's plans, reciprocal and interinsurance exchanges, group hospital service corporations, health maintenance organizations, stipulated premium insurance companies, and nonprofit legal services corporations.

(6)  "Subsidiary" has the meaning assigned by Section 2 of Article 21.49-1 of this code.

Revisor's Note

(1)  Section 3(5), V.T.I.C. Article 1.15A, defines "insurer" to mean an insurer authorized to do business under the law of this state, including certain listed entities.  For accuracy, the revised law omits "health maintenance organizations" from the listed entities and substitutes a separate definition of that term because a "health maintenance organization" is not a traditional insurer.  Throughout this subchapter the revised law substitutes "insurer or health maintenance organization" for "insurer."

(2)  Section 3(3), V.T.I.C. Article 1.15A, defines "board" as the State Board of Insurance.  Chapter 685, Acts of the 73rd Legislature, Regular Session, 1993, abolished the State Board of Insurance and transferred the board's functions to the commissioner of insurance and the Texas Department of Insurance.  Throughout this chapter, references to the board have been changed appropriately.  For this reason, the revised law omits the definition of "board."  The omitted law reads:

(3)  "Board" means the State Board of Insurance.

(3)  Section 3(4), V.T.I.C. Article 1.15A, defines "commissioner" to mean the commissioner of insurance.  The revised law omits the definition as unnecessary because Section 31.001 of this code defines "commissioner" to mean the commissioner of insurance for purposes of this code and other insurance laws of this state.  The omitted law reads:

(4)  "Commissioner" means the commissioner of insurance.

Revised Law

Sec. 401.002.  PURPOSE OF SUBCHAPTER.  The purpose of this subchapter is to require an annual audit by an independent certified public accountant of the financial statements reporting the financial condition and the results of operations of each insurer or health maintenance organization.  (V.T.I.C. Art. 1.15A, Sec. 1.)

Source Law

Art. 1.15A

Sec. 1.  The purpose of this article is to require an annual examination by an independent certified public accountant of the financial statements reporting the financial condition and the results of operations of each insurer.

Revisor's Note

Section 1, V.T.I.C. Article 1.15A, refers to an annual "examination" by an independent certified public accountant.  Throughout this subchapter, the revised law substitutes "audit" for "examination" in relation to the activities of a certified public accountant because that is the activity that an accountant is required to perform under this subchapter.  The revised law retains "examination" in relation to an activity performed by the Texas Department of Insurance.

Revised Law

Sec. 401.003.  EFFECT OF SUBCHAPTER ON AUTHORITY TO EXAMINE.  This subchapter does not limit the commissioner's authority to order or the department's authority to conduct an examination of an insurer or health maintenance organization under this code or the commissioner's rules.  (V.T.I.C. Art. 1.15A, Sec. 8.)

Source Law

Sec. 8.  This article does not prohibit, preclude, or limit the board from ordering, conducting, or performing an examination of any insurer under this code or the board's rules.

Revisor's Note

Section 8, V.T.I.C. Article 1.15A, states that the article does not "prohibit, preclude, or limit" the commissioner of insurance or the Texas Department of Insurance from "ordering, conducting, or performing an examination" of an insurer or health maintenance organization.  The revised law omits the references to "prohibit" and "preclude" as unnecessary because they are included within the meaning of "limit."  The revised law omits the reference to "performing" as unnecessary because it is included in the meaning of "conducting."

Revised Law

Sec. 401.004.  FILING AND EXTENSIONS FOR FILING OF AUDITED FINANCIAL REPORT.  (a)  Unless exempt under Section 401.006, 401.007, or 401.008 and except as otherwise provided by Sections 401.005 and 401.016, an insurer or health maintenance organization shall:

(1)  have an annual audit performed by an accountant; and

(2)  file with the commissioner on or before June 30 an audited financial report for the preceding calendar year.

(b)  The commissioner may require an insurer or health maintenance organization to file an audited financial report on a date that precedes June 30.  The commissioner must notify the insurer or health maintenance organization of the filing date not later than the 90th day before that date.

(c)  An insurer or health maintenance organization may request an extension of the filing date by submitting the request in writing before the 10th day preceding the filing date.  The request must include sufficient detail for the commissioner to make an informed decision on the requested extension.  The commissioner may extend the filing date for one or more 30-day periods if the commissioner determines that there is good cause for the extension based on a showing by the insurer or health maintenance organization and the insurer's or health maintenance organization's accountant of the reasons for requesting the extension.  (V.T.I.C. Art. 1.15A, Secs. 2, 9(a), (b), (c).)

Source Law

Sec. 2.  This article applies to each insurer except an insurer exempt under Section 4, 6, or 7 of this article.

Sec. 9.  (a) Each insurer shall have an annual audit by an accountant and shall file an audited financial report for the preceding calendar year with the commissioner on or before June 30 of each year.

(b)  Extension of the filing date for the audited financial report may be granted by the commissioner for 30-day periods on a showing by the insurer and its accountant of reasons for requesting the extension and determination by the commissioner of good cause for an extension.  The request for extension must be submitted in writing before the 10th day preceding the date the report is due to be filed and must include sufficient detail to permit the commissioner to make an informed decision with respect to the requested extension.

(c)  The commissioner may require an insurer to file the audited financial report on a date before June 30 of a particular year if the commissioner notifies the insurer of the date not later than the 90th day before the date on which the report is to be filed.

Revisor's Note

Section 2, V.T.I.C. Article 1.15A, states that the article applies to each insurer or health maintenance organization except an entity exempt under Sections 4, 6, or 7, revised as Sections 401.006, 401.007, and 401.008, respectively.  Other sections of V.T.I.C. Article 1.15A also provide alternatives for those insurers or health maintenance organizations, including Sections 10A and 13, revised as Sections 401.005 and 401.016, respectively.  Therefore, the revised law adds a reference to those sections for the reader's convenience.

Revised Law

Sec. 401.005.  ALTERNATIVE FILING FOR CANADIAN OR BRITISH INSURERS OR HEALTH MAINTENANCE ORGANIZATIONS.  (a)  Instead of the audited financial report required by Section 401.004, an insurer or health maintenance organization domiciled in Canada or the United Kingdom may file the insurer's or health maintenance organization's annual statement of total business on the form filed by the insurer or health maintenance organization with the appropriate regulatory authority in the country of domicile.  The statement must be audited by an independent accountant chartered in the country of domicile.

(b)  The chartered accountant must be registered with the commissioner under Section 401.014(a).  The registration must be accompanied by a statement, signed by the accountant, indicating that the accountant is aware of the requirements of this subchapter and affirming that the accountant will express the accountant's opinion in conformity with those requirements.  (V.T.I.C. Art. 1.15A, Sec. 10A.)

Source Law

Sec. 10A.  (a)  In lieu of the audited financial report required under Section 9 of this article, an insurer domiciled in Canada or the United Kingdom may file its annual statement of total business on the form filed by the company with the appropriate regulatory authority in the country of domicile.  The statement must be audited by an independent accountant chartered in the country of domicile.

(b)  The chartered accountant shall register with the commissioner under Section 11(a) of this article, and the registration must be accompanied by a statement, signed by the accountant, indicating that the accountant is aware of the requirements of this article and affirming that the accountant will express the accountant's opinion in conformity with those requirements.

Revised Law

Sec. 401.006.  EXEMPTION FOR CERTAIN SMALL INSURERS AND HEALTH MAINTENANCE ORGANIZATIONS.  (a)  An insurer or health maintenance organization that has less than $1 million in direct premiums written in this state during a calendar year is exempt from the requirement to file an audited financial report if the insurer or health maintenance organization submits an affidavit, made under oath by one of the insurer's or health maintenance organization's officers, that specifies the amount of direct premiums written in this state during that period.

(b)  Notwithstanding Subsection (a), the commissioner may require an insurer or health maintenance organization, other than a fraternal benefit society  that does not have any direct premiums written in this state for accident and health insurance during a calendar year, to comply with this subchapter if the commissioner finds that the insurer's or health maintenance organization's compliance is necessary for the commissioner to fulfill the commissioner's statutory responsibilities.

(c)  An insurer or health maintenance organization that has assumed premiums of at least $1 million under reinsurance agreements is not exempt under Subsection (a).  (V.T.I.C. Art. 1.15A, Sec. 4.)

Source Law

Sec. 4.  (a)  Except as provided by Subsections (b) and (c) of this section, an insurer otherwise subject to this article that has less than $1 million in direct premiums written in this state during a calendar year, in lieu of the annual examination required by this article for that calendar year, may submit an affidavit under oath of an officer of the insurer that specifies the amount of direct premiums written in this state, and such insurer shall be exempt from the audit required by this article.

(b)  The commissioner may require an insurer that is exempt under Subsection (a) of this section to comply with this article if the commissioner finds that the insurer's compliance is necessary for the commissioner to fulfill the commissioner's statutory responsibilities;  provided that this subsection shall not apply to any fraternal benefit society qualifying for exemption under Subsection (a) of this section which has no direct premiums written in this state for accident and health insurance during a calendar year.

(c)  An insurer that has assumed premiums of $1 million or more under reinsurance agreements is not exempt under Subsection (a) of this section.

Revised Law

Sec. 401.007.  EXEMPTION FOR CERTAIN FOREIGN OR ALIEN INSURERS OR HEALTH MAINTENANCE ORGANIZATIONS.  (a)  A foreign or alien insurer or health maintenance organization that files an audited financial report in another state in accordance with that state's requirements for audited financial reports may be exempt from filing a report under this subchapter if the commissioner finds that the other state's requirements are substantially similar to the requirements prescribed by this subchapter.

(b)  An insurer or health maintenance organization exempt under this section shall file with the commissioner a copy of:

(1)  the audited financial report, the report on significant deficiencies in internal controls, and the accountant's letter of qualifications filed with the other state; and

(2)  any notification of adverse financial conditions report filed with the other state.

(c)  The reports and letter required by Subsection (b)(1) must be filed in accordance with the filing dates prescribed by Sections 401.004 and 401.019.  The report required by Subsection (b)(2) must be filed in accordance with the filing date prescribed by Section 401.017.  (V.T.I.C. Art. 1.15A, Sec. 6.)

Source Law

Sec. 6.  (a)  A foreign or alien insurer that files an audited financial report in another state, pursuant to that state's requirement for audited financial reports, may be exempt from filing a report under this article if the commissioner finds that the other state's requirements are substantially similar to the requirements in this article.

(b)  A copy of the audited financial report, the report on significant deficiencies in internal controls, and the accountant's letter of qualifications filed with the other state must be filed with the commissioner in accordance with the filing dates provided by Sections 9 and 16 of this article.

(c)  A copy of a notification of adverse financial conditions report filed with the other state by a person exempt under this section must be filed with the commissioner within the time provided by Section 15 of this article.

Revised Law

Sec. 401.008.  HARDSHIP EXEMPTION.  (a)  An insurer or health maintenance organization that is not eligible for an exemption under Section 401.006 or 401.007 may apply to the commissioner for a hardship exemption.

(b)  Subject to Subsection (c), the commissioner may grant an exemption under this section if the commissioner finds, after reviewing the application, that compliance with this subchapter would constitute a severe financial or organizational hardship for the insurer or health maintenance organization.  The commissioner may grant the exemption at any time for one or more specified periods.

(c)  The commissioner may not grant an exemption under this section if:

(1)  the exemption would diminish the department's ability to monitor the financial condition of the insurer or health maintenance organization; or

(2)  the insurer or health maintenance organization:

(A)  during the five-year period preceding the date the application for the exemption is made:

(i)  has been placed under supervision, conservatorship, or receivership;

(ii)  has undergone a change in control, as described by Section 823.005; or

(iii)  has been subject to a significant number of complaints, as determined by the commissioner;

(B)  has been identified by the department as troubled;

(C)  has been or is the subject of a disciplinary action by the department; or

(D)  is not complying with the law or with a rule adopted by the commissioner.  (V.T.I.C. Art. 1.15A, Secs. 7(a), (b), (c).)

Source Law

Sec. 7.  (a)  An insurer otherwise subject to this article and not eligible for an exemption under Section 4 or 6 of this article may apply to the commissioner for a financial hardship exemption.

(b)  Except as provided by Subsection (c) of this section, the commissioner may grant an exemption under this section if the commissioner finds, after review of the application, that compliance with this rule would constitute a severe financial or organizational hardship on the insurer.  An exemption may be granted at any time and from time to time for a specified period or periods.

(c)  The commissioner may not grant an exemption under this section if the exemption diminishes the department's ability to monitor the financial condition of the insurer and may not grant an exemption to an insurer that:

(1)  has been placed under supervision, conservatorship, or receivership during the five-year period immediately preceding the date on which application for the exemption is made;

(2)  has undergone a change in control, as defined by Section 2, Article 21.49-1 of this code during the five-year period immediately preceding the date on which application for the exemption is made;

(3)  has been identified by the department as a troubled insurer;

(4)  has been subject to a significant number of complaints, as determined by the commissioner, during the five-year period immediately preceding the date on which application for the exemption is made;

(5)  has been or is the subject of a disciplinary action by the board; or

(6)  is not in compliance with any law or any rule adopted by the board or commissioner.

Revisor's Note

(1)  Section 7(b), V.T.I.C. Article 1.15A, provides that the commissioner may grant an exemption "at any time and from time to time."  The revised law omits the reference to "from time to time" because "from time to time" is included within the meaning of "at any time."

(2)  Section 7(c), V.T.I.C. Article 1.15A, refers to the five-year period "immediately preceding" the date an application is made.  Throughout this chapter, the revised law omits "immediately" in this context as unnecessary because "the period preceding" means "the period immediately preceding."

(3)  Section 7(c)(2), V.T.I.C. Article 1.15A, refers to a change in "control, as defined by Section 2, Article 21.49-1 of this code."  V.T.I.C. Article 21.49-1 was revised in Chapter 823 of this code.  The relevant section of Chapter 823 is Section 823.005, which describes "control," and the revised law is drafted accordingly.

(4)  Section 7(d), V.T.I.C. Article 1.15A, allows an appeal of a determination made under that article to be taken under V.T.I.C. Article 1.04, revised in 1999 as Subchapter D, Chapter 36, of this code.  The revised law omits the provision as redundant because such a determination is already subject to appeal in the manner provided by  Subchapter D, Chapter 36, and an additional statement to that effect in this chapter is unnecessary.  The omitted law reads:

(d)  An insurer that is aggrieved by a determination of the commissioner under this section may appeal that determination under Article 1.04 of this code.

Revised Law

Sec. 401.009.  CONTENTS OF AUDITED FINANCIAL REPORT.  (a)  An audited financial report required under Section 401.004 must:

(1)  describe the financial condition of the insurer or health maintenance organization as of the end of the most recent calendar year and the results of the insurer's or health maintenance organization's operations, changes in financial position, and changes in capital and surplus for that year;

(2)  conform to the statutory accounting practices prescribed or otherwise permitted by the insurance regulator in the insurer's or health maintenance organization's state of domicile; and

(3)  include:

(A)  the report of an accountant;

(B)  a balance sheet that reports admitted assets, liabilities, capital, and surplus;

(C)  a statement of gain or loss from operations;

(D)  a statement of cash flows;

(E)  a statement of changes in capital and surplus;

(F)  any notes to financial statements;

(G)  supplementary data and information, including any additional data or information required by the commissioner; and

(H)  information required by the department to conduct the insurer's or health maintenance organization's examination under Subchapter B.

(b)  The notes to financial statements required by Subsection (a)(3)(F) must include:

(1)  a reconciliation of any differences between the audited statutory financial statements and the annual statements filed under this code, with a written description of the nature of those differences;

(2)  any notes required by the appropriate National Association of Insurance Commissioners annual statement instructions or by generally accepted accounting principles;  and

(3)  a summary of the ownership of the insurer or health maintenance organization and that entity's relationship to any affiliated company.

(c)  An insurer or health maintenance organization required under Section 401.004 to file an audited financial report that does not retain an independent certified public accountant to perform an annual audit for the previous year may not be required to include in the report audited statements of operations, cash flows, or changes in capital and surplus for the first year.  The insurer or health maintenance organization must include those statements in the first-year report and label the statements as unaudited.  The insurer or health maintenance organization must include in the first-year report all other reports described by Section 401.004.

(d)  The commissioner shall adopt rules governing the information to be included in the audited financial report under Subsection (a)(3)(H).  (V.T.I.C. Art. 1.15A, Secs. 10(a), (b), (c), (e), (f).)

Source Law

Sec. 10.  (a)  The audited financial report shall report the financial condition of the insurer as of the end of the most recent calendar year and the results of the insurer's operations, changes in financial position, and changes in capital and surplus for that year in conformity with statutory accounting practices prescribed or otherwise permitted by the insurance regulator in the state of domicile.

(b)  The audited financial report must include the following:

(1)  the report of an accountant;

(2)  a balance sheet that reports admitted assets, liabilities, capital, and surplus;

(3)  a statement of gain or loss from operations;

(4)  a statement of cash flows;

(5)  a statement of changes in capital and surplus;

(6)  any notes to financial statements; and

(7)  supplementary data and information including any additional data or information required by the commissioner.

(c)  The notes to the financial statements required by Subdivision (6) of Subsection (b) of this section must include:

(1)  a reconciliation of differences, if any, between the audited statutory financial statements and the annual statements filed pursuant to this code with a written description of the nature of these differences;

(2)  any notes required by the appropriate National Association of Insurance Commissioners annual statement instructions or by generally accepted accounting principles; and

(3)  a summary of the ownership of the insurer and the relationship of the insurer to any affiliated company.

(e)  Insurers required to be examined under Section 2 of this article who did not retain an independent certified public accountant to perform an annual examination for the previous year shall not be required to include the following reports covered by the accountant's opinion for the first year, although such statements shall be presented and labeled unaudited:

(1)  Statement of operations.

(2)  Statement of cash flows.

(3)  Statements of changes in capital and surplus.

All other reports described in Section 9 must be included.  For the succeeding year and each year thereafter, such insurers shall file with the commissioner all reports required by this article.

(f)  The audited financial report must also include information required by the department to conduct the examination of the insurer under Article 1.15 of this code.  The commissioner shall adopt rules governing the information to be included in the report under this subsection.

Revised Law

Sec. 401.010.  REQUIREMENTS FOR FINANCIAL STATEMENTS IN AUDITED FINANCIAL REPORT.  (a)  An accountant must audit the financial reports provided by an insurer or health maintenance organization for purposes of an audit under this subchapter.  The accountant who audits the reports must conduct the audit in accordance with generally accepted auditing standards and must consider other procedures described in the Financial Condition Examiner's Handbook adopted by the National Association of Insurance Commissioners.

(b)  The financial statements included in the audited financial report must be prepared in a form and using language and groupings substantially the same as those of the relevant sections of the insurer's or health maintenance organization's annual statement filed with the commissioner.  Beginning in the second year in which an insurer or health maintenance organization is required to file an audited financial report, the financial statements must also be comparative, presenting the amounts as of December 31 of the reported year and the amounts as of December 31 of the preceding year.  (V.T.I.C. Art. 1.15A, Secs. 10(d), 14.)

Source Law

[Sec. 10]

(d)  The financial statements included in the audited financial report must be prepared in a form and using language and groupings substantially the same as the relevant sections of the insurer's annual statement filed with the commissioner.  Except in the first year in which an insurer is required to file an audited financial report, the financial statements also must be comparative, presenting the amounts as of December 31 of the reported year and the amounts as of December 31 of the preceding year.

Sec. 14.  (a)  The financial reports furnished under Section 8 of this article must be examined by an accountant.

(b)  The examination of an insurer's financial reports shall be conducted in accordance with generally accepted auditing standards.  Consideration should also be given to such other procedures illustrated in the Examiner's Handbook promulgated by the National Association of Insurance Commissioners.

Revisor's Note

(1)  Section 14(a), V.T.I.C. Article 1.15A, refers to "reports furnished under Section 8," revised as Section 401.003 of this chapter.  The revised law omits the reference to Section 8 as misleading because that section does not currently relate to reports or audits, nor did it relate to reports or audits at the time Section 14(a) was enacted.

(2)  Section 14(b), V.T.I.C. Article 1.15A, refers to the "Examiner's Handbook" adopted by the National Association of Insurance Commissioners.  The correct name of the handbook is the "Financial Condition Examiner's Handbook," and the revised law is drafted accordingly.

Revised Law

Sec. 401.011.  QUALIFICATIONS OF ACCOUNTANT; ACCEPTANCE OF AUDITED FINANCIAL REPORT.  (a)  Except as provided by Subsections (c) and (d), the commissioner shall accept an audited financial report from an independent certified public accountant or accounting firm that:

(1)  is a member in good standing of the American Institute of Certified Public Accountants and is in good standing with all states in which the accountant or firm is licensed to practice, as applicable; and

(2)  conforms to the American Institute of Certified Public Accountants Code of Professional Conduct and to the rules of professional conduct and other rules of the Texas State Board of Public Accountancy or a similar code.

(b)  If the insurer or health maintenance organization is domiciled in Canada, the commissioner shall accept an audited financial report from an accountant chartered in Canada.  If the insurer or health maintenance organization is domiciled in Great Britain, the commissioner shall accept an audited financial report from an accountant chartered in Great Britain.

(c)  A partner or other person responsible for rendering a report for an insurer or health maintenance organization for seven consecutive years may not, during the two-year period after that seventh year, render a report for the insurer or health maintenance organization or for a subsidiary or affiliate of the insurer or health maintenance organization that is engaged in the business of insurance.  The commissioner may determine that the limitation provided by this subsection does not apply to an accountant for a particular insurer or health maintenance organization if the insurer or health maintenance organization demonstrates to the satisfaction of the commissioner that the limitation's application to the insurer or health maintenance organization would be unfair because of unusual circumstances.  In making the determination, the commissioner may consider:

(1)  the number of partners or individuals the accountant employs, the expertise of the partners or individuals the accountant employs, or the number of the accountant's insurance clients;

(2)  the premium volume of the insurer or health maintenance organization; and

(3)  the number of jurisdictions in which the insurer or health maintenance organization engages in business.

(d)  The commissioner may not accept an audited financial report prepared wholly or partly by an individual who the commissioner finds:

(1)  has been convicted of fraud, bribery, a violation of the Racketeer Influenced and Corrupt Organizations Act (18 U.S.C. Section 1961 et seq.), or a state or federal criminal offense involving dishonest conduct;

(2)  has violated the insurance laws of this state with respect to a report filed under this subchapter; or

(3)  has demonstrated a pattern or practice of failing to detect or disclose material information in reports filed under this subchapter.  (V.T.I.C. Art. 1.15A, Secs. 12(a), (b), (c).)

Source Law

Sec. 12.  (a)  Except as provided by Subsections (b) and (c) of this section, the commissioner shall accept an audited financial report from an accountant who is an independent certified public accountant in good standing with the American Institute of Certified Public Accountants and in all states in which the accountant or firm is licensed to practice and who conforms to the Code of Professional Ethics of the American Institute of Certified Public Accountants and to the rules and regulations and Code of Ethics and Rules of Professional Conduct of the Texas State Board of Public Accountancy or a similar code.  In the case of an insurer domiciled in Canada, the commissioner shall accept an audited financial report from an accountant chartered in Canada, and, in the case of an insurer domiciled in Great Britain, the commissioner shall accept an audited financial report from an accountant chartered in Great Britain.

(b)  A partner or other person responsible for rendering a report for an insurer for seven consecutive years may not render a report for that insurer, or any of the subsidiaries or affiliates of the insurer that are engaged in the business of insurance, during the two years following the seventh year.  The commissioner may determine that the limitation in this subsection does not apply to the accountant for a particular insurer if the insurer demonstrates, to the satisfaction of the commissioner, that its application to the insurer would be unfair because of unusual circumstances.  In making the determination, the commissioner may consider:

(1)  the number of partners or individuals employed by the accountant, the expertise of the partners or individuals employed by the accountant, or the number of insurance clients of the accountant;

(2)  the premium volume of the insurer; and

(3)  the number of jurisdictions in which the insurer transacts business.

(c)  The commissioner may not accept an audited financial report prepared in whole or in part by an individual who the commissioner finds:

(1)  has been convicted of fraud, bribery, a violation of the Racketeer Influenced and Corrupt Organizations Act (18 U.S.C. Sections 1961 through 1968), or any state or federal criminal offense involving dishonest conduct;

(2)  has violated the insurance laws of this state with respect to any report filed under this article; or

(3)  has demonstrated a pattern or practice of failing to detect or disclose material information in reports filed under this article.

Revisor's Note

(1)  Section 12(a), V.T.I.C. Article 1.15A, refers to the "Code of Professional Ethics" of the American Institute of Certified Public Accountants.  The revised law substitutes a reference to the "Code of Professional Conduct" for the reference to the "Code of Professional Ethics" because that is the accurate name of that institute's code.

(2)  Section 12(a), V.T.I.C. Article 1.15A, refers to the "Code of Ethics and Rules of Professional Conduct of the Texas State Board of Public Accountancy."  The Texas State Board of Public Accountancy does not have a code of ethics.  The ethics provisions applicable to accountants and accounting firms are contained in that board's rules of professional conduct.  For that reason the revised law omits the reference to the code of ethics.

Revised Law

Sec. 401.012.  HEARING ON ACCOUNTANT QUALIFICATIONS; REPLACEMENT OF ACCOUNTANT.  The commissioner may hold a hearing to determine if an accountant is qualified and independent.  If, after considering the evidence presented, the commissioner determines that an accountant is not qualified and independent for purposes of expressing an opinion on the financial statements in an audited financial report filed under this subchapter, the commissioner shall issue an order directing the insurer or health maintenance organization to replace the accountant with a qualified and independent accountant.  (V.T.I.C. Art. 1.15A, Secs. 12(d), (e).)

Source Law

(d)  The commissioner may hold a hearing to determine if an accountant is qualified and independent and, considering the evidence presented, may rule that the accountant is not qualified and independent for purposes of expressing an opinion on the financial statements in the audited financial report filed under this article.

(e)  If the commissioner rules that an accountant is not qualified and independent, the commissioner shall issue an order directing the insurer to replace the accountant with a qualified and independent accountant.

Revised Law

Sec. 401.013.  ACCOUNTANT'S LETTER OF QUALIFICATIONS.  (a)  The audited financial report required under Section 401.004 must be accompanied by a letter provided by the accountant who performed the audit stating:

(1)  the accountant's general background and experience;

(2)  the experience of each individual assigned to prepare the audit in auditing insurers or health maintenance organizations and whether the individual is an independent certified public accountant; and

(3)  that the accountant:

(A)  is properly licensed by an appropriate state licensing authority, is a member in good standing of the American Institute of Certified Public Accountants, and is otherwise qualified under Section 401.011;

(B)  is independent from the insurer or health maintenance organization and conforms to the standards of the profession contained in the American Institute of Certified Public Accountants Code of Professional Conduct, the statements of that institute, and the rules of professional conduct adopted by the Texas State Board of Public Accountancy, or a similar code;

(C)  understands that:

(i)  the audited financial report and the accountant's opinion on the report will be filed in compliance with this subchapter; and

(ii)  the commissioner will rely on the report and opinion in monitoring and regulating the insurer's or health maintenance organization's financial position; and

(D)  consents to the requirements of Section 401.020 and agrees to make the accountant's work papers available for review by the department or the department's designee.

(b)  Subsection (a)(2) does not prohibit an accountant from using any staff the accountant considers appropriate if use of that staff is consistent with generally accepted auditing standards.  (V.T.I.C. Art. 1.15A, Sec. 16A.)

Source Law

Sec. 16A.  (a)  The audited financial report must be accompanied by a letter furnished by the accountant stating:

(1)  that the accountant is independent with respect to the insurer and conforms to the standards of the profession contained in the Code of Professional Ethics, the statements of the American Institute of Certified Public Accountants, and the Rules of Professional Conduct of the Texas Board of Public Accountancy, or a similar code;

(2)  the background and experience of the accountant in general, the experience in audits of insurers of each individual assigned to prepare the audit, and whether the individual is an independent certified public accountant;

(3)  that the accountant understands that the annual audited financial report and the accountant's opinion on the report will be filed in compliance with this article and that the commissioner will rely on the report and opinion in the monitoring and regulation of the financial position of insurers;

(4)  that the accountant consents to the requirements of Section 17 of this article and that the accountant agrees to make the accountant's work papers available for review by the commissioner or the commissioner's designee;

(5)  that the accountant is properly licensed by an appropriate state licensing authority and is a member in good standing in the American Institute of Certified Public Accountants; and

(6)  that the accountant is in compliance with the requirements of Section 12 of this article.

(b)  Subsection (a)(2) of this section does not prohibit an accountant from using any staff the accountant considers appropriate if use of that staff is consistent with the generally accepted auditing standards.

Revisor's Note

(1)  Section 16A(a)(1), V.T.I.C. Article 1.15A, refers to the "Code of Professional Ethics" and the statements of the American Institute of Certified Public Accountants.  The revised law substitutes a reference to the "Code of Professional Conduct" for the reference to the "Code of Professional Ethics" for the reason stated in Revisor's Note (1) to Section 401.011 of this code.

(2)  Section 16A(a)(4), V.T.I.C. Article 1.15A, requires an accountant to make the accountant's work papers available for review by the "commissioner or the commissioner's designee."  The revised law substitutes a reference to the Texas Department of Insurance because other provisions, including Section 17, V.T.I.C. Article 1.15A, revised in this chapter as Section 401.020, and Section 8, V.T.I.C. Article 1.15, revised in this chapter as Section 401.057, authorize the department to examine work papers.

Revised Law

Sec. 401.014.  REGISTRATION OF ACCOUNTANT.  (a)  Not later than December 31 of the calendar year to be covered by an audited financial report required by this subchapter, an insurer or health maintenance organization must register in writing with the commissioner the name and address of the accountant retained to prepare the report.

(b)  The insurer or health maintenance organization must include with the registration a statement signed by the accountant:

(1)  indicating that the accountant is aware of the requirements of this subchapter and of the rules of the insurance department of the insurer's or health maintenance organization's state of domicile that relate to accounting and financial matters; and

(2)  affirming that the accountant will express the accountant's opinion on the financial statements in terms of the statements' conformity to the statutory accounting practices prescribed or otherwise permitted by the insurance department described by Subdivision (1) and specifying any exceptions the accountant believes are appropriate.

(c)  The commissioner may not accept an audited financial report prepared by an accountant who is not registered under this section.

(d)  The commissioner may not accept the registration of a person who does not qualify under Section 401.011 or does not comply with the other requirements of this subchapter.  (V.T.I.C. Art. 1.15A, Sec. 11.)

Source Law

Sec. 11.  (a)  Each insurer must register with the commissioner the name and address of the accountant retained to prepare an audited financial report required by this article.  The registration must be made in writing not later than December 31 of the calendar year to be covered by the audited financial report.

(b)  The registration must be accompanied by a statement signed by the accountant indicating that the accountant is aware of the requirements of this article, and of the rules and regulations of the insurance department of the insurer's state of domicile that relate to accounting and financial matters and affirming that the accountant will express the accountant's opinion on the financial statements in terms of their conformity to the statutory accounting practices prescribed or otherwise permitted by that department, specifying any exceptions the accountant believes are appropriate.

(c)  The commissioner may not accept an audited financial report from an insurer that is prepared by an accountant that is not registered under this section.

(d)  The commissioner may not accept registration under this section for a person who does not comply with Section 12 of this article and with the other requirements of this article.

Revisor's Note

Section 11(b), V.T.I.C. Article 1.15A, refers to "rules and regulations."  Throughout this chapter, the revised law omits the reference to "regulations" because under Section 311.005(5), Government Code (Code Construction Act), a rule is defined to include a regulation.  That definition applies to the revised law.

Revised Law

Sec. 401.015.  RESIGNATION OR DISMISSAL OF ACCOUNTANT; STATEMENT CONCERNING DISAGREEMENTS.  (a)  If an accountant who signed an audited financial report for an insurer or health maintenance organization resigns as accountant for the insurer or health maintenance organization or is dismissed by the insurer or health maintenance organization after the report is filed, the insurer or health maintenance organization shall notify the department not later than the fifth business day after the date of the resignation or dismissal.

(b)  Not later than the 10th business day after the date the insurer or health maintenance organization notifies the department under Subsection (a), the insurer or health maintenance organization shall file a written statement with the commissioner advising the commissioner of any disagreements between the accountant and the insurer's or health maintenance organization's personnel responsible for presenting the insurer's or health maintenance organization's financial statements that:

(1)  relate to accounting principles or practices, financial statement disclosure, or auditing scope or procedures;

(2)  occurred during the 24 months preceding the date of the resignation or dismissal; and

(3)  would have caused the accountant to note the disagreement in connection with the audited financial report if the disagreement were not resolved to the satisfaction of the accountant.

(c)  The statement required by Subsection (b) must include a description of disagreements that were resolved to the accountant's satisfaction and those that were not resolved to the accountant's satisfaction.

(d)  The insurer or health maintenance organization shall file with the statement required by Subsection (b) a letter signed by the accountant stating whether the accountant agrees with the insurer's or health maintenance organization's statement and, if not, the reasons why the accountant does not agree.  If the accountant fails to provide the letter, the insurer or health maintenance organization shall file with the commissioner a copy of a written request to the accountant for the letter.  (V.T.I.C. Art. 1.15A, Sec. 12A.)

Source Law

Sec. 12A.  (a)  If the accountant who signed an audited financial report resigns as accountant for the insurer or is dismissed by the insurer after the report is filed, the insurer shall notify the department not later than the fifth business day after the date of resignation or dismissal.

(b)  Not later than the 10th business day after the insurer gives the notification required by Subsection (a) of this section, the insurer shall file a written statement with the commissioner advising the commissioner of any disagreements between the accountant and personnel of the insurer responsible for presentation of its financial statements relating to accounting principles or practices, financial statement disclosure, or auditing scope or procedures that occurred during the 24-month period immediately preceding the date of resignation or dismissal and that, if not resolved to the satisfaction of the accountant, would have caused the accountant to note the disagreement in connection with the audited financial report.  The statement must include both disagreements that were resolved to the accountant's satisfaction and those that were not resolved to the accountant's satisfaction.

(c)  The insurer shall file with the statement required under Subsection (b) of this section a letter signed by the accountant stating whether the accountant agrees with the insurer's statement and, if not, stating the reasons why the accountant does not agree.  If the accountant is unwilling or unable to provide the letter, the insurer shall file with the commissioner a copy of a written request to the accountant for the letter.

Revised Law

Sec. 401.016.  AUDITED COMBINED OR CONSOLIDATED FINANCIAL STATEMENTS.  (a)  An insurer or health maintenance organization described by Section 401.001(3) or (4) that is required to file an audited financial report under this subchapter may apply in writing to the commissioner for approval to file audited combined or consolidated financial statements instead of separate audited financial reports if the insurer or health maintenance organization:

(1)  is part of a group of insurers or health maintenance organizations that uses a pooling arrangement or 100 percent reinsurance agreement that affects the solvency and integrity of the insurer's or health maintenance organization's reserves; and

(2)  cedes all of the insurer's or health maintenance organization's direct and assumed business to the pool.

(b)  An insurer or health maintenance organization must file an application under Subsection (a) not later than December 31 of the calendar year for which the audited combined or consolidated financial statements are to be filed.

(c)  An insurer or health maintenance organization that receives approval from the commissioner under this section shall file a columnar combining or consolidating worksheet for the audited combined or consolidated financial statements that includes:

(1)  the amounts shown on the audited combined or consolidated financial statements;

(2)  the amounts for each insurer or health maintenance organization stated separately;

(3)  the noninsurance operations shown on a combined or individual basis;

(4)  explanations of consolidating and eliminating entries; and

(5)  a reconciliation of any differences between the amounts shown in the individual insurer or health maintenance organization columns of the worksheet and comparable amounts shown on the insurer's or health maintenance organization's annual statements.

(d)  An insurer or health maintenance organization that does not receive approval from the commissioner to file audited combined or consolidated financial statements for the insurer or health maintenance organization and any of the insurer's or health maintenance organization's subsidiaries or affiliates shall file a separate audited financial report.  (V.T.I.C. Art. 1.15A, Sec. 13.)

Source Law

Sec. 13.  (a)  An insurer may make written application to the commissioner for approval to file audited combined or consolidated financial statements instead of separate annual audited financial reports if the insurer is part of a group of insurance companies that uses a pooling or 100 percent reinsurance agreement that affects the solvency and integrity of the insurer's reserves and the insurer cedes all of its direct and assumed business to the pool.  The application for approval must be filed on or before December 31 of the calendar year for which the combined or consolidated audited financial statements are to be filed.

(b)  An insurer that receives approval from the commissioner under Subsection (a) of this section shall file a columnar consolidating or combining worksheet for consolidated or combined financial statements that must include the following:

(1)  amounts shown on the consolidated or combined audited financial statements;

(2)  amounts for each insurer stated separately;

(3)  noninsurance operations shown on a combined or individual basis;

(4)  explanations of consolidating and eliminating entries; and

(5)  reconciliation of any differences between the amounts shown in the individual insurer columns of the worksheet and comparable amounts shown on the insurers' annual statements.

(c)  An insurer who does not receive approval from the commissioner to file an audited combined or consolidated financial statements for the insurer and any of its subsidiaries or affiliates shall file a separate audited financial report.

Revised Law

Sec. 401.017.  NOTICE OF ADVERSE FINANCIAL CONDITION OR MISSTATEMENT OF FINANCIAL CONDITION.  (a)  An insurer or health maintenance organization required to file an audited financial report under this subchapter shall require the insurer's or health maintenance organization's accountant to immediately notify the board of directors of the insurer or health maintenance organization or the insurer's or health maintenance organization's audit committee in writing of any determination by that accountant that:

(1)  the insurer or health maintenance organization has materially misstated the insurer's or health maintenance organization's financial condition as reported to the commissioner as of the balance sheet date being audited; or

(2)  the insurer or health maintenance organization does not meet the minimum capital and surplus requirements prescribed by this code for the insurer or health maintenance organization as of that date.

(b)  An insurer or health maintenance organization that receives a notice described by Subsection (a) shall:

(1)  provide to the commissioner a copy of the notice not later than the fifth business day after the date the insurer or health maintenance organization receives the notice; and

(2)  provide to the accountant evidence that the notice was provided to the commissioner.

(c)  If the accountant does not receive the evidence required by Subsection (b)(2) on or before the fifth business day after the date the accountant notified the insurer or health maintenance organization under Subsection (a), the accountant shall file with the commissioner a copy of the accountant's written notice not later than the 10th business day after the date the accountant notified the insurer or health maintenance organization.

(d)  An accountant is not liable to an insurer or health maintenance organization or the insurer's or health maintenance organization's policyholders, shareholders, officers, employees, directors, creditors, or affiliates for a statement made under this section if the statement was made in good faith to comply with this section.  (V.T.I.C. Art. 1.15A, Secs. 15(a), (b), (d).)

Source Law

Sec. 15.  (a)  An insurer required to furnish an audited financial report shall require the accountant to immediately notify in writing the board of directors of the insurer or its audit committee of a determination by that accountant that:

(1)  the insurer has materially misstated its financial condition as reported to the commissioner as of the balance sheet date currently under examination; or

(2)  the insurer does not meet the minimum capital and surplus requirements provided by this code for that insurer as of that date.

(b)  The insurer shall furnish to the commissioner a copy of the accountant's written notice not later than the fifth business day after the date on which the insurer receives the notice from the accountant and shall provide the accountant with evidence that the notice has been furnished to the commissioner.  If the accountant does not receive the evidence on or before the fifth business day after the date on which the accountant notified the insurer, the accountant shall, not later than the 10th business day after the date on which the accountant notified the insurer, file a copy of the written notice with the commissioner.

(d)  An accountant is not liable to the insurer, its policyholders, shareholders, officers, employees or directors, creditors or affiliates, for any statement made under Subsections (a) and (b) of this section if the statement was made in good faith to comply with those subsections.

Revised Law

Sec. 401.018.  INFORMATION DISCOVERED AFTER DATE OF AUDITED FINANCIAL REPORT.  If, after the date of an audited financial report filed under this subchapter, the accountant becomes aware of facts that might have affected the report, the accountant must take action as prescribed in Volume 1, AU Section 561, Professional Standards of the American Institute of Certified Public Accountants.  (V.T.I.C. Art. 1.15A, Sec. 15(c).)

Source Law

(c)  If the accountant, subsequent to the date of the audited financial report filed under this article, becomes aware of facts that might have affected the report, the accountant must take action as prescribed in Volume 1, Section AU 561, Professional Standards of the American Institute of Certified Public Accountants.

Revised Law

Sec. 401.019.  REPORT ON SIGNIFICANT DEFICIENCIES IN INTERNAL CONTROL.  (a)  In addition to the audited financial report required by this subchapter, each insurer or health maintenance organization shall provide to the commissioner a written report of significant deficiencies required and prepared by an accountant in accordance with the Professional Standards of the American Institute of Certified Public Accountants.

(b)  The insurer or health maintenance organization shall annually file with the commissioner the report required by this section not later than the 60th day after the date the audited financial report is filed.  The insurer or health maintenance organization shall also provide a description of remedial actions taken or proposed to be taken to correct significant deficiencies, if the actions are not described in the accountant's report.

(c)  The report must follow generally the form for communication of internal control structure matters noted in an audit described in Statement on Auditing Standard (SAS) No. 60, AU Section 325, Professional Standards of the American Institute of Certified Public Accountants.  (V.T.I.C. Art. 1.15A, Sec. 16.)

Source Law

Sec. 16.  (a)  In addition to the audited financial report, each insurer shall furnish to the commissioner the written report of significant deficiencies required and prepared in accordance with the Professional Standards of the American Institute of Certified Public Accountants.

(b)  The report required by this section must be filed annually by the insurer with the commissioner not later than the 60th day after the date the audited financial report is filed. The insurer is also required to provide a description of remedial actions taken or proposed to correct significant deficiencies, if the actions are not described in the accountant's report.

(c)  The report must follow generally the form for communication of internal control structure matters noted in an audit described in SAS No. 60, Section AU 325, Professional Standards of the American Institute of Certified Public Accountants.

Revised Law

Sec. 401.020.  ACCOUNTANT WORK PAPERS.  (a)  In this section, "work papers" means the records kept by an accountant of the procedures followed, the tests performed, the information obtained, and the conclusions reached that are pertinent to the accountant's audit of an insurer's or health maintenance organization's financial statements.  The term includes work programs, analyses, memoranda, letters of confirmation and representation, abstracts of company documents and schedules, and commentaries prepared or obtained by the accountant in the course of auditing the financial statements that support the accountant's opinion.

(b)  An insurer or health maintenance organization required to file an audited financial report under this subchapter shall require the insurer's or health maintenance organization's accountant to make available for review by the department's examiners the work papers and any record of communications between the accountant and the insurer or health maintenance organization relating to the accountant's audit that were prepared in conducting the audit.  The insurer or health maintenance organization shall require that the accountant retain the work papers and records of communications until the earlier of:

(1)  the date the department files a report on the examination covering the audit period; or

(2)  the seventh anniversary of the date of the last day of the audit period.

(c)  The department may copy and retain the copies of pertinent work papers when the department's examiners conduct a review under Subsection (b).  The review is considered an investigation, and work papers obtained during that investigation may be made confidential by the commissioner, unless the work papers are admitted as evidence in a hearing before a governmental agency or in a court.  (V.T.I.C. Art. 1.15A, Sec. 17.)

Source Law

Sec. 17.  (a) Work papers are the records kept by the accountant of the procedures followed, the tests performed, the information obtained, and the conclusions reached pertinent to the accountant's examination of the financial statements of an insurer and may include work programs, analyses, memoranda, letters of confirmation and representation, abstracts of company documents and schedules, or commentaries prepared or obtained by the accountant in the course of the accountant's examination of the financial statements of an insurer that support the accountant's opinion.

(b)  Each insurer required to file an audited financial report shall require the accountant to make available for review by the department's examiners the work papers and any record of communications related to the audit between the accountant and the insurer prepared in the conduct of the examination.  The insurer shall require that the accountant retain the audit work papers and records of communications until the department has filed a report on examination covering the period of the audit, but not longer than seven years after the period reported.

(c)  In the conduct of the periodic review by the department's examiners, photocopies of pertinent audit work papers may be made and retained by the board.  Reviews by the department's examiners are considered investigations, and all work papers obtained during the course of those investigations may be made confidential by the commissioner, unless admitted as evidence in a hearing before a governmental agency or in a court of competent jurisdiction.

Revisor's Note

Section 17(c), V.T.I.C. Article 1.15A, refers to evidence admitted in a court "of competent jurisdiction."  The revised law omits the quoted language because the general laws of civil jurisdiction determine which courts have jurisdiction over a matter.  For example, see Sections 24.007-24.011, Government Code, for the general jurisdiction of district courts.

Revised Law

Sec. 401.021.  PENALTY FOR FAILURE TO COMPLY.  (a)  If an insurer or health maintenance organization fails to comply with this subchapter, the commissioner shall order that the insurer's or health maintenance organization's annual audit be performed by a qualified independent certified public accountant.

(b)  The commissioner shall assess against the insurer or health maintenance organization the cost of auditing the insurer's or health maintenance organization's financial statement under this section.

(c)  The insurer or health maintenance organization shall pay to the commissioner the amount of the assessment not later than the 30th day after the date the commissioner issues the notice of assessment to the insurer or health maintenance organization.

(d)  Money collected under this section shall be deposited to the credit of the Texas Department of Insurance operating account for use by the commissioner and the department to pay the expenses incurred under this subchapter.  (V.T.I.C. Art. 1.15A, Sec. 9(d).)

Source Law

(d)  If the insurer fails to comply with this article, the commissioner shall order the audit performed by an independent qualified certified public accountant and assess against the insurer the cost of auditing the insurer's financial statement under this article, and the insurer shall pay the amount of the assessment to the commissioner not later than the 30th day after the date the commissioner issues the notice of assessment to the insurer.  Money collected under this section shall be deposited in the state treasury to the credit of the State Board of Insurance operating fund for the use of the board and the department for the purpose of paying the expenses incurred under the article.

Revisor's Note

Section 9(d), V.T.I.C. Article 1.15A, refers to the "State Board of Insurance operating fund."  Under the authority of Chapter 4, Acts of the 72nd Legislature, 1st Called Session, 1991, the Texas Department of Insurance operating fund (the later name of the State Board of Insurance operating fund) was converted to an account in the general revenue fund.  Throughout this chapter, the revised law is drafted accordingly.

[Sections 401.022-401.050 reserved for expansion]

SUBCHAPTER B.  EXAMINATION OF CARRIERS

Revised Law

Sec. 401.051.  DUTY TO EXAMINE CARRIERS.  (a)  The department or an examiner appointed by the department shall visit at the carrier's principal office:

(1)  each carrier that is organized under the laws of this state; and

(2)  each other carrier that is authorized to engage in business in this state.

(b)  The department or an examiner appointed by the department may visit the carrier for the purpose of investigating the carrier's affairs and condition.  The department or an examiner appointed by the department shall examine the carrier's financial condition and ability to meet the carrier's liabilities and compliance with the laws of this state that affect the conduct of the carrier's business.

(c)  The department or an examiner appointed by the department may conduct the visit and examination of a carrier described by Subsection (a)(2) alone or with representatives of the insurance supervising departments of other states.  (V.T.I.C. Art. 1.15, Sec. 1 (part); Art. 1.19 (part).)

Source Law

Art. 1.15

Sec. 1.  The State Board of Insurance shall … in person or by one or more examiners commissioned by such Board in writing, visit each carrier organized under the laws of this state and examine its financial condition and its ability to meet its liabilities, as well as its compliance with the laws of Texas affecting the conduct of its business;  and such Board shall similarly, in person or by one or more commissioned examiners, visit and examine, either alone or jointly with representatives of the insurance supervising departments of other states, each insurance carrier not organized under the laws of this state but authorized to transact business in this state… .

Art. 1.19.  The Board of Insurance Commissioners for the purpose of examination authorized by law, has power either in person or by one or more examiners by it commissioned in writing:

…

3.  To visit at its principal office, wherever situated, any insurance company doing business in this State, for the purpose of investigating its affairs and conditions, and … .

Revisor's Note

(1)  Section 1, V.T.I.C. Article 1.15, and V.T.I.C. Article 1.19 state that the Texas Department of Insurance may visit an insurance carrier in person or by one or more examiners "commissioned" by the department.  The substance of Articles 1.15 and 1.19 was originally enacted by Sections 41 and 66, Chapter 108, Acts of the 31st Legislature, Regular Session, 1909, and included the references to "commissioned" examiners.  V.T.I.C. Article 1.04A, enacted by Chapter 1082, Acts of the 71st Legislature, Regular Session, 1989, and revised in this chapter in relevant part as Section 401.101, provides that the department may use a salaried department examiner or the services of any qualified person or firm to examine an insurance organization.  Throughout this chapter, the revised law omits references to the requirement that an examiner be "commissioned" as impliedly repealed by Article 1.04A, and substitutes references to an examiner "appointed" by the department. However, the revised law retains the references to a person being "commissioned" in relation to instances in which the department may decide to commission the person. See, for example, Section 401.104 of this chapter.

(2)  V.T.I.C. Article 1.15 and V.T.I.C. Article 1.19 contain substantially duplicative provisions relating to examinations.  V.T.I.C. Article 1.19 refers to the authority of the commissioner to visit an "insurance company," whereas Section 1, V.T.I.C. Article 1.15, refers to the commissioner's authority to visit a "carrier."  The revised law substitutes "carrier" for the reference to "insurance company" for consistency throughout this subchapter and because "insurance company" is included within the meaning of "carrier."

Revised Law

Sec. 401.052.  FREQUENCY OF EXAMINATION.  (a)  The department shall visit and examine a carrier:

(1)  annually during the first three years after the carrier is organized or incorporated; and

(2)  except as provided by Subsection (b), once every three years after the period described by Subdivision (1), or on a more frequent basis as the department considers necessary.

(b)  If the commissioner determines that the financial strength of a carrier justifies less frequent examinations than those required under Subsection (a)(2), the department may conduct the examination at intervals not less frequent than every five years.  The commissioner shall adopt rules governing the determination under this subsection of whether the financial strength of a carrier justifies less frequent examinations.  (V.T.I.C. Art. 1.15, Secs. 1 (part), 10.)

Source Law

Sec. 1.  The State Board of Insurance shall once each year for the first three (3) years after organization or incorporation, and thereafter once in each three (3) years, or oftener, if the Board deems necessary, … visit each carrier … and examine … .

Sec. 10.  If the Commissioner determines that the financial strength of a carrier justifies less-frequent examinations than are required by Section 1 of this article, the Commissioner may conduct the examination of a carrier at intervals not to exceed five years.  The Commissioner shall adopt rules governing the determination of whether the financial strength of a carrier justifies examination under this section.  This section applies only to examination of a carrier that has been incorporated or organized for more than three years.

Revised Law

Sec. 401.053.  EXAMINATION PERIOD.  Unless the department requests that an examination cover a longer period, the examination must cover the period beginning on the last day covered by the most recent examination and ending on December 31 of the year preceding the year in which the examination is being conducted.  (V.T.I.C. Art. 1.04A (part).)

Source Law

Art. 1.04A.  [In making examinations of any insurance organization as provided by law,] …  Such examination shall cover the period of time that the department requests.  In the event the department does not specify a longer period of time, such examination shall be from the time of the last examination theretofore made by the department to December 31st of the year preceding the examination then being made. …

Revised Law

Sec. 401.054.  POWERS RELATED TO EXAMINATION.  The department or the examiner appointed by the department:

(1)  has free access, and may require the carrier or the carrier's agent to provide free access, to all books and papers of the carrier or the carrier's agent that relate to the carrier's business and affairs; and

(2)  has the authority to summon and examine under oath, if necessary, an officer, agent, or employee of the carrier or any other person in relation to the carrier's affairs and condition.  (V.T.I.C. Art. 1.15, Sec. 1 (part); Art. 1.19 (part).)

Source Law

[Art. 1.15]

Sec. 1.  …  Such Board or its commissioned examiners shall have free access to all the books and papers of the carrier or agents thereof relating to the business and affairs of such carrier, and shall have power to summon and examine under oath, if necessary, the officers, agents, and employees of such carrier and any other person relative to the affairs of such carrier… .

Art. 1.19.  The Board of Insurance Commissioners for the purpose of examination authorized by law, has power … :

1.  To require free access to all books and papers within this State of any insurance companies, or the agents thereof, doing business within this State.

2.  To summon and examine any person within this State, under oath, which it or any examiner may administer, relative to the affairs and conditions of any insurance company.

…

Revisor's Note

V.T.I.C. Article 1.19 provides that the Texas Department of Insurance may examine any person in this state under oath and that the department or an appointed examiner may administer the oath.  The revised law omits the reference to administering the oath because the power to examine under oath includes the power to administer the oath.

Revised Law

Sec. 401.055.  EFFECT OF SUBCHAPTER ON AUTHORITY TO USE INFORMATION.  This subchapter does not limit the commissioner's authority to use a final or preliminary examination report, an examiner's or company's work papers or other documents, or any other information discovered or developed during an examination in connection with a legal or regulatory action that the commissioner, in the commissioner's sole discretion, considers appropriate.  (V.T.I.C. Art. 1.15, Sec. 7.)

Source Law

Sec. 7.  Nothing contained in this article shall be construed to limit the Commissioner's authority to use any final or preliminary examination report, any examiner or company workpapers or other documents, or any other information discovered or developed during the course of any examination in the furtherance of any legal or regulatory action which the Commissioner of Insurance may, in his or her sole discretion deem appropriate.

Revised Law

Sec. 401.056.  RULES RELATED TO REPORTS AND HEARINGS.  The commissioner by rule shall adopt:

(1)  procedures governing the filing and adoption of an examination report;

(2)  procedures governing a hearing to be held under this subchapter; and

(3)  guidelines governing an order issued under this subchapter.  (V.T.I.C. Art. 1.15, Sec. 6.)

Source Law

Sec. 6.  The Board, by rule, shall adopt procedures for filing and adoption of examination reports and for hearings to be held under this article and guidelines governing orders issued under this article.

Revised Law

Sec. 401.057.  USE OF AUDIT AND WORK PAPERS.  (a)  In this section, "work papers" has the meaning assigned by Section 401.020(a).

(b)  In conducting an examination under this subchapter, the department shall use audits and work papers that the carrier makes available to the department and that are prepared by an accountant or accounting firm meeting the qualifications of Section 401.011.  The department may conduct a separate audit of the carrier if necessary.  Work papers developed in the audit shall be maintained in the manner provided by Sections 401.020(b) and (c).

(c)  The carrier shall provide the department with:

(1)  the work papers of an accountant or accounting firm or the carrier; and

(2)  a record of any communications between the accountant or accounting firm and the carrier that relate to an audit.

(d)  The accountant or accounting firm shall deliver the information described by Subsection (c) to the examiner.  The examiner shall retain the information during the department's examination of the carrier.

(e)  Information obtained under this section is confidential and may not be disclosed to the public except when introduced as evidence in a hearing.  (V.T.I.C. Art. 1.15, Sec. 8.)

Source Law

Sec. 8.  (a) In conducting an examination under this article, the department shall use audits and work papers prepared by an accountant or accounting firm that meets the requirements of Section 12, Article 1.15A, of this code that are made available to the department by the carrier.  If necessary, the department may conduct a separate audit of the carrier.

(b)  The carrier shall provide the department with the work papers of an accountant or accounting firm or the carrier and a record of any communications between the accountant or accounting firm and the carrier that relate to the audit.  The accountant or accounting firm shall deliver that information to the department's examiners, who shall retain the information during the course of the department's examination of the carrier.  Information obtained under this section is confidential and may not be disclosed to the public except when introduced as evidence in a hearing.

(c)  For purposes of this section, "work papers" has the meaning assigned by Section 17(a), Article 1.15A, of this code.  Work papers developed in an audit conducted under this section shall be maintained in the manner provided by Sections 17(b) and (c), Article 1.15A, of this code.

Revised Law

Sec. 401.058.  CONFIDENTIALITY OF REPORTS AND RELATED INFORMATION.  (a)  A final or preliminary examination report and any information obtained during an examination are confidential and are not subject to disclosure under Chapter 552, Government Code.

(b)  Subsection (a) applies if the examined carrier is under supervision or conservatorship.  Subsection (a) does not apply to an examination conducted in connection with a liquidation or receivership under this code or another insurance law of this state.  (V.T.I.C. Art. 1.15, Sec. 9.)

Source Law

Sec. 9.  A final or preliminary examination report, and any information obtained during the course of an examination, is confidential and is not subject to disclosure under the open records law, Chapter 424, Acts of the 63rd Legislature, Regular Session, 1973 (Article 6252-17a, Vernon's Texas Civil Statutes), and its subsequent amendments.  This section applies if the carrier examined is under supervision or conservation but does not apply to an examination conducted in connection with a liquidation or a receivership under this code or another insurance law of this state.

Revisor's Note

Section 9, V.T.I.C. Article 1.15, refers to the "open records law, Chapter 424, Acts of the 63rd Legislature, Regular Session, 1973 (Article 6252-17a, Vernon's Texas Civil Statutes), and its subsequent amendments."  That statute was codified in 1993 as Chapter 552, Government Code.  The revised law is drafted accordingly throughout this chapter.

In addition, throughout this chapter, the revised law omits references to "its subsequent amendments" because under Section 311.027, Government Code (Code Construction Act), unless expressly provided otherwise, a reference to a statute applies to all reenactments, revisions, or amendments of the statute.

Revised Law

Sec. 401.059.  DETERMINATION OF VALUE.  In determining the value or market value of an investment in or on real estate or an improvement to real estate by a carrier authorized to engage in business in this state, the department, in administering this code, may consider any factor or matter that the department considers proper and material, including:

(1)  an appraisal by a real estate board or other qualified person;

(2)  an affidavit by another person familiar with those  values;

(3)  a  tax valuation;

(4)  the cost of acquisition after deducting for depreciation and obsolescence;

(5)  the cost of replacement;

(6)  sales of other comparable property;

(7)  enhancement in value from any cause;

(8)  income received or to be received; and

(9)  any improvements made.  (V.T.I.C. Art. 1.15, Sec. 2.)

Source Law

Sec. 2.  The State Board of Insurance in administering any provision of the Insurance Code, Acts 1951, 51st  Legislature, Chapter 491, shall be authorized and empowered in determining "value" or "market value" of any investment in or upon real estate or the improvements thereon by any carrier authorized to do business in the State of Texas to consider any and all matters and things relating thereto, including but not restricted to, appraisals by real estate boards or other qualified persons, affidavits by other persons familiar with such values, tax valuations, cost of acquisition, with proper deductions for depreciation and obsolescence, cost of replacement, sales of other comparable property, enhancement in value from whatever cause, income received or to be received, improvements made or any other factor or any other evidence which to said Board may be deemed proper and material.

Revisor's Note

(1)  Section 2, V.T.I.C. Article 1.15, refers to "any provision of the Insurance Code, Acts 1951, 51st Legislature, Chapter 491."  The reference contains a typographical error, and clearly should refer to Chapter 491, Acts of the 52nd Legislature, 1951, meaning the Insurance Code.  For many years, a company publishing the laws of the State of Texas has included in published versions of the Insurance Code portions of law that were never formally added to the Insurance Code by the legislature.  Those provisions have been revised as part of the Insurance Code.  However, because those provisions  cannot be interpreted to authorize a determination of "value" or "market value" of real property or improvements on real property as contemplated by Section 2, V.T.I.C. Article 1.15, it is appropriate in this context to substitute "this code" for "the Insurance Code, Acts 1951, 51st Legislature, Chapter 491."  The revised law is drafted accordingly.

(2)  Section 2, V.T.I.C. Article 1.15, uses the phrase "including but not restricted to." "[B]ut not restricted to" is omitted from the revised law as unnecessary because Section 311.005(13), Government Code (Code Construction Act), and Section 312.011(19), Government Code, provide that "includes" and "including" are terms of enlargement and not of limitation and do not create a presumption that components not expressed are excluded.

Revised Law

Sec. 401.060.  RIGHT TO INFORMATION RELATING TO DETERMINATION OF VALUE OR MARKET VALUE.  (a)  If the department determines the value or market value of an insurer's investment in or on real estate or an improvement to real estate, the insurer is entitled to make a written request for a written finding by the commissioner in relation to that determination.

(b)  Not later than the 10th day after the date the commissioner receives a request under Subsection (a), the commissioner shall enter a  written order or finding that:

(1)  states separately the department's findings on  each factor or matter on which the department relied in making the determination; and

(2)  includes the name and address of each person who provided evidence relating to a factor or matter on which the department relied in making the determination.

(c)  The commissioner shall provide to the insurer that requested a written finding under this section a copy of the finding or order.  (V.T.I.C. Art. 1.15, Sec. 3.)

Source Law

Sec. 3.  Any insurer whose investment in or upon real estate or the improvements thereon may have been determined or found by said Board shall be entitled to make a written request to the Board for a written finding by the Board; and upon such request being made to the Board, the Board shall, within ten (10) days after receipt of such request, enter its written order or finding setting out separately its finding upon each factor or matter upon which its said determination or finding of "value" or "market value" was made and shall in such written order or finding give the names and addresses of all persons who furnished such evidence as to each such matter, factor or thing and upon whom the Board relied in making such determination or finding and shall deliver a copy of such written finding or order to the carrier so requesting the same.

Revised Law

Sec. 401.061.  DISCIPLINARY ACTION FOR FAILURE TO COMPLY WITH SUBCHAPTER.  A carrier is subject to disciplinary action under Chapter 82 if the carrier or the carrier's agent fails or refuses to comply with:

(1)  this subchapter or a rule adopted under this subchapter; or

(2)  a request by the department or an appointed examiner to be examined or to provide information requested as part of an examination.  (V.T.I.C. Art. 1.15, Sec. 5.)

Source Law

Sec. 5.  If a carrier or an agent of a carrier fails or refuses to comply with this article or rules adopted under this article or to comply with a request of the Board or a commissioned examiner to be examined or to provide information requested as part of an examination by the Board or commissioned examiner, the carrier is subject to disciplinary action under Article 1.10, Section 7, of this code, and the Commissioner of Insurance may institute disciplinary action pursuant to Article 1.10, Section 7, Insurance Code.

Revisor's Note

V.T.I.C. Article 1.19 in part requires the Texas Department of Insurance to revoke the certificate of authority of an insurer that refuses to permit an examination.  The substance of that article was originally enacted by Section 66, Chapter 108, Acts of the 31st Legislature, Regular Session, 1909, and was codified as V.T.I.C. Article 1.19 by Chapter 491, Acts of the 52nd Legislature, Regular Session, 1951.  The revised law omits the provision as impliedly repealed by Section 5, V.T.I.C. Article 1.15, which was enacted by Chapter 242, Acts of the 72nd Legislature, Regular Session, 1991, and provides for disciplinary action under Section 7, V.T.I.C. Article 1.10, revised as Chapter 82 of this code, for an insurer's refusal to be examined.  The omitted law reads:

3.  … shall revoke the certificate of authority of any such company in this State refusing to permit such examination.  …

Revised Law

Sec. 401.062.  STAY OF RULE, ORDER, DECISION, OR FINDING.  The filing of a petition under Subchapter D, Chapter 36, for judicial review of a rule, order, decision, or finding of the commissioner or department under this subchapter operates as a stay of the rule, order, decision, or finding until the court directs otherwise.  (V.T.I.C. Art. 1.15, Sec. 4.)

Source Law

Sec. 4.  Any rule, regulation, order, decision or finding of the Board under this Act shall be subject to review in accordance with Article 1.04 of this code.  The filing of such suit shall operate as a stay of any such rule, regulation, order, decision or finding of the Board until the court directs otherwise.

Revisor's Note

Section 4, V.T.I.C. Article 1.15, states that a rule, order, decision, or finding of the commissioner of insurance or the Texas Department of Insurance is subject to review under V.T.I.C. Article 1.04, revised in 1999 as Subchapter D, Chapter 36, of this code.  The revised law omits the reference to a rule, order, decision, or finding being subject to review under Article 1.04 because a rule, order, decision, or finding is already subject to appeal in the manner provided by Subchapter D, Chapter 36, and an additional statement to that effect in this chapter is unnecessary.

[Sections 401.063-401.100 reserved for expansion]

SUBCHAPTER C.  EXAMINERS AND ACTUARIES

Revised Law

Sec. 401.101.  USE OF DEPARTMENT EXAMINER OR OTHER QUALIFIED PERSON OR FIRM.  The department may use a salaried department examiner or may appoint a qualified person or firm to perform an examination of an insurance organization as provided by law or to assist in the performance of an examination.  (V.T.I.C. Art. 1.04A (part).)

Source Law

Art. 1.04A.  In making examinations of any insurance organization as provided by law, the department may use its own salaried examiners or may use the services of persons or firms qualified to perform such examinations or assist in the performance of such examinations… .

Revised Law

Sec. 401.102.  LEGISLATIVE INTENT AS TO APPOINTMENT OR EMPLOYMENT OF EXAMINERS AND ACTUARIES.  (a)  The legislature recognizes that experienced, highly qualified examiners and actuaries are necessary for the department to effectively monitor and regulate the solvency of insurers in this state.  It is the intent of the legislature that the department, in appointing or employing an examiner or actuary, select a person who:

(1)  has substantial experience in financial matters relating to insurance or other areas of financial activity that are compatible with the business of insurance; and

(2)  is recognized for the outstanding quality of the person's work in relation to areas of responsibility typically assigned to an examiner or actuary in the insurance field.

(b)  The legislature pledges to provide to the department the necessary funding to implement this section and to support the department in the department's efforts to attract the highly qualified persons necessary to fulfill regulatory responsibilities relating to insurer solvency assigned to those persons under the insurance laws of this state.  (V.T.I.C. Art. 1.17A.)

Source Law

Art. 1.17A.  (a)  The Legislature recognizes that experienced, highly qualified examiners and actuaries are necessary for the department to monitor and regulate effectively the solvency of insurers in this state.  It is the intent of the Legislature that the department, in appointing or employing examiners or actuaries, select persons who have substantial experience in financial matters relating to insurance or other areas of financial activity that are compatible with the business of insurance and who are recognized for the outstanding quality of their work in relation to areas of responsibility typically assigned to examiners and actuaries in the insurance field.

(b)  The Legislature pledges to provide to the department the necessary funding to implement this article and to support the department in its efforts to attract the highly qualified persons necessary to fulfill regulatory responsibilities relating to insurer solvency assigned to them under the insurance laws of this state.

Revised Law

Sec. 401.103.  APPOINTMENT OF EXAMINERS AND ACTUARIES.  (a)  The department shall appoint:

(1)  a chief examiner and the number of assistant examiners the department considers necessary to conduct examinations of insurance companies, corporations, and associations at the expense of the insurance company, corporation, or association as provided by law; and

(2)  the number of actuaries the department considers necessary to:

(A)  advise the department in connection with the performance of the department's duties; and

(B)  otherwise aid and counsel the department in connection with the examinations.

(b)  The department may increase or decrease the number of  examiners or actuaries as needed for examination duties.  (V.T.I.C. Art. 1.17 (part).)

Source Law

Art. 1.17.  The State Board of Insurance shall appoint a chief examiner and such number of assistant examiners as it deems necessary for the purpose of making examinations of insurance companies, corporations, or associations at the expense of such companies, corporations, or associations as are provided for by law.  The State Board of Insurance shall also appoint the number of actuaries it considers necessary to advise it in connection with the performance of its duties and for aid, advice, and counsel in connection with such examinations.  Such examiners and actuaries shall perform all the duties relative to examinations… .

All such examiners and actuaries shall be employed subject to the will of the State Board of Insurance and the number of such examiners and actuaries may be increased or decreased from time to time to suit the needs of the examining work.

…

Revisor's Note

(1)  V.T.I.C. Article 1.17 states that examiners and actuaries appointed under that article "shall perform all the duties relative to examinations."  The substance of Article 1.17 was originally enacted by the second Section 3, Chapter 152, Acts of the 42nd Legislature, Regular Session, 1931, and included the references to the examiners and actuaries performing all duties relative to examinations.  V.T.I.C. Article 1.04A, as amended by Chapter 1082, Acts of the 71st Legislature, Regular Session, 1989, and revised in this chapter in relevant part as Section 401.101, provides that the Texas Department of Insurance may use a salaried department examiner or the services of any qualified person or firm to make an examination.  Therefore, the revised law omits the quoted provision of Article 1.17 as impliedly repealed by Article 1.04A.

(2)  V.T.I.C. Article 1.17 states that an examiner or actuary is employed "subject to the will" of the Texas Department of Insurance.  The revised law omits that provision as unnecessary because under the employment-at-will doctrine that applies to all public employees, an examiner or actuary automatically serves at the will of the hiring agency.

(3)  V.T.I.C. Article 1.17 states that the purpose of that article and V.T.I.C. Articles 1.16 and 1.18 is to provide for the examination of all corporations, firms, or persons engaged in writing insurance in this state. The revised law omits that provision as unnecessary because  V.T.I.C. Article 1.15, revised in relevant part in this chapter in Section 401.051, provides for the examination of all carriers organized under the laws of this state or authorized to engage in business in this state.  The omitted law reads:

Art. 1.17.  …  It is the purpose of this Article and Articles 1.16 and 1.18 of this Code to provide for the examination by the State Board of Insurance of all corporations, firms, or persons engaged in the business of writing insurance of any kind in this State whether now subject to the supervision of the State Board of Insurance or not.

…

Revised Law

Sec. 401.104.  APPOINTMENT OF EXAMINERS, ACTUARIES, AND OTHER PERSONS FOR CERTAIN EXAMINATIONS.  (a)  The department may  commission a department actuary, the chief examiner, another department examiner or employee, or any other person to conduct or assist in the examination of a company that is not organized under the laws of this state.

(b)  The department may compensate a person described by Subsection (a).  If the department compensates the person, the person may not receive any other compensation while the person is assigned to the examination.

(c)  Except as provided by this section and Section 401.152, a department actuary or examiner may not continue to serve in that capacity if the person directly or indirectly accepts employment or compensation for a service rendered or to be rendered from any insurance company for any reason.  (V.T.I.C. Art. 1.17 (part).)

Source Law

Art. 1.17.  …  Where the State Board of Insurance shall deem it advisable it may commission any actuary of the Board, the chief examiner, or any other examiner or employee of the Board, or any other person, to conduct or assist in the examination of any company not organized under the laws of Texas and allow them compensation as herein provided, except that they may not be otherwise compensated during the time they are assigned to such foreign company examinations.  Other than as provided herein, neither any actuary nor any examiner of the State Board of Insurance may continue to serve as such if, while holding such position, he directly or indirectly accepts from any insurance company any employment or pay or compensation or gratuity on account of any service rendered or to be rendered on any account whatsoever.

Revisor's Note

(1)  V.T.I.C. Article 1.17 provides that "[o]ther than as provided herein," an actuary or examiner may not continue to serve in that capacity if the person directly or indirectly accepts from an insurer employment or compensation for a service rendered or to be rendered.  The substance of Article 1.17 was originally enacted by Chapter 152, Acts of the 42nd Legislature, Regular Session, 1931, as the second "Section 3."  The provisions enacted by Chapter 152, Acts of the 42nd Legislature, Regular Session, 1931, which also contained the substance of V.T.I.C. Articles 1.15, 1.16, and 1.18, originally applied only to examinations of domestic insurers, required that an actuary or examiner be paid a salary, and prohibited an actuary or examiner from continuing to serve in that capacity if the person directly or indirectly accepted compensation from an insurer.  In 1939, the provisions enacted by Chapter 152, Acts of the 42nd Legislature, Regular Session, 1931, were amended by Chapter 2, Acts of the 46th Legislature, Regular Session, to allow for the examination of insurers not organized under the laws of this state.  The amendment provided that those insurers being examined were responsible for paying the examiners' compensation and expenses and modified the prohibition on accepting direct or indirect compensation so that the provision stated that "[o]ther than as thus provided" an actuary or examiner could not continue to serve in that capacity if the person directly or indirectly accepted compensation from an insurer.  It is apparent from the context of the quoted language that the quoted language referred to other provisions enacted by Chapter 152, Acts of the 42nd Legislature, Regular Session, 1931, as amended.  Chapter 491, Acts of the 52nd Legislature, Regular Session, 1951, codified these provisions as V.T.I.C. Articles  1.15, 1.16, 1.17, and 1.18.  The provisions relating to the compensation of actuaries and examiners for examining insurers not organized under the laws of this state were codified in V.T.I.C. Article 1.17, the relevant provisions of which are revised in this section, and  V.T.I.C. Article 1.16, the relevant provisions of which are revised in this chapter as Section 401.152.  Therefore, the revised law substitutes a reference to  "[e]xcept as provided by this section and Section 401.152" for the source law reference to "[o]ther than as provided herein."

(2)  V.T.I.C. Article 1.17 prohibits a person from continuing to serve as an actuary or examiner of the Texas Department of Insurance if the person receives "pay or compensation or gratuity" from an insurance company for any service rendered or to be rendered.  The revised law omits "pay" and "gratuity" as unnecessary because, in context, those terms are included within the meaning of "compensation."

Revised Law

Sec. 401.105.  OATH OF EXAMINERS AND ASSISTANTS.  Before entering into the duties of appointment as an examiner or assistant examiner, an individual must take and file in the office of the secretary of state an oath to:

(1)  support the constitution of this state;

(2)  faithfully conduct the individual's duties of office;

(3)  make fair and impartial examinations;

(4)  not accept, directly or indirectly, as a gift or emolument any pay for the discharge of the individual's duty, other than the compensation to which the individual is entitled by law; and

(5)  not reveal the condition of a corporation, firm, or person or any information secured while examining a corporation, firm, or person to anyone other than:

(A)  the department or an authorized representative of the department; or

(B)  as required when testifying in an administrative hearing under this code or another insurance law of this state or in court.  (V.T.I.C. Art. 1.18 (part).)

Source Law

Art. 1.18.  Each examiner and assistant examiner, before entering upon the duties of his appointment shall take and file in the office of the Secretary of State an oath to support the Constitution of this State, to faithfully demean himself in office, to make fair and impartial examinations, and that he will not accept as presents or emoluments any pay, directly or indirectly, for the discharge of his duty, other than the remuneration fixed and accorded to him by law; and that he will not reveal the condition of, nor any information secured in the course of any examination of any corporation, firm or person examined by him, to anyone except the Members of the State Board of Insurance, or their authorized representative, or when required as witness in an administrative hearing before the Board or the Commissioner or in Court.

…

Revisor's Note

(1)  V.T.I.C. Article 1.18 refers to the "remuneration" accorded an examiner or assistant examiner by law.  The revised law substitutes "compensation" for "remuneration" because the terms are synonymous and the former is more commonly used.

(2)  V.T.I.C. Article 1.18 refers to an administrative hearing before the "[c]ommissioner."  Formerly administrative hearings required to be held under this code or another insurance law of this state were held before the commissioner.  In 1993, the legislature enacted V.T.I.C. Article 1.33B, revised in Chapter 40 of this code, which provides that certain administrative hearings be conducted by the State Office of Administrative Hearings.  Therefore, to continue the application of the revised law to the hearings in question, the revised law substitutes a reference to an administrative hearing "under this code or another insurance law of this state" for the reference to a hearing before the "[c]ommissioner."

Revised Law

Sec. 401.106.  RIGHT OF ACTION ON BOND.  If an examiner or assistant examiner knowingly makes a false report or gives any information in violation of law that relates to an examination of a corporation, firm, or person, the corporation, firm, or person has a right of action on a bond authorized under Chapter 653, Government Code, for the entity's injuries in a suit brought in the name of the state at the relation of the entity.  (V.T.I.C. Art. 1.18 (part).)

Source Law

Art. 1.18.  …  In case any such examiner or assistant examiner shall knowingly make any false report or give any information in violation of law relative to any such examination of any corporation, firm or person so examined, any such corporation, firm or person shall have a right of action on a bond authorized under Chapter 653, Government Code, for his injuries in a suit brought in the name of the State at the relation of the injured party.

[Sections 401.107-401.150 reserved for expansion]

SUBCHAPTER D.  EXAMINATION EXPENSES

Revised Law

Sec. 401.151.  EXPENSES OF EXAMINATION OF DOMESTIC INSURER.  (a)  A domestic insurer examined on behalf of this state by the department or under the department's authority shall pay the expenses of the examination in an amount the commissioner certifies as just and reasonable.

(b)  The department shall collect an assessment at the time of the examination to cover all expenses attributable directly to that examination, including:

(1)  the salaries and expenses of department employees; and

(2)  expenses described by Section 803.007.

(c)  The department shall also impose an annual assessment on domestic insurers in an amount sufficient to meet all other expenses and disbursements necessary to comply with the laws of this state relating to the examination of insurers.

(d)  In determining the amount of the assessment under Subsection (c), the department:

(1)  shall consider:

(A)  the insurer's annual premium receipts or admitted assets, or both, that are not attributable to 90 percent of pension plan contracts as defined by Section 818(a), Internal Revenue Code of 1986; or

(B)  the total amount of the insurer's insurance in force; and

(2)  may not consider insurance premiums for insurance contracted for by a state or federal governmental entity to provide welfare benefits to designated welfare recipients or contracted for in accordance with or in furtherance of Title 2, Human Resources Code, or the federal Social Security Act (42 U.S.C. Section 301 et seq.).

(e)  The amount of all examination and evaluation fees paid to the state by an insurer in each taxable year shall be allowed as a credit on the amount of premium taxes due under this subchapter.  (V.T.I.C. Art. 1.16, Secs. (a), (b) (part); Art. 1.19 (part).)

Source Law

Art. 1.16.  (a) The expenses of all examinations of domestic insurance companies made on behalf of the State of Texas by the State Board of Insurance or under its authority shall be paid by the corporations examined in such amount as the Commissioner of Insurance shall certify to be just and reasonable.

(b)  Assessments for the expenses of such domestic examination which shall be sufficient to meet all the expenses and disbursements necessary to comply with the provisions of the laws of Texas relating to the examination of insurance companies and to comply with the provisions of this Article and Articles 1.17 and 1.18 of this Code, shall be made by the State Board of Insurance upon the corporations or associations to be examined taking into consideration annual premium receipts, and/or admitted assets that are not attributable to 90 percent of pension plan contracts as defined in Section 818(a) of the Internal Revenue Code of 1986 (26 U.S.C. Section 818(a)), and/or insurance in force;  provided such assessments shall be made and collected as follows:  (1) expenses attributable directly to a specific examination including employees' salaries and expenses and expenses provided by Article 1.28 of this Code shall be collected at the time of examination; (2) assessments calculated annually for each corporation or association which take into consideration annual premium receipts, and/or admitted assets that are not attributable to 90 percent of pension plan contracts as defined in Section 818(a) of the Internal Revenue Code of 1986 (26 U.S.C. Section 818(a)), and/or insurance in force shall be assessed annually for each such corporation or association.  In computing the assessments, the board may not consider insurance premiums for insurance contracted for by a state or federal governmental entity to provide welfare benefits to designated welfare recipients or contracted for in accordance with or in furtherance of Title 2, Human Resources Code, or the federal Social Security Act (42 U.S.C. Section 301 et seq.). The amount of all examination and evaluation fees paid in each taxable year to the State of Texas by an insurance carrier shall be allowed as a credit on the amount of premium taxes due under this article.  …

 

[Art. 1.19]

3.  …  The reasonable expenses of all such examination shall be paid by the company examined.

…

Revisor's Note

(1)  Section (b), V.T.I.C. Article 1.16, refers to expenses and disbursements necessary to comply with the laws of this state "relating to the examination of insurance companies" and with "Articles 1.17 and 1.18" of this code.  The revised law omits the reference to V.T.I.C. Articles 1.17 and 1.18 as unnecessary because those articles are included within the laws of this state "relating to the examination of insurance companies."

(2)  Section (b), V.T.I.C. Article 1.16, refers to expenses attributable directly to a specific examination, including "expenses provided by Article 1.28 of this Code."  V.T.I.C. Article 1.28 was revised as Chapter 803 of this code.  The only section of Chapter 803 that relates to expenses is Section 803.007, and the revised law is drafted accordingly.

Revised Law

Sec. 401.152.  EXPENSES OF EXAMINATION OF OTHER INSURERS.  (a)  An insurer not organized under the laws of this state shall reimburse the department for the salary and expenses of each examiner participating in an examination of the insurer and for other department expenses that are properly allocable to the department's participation in the examination.

(b)  An insurer shall pay the expenses under this section regardless of whether the examination is made only by the department or jointly with the insurance supervisory authority of another state.

(c)  The insurer shall pay the expenses directly to the department on presentation of an itemized written statement from the commissioner.

(d)  The commissioner shall determine the salary of an examiner participating in an examination of an insurer's books or records located in another state based on the salary rate recommended by the National Association of Insurance Commissioners or the examiner's regular salary rate.

(e)  The limitations provided by Sections 803.007(1) and (2)(B) for a domestic company apply to a foreign insurer.  (V.T.I.C. Art. 1.16, Secs. (b) (part), (f) (part).)

Source Law

(b)  …  The limitations provided by Sections 803.007(1) and (2)(B) of this code for domestic insurance companies apply to foreign insurance companies.

(f)  In case of an examination of a company not organized under the laws of Texas, whether such examination is made by the Texas authorities alone, or jointly with the insurance supervisory authorities of another state or states, the expenses of such examination due to Texas' participation therein shall be borne by the company under examination.  Payment of such cost shall be made by the company upon presentation of itemized written statement by the Commissioner of Insurance and shall consist of the examiners' remuneration and expenses, and the other expenses of the State Board of Insurance properly allocable to the examination.  Payment shall be made directly to the State Board of Insurance, and … .  The remuneration of examiners participating in examinations of insurance company books or records located in states other than Texas shall be fixed by the Commissioner of Insurance based on the salary rate recommended by the National Association of Insurance Commissioners or the examiners' regular salary rate.

Revisor's Note

Section (f), V.T.I.C. Article 1.16, refers to certain examinations being made by "Texas authorities" and to "Texas' participation" in those examinations.  For clarity, the revised law substitutes references to the "department" for the quoted references because the Texas Department of Insurance is the state authority that would conduct or participate in those examinations.

Revised Law

Sec. 401.153.  REIMBURSEMENT OF EXPENSES OF CERTAIN PERSONS OR FIRMS.  (a)  A person or firm appointed by the department to examine an insurer or to assist in the insurer's examination shall be paid for those services at the usual and customary rates charged for those services.  The insurer being examined shall pay the fee for those services.

(b)  The commissioner may disapprove the payment of a fee under Subsection (a) if the fee is excessive in relation to the services actually performed.  (V.T.I.C. Art. 1.04A (part).)

Source Law

Art. 1.04A.  …  All fees paid to those persons or firms whose services are used shall be paid at the usual and customary rates charged for the performance of those services, subject to the right of the Commissioner to disapprove for payment any fees that are excessive in relation to the services actually performed.  Such payment shall be made by the insurance organization being examined and … .

Revised Law

Sec. 401.154.  TAX CREDIT AUTHORIZED.  An insurer is entitled to a credit on the amount of premium or other taxes to be paid by the insurer for all examination fees paid under Section 401.153.  The insurer may take the credit for the taxable year during which the examination fees are paid and may take the credit to the same extent the insurer may take a credit for examination fees paid when a salaried department examiner conducts the examination.  (V.T.I.C. Art. 1.04A (part).)

Source Law

Art. 1.04A.  …  all such examination fees so paid shall be allowed as a credit on the amount of premium or other taxes to be paid by any such insurance organization for the taxable year during which examination fees are paid just as examination fees are credited when the department uses its own salaried examiners.

Revised Law

Sec. 401.155.  ADDITIONAL ASSESSMENTS.  (a)  The department shall impose additional assessments against insurers on a pro rata basis as necessary to:

(1)  cover all expenses and disbursements required by law; and

(2)  comply with this subchapter and Sections 401.103, 401.104, 401.105, and 401.106.

(b)  The department shall use any surplus resulting from an assessment under this section to reduce the amount of subsequent assessments.  (V.T.I.C. Art. 1.16, Sec. (e).)

Source Law

(e)  If at any time it shall appear that additional pro rata assessments are necessary to cover all of the expenses and disbursements required by law and necessary to comply with this Article and Articles 1.17 and 1.18 of this Code, the same shall be made, and any surplus arising from any and all such assessments, over and above such expenses and disbursements, shall be applied in reduction of subsequent assessments.

Revised Law

Sec. 401.156.  DEPOSIT AND USE OF ASSESSMENT AND FEE.  (a)  The department shall deposit an assessment or fee collected under this subchapter to the credit of the Texas Department of Insurance operating account.

(b)  Money deposited under this section shall be used to pay the  salaries and expenses of actuaries and examiners and all other expenses relating to examinations of insurers. (V.T.I.C. Art.  1.16, Secs. (d) (part), (f) (part).)

Source Law

(d)  All sums collected by the State Board of Insurance provided in this Article shall be deposited in the State Treasury to the credit of the State Board of Insurance operating fund;  and the salaries and expenses of the actuaries and examiners, and all other expenses relating to such examinations, shall be paid … . 

 

(f)  … all money collected by assessment on foreign companies for the cost of examination shall be deposited in the State Treasury by the State Board of Insurance to the credit of the State Board of Insurance operating fund and … .

Revisor's Note

Section (d), V.T.I.C. Article 1.16,  states that expenses of an examination shall be paid on the certificate of the Texas Department of Insurance by warrant of the comptroller drawn on the Texas Department of Insurance operating account.  Section (f), V.T.I.C. Article 1.16, states that money in the account shall be spent as authorized by the General Appropriations Act only on warrants issued by the comptroller on requisition by the department.  The revised law omits as unnecessary that part of Section (f) relating to the expenditure of money as authorized by the General Appropriations Act because Section 6, Article VIII, Texas Constitution, provides that "[n]o money shall be drawn from the Treasury but in pursuance of specific appropriations made by law."  The revised law also omits the provisions in Sections (d) and (f) relating to warrants issued by the comptroller on requisition of the department because they are substantially duplicative of provisions contained in Chapter 2103, Government Code, which is a comprehensive law covering procedures for withdrawing money from the state treasury.  The omitted law reads:

(d)  … upon the certificate of the State Board of Insurance by warrant of the Comptroller of Public Accounts drawn upon such fund.

(f)  … shall be spent as provided by the General Appropriations Act only on warrants issued by the Comptroller of Public Accounts pursuant to duly certified requisitions of the State Board of Insurance… .

Revisor's Note

(End of Subchapter)

Section (c), V.T.I.C. Article 1.16, added by Chapter 161, Acts of the 69th Legislature, Regular Session, 1985, provides for the reimbursement of travel expenses for Texas Department of Insurance employees.  The revised law omits the section as impliedly repealed by a 1997 amendment to Chapter 660, Government Code.  Section 660.003(a), Government Code, provides that Chapter 660, the General Appropriations Act, and the rules adopted by the comptroller under Chapter 660 govern the procedures, amounts, timing, limits, required documentation, permissible payees, distinctions among different types of state employees, and all other details concerning travel expense payments or reimbursements by a state agency.  The omitted law reads:

(c)  Examiners and other personnel employed by the State Board of Insurance when traveling on official state business related to the examination of insurance companies outside this state shall be reimbursed for the actual cost of transportation, lodging, meals, subsistence expenses, and parking fees or shall be paid a per diem rate established by the State Board of Insurance based on local economic conditions.  The State Board of Insurance shall establish guidelines and procedures for the efficient and effective administration of these travel payment procedures and shall periodically revise and update these guidelines and procedures including the maximum actual or per diem allowance.

[Sections 401.157-401.200 reserved for expansion]

SUBCHAPTER E.  CONFIDENTIALITY OF CERTAIN INFORMATION

Revised Law

Sec. 401.201.  CONFIDENTIALITY OF EARLY WARNING SYSTEM INFORMATION.  Information relating to the financial solvency of an organization regulated by the department under this code or another insurance law of this state that is obtained by the department's early warning system is confidential and is not subject to disclosure under Chapter 552, Government Code.  (V.T.I.C. Art. 1.15B.)

Source Law

Art. 1.15B.  Any information relating to the financial solvency of any organization regulated by the department under this code or another insurance law of this state obtained by the department's early warning system is confidential and is not subject to disclosure under the open records law, Chapter 424, Acts of the 63rd Legislature, Regular Session, 1973 (Article 6252-17a, Vernon's Texas Civil Statutes), and its subsequent amendments.