INSURANCE CODE - NOT CODIFIED
CHAPTER 3. LIFE, HEALTH AND ACCIDENT INSURANCE
SUBCHAPTER A. TERMS DEFINED; DOMESTIC COMPANIES
Art. 3.10. May Reinsure
(a) Any insurer authorized to do the business of insurance in this
state may reinsure in any solvent assuming insurer, any risk or part
of a risk which both are authorized to assume; provided, however,
no credit for reinsurance, either as an asset or a deduction of
liability, may be taken by the ceding insurer except as provided in
this article, and, provided further, no insurer operating under
Section 2(a) of Article 3.02 shall reinsure any risk or part of a
risk with any insurer which is not licensed to engage in the
business of insurance in this state. This article applies to all
insurers regulated by the State Board of Insurance, including any
stock and mutual life, accident, and health insurers, fraternal
benefit societies, health maintenance organizations operating
under the Texas Health Maintenance Organization Act (Chapter 20A,
Vernon's Texas Insurance Code), and nonprofit hospital, medical, or
dental service corporations, including companies subject to
Chapter 20 of this code. No such insurer shall have the power to
reinsure its entire outstanding business to an assuming insurer
unless the assuming insurer is licensed in this state and until the
contract therefor shall be submitted to the Commissioner and
approved by him as protecting fully the interests of all policy
holders. This article does not apply to ceding insurers domiciled
in another state that regulates credit for reinsurance under
statutes, rules, or regulations substantially similar in substance
or effect to this article. To qualify for this exception, the
ceding insurer must provide the Commissioner on request with
evidence of the similarity in the form of statutes, rules, or
regulations, and an interpretation of the statutes, rules, or
regulations and the standards used by the state of domicile. This
article is supplementary to and cumulative of other provisions of
this code and other insurance laws of this state relating to
reinsurance to the extent those provisions are not in conflict with
this article.
(b) Credit for reinsurance shall be allowed a ceding insurer as
either an asset or a deduction from liability on account of
reinsurance ceded only when:
(1) the reinsurance is ceded to an assuming insurer which is
licensed to transact insurance or reinsurance in this state; or
(2) the reinsurance is ceded to an assuming insurer which is
accredited as a reinsurer in this state. An accredited reinsurer is
one which: submits to this state's jurisdiction; submits to this
state's authority to examine its books and records; is domiciled
and licensed to transact insurance or reinsurance in at least one
state, or in the case of a United States branch of an alien assuming
insurer is entered through and licensed to transact insurance or
reinsurance in at least one state; files annually a copy of its
annual statement, filed with the insurance department of its state
of domicile, with the State Board of Insurance; and maintains a
surplus as regards policy holders in an amount not less than $20
million; or
(3) the reinsurance is ceded to an assuming insurer which maintains
a trust fund in a qualified United States financial institution, as
defined in Subsection (e)(2), for the payment of the valid claims of
its United States policy holders and ceding insurers, their
assigns, and successors in interest. The trusteed assuming insurer
shall report annually not later than March 1 to the State Board of
Insurance information substantially the same as that required to be
reported on the NAIC Annual Statement form by licensed insurers to
enable the State Board of Insurance to determine the sufficiency of
the trust fund. In the case of a single assuming insurer, the trust
shall consist of a trusteed account representing the assuming
insurer's liabilities attributable to business written in the
United States and, in addition, include a trusteed surplus of not
less than $20 million. In the case of a group of insurers, which
group includes unincorporated individual insurers, the trust shall
consist of a trusteed account representing the group's liabilities
attributable to business written in the United States and, in
addition, include a trusteed surplus of not less than $100 million
and the group shall make available to the State Board of Insurance
an annual certification by the group's domiciliary regulator and
its independent public accountants of the solvency of each
underwriter. Such trust shall be established in a form approved by
the State Board of Insurance. The trust instrument shall provide
that contested claims shall be valid and enforceable upon the final
order of any court of competent jurisdiction in the United States.
The trust shall vest legal title to its assets in the trustees of
the trust for its United States policy holders and ceding insurers,
their assigns, and successors in interest. The trust and the
assuming insurer shall be subject to examination as determined by
the State Board of Insurance. The trust described herein must
remain in effect for as long as the assuming insurer shall have
outstanding obligations due under the reinsurance agreements
subject to the trust. Not later than February 28 of each year the
trustees of the trust shall report to the State Board of Insurance
in writing setting forth the balance of the trust and listing the
trust's investments at the preceding year end and shall certify the
date of termination of the trust, if so planned, or certify that the
trust shall not expire prior to the next following December 31; or
(4) the reinsurance is ceded to an assuming insurer not meeting the
requirements of Subdivision (1), (2), or (3), but only with respect
to the insurance of risks located in a jurisdiction where such
reinsurance is required by applicable law or regulation of that
jurisdiction to be ceded to an assuming insurer that does not meet
the requirements of Subdivision (1), (2), or (3) of this
subsection.
(c) If the assuming insurer is not licensed or accredited to
transact insurance or reinsurance in this state, the credit
permitted by Subsection (b)(3) of this article shall not be allowed
unless the assuming insurer agrees in the reinsurance agreements:
(1) that in the event of the failure of the assuming insurer to
perform its obligations under the terms of the reinsurance
agreement, the assuming insurer, at the request of the ceding
insurer, shall submit to the jurisdiction of any court of competent
jurisdiction in any State of the United States, will comply with all
requirements necessary to give such court jurisdiction, and will
abide by the final decision of such court or of any Appellate Court
in the event of an appeal; and
(2) to designate the State Board of Insurance or a designated
attorney as its true and lawful attorney upon whom may be served any
lawful process in any action, suit, or proceeding instituted by or
on behalf of the ceding company. This provision, however, is not
intended to conflict with or override the obligation of the parties
to a reinsurance agreement to arbitrate their disputes, if such an
obligation is created in the agreement.
(d) Any asset or reduction from liability for the reinsurance ceded
to an assuming insurer not meeting the requirements of Subsection
(b) shall be allowed in an amount not exceeding the liabilities
carried by the ceding insurer, and such asset or reduction shall be
in the amount of funds held by or on behalf of the ceding insurer,
including funds held in trust for the ceding insurer, under a
reinsurance contract with such assuming insurer as security for the
payment of obligations thereunder, if such security is held in the
United States subject to withdrawal solely by and under the
exclusive control of the ceding insurer or, in the case of a trust,
held in a qualified United States financial institution, as defined
in Subsection (e). This security may be in the form of:
(1) cash;
(2) securities readily marketable over a national exchange with a
maturity date of not later than one year listed by the Securities
Valuation Office of the National Association of Insurance
Commissioners and qualifying as admitted assets;
(3) clean, irrevocable, unconditional letters of credit, issued or
confirmed by a qualified United States financial institution, as
defined in Subsection (e)(1).
Letters of credit meeting applicable standards of issuer
acceptability as of the dates of their issuance or confirmation
shall, notwithstanding the issuing or confirming institution's
subsequent failure to meet applicable standards of issuer
acceptability, continue to be acceptable as security until their
expiration, extension, renewal, modification, or amendment,
whichever first occurs; provided, however, the letter of credit
must be replaced within three months after the date of the
institution's failure to meet applicable standards of issuer
acceptability.
(4) any other form of security acceptable to the Commissioner.
(e) Qualified United States Financial Institutions. (1) For the
purposes of Subsection (d)(3), a "qualified United States financial
institution" means an institution that:
(A) is organized or, in the case of a United States office of a
foreign banking organization, licensed, under the laws of the
United States or any state thereof;
(B) is regulated, supervised, and examined by United States federal
or state authorities having regulatory authority over banks and
trust companies; and
(C) has been determined by either the Commissioner or the
Securities Valuation Office of the National Association of
Insurance Commissioners to meet such standards of financial
condition and standing as are considered necessary and appropriate
to regulate the quality of financial institutions whose letters of
credit will be acceptable to the Commissioner.
(2) A "qualified United States financial institution" means, for
the purposes of those provisions of this law specifying those
institutions that are eligible to act as a fiduciary of a trust, an
institution that:
(A) is organized, or, in the case of a United States branch or
agency office of a foreign banking organization, licensed, under
the laws of the United States or any state thereof and has been
granted the authority to operate with fiduciary powers; and
(B) is regulated, supervised, and examined by federal or state
authorities having regulatory authority over banks and trust
companies.
(f) The Board may adopt rules and regulations implementing the
provisions of this law.
(g) Subsections (a) through (f) of this article shall apply to all
reinsurance agreements having an inception, anniversary, or
renewal date not less than four months after the effective date of
this statute.
(h) A person does not have any rights against a reinsurer that are
not specifically set forth in the contract of reinsurance or in a
specific agreement between the reinsurer and the person.
(i) The State Board of Insurance shall require schedules of
reinsurance to be filed by every insurer at the time of making the
annual report and at such other times as the Board may direct.
(j) Credit may not be given in the accounting and financial
statements, either as an asset or a deduction from liability,
unless the reinsurance is payable by the assuming insurer on the
basis of the liability of the ceding insurer under the contracts
reinsured without diminution because of the insolvency of the
ceding insurer and is payable directly to the ceding insurer or to
its domiciliary liquidator or receiver.
(k) "Assuming insurer" means the insurer who under a contract of
reinsurance incurs to the ceding insurer an obligation of which the
performance is contingent on incurring of liability or loss by the
ceding insurer under its contract or contracts of insurance made
with third persons.
(l ) An insurer shall account for reinsurance agreements and shall
record those reinsurance agreements in the insurer's financial
statement in a manner that accurately reflects the effect of the
reinsurance agreements on the financial condition of the company.
The State Board of Insurance may adopt reasonable rules relating to
the accounting and financial statement requirements of this section
and the treatment of reinsurance agreements between insurance
companies, including minimum risk transfer standards, asset debits
or credits, reinsurance debits or credits, and reserve debits or
credits relating to the transfer of all or any part of an insurer's
risks or liabilities by reinsurance agreements and any
contingencies arising from reinsurance agreements. Rules adopted
subsequent to September 1, 1995, shall apply to reinsurance
agreements entered into on or after the effective date of such
rules, and to reinsurance agreements that are amended on or after
the effective date of such rules. A reinsurance agreement may
contain a provision that allows the offset of mutual debts and
credits between a ceding insurer and the assuming insurer, whether
arising out of one or more reinsurance agreements.
(m) The Commissioner may request the filing of financial statements
certified and audited by an independent certified public
accountant, certified copies of the certificate or letter of
authority from the domiciliary jurisdiction, and information on the
principals and management of any assuming insurer that does not
meet the requirements of Subsection (b) of this article. The
failure of an assuming insurer that does not meet the requirements
of Subsection (b) of this article to comply with a request for
information by the Commissioner may result in the Commissioner
issuing a directive prohibiting all licensed insurers from taking
credit for business ceded with any such assuming insurer after the
effective date of such directive. A nonlicensed insurer that is
included in the most recent quarterly listing published by the
Non-admitted Insurers Information Office of the National
Association of Insurance Commissioners is considered to have
complied with a request for information from the Commissioner.
Acts 1951, 52nd Leg., ch. 491. Amended by Acts 1961, 57th Leg., p.
447, ch. 220, Sec. 1; Acts 1979, 66th Leg., p. 1167, ch. 567, Sec.
1, eff. Aug. 27, 1979.
Amended by Acts 1987, 70th Leg., ch. 564, Sec. 1, eff. Aug. 31,
1987; Acts 1989, 71st Leg., ch. 1082, Sec. 7.01, eff. Sept. 1,
1989. Subsecs. (a), (b), (e) amended by and Subsec. (m) added by
Acts 1991, 72nd Leg., ch. 242, Sec. 3.01, eff. Sept. 1, 1991;
Subsec. (a) amended by Acts 1993, 73rd Leg., ch. 685, Sec. 13.01,
eff. Sept. 1, 1993; Subsec. (b) amended by Acts 1993, 73rd Leg.,
ch. 685, Sec. 13.06, eff. Sept. 1, 1993; Subsec. (l) amended by
Acts 1995, 74th Leg., ch. 614, Sec. 2, eff. Sept. 1, 1995.
Art. 3.11. Certain Guarantees in Life Insurance Policies
Section 841.253 of this code does not prohibit the issuance of life
insurance policies guaranteeing, by coupons or otherwise, definite
payments or reductions in premiums, but any such guarantee
contained in policies or coupons issued after the effective date of
this Act shall be treated as a definite contract benefit and so
valued according to the reserve requirements of this Chapter using
in the case of policies or coupons issued before the date determined
under Section 1105.002(a) or (b) of this code, as applicable to the
company, reserve valuation net premium for such benefits which is a
uniform percentage of the gross premiums, provided that any policy
containing such a contract benefit may be valued on a basis which
provides for not more than one (1) year preliminary term insurance,
and using in the case of policies or coupons issued on or after the
date determined under Section 1105.002(a) or (b) of this code, as
applicable to the company, the commissioners reserve valuation
method as defined in Article 3.28. Nothing in this Section with
respect to reserves shall apply to any policy issued prior to
September 7, 1955.
Acts 1951, 52nd Leg., ch. 491. Amended by Acts 1955, 54th Leg., p.
916, ch. 363, Sec. 8; Acts 1963, 58th Leg., p. 1117, ch. 434, Sec.
1; Acts 1963, 58th Leg., p. 1362, ch. 518, Sec. 1.
Amended by Acts 1987, 70th Leg., ch. 813, Sec. 3, eff. June 18,
1987; Acts 2001, 77th Leg., ch. 1419, Sec. 9, eff. June 1, 2003.
Art. 3.16. Deposits of Securities in Amount of Legal Reserve
Sec. 1. Any life insurance company now or which may hereafter be
incorporated under the laws of this State may deposit with the State
Board of Insurance for the common benefit of all the holders of its
policies and annuity bonds, securities of the kinds in which, by the
laws of this State, it is permitted to invest or loan its capital,
surplus and/or reserves, equal to the legal reserve on all its
outstanding policies in force, which securities shall be held by
said State Board of Insurance in trust for the purpose and objects
herein specified. The physical delivery of such securities to the
State Board of Insurance shall be sufficient without being
accompanied by a written transfer of any lien securing them. Any
such company may deposit lawful money of the United States in lieu
of the securities above referred to, or any portion thereof, and may
also, for the purposes of such deposit, convey to said State Board
of Insurance in trust the real estate in which any portion of its
said reserve may be lawfully invested. In such case, the State
Board of Insurance shall hold the title thereto in trust until other
securities in lieu thereof shall be deposited with it, whereupon it
shall reconvey the same to such company. Said State Board of
Insurance may cause any such securities or real estate to be
appraised and valued prior to their being deposited with or
conveyed to it, in trust as aforesaid; the reasonable expense of
such appraisement or valuation to be paid by the company. Under the
provisions of this Article, registered as well as unregistered
United States Government securities may be deposited.
Sec. 2. Notwithstanding the provisions of Section 1, of this
Article, no new deposit of securities will be lawful after the
effective date of this Section, except to the extent expressly
required by Article 3.17.
Sec. 3. For the purpose of state, county, and municipal taxation the
situs of securities deposited with the State Board of Insurance
shall be in the city and county where the principal business office
of such company is fixed by its charter.
Acts 1951, 52nd Leg., ch. 491. Amended by Acts 1957, 55th Leg., p.
812, ch. 344, Sec. 2; Acts 1961, 57th Leg., p. 1053, ch. 469, Sec.
1.
Art. 3.17. What Deposits May Include
Sec. 1. Any life insurance company which has heretofore issued or
assumed the obligations of policies or annuity bonds which have
been registered in the manner at any time authorized by this
Chapter, shall at all times hereafter have on deposit with the State
Board of Insurance securities of the character described in Article
3.16 in amounts equal to or in excess of the aggregate net value of
such outstanding registered policies and annuity bonds in force,
and for such purpose new and additional deposits of securities
shall be made from time to time and in amounts of not less than Five
Thousand Dollars ($5,000). Any such company whose deposits exceed
such aggregate net value of its outstanding registered policies and
annuity bonds in force may from time to time withdraw such excess by
withdrawals of not less than Five Thousand Dollars ($5,000). Any
such company may at any time withdraw any of its deposited
securities by depositing in their stead others of equal value and of
the character authorized by this Chapter, and may collect the
interest, rents and other income from its securities on deposit.
The net value of every policy or annuity bond subject to this Act
shall be its value according to the standard prescribed by the laws
of this State, when the first premium thereon has been paid, less
the amount of such liens as the company may have against it not in
excess of such value.
Sec. 2. The securities of any such company on deposit with the State
Board of Insurance shall be held in trust by said board for the
benefit of all of the holders of the outstanding policies and
annuity bonds of such company which have been registered pursuant
to this Chapter.
Sec. 3. No company which has outstanding registered policies or
annuity bonds in force shall reinsure its outstanding registered
business, or the whole of any one or more of its registered policies
or annuity bonds, except in a company or companies incorporated and
organized under the laws of this State or having permission to do
business in this State.
Acts 1951, 52nd Leg., ch. 491. Amended by Acts 1961, 57th Leg., p.
1053, ch. 469, Sec. 2.
Art. 3.18. Effect and Value of Deposits in Amount of Legal Reserve
Sec. 1. After the effective date of this Section 1, of this Article,
no policy or annuity bond shall be registered in the manner
heretofore authorized by this Chapter.
Sec. 2. Every life insurance company which is required by this
Chapter to have securities on deposit with the State Board of
Insurance shall keep records of all of its outstanding registered
policies and annuity bonds in force, and of the net value thereof.
Sec. 3. Each life insurance company which is required by this
Chapter to have securities on deposit with the State Board of
Insurance shall, within fifteen (15) days after the termination of
each calendar month, file with said Board a report stating whether
or not the value of its securities on deposit is equal to or in
excess of the aggregate value of its registered policies and
annuity bonds outstanding and in force at the end of such preceding
calendar month.
Sec. 4. The securities deposited under this Chapter by each company
shall be placed and kept by the State Board of Insurance in some
secure safe-deposit, fireproof box or vault in the city or town in
or near where the home office of the company is located. The
officers of the company shall have access to such securities for the
purpose of detaching interest coupons and crediting payment and
exchanging securities as above provided, under such reasonable
rules and regulations as the State Board of Insurance may
establish.
Acts 1951, 52nd Leg., ch. 491. Amended by Acts 1961, 57th Leg., p.
1053, ch. 469, Sec. 3.
SUBCHAPTER B. FOREIGN OR ALIEN COMPANIES
Art. 3.25. Law Deemed Accepted
Each life insurance company not organized under the laws of this
State, hereafter granted a certificate of authority to transact
business in this State, shall be deemed to have accepted such
certificate and to transact such business hereunder subject to the
conditions and requirements that, after it shall cease to transact
new business in this State under a certificate of authority, and so
long as it shall continue to collect renewal premiums from citizens
of this State, it shall be subject to the payment of the same
occupation tax in proportion to its gross premiums during any year,
from citizens of this State, as is or may be imposed by law on such
companies transacting new business within this State, under
certificates of authority during such year. The rate of such tax to
be so paid by any such company shall never exceed the rate imposed
by law upon insurance companies transacting business in this State.
Each such company shall make the same reports of its gross premium
receipts for each such year and within the same period as is or may
be required of such companies holding certificates of authority and
shall at all times be subject to examination by the Board of
Insurance Commissioners or some one selected by it for that
purpose, in the same way and to the same extent as is or may be
required of companies transacting new business under certificates
of authority in this State, the expenses of such examination to be
paid by the company examined. The respective duties of the Board in
certifying to the amount of such taxes and of the comptroller and
Attorney General in their collection shall be the same as are or may
be prescribed respecting taxes due from companies authorized to
transact new business within this State.
Acts 1951, 52nd Leg., ch. 491.
Amended by Acts 1993, 73rd Leg., ch. 685, Sec. 18.03, eff. Sept. 1,
1993; Acts 1997, 75th Leg., ch. 1423, Sec. 11.08, eff. Sept. 1,
1997.
SUBCHAPTER C. RESERVES AND INVESTMENTS
Art. 3.28. Standard Valuation Law
Title
Sec. 1. This Article shall be known as the Standard Valuation Law.
Reserve Valuation
Sec. 2. The State Board of Insurance shall annually value, or cause
to be valued, the reserve liabilities (hereinafter called reserves)
for all outstanding life insurance policies and annuity and pure
endowment contracts of every life insurance company doing business
in this state, and may certify the amount of any such reserves,
specifying the mortality table or tables, rate or rates of
interest, and methods (net level premium method or other) used in
the calculation of such reserves. In calculating such reserves,
the Board may use group methods and approximate averages for
fractions of a year or otherwise. In lieu of the valuation of the
reserves herein required of any foreign or alien company, the Board
may accept any valuation made, or caused to be made, by the
insurance supervisory official of any state or other jurisdiction
when such valuation complies with the minimum standard herein
provided and if the official of such state or jurisdiction accepts
as sufficient and valid for all legal purposes the certificate of
valuation of the State Board of Insurance when such certificate
states the valuation to have been made in a specified manner
according to which the aggregate reserves would be at least as large
as if they had been computed in the manner prescribed by the law of
that state or jurisdiction.
Opinion of reserves
Sec. 2A. (a) General. (1) In conjunction with the annual statement
and in addition to other information required by this article,
every life insurance company doing business in this state shall
annually submit to the State Board of Insurance the opinion of a
qualified actuary as to whether the reserves and related actuarial
items held in support of the policies and contracts specified by
rule of the Board are computed appropriately, are based on
assumptions which satisfy contractual provisions, are consistent
with prior reported amounts, and comply with applicable laws of
this state. The Board by rule shall define the specific
requirements of this opinion and shall include any matters deemed
to be necessary to the opinion's scope. For purposes of this
subdivision, "qualified actuary" has the meaning assigned by
Article 1.11(d) of this code. A person who, before September 1,
1993, satisfied the requirements of the Board to submit an opinion
under this subdivision may also submit the opinion required by this
subdivision.
(2) The opinion required under this section shall apply to all
business in force including individual and group health insurance
plans, in form and substance as specified by Board rule and
acceptable to the commissioner.
(3) In the case of an opinion required to be submitted by a foreign
or alien company, the commissioner may accept the opinion filed by
that company with the insurance supervisory official of another
state if the commissioner determines that the opinion filed in the
other state reasonably meets the requirements applicable to a
company domiciled in this state.
(4) A. Except in cases of fraud or wilful misconduct or as provided
by Subsection (a)(7)B of this section, a person who certifies to an
opinion under this section shall not be liable for damages to a
person other than the insurance company covered by the opinion
prepared by the certifying person for any act, error, omission,
decision, or conduct with respect to the person's opinion.
(B) Subsection (a)7A of this section does not apply to a monetary
forfeiture imposed under Section 7, Article 1.10, Insurance Code.
(5) A company or a person who certifies to an opinion under this
section and that fails to comply with or violates this section or
rules adopted by the Board pursuant to this section is subject to
disciplinary action under Section 7, Article 1.10, Insurance Code.
(6) A memorandum, in form and substance in compliance with rules of
the State Board of Insurance, shall be prepared to support each
opinion.
(7) If an insurance company fails to provide a supporting
memorandum at the request of the commissioner within a period
specified by rule or the commissioner determines that the
supporting memorandum provided by the insurance company fails to
meet the standards prescribed by the Board's rules or is otherwise
unacceptable to the commissioner, the commissioner may engage an
actuary or other financial specialist as defined by Board rule at
the expense of the company to review the opinion and the basis for
the opinion and prepare such supporting memorandum.
(b) Actuarial Analysis of Reserves and Assets Supporting Such
Reserves. Every life insurance company, except as exempted by or
pursuant to rule adopted by the Board, shall also annually include
in the opinion required by Subsection (a)(1) of this section, an
opinion of the same person who certifies to the opinion under
Subsection (a)(1) of this section as to whether the reserves and
related actuarial items held in support of the policies and
contracts specified by Board rule, when considered in light of the
assets held by the company with respect to the reserves and related
actuarial items, including but not limited to the investment
earnings on the assets and the considerations anticipated to be
received and retained under the policies and contracts, make
adequate provision for the company's obligations under the policies
and contracts, including but not limited to the benefits under and
expenses associated with the policies and contracts. The rules
adopted by the Board under this section may exempt those companies
that would be exempted from the requirements stated in this
subsection (b) according to the most recently adopted regulation by
the National Association of Insurance Commissioners entitled
"Model Actuarial Opinion and Memorandum Regulation" or its
successor regulation if the Board considers the exemption
appropriate.
Computation of Minimum Standard
Sec. 3. The minimum standard for the valuation of all such policies
and contracts issued prior to the operative date of Article 3.44a
(the Standard Nonforfeiture Law for Life Insurance) shall be that
provided in Section 12 of this article. Except as otherwise
provided in Sections 4 and 5 of this article, the minimum standard
for the valuation of all such policies and contracts issued on or
after the operative date of Article 3.44a (the Standard
Nonforfeiture Law for Life Insurance) shall be the commissioners
reserve valuation methods defined in Sections 6, 7, and 10 of this
article, three and one-half per cent (3-1/2%) interest; in the case
of policies and contracts, other than annuity and pure endowment
contracts, issued on or after June 14, 1973, four per cent (4%)
interest for such policies issued prior to August 29, 1977; or five
and one-half per cent (5-1/2%) interest for single premium life
insurance policies and four and one-half per cent (4-1/2%) interest
for all other such policies issued on and after August 29, 1977, and
the following tables:
(a) For all ordinary policies of life insurance issued on the
standard basis, excluding any disability and accidental death
benefits in such policies, the Commissioners 1941 Standard Ordinary
Mortality Table for such policies issued prior to the operative
date of Section 6 of the Standard Nonforfeiture Law for Life
Insurance, as amended, the Commissioners 1958 Standard Ordinary
Mortality Table for such policies issued on or after the operative
date of Section 6 of the Standard Nonforfeiture Law for Life
Insurance, as amended, and prior to the operative date of Section 8
of the Standard Nonforfeiture Law for Life Insurance, as amended,
provided that for any category of such policies issued on female
risks, all modified net premiums and present values referred to in
this Act may be calculated according to an age not more than three
years younger than the actual age of the insured for policies issued
prior to August 29, 1977 and not more than six years younger than
the actual age of the insured for policies issued on and after
August 29, 1977; and for such policies issued on or after the
operative date of Section 8 of the Standard Nonforfeiture Law for
Life Insurance, as amended, (i) the Commissioners 1980 Standard
Ordinary Mortality Table, or (ii) at the election of the company for
any one or more specified plans of life insurance, the
Commissioners 1980 Standard Ordinary Mortality Table with Ten-Year
Select Mortality Factors, or (iii) any ordinary mortality table
adopted after 1980 by the National Association of Insurance
Commissioners that is approved by regulation promulgated by the
State Board of Insurance for use in determining the minimum
standard valuation for such policies.
(b) For all industrial life insurance policies issued on the
standard basis, excluding any disability and accidental death
benefits in such policies, the 1941 Standard Industrial Mortality
Table for such policies issued prior to the operative date of
Section 7 of the Standard Nonforfeiture Law for Life Insurance, as
amended, and for such policies issued on or after such operative
date, the Commissioners 1961 Standard Industrial Mortality Table or
any industrial mortality table adopted after 1980 by the National
Association of Insurance Commissioners that is approved by
regulation promulgated by the State Board of Insurance for use in
determining the minimum standard of valuation for such policies.
(c) For individual annuity and pure endowment contracts, excluding
any disability and accidental death benefits in such policies, the
1937 Standard Annuity Mortality Table, or, at the option of the
company, the Annuity Mortality Table for 1949, Ultimate, or any
modification of either of these tables approved by the State Board
of Insurance.
(d) For group annuity and pure endowment contracts, excluding any
disability and accidental death benefits in such policies, the
Group Annuity Mortality Table for 1951, any modification of such
table approved by the State Board of Insurance, or, at the option of
the company, any of the tables or modifications of tables specified
for individual annuity and pure endowment contracts.
(e) For total and permanent disability benefits in or supplementary
to ordinary policies or contracts, for policies or contracts issued
on or after January 1, 1966, the tables of Period 2 disablement
rates and the 1930 to 1950 termination rates of the 1952 Disability
Study of the Society of Actuaries, with due regard to the type of
benefit, or any tables of disablement rates and termination rates
adopted after 1980 by the National Association of Insurance
Commissioners that are approved by regulation promulgated by the
State Board of Insurance for use in determining the minimum
standard of valuation for such policies; for policies or contracts
issued on or after January 1, 1961, and prior to January 1, 1966,
either such tables or, at the option of the company, the Class (3)
Disability Table (1926); and for policies issued prior to January
1, 1961, the Class (3) Disability Table (1926). Any such table
shall, for active lives, be combined with a mortality table
permitted for calculating the reserves for life insurance policies.
(f) For accidental death benefits in or supplementary to policies,
for policies issued on or after January 1, 1966, the 1959 Accidental
Death Benefits Table or any accidental death benefits table adopted
after 1980 by the National Association of Insurance Commissioners
that is approved by regulation promulgated by the State Board of
Insurance for use in determining the minimum standard of valuation
for such policies; for policies issued on or after January 1, 1961,
and prior to January 1, 1966, either such table or, at the option of
the company, the Inter-Company Double Indemnity Mortality Table;
and for policies issued prior to January 1, 1961, the Inter-Company
Double Indemnity Mortality Table. Either table shall be combined
with a mortality table permitted for calculating the reserves for
life insurance policies.
(g) For group life insurance, life insurance issued on the
substandard basis and other special benefits, such tables as may be
approved by the State Board of Insurance.
Text of subsec. (h) effective until Sept. 1, 2013
(h) Notwithstanding any other law, the minimum reserve requirements
applicable to a policy issued under Article 3.53 of this code are
met if, in aggregate, the reserves are maintained at 100 percent of
the 1980 Commissioner's Standard Ordinary Mortality Table, with
interest not to exceed 5.5 percent. This subsection expires
September 1, 2013.
Computation of Minimum Standard for Annuities
Sec. 4. Except as provided in Section 5 of this article, the minimum
standard for the valuation of all individual annuity and pure
endowment contracts issued on or after the operative date of this
Section 4, as defined herein, and for all annuities and pure
endowments purchased on or after such operative date under group
annuity and pure endowment contracts shall be the commissioners
reserve valuation methods defined in Sections 6 and 7 of this
article and the following tables and interest rates:
(a) For individual annuity and pure endowment contracts issued
prior to August 29, 1977, excluding any disability and accidental
death benefits in such contracts, the 1971 Individual Annuity
Mortality Table, or any modification of this table approved by the
State Board of Insurance, and six per cent (6%) interest for single
premium immediate annuity contracts, and four per cent (4%)
interest for all other individual annuity and pure endowment
contracts.
(b) For individual single premium immediate annuity contracts
issued on or after August 29, 1977, excluding any disability and
accidental death benefits in such contracts, the 1971 Individual
Annuity Mortality Table or any individual annuity mortality table
adopted after 1980 by the National Association of Insurance
Commissioners that is approved by regulation promulgated by the
State Board of Insurance for use in determining the minimum
standard of valuation for such contracts, or any modification of
these tables approved by the State Board of Insurance, and seven and
one-half per cent (7-1/2%) interest.
(c) For individual annuity and pure endowment contracts issued on
or after August 29, 1977, other than single premium immediate
annuity contracts, excluding any disability and accidental death
benefits in such contracts, the 1971 Individual Annuity Mortality
Table or any individual annuity mortality table adopted after 1980
by the National Association of Insurance Commissioners that is
approved by regulation promulgated by the State Board of Insurance
for use in determining the minimum standard of valuation for such
contracts, or any modification of these tables approved by the
State Board of Insurance, and five and one-half per cent (5-1/2%)
interest for single premium deferred annuity and pure endowment
contracts and four and one-half per cent (4-1/2%) interest for all
other such individual annuity and pure endowment contracts.
(d) For all annuities and pure endowments purchased prior to August
29, 1977, under group annuity and pure endowment contracts,
excluding any disability and accidental death benefits purchased
under such contracts, the 1971 Group Annuity Mortality Table, or
any modification of this table approved by the State Board of
Insurance, and six per cent (6%) interest.
(e) For all annuities and pure endowments purchased on or after
August 29, 1977, under group annuity and pure endowment contracts,
excluding any disability and accidental death benefits purchased
under such contracts, the 1971 Group Annuity Mortality Table or any
group annuity mortality table adopted after 1980 by the National
Association of Insurance Commissioners that is approved by
regulation promulgated by the State Board of Insurance for use in
determining the minimum standard of valuation for such annuities
and pure endowments, or any modification of these tables approved
by the State Board of Insurance, and seven and one-half per cent
(7-1/2%) interest.
After June 14, 1973, any company may file with the State Board of
Insurance a written notice of its election to comply with the
provisions of this section after a specified date before January 1,
1979, which shall be the operative date of this section for such
company; provided, a company may elect a different operative date
for individual annuity and pure endowment contracts from that
elected for group annuity and pure endowment contracts. If a
company makes no such election, the operative date of this section
for such company shall be January 1, 1979.
Computation of Minimum Standard by Calendar Year of Issue
Sec. 5. (a) Applicability of this section
(1) The calendar year statutory valuation interest rates as
defined in this Section shall be the interest rates used in
determining the minimum standard for valuation of:
(A) all life insurance policies issued in a particular calendar
year on or after the operative date of Section 8 of the Standard
Nonforfeiture Law for Life Insurance;
(B) all individual annuity and pure endowment contracts issued in a
particular calendar year on or after January 1, 1982;
(C) all annuities and pure endowments purchased in a particular
calendar year on or after January 1, 1982, under group annuity and
pure endowment contracts; and
(D) the net increase, if any, in a particular calendar year after
January 1, 1982, in amounts held under guaranteed interest
contracts.
(b) Calendar Year Statutory Valuation Interest Rates
(1) The calendar year statutory valuation interest rates, "I,"
shall be determined as follows and the results rounded to the nearer
one-fourth of one per cent (1/4 of 1%):
(A) For life insurance, I = .03 + W(R1- .03)+ W/2 (R2- .09).
(B) For single premium immediate annuities and for annuity benefits
involving life contingencies arising from other annuities with cash
settlement options and from guaranteed interest contracts with cash
settlement options,
I = .03+W(R -.03)
where R1 is the lesser of R and .09,
R2 is the greater of R and .09,
R is the reference interest rate defined in this section, and
W is the weighting factor defined in this section.
(C) For other annuities with cash settlement options and guaranteed
interest contracts with cash settlement options, valued on an issue
year basis, except as stated in Paragraph (B) of Subdivision (1) of
Subsection (b) of this section, the formula for life insurance
stated in Paragraph (A) of Subdivision (1) of Subsection (b) of this
section shall apply to annuities and guaranteed interest contracts
with guarantee durations in excess of 10 years and the formula for
single premium immediate annuities stated in Paragraph (B) of
Subdivision (1) of Subsection (b) of this section shall apply to
annuities and guaranteed interest contracts with guarantee
duration of 10 years or less.
(D) For other annuities with no cash settlement options and for
guaranteed interest contracts with no cash settlement options, the
formula for single premium immediate annuities stated in Paragraph
(B) of Subdivision (1) of Subsection (b) of this section shall
apply.
(E) For other annuities with cash settlement options and guaranteed
interest contracts with cash settlement options, valued on a change
in fund basis, the formula for single premium immediate annuities
stated in Paragraph (B) of Subdivision (1) of Subsection (b) of this
section shall apply.
(2) However, if the calendar year statutory valuation interest rate
for any life insurance policies issued in any calendar year
determined without reference to this sentence differs from the
corresponding actual rate for similar policies issued in the
immediately preceding calendar year by less than one-half of one
per cent (1/2 of 1%), the calendar year statutory valuation
interest rate for such life insurance policies shall be equal to the
corresponding actual rate for the immediately preceding calendar
year. For purposes of applying the immediately preceding sentence,
the calendar year statutory valuation interest rate for life
insurance policies issued in a calendar year shall be determined
for 1980 (using the reference interest rate defined for 1979) and
shall be determined for each subsequent calendar year regardless of
when Section 8 of the Standard Nonforfeiture Law for Life Insurance
becomes operative.
(c) Weighting Factors
(1) The weighting factors referred to in the formulas stated above
are given in the following tables:
(A) Weighting Factors for Life Insurance: Guarantee Weighting
Duration Factors
(Years)
10 or less .50
More than 10, but not more than .45
20
More than 20 .35
For life insurance, the guarantee duration is the maximum number of
years the life insurance can remain in force on a basis guaranteed
in the policy or under options to convert to plans of life insurance
with premium rates or nonforfeiture values or both which are
guaranteed in the original policy;
(B) Weighting factor for single premium immediate annuities and for
annuity benefits involving life contingencies arising from other
annuities with cash settlement options and guaranteed interest
contracts with cash settlement options:
.80
(C) Weighting factors for other annuities and for guaranteed
interest contracts, except as stated in Paragraph (B) of
Subdivision (1) of Subsection (c) of this section, shall be as
specified in tables (i), (ii), and (iii) below, according to the
rules and definitions in (iv), (v), and (vi) below:
(i) For annuities and guaranteed interest contracts valued on an
issue year basis:Guarantee Weighting Factor
Duration for Plan Type
(Years) ABC
5 or less: .80 .60 .50
More than 5, but not more than .75 .60 .50
10:
More than 10, but not more than .65 .50 .45
20:
More than 20: .45 .35 .35
Plan Type
ABC
(ii)For annuities and guaranteed
interest contracts valued on a
change in fund basis,
thefactorsshownin (i)above
increased by: .15 .25 .05
Plan Type
ABC
(iii)For annuities and
guaranteed interest contracts
valued on an issue year basis
(other than those with no cash
settlement options) which do not
guarantee interest on
considerations received more
than one year after issue or
purchase and for annuities and
guaranteed interest contracts
valued on a change in fund basis
which do not guarantee interest
rates on considerations received
more than 12 months beyond the
valuation date, the factorsshown
in (i)or
derived in (ii) increased by: .05 .05 .05
(iv) For other annuities with cash settlement options and
guaranteed interest contracts with cash settlement options, the
guarantee duration is the number of years for which the contract
guarantees interest rates in excess of the calendar year statutory
valuation interest rate for life insurance policies with guarantee
duration in excess of 20 years. For other annuities with no cash
settlement options and for guaranteed interest contracts with no
cash settlement options, the guarantee duration is the number of
years from the date of issue or date of purchase to the date annuity
benefits are scheduled to commence.
(v) Plan type as used in the above tables (i), (ii), and (iii) is
defined as follows:
Plan Type A: At any time policyholder may withdraw funds only (1)
with an adjustment to reflect changes in interest rates or asset
values since receipt of funds by the insurance company, or (2)
without such adjustment but in installments over five years or
more, or (3) as an immediate life annuity, or (4) no withdrawal
permitted.
Plan Type B: Before expiration of the interest rate guarantee, the
policyholder may withdraw funds only (1) with an adjustment to
reflect changes in interest rates or asset values since receipt of
the funds by the insurance company, or (2) without such adjustment
but in installments over five years or more, or (3) no withdrawal
permitted. At the end of interest rate guarantee, funds may be
withdrawn without such adjustment in a single sum or installments
over less than five years.
Plan Type C: Policyholder may withdraw funds before expiration of
interest rate guarantee in a single sum or installments over less
than five years either (1) without adjustment to reflect changes in
interest rates or asset values since receipt of the funds by the
insurance company, or (2) subject only to a fixed surrender charge
stipulated in the contract as a percentage of the fund.
(vi) A company may elect to value guaranteed interest contracts
with cash settlement options and annuities with cash settlement
options on either an issue year basis or on a change in fund basis.
Guaranteed interest contracts with no cash settlement options and
other annuities with no cash settlement options must be valued on an
issue year basis. As used in this section, an issue year basis of
valuation refers to a valuation basis under which the interest rate
used to determine the minimum valuation standard for the entire
duration of the annuity or guaranteed interest contract is the
calendar year valuation interest rate for the year of issue or year
of purchase of the annuity or guaranteed interest contract, and the
change in fund basis of valuation refers to a valuation basis under
which the interest rate used to determine the minimum valuation
standard applicable to each change in the fund held under the
annuity or guaranteed interest contract is the calendar year
valuation interest rate for the year of the change in the fund.
(d) Reference Interest Rate
(1) Except as provided in Subsection (e) of this section, the
reference interest rate referred to in Subsection (b) of this
section shall be defined as follows:
(A) For all life insurance, the lesser of the average over a period
of 36 months and the average over a period of 12 months, ending on
June 30 of the calendar year next preceding the year of issue, of
Moody's Corporate Bond Yield Average--Monthly Average Corporates,
as published by Moody's Investors Service, Inc.
(B) For single premium immediate annuities and for annuity benefits
involving life contingencies arising from other annuities with cash
settlement options and guaranteed interest contracts with cash
settlement options, the average over a period of 12 months, ending
on June 30 of the calendar year of issue or year of purchase, of
Moody's Corporate Bond Yield Average--Monthly Average Corporates,
as published by Moody's Investors Service, Inc.
(C) For other annuities with cash settlement options and guaranteed
interest contracts with cash settlement options, valued on a year
of issue basis, except as stated in Paragraph (B) of Subdivision (1)
of Subsection (d) of this section, with guarantee duration in
excess of 10 years, the lesser of the average over a period of 36
months and the average over a period of 12 months, ending on June 30
of the calendar year of issue or purchase, of Moody's Corporate Bond
Yield Average--Monthly Average Corporates, as published by Moody's
Investors Service, Inc.
(D) For other annuities with cash settlement options and guaranteed
interest contracts with cash settlement options, valued on a year
of issue basis, except as stated in Paragraph (B) of Subdivision (1)
of Subsection (d) of this section, with guarantee duration of 10
years or less, the average over a period of 12 months, ending on
June 30 of the calendar year of issue or purchase, of Moody's
Corporate Bond Yield Average--Monthly Average Corporates, as
published by Moody's Investors Service, Inc.
(E) For other annuities with no cash settlement options and for
guaranteed interest contracts with no cash settlement options, the
average over a period of 12 months, ending on June 30 of the
calendar year of issue or purchase, of Moody's Corporate Bond Yield
Average--Monthly Average Corporates, as published by Moody's
Investors Service, Inc.
(F) For other annuities with cash settlement options and guaranteed
interest contracts with cash settlement options, valued on a change
in fund basis, except as stated in Paragraph (B) of Subdivision (1)
of Subsection (d) of this section, the average over a period of 12
months, ending on June 30 of the calendar year of the change in the
fund, of Moody's Corporate Bond Yield Average--Monthly Average
Corporates, as published by Moody's Investors Service, Inc.
(e) State Board of Insurance Promulgation of Definitions of
Reference Interest Rate
The State Board of Insurance shall, not less than annually,
determine whether the definition of reference interest rates as
specified in Subsection (d) of this section continues to be a
reasonably accurate approximation of the average yield achieved
from purchases in the United States in publicly quoted markets of
investment grade fixed term and fixed interest corporate
obligations for the times specified in such subsection and shall,
if it determines that such definition is no longer such reasonably
accurate approximation, promulgate rules in the manner specified in
the Administrative Procedure and Texas Register Act, as amended
(Article 6252-13a, Vernon's Texas Civil Statutes), to adopt such
alternative methods as are appropriate to achieve such purpose.
Commissioners Reserve Valuation Method
Sec. 6. Except as otherwise provided in Sections 7 and 10 of this
article, reserves according to the commissioners reserve valuation
method, for the life insurance and endowment benefits of policies
providing for a uniform amount of insurance and requiring the
payment of uniform premiums shall be the excess, if any, of the
present value, at the date of valuation, of such future guaranteed
benefits provided for by such policies, over the then present value
of any future modified net premiums therefor. The modified net
premiums for any such policy shall be such uniform percentage of the
respective contract premiums for such benefits that the present
value, at the date of issue of the policy, of all such modified net
premiums shall be equal to the sum of the then present value of such
benefits provided for by the policy and the excess of (a) over (b),
as follows:
(a) A net level annual premium equal to the present value, at the
date of issue, of such benefits provided for after the first policy
year, divided by the present value, at the date of issue, of an
annuity of one per annum payable on the first and each subsequent
anniversary of such policy on which a premium falls due; provided,
however, that such net level annual premium shall not exceed the net
level annual premium on the nineteen year premium whole life plan
for insurance of the same amount at an age one year higher than the
age at issue of such policy.
(b) A net one year term premium for such benefits provided for in
the first policy year.
Provided that for any life insurance policy issued on or after
January 1, 1985, for which the contract premium in the first policy
year exceeds that of the second year and for which no comparable
additional benefit is provided in the first year for such excess and
which provides an endowment benefit or a cash surrender value or a
combination thereof in an amount greater than such excess premium,
the reserve according to the commissioners reserve valuation method
as of any policy anniversary occurring on or before the assumed
ending date defined herein as the first policy anniversary on which
the sum of any endowment benefit and any cash surrender value then
available is greater than such excess premium shall, except as
otherwise provided in Section 10 of this article, be the greater of
the reserve as of such policy anniversary calculated as previously
described in this Section 6 and the reserve as of such policy
anniversary calculated as previously described in this Section 6
but with (i) the value defined in Subsection (a) of Section 6 of
this article being reduced by fifteen per cent (15%) of the amount
of such excess first year premium, (ii) all present values of
benefits and premiums being determined without reference to
premiums or benefits provided for by the policy after the assumed
ending date, (iii) the policy being assumed to mature on such date
as an endowment, and (iv) the cash surrender value provided on such
date being considered as an endowment benefit. In making the above
comparison the mortality and interest bases stated in Sections 3
and 5 of this article shall be used.
Reserves according to the commissioners reserve valuation method
for: (1) life insurance policies providing for a varying amount of
insurance or requiring the payment of varying premiums; (2) group
annuity and pure endowment contracts purchased under a retirement
plan or plan of deferred compensation, established or maintained by
an employer (including a partnership or sole proprietorship) or by
an employee organization, or by both, other than a plan providing
individual retirement accounts or individual retirement annuities
under Section 408 of the Internal Revenue Code, as now or hereafter
amended; (3) disability and accidental death benefits in all
policies and contracts; and (4) all other benefits, except life
insurance and endowment benefits in life insurance policies and
benefits provided by all other annuity and pure endowment
contracts; shall be calculated by a method consistent with the
principles of the preceding paragraphs of this section.
Commissioners Reserve Valuation Method--Annuity and Pure Endowment
Benefits
Sec. 7. This section shall apply to all annuity and pure endowment
contracts other than group annuity and pure endowment contracts
purchased under a retirement plan or plan of deferred compensation,
established or maintained by an employer (including a partnership
or sole proprietorship) or by an employee organization, or by both,
other than a plan providing individual retirement accounts or
individual retirement annuities under Section 408 of the Internal
Revenue Code, as now or hereafter amended.
Reserves according to the commissioners annuity reserve method for
benefits under annuity or pure endowment contracts, excluding any
disability and accidental death benefits in such contracts, shall
be the greatest of the respective excesses of the present values, at
the date of valuation, of the future guaranteed benefits, including
guaranteed nonforfeiture benefits, provided for by such contracts
at the end of each respective contract year, over the present value,
at the date of valuation, of any future valuation considerations
derived from future gross considerations, required by the terms of
such contract, that become payable prior to the end of such
respective contract year. The future guaranteed benefits shall be
determined by using the mortality table, if any, and the interest
rate or rates specified in such contracts for determining
guaranteed benefits. The valuation considerations are the portions
of the respective gross considerations applied under the terms of
such contracts to determine nonforfeiture values.
Minimum Reserves
Sec. 8. In no event shall a company's aggregate reserves for all
life insurance policies, excluding disability and accidental death
benefits, issued on or after the operative date of Article 3.44a
(the Standard Nonforfeiture Law for Life Insurance), be less than
the aggregate reserves calculated in accordance with the methods
set forth in Sections 6, 7, 10, and 11 and the mortality table or
tables and rate or rates of interest used in calculating
nonforfeiture benefits for such policies.
Minimum aggregate reserves
Sec. 8A. In no event shall aggregate reserves of a company covered
by Section 8 of this article for all policies, contracts, and
benefits be less than the aggregate reserves determined to be
necessary to render the opinion required by Section 2A of this
article.
Optional Reserve Calculation
Sec. 9. Reserves for all policies and contracts issued prior to the
operative date of Article 3.44a (the Standard Nonforfeiture Law for
Life Insurance) may be calculated, at the option of the company,
according to any standards which produce greater aggregate reserves
for all such policies and contracts than the minimum reserves
required by the laws in effect immediately prior to such date.
Reserves for any category of policies, contracts or benefits as
established by the State Board of Insurance, issued on or after the
operative date of Article 3.44a (the Standard Nonforfeiture Law for
Life Insurance), may be calculated, at the option of the company,
according to any standards which produce greater aggregate reserves
for such category than those calculated according to the minimum
standard herein provided, but the rate or rates of interest used for
policies and contracts, other than annuity and pure endowment
contracts, shall not be higher than the corresponding rate or rates
of interest used in calculating any nonforfeiture benefits provided
therein.
Any such company which at any time shall have adopted any standard
of valuation producing greater aggregate reserves than those
calculated according to the minimum standard herein provided may,
with the approval of the State Board of Insurance, adopt any lower
standard of valuation, but not lower than the minimum herein
provided.
Effect of opinion on standard of valuation
Sec. 9A. For the purposes of Section 9 of this article, the holding
of additional reserves previously determined to be necessary to
render the opinion required by Section 2A of this article shall not
be deemed to be the adoption of a higher standard of valuation.
Reserve Calculation--Valuation Net Premium Exceeding the Gross
Premium Charged
Sec. 10. If in any contract year the gross premium charged by any
life insurance company on any policy or contract is less than the
valuation net premium for the policy or contract calculated by the
method used in calculating the reserve thereon but using the
minimum valuation standards of mortality and rate of interest, the
minimum reserve required for such policy or contract shall be the
greater of either the reserve calculated according to the mortality
table, rate of interest, and method actually used for such policy or
contract, or the reserve calculated by the method actually used for
such policy or contract but using the minimum valuation standards
of mortality and rate of interest and replacing the valuation net
premium by the actual gross premium in each contract year for which
the valuation net premium exceeds the actual gross premium. The
minimum valuation standards of mortality and rate of interest
referred to in this section are those standards stated in Sections 3
and 5 of this article.
Provided that for any life insurance policy issued on or after
January 1, 1985, for which the gross premium in the first policy
year exceeds that of the second year and for which no comparable
additional benefit is provided in the first year for such excess and
which provides an endowment benefit or a cash surrender value or a
combination thereof in an amount greater than such excess premium,
the foregoing provisions of this Section 10 shall be applied as if
the method actually used in calculating the reserve for such policy
were the method described in Section 6 of this article, ignoring the
second paragraph of Section 6. The minimum reserve at each policy
anniversary of such a policy shall be the greater of the minimum
reserve calculated in accordance with Section 6, including the
second paragraph of that section, and the minimum reserve
calculated in accordance with this Section 10.
Reserve Calculation--Indeterminate Premium Plans and Certain Other
Plans
Sec. 11. In the case of any plan of life insurance which provides
for future premium determination, the amounts of which are to be
determined by the insurance company based on then estimates of
future experience, or in the case of any plan of life insurance or
annuity which is of such a nature that the minimum reserves cannot
be determined by the methods described in Sections 6, 7, and 10 of
this article, the reserves which are held under any such plan must:
(a) be appropriate in relation to the benefits and the pattern of
premiums for that plan, and
(b) be computed by a method which is consistent with the principles
of this Standard Valuation Law, as determined by regulations
promulgated by the State Board of Insurance.
Notwithstanding any other provision in the laws of this state, any
policy, contract, or certificate providing life insurance under any
such plan must be affirmatively approved by the State Board of
Insurance before it can be marketed, issued, delivered, or used in
this state.
Computation of Minimum Standard by Calendar Year of Issue
Sec. 12. This section shall apply only to those policies and
contracts issued prior to the operative date of Article 3.44a (the
Standard Nonforfeiture Law for Life Insurance). The reserve
liability of all such policies and contracts shall be computed in
accordance with their terms and the following rules:
(a) As respects policies issued prior to the first day of January,
1910, the computation shall be on the basis of the American
Experience Table of Mortality and four and one-half per cent
(4-1/2%) interest per annum.
(b) As respects policies issued after the 31st day of December,
1909, and prior to January 1, 1948, the computation shall be on the
basis of the Actuaries or Combined Experience Table of Mortality
with four per cent (4%) interest per annum, if the interest rate
guaranteed in the policy is four per cent (4%) per annum or higher.
If any such policies were issued upon a reserve basis of an interest
rate lower than four per cent (4%) per annum, then the computation
shall be made on the basis of the American Experience Table of
Mortality with interest at such lower specified rate.
(c) As respects policies issued after the 31st day of December,
1947, the computation shall be on the basis of the mortality table
and interest rate specified in the respective policies, provided
that (A) the specified rate of interest shall not exceed three and
one-half per cent (3-1/2%) per annum; (B) the specified table for
policies other than policies of industrial life insurance shall be
the American Experience Table of Mortality, the American Men
Ultimate Table of Mortality, the Commissioners 1941 Standard
Ordinary Mortality Table, or, as respects policies issued after the
31st day of December, 1959, the Commissioners 1958 Standard
Ordinary Mortality Table; and (C) the specified table for policies
of industrial life insurance shall be the American Experience Table
of Mortality, the Standard Industrial Mortality Table, the
Sub-Standard Industrial Mortality Table, the 1941 Standard
Industrial Mortality Table, or the 1941 Sub-Standard Industrial
Mortality Table, or, as respects policies issued after the 31st day
of December, 1963, the Commissioners 1961 Standard Industrial
Mortality Table.
(d) As respects policies on female risks issued after the 31st day
of December, 1959, other than policies of industrial life
insurance, computation shall be based on any mortality table and
rate of interest permitted under Subsection (c) of Section 12 of
this article and specified in the respective policies but may at the
option of the company be based on an age not more than three (3)
years younger than the actual age of the insured.
(e) Except as otherwise provided in Section 4 of this article with
respect to coverages purchased on or after the operative date of
such subsection under group annuity and pure endowment contracts,
as respects policies issued on substandard risks and annuity
contracts and contracts or policies for disability benefits and
accidental death benefits, the computation shall be on the basis of
the standards and methods adopted by the respective companies and
approved by the State Board of Insurance.
(f) The reserve values of all policies of group insurance issued
prior to May 15, 1947, shall be computed upon the basis of the
American Men Ultimate Table of Mortality with interest at the rate
of three per cent (3%) or three and one-half per cent (3-1/2%) per
annum as provided in such policies. The reserve values of all
policies of group insurance issued on and subsequent to May 15,
1947, and prior to January 1, 1961, shall be computed upon the basis
of either the American Men Ultimate Table of Mortality or the
Commissioners 1941 Standard Ordinary Mortality Table with interest
at a rate not in excess of three and one-half per cent (3-1/2%) per
annum as provided in such policies. The reserve values of all
policies of group insurance issued on and subsequent to January 1,
1961, shall be computed on the basis of an interest rate not
exceeding three and one-half per cent (3-1/2%) per annum and such
mortality table as shall be adopted by the company with the approval
of the State Board of Insurance.
Repeal of Conflicting Laws
Sec. 13. All acts and parts of acts inconsistent with the provisions
of this article are hereby repealed.
Acts 1951, 52nd Leg., ch. 491. Amended by Acts 1959, 56th Leg., p.
960, ch. 448, Sec. 1; Acts 1963, 58th Leg., p. 1117, ch. 434, Sec.
2; Acts 1973, 63rd Leg., p. 1070, ch. 411, Sec. 1, 2, eff. June 14,
1973; Acts 1977, 65th Leg., p. 2098, ch. 842, Sec. 1 to 5, eff. Aug.
29, 1977; Acts 1981, 67th Leg., p. 2170, ch. 508, Sec. 1, eff. Aug.
31, 1981.
Sec. 2A added by Acts 1991, 72nd Leg., ch. 242, Sec. 11.101, eff.
Sept. 1, 1991; Secs. 8A, 9A added by Acts 1991, 72nd Leg., ch. 242,
Sec. 11.102, eff. Sept. 1, 1991; Sec. 2A(a)(1) amended by Acts
1993, 73rd Leg., ch. 685, Sec. 7.01, eff. Sept. 1, 1993; Sec. 2A(b)
amended by Acts 1993, 73rd Leg., ch. 685, Sec. 7.02, eff. Sept. 1,
1993.
Sec. 3 amended by Acts 2001, 77th Leg., ch. 1318, Sec. 1, eff. Sept.
1, 2001.
Art. 3.29. Extra Hazardous Policies
If any life insurance company doing business under the laws of this
State has written or assumed risks that are sub-standard or extra
hazardous and has charged therefor more than its published rates of
premium, the Board of Insurance Commissioners shall in valuing such
policies compute and charge such extra reserves thereon as is
warranted by reason of the extra hazard assumed and the extra
premium charged. If the Board of Insurance Commissioners shall
find, after notice and hearing, that a particular risk or class of
risks is sub-standard or extra hazardous, then and in that event no
such company shall thereafter write or assume any such risks unless
they charge therefor such extra premium as is warranted by reason of
the extra hazard assumed.
Acts 1951, 52nd Leg., ch. 491.
Art. 3.31. Failure to File Certificate
If any such foreign insurance company shall fail to file the
certificate authorized by the preceding article, it shall be
required forthwith to file with the Board of Insurance
Commissioners full detailed lists of its policies and securities
and shall be liable for all charges and expenses consequent upon its
failure so to file such certificate.
Acts 1951, 52nd Leg., ch. 491.
Art. 3.32. Requirement of Securities in Amount of Reserve
Having determined the required reserves on all the policies in
force, the Board shall see that the company has in securities of the
class and character required by the laws of this State the amount of
said reserves on all its policies, after all the debts and claims
against it and the minimum capital required by this chapter have
been provided for.
Acts 1951, 52nd Leg., ch. 491. Amended by Acts 1955, 54th Leg., p.
916, ch. 363, Sec. 11.
Art. 3.33. Authorized Investments and Loans for Capital Stock
Domestic Life, Health and Accident Insurance Companies
Scope
Sec. 1. This article and the rules promulgated to interpret and
implement it shall apply to all domestic insurance companies as
defined in Section 841.001 of this code and other insurers
specifically made subject to the provisions hereof, including a
stipulated premium insurance company electing to be governed by
this article under Section 884.311 of this code. Articles 3.39,
3.40, and 3.40-1 of this code shall not be applicable to such
companies, but such articles shall continue to be applicable to
insurance companies chartered under Chapters 9, 881, 884, 885, 886,
and 887 of this code, except as otherwise specifically provided in
those chapters. This article shall not limit or restrict the
investments in or transactions with or within subsidiaries and
affiliates which are made pursuant to the authority of the Texas
Insurance Holding Company System Regulatory Act (Chapter 823,
Insurance Code).
Purpose
Sec. 2. The purpose of this article is to protect and further the
interests of insureds, insurers, creditors, and the public by
providing standards for the development and administration of plans
for the investment of the assets of insurers.
Insurers' Investment Plans
Sec. 3. (a) The board of directors of each insurer or corresponding
authority designated by the charter, bylaws, or plan of operations
of an insurer which has no board of directors shall:
(1) adopt a written investment plan consistent with the provisions
of this article which:
(A) specifies the diversification of the insurer's investments, so
as to reduce the risk of large losses, by:
(i) broad categories (such as bonds and real estate loans),
(ii) kinds (such as obligations of governments, or business
entities, mortgage-backed securities, and real estate loans on
office, retail, industrial or residential properties),
(iii) quality,
(iv) maturity,
(v) industry, and
(vi) geographical areas (as to both domestic and foreign
investments);
(B) balances safety of principal with yield and growth;
(C) seeks a reasonable relationship of assets and liabilities as to
term and nature;
(D) is appropriate considering the capital and surplus and the
business conducted by the insurer;
(2) at least annually, review the adequacy of such investment plan
and the implementation thereof.
(b) The insurer shall maintain the investment plan in its principal
office and shall provide same to the commissioner or his designee
upon request, and such plans shall be maintained as a privileged and
confidential document by the Commissioner of Insurance or his
designee and it shall not be subject to public disclosure. The
insurer shall maintain investment records covering each
transaction. At all times, the insurer shall be able to demonstrate
that its investments are within the limitations prescribed in this
article.
Community Investment Report
Sec. 3A. (a) The Texas Department of Insurance shall, after
consultation with the insurance industry of this state and the
Office of Public Insurance Counsel, develop a report of insurance
industry community investments in Texas.
(b) The commissioner may request and insurance companies shall
provide information necessary to complete the requirements of
Subsection (a).
(c) The report established under Subsection (a) shall be provided
to the Texas Legislature no later than December 1 of each
even-numbered year.
Authorized Investments and Transactions
Sec. 4. Subject to the limitations and restrictions herein
contained and, unless otherwise specified, based upon the insurer's
capital, surplus and admitted assets as reported in the most
recently filed statutory financial statement, the investments and
transactions described in the following subsections, and in Section
6, Article 21.49-1, and none other, are authorized for the insurers
subject hereto:
(a) United States Government Bonds. Bonds, evidences of
indebtedness or obligations of the United States of America, or
bonds, evidences of indebtedness or obligations guaranteed as to
principal and interest by the full faith and credit of the United
States of America, and bonds, evidences of indebtedness, or
obligations of agencies and instrumentalities of the government of
the United States of America;
(b) Other Governmental Bonds. Bonds, evidences of indebtedness or
obligations of governmental units in the United States, Canada, or
any province or city of Canada, and of the instrumentalities of such
governmental units; provided:
(1) such governmental unit or instrumentality is not in default in
the payment of principal or interest in any of its obligations; and
(2) investments in the obligations of any one governmental unit or
instrumentality may not exceed 20 percent of the insurer's capital
and surplus;
(c) Obligations of Business Entities. Obligations, including bonds
or evidences of indebtedness, or participations in those bonds or
evidences of indebtedness, or asset-backed securities, that are
issued, assumed, guaranteed, or insured by any business entity,
including a sole proprietorship, a corporation, an association, a
general or limited partnership, a limited liability company, a
joint-stock company, a joint venture, a trust, or any other form of
business organization, whether for-profit or not-for-profit, that
is organized under the laws of the United States, another state,
Canada, or any state, district, province, or territory of Canada,
subject to all conditions set forth below:
(1) an insurer may acquire obligations or counterparty exposure
amounts, as defined in Subsection (u), in any one business entity
rated by the Securities Valuation Office of the National
Association of Insurance Commissioners, but not to exceed 20
percent of the insurer's statutory capital and surplus;
(2) an insurer shall not acquire an obligation, counterparty
exposure amount or preferred stock of any business entity if, after
giving effect to the investment:
(A) the aggregate amount of such investments then held by the
insurer that are rated 3, 4, 5 or 6 by the Securities Valuation
Office of the National Association of Insurance Commissioners would
exceed 20 percent of its assets;
(B) the aggregate amount of such investments then held by the
insurer that are rated 4, 5, or 6 by the Securities Valuation Office
would exceed 10 percent of its assets;
(C) the aggregate amount of such investments then held by the
insurer that are rated 5 or 6 by the Securities Valuation Office
would exceed three percent of its assets; or
(D) the aggregate amount of such investments then held by the
insurer that are rated 6 by the Securities Valuation Office would
exceed one percent of its assets.
If an insurer attains or exceeds the limit of any one rating
category referred to in this subsection, the insurer shall not be
precluded from acquiring investments in other rating categories
subject to the specific and multiple category limits applicable to
those investments;
(3) notwithstanding the foregoing, an insurer may acquire an
obligation of a business entity in which the insurer already holds
one or more obligations if the obligation is acquired in order to
protect an investment previously made in that business entity, but
obligations so acquired may not exceed one-half percent of the
insurer's assets; and
(4) this subsection does not prohibit an insurer from acquiring an
obligation as a result of a restructuring of an already held
obligation or preferred stock that is rated 3, 4, 5 or 6 by the
Securities Valuation Office;
(d) International Market. Bonds issued, assumed, or guaranteed by
the Interamerican Development Bank, the International Bank for
Reconstruction and Development (the World Bank), the Asian
Development Bank, the State of Israel, the African Development
Bank, and the International Finance Corporation; provided:
(1) investments in the bonds of any one of the entities specified
above may not exceed 20 percent of the insurer's capital and
surplus; and
(2) the aggregate of all investments made under this subsection may
not exceed 20 percent of the insurer's assets;
(e) Policy Loans. Loans upon the security of the insurer's own
policies not in excess of the amount of the reserve values thereof;
(f) Time and Savings Deposits. Any type or form of savings
deposits, time deposits, certificates of deposit, NOW accounts, and
money market accounts in solvent banks, savings and loan
associations, and credit unions and branches thereof, organized
under the laws of the United States of America or its states, when
made in accordance with the laws or regulations applicable to such
entities; provided the amount of the deposits in any one bank,
savings and loan association, or credit union will not exceed the
greater of:
(1) 20 percent of the insurer's capital and surplus;
(2) the amount of federal or state deposit insurance coverage
pertaining to such deposit; or
(3) 10 percent of the amount of capital, surplus, and undivided
profits of the entity receiving such deposits;
(g) Insurer Investment Pools. For the purposes of this Subsection
(g), the following definition shall apply:
(A) "Affiliate" means, as to any person, another person that,
directly or indirectly through one or more intermediaries,
controls, is controlled by, or is under common control with the
person.
(1) An insurer may acquire investments in investment pools that:
(A) invest only in:
(i) obligations that are rated 1 or 2 by the Securities Valuation
Office or have an equivalent of a Securities Valuation Office 1 or 2
rating (or, in the absence of a 1 or 2 rating or equivalent rating,
the issuer has outstanding obligations with a Securities Valuation
Office 1 or 2 or equivalent rating) by a nationally recognized
statistical rating organization recognized by the Securities
Valuation Office and have:
(a) a remaining maturity of 397 days or less or a put that entitles
the holder to receive the principal amount of the obligation which
put may be exercised through maturity at specified intervals not
exceeding 397 days; or
(b) a remaining maturity of three years or less and a floating
interest rate that resets no less frequently than quarterly on the
basis of a current short-term index (federal funds, prime rate,
treasury bills, London InterBank Offered Rate (LIBOR) or commercial
paper) and is subject to no maximum limit, if the obligations do not
have an interest rate that varies inversely to market interest rate
changes;
(ii) securities lending, repurchase and reverse repurchase
transactions that meet the requirements of Subsection (q) and any
applicable regulations of the department; or
(iii) money market mutual funds as authorized in Subsection (s);
provided that this short-term investment pool shall not acquire
investments in any one business entity that exceed 10 percent of the
total assets of the investment pool;
(B) invest only in investments which an insurer may acquire under
this article, if the insurer's proportionate interest in the amount
invested in these investments does not exceed the applicable limits
of this article, and the aggregate amount of all investments in such
other investment pools may not exceed 25 percent of the insurer's
assets.
(2) An insurer shall not acquire an investment in an investment pool
under this subsection if after giving effect to the investment, the
aggregate amount of investments in all investment pools then held
by the insurer would exceed 35 percent of its assets.
(3) For an investment in an investment pool to be qualified under
this article, the investment pool shall not:
(A) acquire securities issued, assumed, guaranteed or insured by
the insurer or an affiliate of the insurer;
(B) borrow or incur any indebtedness for borrowed money, except for
securities lending and reverse repurchase transactions.
(4) For an investment pool to be qualified under this article:
(A) the manager of the investment pool shall:
(i) be organized under the laws of the United States or a state and
designated as the pool manager in a pooling agreement;
(ii) be the insurer, an affiliated insurer, a business entity
affiliated with the insurer, a custodian bank, a business entity
registered under the Investment Advisors Act of 1940 (15 U.S.C.
Section 80a-1 et seq.), as amended, or, in the case of a reciprocal
insurer or interinsurance exchange, its attorney-in-fact or, in the
case of a United States branch of an alien insurer, its United
States manager or affiliates or subsidiaries of its United States
manager;
(B) the pool manager or an entity designated by the pool manager of
the type set forth in (4)(A)(ii) shall maintain detailed accounting
records setting forth:
(i) the cash receipts and disbursements reflecting each
participant's proportionate investment in the investment pool;
(ii) a complete description of all underlying assets of the
investment pool (including amount, interest rate, maturity date (if
any) and other appropriate designations); and
(iii) other records which, on a daily basis, allow third parties to
verify each participant's investments in the investment pool;
(C) the assets of the investment pool shall be held in one or more
accounts, in the name or on behalf of the investment pool, either
(i) under a custody agreement or trust agreement with a custodian
bank or (ii) at the principal office of the pool manager. The
applicable agreement shall:
(i) state and recognize the claims and rights of each participant;
(ii) acknowledge that the underlying assets of the investment pool
are held solely for the benefit of each participant in proportion to
the aggregate amount of its investments in the investment pool; and
(iii) contain an agreement that the underlying assets of the
investment pool shall not be commingled with the general assets of
the custodian bank or any other person.
(5) The pooling agreement for each investment pool shall be in
writing and shall provide that:
(A) the insurer, its subsidiaries, affiliates or, in the case of a
United States branch of an alien insurer, affiliates or
subsidiaries of its United States manager, and any unaffiliated
insurer shall, at all times, hold 100 percent of the interests in
the investment pool;
(B) the underlying assets of the investment pool shall not be
commingled with the general assets of the pool manager or any other
person;
(C) in proportion to the aggregate amount of each pool
participant's interest in the investment pool:
(i) each participant owns an undivided interest in the underlying
assets or the investment pool; and
(ii) the underlying assets of the investment pool are held solely
for the benefit of each participant;
(D) a participant, or, in the event of the participant's
insolvency, bankruptcy, or receivership, its trustee, receiver,
conservator or other successor-in-interest, may withdraw all or any
portion of its investment from the investment pool under the terms
of the pooling agreement;
(E) withdrawals may be made on demand without penalty or other
assessment on any business day, but settlement of funds shall occur
within a reasonable and customary period thereafter provided: (i)
in the case of publicly traded securities, settlement shall not
exceed five business days, and (ii) in the case of all other
securities and investments, settlement shall not exceed 10 business
days. Distributions under this paragraph shall be calculated in
each case net of all then applicable fees and expenses of the
investment pool. The pooling agreement shall provide that the pool
manager shall distribute to a participant, at the discretion of the
pool manager:
(i) in cash, the then fair market value of the participant's pro
rata share of each underlying asset of the investment pool;
(ii) in kind, a pro rata share of each underlying asset; or
(iii) in a combination of cash and in kind distributions, a pro rata
share in each underlying asset; and
(F) the pool manager shall make the records of the investment pool
available for inspection by the commissioner.
(6) An investment in an investment pool shall not be deemed to be an
affiliate transaction under Section 4, Article 21.49-1, of this
code; however each pooling agreement shall be subject to the
standards of Section 4(a), Article 21.49-1, of this code and the
reporting requirements of Section 3(b), Article 21.49-1, of this
code.
(h) Equity Interests. Equity interests including common stock,
equity investment in an investment company (other than a money
market mutual fund as defined in Subsection (s) of this section),
real estate investment trust, limited partnership interests,
warrants or other rights to acquire equity interests that are
created by the person that owns or would issue the equity to be
acquired, and equity interests in any business entity that is
organized under the laws of the United States, any of its states,
Canada or any province or territory of Canada provided:
(1) if no market value from a generally recognized source is
available for the equity interest, the business entity or other
investment shall be subject to an annual audit by an independent
certified public accountant or subject to another method of
valuation acceptable to the commissioner; and
(2) an insurer shall not be permitted to invest in a partnership, as
a general partner, except through an investment subsidiary;
(3) such investments in any one business entity other than a money
market fund defined in Subsection (s) may not exceed 15 percent of
the insurer's capital and surplus;
(4) the aggregate amount of all investments made under this
subsection may not exceed 25 percent of the insurer's assets.
For purposes of this subsection, a business entity shall mean a real
estate investment trust, corporation, limited liability company,
association, limited partnership, joint venture, mutual fund,
trust, joint tenancy or other similar form of business
organization, whether organized for profit or not-for-profit.
(i) Preferred Stock. Preferred stock of business entities as
described in Subsection (c) of this section; provided:
(1) investments in the preferred stock of any one business entity
will not exceed 20 percent of the insurer's capital and surplus;
(2) the preferred stock is rated by the Securities Valuation
Office, and the aggregate investment in preferred stock rated 3, 4,
5, or 6, when added to the investments under Subsection (c)(2) do
not result in the combined total of such investments exceeding the
limitations specified in Subsection (c)(2);
(3) in the aggregate not more than 10 percent of the insurer's
assets may be invested in preferred stock, the redemption and
retirement of which is not provided for by a sinking fund meeting
the standards established by the National Association of Insurance
Commissioners; and
(4) the aggregate of all investments made under this subsection may
not exceed 40 percent of the insurer's assets;
(j) Collateral Loans. Collateral loans secured by a first lien upon
or a valid and perfected first security interest in an asset;
provided:
(1) the amount of any such collateral loan will not exceed 80
percent of the value of the collateral asset at any time during the
duration of the loan; and
(2) the asset used as collateral would be authorized for direct
investment by the insurer under other provisions of this Section 4,
except real property in Subsection (l);
(k) Real Estate Loans. Notes, evidences of indebtedness, or
participations therein secured by a valid first lien upon real
property or leasehold estate therein located in the United States
of America; provided:
(1) the amount of any such obligation secured by a first lien upon
real property or leasehold estate therein shall not exceed 90
percent of the value of such real property or leasehold estate
therein, but the amount of such obligation:
(A) may exceed 90 percent but shall not exceed 100 percent of the
value of such real property or leasehold estate therein if the
insurer or one or more wholly owned subsidiaries of the insurer owns
in the aggregate a 10 percent or greater equity interest in such
real property or leasehold estate therein;
(B) may be 95 percent of the value of such real property or
leasehold estate therein if it contains only a dwelling designed
exclusively for occupancy by not more than four families for
residential purposes, and the portion of the unpaid balance of such
obligation which is in excess of an amount equal to 90 percent of
such value is guaranteed or insured by a mortgage insurance company
qualified to do business in the State of Texas; or
(C) may be greater than 90 percent of the value of such real
property or leasehold estate therein to the extent the obligation
is insured or guaranteed by the United States of America, the
Federal Housing Administration pursuant to the National Housing Act
of 1934, as amended (12 U.S.C. Section 1701 et seq.), or the State
of Texas; and
(2) the term of an obligation secured by a first lien upon a
leasehold estate in real property shall not exceed a period equal to
four-fifths of the then unexpired term of such leasehold estate;
provided the unexpired term of the leasehold estate must extend at
least 10 years beyond the term of the obligation, and each
obligation shall be payable in an installment or installments of
sufficient amount or amounts so that at any time after the
expiration of two-thirds of the original loan term, the principal
balance will be no greater than the principal balance would have
been if the loan had been amortized over the original loan term in
equal monthly, quarterly, semiannual, or annual payments of
principal and interest, it being required that under any method of
repayment such obligation will fully amortize during a period of
time not exceeding four-fifths of the then unexpired term of the
security leasehold estate; and
(3) if any part of the value of buildings is to be included in the
value of such real property or leasehold estate therein to secure
the obligations provided for in this subsection, such buildings
shall be covered by adequate property insurance, including but not
limited to fire and extended coverage insurance issued by a company
authorized to transact business in the State of Texas or by a
company recognized as acceptable for such purpose by the insurance
regulatory official of the state in which such real estate is
located, and the amount of insurance granted in the policy or
policies shall be not less than the unpaid balance of the obligation
or the insurable value of such buildings, whichever is the lesser;
the loss clause shall be payable to the insurer as its interest may
appear; and
(4) to the extent any note, evidence of indebtedness, or
participation therein under this subsection represents an equity
interest in the underlying real property, the value of such equity
interest shall be determined at the time of execution of such note,
evidence of indebtedness, or participation therein and that portion
shall be designated as an investment subject to the provisions of
Subsection (l)(2) of this section; and
(5) the amount of any one such obligation may not exceed 25 percent
of the insurer's capital and surplus; and
(6) a first lien on real property may be purchased after its
origination if the first lien is insured by a mortgagee's title
policy issued to the original mortgagee that contains a provision
that inures the policy to the use and benefit of the owners of the
evidence of debt indicated in the policy and to any subsequent
owners of that evidence of debt, and if the insurer maintains
evidence of assignments or other transfers of the first lien on real
property to the insurer. An assignment or other transfer to the
insurer, duly recorded in the county in which the real property is
located, shall be presumed to create legal ownership of the first
lien by the insurer;
(l) Real Estate. Real property fee simple or leasehold estates
located within the United States of America, as follows:
(1) home and branch office real property or participations therein,
which must be materially enhanced in value by the construction of
durable, permanent-type buildings and other improvements costing
an amount at least equal to the cost of such real property,
exclusive of buildings and improvements at the time of acquisition,
or by the construction of such buildings and improvements which
must be commenced within two years of the date of the acquisition of
such real property; provided:
(A) at least 30 percent of the available space in such building
shall be occupied for the business purposes of the insurer and its
affiliates; and
(B) the aggregate investment in such home and branch offices shall
not exceed 20 percent of the insurer's assets; and
(2) other investment property or participations therein, which must
be materially enhanced in value by the construction of durable,
permanent-type buildings and other improvements costing an amount
at least equal to the cost of such real property, exclusive of
buildings and improvements at the time of acquisition, or by the
construction of such buildings and improvements which must be
commenced within two years of the date of acquisition of such real
property; provided that such investment in any one piece of
property or interest therein, including the improvements,
fixtures, and equipment pertaining thereto may not exceed five
percent of the insurer's assets; provided, however, nothing in
this article shall allow ownership of, development of, or equity
interest in any residential property or subdivision, single or
multiunit family dwelling property, or undeveloped real estate for
the purpose of subdivision for or development of residential,
single, or multiunit family dwellings, except acquisitions as
provided in Subdivision (4) below, and such ownership, development,
or equity interests shall be specifically prohibited;
(3) the admissible asset value of each such investment in the
properties acquired under Subdivisions (1) and (2) of this
subsection shall be subject to review and approval by the
Commissioner of Insurance. The commissioner shall have discretion
at the time such investment is made or any time when an examination
of the company is being made to cause any such investment to be
appraised by an appraiser, appointed by the commissioner, and the
reasonable expense of such appraisal shall be paid by such
insurance company and shall be deemed to be a part of the expense of
examination of such company; if the appraisal is made upon
application of the company, the expense of such appraisal shall not
be considered a part of the expense of examination of such company;
no insurance company may hereafter make any write-up in the
valuation of any of the properties described in Subdivision (1) or
(2) of this subsection unless and until it makes application
therefor and such increase in valuation shall be approved by the
commissioner; and
(4) other real property acquired:
(A) in good faith by way of security for loans previously contracted
or money due; or
(B) in satisfaction of debts previously contracted for in the
course of its dealings; or
(C) by purchase at sales under judgment or decrees of court, or
mortgage or other lien held by such insurer; and
(5) regardless of the mode of acquisition specified herein, upon
sale of any such real property, the fee title to the mineral estate
or any portion thereof may be retained by the insurance company
indefinitely;
(m) Oil, Gas, and Minerals. In addition to and without limitation
on the purposes for which real property may be acquired, secured,
held, or retained pursuant to other provisions of this section,
every such insurance company may secure, hold, retain, and convey
production payments, producing royalties and producing overriding
royalties, or participations therein as an investment for the
production of income; provided:
(1) in no event may such company carry such assets in an amount in
excess of 90 percent of the appraised value thereof; and
(2) no one investment under this subsection may exceed 10 percent of
the insurer's capital and surplus in excess of statutory minimum
capital and surplus applicable to that insurer, and the aggregate
of all such investments may not exceed 10 percent of the insurer's
assets as of December 31st next preceding the date of such
investment; and
(3) for the purposes of this subsection, the following definitions
apply:
(A) a production payment is defined to mean a right to oil, gas, or
other minerals in place or as produced that entitles its owner to a
specified fraction of production until a specified sum of money, or
a specified number of units of oil, gas, or other minerals, has been
received;
(B) a royalty and an overriding royalty are each defined to mean a
right to oil, gas, and other minerals in place or as produced that
entitles the owner to a specified fraction of production without
limitation to a specified sum of money or a specified number of
units of oil, gas, or other minerals;
(C) "producing" is defined to mean producing oil, gas, or other
minerals in paying quantities, provided that it shall be deemed
that oil, gas, or other minerals are being produced in paying
quantities if a well has been "shut in" and "shut-in royalties" are
being paid;
(n) Foreign Countries and United States Territories. In addition
to the investments in Canada authorized in other subsections of
this section, investments in other foreign countries or in
commonwealths, territories, or possessions of the United States;
provided:
(1) such investments are substantially the same types as those
authorized for investment within the United States of America or
Canada by other provisions of this section; and
(2) such investments when added to the amount of similar
investments made within the United States and Canada do not result
in the combined total of such investments exceeding the limitations
specified in Subsections (a) through (m), (o), (q) and (u) of this
section; and
(3) such investments may not exceed the sum of:
(A) the amount of insurer's reserves attributable to the insurance
business in force in foreign countries, if any, and any additional
investments required by any foreign country as a condition to doing
business therein; and
(B) 20 percent of the insurer's assets of which no more than 10
percent of the insurer's assets may be investments denominated in
foreign currency that are not hedged pursuant to the provisions of
Subsection (u);
(o) Investments Not Otherwise Specified. Investments which are not
otherwise authorized by this article and which are not specifically
prohibited by statute, including that portion of any investments
which may exceed the limits specified in Subsections (a) through
(n), (q) and (u) of this section; provided:
(1) if any aggregate or individual specified investment limitation
in Subsections (a) through (n), (q) and (u) of this section is
exceeded, then the excess portion of such investment shall be an
investment under this subsection; and
(2) the burden of establishing the value of such investments shall
be upon the insurer; and
(3) the amount of any one such investment may not exceed 10 percent
of the insurer's capital and surplus in excess of the statutory
minimum capital and surplus applicable to that insurer; and
(4) the aggregate of all investments made under this subsection may
not exceed the lesser of either five percent of the insurer's assets
or the insurer's capital and surplus in excess of the statutory
minimum capital and surplus applicable to that insurer;
(p) Other Authorized Investments. Those other investments as
follows:
(1) any investment held by an insurer on the effective date of this
Act, which was legally authorized at the time it was made or
acquired or which the insurer was authorized to hold or possess
immediately prior to such effective date, but which does not
conform to the requirements of the investments authorized in
Subsections (a) through (o) of this section, may continue to be held
by and considered as an authorized asset or transaction of the
insurer; provided the investment or transaction is disposed of at
its maturity date, if any, or within the time prescribed by the law
under which it was acquired, if any; and provided further, in no
event shall the provisions
