Texas Insurance Code - Not Codified - Article 21.39-B. Restriction On Transactions With Funds And Assets
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Art. 21.39-B. RESTRICTION ON TRANSACTIONS WITH FUNDS AND
ASSETS.
Article repealed effective April 1, 2007
Sec. 1. Any director, member of a committee, or officer, or
any clerk of a domestic company, who is charged with the duty of
handling or investing its funds, shall not:
(1) invest such funds, except in the corporate name of such
company, provided, however, that securities kept under a custodial
agreement or trust agreement with a bank, federal home loan bank, or
trust company may be issued in the name of a nominee of such bank,
federal home loan bank, or trust company if such bank, federal home
loan bank, or trust company has corporate trust powers and is duly
authorized to act as a custodian or trustee and is organized under
the laws of the United States of America or any state thereof and
either (i) is a member of the Federal Reserve System, (ii) is a
member of or is eligible to receive deposits which are insured by
the Federal Deposit Insurance Corporation, (iii) maintains an
account with a Federal Reserve Bank and is subject to supervision
and examination by the Board of Governors of the Federal Reserve
System, or (iv) is subject to supervision and examination by the
Federal Housing Finance Board;
(2) deposit such funds except in the corporate name of such
company, or in a pooling account with one or more affiliates, or in
accordance with a reinsurance agreement;
(3) borrow the funds of such company;
(4) be interested in any way in any loan, pledge, security,
or property of such company, except as stockholder; or
(5) take or receive to his own use any fee, brokerage,
commission, gift, or other consideration for, or on account of, a
loan made by or on behalf of such company.
Sec. 2. If funds of a domestic company are deposited in a
pooling account, only the domestic company and its affiliate, as
defined in Article 21.49-1 of this code, may hold funds in a pooling
account. The accounting and operational records and books of the
companies must be adequately detailed to identify specific
insurance policies and policyholders with premium funds received by
the particular company issuing the insurance. A reinsurance
agreement between the domestic company and one or more affiliates
must specifically authorize the deposit of premium funds to the
account of the affiliate which is assuming the reinsurance.
Sec. 3. The State Board of Insurance may promulgate such
regulations as may be deemed necessary to carry out the provisions
of this article.
Sec. 4. The provisions of this article are applicable to all
domestic insurance companies subject to regulation by the Insurance
Code, as amended, and any provision of exemption or any provision of
inapplicability or applicability limiting such regulation in any
chapter of the code are not in limitation of the provisions of this
article, and in the event of conflict between this article and any
other article of the code or in the event of any ambiguity, the
provisions of this article shall govern. As used herein, the term
"insurance companies" includes stock companies, reciprocals or
inter-insurance exchanges, Lloyds associations, fraternal benefit
societies, stipulated premium companies, and mutual companies of
all kinds, including state-wide mutual assessment corporations,
local mutual aids, burial associations, and county mutual insurance
companies and farm mutual insurance companies and all other
organizations, corporations, or persons transacting an insurance
business, unless such insurance companies are by statute
specifically, by naming this article, exempted from the operation
of this article.
Sec. 5. (a) A domestic insurance company may evidence its
ownership of securities either through definitive certificates or
through uncertificated securities as defined by the Business &
Commerce Code and as provided by Section 6 of this article. The
insurance company may deposit or arrange through its agents,
brokers, or dealers for the deposit of securities held in or
purchased for its general account or its separate accounts in
either a clearing corporation or the Federal Reserve Book Entry
System. When securities are deposited with a clearing corporation
directly or deposited indirectly through a participating custodian
bank, certificates representing securities of the same class of the
same issuer may be merged and held in bulk in the name of nominee of
such clearing corporation with any other securities deposited with
such clearing corporation by any person, regardless of the
ownership of such securities, and certificates representing
securities of small denominations may be merged into one or more
certificates of larger denominations. The records of any agent,
broker, dealer, or member banks through which an insurance company
holds securities in the Federal Reserve Book Entry System and the
record of any custodian banks through which an insurance company
holds securities in a clearing corporation shall at all times show
that such securities are held for such insurance company and for
which accounts thereof. To be eligible to act as a participating
custodian bank under this subsection, a bank must enter a custodial
agreement with the insurance company for which it is to act as a
participating custodian bank.
(b) As used in this article, a clearing corporation is:
(1) a corporation defined in Section 8.102(c) of the
Business & Commerce Code; or
(2) a clearance system that:
(A) is organized or operating under the law of one or more
foreign countries;
(B) provides for the book entry settlement and custody of
internationally traded securities; and
(C) has been organized and in operation for a period of not
less than 15 consecutive years.
(c) Whenever an insurance company is required to deposit
securities as a condition of commencing or continuing to do an
insurance business in this state, such deposit may be made through
the use of a clearing corporation or the Federal Reserve Book Entry
System. Securities deposited with a clearing corporation or held
in the Federal Reserve Book Entry System and used to meet the
deposit requirements under the insurance laws of this state shall
be under the control of the commissioner and shall not be withdrawn
by the insurance company without the approval of the commissioner.
Any insurance company making a deposit in this manner shall provide
to the commissioner evidence issued by its custodian or member bank
through which such insurance company has deposited securities with
a clearing corporation or in the Federal Reserve Book Entry System
or when making the deposit directly with the clearing corporation
as a participant, respectively, in order to establish that the
securities are actually recorded in an account in the name of the
custodian or direct participant or member bank, and shall also
provide to the commissioner evidence that the records of the
custodian, participant, or member bank and clearing corporation
reflect that such securities are held subject to the order of the
commissioner.
(d) The State Board of Insurance by rule may prescribe a
reasonable maximum limit on the percentage of a domestic insurance
company's assets that may be deposited in a clearing corporation as
defined by Subsection (b)(2) of this section, but the maximum limit
may not exceed five percent of a company's total assets as reflected
by its annual statement filed with the State Board of Insurance for
the year preceding the year for which the limit is prescribed.
(e) A domestic insurance company may deposit assets in a
clearing corporation defined by Subsection (b)(2) of this section
only if the insurance company:
(1) is a member of an insurance company holding company
system with total assets of at least $5 billion as reflected by
annual statements of member companies for the preceding year;
(2) uses that clearing corporation only as a depository for
investments in internationally traded securities;
(3) has a total investment in those internationally traded
securities that does not exceed the company's policyholders'
surplus; and
(4) does not use those securities deposited with that
clearing corporation as security for reinsurance.
Sec. 6. The State Board of Insurance shall adopt rules
authorizing a domestic insurance company to demonstrate ownership
of an uncertificated security consistent with common practices of
securities exchanges and markets. The rules shall establish:
(1) standards for the types of uncertificated securities
that may be held;
(2) the manner in which ownership of the security may be
demonstrated; and
(3) adequate financial safeguards relating to the ownership
of uncertificated securities.
Added by Acts 1975, 64th Leg., p. 464, ch. 198, Sec. 1, eff. May 15,
1975.
Sec. 4 added by Acts 1983, 68th Leg., p. 1239, ch. 267, Sec. 1, eff.
Aug. 29, 1983; Sec. 1 amended by Acts 1985, 69th Leg., ch. 812, Sec.
1, eff. June 15, 1985; Sec. 5 added by Acts 1985, 69th Leg., ch.
812, Sec. 2, eff. June 15, 1985; Sec. 4(a), (b) amended by Acts
1989, 71st Leg., ch. 187, Sec. 1, eff. Aug. 28, 1989; Sec. 4(d), (e)
added by Acts 1989, 71st Leg., ch. 187, Sec. 2, eff. Aug. 28, 1989;
Sec. 1 amended by Acts 1993, 73rd Leg., ch. 685, Sec. 7.15, eff.
Sept. 1, 1993; Sec. 4(a) amended by Acts 1993, 73rd Leg., ch. 685,
Sec. 7.16, eff. Sept. 1, 1993; Sec. 6 added by Acts 1993, 73rd Leg.,
ch. 685, Sec. 7.17, eff. Sept. 1, 1993; Sec. 5 repealed by Acts
1997, 75th Leg., ch. 556, Sec. 10, eff. Sept. 1, 1997. Amended by
Acts 1999, 76th Leg., ch. 1436, Sec. 1, eff. Sept. 1, 1999.
Article: 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 21.49-3
Last modified: August 10, 2007
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