CHAPTER 492. REINSURANCE FOR LIFE, HEALTH, AND ACCIDENT INSURANCE COMPANIES AND RELATED ENTITIES
INSURANCE CODE
TITLE 4. REGULATION OF SOLVENCY
SUBTITLE F. REINSURANCE
CHAPTER 492. REINSURANCE FOR LIFE, HEALTH, AND ACCIDENT INSURANCE
COMPANIES AND RELATED ENTITIES
SUBCHAPTER A. GENERAL PROVISIONS
Sec. 492.001. DEFINITIONS. In this chapter:
(1) "Assuming insurer" means an insurer that, under a
reinsurance contract, incurs an obligation to a ceding insurer,
the performance of which is contingent on the ceding insurer's
incurring liability or loss under the ceding insurer's insurance
contract with a third person.
(2) "Qualified United States financial institution" means an
institution that:
(A) is organized or, in the case of a United States branch or
agency office of a foreign banking organization, licensed, under
the laws of the United States or any state of the United States;
and
(B) is regulated, supervised, and examined by a federal or state
authority that has regulatory authority over banks and trust
companies.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 1, eff. April 1, 2007.
Sec. 492.002. APPLICABILITY OF CHAPTER. (a) Except as provided
by Subsection (b), this chapter applies to:
(1) all life, health, and accident insurance companies regulated
by the department, including:
(A) a stock or mutual life, health, or accident insurance
company;
(B) a fraternal benefit society; and
(C) a nonprofit hospital, medical, or dental service
corporation, including a group hospital service corporation
operating under Chapter 842; and
(2) a health maintenance organization operating under Chapter
843.
(b) This chapter does not apply to a ceding insurer domiciled in
another state that regulates credit for reinsurance under
statutes, rules, or regulations substantially similar in
substance or effect to this chapter if the ceding insurer on
request provides the commissioner with:
(1) evidence of the similarity in the form of those statutes,
rules, or regulations; and
(2) an interpretation of the statutes, rules, or regulations and
the standards used by the state of domicile.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 1, eff. April 1, 2007.
Sec. 492.003. RULES. The commissioner may adopt rules
implementing this chapter.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 1, eff. April 1, 2007.
SUBCHAPTER B. REINSURANCE
Sec. 492.051. REINSURANCE AUTHORIZED. (a) An insurer
authorized to engage in the business of insurance in this state
may reinsure in any solvent assuming insurer any risk or part of
a risk that both insurers are authorized to assume.
(b) A life insurance company authorized to engage in business in
this state may provide reinsurance on the same basis as an
insurer described by Section 493.051(b).
(c) The commissioner may adopt necessary and reasonable rules
under Subsection (b) to protect the public interest.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 1, eff. April 1, 2007.
Sec. 492.052. LIMITATION ON REINSURANCE OF ENTIRE OUTSTANDING
BUSINESS. (a) An insurer may not reinsure the insurer's entire
outstanding business in an assuming insurer unless the assuming
insurer is authorized to engage in the business of insurance in
this state.
(b) Before the date of reinsurance:
(1) the reinsurance contract must be submitted to the
commissioner; and
(2) the commissioner must approve the contract as fully
protecting the interests of all policyholders.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 1, eff. April 1, 2007.
Sec. 492.053. LIMITATION ON REINSURANCE OF RISKS OF INSURER WITH
LESS THAN MINIMUM CAPITAL AND SURPLUS. An insurer operating
under Section 841.204 may not reinsure any risk or part of a risk
in an insurer that is not authorized to engage in the business of
insurance in this state.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 1, eff. April 1, 2007.
Sec. 492.054. FILING OF REINSURANCE SCHEDULES. The commissioner
shall require each insurer to file reinsurance schedules:
(1) when the insurer makes the insurer's annual report; and
(2) at other times as the commissioner directs.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 1, eff. April 1, 2007.
Sec. 492.055. ACCOUNTING FOR REINSURANCE CONTRACTS. (a) An
insurer shall account for reinsurance contracts and shall record
the contracts in the insurer's financial statements in a manner
that accurately reflects the effect of the contracts on the
insurer's financial condition.
(b) A reinsurance contract may contain a provision allowing the
offset of mutual debts and credits between the ceding insurer and
the assuming insurer, whether arising out of one or more
reinsurance contracts.
(c) The commissioner may adopt reasonable rules relating to:
(1) the accounting and financial statement requirements of this
section and the treatment of reinsurance contracts between
insurers, including minimum risk transfer standards, asset debits
or credits, reinsurance debits or credits, and reserve debits or
credits relating to the transfer of all or any part of an
insurer's risks or liabilities by reinsurance contracts; and
(2) any contingencies arising from reinsurance contracts.
(d) A rule adopted under Subsection (c) after September 1, 1995,
applies to:
(1) a reinsurance contract entered into on or after the
effective date of the rule; and
(2) a reinsurance contract that is amended on or after the
effective date of the rule.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 1, eff. April 1, 2007.
Sec. 492.056. LIMITATION ON RIGHTS AGAINST REINSURER. A person
does not have a right against a reinsurer that is not
specifically stated in:
(1) the reinsurance contract; or
(2) a specific agreement between the reinsurer and the person.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 1, eff. April 1, 2007.
SUBCHAPTER C. CREDIT FOR REINSURANCE
Sec. 492.101. EXCLUSIVE PROCEDURE FOR TAKING CREDIT FOR
REINSURANCE. A ceding insurer may take a credit for reinsurance,
as an asset or as a deduction from liability, only as provided by
this chapter.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 1, eff. April 1, 2007.
Sec. 492.102. CREDIT FOR REINSURANCE GENERALLY. (a) A ceding
insurer may be allowed credit for reinsurance ceded, as an asset
or as a deduction from liability, only if the reinsurance is
ceded to an assuming insurer that:
(1) is authorized to engage in the business of insurance or
reinsurance in this state;
(2) is accredited as a reinsurer in this state, as provided by
Section 492.103; or
(3) subject to Subchapter D, maintains, in a qualified United
States financial institution that has been granted the authority
to operate with fiduciary powers, a trust fund to pay valid
claims of:
(A) the assuming insurer's United States policyholders and
ceding insurers; and
(B) the policyholders' and ceding insurers' assigns and
successors in interest.
(b) Notwithstanding Subsection (a), a ceding insurer may be
allowed credit for reinsurance ceded to an assuming insurer that
does not meet the requirements of that subsection, but only with
respect to the insurance of risks located in a jurisdiction in
which the reinsurance is required by the jurisdiction's law,
including regulations, to be ceded to an assuming insurer that
does not meet the requirements of that subsection.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 1, eff. April 1, 2007.
Sec. 492.103. ACCREDITED REINSURER. For purposes of Section
492.102(a)(2), an insurer is accredited as a reinsurer in this
state if the insurer:
(1) submits to this state's jurisdiction;
(2) submits to this state's authority to examine the insurer's
books and records;
(3) is domiciled and authorized to engage in the business of
insurance or reinsurance in at least one state or, if the insurer
is a United States branch of an alien assuming insurer, is
entered through and authorized to engage in the business of
insurance or reinsurance in at least one state;
(4) annually files with the department a copy of the annual
statement the insurer files with the insurance department of the
insurer's state of domicile; and
(5) maintains a surplus as regards policyholders in an amount of
at least $20 million.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 1, eff. April 1, 2007.
Sec. 492.104. CREDIT FOR FUNDS SECURING REINSURANCE OBLIGATIONS.
(a) Subject to Subsection (b), any asset or deduction from
liability for reinsurance ceded to an assuming insurer that does
not meet the requirements of Section 492.102 shall be allowed in
an amount that does not exceed the liabilities carried by the
ceding insurer and in the amount of funds held by or on behalf of
the ceding insurer under a reinsurance contract with the assuming
insurer, including funds held in trust for the ceding insurer, as
security for the payment of obligations under the contract.
(b) The funds held as security:
(1) must be held in the United States subject to withdrawal
solely by and under the exclusive control of the ceding insurer
or, in the case of a trust, held in a qualified United States
financial institution that has been granted the authority to
operate with fiduciary powers; and
(2) may be in the form of:
(A) cash;
(B) securities that:
(i) are readily marketable over a national exchange;
(ii) have a maturity date of not later than one year;
(iii) are listed by the Securities Valuation Office of the
National Association of Insurance Commissioners; and
(iv) qualify as admitted assets;
(C) subject to Section 492.105, a clean, irrevocable,
unconditional letter of credit, issued or confirmed by a
qualified United States financial institution that has been
determined by the commissioner or the Securities Valuation Office
of the National Association of Insurance Commissioners to meet
the standards of financial condition and standing that are
considered necessary and appropriate to regulate the quality of
financial institutions whose letters of credit will be acceptable
to the commissioner; or
(D) another form of security acceptable to the commissioner.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 1, eff. April 1, 2007.
Sec. 492.105. ACCEPTABILITY OF CERTAIN LETTERS OF CREDIT. A
letter of credit issued or confirmed by an institution that meets
the standards prescribed by Section 492.104(b)(2)(C) as of the
date the letter is issued or confirmed, but later fails to meet
those standards, continues to be acceptable as security under
Section 492.104 until the earliest of:
(1) the letter's expiration;
(2) the letter's extension, renewal, modification, or amendment
after the date the institution fails to meet those standards; or
(3) the expiration of the three-month period after the date the
institution fails to meet those standards.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 1, eff. April 1, 2007.
Sec. 492.106. CREDIT FOR REINSURANCE: DIRECT PAYMENT ON
LIABILITY REQUIRED. A ceding insurer may not be given credit for
reinsurance ceded, as an asset or as a deduction from liability,
in an accounting or financial statement unless the reinsurance is
payable by the assuming insurer:
(1) on the liability of the ceding insurer under the contracts
reinsured, without diminution because of the ceding insurer's
insolvency; and
(2) directly to the ceding insurer or to the ceding insurer's
domiciliary liquidator or receiver.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 1, eff. April 1, 2007.
Sec. 492.107. REQUEST FOR INFORMATION FROM ASSUMING INSURER.
(a) The commissioner may request that an assuming insurer not
meeting the requirements of Section 492.102 file:
(1) financial statements certified and audited by an independent
certified public accountant;
(2) a certified copy of the certificate or letter of authority
from the domiciliary jurisdiction; and
(3) information on the principals and management of the assuming
insurer.
(b) If an assuming insurer does not comply with a request under
this section, the commissioner may issue a directive prohibiting
all authorized insurers from taking credit for business ceded to
the assuming insurer after the effective date of the directive.
(c) An unauthorized insurer that is included in the most recent
quarterly listing published by the International Insurers
Department of the National Association of Insurance Commissioners
is considered to have complied with a request under this section.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 1, eff. April 1, 2007.
SUBCHAPTER D. REQUIREMENTS FOR TRUST CREDIT ALLOWANCE
Sec. 492.151. APPLICABILITY OF SUBCHAPTER. This subchapter
applies to a trust that is used to qualify for a reinsurance
credit under Section 492.102(a)(3) and to the assuming insurer
that maintains the trust fund.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 1, eff. April 1, 2007.
Sec. 492.152. COMPOSITION OF TRUST. (a) If the assuming
insurer is a single insurer, the trust must:
(1) consist of a trusteed account representing the assuming
insurer's liabilities attributable to business written in the
United States; and
(2) include a trusteed surplus of at least $20 million.
(b) If the assuming insurer is a group of insurers that includes
an unincorporated individual insurer:
(1) the trust must:
(A) consist of a trusteed account representing the group's
liabilities attributable to business written in the United
States; and
(B) include a trusteed surplus of at least $100 million; and
(2) the group shall make available to the department an annual
certification by the group's domiciliary regulator and its
independent public accountants of each underwriter's solvency.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 1, eff. April 1, 2007.
Sec. 492.153. FORM OF TRUST. The trust must be established in a
form approved by the commissioner.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 1, eff. April 1, 2007.
Sec. 492.154. TERMS OF TRUST. (a) The trust instrument must
provide that contested claims are valid and enforceable on the
final order of any court in the United States.
(b) The trust must vest legal title to the trust's assets in the
trustees of the trust for:
(1) the trust's United States policyholders and ceding insurers;
and
(2) the policyholders' and ceding insurers' assigns and
successors in interest.
(c) The trust must remain in effect as long as the assuming
insurer has outstanding obligations under a reinsurance contract
subject to the trust.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 1, eff. April 1, 2007.
Sec. 492.155. REPORTS AND CERTIFICATION. (a) Not later than
February 28 of each year, the trustees of the trust shall:
(1) report to the department in writing, showing the balance of
the trust and listing the trust's investments at the end of the
preceding year; and
(2) certify the date of termination of the trust, if termination
is planned, or certify that the trust will not expire before
December 31 of the year of the report.
(b) To enable the commissioner to determine the sufficiency of
the trust fund under Section 492.102(a)(3), the assuming insurer
shall report to the department not later than March 1 of each
year information substantially the same as the information
required to be reported by an authorized insurer on the National
Association of Insurance Commissioners' Annual Statement form.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 1, eff. April 1, 2007.
Sec. 492.156. CERTAIN TRUSTEED ASSUMING INSURERS: REQUIREMENTS
FOR REINSURANCE CONTRACT. (a) A ceding insurer may not be
allowed credit under Section 492.102(a)(3) for reinsurance ceded
to an assuming insurer that is not authorized or accredited to
engage in the business of insurance or reinsurance in this state
unless the assuming insurer agrees in the reinsurance contract:
(1) that, if the assuming insurer fails to perform the assuming
insurer's obligations under the reinsurance contract, the
assuming insurer, at the request of the ceding insurer, will:
(A) submit to the jurisdiction of a court in any state of the
United States;
(B) comply with all requirements necessary to give the court
jurisdiction; and
(C) abide by the final decision of that court or, if the court's
decision is appealed, of the appellate court; and
(2) to designate the commissioner or an attorney as an agent for
service of process in any action, suit, or proceeding instituted
by or on behalf of the ceding insurer.
(b) This section is not intended to conflict with or override a
provision in a reinsurance contract that requires the parties to
arbitrate the parties' disputes.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 1, eff. April 1, 2007.
Sec. 492.157. EXAMINATION OF TRUST AND ASSUMING INSURER. The
trust and the assuming insurer are subject to examination as
determined by the commissioner.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 1, eff. April 1, 2007.