Art. 2.10-5. INVESTMENT AUTHORITY. Article repealed effective April 1, 2007 Definitions Sec. 1. In this article: (1) "Business entity" means a corporation, limited liability company, association, partnership, joint stock company, joint venture, mutual fund trust, or other similar form of business organization, whether organized as for-profit or not-for-profit. (2) "Class one money market mutual fund" means a mutual fund that at all times qualifies for investment using the bond class one reserve factor described by the purposes and procedures of the securities valuation office. (3) "Government money market mutual fund" means a money market mutual fund that at all times: (A) invests only in obligations issued, guaranteed, or insured by the United States or collateralized repurchase agreements composed of those obligations; and (B) is qualified for investment without a reserve under the purposes and procedures publication of the securities valuation office or any successor publication. (4) "Money market mutual fund" means a mutual fund that qualifies under 17 C.F.R. Part 270.2a-7, as authorized by the Investment Company Act of 1940 (15 U.S.C. Sections 80a-1 et seq.), as amended. (5) "Obligation" means: (A) a bond, note, debenture, trust certificate (including an equipment certificate), or production payment; (B) a negotiable bank certificate of deposit, bankers' acceptance, credit tenant loan, or other loan secured by financing net leases; or (C) any other evidence of indebtedness for the payment of money or participation certificates or other evidences of an interest in an obligation described by this subdivision, whether constituting a general obligation of the issuer or payable only out of certain revenues or certain funds pledged or otherwise dedicated for payment. (6) "Qualified bank" means a national bank, state bank, or trust company that at all times is adequately capitalized as determined by the standards adopted by the United States banking regulators and that is either regulated by state banking laws or a member of the Federal Reserve System. (7) "Repurchase transaction" means a transaction in which an insurer purchases securities from a business entity that is obligated to repurchase the purchased securities or equivalent securities from the insurer at a specified price, either within a specified period or on demand. (8) "Reverse repurchase transaction" means a transaction in which an insurer sells securities to a business entity and is obligated to repurchase the securities sold or equivalent securities from the business entity at a specified price, either within a specified period or on demand. (9) "Securities lending transaction" means a transaction in which securities are loaned by an insurer to a business entity that is obligated to return the loaned securities or equivalent securities to the insurer, either within a specified period or on demand. (10) "Securities valuation office" means the Securities Valuation Office of the National Association of Insurance Commissioners. Authority to Invest Sec. 2. An insurer may acquire investments and participate in an investment pool that is qualified under Section 5 of this article and the investments of which are limited to investments authorized for a short-term investment pool under Section 3 of this article or for an authorized investment pool under Section 4 of this article. Short-Term Investment Pools Sec. 3. (a) A short-term investment pool may contain only: (1) except as provided by Subsection (b) of this section, obligations that are rated one or two by the securities valuation office or that have a rating equivalent to a securities valuation office rating of one or two made by a statistical rating organization that is nationally recognized and recognized by the securities valuation office and that have a remaining maturity of: (A) 397 days or less or a put that entitles the holder to receive the principal amount of the obligation and that may be exercised through maturity at specified intervals not exceeding 397 days; or (B) three years or less and a floating interest rate that resets not less frequently than quarterly on the basis of a current short-term index acceptable under Subsection (c) of this section and is not subject to a maximum limit, if the obligations do not have an interest rate that varies inversely to market interest rate changes; (2) government money market mutual funds or class one money market mutual funds; or (3) securities lending, repurchase, and reverse repurchase transactions that meet the requirements imposed under Article 2.10-3 of this code. (b) In the absence of a one or two rating or equivalent rating, the issuer of an obligation under Subsection (a)(1) of this section must have outstanding obligations rated one or two by the securities valuation office or that have a rating equivalent to a securities valuation office rating of one or two made by a nationally recognized statistical rating organization recognized by the securities valuation office. (c) For purposes of this section, a current short-term index is: (1) a federal funds rate; (2) the prime rate; (3) the rate for treasury bills; (4) the London InterBank Offered Rate; or (5) the rate for commercial paper. Authorized Investment Pools Sec. 4. Authorized investment pools are limited to investments that a participating insurer is authorized to acquire by other articles of this code. The insurer's total of proportionate ownership interests in any one authorized investment held by an authorized investment pool, and direct investments in the same authorized investment, may not exceed the limit provided by the applicable authorizing article. In addition to that limitation, an insurer is also subject to the overall limitations contained in Section 6(c) of this article. Qualifications for an Investment Pool Sec. 5. (a) To be qualified, an investment pool must comply with the requirements established under this section. (b) The investment pool may not: (1) acquire securities issued, assumed, guaranteed, or insured by the investing insurer or an affiliate of the investing insurer; (2) borrow or incur an indebtedness for borrowed money, except for securities lending and reverse repurchase transactions that meet the requirements of this article; or (3) permit the aggregate value of securities then loaned or sold to, purchased from, or invested in any one business entity under this section to exceed 10 percent of the total assets of the investment pool. (c) The investment pool shall have a written pooling agreement. (d) The pooling agreement must designate a pool manager. The pool manager must be organized under the laws of the United States or a state and must be: (1) the investing insurer, an affiliated insurer, or a business entity affiliated with the insurer; (2) a qualified bank; (3) a business entity registered under the Investment Advisers Act of 1940 (15 U.S.C. Sec. 80b-1 et seq.), as amended; (4) if a reciprocal insurer or interinsurance exchange, its attorney-in-fact; or (5) if a United States branch of an alien insurer, its United States manager or an affiliate or subsidiary of its United States manager. (e) The pool manager shall compile and maintain: (1) detailed accounting records that set forth: (A) the cash receipts and disbursements reflecting each pool participant's proportionate investment in the investment pool; and (B) a complete description of all underlying assets of the investment pool, including the amount, interest rate, and maturity date, if any, of each of those assets and other appropriate designations; and (2) other records that, on a daily basis, allow third parties to verify each pool participant's investment in the investment pool. (f) The pool manager shall maintain the assets of the investment pool in one or more accounts, in the name of or on behalf of the investment pool, under a custody agreement with a qualified bank. The custody agreement must: (1) state and recognize the claims and rights of each participant; (2) acknowledge that the underlying assets of the investment pool are held solely for the benefit of each participant in proportion to the aggregate amount of its investments in the investment pool; and (3) contain an agreement that the underlying assets of the investment pool may not be commingled with the general assets of the custodian qualified bank or any other person. (g) The pooling agreement for the investment pool must also provide that: (1) 100 percent of the ownership interests in the investment pool must at all times be held by: (A) an insurer and its affiliated insurers; (B) in the case of an investment pool investing solely in investments permitted under Section 3 of this article, the insurer and its subsidiaries and affiliates or any pension or profit-sharing plan of the insurer, its subsidiaries, and affiliates; or (C) in the case of a United States branch of an alien insurer, affiliates or subsidiaries of its United States manager; (2) the underlying assets of the investment pool may not be commingled with the general assets of the pool manager or any other person; (3) each participant owns an undivided interest in the underlying assets of the investment pool in proportion to the aggregate amount of each pool participant's interest in the investment pool and the underlying assets of the investment pool are held solely for the benefit of each participant; and (4) a pool participant or, in the event of the pool participant's insolvency, bankruptcy, or receivership, its trustee, receiver, conservator, or other successor-in-interest may withdraw all or any portion of its investment from the pool under the terms of the pooling agreement. Additional Requirements; Limitations Sec. 6. (a) An investment pool must be a business entity. (b) A transaction between the pool and a participant in the pool is not subject to Section 4, Article 21.49-1 of this code, except that, before entering into a pool, an insurer subject to Article 21.49-1 of this code shall file the notice required under Section 4(d)(2), Article 21.49-1 of this code. Investment activities of the pool and transactions between pools and participants shall be reported annually in the registration statement required by Section 3, Article 21.49-1 of this code. (c) An insurer shall not acquire an investment in an investment pool under this section if, as a result of and after giving effect to that investment, the aggregate amount of investments then held by the insurer under this article: (1) in any one investment pool would exceed 10 percent of its admitted assets; (2) in all investment pools investing in investments permitted under Section 4 of this article would exceed 25 percent of its admitted assets; or (3) in all investment pools would exceed 35 percent of its admitted assets. (d) A pool participant must be able to make withdrawals on demand without penalty or other assessment on any business day, and settlement of funds must occur within a reasonable and customary period after a withdrawal not to exceed five business days. (e) The pooling agreement must provide that the pool manager shall make a distribution to a pool participant, at the discretion of the pool manager: (1) in cash the fair market value at the time of the distribution of the participant's pro rata share of each underlying asset of the investment pool; (2) in kind a pro rata share of each underlying asset; or (3) in a combination of cash and in-kind distributions a pro rata share in each underlying asset. (f) A distribution under Subsection (e) of this section is computed in each case after subtracting all applicable fees and expenses of the investment pool. (g) The pool manager must make the records of the investment pool available for inspection by the commissioner. Added by Acts 1997, 75th Leg., ch. 130, Sec. 1, eff. Sept. 1, 1997.

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Last modified: August 10, 2007