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2005 Texas Insurance Code - Not Codified CHAPTER 1. THE BOARD, ITS POWERS AND DUTIES
INSURANCE CODE - NOT CODIFIED TITLE 1. THE INSURANCE CODE OF 1951 CHAPTER 1. THE BOARD, ITS POWERS AND DUTIES Art. 1.01. SHORT TITLE. This Act constitutes and shall be known as the Insurance Code. Acts 1951, 52nd Leg., ch. 491. Art. 1.02. RATING. (a) In this article, "insurer" means an insurance company, reciprocal or interinsurance exchange, mutual insurance company, farm mutual insurance company, capital stock company, county mutual insurance company, Lloyd's plan, a surplus lines insurer, or other legal entity engaged in the business of insurance in this state. The term includes: (1) an affiliate as described by Section 2, Article 21.49-1 of this code, or Section 823.003(a) of this code; (2) the Texas Windstorm Insurance Association created and operated under Article 21.49 of this code; (3) the FAIR Plan Association under Article 21.49A of this code; and (4) the Texas Automobile Insurance Plan Association under Article 21.81 of this code. (b) Rates used under this code must be just, fair, reasonable, adequate, not confiscatory and not excessive for the risks to which they apply, and not unfairly discriminatory. An insurer may not use rates that violate this article. (c) For purposes of this article, a rate is: (1) excessive if the rate is likely to produce a long-term profit that is unreasonably high in relation to the insurance coverage provided; (2) inadequate if the rate is insufficient to sustain projected losses and expenses to which the rate applies, and continued use of the rate: (A) endangers the solvency of an insurer using the rate; or (B) has the effect of substantially lessening competition or creating a monopoly within any market; or (3) unfairly discriminatory if the rate: (A) is not based on sound actuarial principles; (B) does not bear a reasonable relationship to the expected loss and expense experience among risks; or (C) is based in whole or in part on the race, creed, color, ethnicity, or national origin of the policyholder or an insured. Added by Acts 2003, 78th Leg., ch. 206, Sec. 13.01, eff. June 11, 2003. Art. 1.04A. SALARIED EXAMINERS.Article repealed effective April 1, 2007 In making examinations of any insurance organization as provided by law, the department may use its own salaried examiners or may use the services of persons or firms qualified to perform such examinations or assist in the performance of such examinations. Such examination shall cover the period of time that the department requests. In the event the department does not specify a longer period of time, such examination shall be from the time of the last examination theretofore made by the department to December 31st of the year preceding the examination then being made. All fees paid to those persons or firms whose services are used shall be paid at the usual and customary rates charged for the performance of those services, subject to the right of the Commissioner to disapprove for payment any fees that are excessive in relation to the services actually performed. Such payment shall be made by the insurance organization being examined and all such examination fees so paid shall be allowed as a credit on the amount of premium or other taxes to be paid by any such insurance organization for the taxable year during which examination fees are paid just as examination fees are credited when the department uses its own salaried examiners. Acts 1957, 55th Leg., p. 1454, ch. 499, Sec. 2. Amended by Acts 1989, 71st Leg., ch. 1082, Sec. 2.06, eff. Sept. 1, 1989; Acts 1991, 72nd Leg., ch. 242, Sec. 1.02, eff. Sept. 1, 1991. Renumbered from art. 1.04(g) and amended by Acts 1993, 73rd Leg., ch. 685, Sec. 1.03, eff. Sept. 1, 1993. Art. 1.04D. DUTIES OF COMPTROLLER. (a) Repealed by Acts 2003, 78th Leg., ch. 1274, Sec. 26(b)(1). (b) The duties transferred to the comptroller relative to taxes, fees, and assessments imposed under this code or another insurance law of this state relate to the collection, reporting, enforcement, and administration of all such amounts currently provided for under this code or another insurance law of this state, and also of any taxes, fees, or assessments that have been repealed or are otherwise inactive but for which amounts may still be owing or refunds may be due on or after the effective date of this article. (c), (d) Repealed by Acts 2003, 78th Leg., ch. 1274, Sec. 26(b)(1). Added by Acts 1993, 73rd Leg., ch. 685, Sec. 3.01, eff. Sept. 1, 1993. Subsec. (a) amended by Acts 1999, 76th Leg., ch. 101, Sec. 3, eff. Sept. 1, 1999; Subsecs. (a), (c), (d) repealed by Acts 2003, 78th Leg., ch. 1274, Sec. 26(b)(1), eff. April 1, 2005. Art. 1.09-1. REPRESENTED BY THE ATTORNEY GENERAL. (a) The department, the State Board of Insurance, and the Commissioner shall be represented and advised by the Attorney General in all legal matters before them or in which they shall be interested or concerned. The department, the Board, and the Commissioner may not employ or obtain any other legal services without the written approval of the Attorney General. (b) The Commissioner shall have and exercise the power of subpoena and subpoena duces tecum for witnesses, documents, and other evidence to the extent of the jurisdiction of this state for such hearings and proceedings on its own motion. Added by Acts 1957, 55th Leg., p. 1454, ch. 499, Sec. 3. Amended by Acts 1987, 70th Leg., 1st C.S., ch. 1, Sec. 1.03, eff. Sept. 2, 1987; Acts 1991, 72nd Leg., ch. 242, Sec. 1.02, eff. Sept. 1, 1991. Subsec. (b) amended by Acts 1993, 73rd Leg., ch. 685, Sec. 1.06, eff. Sept. 1, 1993. Art. 1.10. CERTAIN DUTIES OF THE DEPARTMENT. In addition to the other duties required of the department, the department shall perform duties as follows: 1. Deleted by Acts 1999, 76th Leg., ch. 101, Sec. 4, eff. Sept. 1, 1999. 2. File Articles of Incorporation and Other Papers. File and preserve in its office all acts or articles of incorporation of insurance companies and all other papers required by law to be deposited with the Department and, upon application of any party interested therein, furnish certified copies thereof upon payment of the fees prescribed by law.Text of Sec. 3 effective until April 1, 2007 3. Shall Calculate Reserve. For every company transacting any kind of insurance business in this State, for which no basis is prescribed by law, the Department shall calculate the reinsurance reserve upon the same basis prescribed in Section 862.102 of this code as to companies transacting fire insurance business.Text of Sec. 4 effective until April 1, 2007 4. To Calculate Re-insurance Reserve. On the thirty-first day of December of each and every year, or as soon thereafter as may be practicable, the Department shall have calculated in the Department the re-insurance reserve for all unexpired risks of all insurance companies organized under the laws of this state, or transacting business in this state, transacting any kind of insurance other than life, fire, marine, inland, lightning or tornado insurance, which calculation shall be in accordance with the provisions of Paragraph 3 hereof.Text of Sec. 5 effective until April 1, 2007 5. When a Company's Surplus is Impaired. No impairment of the capital stock of a stock company shall be permitted. No impairment of the surplus of a stock company, or of the minimum required aggregate surplus of a mutual, Lloyd's, or reciprocal insurer, shall be permitted in excess of that provided by this section. Having charged against a company other than a life insurance company, the reinsurance reserve, as prescribed by the laws of this State, and adding thereto all other debts and claims against the company, the Commissioner shall, (i) if it is determined that the surplus required by Section 822.054, 822.202, 822.203, 822.205, 822.210, 822.211, or 822.212 of this code of a stock company doing the kind or kinds of insurance business set out in its Certificate of Authority is impaired to the extent of more than fifty (50%) per cent of the required surplus for a capital stock insurance company, or is less than the minimum level of surplus required by Commissioner promulgated risk-based capital and surplus regulations, or (ii) if it is determined that the required aggregate surplus of a reciprocal or mutual company, or the required aggregate of guaranty fund and surplus of a Lloyd's company, other than a life insurance company, doing the kind or kinds of insurance business set out in its Certificate of Authority is impaired to the extent of more than twenty-five per cent (25%) of the required aggregate surplus, or is less than the minimum level of surplus required by Commissioner promulgated risk-based capital and surplus regulations, the Commissioner shall order the company to remedy the impairment of surplus to acceptable levels specified by the Commissioner or to cease to do business within this State. The Commissioner shall thereupon immediately institute such proceedings as may be necessary to determine what further actions shall be taken in the case. 6. Shall Publish Results of Investigation. The Department shall publish the result of an examination of the affairs of any company whenever the Commissioner deems it for the interest of the public. 7 to 14. Deleted by Acts 1999, 76th Leg., ch. 101, Sec. 4, eff. Sept. 1, 1999. 15, 16. Deleted by Acts 2001, 77th Leg., ch. 1419, Sec. 4, eff. June 1, 2003.Text of Sec. 17 effective until April 1, 2007 17. Voluntary Deposits. (a) In the event any insurance company organized and doing business under the provisions of this Code shall be required by any other state, country or province as a requirement for permission to do an insurance business therein to make or maintain a deposit with an officer of any state, country, or province, such company, at its discretion, may voluntarily deposit with the Comptroller such securities as may be approved by the Commissioner of Insurance to be of the type and character authorized by law to be legal investments for such company, or cash, in any amount sufficient to enable it to meet such requirements. The Comptroller is hereby authorized and directed to receive such deposit and hold it exclusively for the protection of all policyholders or creditors of the company wherever they may be located, or for the protection of the policyholders or creditors of a particular state, country or province, as may be designated by such company at the time of making such deposit. The company may, at its option, withdraw such deposit or any part thereof, first having deposited with the Comptroller, in lieu thereof, other securities of like class and of equal amount and value to those withdrawn, which withdrawal and substitution must be approved by the Commissioner of Insurance. The proper officer of each insurance company making such deposit shall be permitted at all reasonable times to examine such securities and to detach coupons therefrom, and to collect interest thereon, under such reasonable rules and regulations as may be prescribed by the Comptroller and the Commissioner of Insurance. Any deposit so made for the protection of policyholders or creditors of a particular state, country or province shall not be withdrawn, except by substitution as provided above, by the company, except upon filing with the Commissioner of Insurance evidence satisfactory to him that the company has withdrawn from business, and has no unsecured liabilities outstanding or potential policyholder liabilities or obligations in such other state, country or province requiring such deposit, and upon the filing of such evidence the company may withdraw such deposit at any time upon the approval of the Commissioner of Insurance. Any deposit so made for the protection of all policyholders or creditors wherever they may be located shall not be withdrawn, except by substitution as provided above, by the company except upon filing with the Commissioner of Insurance evidence satisfactory to him that the company does not have any unsecured liabilities outstanding or potential policy liabilities or obligations anywhere, and upon filing such evidence the company may withdraw such deposit upon the approval of the Commissioner of Insurance. For the purpose of state, county and municipal taxation, the situs of any securities deposited with the Comptroller hereunder shall be in the city and county where the principal business office of such company is fixed by its charter. (b) Any voluntary deposit held by the Comptroller or the Department heretofore made by any insurance company in this State, and which deposit was made for the purpose of gaining admission to another state, may be considered, at the option of such company, to be hereinafter held under the provisions of this Act. (c) When two or more companies merge or consolidate or enter a total reinsurance contract by which the ceding company is dissolved and its assets acquired and liabilities assumed by the surviving company, and the companies have on deposit with the Comptroller two or more deposits made for identical purposes under this section or Article 4739, Revised Statutes, as amended, and now repealed, all such deposits, except the deposit of greatest amount and value, may be withdrawn by the new surviving or reinsuring company, upon proper showing of duplication of such deposits and that the company is the owner thereof. (d) Any company which has made a deposit or deposits under this section or Article 4739, Revised Statutes, as amended and now repealed, shall be entitled to a return of such deposits upon proper application therefor and a showing before the Commissioner that such deposit or deposits are no longer required under the laws of any state, country or province in which such company sought or gained admission to do business upon the strength of a certificate of such deposit. (e) Upon being furnished a certified copy of the Commissioner's order issued under Subsection (c) or (d) above, the Comptroller shall release, transfer and deliver such deposit or deposits to the owner as directed in said order. 18 to 20. Deleted by Acts 2003, 78th Leg., ch. 1274, Sec. 8. Acts 1951, 52nd Leg., ch. 491. Amended by Acts 1955, 54th Leg., p. 413, ch. 117, Sec. 2; Acts 1959, 56th Leg., p. 280, ch. 157, Sec. 1; Acts 1959, 56th Leg., p. 637, ch. 291, Sec. 3; Acts 1967, 60th Leg., p. 1825, ch. 705, Sec. 1 to 3, eff. Aug. 28, 1967; Acts 1979, 66th Leg., p. 574, ch. 264, Sec. 1, eff. Aug. 27, 1979; Acts 1981, 67th Leg., p. 412, ch. 170, Sec. 1, eff. May 20, 1981. Sec. 11 amended and Secs. 18, 19 added by Acts 1983, 68th Leg., p. 3894, ch. 622, Sec. 4, 17, eff. Sept. 1, 1983; Sec. 7 amended by Acts 1987, 70th Leg., ch. 416, Sec. 1, eff. June 17, 1987; Secs. 7, 13 amended by Acts 1987, 70th Leg., 2nd C.S., ch. 67, Sec. 4, eff. Aug. 4, 1987. Amended by Acts 1989, 71st Leg., ch. 273, Sec. 6, eff. Aug. 28, 1989; Sec. 16 amended by Acts 1989, 71st Leg., ch. 1082, Sec. 1.01, eff. Sept. 1, 1989; Sec. 5 amended by Acts 1991, 72nd Leg., ch. 242, Sec. 7.07, eff. Sept. 1, 1991; Sec. 7(a) amended by Acts 1991, 72nd Leg., ch. 242, Sec. 1.06, eff. Sept. 1, 1991; Sec. 20 added by Acts 1991, 72nd Leg., 2nd C.S., ch. 12, Sec. 1.26, eff. Jan. 1, 1992. Amended by Acts 1993, 73rd Leg., ch. 685, Sec. 1.07, eff. Sept. 1, 1993; Sec. 7(a) amended by Acts 1997, 75th Leg., ch. 195, Sec. 1, eff. Sept. 1, 1997; Sec. 17 amended by Acts 1997, 75th Leg., ch. 1423, Sec. 11.01, eff. Sept. 1, 1997. Amended by Acts 1999, 76th Leg., ch. 101, Sec. 4, eff. Sept. 1, 1999; Acts 2001, 77th Leg., ch. 1419, Sec. 4, eff. June 1, 2003; Acts 2003, 78th Leg., ch. 1274, Sec. 8, eff. April 1, 2005; Secs. 3, 4, ,5, and 17 are repealed by Acts 2005, 79th Leg., ch. 727, Sec. 18(b), eff. April 1, 2007. Art. 1.12. WHEN PARTIES REFUSE TO TESTIFY. If any person refuses to appear and testify or to give information authorized by this chapter to be demanded by the Board, such Board may file the sworn application of any member thereof with any district judge or district court within this State, where said witness is summoned to appear, and said judge shall summon said witness and require answers to such questions. Acts 1951, 52nd Leg., ch. 491. Art. 1.13. OFFICERS SHALL EXECUTE SERVICE. Peace officers shall execute process directed to them by the Board and make return thereof to it, as in the case of process issued from any court. Acts 1951, 52nd Leg., ch. 491. Art. 1.14-3. TEXAS INSURANCE EXCHANGE.Article repealed effective April 1, 2007 Definitions Sec. 1. In this article: (1) "Exchange" means the Texas Insurance Exchange. (2) "Board" means the State Board of Insurance. (3) "Directors" means the board of directors of the exchange. (4) "Member" means a person, firm, corporation, or underwriting syndicate authorized by the directors of the exchange to insure or reinsure risks through the exchange. (5) "Subscriber" means a person, firm, corporation, or other organization designated by the directors of the exchange as a subscriber on payment of fees or dues required by the constitution and bylaws.Creation of Exchange Sec. 2. The Texas Insurance Exchange is created and shall operate under a constitution and bylaws and under regulations promulgated by the board.Purpose of Exchange Sec. 3. The purpose of the exchange is to provide a facility for underwriting the following: (1) reinsurance of any kind of insurance; (2) direct insurance of any kind of risk located entirely outside the United States; (3) direct insurance of any kind of risk located in a state of the United States other than this state if the risk qualifies for placement under the excess and surplus lines requirements of the jurisdiction in which the risk is located; and (4) a risk located in this state that is submitted to and certified as having been rejected by a committee representative of not fewer than three and not more than seven insurers licensed to do an insurance business in this state and subject to conditions imposed by regulations promulgated by the board.Management of Exchange Sec. 4. The board shall promulgate regulations under which the exchange shall be operated and managed, and the directors shall operate and manage the exchange in accordance with those regulations.Operation of Exchange Sec. 5. (a) The exchange shall function under a constitution and bylaws adopted by it and approved by the board. (b) The exchange may amend its constitution and bylaws in accordance with their terms and with the approval of the board. (c) The constitution and bylaws and amendments to the constitution and bylaws are invalid without the approval of the board. (d) Notwithstanding any authority under this article to adopt or amend the constitution and bylaws, the constitution and bylaws must provide for: (1) the election of nine directors, four of whom represent the public interest and are not members, subscribers, or agents of the exchange; (2) the location of the principal offices of the exchange and its members within this state for the purpose of the transaction of the types of business described in Section 3 of this article; (3) the submission by the exchange, its members, and applicants for membership in the exchange of financial information required by regulations promulgated by the board; (4) the exchange to establish and maintain a security fund in a form and amount specified by regulations promulgated by the board; (5) the voting power of members; (6) the voting power and other rights granted under the Texas Non-Profit Corporation Act (Article 1396-1.01 et seq., Vernon's Texas Civil Statutes) to participate in the conduct and management of the affairs of the exchange by agents transacting business on the exchange; and (7) the rights and duties of members, including the manner and form for conducting business, financial stability, dues, membership fees, mandatory arbitration, and other matters necessary or appropriate to conduct business authorized by this article. (e) For the purposes of this section, a principal office is an office at which officers and personnel who are engaged in administration, underwriting, claims adjustment, policyholders' service, marketing, accounting, record-keeping, and support services are located.Directors Sec. 6. (a) The directors for the exchange shall be elected by the members of the exchange and by any other persons authorized by the constitution and bylaws of the exchange to vote for election of directors. (b) At least two-thirds of the directors must be citizens of the United States.Taxes Sec. 7. (a) Except as provided by this section and Section 8 of this article, the exchange is not subject to any state or local taxes measured by income, premiums, or gross receipts. (b) Direct premiums written, procured, or received by any member through the exchange on risks located in this state are deemed written, procured, or received by the exchange, and those premiums are subject to the premium taxes imposed under Chapter 4 of this code. Those taxes shall be reported, paid, and administered as provided by Chapter 4 of this code. (c) For purposes of Chapter 4 of this code, the exchange and its members are considered insurance carriers. Sec. 8. Repealed by Acts 2003, 78th Leg., ch. 1274, Sec. 26(b)(2).Application of This Article and Regulations Sec. 9. This article and regulations promulgated by the commissioner or the comptroller, as applicable, apply to the exchange, its members, and the insurance and reinsurance written through the exchange, except to the extent exempt by regulations of the commissioner or the comptroller, as applicable. An exemption may not be unfairly discriminatory or detrimental to the solvency of licensed insurers.Investment in Members and Agents Sec. 10. (a) The board by regulation may establish limitations on investments in members of the exchange. (b) The investment in a member by agents transacting business on the exchange and the investment in an agent transacting business on the exchange by a member, either directly or indirectly, in each case is limited in the aggregate to less than 20 percent of the total investment in the member or agent or to a lesser amount provided by board regulation.Application of Certain Statutes Sec. 11. For purposes of Article 1.14-1 of this code, insurance and reinsurance written under Subdivision (4) of Section 3 of this article written by members of the exchange are deemed to have been written in accordance with specific authorization of the laws of this state.Guaranty Funds Sec. 12. Performance of the contractual obligations of the exchange or its members entered into under this article is not covered by any of the Texas insurance guaranty funds provided by the laws of this state. This section does not apply to the security fund provided by Subdivision (4) of Subsection (d) of Section 5 of this article. Added by Acts 1987, 70th Leg., ch. 415, Sec. 1, eff. Sept. 1, 1987. Sec. 5(d) amended by Acts 1991, 72nd Leg., ch. 242, Sec. 9.03, eff. Sept. 1, 1991; Secs. 8 and 9 amended by Acts 1993, 73rd Leg., ch. 685, Sec. 3.08, eff. Sept. 1, 1993; Sec. 8 repealed by Acts 2003, 78th Leg. ch. 1274, Sec. 26(b)(2), eff. April 1, 2005. Art. 1.15. TO EXAMINE CARRIERS.Article repealed effective April 1, 2007 Sec. 1. The State Board of Insurance shall once each year for the first three (3) years after organization or incorporation, and thereafter once in each three (3) years, or oftener, if the Board deems necessary, in person or by one or more examiners commissioned by such Board in writing, visit each carrier organized under the laws of this state and examine its financial condition and its ability to meet its liabilities, as well as its compliance with the laws of Texas affecting the conduct of its business; and such Board shall similarly, in person or by one or more commissioned examiners, visit and examine, either alone or jointly with representatives of the insurance supervising departments of other states, each insurance carrier not organized under the laws of this state but authorized to transact business in this state. Such Board or its commissioned examiners shall have free access to all the books and papers of the carrier or agents thereof relating to the business and affairs of such carrier, and shall have power to summon and examine under oath, if necessary, the officers, agents, and employees of such carrier and any other person relative to the affairs of such carrier. Such Board may revoke or modify any certificate of authority issued by such Board or by any predecessor in office when any condition or requirement prescribed by law for granting it no longer exists. Such Board shall give such company at least ten (10) days written notice of its intention to revoke or modify such certificate of authority stating specifically the reason for the action it proposes to take. Sec. 2. The State Board of Insurance in administering any provision of the Insurance Code, Acts 1951, 51st Legislature, Chapter 491, shall be authorized and empowered in determining "value" or "market value" of any investment in or upon real estate or the improvements thereon by any carrier authorized to do business in the State of Texas to consider any and all matters and things relating thereto, including but not restricted to, appraisals by real estate boards or other qualified persons, affidavits by other persons familiar with such values, tax valuations, cost of acquisition, with proper deductions for depreciation and obsolescence, cost of replacement, sales of other comparable property, enhancement in value from whatever cause, income received or to be received, improvements made or any other factor or any other evidence which to said Board may be deemed proper and material. Sec. 3. Any insurer whose investment in or upon real estate or the improvements thereon may have been determined or found by said Board shall be entitled to make a written request to the Board for a written finding by the Board; and upon such request being made to the Board, the Board shall, within ten (10) days after receipt of such request, enter its written order or finding setting out separately its finding upon each factor or matter upon which its said determination or finding of "value" or "market value" was made and shall in such written order or finding give the names and addresses of all persons who furnished such evidence as to each such matter, factor or thing and upon whom the Board relied in making such determination or finding and shall deliver a copy of such written finding or order to the carrier so requesting the same. Sec. 4. Any rule, regulation, order, decision or finding of the Board under this Act shall be subject to review in accordance with Article 1.04 of this code. The filing of such suit shall operate as a stay of any such rule, regulation, order, decision or finding of the Board until the court directs otherwise. Sec. 5. If a carrier or an agent of a carrier fails or refuses to comply with this article or rules adopted under this article or to comply with a request of the Board or a commissioned examiner to be examined or to provide information requested as part of an examination by the Board or commissioned examiner, the carrier is subject to disciplinary action under Article 1.10, Section 7, of this code, and the Commissioner of Insurance may institute disciplinary action pursuant to Article 1.10, Section 7, Insurance Code. Sec. 6. The Board, by rule, shall adopt procedures for filing and adoption of examination reports and for hearings to be held under this article and guidelines governing orders issued under this article. Sec. 7. Nothing contained in this article shall be construed to limit the Commissioner's authority to use any final or preliminary examination report, any examiner or company workpapers or other documents, or any other information discovered or developed during the course of any examination in the furtherance of any legal or regulatory action which the Commissioner of Insurance may, in his or her sole discretion deem appropriate. Sec. 8. (a) In conducting an examination under this article, the department shall use audits and work papers prepared by an accountant or accounting firm that meets the requirements of Section 12, Article 1.15A, of this code that are made available to the department by the carrier. If necessary, the department may conduct a separate audit of the carrier. (b) The carrier shall provide the department with the work papers of an accountant or accounting firm or the carrier and a record of any communications between the accountant or accounting firm and the carrier that relate to the audit. The accountant or accounting firm shall deliver that information to the department's examiners, who shall retain the information during the course of the department's examination of the carrier. Information obtained under this section is confidential and may not be disclosed to the public except when introduced as evidence in a hearing. (c) For purposes of this section, "work papers" has the meaning assigned by Section 17(a), Article 1.15A, of this code. Work papers developed in an audit conducted under this section shall be maintained in the manner provided by Sections 17(b) and (c), Article 1.15A, of this code. Sec. 9. A final or preliminary examination report, and any information obtained during the course of an examination, is confidential and is not subject to disclosure under the open records law, Chapter 424, Acts of the 63rd Legislature, Regular Session, 1973 (Article 6252-17a, Vernon's Texas Civil Statutes), and its subsequent amendments. This section applies if the carrier examined is under supervision or conservation but does not apply to an examination conducted in connection with a liquidation or a receivership under this code or another insurance law of this state. Sec. 10. If the Commissioner determines that the financial strength of a carrier justifies less-frequent examinations than are required by Section 1 of this article, the Commissioner may conduct the examination of a carrier at intervals not to exceed five years. The Commissioner shall adopt rules governing the determination of whether the financial strength of a carrier justifies examination under this section. This section applies only to examination of a carrier that has been incorporated or organized for more than three years. Acts 1951, 52nd Leg., ch. 491. Amended by Acts 1955, 54th Leg., p. 826, ch. 307, Sec. 3; Acts 1965, 59th Leg., p. 309, ch. 141, Sec. 1. Sec. 1 amended by Acts 1987, 70th Leg., 2nd C.S., ch. 67, Sec. 6, eff. Aug. 4, 1987; Sec. 1 amended by and Secs. 5 to 7 added by Acts 1991, 72nd Leg., ch. 242, Sec. 11.104, eff. Sept. 1, 1991; Sec. 4 amended by Acts 1993, 73rd Leg., ch. 685, Sec. 4.01, eff. Sept. 1, 1993; Secs. 8 to 10 added by Acts 1993, 73rd Leg., ch. 685, Sec. 7.05, eff. Sept. 1, 1993. Art. 1.15A. INDEPENDENT AUDIT OF FINANCIAL STATEMENT.Article repealed effective April 1, 2007 Purpose Sec. 1. The purpose of this article is to require an annual examination by an independent certified public accountant of the financial statements reporting the financial condition and the results of operations of each insurer.Application Sec. 2. This article applies to each insurer except an insurer exempt under Section 4, 6, or 7 of this article.Definitions Sec. 3. In this article: (1) "Accountant" means an independent certified public accountant or accounting firm that meets the requirements of Section 12 of this article. (2) "Affiliate" has the meaning assigned by Subsection (a) of Section 2 of Article 21.49-1 of this code. (3) "Board" means the State Board of Insurance. (4) "Commissioner" means the commissioner of insurance. (5) "Insurer" means an insurer authorized to do business under the law of this state and includes life, health, and accident insurance companies, fire and marine companies, general casualty companies, title insurance companies, fraternal benefit societies, mutual life insurance companies, local mutual aid associations, statewide mutual assessment companies, mutual insurance companies other than life, farm mutual insurance companies, county mutual insurance companies, Lloyd's plans, reciprocal and interinsurance exchanges, group hospital service corporations, health maintenance organizations, stipulated premium insurance companies, and nonprofit legal services corporations. (6) "Subsidiary" has the meaning assigned by Section 2 of Article 21.49-1 of this code.Exemption Sec. 4. (a) Except as provided by Subsections (b) and (c) of this section, an insurer otherwise subject to this article that has less than $1 million in direct premiums written in this state during a calendar year, in lieu of the annual examination required by this article for that calendar year, may submit an affidavit under oath of an officer of the insurer that specifies the amount of direct premiums written in this state, and such insurer shall be exempt from the audit required by this article. (b) The commissioner may require an insurer that is exempt under Subsection (a) of this section to comply with this article if the commissioner finds that the insurer's compliance is necessary for the commissioner to fulfill the commissioner's statutory responsibilities; provided that this subsection shall not apply to any fraternal benefit society qualifying for exemption under Subsection (a) of this section which has no direct premiums written in this state for accident and health insurance during a calendar year. (c) An insurer that has assumed premiums of $1 million or more under reinsurance agreements is not exempt under Subsection (a) of this section. Sec. 5. Deleted by Acts 1991, 72nd Leg., ch. 242, Sec. 11.02, eff. Sept. 1, 1991.Exemption for Insurers Filing Audits in Another State Sec. 6. (a) A foreign or alien insurer that files an audited financial report in another state, pursuant to that state's requirement for audited financial reports, may be exempt from filing a report under this article if the commissioner finds that the other state's requirements are substantially similar to the requirements in this article. (b) A copy of the audited financial report, the report on significant deficiencies in internal controls, and the accountant's letter of qualifications filed with the other state must be filed with the commissioner in accordance with the filing dates provided by Sections 9 and 16 of this article. (c) A copy of a notification of adverse financial conditions report filed with the other state by a person exempt under this section must be filed with the commissioner within the time provided by Section 15 of this article.Financial Hardship Exemption Sec. 7. (a) An insurer otherwise subject to this article and not eligible for an exemption under Section 4 or 6 of this article may apply to the commissioner for a financial hardship exemption. (b) Except as provided by Subsection (c) of this section, the commissioner may grant an exemption under this section if the commissioner finds, after review of the application, that compliance with this rule would constitute a severe financial or organizational hardship on the insurer. An exemption may be granted at any time and from time to time for a specified period or periods. (c) The commissioner may not grant an exemption under this section if the exemption diminishes the department's ability to monitor the financial condition of the insurer and may not grant an exemption to an insurer that: (1) has been placed under supervision, conservatorship, or receivership during the five-year period immediately preceding the date on which application for the exemption is made; (2) has undergone a change in control, as defined by Section 2, Article 21.49-1 of this code during the five-year period immediately preceding the date on which application for the exemption is made; (3) has been identified by the department as a troubled insurer; (4) has been subject to a significant number of complaints, as determined by the commissioner, during the five-year period immediately preceding the date on which application for the exemption is made; (5) has been or is the subject of a disciplinary action by the board; or (6) is not in compliance with any law or any rule adopted by the board or commissioner. (d) An insurer that is aggrieved by a determination of the commissioner under this section may appeal that determination under Article 1.04 of this code.Board's Authority Sec. 8. This article does not prohibit, preclude, or limit the board from ordering, conducting, or performing an examination of any insurer under this code or the board's rules.Filing and Extensions for Filing of Annual Audited Financial Reports Sec. 9. (a) Each insurer shall have an annual audit by an accountant and shall file an audited financial report for the preceding calendar year with the commissioner on or before June 30 of each year. (b) Extension of the filing date for the audited financial report may be granted by the commissioner for 30-day periods on a showing by the insurer and its accountant of reasons for requesting the extension and determination by the commissioner of good cause for an extension. The request for extension must be submitted in writing before the 10th day preceding the date the report is due to be filed and must include sufficient detail to permit the commissioner to make an informed decision with respect to the requested extension. (c) The commissioner may require an insurer to file the audited financial report on a date before June 30 of a particular year if the commissioner notifies the insurer of the date not later than the 90th day before the date on which the report is to be filed. (d) If the insurer fails to comply with this article, the commissioner shall order the audit performed by an independent qualified certified public accountant and assess against the insurer the cost of auditing the insurer's financial statement under this article, and the insurer shall pay the amount of the assessment to the commissioner not later than the 30th day after the date the commissioner issues the notice of assessment to the insurer. Money collected under this section shall be deposited in the state treasury to the credit of the State Board of Insurance operating fund for the use of the board and the department for the purpose of paying the expenses incurred under the article.Contents of Audited Financial Report Sec. 10. (a) The audited financial report shall report the financial condition of the insurer as of the end of the most recent calendar year and the results of the insurer's operations, changes in financial position, and changes in capital and surplus for that year in conformity with statutory accounting practices prescribed or otherwise permitted by the insurance regulator in the state of domicile. (b) The audited financial report must include the following: (1) the report of an accountant; (2) a balance sheet that reports admitted assets, liabilities, capital, and surplus; (3) a statement of gain or loss from operations; (4) a statement of cash flows; (5) a statement of changes in capital and surplus; (6) any notes to financial statements; and (7) supplementary data and information including any additional data or information required by the commissioner. (c) The notes to the financial statements required by Subdivision (6) of Subsection (b) of this section must include: (1) a reconciliation of differences, if any, between the audited statutory financial statements and the annual statements filed pursuant to this code with a written description of the nature of these differences; (2) any notes required by the appropriate National Association of Insurance Commissioners annual statement instructions or by generally accepted accounting principles; and (3) a summary of the ownership of the insurer and the relationship of the insurer to any affiliated company. (d) The financial statements included in the audited financial report must be prepared in a form and using language and groupings substantially the same as the relevant sections of the insurer's annual statement filed with the commissioner. Except in the first year in which an insurer is required to file an audited financial report, the financial statements also must be comparative, presenting the amounts as of December 31 of the reported year and the amounts as of December 31 of the preceding year. (e) Insurers required to be examined under Section 2 of this article who did not retain an independent certified public accountant to perform an annual examination for the previous year shall not be required to include the following reports covered by the accountant's opinion for the first year, although such statements shall be presented and labeled unaudited: (1) Statement of operations. (2) Statement of cash flows. (3) Statements of changes in capital and surplus. All other reports described in Section 9 must be included. For the succeeding year and each year thereafter, such insurers shall file with the commissioner all reports required by this article. (f) The audited financial report must also include information required by the department to conduct the examination of the insurer under Article 1.15 of this code. The commissioner shall adopt rules governing the information to be included in the report under this subsection.Canadian or British Insurers Sec. 10A. (a) In lieu of the audited financial report required under Section 9 of this article, an insurer domiciled in Canada or the United Kingdom may file its annual statement of total business on the form filed by the company with the appropriate regulatory authority in the country of domicile. The statement must be audited by an independent accountant chartered in the country of domicile. (b) The chartered accountant shall register with the commissioner under Section 11(a) of this article, and the registration must be accompanied by a statement, signed by the accountant, indicating that the accountant is aware of the requirements of this article and affirming that the accountant will express the accountant's opinion in conformity with those requirements.Designation of Accountant Sec. 11. (a) Each insurer must register with the commissioner the name and address of the accountant retained to prepare an audited financial report required by this article. The registration must be made in writing not later than December 31 of the calendar year to be covered by the audited financial report. (b) The registration must be accompanied by a statement signed by the accountant indicating that the accountant is aware of the requirements of this article, and of the rules and regulations of the insurance department of the insurer's state of domicile that relate to accounting and financial matters and affirming that the accountant will express the accountant's opinion on the financial statements in terms of their conformity to the statutory accounting practices prescribed or otherwise permitted by that department, specifying any exceptions the accountant believes are appropriate. (c) The commissioner may not accept an audited financial report from an insurer that is prepared by an accountant that is not registered under this section. (d) The commissioner may not accept registration under this section for a person who does not comply with Section 12 of this article and with the other requirements of this article.Qualifications of Accountant Sec. 12. (a) Except as provided by Subsections (b) and (c) of this section, the commissioner shall accept an audited financial report from an accountant who is an independent certified public accountant in good standing with the American Institute of Certified Public Accountants and in all states in which the accountant or firm is licensed to practice and who conforms to the Code of Professional Ethics of the American Institute of Certified Public Accountants and to the rules and regulations and Code of Ethics and Rules of Professional Conduct of the Texas State Board of Public Accountancy or a similar code. In the case of an insurer domiciled in Canada, the commissioner shall accept an audited financial report from an accountant chartered in Canada, and, in the case of an insurer domiciled in Great Britain, the commissioner shall accept an audited financial report from an accountant chartered in Great Britain. (b) A partner or other person responsible for rendering a report for an insurer for seven consecutive years may not render a report for that insurer, or any of the subsidiaries or affiliates of the insurer that are engaged in the business of insurance, during the two years following the seventh year. The commissioner may determine that the limitation in this subsection does not apply to the accountant for a particular insurer if the insurer demonstrates, to the satisfaction of the commissioner, that its application to the insurer would be unfair because of unusual circumstances. In making the determination, the commissioner may consider: (1) the number of partners or individuals employed by the accountant, the expertise of the partners or individuals employed by the accountant, or the number of insurance clients of the accountant; (2) the premium volume of the insurer; and (3) the number of jurisdictions in which the insurer transacts business. (c) The commissioner may not accept an audited financial report prepared in whole or in part by an individual or firm who the commissioner finds: (1) has been convicted of fraud, bribery, a violation of the Racketeer Influenced and Corrupt Organizations Act (18 U.S.C. Sections 1961 through 1968), or any state or federal criminal offense involving dishonest conduct; (2) has violated the insurance laws of this state with respect to any report filed under this article; (3) has demonstrated a pattern or practice of failing to detect or disclose material information in reports filed under this article; or (4) has directly or indirectly entered into an agreement of indemnity or release of liability regarding an audit of an insurer. (d) The commissioner may hold a hearing to determine if an accountant is qualified and independent and, considering the evidence presented, may rule that the accountant is not qualified and independent for purposes of expressing an opinion on the financial statements in the audited financial report filed under this article. (e) If the commissioner rules that an accountant is not qualified and independent, the commissioner shall issue an order directing the insurer to replace the accountant with a qualified and independent accountant.Resignation or Dismissal of Accountant Sec. 12A. (a) If the accountant who signed an audited financial report resigns as accountant for the insurer or is dismissed by the insurer after the report is filed, the insurer shall notify the department not later than the fifth business day after the date of resignation or dismissal. (b) Not later than the 10th business day after the insurer gives the notification required by Subsection (a) of this section, the insurer shall file a written statement with the commissioner advising the commissioner of any disagreements between the accountant and personnel of the insurer responsible for presentation of its financial statements relating to accounting principles or practices, financial statement disclosure, or auditing scope or procedures that occurred during the 24-month period immediately preceding the date of resignation or dismissal and that, if not resolved to the satisfaction of the accountant, would have caused the accountant to note the disagreement in connection with the audited financial report. The statement must include both disagreements that were resolved to the accountant's satisfaction and those that were not resolved to the accountant's satisfaction. (c) The insurer shall file with the statement required under Subsection (b) of this section a letter signed by the accountant stating whether the accountant agrees with the insurer's statement and, if not, stating the reasons why the accountant does not agree. If the accountant is unwilling or unable to provide the letter, the insurer shall file with the commissioner a copy of a written request to the accountant for the letter.Consolidated or Combined Audits Sec. 13. (a) An insurer may make written application to the commissioner for approval to file audited combined or consolidated financial statements instead of separate annual audited financial reports if the insurer is part of a group of insurance companies that uses a pooling or 100 percent reinsurance agreement that affects the solvency and integrity of the insurer's reserves and the insurer cedes all of its direct and assumed business to the pool. The application for approval must be filed on or before December 31 of the calendar year for which the combined or consolidated audited financial statements are to be filed. (b) An insurer that receives approval from the commissioner under Subsection (a) of this section shall file a columnar consolidating or combining worksheet for consolidated or combined financial statements that must include the following: (1) amounts shown on the consolidated or combined audited financial statements; (2) amounts for each insurer stated separately; (3) noninsurance operations shown on a combined or individual basis; (4) explanations of consolidating and eliminating entries; and (5) reconciliation of any differences between the amounts shown in the individual insurer columns of the worksheet and comparable amounts shown on the insurers' annual statements. (c) An insurer who does not receive approval from the commissioner to file an audited combined or consolidated financial statements for the insurer and any of its subsidiaries or affiliates shall file a separate audited financial report.Scope of Accountant's Examination and Report Sec. 14. (a) The financial reports furnished under Section 8 of this article must be examined by an accountant. (b) The examination of an insurer's financial reports shall be conducted in accordance with generally accepted auditing standards or with standards adopted by the Public Company Accounting Oversight Board, as applicable. The accountant conducting the audit shall consider: (1) the standards specified in the Examiner's Handbook promulgated by the National Association of Insurance Commissioners; or (2) other analogous nationally recognized standards adopted by commissioner rule.Notification of Adverse Financial Condition Sec. 15. (a) An insurer required to furnish an audited financial report shall require the accountant to immediately notify in writing the board of directors of the insurer or its audit committee of a determination by that accountant that: (1) the insurer has materially misstated its financial condition as reported to the commissioner as of the balance sheet date currently under examination; or (2) the insurer does not meet the minimum capital and surplus requirements provided by this code for that insurer as of that date. (b) The insurer shall furnish to the commissioner a copy of the accountant's written notice not later than the fifth business day after the date on which the insurer receives the notice from the accountant and shall provide the accountant with evidence that the notice has been furnished to the commissioner. If the accountant does not receive the evidence on or before the fifth business day after the date on which the accountant notified the insurer, the accountant shall, not later than the 10th business day after the date on which the accountant notified the insurer, file a copy of the written notice with the commissioner. (c) If the accountant, subsequent to the date of the audited financial report filed under this article, becomes aware of facts that might have affected the report, the accountant must take action as prescribed in Volume 1, Section AU 561, Professional Standards of the American Institute of Certified Public Accountants. (d) An accountant is not liable to the insurer, its policyholders, shareholders, officers, employees or directors, creditors or affiliates, for any statement made under Subsections (a) and (b) of this section if the statement was made in good faith to comply with those subsections.Report on Significant Deficiencies in Internal Control Sec. 16. (a) In addition to the audited financial report, each insurer shall furnish to the commissioner the written report of significant deficiencies required and prepared in accordance with the Professional Standards of the American Institute of Certified Public Accountants. (b) The report required by this section must be filed annually by the insurer with the commissioner not later than the 60th day after the date the audited financial report is filed. The insurer is also required to provide a description of remedial actions taken or proposed to correct significant deficiencies, if the actions are not described in the accountant's report. (c) The report must follow generally the form for communication of internal control structure matters noted in an audit described in SAS No. 60, Section AU 325, Professional Standards of the American Institute of Certified Public Accountants.Accountant's Letter of Qualifications Sec. 16A. (a) The audited financial report must be accompanied by a letter furnished by the accountant stating: (1) that the accountant is independent with respect to the insurer and conforms to the standards of the profession contained in the Code of Professional Ethics, the statements of the American Institute of Certified Public Accountants, and the Rules of Professional Conduct of the Texas Board of Public Accountancy, or a similar code; (2) the background and experience of the accountant in general, the experience in audits of insurers of each individual assigned to prepare the audit, and whether the individual is an independent certified public accountant; (3) that the accountant understands that the annual audited financial report and the accountant's opinion on the report will be filed in compliance with this article and that the commissioner will rely on the report and opinion in the monitoring and regulation of the financial position of insurers; (4) that the accountant consents to the requirements of Section 17 of this article and that the accountant agrees to make the accountant's work papers available for review by the commissioner or the commissioner's designee; (5) that the accountant is properly licensed by an appropriate state licensing authority and is a member in good standing in the American Institute of Certified Public Accountants; and (6) that the accountant is in compliance with the requirements of Section 12 of this article. (b) Subsection (a)(2) of this section does not prohibit an accountant from using any staff the accountant considers appropriate if use of that staff is consistent with the generally accepted auditing standards.Definition, Availability, and Maintenance of Accountant Work Papers Sec. 17. (a) Work papers are the records kept by the accountant of the procedures followed, the tests performed, the information obtained, and the conclusions reached pertinent to the accountant's examination of the financial statements of an insurer and may include work programs, analyses, memoranda, letters of confirmation and representation, abstracts of company documents and schedules, or commentaries prepared or obtained by the accountant in the course of the accountant's examination of the financial statements of an insurer that support the accountant's opinion. (b) Each insurer required to file an audited financial report shall require the accountant to make available for review by the department's examiners the work papers and any record of communications related to the audit between the accountant and the insurer prepared in the conduct of the examination. The insurer shall require that the accountant retain the audit work papers and records of communications until the department has filed a report on examination covering the period of the audit, but not longer than seven years after the period reported. (c) In the conduct of the periodic review by the department's examiners, photocopies of pertinent audit work papers may be made and retained by the board. Reviews by the department's examiners are considered investigations, and all work papers obtained during the course of those investigations may be made confidential by the commissioner, unless admitted as evidence in a hearing before a governmental agency or in a court of competent jurisdiction. Sec. 18. Deleted by Acts 1991, 72nd Leg., ch. 242, Sec. 11.02, eff. Sept. 1, 1991. Added by Acts 1989, 71st Leg., ch. 1082, Sec. 2.01, eff. Sept. 1, 1989. Amended by Acts 1991, 72nd Leg., ch. 242, Sec. 11.02, eff. Sept. 1, 1991; Sec. 10(f) amended by Acts 1993, 73rd Leg., ch. 685, Sec. 7.06, eff. Sept. 1, 1993; Sec. 12(c) amended by Acts 2005, 79th Leg., ch. 408, Sec. 1, eff. Sept. 1, 2005; Sec. 14(b) amended by Acts 2005, 79th Leg., ch. 408, Sec. 2, eff. Sept. 1, 2005. Art. 1.15B. CONFIDENTIALITY OF EARLY WARNING SYSTEM INFORMATION.Article repealed effective April 1, 2007 Any information relating to the financial solvency of any organization regulated by the department under this code or another insurance law of this state obtained by the department's early warning system is confidential and is not subject to disclosure under the open records law, Chapter 424, Acts of the 63rd Legislature, Regular Session, 1973 (Article 6252-17a, Vernon's Texas Civil Statutes), and its subsequent amendments. Added by Acts 1993, 73rd Leg., ch. 685, Sec. 7.07, eff. Sept. 1, 1993. Art. 1.16. EXPENSES OF EXAMINATIONS; DISPOSITION OF SUMS COLLECTED.Article repealed effective April 1, 2007 (a) The expenses of all examinations of domestic insurance companies made on behalf of the State of Texas by the State Board of Insurance or under its authority shall be paid by the corporations examined in such amount as the Commissioner of Insurance shall certify to be just and reasonable. (b) Assessments for the expenses of such domestic examination which shall be sufficient to meet all the expenses and disbursements necessary to comply with the provisions of the laws of Texas relating to the examination of insurance companies and to comply with the provisions of this Article and Articles 1.17 and 1.18 of this Code, shall be made by the State Board of Insurance upon the corporations or associations to be examined taking into consideration annual premium receipts, and/or admitted assets that are not attributable to 90 percent of pension plan contracts as defined in Section 818(a) of the Internal Revenue Code of 1986 (26 U.S.C. Section 818(a)), and/or insurance in force; provided such assessments shall be made and collected as follows: (1) expenses attributable directly to a specific examination including employees' salaries and expenses and expenses provided by Article 1.28 of this Code shall be collected at the time of examination; (2) assessments calculated annually for each corporation or association which take into consideration annual premium receipts, and/or admitted assets that are not attributable to 90 percent of pension plan contracts as defined in Section 818(a) of the Internal Revenue Code of 1986 (26 U.S.C. Section 818(a)), and/or insurance in force shall be assessed annually for each such corporation or association. In computing the assessments, the board may not consider insurance premiums for insurance contracted for by a state or federal governmental entity to provide welfare benefits to designated welfare recipients or contracted for in accordance with or in furtherance of Title 2, Human Resources Code, or the federal Social Security Act (42 U.S.C. Section 301 et seq.). The amount of all examination and evaluation fees paid in each taxable year to the State of Texas by an insurance carrier shall be allowed as a credit on the amount of premium taxes due under this article. The limitations provided by Sections 803.007(1) and (2)(B) of this code for domestic insurance companies apply to foreign insurance companies. (c) Examiners and other personnel employed by the State Board of Insurance when traveling on official state business related to the examination of insurance companies outside this state shall be reimbursed for the actual cost of transportation, lodging, meals, subsistence expenses, and parking fees or shall be paid a per diem rate established by the State Board of Insurance based on local economic conditions. The State Board of Insurance shall establish guidelines and procedures for the efficient and effective administration of these travel payment procedures and shall periodically revise and update these guidelines and procedures including the maximum actual or per diem allowance. (d) All sums collected by the State Board of Insurance provided in this Article shall be deposited in the State Treasury to the credit of the State Board of Insurance operating fund; and the salaries and expenses of the actuaries and examiners, and all other expenses relating to such examinations, shall be paid upon the certificate of the State Board of Insurance by warrant of the Comptroller of Public Accounts drawn upon such fund. (e) If at any time it shall appear that additional pro rata assessments are necessary to cover all of the expenses and disbursements required by law and necessary to comply with this Article and Articles 1.17 and 1.18 of this Code, the same shall be made, and any surplus arising from any and all such assessments, over and above such expenses and disbursements, shall be applied in reduction of subsequent assessments. (f) In case of an examination of a company not organized under the laws of Texas, whether such examination is made by the Texas authorities alone, or jointly with the insurance supervisory authorities of another state or states, the expenses of such examination due to Texas' participation therein shall be borne by the company under examination. Payment of such cost shall be made by the company upon presentation of itemized written statement by the Commissioner of Insurance and shall consist of the examiners' remuneration and expenses, and the other expenses of the State Board of Insurance properly allocable to the examination. Payment shall be made directly to the State Board of Insurance, and all money collected by assessment on foreign companies for the cost of examination shall be deposited in the State Treasury by the State Board of Insurance to the credit of the State Board of Insurance operating fund and shall be spent as provided by the General Appropriations Act only on warrants issued by the Comptroller of Public Accounts pursuant to duly certified requisitions of the State Board of Insurance. The remuneration of examiners participating in examinations of insurance company books or records located in states other than Texas shall be fixed by the Commissioner of Insurance based on the salary rate recommended by the National Association of Insurance Commissioners or the examiners' regular salary rate. Acts 1951, 52nd Leg., ch. 491. Amended by Acts 1955, 54th Leg., p. 826, ch. 307, Sec. 4; Acts 1979, 66th Leg., p. 568, ch. 262, Sec. 1, eff. Aug. 27, 1979. Amended by Acts 1983, 68th Leg., p. 3911, ch. 622, Sec. 16, eff. Sept. 1, 1983; Acts 1985, 69th Leg., ch. 161, Sec. 2, eff. May 24, 1985; Acts 1987, 70th Leg. 2nd C.S., ch. 67, Sec. 7, eff. Aug. 4, 1987; Acts 1991, 72nd Leg., ch. 242, Sec. 11.50(a), eff. Sept. 1, 1991; Subsec. (b) amended by Acts 1993, 73rd Leg., ch. 685, Sec. 7.09, eff. Sept. 1, 1993; Subsec. (b) amended by Acts 2003, 78th Leg., ch. 209, Sec. 2, eff. Jan. 1, 2004. Art. 1.17. APPOINTMENT OF EXAMINERS AND ACTUARIES BY STATE BOARD OF INSURANCE; SALARIES.Article repealed effective April 1, 2007 The State Board of Insurance shall appoint a chief examiner and such number of assistant examiners as it deems necessary for the purpose of making examinations of insurance companies, corporations, or associations at the expense of such companies, corporations, or associations as are provided for by law. The State Board of Insurance shall also appoint the number of actuaries it considers necessary to advise it in connection with the performance of its duties and for aid, advice, and counsel in connection with such examinations. Such examiners and actuaries shall perform all the duties relative to examinations. It is the purpose of this Article and Articles 1.16 and 1.18 of this Code to provide for the examination by the State Board of Insurance of all corporations, firms, or persons engaged in the business of writing insurance of any kind in this State whether now subject to the supervision of the State Board of Insurance or not. All such examiners and actuaries shall be employed subject to the will of the State Board of Insurance and the number of such examiners and actuaries may be increased or decreased from time to time to suit the needs of the examining work. Where the State Board of Insurance shall deem it advisable it may commission any actuary of the Board, the chief examiner, or any other examiner or employee of the Board, or any other person, to conduct or assist in the examination of any company not organized under the laws of Texas and allow them compensation as herein provided, except that they may not be otherwise compensated during the time they are assigned to such foreign company examinations. Other than as provided herein, neither any actuary nor any examiner of the State Board of Insurance may continue to serve as such if, while holding such position, he directly or indirectly accepts from any insurance company any employment or pay or compensation or gratuity on account of any service rendered or to be rendered on any account whatsoever. Acts 1951, 52nd Leg., ch. 491. Amended by Acts 1955, 54th Leg., p. 826, ch. 307, Sec. 5. Amended by Acts 1983, 68th Leg., p. 3911, ch. 622, Sec. 16, eff. Sept. 1, 1983. Art. 1.17A. LEGISLATIVE INTENT AS TO APPOINTMENT OR EMPLOYMENT OF EXAMINERS AND ACTUARIES.Article repealed effective April 1, 2007 (a) The Legislature recognizes that experienced, highly qualified examiners and actuaries are necessary for the department to monitor and regulate effectively the solvency of insurers in this state. It is the intent of the Legislature that the department, in appointing or employing examiners or actuaries, select persons who have substantial experience in financial matters relating to insurance or other areas of financial activity that are compatible with the business of insurance and who are recognized for the outstanding quality of their work in relation to areas of responsibility typically assigned to examiners and actuaries in the insurance field. (b) The Legislature pledges to provide to the department the necessary funding to implement this article and to support the department in its efforts to attract the highly qualified persons necessary to fulfill regulatory responsibilities relating to insurer solvency assigned to them under the insurance laws of this state. Added by Acts 1991, 72nd Leg., ch. 242, Sec. 1.15, eff. Sept. 1, 1991. Art. 1.18. OATH OF EXAMINERS AND ASSISTANTS.Article repealed effective April 1, 2007 Each examiner and assistant examiner, before entering upon the duties of his appointment shall take and file in the office of the Secretary of State an oath to support the Constitution of this State, to faithfully demean himself in office, to make fair and impartial examinations, and that he will not accept as presents or emoluments any pay, directly or indirectly, for the discharge of his duty, other than the remuneration fixed and accorded to him by law; and that he will not reveal the condition of, nor any information secured in the course of any examination of any corporation, firm or person examined by him, to anyone except the Members of the State Board of Insurance, or their authorized representative, or when required as witness in an administrative hearing before the Board or the Commissioner or in Court. In case any such examiner or assistant examiner shall knowingly make any false report or give any information in violation of law relative to any such examination of any corporation, firm or person so examined, any such corporation, firm or person shall have a right of action on a bond authorized under Chapter 653, Government Code, for his injuries in a suit brought in the name of the State at the relation of the injured party. Acts 1951, 52nd Leg., ch. 491. Amended by Acts 1955, 54th Leg., p. 826, ch. 307, Sec. 6. Amended by Acts 1989, 71st Leg., ch. 1082, Sec. 2.07, eff. Sept. 1, 1989; Acts 2003, 78th Leg., ch. 285, Sec. 19, eff. Sept. 1, 2003. Art. 1.19. IN CASE OF EXAMINATION.Article repealed effective April 1, 2007 The Board of Insurance Commissioners for the purpose of examination authorized by law, has power either in person or by one or more examiners by it commissioned in writing: 1. To require free access to all books and papers within this State of any insurance companies, or the agents thereof, doing business within this State. 2. To summon and examine any person within this State, under oath, which it or any examiner may administer, relative to the affairs and conditions of any insurance company. 3. To visit at its principal office, wherever situated, any insurance company doing business in this State, for the purpose of investigating its affairs and conditions, and shall revoke the certificate of authority of any such company in this State refusing to permit such examination. The reasonable expenses of all such examination shall be paid by the company examined. The Board may revoke or modify any certificate of authority issued by it when any conditions prescribed by law for granting it no longer exist. The Board shall also have power to institute suits and prosecutions, either by the Attorney General or such other attorneys as the Attorney General may designate, for any violation of the law of this State relating to insurance. No action shall be brought or maintained by any person other than the Board for closing up the affairs or to enjoin, restrain or interfere with the prosecution of the business of any such insurance company organized under the laws of this State. Acts 1951, 52nd Leg., ch. 491. Amended by Acts 1955, 54th Leg., p. 826, ch. 307, Sec. 7. Art. 1.32. HAZARDOUS FINANCIAL CONDITION.Article repealed effective April 1, 2007 Definitions Sec. 1. (a) "Insurer" shall include but not be limited to capital stock companies, reciprocal or interinsurance exchanges, Lloyds associations, fraternal benefit societies, mutual and mutual assessment companies of all kinds and types, state-wide assessment associations, local mutual aids, burial associations, county and farm mutual associations, fidelity, guaranty, and surety companies, trust companies organized under the provisions of Chapter 7 of the Texas Insurance Code of 1951, as amended, title insurance companies, stipulated premium insurance companies, group hospital service companies, health maintenance organizations, risk retention groups, and all other organizations, corporations, or persons transacting an insurance business, whether or not named above, unless such insurers are by statute specifically, by naming this article, exempted from the operation of this article. (b) "Board" means the State Board of Insurance of Texas. (c) "Commissioner" means the Commissioner of Insurance of Texas.Order to rectify financial condition Sec. 2. Whenever the financial condition of an insurer when reviewed in conjunction with the kinds and nature of risks insured, the loss experience and ownership of the insurer, the ratio of total annual premium and net investment income to commission expenses, general insurance expenses, policy benefits paid, and required policy reserve increases, its method of operation, its affiliations, its investments, any contracts which lead or may lead to contingent liability, or agreements in respect to guaranty and surety, indicate a condition such that the continued operation of the insurer might be hazardous to its policyholders, creditors, or the general public, then the commissioner may, after notice and hearing, order the insurer to take such action as may be reasonably necessary to rectify the existing condition, including but not necessarily limited to one or more of the following steps: (a) reduce the total amount of present and potential liability for policy benefits by reinsurance; (b) reduce the volume of new business being accepted; (c) reduce general insurance and commission expenses by specified methods; (d) suspend or limit the writing of new business for a period of time; (e) increase the insurer's capital and surplus by contribution; or (f) suspend or cancel the certificate of authority. The commissioner may use the remedies available under this section in conjunction with the provisions of Article 1.10A of this code when the commissioner determines that the financial condition of the insurer is hazardous and can be reasonably expected to cause significant and imminent harm to it policyholders or the general public.Effect of other laws Sec. 2A. The commissioner's authority under Section 2 of this article to require an increase in an insurer's capital and surplus by contribution prevails over the capital and surplus requirements of Articles 2.01, 2.02, 2.20, 3.02, and 22.13 of this code, over any other article of this code or other law establishing capital and surplus requirements for insurers, or any rules adopted under those articles or laws, and in the event of any conflict between capital and surplus requirements imposed by the commissioner under Section 2 of this article and capital and surplus requirements imposed under Articles 2.01, 2.02, 2.20, 3.02, or 22.13 of this code, any other article of this code or other law establishing capital and surplus requirements for insurers, or any rules adopted under those articles or laws, the capital and surplus requirements imposed by the commissioner under Section 2 of this article prevail.Standards and Criteria for Early Warning Sec. 3. The board is authorized, by rule and regulations, to fix uniform standards and criteria for early warning that the continued operation of an insurer might be hazardous to its policyholders, creditors, or the general public, and to fix standards for evaluating the financial condition of an insurer, which standards shall be consistent with the purposes expressed in Section 2 of this article.Arrangements with Other Jurisdictions Sec. 4. The commissioner is authorized to enter into arrangements or agreements with the insurance regulatory authorities of other jurisdictions concerning the management, volume of business, type of risks to be insured, expenses of operation, plans for reinsurance, rehabilitation, or reorganization, and method of operations of an insurer that is licensed in such other jurisdictions and that is deemed to be in a hazardous financial condition or needful of specific remedies which may be imposed by the commissioner and insurance regulatory authorities of such other jurisdictions.Additional Authority of Article Sec. 5. Authority granted by the provisions of this article is in addition to other provisions of law and not in substitution, restriction, or diminution thereof. Added as art. 1.30 by Acts 1975, 64th Leg., p. 1019, ch. 388, Sec. 1, eff. June 19, 1975. Renumbered as art. 1.32 by Acts 1981, 67th Leg., p. 201, ch. 94, Sec. 1, eff. Aug. 31, 1981. Secs. 1, 2 amended by Acts 1991, 72nd Leg., ch. 242, Sec. 11.96, eff. Sept. 1, 1991; Sec. 2A added by Acts 1991, 72nd Leg., ch. 242, Sec. 7.09, eff. Sept. 1, 1991. Art. 1.33. SPECIAL DEPOSITS.Definition Sec. 1. In this article, "insurer" includes: (1) a capital stock insurance company; (2) a reciprocal or interinsurance exchange; (3) a Lloyd's plan; (4) a fraternal benefit society; (5) a mutual company, including a mutual assessment company; (6) a statewide mutual assessment company; (7) a local mutual aid association; (8) a burial association; (9) a county mutual insurance company; (10) a farm mutual insurance company; (11) a fidelity, guaranty, or surety company; (12) a title insurance company; (13) a stipulated premium company; (14) a group hospital service corporation; (15) a health maintenance organization; (16) a risk retention group; and (17) any other organization or person engaged in the business of insurance.Applicability of Article Sec. 2. This article applies to a person or organization engaged in the business of insurance without regard to whether the person or organization is listed in Section 1 of this article, unless another statute specifically cites this article and exempts the person or organization from this article.Standards and Criteria Sec. 3. The commissioner, in the commissioner's sole discretion, may require an insurer to make a deposit under this article if the commissioner determines that one of the following conditions, if not rectified, may potentially be hazardous to the insurer's policyholders, enrollees, or creditors, or to the public: (1) the financial or operating condition of the insurer, when reviewed in conjunction with the kinds and nature of risks insured; (2) the insurer's method of operation; (3) the insurer's relationship with affiliates; (4) the nature and amount of the insurer's investments; (5) the insurer's contracts that may lead to a contingent liability; or (6) the insurer's agreements with respect to guaranty and surety.Required Deposit; Form of Security Sec. 4. A deposit required under Section 3 of this article must be made with the comptroller and approved by the commissioner. The deposit must be made in: (1) cash; (2) securities authorized under this code to be a legal investment for the insurer that: (A) are readily marketable over a national exchange with a maturity date of not more than one year, are listed by the Securities Valuation Office of the National Association of Insurance Commissioners, and qualify as admitted assets; or (B) are clean, irrevocable, unconditional letters of credit, issued or confirmed by a financial institution organized and licensed under the laws of the United States or a state of the United States; or (3) another form of security acceptable to the commissioner.Duration of Deposit Sec. 5. Subject to Section 6 of this article, the comptroller shall hold a deposit required under this article until the commissioner issues a written order finding that the condition for which the deposit was required no longer exists.Substitution or Withdrawal of Deposit Sec. 6. (a) An insurer may file a written application with the commissioner requesting: (1) withdrawal of all or a portion of the deposit held by the comptroller under this article; or (2) substitution of all or a part of the deposited securities held by the comptroller under this article. (b) The application must state the basis for the request to withdraw the deposit or to substitute the deposited security. (c) If the application is for the substitution of a deposited security, the insurer's application must provide specific information regarding the security to be deposited as a substitute for the security held by the comptroller. (d) The commissioner shall issue an order approving or denying an application under this section not later than the 30th day after the date the department receives the application. If the commissioner does not approve or deny the application within that period, the application is denied. (e) The commissioner may, in the commissioner's sole discretion, approve an application to withdraw a deposit or substitute a deposited security if the commissioner determines that the withdrawal or substitution will not be hazardous to the insurer's policyholders, enrollees, or creditors, or to the public. (f) The comptroller may not release a deposit made under this article, or any part of the deposit, and may not accept a substitute for a deposited security unless the commissioner issues an order approving the withdrawal or substitution.Appeal Sec. 7. An insurer may appeal an action of the commissioner under this article in accordance with Subchapter D, Chapter 36, of this code.Cumulative of Other Deposits Sec. 8. A deposit required to be made under this article is in addition to any other deposit that the insurer is required or authorized to make under this code. Added by Acts 2005, 79th Leg., ch. 409, Sec. 1, eff. June 17, 2005. Art. 1.39. SUBORDINATED INDEBTEDNESS.Article repealed effective April 1, 2007 (a) This article applies to an insurer as that term is defined by Article 1.15A of this code. (b) An insurer may obtain a loan or an advance of cash, cash equivalents, or other assets that have a readily determinable value and are satisfactory to the commissioner, repayable with interest, and may assume a subordinated liability for repayment of the advance and payment of interest on the advance if the insurer and creditor execute a written agreement stating that the creditor may be paid only out of that portion of the insurer's surplus that exceeds the greater of a minimum surplus stated and fixed in the agreement or a minimum surplus of $500,000 for that insurer. The department or the commissioner may not require the agreement to provide another minimum surplus amount. (c) A loan or advance made under this article, and any interest accruing on the loan or advance, is a legal liability and financial statement liability of the insurer only to the extent provided by the terms and conditions of the loan or advance agreement, and the loan or advance may not otherwise be a legal liability or financial statement liability of the insurer. (d) If the loan or advance agreement provides for a sinking fund out of which the loan or advance is to be repaid, then the loan or advance shall be a legal liability and financial statement liability of the insurer only to the extent of those funds accumulated and held in the sinking fund, and the loan or advance may not otherwise be a legal liability or financial statement liability of the insurer. By mutual agreement of the parties to the agreement, any portion of the accumulated funds in the sinking fund may be returned to the surplus of the insurer at any time and from time to time and thereafter may not be considered as a legal liability or financial statement liability of the insurer. (e) An agreement entered into under Subsection (b) of this article must be submitted to the commissioner for approval as to form and content; provided, however, that the commissioner must give his decision of either approval or disapproval within 30 days after the written filing by the insurer, and his failure to so act within such 30 days shall constitute approval of the transaction. An insurer may not assume a subordinated liability until the commissioner has approved the agreement under either Section 4, Article 21.49-1, or this article. An insurer may not repay principal or pay interest on a subordinated liability assumed under either Section 4, Article 21.49-1, or this article on or after September 1, 1995, unless either (i) such payment or repayment complies with a specific schedule of payments contained within the terms of the previously approved agreement, or (ii) written notice is provided to the commissioner at least 15 days before the date scheduled for any payment or repayment if either a schedule of payments is not contained within the terms of the previously approved agreement, or such payment or repayment does not comply with the specific schedule of payments contained within the terms of the previously approved agreement. A loan, debenture, revenue bond, or advance agreement issued before September 1, 1995, and any subsequent payment of interest or repayment of principal are governed by the law in effect on the date of issuance. (f) The commissioner shall adopt rules as necessary to implement this article. Added by Acts 1991, 72nd Leg., 2nd C.S., ch. 12, Sec. 14.01, eff. Jan. 1, 1992. Amended by Acts 1993, 73rd Leg., ch. 685, Sec. 7.10, eff. Sept. 1, 1993; Subsec. (b) amended by and Subsecs. (e), (f) added by Acts 1995, 74th Leg., ch. 614, Sec. 1, eff. Sept. 1, 1995. Art. 1.61. MEDICAID MANAGED CARE ORGANIZATION: FISCAL SOLVENCY AND COMPLAINT SYSTEM GUIDELINES. In conjunction with the Texas Department of Health, the department shall establish fiscal solvency standards and complaint system guidelines for managed care organizations that serve Medicaid clients. Guidelines must require that information regarding a managed care organization's complaint process be made available in an appropriate communication format to each Medicaid client when the person enrolls in the program. Added by Acts 1995, 74th Leg., ch. 574, Sec. 3, eff. Sept. 1, 1995.
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