Texas Insurance Code - Not Codified - Article 21.39-A. Asset Protection Act
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Art. 21.39-A. ASSET PROTECTION ACT.
Article repealed effective April 1, 2007
Title
Sec. 1. This article shall be known and may be cited as the
Asset Protection Act.
Purpose
Sec. 2. This Act is for the purpose of requiring insurers to
have and maintain unencumbered assets in an amount equal to reserve
liabilities; to provide preferential claims against assets in
favor of owners, beneficiaries, assignees, certificate holders, or
third party beneficiaries of insurance policies; and to prevent
the hypothecation or encumbrance of assets in excess of certain
amounts without prior written order of the Commissioner of
Insurance.
Scope
Sec. 3. This Act shall apply to all of the following types of
domestic insurance companies and to all kinds of insurance written
by such companies; and where used herein "insurer" shall mean: all
domestic stock and mutual life, health and accident, fire,
casualty, fire and casualty and title insurance companies,
including mutual assessment companies, local mutual aid
associations, local mutual burial associations, Statewide mutual
assessment companies, stipulated premium insurance companies,
fraternal benefit societies, group hospital service insurance
companies, county mutual insurance companies, Lloyd's and
reciprocal exchanges, farm mutual companies, and mortgage guaranty
insurance companies. This Act shall not apply to variable
contracts for which separate accounts are required to be maintained
and shall not apply to assessment as needed companies nor to
insurance coverage written by assessment as needed companies. This
Act shall not apply to an insurance company while subject to a
conservatorship order issued by the Commissioner of Insurance nor
to an insurance company while a court appointed receiver is in
charge of its affairs.
Exception
Sec. 3A. (a) This Act shall not apply to those reserve assets
of an insurer which are held, deposited, pledged, hypothecated, or
otherwise encumbered as provided herein to secure, offset, protect,
or meet those reserve liabilities of such insurer which are
established, incurred, or required under the provisions of a
reinsurance agreement whereby such insurer has reinsured the
insurance policy liabilities of a ceding insurer, provided:
(1) the ceding insurer and the reinsurer are both licensed
to transact business in this state;
(2) pursuant to a written agreement between the ceding
insurer and the reinsurer, reserve assets substantially equal to
the reserve liabilities required to be established by the reinsurer
on the reinsured business are either (a) deposited by or are
withheld from the reinsurer and are in the custody of the ceding
insurer as security for the payment of the reinsurer's obligations
under the reinsurance agreement, and such assets are held subject
to withdrawal by and under the separate or joint control of the
ceding insurer, or (b) are deposited and held in a trust account for
such purpose and under such conditions with a state or national bank
domiciled in this state.
(b) The Commissioner of Insurance shall have the right to
examine any of such assets, reinsurance agreements, or deposit
arrangements at any time in accordance with the authority to make
examinations of insurance companies as conferred by other
provisions of this code.
(c) This Act does not apply to a reinsurance agreement or
any trust account related to the reinsurance agreement if the
agreement and trust account meet the requirements of Article 3.10
or 5.75-1 of this code.
Definitions
Sec. 4. As used in this Act:
1. "Reserve liabilities" are those liabilities which are
required to be established by the insurer for all of its outstanding
insurance policies in accordance with the Insurance Code, as
amended or as hereafter amended;
2. "Reserve assets" are those assets of an insurer which are
authorized investments for policy reserves in accordance with the
Insurance Code, as amended or as hereafter amended;
3. "Assets" are all property, real or personal, tangible or
intangible, legal or equitable, owned by an insurer;
4. "Claimants" are any owners, beneficiaries, assignees,
certificate holders, or third party beneficiaries of any insurance
benefit or right arising out of and within the coverage of an
insurance policy covered by this Act.
Prohibition of Hypothecation
Sec. 5. Every insurer subject to the provisions of this Act
shall at all times have and maintain free and unencumbered assets in
an amount equal to its reserve liabilities, and no such insurer
shall pledge, hypothecate, or otherwise encumber its assets in an
amount in excess of the amount of its capital and surplus; nor
shall such insurer pledge, hypothecate or otherwise encumber more
than ten per cent (10%) of its reserve assets as herein defined;
provided, however, that the Commissioner of Insurance, upon
application made to him, may issue a written order approving the
hypothecation or encumbrance of any of the assets of such an insurer
in any amount upon a finding that such hypothecation or encumbrance
will not adversely affect the solvency of such insurer.
Any such insurer which shall pledge, hypothecate, or
otherwise encumber any of its assets shall within (10) days
thereafter report in writing to the Commissioner of Insurance the
amount and identity of the assets so pledged, hypothecated, or
encumbered and the terms and conditions of such transaction. In
addition, each such insurer shall annually or more often if
required by the Commissioner file with the Commissioner a statement
sworn to by the chief executive officer of the insurer that (a)
title to assets in an amount equal to the reserve liability of the
insurer which are not pledged, hypothecated or otherwise encumbered
is vested in the insurer, (b) the only assets of the insurer which
are pledged, hypothecated or otherwise encumbered are as identified
and reported in such sworn statement and no other assets of the
insurer are pledged, hypothecated or otherwise encumbered, and (c)
the terms and provisions of any such transaction of pledge,
hypothecation, or encumbrance are as reported in such sworn
statement.
Any person, corporation, association or legal entity which
accepts a pledge, hypothecation or encumbrance of any asset of an
insurer as security for a debt or other obligation of such insurer
not in accordance with the terms and limitations of this Act shall
be deemed to have accepted such asset subject to a superior,
preferential and automatically perfected lien in favor of
claimants; provided, however, that such superior, preferential and
automatically perfected lien in favor of claimants shall not apply
to assets of an insurance company in conservatorship or
receivership if the Commissioner of Insurance, in the
conservatorship proceeding, or the court in which the receivership
is pending, approves the pledge, hypothecation or encumbrance of
such assets.
In the event of involuntary or voluntary liquidation of any
insurer subject to this Act, claimants of such insurer shall have a
prior and preferential claim against all assets of the insurer
except those which have been pledged, hypothecated or encumbered in
accordance with the terms and limitations of this Act. All
claimants shall have equal status and their prior and preferential
claim shall be superior to any claim or cause of action against the
insurer by any person, corporation, association or legal entity.
Control Over Conflicts
Sec. 6. The provisions of this Act and the powers and
functions authorized by this Act are to be exercised to the end that
its purposes be accomplished. This Act is cumulative of existing
laws, but in the event of conflict between this Act and any other
law relating to the subject matter of this Act or its application,
the provisions of this Act shall control.
Unconstitutional Application Prohibited
Sec. 7. This Act does not apply to any insurer or other person
to whom, under the Constitution of the United States or the
Constitution of the State of Texas, it cannot validly apply.
Severance Clause
Sec. 8. If any provision of this Act or the application
thereof to any person or circumstance is held invalid by any court
of competent jurisdiction, such invalidity shall not affect other
provisions or applications of the Act which can be given effect
without the invalid provision or application, and to this end the
provisions of this Act are declared to be severable.
Added by Acts 1971, 62nd Leg., p. 1372, ch. 361, Sec. 1, eff. May 25,
1971. Amended by Acts 1981, Leg., p. 401, ch. 164, Sec. 1, eff. Aug.
31, 1981.
Sec. 3 amended by Acts 1989, 71st Leg., ch. 273, Sec. 5, eff. Aug.
28, 1989; Sec. 3A(c) added by Acts 1993, 73rd Leg., ch. 685, Sec.
7.14, eff. Sept. 1, 1993.
Article: 21.28-C 21.28-D 21.28-E 21.31 21.32 21.32A 21.39 21.39-A 21.39-B 21.40 21.41 21.42 21.47 21.49 21.49-2V
Last modified: August 11, 2007
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