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A BILL TO BE ENTITLED
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AN ACT
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relating to the regulation of funding agreements, guaranteed |
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investment contracts, and synthetic guaranteed investment |
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contracts issued by a life insurer; clarifying certain provisions |
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relating to insurer receivership. |
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BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS: |
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SECTION 1. Section 443.301, Insurance Code, is amended to |
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read as follows: |
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Sec. 443.301. PRIORITY OF DISTRIBUTION. The priority of |
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payment of distributions on unsecured claims must be in accordance |
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with the order in which each class of claims is set forth in this |
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section. Every claim in each class shall be paid in full, or |
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adequate funds retained for their payment, before the members of |
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the next class receive payment, and all claims within a class must |
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be paid substantially the same percentage of the amount of the |
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claim. Except as provided by Subsections (a)(2), (a)(3), (i), and |
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(k), subclasses may not be established within a class. No claim by |
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a shareholder, policyholder, or other creditor shall be permitted |
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to circumvent the priority classes through the use of equitable |
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remedies. The order of distribution of claims shall be: |
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(a) Class 1. (1) The costs and expenses of administration |
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expressly approved or ratified by the liquidator, including the |
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following: |
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(A) the actual and necessary costs of preserving |
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or recovering the property of the insurer; |
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(B) reasonable compensation for all services |
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rendered on behalf of the administrative supervisor or receiver; |
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(C) any necessary filing fees; |
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(D) the fees and mileage payable to witnesses; |
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(E) unsecured loans obtained by the receiver; and |
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(F) expenses, if any, approved by the |
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rehabilitator of the insurer and incurred in the course of the |
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rehabilitation that are unpaid at the time of the entry of the order |
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of liquidation. |
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(2) The reasonable expenses of a guaranty association, |
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including overhead, salaries and other general administrative |
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expenses allocable to the receivership to include administrative |
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and claims handling expenses and expenses in connection with |
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arrangements for ongoing coverage, other than expenses incurred in |
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the performance of duties under Section 462.002(3), 463.108, |
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463.111, 463.113, 463.353, or 2602.113 or similar duties under the |
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statute governing a similar organization in another state. In the |
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case of the Texas Property and Casualty Insurance Guaranty |
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Association and other property and casualty guaranty associations, |
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the expenses shall include loss adjustment expenses, including |
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adjusting and other expenses and defense and cost containment |
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expenses. In the event that there are insufficient assets to pay |
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all of the costs and expenses of administration under Subsection |
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(a)(1) and the expenses of a guaranty association, the costs and |
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expenses under Subsection (a)(1) shall have priority over the |
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expenses of a guaranty association. In this event, the expenses of |
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a guaranty association shall be paid on a pro rata basis after the |
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payment of costs and expenses under Subsection (a)(1) in full. |
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(3) For purposes of Subsection (a)(1)(E), any |
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unsecured loan obtained by the receiver, unless by its terms it |
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otherwise provides, has priority over all other costs of |
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administration. Absent agreement to the contrary, all claims in |
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this subclass share pro rata. |
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(4) Except as expressly approved by the receiver, any |
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expenses arising from a duty to indemnify the directors, officers, |
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or employees of the insurer are excluded from this class and, if |
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allowed, are Class 5 claims. |
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(b) Class 2. (1) All claims under policies of insurance, |
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including third-party claims; claims under annuity contracts, |
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including funding agreements, guaranteed investment contracts, and |
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synthetic guaranteed investment contracts;[,] claims under |
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nonassessable policies for unearned premium;[,] claims of obligees |
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and, subject to the discretion of the receiver, completion |
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contractors, under surety bonds and surety undertakings other than |
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bail bonds, mortgage or financial guaranties, or other forms of |
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insurance offering protection against investment risk;[,] claims |
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by principals under surety bonds and surety undertakings for |
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wrongful dissipation of collateral by the insurer or its agents;[,] |
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and claims incurred during the extension of coverage provided for |
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in Section 443.152. For purposes of this subdivision, "annuity |
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contract," "funding agreement," "guaranteed investment contract," |
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and "synthetic guaranteed investment contract" have the meanings |
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assigned by Section 1154.003. |
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(2) All other claims incurred in fulfilling the |
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statutory obligations of a guaranty association not included in |
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Class 1, including indemnity payments on covered claims and, in the |
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case of the Life, Accident, Health, and Hospital Service Insurance |
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Guaranty Association or another life and health guaranty |
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association, all claims as a creditor of the impaired or insolvent |
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insurer for all payments of and liabilities incurred on behalf of |
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covered claims or covered obligations of the insurer and for the |
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funds needed to reinsure those obligations with a solvent insurer. |
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(3) Claims for benefits under a health care plan |
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issued by a health maintenance organization. |
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(4) Claims under insurance policies or contracts for |
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benefits issued by an unauthorized insurer. |
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(5) Notwithstanding any provision of this chapter, the |
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following claims are excluded from Class 2 priority: |
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(A) obligations of the insolvent insurer arising |
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out of reinsurance contracts; |
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(B) obligations, excluding unearned premium |
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claims on policies other than reinsurance agreements, incurred |
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after: |
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(i) the expiration date of the insurance |
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policy; |
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(ii) the policy has been replaced by the |
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insured or canceled at the insured's request; or |
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(iii) the policy has been canceled as |
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provided by this chapter; |
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(C) obligations to insurers, insurance pools, or |
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underwriting associations and their claims for contribution, |
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indemnity, or subrogation, equitable or otherwise; |
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(D) any claim that is in excess of any applicable |
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limits provided in the insurance policy issued by the insurer; |
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(E) any amount accrued as punitive or exemplary |
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damages unless expressly covered under the terms of the policy; |
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(F) tort claims of any kind against the insurer |
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and claims against the insurer for bad faith or wrongful settlement |
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practices; and |
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(G) claims of the guaranty associations for |
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assessments not paid by the insurer, which must be paid as claims in |
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Class 5. |
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(c) Class 3. Claims of the federal government not included |
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in Class 2. |
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(d) Class 4. Debts due employees for services or benefits |
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to the extent that the debts do not exceed $5,000 or two months |
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salary, whichever is the lesser, and represent payment for services |
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performed within one year before the entry of the initial order of |
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receivership. This priority is in lieu of any other similar |
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priority that may be authorized by law as to wages or compensation |
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of employees. |
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(e) Class 5. Claims of other unsecured creditors not |
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included in Classes 1 through 4, including claims under reinsurance |
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contracts, claims of guaranty associations for assessments not paid |
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by the insurer, and other claims excluded from Class 2. |
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(f) Class 6. Claims of any state or local governments, |
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except those specifically classified elsewhere in this section. |
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Claims of attorneys for fees and expenses owed them by an insurer |
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for services rendered in opposing a formal delinquency proceeding. |
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In order to prove the claim, the claimant must show that the insurer |
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that is the subject of the delinquency proceeding incurred the fees |
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and expenses based on its best knowledge, information, and belief, |
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formed after reasonable inquiry, indicating opposition was in the |
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best interests of the insurer, was well grounded in fact, and was |
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warranted by existing law or a good faith argument for the |
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extension, modification, or reversal of existing law, and that |
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opposition was not pursued for any improper purpose, such as to |
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harass or to cause unnecessary delay or needless increase in the |
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cost of the litigation. |
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(g) Class 7. Claims of any state or local government for a |
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penalty or forfeiture, but only to the extent of the pecuniary loss |
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sustained from the act, transaction, or proceeding out of which the |
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penalty or forfeiture arose, with reasonable and actual costs |
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occasioned thereby. The balance of the claims must be treated as |
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Class 9 claims under Subsection (i). |
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(h) Class 8. Except as provided in Sections 443.251(b) and |
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(d), late filed claims that would otherwise be classified in |
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Classes 2 through 7. |
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(i) Class 9. Surplus notes, capital notes or contribution |
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notes or similar obligations, premium refunds on assessable |
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policies, and any other claims specifically assigned to this class. |
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Claims in this class are subject to any subordination agreements |
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related to other claims in this class that existed before the entry |
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of the liquidation order. |
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(j) Class 10. Interest on allowed claims of Classes 1 |
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through 9, according to the terms of a plan proposed by the |
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liquidator and approved by the receivership court. |
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(k) Class 11. Claims of shareholders or other owners |
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arising out of their capacity as shareholders or other owners, or |
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any other capacity, except as they may be qualified in Class 2, 5, |
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or 10. Claims in this class are subject to any subordination |
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agreements related to other claims in this class that existed |
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before the entry of the liquidation order. |
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SECTION 2. Subtitle C, Title 7, Insurance Code, is amended |
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by adding Chapter 1154 to read as follows: |
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CHAPTER 1154. FUNDING AGREEMENTS, GUARANTEED INVESTMENT |
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CONTRACTS, AND SYNTHETIC GUARANTEED INVESTMENT CONTRACTS |
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SUBCHAPTER A. GENERAL PROVISIONS |
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Sec. 1154.001. SHORT TITLE. This chapter may be cited as |
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the Act for the Regulation of Funding Agreements, Guaranteed |
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Investment Contracts, and Synthetic Guaranteed Investment |
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Contracts. |
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Sec. 1154.002. PURPOSE; LEGISLATIVE INTENT; CONSTRUCTION. |
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(a) The purpose of this chapter is to: |
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(1) promote the public welfare by regulating funding |
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agreements, guaranteed investment contracts, and synthetic |
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guaranteed investment contracts; and |
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(2) clarify and codify the existing law pertaining to |
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funding agreements, guaranteed investment contracts, and synthetic |
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guaranteed investment contracts. |
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(b) This chapter shall be liberally construed. |
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Sec. 1154.003. DEFINITIONS. In this chapter: |
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(1) "Allocated group annuity contract" means a group |
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annuity contract or group annuity certificate under which the life |
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insurer establishes and maintains individual account records and |
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investment account balances for the group participants to allocate |
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and guarantee a specific payment amount to each group member. |
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(2) "Annuity contract" means a contract, including a |
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funding agreement, guaranteed investment contract, and synthetic |
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guaranteed investment contract, issued by a life insurer, with or |
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without a mortality or morbidity contingency, under which: |
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(A) the owner deposits cash or assets in one or |
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more installments with the life insurer; and |
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(B) the owner or a beneficiary designated by the |
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owner has a right to receive periodic payments for a specified |
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future term. |
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(3) "Funding agreement" means a type of annuity |
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contract under which a life insurer: |
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(A) accepts and accumulates funds, including |
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noncash assets; and |
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(B) makes one or more payments at a future date in |
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amounts that are not based on mortality or morbidity contingencies. |
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(4) "Governmental body" means a federal, state, |
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municipal, local, or foreign court, tribunal, governmental |
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department, commission, board, bureau, agency, authority, |
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instrumentality, regulatory body, or quasi-regulatory body. |
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(5) "Group" means a group to which a group life |
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insurance policy may be issued under Subchapter B, Chapter 1131. |
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(6) "Group annuity certificate" means a certificate |
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issued to a group member in connection with the group member's group |
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annuity contract. |
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(7) "Group annuity contract" means an annuity contract |
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issued to a group and not an individual. |
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(8) "Guaranteed investment contract" means a type of |
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annuity contract issued by a life insurer: |
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(A) that is a funding vehicle typically issued to |
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a retirement plan; and |
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(B) under which the life insurer accepts a |
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deposit or series of deposits from the purchaser and guarantees to |
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pay a specified interest rate of return on the funds deposited |
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during a specified period. |
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(9) "Life insurer" means an insurance company |
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authorized to engage in the business of life insurance, including |
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issuing annuity contracts, in this state. |
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(10) "Synthetic guaranteed investment contract" means |
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a group annuity contract or other agreement issued by a life insurer |
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that, wholly or partly, establishes the life insurer's obligations |
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by reference to a segregated portfolio of assets that the life |
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insurer does not own. |
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(11) "Unallocated group annuity contract" means a |
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group annuity contract or group annuity certificate that is not |
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issued to and owned by an individual, except to the extent of any |
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annuity benefits guaranteed to an individual by an insurer under |
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the contract or certificate. |
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Sec. 1154.004. APPLICABILITY OF CERTAIN OTHER LAW. |
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Chapters 521, 1107, 1115, and 1131 do not apply to funding |
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agreements, guaranteed investment contracts, or synthetic |
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guaranteed investment contracts without mortality or morbidity |
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contingencies. |
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Sec. 1154.005. RULES. The commissioner may adopt rules to |
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implement or clarify this chapter. |
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SUBCHAPTER B. FUNDING AGREEMENTS |
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Sec. 1154.051. ESTABLISHMENT OF FUNDING AGREEMENTS. (a) A |
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life insurer may issue a funding agreement to generate an income |
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stream for the purchaser of the agreement or fund a future liability |
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or program of the purchaser or the purchaser's designee. A life |
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insurer may issue a funding agreement to: |
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(1) an accredited investor, as defined by 17 C.F.R. |
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Section 230.501; |
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(2) a governmental body; or |
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(3) an institution with assets in excess of $25 |
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million. |
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(b) A life insurer that issues a funding agreement in this |
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state engages in the business of insurance for the purpose of |
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regulation. |
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SUBCHAPTER C. GUARANTEED INVESTMENT CONTRACTS |
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Sec. 1154.101. ESTABLISHMENT OF GUARANTEED INVESTMENT |
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CONTRACTS. A life insurer may issue a guaranteed investment |
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contract to provide a benefit in a fixed amount or a variable amount |
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or a fixed amount and a variable amount. A life insurer may issue a |
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guaranteed investment contract to a group as an allocated or |
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unallocated group annuity contract. |
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SECTION 3. This Act takes effect September 1, 2015. |
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