Texas Insurance Code - Not Codified - Article 2.10. Investment Of Funds In Excess Of Minimum Capital And Minimum Surplus
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Art. 2.10. INVESTMENT OF FUNDS IN EXCESS OF MINIMUM CAPITAL
AND MINIMUM SURPLUS.
Article repealed effective April 1, 2007
(a) The board of directors of each insurer, or the
corresponding authority designated by the charter, bylaws, or plan
of operations of an insurer that does not have a board of directors,
shall adopt a written investment plan consistent with the
requirements of this article and Articles 2.08, 2.09, 2.10-1,
2.10-2, 2.10-3, 2.10-4, 2.10-5, 6.08, 8.18, and 8.19 of this code
and the other applicable statutes governing investments by the
insurer. The investment plan must:
(1) specify the diversification of the insurer's
investments designed to reduce the risk of large losses, by:
(A) broad categories of investments, such as bonds and real
estate loans;
(B) kinds of investments, such as:
(i) obligations of governments or business entities;
(ii) mortgage-backed securities; and
(iii) real estate loans on office, retail, industrial, or
residential properties;
(C) quality;
(D) maturity;
(E) type of industry; and
(F) geographical areas, as to both domestic and foreign
investments;
(2) balance the safety of principal with yield and growth;
(3) seek a reasonable relationship of assets and
liabilities as to term and nature; and
(4) be appropriate considering the capital and surplus and
the business conducted by the insurer.
(b) At least annually, the board of directors or other
authority shall review the adequacy of the investment plan and the
implementation of the plan.
(c) The insurer shall maintain the investment plan in its
principal office and shall provide the plan to the commissioner or
the commissioner's designee on request. The commissioner or the
commissioner's designee shall maintain the investment plan as a
privileged and confidential document, and the plan is not subject
to public disclosure.
(d) The insurer shall maintain investment records covering
each transaction. At all times, the insurer must be able to
demonstrate to the department that its investments are within the
limitations prescribed by the statutes described by Subsection (a)
of this article.
(e) No company except any writing life, health and accident
insurance, organized under the laws of this state, shall invest its
funds over and above its minimum capital and its minimum surplus, as
provided in Article 2.02, except as otherwise provided in this
Code, in any other manner than as follows:
(1) as provided for the investment of its minimum capital
and its minimum surplus in Article 2.08;
(2) in bonds or other evidences of debt which at the time of
purchase are interest-bearing and are issued by authority of law
and are not in default as to principal or interest, of any state,
Canada, or province of Canada, or in the stock of any National Bank,
in stock of any State Bank of Texas whose deposits are insured by
the Federal Deposit Insurance Corporation; provided, however, that
if said funds are invested in the stock of a State Bank of Texas that
not more than thirty-five per cent (35%) of the total outstanding
stock of any one (1) State Bank of Texas may be so purchased by any
one (1) insurance company; and provided further, that neither the
insurance company whose funds are invested in said bank stock nor
any other insurance company may invest its funds in the remaining
stock of any such State Bank;
(3) in bonds, 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, its states, commonwealths, territories, or
possessions, provided that:
(A) the amount of any such obligation secured by a first
lien upon real property or leasehold estate therein shall not
exceed ninety per cent (90%) of the value of such real property or
leasehold estate therein, but the amount of such obligation may:
(i) exceed ninety per cent (90%) but shall not exceed one
hundred per cent (100%) of the value of such real property or
leasehold estate therein if the insurer or one or more wholly owned
subsidiaries of the insurer own in the aggregate a ten per cent
(10%) or greater equity interest in such real property or leasehold
estate therein;
(ii) be ninety-five per cent (95%) of the value of such real
property 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 ninety per cent (90%) of such value is
guaranteed or insured by a mortgage insurance company licensed to
do business in the State of Texas; or
(iii) be greater than ninety per cent (90%) of the value of
such real property to the extent the obligation is insured or
guaranteed by the United States of America, or an agency or
instrumentality thereof, the Federal Housing Administration
pursuant to the National Housing Act of 1934, as amended (12 U.S.C.
Sec. 1701 et seq.), or the State of Texas; and
(B) the term of an obligation secured by a first lien upon a
leasehold estate in real property and improvements situated thereon
shall not exceed a period equal to four-fifths (4/5) of the then
unexpired term of such leasehold estate, provided that:
(i) the unexpired term of the leasehold estate must extend
at least ten (10) years beyond the term of the obligation; and
(ii) each obligation shall be payable in equal monthly,
quarterly, semi-annual, or annual payments of principal plus
accrued interest to the date of such principal payment, so that
under either method of repayment such obligation will fully
amortize during a period of time not to exceed four-fifths (4/5) of
the then unexpired term of the security leasehold estate;
(C) the amount of any one such obligation may not exceed ten
per cent (10%) of the insurer's capital and surplus; and
(D) the aggregate of investments made under this
Subdivision (3) may not exceed thirty per cent (30%) of the
insurer's assets;
(4) in bonds or other interest-bearing evidences of debt of
any county, municipality, road district, turnpike district or
authority, water district, any subdivision of a county,
incorporated city, town, school district, sanitary or navigation
district, any municipally owned revenue water system, sewer system
or electric utility company where special revenues to meet the
principal and interest payments of such municipally owned revenue
water system, sewer system or electric utility company bonds or
other evidences of debt shall have been appropriated, pledged or
otherwise provided for by such municipality, provided that:
(A) before bonds or other evidences of debt of navigation
districts shall be eligible investments such navigation district
shall be located in whole or in part in a county containing a
population of not less than 100,000 according to the last preceding
Federal Census; and
(B) the interest due on such navigation bonds or other
evidences of debt of navigation districts must never have been
defaulted;
(5) in 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, credit unions, and
branches of those financial institutions, organized under the laws
of the United States or of a state, if made in accordance with the
laws or regulations applicable to those entities, provided that the
amount of the deposits in any one bank, savings and loan
association, or credit union may not exceed the greater of:
(A) 20 percent of the insurer's capital and surplus;
(B) the amount of federal or state deposit insurance
coverage relating to that deposit; or
(C) 10 percent of the amount of capital, surplus, and
undivided profits of the entity receiving the deposits;
(6) in the stocks, bonds, debentures, bills of exchange,
evidence of indebtedness, or other commercial notes or bills and
securities of any solvent partnership or solvent dividend paying
corporation at time of purchase, incorporated under the laws of
this state, any other state, the United States, Canada, or any
province of Canada, which has not defaulted in the payment of any of
its obligations for a period of five (5) years, immediately
preceding the date of the investment; provided that:
(A) such funds may not be invested in the stock of any oil,
manufacturing or mercantile corporation organized under the laws of
this state, unless such corporation has at the time of investment a
net worth of not less than $250,000.00 nor in the stock of any oil,
manufacturing or mercantile corporation not organized under the
laws of this state, unless such corporation has a combined capital,
surplus and undivided profits of not less than $2,500,000.00;
(B) any such insurance company may invest its funds over and
above its minimum capital stock, its minimum surplus, and all
reserves required by law, in the stocks, bonds or debentures of any
solvent corporation organized under the laws of this state, any
other state, the United States, Canada, or any province of Canada;
(C) no such insurance company shall invest any of its funds
in its own stock or in any stock on account of which the holders or
owners thereof may, in any event, be or become liable to any
assessment, except for taxes; and
(D) no such insurance company shall invest any of its funds
in stocks, bonds or other securities issued by a corporation if a
majority of the stock having voting powers of such issuing
corporation is owned, directly or indirectly, by or for the benefit
of one or more officers or directors of such insurance company;
provided, however, that this paragraph shall not apply to any
insurance company which has been in continuous operation for five
(5) years;
(7) in shares of mutual funds doing business under the
Investment Company Act of 1940 (15 U.S.C. Section 80a-1 et seq.), as
amended, provided that:
(A) mutual funds must be solvent with at least $1,000,000 of
net assets as of the date of its latest annual or more recent
certified audited financial statement; and
(B) investment in any one mutual fund may not exceed 15
percent of the insurer's capital and surplus;
(8) in addition to the investments in Canada authorized in
other subdivisions of this subsection, investments in other foreign
countries, commonwealths, territories or possessions of the United
States, or foreign securities originating in such foreign
countries, commonwealths, territories or possessions of the United
States, provided that:
(A) such investments are similar to those authorized for
investment within the United States or Canada by other provisions
of this subsection and, if debt obligations, are rated one or two by
the Securities Valuation Office of the National Association of
Insurance Commissioners;
(B) the aggregate amount of foreign investments held by the
insurer under this subsection in a single foreign jurisdiction does
not exceed either 10 percent of its admitted assets as to a foreign
jurisdiction that has a sovereign debt rating of Securities
Valuation Office 1 by the Securities Valuation Office of the
National Association of Insurance Commissioners or five percent of
its admitted assets as to any other foreign jurisdiction;
(C) such investments when added to the amount of similar
investments made within the United States and Canada and any
amounts authorized by Article 2.10-2 of this Code do not result in
the combined total of such investments exceeding the limitations
specified elsewhere in this subsection; and
(D) such investments may not exceed the sum of:
(i) the amounts authorized by Article 2.10-2 of this Code;
and
(ii) 20 percent of the insurer's assets;
(9) in loans upon the pledge of any mortgage, stock, bonds
or other evidence of indebtedness acceptable as investments under
the terms of this Article, if the current value of such mortgage,
stock, bonds or other evidence of indebtedness is at least
twenty-five per cent (25%) more than the amount loaned thereon;
(10) in interest-bearing notes or bonds of The University of
Texas issued under the laws of this state;
(11) in real estate to the extent as elsewhere authorized by
this Code; provided that:
(A) any such company with admitted assets in excess of
$500,000,000.00 may own other investment 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
acquisition of such real property; 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 those properties
acquired as provided in Article 6.08 of this Code, and such
ownership, development, or equity interests shall be specifically
prohibited;
(B) the total amount invested by any such company in all
such investment real property and improvements thereof shall not
exceed fifteen per cent (15%) of its admitted assets which are in
excess of $500,000,000.00; however, the amount invested in any one
such property and its improvements or interest therein shall not
exceed five per cent (5%) of its admitted assets which are in excess
of $500,000,000.00. The admitted assets of the company at any time
shall be determined from its annual statements made as of the last
preceding December 31 and filed with the department as required by
law. The value of any investment made under this Article shall be
subject to the appraisal provision set forth in Article 6.08 of this
Code;
(C) the investment authority granted by Paragraphs (A) and
(B) of this subdivision is in addition to and separate and apart
from that granted by Article 6.08 of this Code; however, no such
company shall make any investment in such real estate which, when
added to those properties described in Article 6.08 of this Code,
would be in excess of the limitations provided by Article 6.08 of
this Code; and
(D) the insurance companies defined in Article 2.01 of this
Code and other insurers specifically made subject to the provisions
of this Article shall not engage in the business of a real estate
broker or a real estate salesperson as defined by The Real Estate
License Act (Article 6573a, Vernon's Texas Civil Statutes), except
that such insurers may hold, improve, maintain, manage, rent,
lease, sell, exchange, or convey any of the real property interests
legally owned as investments under this Code;
(12) in equipment trust obligations or certificates that
are adequately secured or in other adequately secured instruments
evidencing an interest in transportation equipment in whole or in
part within the United States and a right to receive determined
portions of rental, purchase, or other fixed obligatory payments
for the use or purchase of the transportation equipment; and
(13) in:
(A) insured accounts and evidences of indebtedness as
defined and limited by Section 1, Chapter 618, page 1356, Acts of
the 47th Legislature;
(B) shares or share accounts as authorized by Chapter 65,
Finance Code;
(C) insured or guaranteed obligations as authorized in
Chapter 230, Acts of the 49th Legislature, Regular Session, 1945
(Article 842a-1, Vernon's Texas Civil Statutes);
(D) bonds issued under the provisions authorized by Section
9, Chapter 231, General Laws, Acts of the 43rd Legislature, Regular
Session, 1933 (Article 1187a, Vernon's Texas Civil Statutes);
(E) bonds issued under the authority of Section 1, Chapter
1, page 427, General Laws, Acts of the 46th Legislature, Regular
Session, 1939 (Article 1269k-1, Vernon's Texas Civil Statutes);
(F) bonds and other indebtedness as authorized by Sections
435.045 and 435.046, Government Code;
(G) "Municipal Bonds" issued under Sections 51.038 and
51.039, Water Code;
(H) bonds as authorized by Subchapter B, Chapter 284,
Transportation Code;
(I) bonds as authorized by Section 19, Chapter 340, Acts of
the 51st Legislature, Regular Session, 1949;
(J) bonds as authorized by Section 10, Chapter 398, Acts of
the 51st Legislature, Regular Session, 1949;
(K) bonds as authorized by Section 18, Chapter 465, Acts of
the 51st Legislature, Regular Session, 1949;
(L) bonds as authorized by Section 24, Chapter 110, Acts of
the 51st Legislature, Regular Session, 1949; and
(M) such other investments as are now or may hereafter be
specifically authorized by law.
(f) The percentage authorizations and limitations set forth
in this article apply only at the time of the original acquisition
of an investment or at the time a transaction is entered into and do
not thereafter apply to the insurer or the investment or
transaction except as provided by this subsection. An investment,
once qualified under this article, remains qualified
notwithstanding any refinancing, restructuring, or modification of
the investment; however, the insurer may not engage in that
refinancing, restructuring, or modification solely to circumvent
the requirements or limitations of this article.
(g) Notwithstanding Subsections (a)-(e) of this article:
(1) investment in all or any types of securities, loans,
obligations, or evidences of indebtedness of a single issuer or
borrower, including the issuer's or borrower's majority-owned
subsidiaries or parent or the majority-owned subsidiaries of that
parent, other than those authorized investments that either are
direct obligations of or are guaranteed by the full faith and credit
of the United States of America, this state, or a political
subdivision of this state, or are insured by any agency of the
United States of America or this state, may not in the aggregate
exceed five percent of the insurer's total assets, other than
investments described by Subsection (e)(5) or (e)(7) of this
article; and
(2) the quantitative limitations regarding any investment
authorized by this article may be waived by prior written approval
of the commissioner if:
(A) a hearing is held to determine whether approval should
be granted;
(B) the applicant seeking approval establishes that
unreasonable or unnecessary loss or harm to the insurer will result
if approval is withheld;
(C) the excessive investment will not have a material
adverse effect on the insurer;
(D) the size of the investment is reasonable in relation to
the insurer's assets, capital, surplus, and liabilities; and
(E) the commissioner's prior authorization may treat the
resulting excessive investment as an asset not admitted.
Acts 1951, 52nd Leg., ch. 491. Amended by Acts 1955, 54th Leg., p.
413, ch. 117, Sec. 10; Acts 1959, 56th Leg., p. 96, ch. 49, Sec. 1;
Acts 1961, 57th Leg., p. 979, ch. 426, Sec. 2; Acts 1979, 66th Leg.,
p. 325, ch. 151, Sec. 1, May 11, 1979; Acts 1979, 66th Leg., p.
1885, ch. 762, Sec. 1, eff. June 13, 1979.
Amended by Acts 1983, 68th Leg., p. 5115, ch. 932, Sec. 1, eff. June
19, 1983; Acts 1985, 69th Leg., ch. 174, Sec. 1, eff. Aug. 26, 1985;
Acts 1997, 75th Leg., ch. 556, Sec. 7, eff. Sept. 1, 1997; Acts
1999, 76th Leg., ch. 1040, Sec. 1, eff. Sept. 1, 1999.
Article: 1.17A 1.18 1.19 1.32 1.33 1.39 1.61 2.10 2.10-1 2.10-2 2.10-3A 2.10-4 2.10-5 3.10 3.11
Last modified: August 11, 2007
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