There is a newer version of the Texas Statutes

View our newest version here

2005 Texas Insurance Code - Not Codified CHAPTER 3. LIFE, HEALTH AND ACCIDENT INSURANCE

INSURANCE CODE - NOT CODIFIED

CHAPTER 3. LIFE, HEALTH AND ACCIDENT INSURANCE

SUBCHAPTER A. TERMS DEFINED; DOMESTIC COMPANIES

Art. 3.10. MAY REINSURE.

Article repealed effective April 1, 2007
(a) Any insurer authorized to do the business of insurance in
this state may reinsure in any solvent assuming insurer, any risk or
part of a risk which both are authorized to assume; provided,
however, no credit for reinsurance, either as an asset or a
deduction of liability, may be taken by the ceding insurer except as
provided in this article, and, provided further, no insurer
operating under Section 2(a) of Article 3.02 shall reinsure any
risk or part of a risk with any insurer which is not licensed to
engage in the business of insurance in this state. This article
applies to all insurers regulated by the State Board of Insurance,
including any stock and mutual life, accident, and health insurers,
fraternal benefit societies, health maintenance organizations
operating under the Texas Health Maintenance Organization Act
(Chapter 20A, Vernon's Texas Insurance Code), and nonprofit
hospital, medical, or dental service corporations, including
companies subject to Chapter 20 of this code. No such insurer shall
have the power to reinsure its entire outstanding business to an
assuming insurer unless the assuming insurer is licensed in this
state and until the contract therefor shall be submitted to the
Commissioner and approved by him as protecting fully the interests
of all policy holders. This article does not apply to ceding
insurers domiciled in another state that regulates credit for
reinsurance under statutes, rules, or regulations substantially
similar in substance or effect to this article. To qualify for this
exception, the ceding insurer must provide the Commissioner on
request with evidence of the similarity in the form of statutes,
rules, or regulations, and an interpretation of the statutes,
rules, or regulations and the standards used by the state of
domicile. This article is supplementary to and cumulative of other
provisions of this code and other insurance laws of this state
relating to reinsurance to the extent those provisions are not in
conflict with this article.
(b) Credit for reinsurance shall be allowed a ceding insurer
as either an asset or a deduction from liability on account of
reinsurance ceded only when:
(1) the reinsurance is ceded to an assuming insurer which is
licensed to transact insurance or reinsurance in this state; or
(2) the reinsurance is ceded to an assuming insurer which is
accredited as a reinsurer in this state. An accredited reinsurer is
one which: submits to this state's jurisdiction; submits to this
state's authority to examine its books and records; is domiciled
and licensed to transact insurance or reinsurance in at least one
state, or in the case of a United States branch of an alien assuming
insurer is entered through and licensed to transact insurance or
reinsurance in at least one state; files annually a copy of its
annual statement, filed with the insurance department of its state
of domicile, with the State Board of Insurance; and maintains a
surplus as regards policy holders in an amount not less than $20
million; or
(3) the reinsurance is ceded to an assuming insurer which
maintains a trust fund in a qualified United States financial
institution, as defined in Subsection (e)(2), for the payment of
the valid claims of its United States policy holders and ceding
insurers, their assigns, and successors in interest. The trusteed
assuming insurer shall report annually not later than March 1 to the
State Board of Insurance information substantially the same as that
required to be reported on the NAIC Annual Statement form by
licensed insurers to enable the State Board of Insurance to
determine the sufficiency of the trust fund. In the case of a
single assuming insurer, the trust shall consist of a trusteed
account representing the assuming insurer's liabilities
attributable to business written in the United States and, in
addition, include a trusteed surplus of not less than $20 million.
In the case of a group of insurers, which group includes
unincorporated individual insurers, the trust shall consist of a
trusteed account representing the group's liabilities attributable
to business written in the United States and, in addition, include a
trusteed surplus of not less than $100 million and the group shall
make available to the State Board of Insurance an annual
certification by the group's domiciliary regulator and its
independent public accountants of the solvency of each underwriter.
Such trust shall be established in a form approved by the State
Board of Insurance. The trust instrument shall provide that
contested claims shall be valid and enforceable upon the final
order of any court of competent jurisdiction in the United States.
The trust shall vest legal title to its assets in the trustees of
the trust for its United States policy holders and ceding insurers,
their assigns, and successors in interest. The trust and the
assuming insurer shall be subject to examination as determined by
the State Board of Insurance. The trust described herein must
remain in effect for as long as the assuming insurer shall have
outstanding obligations due under the reinsurance agreements
subject to the trust. Not later than February 28 of each year the
trustees of the trust shall report to the State Board of Insurance
in writing setting forth the balance of the trust and listing the
trust's investments at the preceding year end and shall certify the
date of termination of the trust, if so planned, or certify that the
trust shall not expire prior to the next following December 31; or
(4) the reinsurance is ceded to an assuming insurer not
meeting the requirements of Subdivision (1), (2), or (3), but only
with respect to the insurance of risks located in a jurisdiction
where such reinsurance is required by applicable law or regulation
of that jurisdiction to be ceded to an assuming insurer that does
not meet the requirements of Subdivision (1), (2), or (3) of this
subsection.
(c) If the assuming insurer is not licensed or accredited to
transact insurance or reinsurance in this state, the credit
permitted by Subsection (b)(3) of this article shall not be allowed
unless the assuming insurer agrees in the reinsurance agreements:
(1) that in the event of the failure of the assuming insurer
to perform its obligations under the terms of the reinsurance
agreement, the assuming insurer, at the request of the ceding
insurer, shall submit to the jurisdiction of any court of competent
jurisdiction in any State of the United States, will comply with all
requirements necessary to give such court jurisdiction, and will
abide by the final decision of such court or of any Appellate Court
in the event of an appeal; and
(2) to designate the State Board of Insurance or a
designated attorney as its true and lawful attorney upon whom may be
served any lawful process in any action, suit, or proceeding
instituted by or on behalf of the ceding company. This provision,
however, is not intended to conflict with or override the
obligation of the parties to a reinsurance agreement to arbitrate
their disputes, if such an obligation is created in the agreement.
(d) Any asset or reduction from liability for the
reinsurance ceded to an assuming insurer not meeting the
requirements of Subsection (b) shall be allowed in an amount not
exceeding the liabilities carried by the ceding insurer, and such
asset or reduction shall be in the amount of funds held by or on
behalf of the ceding insurer, including funds held in trust for the
ceding insurer, under a reinsurance contract with such assuming
insurer as security for the payment of obligations thereunder, if
such security is held in the United States subject to withdrawal
solely by and under the exclusive control of the ceding insurer or,
in the case of a trust, held in a qualified United States financial
institution, as defined in Subsection (e). This security may be in
the form of:
(1) cash;
(2) securities readily marketable over a national exchange
with a maturity date of not later than one year listed by the
Securities Valuation Office of the National Association of
Insurance Commissioners and qualifying as admitted assets;
(3) clean, irrevocable, unconditional letters of credit,
issued or confirmed by a qualified United States financial
institution, as defined in Subsection (e)(1).
Letters of credit meeting applicable standards of issuer
acceptability as of the dates of their issuance or confirmation
shall, notwithstanding the issuing or confirming institution's
subsequent failure to meet applicable standards of issuer
acceptability, continue to be acceptable as security until their
expiration, extension, renewal, modification, or amendment,
whichever first occurs; provided, however, the letter of credit
must be replaced within three months after the date of the
institution's failure to meet applicable standards of issuer
acceptability.
(4) any other form of security acceptable to the
Commissioner.
(e) Qualified United States Financial Institutions. (1)
For the purposes of Subsection (d)(3), a "qualified United States
financial institution" means an institution that:
(A) is organized or, in the case of a United States office of
a foreign banking organization, licensed, under the laws of the
United States or any state thereof;
(B) is regulated, supervised, and examined by United States
federal or state authorities having regulatory authority over banks
and trust companies; and
(C) has been determined by either the Commissioner or the
Securities Valuation Office of the National Association of
Insurance Commissioners to meet such standards of financial
condition and standing as are considered necessary and appropriate
to regulate the quality of financial institutions whose letters of
credit will be acceptable to the Commissioner.
(2) A "qualified United States financial institution"
means, for the purposes of those provisions of this law specifying
those institutions that are eligible to act as a fiduciary of a
trust, an institution that:
(A) is organized, or, in the case of a United States branch
or agency office of a foreign banking organization, licensed, under
the laws of the United States or any state thereof and has been
granted the authority to operate with fiduciary powers; and
(B) is regulated, supervised, and examined by federal or
state authorities having regulatory authority over banks and trust
companies.
(f) The Board may adopt rules and regulations implementing
the provisions of this law.
(g) Subsections (a) through (f) of this article shall apply
to all reinsurance agreements having an inception, anniversary, or
renewal date not less than four months after the effective date of
this statute.
(h) A person does not have any rights against a reinsurer
that are not specifically set forth in the contract of reinsurance
or in a specific agreement between the reinsurer and the person.
(i) The State Board of Insurance shall require schedules of
reinsurance to be filed by every insurer at the time of making the
annual report and at such other times as the Board may direct.
(j) Credit may not be given in the accounting and financial
statements, either as an asset or a deduction from liability,
unless the reinsurance is payable by the assuming insurer on the
basis of the liability of the ceding insurer under the contracts
reinsured without diminution because of the insolvency of the
ceding insurer and is payable directly to the ceding insurer or to
its domiciliary liquidator or receiver.
(k) "Assuming insurer" means the insurer who under a
contract of reinsurance incurs to the ceding insurer an obligation
of which the performance is contingent on incurring of liability or
loss by the ceding insurer under its contract or contracts of
insurance made with third persons.
(l ) An insurer shall account for reinsurance agreements and
shall record those reinsurance agreements in the insurer's
financial statement in a manner that accurately reflects the effect
of the reinsurance agreements on the financial condition of the
company. The State Board of Insurance may adopt reasonable rules
relating to the accounting and financial statement requirements of
this section and the treatment of reinsurance agreements between
insurance companies, including minimum risk transfer standards,
asset debits or credits, reinsurance debits or credits, and reserve
debits or credits relating to the transfer of all or any part of an
insurer's risks or liabilities by reinsurance agreements and any
contingencies arising from reinsurance agreements. Rules adopted
subsequent to September 1, 1995, shall apply to reinsurance
agreements entered into on or after the effective date of such
rules, and to reinsurance agreements that are amended on or after
the effective date of such rules. A reinsurance agreement may
contain a provision that allows the offset of mutual debts and
credits between a ceding insurer and the assuming insurer, whether
arising out of one or more reinsurance agreements.
(m) The Commissioner may request the filing of financial
statements certified and audited by an independent certified public
accountant, certified copies of the certificate or letter of
authority from the domiciliary jurisdiction, and information on the
principals and management of any assuming insurer that does not
meet the requirements of Subsection (b) of this article. The
failure of an assuming insurer that does not meet the requirements
of Subsection (b) of this article to comply with a request for
information by the Commissioner may result in the Commissioner
issuing a directive prohibiting all licensed insurers from taking
credit for business ceded with any such assuming insurer after the
effective date of such directive. A nonlicensed insurer that is
included in the most recent quarterly listing published by the
Non-admitted Insurers Information Office of the National
Association of Insurance Commissioners is considered to have
complied with a request for information from the Commissioner.

Acts 1951, 52nd Leg., ch. 491. Amended by Acts 1961, 57th Leg., p.
447, ch. 220, Sec. 1; Acts 1979, 66th Leg., p. 1167, ch. 567, Sec.
1, eff. Aug. 27, 1979.

Amended by Acts 1987, 70th Leg., ch. 564, Sec. 1, eff. Aug. 31,
1987; Acts 1989, 71st Leg., ch. 1082, Sec. 7.01, eff. Sept. 1,
1989. Subsecs. (a), (b), (e) amended by and Subsec. (m) added by
Acts 1991, 72nd Leg., ch. 242, Sec. 3.01, eff. Sept. 1, 1991;
Subsec. (a) amended by Acts 1993, 73rd Leg., ch. 685, Sec. 13.01,
eff. Sept. 1, 1993; Subsec. (b) amended by Acts 1993, 73rd Leg.,
ch. 685, Sec. 13.06, eff. Sept. 1, 1993; Subsec. (l) amended by
Acts 1995, 74th Leg., ch. 614, Sec. 2, eff. Sept. 1, 1995.

Art. 3.11. CERTAIN GUARANTEES IN LIFE INSURANCE
POLICIES. Section 841.253 of this code does not prohibit the
issuance of life insurance policies guaranteeing, by coupons or
otherwise, definite payments or reductions in premiums, but any
such guarantee contained in policies or coupons issued after the
effective date of this Act shall be treated as a definite contract
benefit and so valued according to the reserve requirements of this
Chapter using in the case of policies or coupons issued before the
date determined under Section 1105.002(a) or (b) of this code, as
applicable to the company, reserve valuation net premium for such
benefits which is a uniform percentage of the gross premiums,
provided that any policy containing such a contract benefit may be
valued on a basis which provides for not more than one (1) year
preliminary term insurance, and using in the case of policies or
coupons issued on or after the date determined under Section
1105.002(a) or (b) of this code, as applicable to the company, the
commissioners reserve valuation method as defined in Article 3.28.
Nothing in this Section with respect to reserves shall apply to any
policy issued prior to September 7, 1955.

Acts 1951, 52nd Leg., ch. 491. Amended by Acts 1955, 54th Leg., p.
916, ch. 363, Sec. 8; Acts 1963, 58th Leg., p. 1117, ch. 434, Sec.
1; Acts 1963, 58th Leg., p. 1362, ch. 518, Sec. 1.

Amended by Acts 1987, 70th Leg., ch. 813, Sec. 3, eff. June 18,
1987; Acts 2001, 77th Leg., ch. 1419, Sec. 9, eff. June 1, 2003.

Art. 3.16. DEPOSITS OF SECURITIES IN AMOUNT OF LEGAL
RESERVE.

Article repealed effective April 1, 2007
Sec. 1. Any life insurance company now or which may hereafter
be incorporated under the laws of this State may deposit with the
State Board of Insurance for the common benefit of all the holders
of its policies and annuity bonds, securities of the kinds in which,
by the laws of this State, it is permitted to invest or loan its
capital, surplus and/or reserves, equal to the legal reserve on all
its outstanding policies in force, which securities shall be held
by said State Board of Insurance in trust for the purpose and
objects herein specified. The physical delivery of such securities
to the State Board of Insurance shall be sufficient without being
accompanied by a written transfer of any lien securing them. Any
such company may deposit lawful money of the United States in lieu
of the securities above referred to, or any portion thereof, and may
also, for the purposes of such deposit, convey to said State Board
of Insurance in trust the real estate in which any portion of its
said reserve may be lawfully invested. In such case, the State
Board of Insurance shall hold the title thereto in trust until other
securities in lieu thereof shall be deposited with it, whereupon it
shall reconvey the same to such company. Said State Board of
Insurance may cause any such securities or real estate to be
appraised and valued prior to their being deposited with or
conveyed to it, in trust as aforesaid; the reasonable expense of
such appraisement or valuation to be paid by the company. Under the
provisions of this Article, registered as well as unregistered
United States Government securities may be deposited.
Sec. 2. Notwithstanding the provisions of Section 1, of this
Article, no new deposit of securities will be lawful after the
effective date of this Section, except to the extent expressly
required by Article 3.17.
Sec. 3. For the purpose of state, county, and municipal
taxation the situs of securities deposited with the State Board of
Insurance shall be in the city and county where the principal
business office of such company is fixed by its charter.

Acts 1951, 52nd Leg., ch. 491. Amended by Acts 1957, 55th Leg., p.
812, ch. 344, Sec. 2; Acts 1961, 57th Leg., p. 1053, ch. 469, Sec.
1.

Art. 3.17. WHAT DEPOSITS MAY INCLUDE.

Article repealed effective April 1, 2007
Sec. 1. Any life insurance company which has heretofore
issued or assumed the obligations of policies or annuity bonds
which have been registered in the manner at any time authorized by
this Chapter, shall at all times hereafter have on deposit with the
State Board of Insurance securities of the character described in
Article 3.16 in amounts equal to or in excess of the aggregate net
value of such outstanding registered policies and annuity bonds in
force, and for such purpose new and additional deposits of
securities shall be made from time to time and in amounts of not
less than Five Thousand Dollars ($5,000). Any such company whose
deposits exceed such aggregate net value of its outstanding
registered policies and annuity bonds in force may from time to time
withdraw such excess by withdrawals of not less than Five Thousand
Dollars ($5,000). Any such company may at any time withdraw any of
its deposited securities by depositing in their stead others of
equal value and of the character authorized by this Chapter, and may
collect the interest, rents and other income from its securities on
deposit. The net value of every policy or annuity bond subject to
this Act shall be its value according to the standard prescribed by
the laws of this State, when the first premium thereon has been
paid, less the amount of such liens as the company may have against
it not in excess of such value.
Sec. 2. The securities of any such company on deposit with the
State Board of Insurance shall be held in trust by said board for
the benefit of all of the holders of the outstanding policies and
annuity bonds of such company which have been registered pursuant
to this Chapter.
Sec. 3. No company which has outstanding registered policies
or annuity bonds in force shall reinsure its outstanding registered
business, or the whole of any one or more of its registered policies
or annuity bonds, except in a company or companies incorporated and
organized under the laws of this State or having permission to do
business in this State.

Acts 1951, 52nd Leg., ch. 491. Amended by Acts 1961, 57th Leg., p.
1053, ch. 469, Sec. 2.

Art. 3.18. EFFECT AND VALUE OF DEPOSITS IN AMOUNT OF LEGAL
RESERVE.

Article repealed effective April 1, 2007
Sec. 1. After the effective date of this Section 1, of this
Article, no policy or annuity bond shall be registered in the manner
heretofore authorized by this Chapter.
Sec. 2. Every life insurance company which is required by
this Chapter to have securities on deposit with the State Board of
Insurance shall keep records of all of its outstanding registered
policies and annuity bonds in force, and of the net value thereof.
Sec. 3. Each life insurance company which is required by this
Chapter to have securities on deposit with the State Board of
Insurance shall, within fifteen (15) days after the termination of
each calendar month, file with said Board a report stating whether
or not the value of its securities on deposit is equal to or in
excess of the aggregate value of its registered policies and
annuity bonds outstanding and in force at the end of such preceding
calendar month.
Sec. 4. The securities deposited under this Chapter by each
company shall be placed and kept by the State Board of Insurance in
some secure safe-deposit, fireproof box or vault in the city or town
in or near where the home office of the company is located. The
officers of the company shall have access to such securities for the
purpose of detaching interest coupons and crediting payment and
exchanging securities as above provided, under such reasonable
rules and regulations as the State Board of Insurance may
establish.

Acts 1951, 52nd Leg., ch. 491. Amended by Acts 1961, 57th Leg., p.
1053, ch. 469, Sec. 3.

SUBCHAPTER C. RESERVES AND INVESTMENTS

Art. 3.28. STANDARD VALUATION LAW.

Article repealed effective April 1, 2007

Title
Sec. 1. This Article shall be known as the Standard Valuation
Law.

Reserve Valuation
Sec. 2. The State Board of Insurance shall annually value, or
cause to be valued, the reserve liabilities (hereinafter called
reserves) for all outstanding life insurance policies and annuity
and pure endowment contracts of every life insurance company doing
business in this state, and may certify the amount of any such
reserves, specifying the mortality table or tables, rate or rates
of interest, and methods (net level premium method or other) used in
the calculation of such reserves. In calculating such reserves,
the Board may use group methods and approximate averages for
fractions of a year or otherwise. In lieu of the valuation of the
reserves herein required of any foreign or alien company, the Board
may accept any valuation made, or caused to be made, by the
insurance supervisory official of any state or other jurisdiction
when such valuation complies with the minimum standard herein
provided and if the official of such state or jurisdiction accepts
as sufficient and valid for all legal purposes the certificate of
valuation of the State Board of Insurance when such certificate
states the valuation to have been made in a specified manner
according to which the aggregate reserves would be at least as large
as if they had been computed in the manner prescribed by the law of
that state or jurisdiction.

Opinion of reserves
Sec. 2A. (a) General. (1) In conjunction with the annual
statement and in addition to other information required by this
article, every life insurance company doing business in this state
shall annually submit to the State Board of Insurance the opinion of
a qualified actuary as to whether the reserves and related
actuarial items held in support of the policies and contracts
specified by rule of the Board are computed appropriately, are
based on assumptions which satisfy contractual provisions, are
consistent with prior reported amounts, and comply with applicable
laws of this state. The Board by rule shall define the specific
requirements of this opinion and shall include any matters deemed
to be necessary to the opinion's scope. For purposes of this
subdivision, "qualified actuary" has the meaning assigned by
Article 1.11(d) of this code. A person who, before September 1,
1993, satisfied the requirements of the Board to submit an opinion
under this subdivision may also submit the opinion required by this
subdivision.
(2) The opinion required under this section shall apply to
all business in force including individual and group health
insurance plans, in form and substance as specified by Board rule
and acceptable to the commissioner.
(3) In the case of an opinion required to be submitted by a
foreign or alien company, the commissioner may accept the opinion
filed by that company with the insurance supervisory official of
another state if the commissioner determines that the opinion filed
in the other state reasonably meets the requirements applicable to
a company domiciled in this state.
(4) A. Except in cases of fraud or wilful misconduct or as
provided by Subsection (a)(7)B of this section, a person who
certifies to an opinion under this section shall not be liable for
damages to a person other than the insurance company covered by the
opinion prepared by the certifying person for any act, error,
omission, decision, or conduct with respect to the person's
opinion.
(B) Subsection (a)7A of this section does not apply to a
monetary forfeiture imposed under Section 7, Article 1.10,
Insurance Code.
(5) A company or a person who certifies to an opinion under
this section and that fails to comply with or violates this section
or rules adopted by the Board pursuant to this section is subject to
disciplinary action under Section 7, Article 1.10, Insurance Code.
(6) A memorandum, in form and substance in compliance with
rules of the State Board of Insurance, shall be prepared to support
each opinion.
(7) If an insurance company fails to provide a supporting
memorandum at the request of the commissioner within a period
specified by rule or the commissioner determines that the
supporting memorandum provided by the insurance company fails to
meet the standards prescribed by the Board's rules or is otherwise
unacceptable to the commissioner, the commissioner may engage an
actuary or other financial specialist as defined by Board rule at
the expense of the company to review the opinion and the basis for
the opinion and prepare such supporting memorandum.
(b) Actuarial Analysis of Reserves and Assets Supporting
Such Reserves. Every life insurance company, except as exempted by
or pursuant to rule adopted by the Board, shall also annually
include in the opinion required by Subsection (a)(1) of this
section, an opinion of the same person who certifies to the opinion
under Subsection (a)(1) of this section as to whether the reserves
and related actuarial items held in support of the policies and
contracts specified by Board rule, when considered in light of the
assets held by the company with respect to the reserves and related
actuarial items, including but not limited to the investment
earnings on the assets and the considerations anticipated to be
received and retained under the policies and contracts, make
adequate provision for the company's obligations under the policies
and contracts, including but not limited to the benefits under and
expenses associated with the policies and contracts. The rules
adopted by the Board under this section may exempt those companies
that would be exempted from the requirements stated in this
subsection (b) according to the most recently adopted regulation by
the National Association of Insurance Commissioners entitled
"Model Actuarial Opinion and Memorandum Regulation" or its
successor regulation if the Board considers the exemption
appropriate.

Computation of Minimum Standard
Sec. 3. The minimum standard for the valuation of all such
policies and contracts issued prior to the operative date of
Article 3.44a (the Standard Nonforfeiture Law for Life Insurance)
shall be that provided in Section 12 of this article. Except as
otherwise provided in Sections 4 and 5 of this article, the minimum
standard for the valuation of all such policies and contracts
issued on or after the operative date of Article 3.44a (the Standard
Nonforfeiture Law for Life Insurance) shall be the commissioners
reserve valuation methods defined in Sections 6, 7, and 10 of this
article, three and one-half per cent (3-1/2%) interest; in the case
of policies and contracts, other than annuity and pure endowment
contracts, issued on or after June 14, 1973, four per cent (4%)
interest for such policies issued prior to August 29, 1977; or five
and one-half per cent (5-1/2%) interest for single premium life
insurance policies and four and one-half per cent (4-1/2%) interest
for all other such policies issued on and after August 29, 1977, and
the following tables:
(a) For all ordinary policies of life insurance issued on
the standard basis, excluding any disability and accidental death
benefits in such policies, the Commissioners 1941 Standard Ordinary
Mortality Table for such policies issued prior to the operative
date of Section 6 of the Standard Nonforfeiture Law for Life
Insurance, as amended, the Commissioners 1958 Standard Ordinary
Mortality Table for such policies issued on or after the operative
date of Section 6 of the Standard Nonforfeiture Law for Life
Insurance, as amended, and prior to the operative date of Section 8
of the Standard Nonforfeiture Law for Life Insurance, as amended,
provided that for any category of such policies issued on female
risks, all modified net premiums and present values referred to in
this Act may be calculated according to an age not more than three
years younger than the actual age of the insured for policies issued
prior to August 29, 1977 and not more than six years younger than
the actual age of the insured for policies issued on and after
August 29, 1977; and for such policies issued on or after the
operative date of Section 8 of the Standard Nonforfeiture Law for
Life Insurance, as amended, (i) the Commissioners 1980 Standard
Ordinary Mortality Table, or (ii) at the election of the company for
any one or more specified plans of life insurance, the
Commissioners 1980 Standard Ordinary Mortality Table with Ten-Year
Select Mortality Factors, or (iii) any ordinary mortality table
adopted after 1980 by the National Association of Insurance
Commissioners that is approved by regulation promulgated by the
State Board of Insurance for use in determining the minimum
standard valuation for such policies.
(b) For all industrial life insurance policies issued on the
standard basis, excluding any disability and accidental death
benefits in such policies, the 1941 Standard Industrial Mortality
Table for such policies issued prior to the operative date of
Section 7 of the Standard Nonforfeiture Law for Life Insurance, as
amended, and for such policies issued on or after such operative
date, the Commissioners 1961 Standard Industrial Mortality Table or
any industrial mortality table adopted after 1980 by the National
Association of Insurance Commissioners that is approved by
regulation promulgated by the State Board of Insurance for use in
determining the minimum standard of valuation for such policies.
(c) For individual annuity and pure endowment contracts,
excluding any disability and accidental death benefits in such
policies, the 1937 Standard Annuity Mortality Table, or, at the
option of the company, the Annuity Mortality Table for 1949,
Ultimate, or any modification of either of these tables approved by
the State Board of Insurance.
(d) For group annuity and pure endowment contracts,
excluding any disability and accidental death benefits in such
policies, the Group Annuity Mortality Table for 1951, any
modification of such table approved by the State Board of
Insurance, or, at the option of the company, any of the tables or
modifications of tables specified for individual annuity and pure
endowment contracts.
(e) For total and permanent disability benefits in or
supplementary to ordinary policies or contracts, for policies or
contracts issued on or after January 1, 1966, the tables of Period 2
disablement rates and the 1930 to 1950 termination rates of the 1952
Disability Study of the Society of Actuaries, with due regard to the
type of benefit, or any tables of disablement rates and termination
rates adopted after 1980 by the National Association of Insurance
Commissioners that are approved by regulation promulgated by the
State Board of Insurance for use in determining the minimum
standard of valuation for such policies; for policies or contracts
issued on or after January 1, 1961, and prior to January 1, 1966,
either such tables or, at the option of the company, the Class (3)
Disability Table (1926); and for policies issued prior to January
1, 1961, the Class (3) Disability Table (1926). Any such table
shall, for active lives, be combined with a mortality table
permitted for calculating the reserves for life insurance policies.
(f) For accidental death benefits in or supplementary to
policies, for policies issued on or after January 1, 1966, the 1959
Accidental Death Benefits Table or any accidental death benefits
table adopted after 1980 by the National Association of Insurance
Commissioners that is approved by regulation promulgated by the
State Board of Insurance for use in determining the minimum
standard of valuation for such policies; for policies issued on or
after January 1, 1961, and prior to January 1, 1966, either such
table or, at the option of the company, the Inter-Company Double
Indemnity Mortality Table; and for policies issued prior to
January 1, 1961, the Inter-Company Double Indemnity Mortality
Table. Either table shall be combined with a mortality table
permitted for calculating the reserves for life insurance policies.
(g) For group life insurance, life insurance issued on the
substandard basis and other special benefits, such tables as may be
approved by the State Board of Insurance.

Text of subsec. (h) effective until Sept. 1, 2013
(h) Notwithstanding any other law, the minimum reserve
requirements applicable to a policy issued under Article 3.53 of
this code are met if, in aggregate, the reserves are maintained at
100 percent of the 1980 Commissioner's Standard Ordinary Mortality
Table, with interest not to exceed 5.5 percent. This subsection
expires September 1, 2013.

Computation of Minimum Standard for Annuities
Sec. 4. Except as provided in Section 5 of this article, the
minimum standard for the valuation of all individual annuity and
pure endowment contracts issued on or after the operative date of
this Section 4, as defined herein, and for all annuities and pure
endowments purchased on or after such operative date under group
annuity and pure endowment contracts shall be the commissioners
reserve valuation methods defined in Sections 6 and 7 of this
article and the following tables and interest rates:
(a) For individual annuity and pure endowment contracts
issued prior to August 29, 1977, excluding any disability and
accidental death benefits in such contracts, the 1971 Individual
Annuity Mortality Table, or any modification of this table approved
by the State Board of Insurance, and six per cent (6%) interest for
single premium immediate annuity contracts, and four per cent (4%)
interest for all other individual annuity and pure endowment
contracts.
(b) For individual single premium immediate annuity
contracts issued on or after August 29, 1977, excluding any
disability and accidental death benefits in such contracts, the
1971 Individual Annuity Mortality Table or any individual annuity
mortality table adopted after 1980 by the National Association of
Insurance Commissioners that is approved by regulation promulgated
by the State Board of Insurance for use in determining the minimum
standard of valuation for such contracts, or any modification of
these tables approved by the State Board of Insurance, and seven and
one-half per cent (7-1/2%) interest.
(c) For individual annuity and pure endowment contracts
issued on or after August 29, 1977, other than single premium
immediate annuity contracts, excluding any disability and
accidental death benefits in such contracts, the 1971 Individual
Annuity Mortality Table or any individual annuity mortality table
adopted after 1980 by the National Association of Insurance
Commissioners that is approved by regulation promulgated by the
State Board of Insurance for use in determining the minimum
standard of valuation for such contracts, or any modification of
these tables approved by the State Board of Insurance, and five and
one-half per cent (5-1/2%) interest for single premium deferred
annuity and pure endowment contracts and four and one-half per cent
(4-1/2%) interest for all other such individual annuity and pure
endowment contracts.
(d) For all annuities and pure endowments purchased prior to
August 29, 1977, under group annuity and pure endowment contracts,
excluding any disability and accidental death benefits purchased
under such contracts, the 1971 Group Annuity Mortality Table, or
any modification of this table approved by the State Board of
Insurance, and six per cent (6%) interest.
(e) For all annuities and pure endowments purchased on or
after August 29, 1977, under group annuity and pure endowment
contracts, excluding any disability and accidental death benefits
purchased under such contracts, the 1971 Group Annuity Mortality
Table or any group annuity mortality table adopted after 1980 by the
National Association of Insurance Commissioners that is approved by
regulation promulgated by the State Board of Insurance for use in
determining the minimum standard of valuation for such annuities
and pure endowments, or any modification of these tables approved
by the State Board of Insurance, and seven and one-half per cent
(7-1/2%) interest.
After June 14, 1973, any company may file with the State Board
of Insurance a written notice of its election to comply with the
provisions of this section after a specified date before January 1,
1979, which shall be the operative date of this section for such
company; provided, a company may elect a different operative date
for individual annuity and pure endowment contracts from that
elected for group annuity and pure endowment contracts. If a
company makes no such election, the operative date of this section
for such company shall be January 1, 1979.

Computation of Minimum Standard by Calendar Year of Issue
Sec. 5. (a) Applicability of this section
(1) The calendar year statutory valuation interest rates as
defined in this Section shall be the interest rates used in
determining the minimum standard for valuation of:
(A) all life insurance policies issued in a particular
calendar year on or after the operative date of Section 8 of the
Standard Nonforfeiture Law for Life Insurance;
(B) all individual annuity and pure endowment contracts
issued in a particular calendar year on or after January 1, 1982;
(C) all annuities and pure endowments purchased in a
particular calendar year on or after January 1, 1982, under group
annuity and pure endowment contracts; and
(D) the net increase, if any, in a particular calendar year
after January 1, 1982, in amounts held under guaranteed interest
contracts.
(b) Calendar Year Statutory Valuation Interest Rates
(1) The calendar year statutory valuation interest rates,
"I," shall be determined as follows and the results rounded to the
nearer one-fourth of one per cent (1/4 of 1%):
(A) For life insurance,
I = .03 + W(R1 - .03) + W/2 (R2 - .09).
(B) For single premium immediate annuities and for annuity
benefits involving life contingencies arising from other annuities
with cash settlement options and from guaranteed interest contracts
with cash settlement options,
I = .03 + W(R - .03)

where R1 is the lesser of R and .09,
R2 is the greater of R and .09,
R is the reference interest rate defined in this section, and
W is the weighting factor defined in this section.
(C) For other annuities with cash settlement options and
guaranteed interest contracts with cash settlement options, valued
on an issue year basis, except as stated in Paragraph (B) of
Subdivision (1) of Subsection (b) of this section, the formula for
life insurance stated in Paragraph (A) of Subdivision (1) of
Subsection (b) of this section shall apply to annuities and
guaranteed interest contracts with guarantee durations in excess of
10 years and the formula for single premium immediate annuities
stated in Paragraph (B) of Subdivision (1) of Subsection (b) of this
section shall apply to annuities and guaranteed interest contracts
with guarantee duration of 10 years or less.
(D) For other annuities with no cash settlement options and
for guaranteed interest contracts with no cash settlement options,
the formula for single premium immediate annuities stated in
Paragraph (B) of Subdivision (1) of Subsection (b) of this section
shall apply.
(E) For other annuities with cash settlement options and
guaranteed interest contracts with cash settlement options, valued
on a change in fund basis, the formula for single premium immediate
annuities stated in Paragraph (B) of Subdivision (1) of Subsection
(b) of this section shall apply.
(2) However, if the calendar year statutory valuation
interest rate for any life insurance policies issued in any
calendar year determined without reference to this sentence differs
from the corresponding actual rate for similar policies issued in
the immediately preceding calendar year by less than one-half of
one per cent (1/2 of 1%), the calendar year statutory valuation
interest rate for such life insurance policies shall be equal to the
corresponding actual rate for the immediately preceding calendar
year. For purposes of applying the immediately preceding sentence,
the calendar year statutory valuation interest rate for life
insurance policies issued in a calendar year shall be determined
for 1980 (using the reference interest rate defined for 1979) and
shall be determined for each subsequent calendar year regardless of
when Section 8 of the Standard Nonforfeiture Law for Life Insurance
becomes operative.
(c) Weighting Factors
(1) The weighting factors referred to in the formulas stated
above are given in the following tables:
(A) Weighting Factors for Life Insurance: Guarantee
Duration Weighting
(Years) Factors
10 or less .50
More than 10, but not more than 20 .45
More than 20 .35

For life insurance, the guarantee duration is the maximum number of
years the life insurance can remain in force on a basis guaranteed
in the policy or under options to convert to plans of life insurance
with premium rates or nonforfeiture values or both which are
guaranteed in the original policy;
(B) Weighting factor for single premium immediate annuities
and for annuity benefits involving life contingencies arising from
other annuities with cash settlement options and guaranteed
interest contracts with cash settlement options:

.80
(C) Weighting factors for other annuities and for guaranteed
interest contracts, except as stated in Paragraph (B) of
Subdivision (1) of Subsection (c) of this section, shall be as
specified in tables (i), (ii), and (iii) below, according to the
rules and definitions in (iv), (v), and (vi) below:
(i) For annuities and guaranteed interest contracts valued on
an issue year basis:
Guarantee Weighting Factor
Duration for Plan Type
(Years) ABC
5 or less: .80 .60 .50
More than 5, but not more than 10: .75 .60 .50
More than 10, but not more than 20: .65 .50 .45
More than 20: .45 .35 .35
(ii)Forannuitiesand Plan Type
guaranteedinterestcontracts ABC
valued on a change in fund basis,
thefactorsshownin(i)above
increased by: .15 .25 .05
(iii)Forannuitiesand Plan Type
guaranteedinterestcontracts ABC
valuedonanissueyearbasis
(otherthanthose withno cash
settlement options)which donot
guaranteeintereston
considerations received more than
one year after issueorpurchase
and for annuitiesand guaranteed
interestcontractsvaluedon a
change in fundbasis which donot
guaranteeinterestrateson
considerations received more than
12 monthsbeyondthevaluation
date, the factorsshown in (i) or
derived in (ii) increased by: .05 .05 .05

(iv) For other annuities with cash settlement options and
guaranteed interest contracts with cash settlement options, the
guarantee duration is the number of years for which the contract
guarantees interest rates in excess of the calendar year statutory
valuation interest rate for life insurance policies with guarantee
duration in excess of 20 years. For other annuities with no cash
settlement options and for guaranteed interest contracts with no
cash settlement options, the guarantee duration is the number of
years from the date of issue or date of purchase to the date annuity
benefits are scheduled to commence.
(v) Plan type as used in the above tables (i), (ii), and
(iii) is defined as follows:
Plan Type A: At any time policyholder may withdraw funds only
(1) with an adjustment to reflect changes in interest rates or asset
values since receipt of funds by the insurance company, or (2)
without such adjustment but in installments over five years or
more, or (3) as an immediate life annuity, or (4) no withdrawal
permitted.
Plan Type B: Before expiration of the interest rate
guarantee, the policyholder may withdraw funds only (1) with an
adjustment to reflect changes in interest rates or asset values
since receipt of the funds by the insurance company, or (2) without
such adjustment but in installments over five years or more, or (3)
no withdrawal permitted. At the end of interest rate guarantee,
funds may be withdrawn without such adjustment in a single sum or
installments over less than five years.
Plan Type C: Policyholder may withdraw funds before
expiration of interest rate guarantee in a single sum or
installments over less than five years either (1) without
adjustment to reflect changes in interest rates or asset values
since receipt of the funds by the insurance company, or (2) subject
only to a fixed surrender charge stipulated in the contract as a
percentage of the fund.
(vi) A company may elect to value guaranteed interest
contracts with cash settlement options and annuities with cash
settlement options on either an issue year basis or on a change in
fund basis. Guaranteed interest contracts with no cash settlement
options and other annuities with no cash settlement options must be
valued on an issue year basis. As used in this section, an issue
year basis of valuation refers to a valuation basis under which the
interest rate used to determine the minimum valuation standard for
the entire duration of the annuity or guaranteed interest contract
is the calendar year valuation interest rate for the year of issue
or year of purchase of the annuity or guaranteed interest contract,
and the change in fund basis of valuation refers to a valuation
basis under which the interest rate used to determine the minimum
valuation standard applicable to each change in the fund held under
the annuity or guaranteed interest contract is the calendar year
valuation interest rate for the year of the change in the fund.
(d) Reference Interest Rate
(1) Except as provided in Subsection (e) of this section,
the reference interest rate referred to in Subsection (b) of this
section shall be defined as follows:
(A) For all life insurance, the lesser of the average over a
period of 36 months and the average over a period of 12 months,
ending on June 30 of the calendar year next preceding the year of
issue, of Moody's Corporate Bond Yield Average--Monthly Average
Corporates, as published by Moody's Investors Service, Inc.
(B) For single premium immediate annuities and for annuity
benefits involving life contingencies arising from other annuities
with cash settlement options and guaranteed interest contracts with
cash settlement options, the average over a period of 12 months,
ending on June 30 of the calendar year of issue or year of purchase,
of Moody's Corporate Bond Yield Average--Monthly Average
Corporates, as published by Moody's Investors Service, Inc.
(C) For other annuities with cash settlement options and
guaranteed interest contracts with cash settlement options, valued
on a year of issue basis, except as stated in Paragraph (B) of
Subdivision (1) of Subsection (d) of this section, with guarantee
duration in excess of 10 years, the lesser of the average over a
period of 36 months and the average over a period of 12 months,
ending on June 30 of the calendar year of issue or purchase, of
Moody's Corporate Bond Yield Average--Monthly Average Corporates,
as published by Moody's Investors Service, Inc.
(D) For other annuities with cash settlement options and
guaranteed interest contracts with cash settlement options, valued
on a year of issue basis, except as stated in Paragraph (B) of
Subdivision (1) of Subsection (d) of this section, with guarantee
duration of 10 years or less, the average over a period of 12
months, ending on June 30 of the calendar year of issue or purchase,
of Moody's Corporate Bond Yield Average--Monthly Average
Corporates, as published by Moody's Investors Service, Inc.
(E) For other annuities with no cash settlement options and
for guaranteed interest contracts with no cash settlement options,
the average over a period of 12 months, ending on June 30 of the
calendar year of issue or purchase, of Moody's Corporate Bond Yield
Average--Monthly Average Corporates, as published by Moody's
Investors Service, Inc.
(F) For other annuities with cash settlement options and
guaranteed interest contracts with cash settlement options, valued
on a change in fund basis, except as stated in Paragraph (B) of
Subdivision (1) of Subsection (d) of this section, the average over
a period of 12 months, ending on June 30 of the calendar year of the
change in the fund, of Moody's Corporate Bond Yield
Average--Monthly Average Corporates, as published by Moody's
Investors Service, Inc.
(e) State Board of Insurance Promulgation of Definitions of
Reference Interest Rate
The State Board of Insurance shall, not less than annually,
determine whether the definition of reference interest rates as
specified in Subsection (d) of this section continues to be a
reasonably accurate approximation of the average yield achieved
from purchases in the United States in publicly quoted markets of
investment grade fixed term and fixed interest corporate
obligations for the times specified in such subsection and shall,
if it determines that such definition is no longer such reasonably
accurate approximation, promulgate rules in the manner specified in
the Administrative Procedure and Texas Register Act, as amended
(Article 6252-13a, Vernon's Texas Civil Statutes), to adopt such
alternative methods as are appropriate to achieve such purpose.

Commissioners Reserve Valuation Method
Sec. 6. Except as otherwise provided in Sections 7 and 10 of
this article, reserves according to the commissioners reserve
valuation method, for the life insurance and endowment benefits of
policies providing for a uniform amount of insurance and requiring
the payment of uniform premiums shall be the excess, if any, of the
present value, at the date of valuation, of such future guaranteed
benefits provided for by such policies, over the then present value
of any future modified net premiums therefor. The modified net
premiums for any such policy shall be such uniform percentage of the
respective contract premiums for such benefits that the present
value, at the date of issue of the policy, of all such modified net
premiums shall be equal to the sum of the then present value of such
benefits provided for by the policy and the excess of (a) over (b),
as follows:
(a) A net level annual premium equal to the present value,
at the date of issue, of such benefits provided for after the first
policy year, divided by the present value, at the date of issue, of
an annuity of one per annum payable on the first and each subsequent
anniversary of such policy on which a premium falls due; provided,
however, that such net level annual premium shall not exceed the net
level annual premium on the nineteen year premium whole life plan
for insurance of the same amount at an age one year higher than the
age at issue of such policy.
(b) A net one year term premium for such benefits provided
for in the first policy year.
Provided that for any life insurance policy issued on or
after January 1, 1985, for which the contract premium in the first
policy year exceeds that of the second year and for which no
comparable additional benefit is provided in the first year for
such excess and which provides an endowment benefit or a cash
surrender value or a combination thereof in an amount greater than
such excess premium, the reserve according to the commissioners
reserve valuation method as of any policy anniversary occurring on
or before the assumed ending date defined herein as the first policy
anniversary on which the sum of any endowment benefit and any cash
surrender value then available is greater than such excess premium
shall, except as otherwise provided in Section 10 of this article,
be the greater of the reserve as of such policy anniversary
calculated as previously described in this Section 6 and the
reserve as of such policy anniversary calculated as previously
described in this Section 6 but with (i) the value defined in
Subsection (a) of Section 6 of this article being reduced by fifteen
per cent (15%) of the amount of such excess first year premium, (ii)
all present values of benefits and premiums being determined
without reference to premiums or benefits provided for by the
policy after the assumed ending date, (iii) the policy being
assumed to mature on such date as an endowment, and (iv) the cash
surrender value provided on such date being considered as an
endowment benefit. In making the above comparison the mortality
and interest bases stated in Sections 3 and 5 of this article shall
be used.
Reserves according to the commissioners reserve valuation
method for: (1) life insurance policies providing for a varying
amount of insurance or requiring the payment of varying premiums;
(2) group annuity and pure endowment contracts purchased under a
retirement plan or plan of deferred compensation, established or
maintained by an employer (including a partnership or sole
proprietorship) or by an employee organization, or by both, other
than a plan providing individual retirement accounts or individual
retirement annuities under Section 408 of the Internal Revenue
Code, as now or hereafter amended; (3) disability and accidental
death benefits in all policies and contracts; and (4) all other
benefits, except life insurance and endowment benefits in life
insurance policies and benefits provided by all other annuity and
pure endowment contracts; shall be calculated by a method
consistent with the principles of the preceding paragraphs of this
section.

Commissioners Reserve Valuation Method--Annuity and Pure Endowment
Benefits
Sec. 7. This section shall apply to all annuity and pure
endowment contracts other than group annuity and pure endowment
contracts purchased under a retirement plan or plan of deferred
compensation, established or maintained by an employer (including a
partnership or sole proprietorship) or by an employee organization,
or by both, other than a plan providing individual retirement
accounts or individual retirement annuities under Section 408 of
the Internal Revenue Code, as now or hereafter amended.
Reserves according to the commissioners annuity reserve
method for benefits under annuity or pure endowment contracts,
excluding any disability and accidental death benefits in such
contracts, shall be the greatest of the respective excesses of the
present values, at the date of valuation, of the future guaranteed
benefits, including guaranteed nonforfeiture benefits, provided
for by such contracts at the end of each respective contract year,
over the present value, at the date of valuation, of any future
valuation considerations derived from future gross considerations,
required by the terms of such contract, that become payable prior to
the end of such respective contract year. The future guaranteed
benefits shall be determined by using the mortality table, if any,
and the interest rate or rates specified in such contracts for
determining guaranteed benefits. The valuation considerations are
the portions of the respective gross considerations applied under
the terms of such contracts to determine nonforfeiture values.

Minimum Reserves
Sec. 8. In no event shall a company's aggregate reserves for
all life insurance policies, excluding disability and accidental
death benefits, issued on or after the operative date of Article
3.44a (the Standard Nonforfeiture Law for Life Insurance), be less
than the aggregate reserves calculated in accordance with the
methods set forth in Sections 6, 7, 10, and 11 and the mortality
table or tables and rate or rates of interest used in calculating
nonforfeiture benefits for such policies.

Minimum aggregate reserves
Sec. 8A. In no event shall aggregate reserves of a company
covered by Section 8 of this article for all policies, contracts,
and benefits be less than the aggregate reserves determined to be
necessary to render the opinion required by Section 2A of this
article.

Optional Reserve Calculation
Sec. 9. Reserves for all policies and contracts issued prior
to the operative date of Article 3.44a (the Standard Nonforfeiture
Law for Life Insurance) may be calculated, at the option of the
company, according to any standards which produce greater aggregate
reserves for all such policies and contracts than the minimum
reserves required by the laws in effect immediately prior to such
date.
Reserves for any category of policies, contracts or benefits
as established by the State Board of Insurance, issued on or after
the operative date of Article 3.44a (the Standard Nonforfeiture Law
for Life Insurance), may be calculated, at the option of the
company, according to any standards which produce greater aggregate
reserves for such category than those calculated according to the
minimum standard herein provided, but the rate or rates of interest
used for policies and contracts, other than annuity and pure
endowment contracts, shall not be higher than the corresponding
rate or rates of interest used in calculating any nonforfeiture
benefits provided therein.
Any such company which at any time shall have adopted any
standard of valuation producing greater aggregate reserves than
those calculated according to the minimum standard herein provided
may, with the approval of the State Board of Insurance, adopt any
lower standard of valuation, but not lower than the minimum herein
provided.

Effect of opinion on standard of valuation
Sec. 9A. For the purposes of Section 9 of this article, the
holding of additional reserves previously determined to be
necessary to render the opinion required by Section 2A of this
article shall not be deemed to be the adoption of a higher standard
of valuation.

Reserve Calculation--Valuation Net Premium Exceeding the Gross
Premium Charged
Sec. 10. If in any contract year the gross premium charged by
any life insurance company on any policy or contract is less than
the valuation net premium for the policy or contract calculated by
the method used in calculating the reserve thereon but using the
minimum valuation standards of mortality and rate of interest, the
minimum reserve required for such policy or contract shall be the
greater of either the reserve calculated according to the mortality
table, rate of interest, and method actually used for such policy or
contract, or the reserve calculated by the method actually used for
such policy or contract but using the minimum valuation standards
of mortality and rate of interest and replacing the valuation net
premium by the actual gross premium in each contract year for which
the valuation net premium exceeds the actual gross premium. The
minimum valuation standards of mortality and rate of interest
referred to in this section are those standards stated in Sections 3
and 5 of this article.
Provided that for any life insurance policy issued on or
after January 1, 1985, for which the gross premium in the first
policy year exceeds that of the second year and for which no
comparable additional benefit is provided in the first year for
such excess and which provides an endowment benefit or a cash
surrender value or a combination thereof in an amount greater than
such excess premium, the foregoing provisions of this Section 10
shall be applied as if the method actually used in calculating the
reserve for such policy were the method described in Section 6 of
this article, ignoring the second paragraph of Section 6. The
minimum reserve at each policy anniversary of such a policy shall be
the greater of the minimum reserve calculated in accordance with
Section 6, including the second paragraph of that section, and the
minimum reserve calculated in accordance with this Section 10.

Reserve Calculation--Indeterminate Premium Plans and Certain Other
Plans
Sec. 11. In the case of any plan of life insurance which
provides for future premium determination, the amounts of which are
to be determined by the insurance company based on then estimates of
future experience, or in the case of any plan of life insurance or
annuity which is of such a nature that the minimum reserves cannot
be determined by the methods described in Sections 6, 7, and 10 of
this article, the reserves which are held under any such plan must:
(a) be appropriate in relation to the benefits and the
pattern of premiums for that plan, and
(b) be computed by a method which is consistent with the
principles of this Standard Valuation Law, as determined by
regulations promulgated by the State Board of Insurance.
Notwithstanding any other provision in the laws of this
state, any policy, contract, or certificate providing life
insurance under any such plan must be affirmatively approved by the
State Board of Insurance before it can be marketed, issued,
delivered, or used in this state.

Computation of Minimum Standard by Calendar Year of Issue
Sec. 12. This section shall apply only to those policies and
contracts issued prior to the operative date of Article 3.44a (the
Standard Nonforfeiture Law for Life Insurance). The reserve
liability of all such policies and contracts shall be computed in
accordance with their terms and the following rules:
(a) As respects policies issued prior to the first day of
January, 1910, the computation shall be on the basis of the American
Experience Table of Mortality and four and one-half per cent
(4-1/2%) interest per annum.
(b) As respects policies issued after the 31st day of
December, 1909, and prior to January 1, 1948, the computation shall
be on the basis of the Actuaries or Combined Experience Table of
Mortality with four per cent (4%) interest per annum, if the
interest rate guaranteed in the policy is four per cent (4%) per
annum or higher. If any such policies were issued upon a reserve
basis of an interest rate lower than four per cent (4%) per annum,
then the computation shall be made on the basis of the American
Experience Table of Mortality with interest at such lower specified
rate.
(c) As respects policies issued after the 31st day of
December, 1947, the computation shall be on the basis of the
mortality table and interest rate specified in the respective
policies, provided that (A) the specified rate of interest shall
not exceed three and one-half per cent (3-1/2%) per annum; (B) the
specified table for policies other than policies of industrial life
insurance shall be the American Experience Table of Mortality, the
American Men Ultimate Table of Mortality, the Commissioners 1941
Standard Ordinary Mortality Table, or, as respects policies issued
after the 31st day of December, 1959, the Commissioners 1958
Standard Ordinary Mortality Table; and (C) the specified table for
policies of industrial life insurance shall be the American
Experience Table of Mortality, the Standard Industrial Mortality
Table, the Sub-Standard Industrial Mortality Table, the 1941
Standard Industrial Mortality Table, or the 1941 Sub-Standard
Industrial Mortality Table, or, as respects policies issued after
the 31st day of December, 1963, the Commissioners 1961 Standard
Industrial Mortality Table.
(d) As respects policies on female risks issued after the
31st day of December, 1959, other than policies of industrial life
insurance, computation shall be based on any mortality table and
rate of interest permitted under Subsection (c) of Section 12 of
this article and specified in the respective policies but may at the
option of the company be based on an age not more than three (3)
years younger than the actual age of the insured.
(e) Except as otherwise provided in Section 4 of this
article with respect to coverages purchased on or after the
operative date of such subsection under group annuity and pure
endowment contracts, as respects policies issued on substandard
risks and annuity contracts and contracts or policies for
disability benefits and accidental death benefits, the computation
shall be on the basis of the standards and methods adopted by the
respective companies and approved by the State Board of Insurance.
(f) The reserve values of all policies of group insurance
issued prior to May 15, 1947, shall be computed upon the basis of
the American Men Ultimate Table of Mortality with interest at the
rate of three per cent (3%) or three and one-half per cent (3-1/2%)
per annum as provided in such policies. The reserve values of all
policies of group insurance issued on and subsequent to May 15,
1947, and prior to January 1, 1961, shall be computed upon the basis
of either the American Men Ultimate Table of Mortality or the
Commissioners 1941 Standard Ordinary Mortality Table with interest
at a rate not in excess of three and one-half per cent (3-1/2%) per
annum as provided in such policies. The reserve values of all
policies of group insurance issued on and subsequent to January 1,
1961, shall be computed on the basis of an interest rate not
exceeding three and one-half per cent (3-1/2%) per annum and such
mortality table as shall be adopted by the company with the approval
of the State Board of Insurance.

Repeal of Conflicting Laws
Sec. 13. All acts and parts of acts inconsistent with the
provisions of this article are hereby repealed.

Acts 1951, 52nd Leg., ch. 491. Amended by Acts 1959, 56th Leg., p.
960, ch. 448, Sec. 1; Acts 1963, 58th Leg., p. 1117, ch. 434, Sec.
2; Acts 1973, 63rd Leg., p. 1070, ch. 411, Sec. 1, 2, eff. June 14,
1973; Acts 1977, 65th Leg., p. 2098, ch. 842, Sec. 1 to 5, eff. Aug.
29, 1977; Acts 1981, 67th Leg., p. 2170, ch. 508, Sec. 1, eff. Aug.
31, 1981.

Sec. 2A added by Acts 1991, 72nd Leg., ch. 242, Sec. 11.101, eff.
Sept. 1, 1991; Secs. 8A, 9A added by Acts 1991, 72nd Leg., ch. 242,
Sec. 11.102, eff. Sept. 1, 1991; Sec. 2A(a)(1) amended by Acts
1993, 73rd Leg., ch. 685, Sec. 7.01, eff. Sept. 1, 1993; Sec. 2A(b)
amended by Acts 1993, 73rd Leg., ch. 685, Sec. 7.02, eff. Sept. 1,
1993; Sec. 3 amended by Acts 2001, 77th Leg., ch. 1318, Sec. 1, eff.
Sept. 1, 2001.

Art. 3.29. EXTRA HAZARDOUS POLICIES.

Article repealed effective April 1, 2007
If any life insurance company doing business under the laws
of this State has written or assumed risks that are sub-standard or
extra hazardous and has charged therefor more than its published
rates of premium, the Board of Insurance Commissioners shall in
valuing such policies compute and charge such extra reserves
thereon as is warranted by reason of the extra hazard assumed and
the extra premium charged. If the Board of Insurance Commissioners
shall find, after notice and hearing, that a particular risk or
class of risks is sub-standard or extra hazardous, then and in that
event no such company shall thereafter write or assume any such
risks unless they charge therefor such extra premium as is
warranted by reason of the extra hazard assumed.

Acts 1951, 52nd Leg., ch. 491.

Art. 3.31. FAILURE TO FILE CERTIFICATE.

Article repealed effective April 1, 2007
If any such foreign insurance company shall fail to file the
certificate authorized by the preceding article, it shall be
required forthwith to file with the Board of Insurance
Commissioners full detailed lists of its policies and securities
and shall be liable for all charges and expenses consequent upon its
failure so to file such certificate.

Acts 1951, 52nd Leg., ch. 491.

Art. 3.32. REQUIREMENT OF SECURITIES IN AMOUNT OF RESERVE.

Article repealed effective April 1, 2007
Having determined the required reserves on all the policies
in force, the Board shall see that the company has in securities of
the class and character required by the laws of this State the
amount of said reserves on all its policies, after all the debts and
claims against it and the minimum capital required by this chapter
have been provided for.

Acts 1951, 52nd Leg., ch. 491. Amended by Acts 1955, 54th Leg., p.
916, ch. 363, Sec. 11.

Art. 3.33. AUTHORIZED INVESTMENTS AND LOANS FOR CAPITAL
STOCK DOMESTIC LIFE, HEALTH AND ACCIDENT INSURANCE COMPANIES.

Article repealed effective April 1, 2007

Scope
Sec. 1. This article and the rules promulgated to interpret
and implement it shall apply to all domestic insurance companies as
defined in Section 841.001 of this code and other insurers
specifically made subject to the provisions hereof, including a
stipulated premium insurance company electing to be governed by
this article under Section 884.311 of this code. Articles 3.39,
3.40, and 3.40-1 of this code shall not be applicable to such
companies, but such articles shall continue to be applicable to
insurance companies chartered under Chapters 9, 881, 884, 885, 886,
and 887 of this code, except as otherwise specifically provided in
those chapters. This article shall not limit or restrict the
investments in or transactions with or within subsidiaries and
affiliates which are made pursuant to the authority of the Texas
Insurance Holding Company System Regulatory Act (Chapter 823,
Insurance Code).

Purpose
Sec. 2. The purpose of this article is to protect and further
the interests of insureds, insurers, creditors, and the public by
providing standards for the development and administration of plans
for the investment of the assets of insurers.

Insurers' Investment Plans
Sec. 3. (a) The board of directors of each insurer or
corresponding authority designated by the charter, bylaws, or plan
of operations of an insurer which has no board of directors shall:
(1) adopt a written investment plan consistent with the
provisions of this article which:
(A) specifies the diversification of the insurer's
investments, so as to reduce the risk of large losses, by:
(i) broad categories (such as bonds and real estate loans),
(ii) kinds (such as obligations of governments, or business
entities, mortgage-backed securities, and real estate loans on
office, retail, industrial or residential properties),
(iii) quality,
(iv) maturity,
(v) industry, and
(vi) geographical areas (as to both domestic and foreign
investments);
(B) balances safety of principal with yield and growth;
(C) seeks a reasonable relationship of assets and
liabilities as to term and nature;
(D) is appropriate considering the capital and surplus and
the business conducted by the insurer;
(2) at least annually, review the adequacy of such
investment plan and the implementation thereof.
(b) The insurer shall maintain the investment plan in its
principal office and shall provide same to the commissioner or his
designee upon request, and such plans shall be maintained as a
privileged and confidential document by the Commissioner of
Insurance or his designee and it shall not be subject to public
disclosure. The insurer shall maintain investment records covering
each transaction. At all times, the insurer shall be able to
demonstrate that its investments are within the limitations
prescribed in this article.

Community Investment Report
Sec. 3A. (a) The Texas Department of Insurance shall, after
consultation with the insurance industry of this state and the
Office of Public Insurance Counsel, develop a report of insurance
industry community investments in Texas.
(b) The commissioner may request and insurance companies
shall provide information necessary to complete the requirements of
Subsection (a).
(c) The report established under Subsection (a) shall be
provided to the Texas Legislature no later than December 1 of each
even-numbered year.

Authorized Investments and Transactions
Sec. 4. Subject to the limitations and restrictions herein
contained and, unless otherwise specified, based upon the insurer's
capital, surplus and admitted assets as reported in the most
recently filed statutory financial statement, the investments and
transactions described in the following subsections, and in Section
6, Article 21.49-1, and none other, are authorized for the insurers
subject hereto:
(a) United States Government Bonds. Bonds, evidences of
indebtedness or obligations of the United States of America, or
bonds, evidences of indebtedness or obligations guaranteed as to
principal and interest by the full faith and credit of the United
States of America, and bonds, evidences of indebtedness, or
obligations of agencies and instrumentalities of the government of
the United States of America;
(b) Other Governmental Bonds. Bonds, evidences of
indebtedness or obligations of governmental units in the United
States, Canada, or any province or city of Canada, and of the
instrumentalities of such governmental units; provided:
(1) such governmental unit or instrumentality is not in
default in the payment of principal or interest in any of its
obligations; and
(2) investments in the obligations of any one governmental
unit or instrumentality may not exceed 20 percent of the insurer's
capital and surplus;
(c) Obligations of Business Entities. Obligations,
including bonds or evidences of indebtedness, or participations in
those bonds or evidences of indebtedness, or asset-backed
securities, that are issued, assumed, guaranteed, or insured by any
business entity, including a sole proprietorship, a corporation, an
association, a general or limited partnership, a limited liability
company, a joint-stock company, a joint venture, a trust, or any
other form of business organization, whether for-profit or
not-for-profit, that is organized under the laws of the United
States, another state, Canada, or any state, district, province, or
territory of Canada, subject to all conditions set forth below:
(1) an insurer may acquire obligations or counterparty
exposure amounts, as defined in Subsection (u), in any one business
entity rated by the Securities Valuation Office of the National
Association of Insurance Commissioners, but not to exceed 20
percent of the insurer's statutory capital and surplus;
(2) an insurer shall not acquire an obligation,
counterparty exposure amount or preferred stock of any business
entity if, after giving effect to the investment:
(A) the aggregate amount of such investments then held by
the insurer that are rated 3, 4, 5 or 6 by the Securities Valuation
Office of the National Association of Insurance Commissioners would
exceed 20 percent of its assets;
(B) the aggregate amount of such investments then held by
the insurer that are rated 4, 5, or 6 by the Securities Valuation
Office would exceed 10 percent of its assets;
(C) the aggregate amount of such investments then held by
the insurer that are rated 5 or 6 by the Securities Valuation Office
would exceed three percent of its assets; or
(D) the aggregate amount of such investments then held by
the insurer that are rated 6 by the Securities Valuation Office
would exceed one percent of its assets.
If an insurer attains or exceeds the limit of any one rating
category referred to in this subsection, the insurer shall not be
precluded from acquiring investments in other rating categories
subject to the specific and multiple category limits applicable to
those investments;
(3) notwithstanding the foregoing, an insurer may acquire
an obligation of a business entity in which the insurer already
holds one or more obligations if the obligation is acquired in order
to protect an investment previously made in that business entity,
but obligations so acquired may not exceed one-half percent of the
insurer's assets; and
(4) this subsection does not prohibit an insurer from
acquiring an obligation as a result of a restructuring of an already
held obligation or preferred stock that is rated 3, 4, 5 or 6 by the
Securities Valuation Office;
(d) International Market. Bonds issued, assumed, or
guaranteed by the Interamerican Development Bank, the
International Bank for Reconstruction and Development (the World
Bank), the Asian Development Bank, the State of Israel, the African
Development Bank, and the International Finance Corporation;
provided:
(1) investments in the bonds of any one of the entities
specified above may not exceed 20 percent of the insurer's capital
and surplus; and
(2) the aggregate of all investments made under this
subsection may not exceed 20 percent of the insurer's assets;
(e) Policy Loans. Loans upon the security of the insurer's
own policies not in excess of the amount of the reserve values
thereof;
(f) Time and Savings Deposits. Any type or form of savings
deposits, time deposits, certificates of deposit, NOW accounts, and
money market accounts in solvent banks, savings and loan
associations, and credit unions and branches thereof, organized
under the laws of the United States of America or its states, when
made in accordance with the laws or regulations applicable to such
entities; provided the amount of the deposits in any one bank,
savings and loan association, or credit union will not exceed the
greater of:
(1) 20 percent of the insurer's capital and surplus;
(2) the amount of federal or state deposit insurance
coverage pertaining to such deposit; or
(3) 10 percent of the amount of capital, surplus, and
undivided profits of the entity receiving such deposits;
(g) Insurer Investment Pools. For the purposes of this
Subsection (g), the following definition shall apply:
(A) "Affiliate" means, as to any person, another person
that, directly or indirectly through one or more intermediaries,
controls, is controlled by, or is under common control with the
person.
(1) An insurer may acquire investments in investment pools
that:
(A) invest only in:
(i) obligations that are rated 1 or 2 by the Securities
Valuation Office or have an equivalent of a Securities Valuation
Office 1 or 2 rating (or, in the absence of a 1 or 2 rating or
equivalent rating, the issuer has outstanding obligations with a
Securities Valuation Office 1 or 2 or equivalent rating) by a
nationally recognized statistical rating organization recognized
by the Securities Valuation Office and have:
(a) a remaining maturity of 397 days or less or a put that
entitles the holder to receive the principal amount of the
obligation which put may be exercised through maturity at specified
intervals not exceeding 397 days; or
(b) a remaining maturity of three years or less and a
floating interest rate that resets no less frequently than
quarterly on the basis of a current short-term index (federal
funds, prime rate, treasury bills, London InterBank Offered Rate
(LIBOR) or commercial paper) and is subject to no maximum limit, if
the obligations do not have an interest rate that varies inversely
to market interest rate changes;
(ii) securities lending, repurchase and reverse repurchase
transactions that meet the requirements of Subsection (q) and any
applicable regulations of the department; or
(iii) money market mutual funds as authorized in Subsection
(s); provided that this short-term investment pool shall not
acquire investments in any one business entity that exceed 10
percent of the total assets of the investment pool;
(B) invest only in investments which an insurer may acquire
under this article, if the insurer's proportionate interest in the
amount invested in these investments does not exceed the applicable
limits of this article, and the aggregate amount of all investments
in such other investment pools may not exceed 25 percent of the
insurer's assets.
(2) An insurer shall not acquire an investment in an
investment pool under this subsection if after giving effect to the
investment, the aggregate amount of investments in all investment
pools then held by the insurer would exceed 35 percent of its
assets.
(3) For an investment in an investment pool to be qualified
under this article, the investment pool shall not:
(A) acquire securities issued, assumed, guaranteed or
insured by the insurer or an affiliate of the insurer;
(B) borrow or incur any indebtedness for borrowed money,
except for securities lending and reverse repurchase transactions.
(4) For an investment pool to be qualified under this
article:
(A) the manager of the investment pool shall:
(i) be organized under the laws of the United States or a
state and designated as the pool manager in a pooling agreement;
(ii) be the insurer, an affiliated insurer, a business
entity affiliated with the insurer, a custodian bank, a business
entity registered under the Investment Advisors Act of 1940 (15
U.S.C. Section 80a-1 et seq.), as amended, or, in the case of a
reciprocal insurer or interinsurance exchange, its
attorney-in-fact or, in the case of a United States branch of an
alien insurer, its United States manager or affiliates or
subsidiaries of its United States manager;
(B) the pool manager or an entity designated by the pool
manager of the type set forth in (4)(A)(ii) shall maintain detailed
accounting records setting forth:
(i) the cash receipts and disbursements reflecting each
participant's proportionate investment in the investment pool;
(ii) a complete description of all underlying assets of the
investment pool (including amount, interest rate, maturity date (if
any) and other appropriate designations); and
(iii) other records which, on a daily basis, allow third
parties to verify each participant's investments in the investment
pool;
(C) the assets of the investment pool shall be held in one or
more accounts, in the name or on behalf of the investment pool,
either (i) under a custody agreement or trust agreement with a
custodian bank or (ii) at the principal office of the pool manager.
The applicable agreement shall:
(i) state and recognize the claims and rights of each
participant;
(ii) acknowledge that the underlying assets of the
investment pool are held solely for the benefit of each participant
in proportion to the aggregate amount of its investments in the
investment pool; and
(iii) contain an agreement that the underlying assets of the
investment pool shall not be commingled with the general assets of
the custodian bank or any other person.
(5) The pooling agreement for each investment pool shall be
in writing and shall provide that:
(A) the insurer, its subsidiaries, affiliates or, in the
case of a United States branch of an alien insurer, affiliates or
subsidiaries of its United States manager, and any unaffiliated
insurer shall, at all times, hold 100 percent of the interests in
the investment pool;
(B) the underlying assets of the investment pool shall not
be commingled with the general assets of the pool manager or any
other person;
(C) in proportion to the aggregate amount of each pool
participant's interest in the investment pool:
(i) each participant owns an undivided interest in the
underlying assets or the investment pool; and
(ii) the underlying assets of the investment pool are held
solely for the benefit of each participant;
(D) a participant, or, in the event of the participant's
insolvency, bankruptcy, or receivership, its trustee, receiver,
conservator or other successor-in-interest, may withdraw all or any
portion of its investment from the investment pool under the terms
of the pooling agreement;
(E) withdrawals may be made on demand without penalty or
other assessment on any business day, but settlement of funds shall
occur within a reasonable and customary period thereafter provided:
(i) in the case of publicly traded securities, settlement shall not
exceed five business days, and (ii) in the case of all other
securities and investments, settlement shall not exceed 10 business
days. Distributions under this paragraph shall be calculated in
each case net of all then applicable fees and expenses of the
investment pool. The pooling agreement shall provide that the pool
manager shall distribute to a participant, at the discretion of the
pool manager:
(i) in cash, the then fair market value of the participant's
pro rata share of each underlying asset of the investment pool;
(ii) in kind, a pro rata share of each underlying asset; or
(iii) in a combination of cash and in kind distributions, a
pro rata share in each underlying asset; and
(F) the pool manager shall make the records of the
investment pool available for inspection by the commissioner.
(6) An investment in an investment pool shall not be deemed
to be an affiliate transaction under Section 4, Article 21.49-1, of
this code; however each pooling agreement shall be subject to the
standards of Section 4(a), Article 21.49-1, of this code and the
reporting requirements of Section 3(b), Article 21.49-1, of this
code.
(h) Equity Interests. Equity interests including common
stock, equity investment in an investment company (other than a
money market mutual fund as defined in Subsection (s) of this
section), real estate investment trust, limited partnership
interests, warrants or other rights to acquire equity interests
that are created by the person that owns or would issue the equity
to be acquired, and equity interests in any business entity that is
organized under the laws of the United States, any of its states,
Canada or any province or territory of Canada provided:
(1) if no market value from a generally recognized source is
available for the equity interest, the business entity or other
investment shall be subject to an annual audit by an independent
certified public accountant or subject to another method of
valuation acceptable to the commissioner; and
(2) an insurer shall not be permitted to invest in a
partnership, as a general partner, except through an investment
subsidiary;
(3) such investments in any one business entity other than a
money market fund defined in Subsection (s) may not exceed 15
percent of the insurer's capital and surplus;
(4) the aggregate amount of all investments made under this
subsection may not exceed 25 percent of the insurer's assets.
For purposes of this subsection, a business entity shall mean
a real estate investment trust, corporation, limited liability
company, association, limited partnership, joint venture, mutual
fund, trust, joint tenancy or other similar form of business
organization, whether organized for profit or not-for-profit.
(i) Preferred Stock. Preferred stock of business entities
as described in Subsection (c) of this section; provided:
(1) investments in the preferred stock of any one business
entity will not exceed 20 percent of the insurer's capital and
surplus;
(2) the preferred stock is rated by the Securities Valuation
Office, and the aggregate investment in preferred stock rated 3, 4,
5, or 6, when added to the investments under Subsection (c)(2) do
not result in the combined total of such investments exceeding the
limitations specified in Subsection (c)(2);
(3) in the aggregate not more than 10 percent of the
insurer's assets may be invested in preferred stock, the redemption
and retirement of which is not provided for by a sinking fund
meeting the standards established by the National Association of
Insurance Commissioners; and
(4) the aggregate of all investments made under this
subsection may not exceed 40 percent of the insurer's assets;
(j) Collateral Loans. Collateral loans secured by a first
lien upon or a valid and perfected first security interest in an
asset; provided:
(1) the amount of any such collateral loan will not exceed
80 percent of the value of the collateral asset at any time during
the duration of the loan; and
(2) the asset used as collateral would be authorized for
direct investment by the insurer under other provisions of this
Section 4, except real property in Subsection (l);
(k) Real Estate Loans. Notes, evidences of indebtedness, or
participations therein secured by a valid first lien upon real
property or leasehold estate therein located in the United States
of America; provided:
(1) the amount of any such obligation secured by a first
lien upon real property or leasehold estate therein shall not
exceed 90 percent of the value of such real property or leasehold
estate therein, but the amount of such obligation:
(A) may exceed 90 percent but shall not exceed 100 percent
of the value of such real property or leasehold estate therein if
the insurer or one or more wholly owned subsidiaries of the insurer
owns in the aggregate a 10 percent or greater equity interest in
such real property or leasehold estate therein;
(B) may be 95 percent of the value of such real property or
leasehold estate therein if it contains only a dwelling designed
exclusively for occupancy by not more than four families for
residential purposes, and the portion of the unpaid balance of such
obligation which is in excess of an amount equal to 90 percent of
such value is guaranteed or insured by a mortgage insurance company
qualified to do business in the State of Texas; or
(C) may be greater than 90 percent of the value of such real
property or leasehold estate therein to the extent the obligation
is insured or guaranteed by the United States of America, the
Federal Housing Administration pursuant to the National Housing Act
of 1934, as amended (12 U.S.C. Section 1701 et seq.), or the State
of Texas; and
(2) the term of an obligation secured by a first lien upon a
leasehold estate in real property shall not exceed a period equal to
four-fifths of the then unexpired term of such leasehold estate;
provided the unexpired term of the leasehold estate must extend at
least 10 years beyond the term of the obligation, and each
obligation shall be payable in an installment or installments of
sufficient amount or amounts so that at any time after the
expiration of two-thirds of the original loan term, the principal
balance will be no greater than the principal balance would have
been if the loan had been amortized over the original loan term in
equal monthly, quarterly, semiannual, or annual payments of
principal and interest, it being required that under any method of
repayment such obligation will fully amortize during a period of
time not exceeding four-fifths of the then unexpired term of the
security leasehold estate; and
(3) if any part of the value of buildings is to be included
in the value of such real property or leasehold estate therein to
secure the obligations provided for in this subsection, such
buildings shall be covered by adequate property insurance,
including but not limited to fire and extended coverage insurance
issued by a company authorized to transact business in the State of
Texas or by a company recognized as acceptable for such purpose by
the insurance regulatory official of the state in which such real
estate is located, and the amount of insurance granted in the policy
or policies shall be not less than the unpaid balance of the
obligation or the insurable value of such buildings, whichever is
the lesser; the loss clause shall be payable to the insurer as its
interest may appear; and
(4) to the extent any note, evidence of indebtedness, or
participation therein under this subsection represents an equity
interest in the underlying real property, the value of such equity
interest shall be determined at the time of execution of such note,
evidence of indebtedness, or participation therein and that portion
shall be designated as an investment subject to the provisions of
Subsection (l)(2) of this section; and
(5) the amount of any one such obligation may not exceed 25
percent of the insurer's capital and surplus; and
(6) a first lien on real property may be purchased after its
origination if the first lien is insured by a mortgagee's title
policy issued to the original mortgagee that contains a provision
that inures the policy to the use and benefit of the owners of the
evidence of debt indicated in the policy and to any subsequent
owners of that evidence of debt, and if the insurer maintains
evidence of assignments or other transfers of the first lien on real
property to the insurer. An assignment or other transfer to the
insurer, duly recorded in the county in which the real property is
located, shall be presumed to create legal ownership of the first
lien by the insurer;
(l) Real Estate. Real property fee simple or leasehold
estates located within the United States of America, as follows:
(1) home and branch office real property or participations
therein, which must be materially enhanced in value by the
construction of durable, permanent-type buildings and other
improvements costing an amount at least equal to the cost of such
real property, exclusive of buildings and improvements at the time
of acquisition, or by the construction of such buildings and
improvements which must be commenced within two years of the date of
the acquisition of such real property; provided:
(A) at least 30 percent of the available space in such
building shall be occupied for the business purposes of the insurer
and its affiliates; and
(B) the aggregate investment in such home and branch offices
shall not exceed 20 percent of the insurer's assets; and
(2) other investment property or participations therein,
which must be materially enhanced in value by the construction of
durable, permanent-type buildings and other improvements costing
an amount at least equal to the cost of such real property,
exclusive of buildings and improvements at the time of acquisition,
or by the construction of such buildings and improvements which
must be commenced within two years of the date of acquisition of
such real property; provided that such investment in any one piece
of property or interest therein, including the improvements,
fixtures, and equipment pertaining thereto may not exceed five
percent of the insurer's assets; provided, however, nothing in
this article shall allow ownership of, development of, or equity
interest in any residential property or subdivision, single or
multiunit family dwelling property, or undeveloped real estate for
the purpose of subdivision for or development of residential,
single, or multiunit family dwellings, except acquisitions as
provided in Subdivision (4) below, and such ownership, development,
or equity interests shall be specifically prohibited;
(3) the admissible asset value of each such investment in
the properties acquired under Subdivisions (1) and (2) of this
subsection shall be subject to review and approval by the
Commissioner of Insurance. The commissioner shall have discretion
at the time such investment is made or any time when an examination
of the company is being made to cause any such investment to be
appraised by an appraiser, appointed by the commissioner, and the
reasonable expense of such appraisal shall be paid by such
insurance company and shall be deemed to be a part of the expense of
examination of such company; if the appraisal is made upon
application of the company, the expense of such appraisal shall not
be considered a part of the expense of examination of such company;
no insurance company may hereafter make any write-up in the
valuation of any of the properties described in Subdivision (1) or
(2) of this subsection unless and until it makes application
therefor and such increase in valuation shall be approved by the
commissioner; and
(4) other real property acquired:
(A) in good faith by way of security for loans previously
contracted or money due; or
(B) in satisfaction of debts previously contracted for in
the course of its dealings; or
(C) by purchase at sales under judgment or decrees of court,
or mortgage or other lien held by such insurer; and
(5) regardless of the mode of acquisition specified herein,
upon sale of any such real property, the fee title to the mineral
estate or any portion thereof may be retained by the insurance
company indefinitely;
(m) Oil, Gas, and Minerals. In addition to and without
limitation on the purposes for which real property may be acquired,
secured, held, or retained pursuant to other provisions of this
section, every such insurance company may secure, hold, retain, and
convey production payments, producing royalties and producing
overriding royalties, or participations therein as an investment
for the production of income; provided:
(1) in no event may such company carry such assets in an
amount in excess of 90 percent of the appraised value thereof; and
(2) no one investment under this subsection may exceed 10
percent of the insurer's capital and surplus in excess of statutory
minimum capital and surplus applicable to that insurer, and the
aggregate of all such investments may not exceed 10 percent of the
insurer's assets as of December 31st next preceding the date of such
investment; and
(3) for the purposes of this subsection, the following
definitions apply:
(A) a production payment is defined to mean a right to oil,
gas, or other minerals in place or as produced that entitles its
owner to a specified fraction of production until a specified sum of
money, or a specified number of units of oil, gas, or other
minerals, has been received;
(B) a royalty and an overriding royalty are each defined to
mean a right to oil, gas, and other minerals in place or as produced
that entitles the owner to a specified fraction of production
without limitation to a specified sum of money or a specified number
of units of oil, gas, or other minerals;
(C) "producing" is defined to mean producing oil, gas, or
other minerals in paying quantities, provided that it shall be
deemed that oil, gas, or other minerals are being produced in paying
quantities if a well has been "shut in" and "shut-in royalties" are
being paid;
(n) Foreign Countries and United States Territories. In
addition to the investments in Canada authorized in other
subsections of this section, investments in other foreign countries
or in commonwealths, territories, or possessions of the United
States; provided:
(1) such investments are substantially the same types as
those authorized for investment within the United States of America
or Canada by other provisions of this section; and
(2) such investments when added to the amount of similar
investments made within the United States and Canada do not result
in the combined total of such investments exceeding the limitations
specified in Subsections (a) through (m), (o), (q) and (u) of this
section; and
(3) such investments may not exceed the sum of:
(A) the amount of insurer's reserves attributable to the
insurance business in force in foreign countries, if any, and any
additional investments required by any foreign country as a
condition to doing business therein; and
(B) 20 percent of the insurer's assets of which no more than
10 percent of the insurer's assets may be investments denominated
in foreign currency that are not hedged pursuant to the provisions
of Subsection (u);
(o) Investments Not Otherwise Specified. Investments which
are not otherwise authorized by this article and which are not
specifically prohibited by statute, including that portion of any
investments which may exceed the limits specified in Subsections
(a) through (n), (q) and (u) of this section; provided:
(1) if any aggregate or individual specified investment
limitation in Subsections (a) through (n), (q) and (u) of this
section is exceeded, then the excess portion of such investment
shall be an investment under this subsection; and
(2) the burden of establishing the value of such investments
shall be upon the insurer; and
(3) the amount of any one such investment may not exceed 10
percent of the insurer's capital and surplus in excess of the
statutory minimum capital and surplus applicable to that insurer;
and
(4) the aggregate of all investments made under this
subsection may not exceed the lesser of either five percent of the
insurer's assets or the insurer's capital and surplus in excess of
the statutory minimum capital and surplus applicable to that
insurer;
(p) Other Authorized Investments. Those other investments
as follows:
(1) any investment held by an insurer on the effective date
of this Act, which was legally authorized at the time it was made or
acquired or which the insurer was authorized to hold or possess
immediately prior to such effective date, but which does not
conform to the requirements of the investments authorized in
Subsections (a) through (o) of this section, may continue to be held
by and considered as an authorized asset or transaction of the
insurer; provided the investment or transaction is disposed of at
its maturity date, if any, or within the time prescribed by the law
under which it was acquired, if any; and provided further, in no
event shall the provisions of this subdivision alter the legal or
accounting status of such asset; and
(2) any other investment which may be authorized by other
provisions of this code or by other laws of this state for the
insurers which are subject to this article.
(q) Securities Lending, Repurchase, Reverse Repurchase and
Dollar Roll Transactions. (a) For purposes of this Subsection (q),
the following definitions shall apply:
(1) "Repurchase transaction" means a transaction in which
an insurer purchases securities from a business entity that is
obligated to repurchase the purchased securities or equivalent
securities from the insurer at a specified price, either within a
specified period of time or upon demand.
(2) "Reverse repurchase transaction" means a transaction in
which an insurer sells securities to a business entity and is
obligated to repurchase the sold securities or equivalent
securities from the business entity at a specified price, either
within a specified period of time or upon demand.
(3) "Securities lending transaction" means a transaction in
which securities are loaned by an insurer to a business entity that
is obligated to return the loaned securities or equivalent
securities to the insurer, either within a specified period of time
or upon demand.
(4) "Dollar roll transaction" means two simultaneous
transactions with settlement dates no more than 96 days apart so
that in one transaction an insurer sells to a business entity, and
in the other transaction the insurer is obligated to purchase from
the same business entity, substantially similar securities of the
following types:
(A) mortgage-backed securities issued, assumed or
guaranteed by the Government National Mortgage Association, the
Federal National Mortgage Association or the Federal Home Loan
Mortgage Corporation or their respective successors; and
(B) other mortgage-backed securities referred to in Section
106 of Title I of the Secondary Mortgage Market Enhancement Act of
1984 (15 U.S.C. Section 77r-1), as amended.
(b) An insurer may engage in securities lending,
repurchase, reverse repurchase and dollar roll transactions as set
forth herein. The insurer shall enter into a written agreement for
all transactions, except dollar roll transactions, that shall
require each transaction terminate no more than one year from its
inception.
(c) Cash received in a transaction under this section shall
be invested in accordance with this article and in a manner that
recognizes the liquidity needs of the transaction or used by the
insurer for its general corporate purposes. For so long as the
transaction remains outstanding, the insurer, its agent or
custodian shall maintain, as to acceptable collateral received in a
transaction under this subsection, either physically or through the
book entry systems of the Federal Reserve, Depository Trust
Company, Participants Trust Company or other securities
depositories approved by the commissioner:
(1) possession of the acceptable collateral;
(2) a perfected security interest in the acceptable
collateral; or
(3) in the case of a jurisdiction outside of the United
States, title to, or rights of a secured creditor to, the acceptable
collateral; and
(d) The limitations of Section 4(c) and Section 5(a) shall
not apply to the business entity counterparty exposure created by
transactions under this section. An insurer shall not enter into a
transaction under this subsection if, as a result of and after
giving effect to the transaction:
(1) the aggregate amount of securities then loaned, sold to,
or purchased from, any one business entity counterparty under this
subsection would exceed 5 percent of its assets. In calculating the
amount sold to or purchased from a business entity counterparty
under repurchase or reverse repurchase transactions, effect may be
given to netting provisions under a master written agreement; or
(2) the aggregate amount of all securities then loaned, sold
to or purchased from all business entities under this subsection
would exceed 40 percent of its assets.
(e) The amount of collateral required for securities
lending, repurchase and reverse repurchase transactions is the
amount required pursuant to the provisions of the Purposes and
Procedures of the Securities Valuation Office or such successor
publication.
(f) Article 3.39-1 shall not apply to transactions
authorized by this Subsection (q).
(r) Premium Loans. Loans to finance the payment of premiums
for the insurer's own insurance policies or annuity contracts;
provided that the amount of any such loan does not exceed the sum
of: (i) the available cash value of such insurance policy or
annuity contract; and (ii) the amount of any escrowed commissions
payable relating to such insurance policy or annuity contract for
which the premium loan is made; and
(s) Money Market Funds. (1) Money market mutual funds as
defined by 17 CFR 270.2a-7 under the Investment Company Act of 1940
(15 U.S.C. 80a-1 et seq.) that may be either of the following:
(A) government money market mutual fund which is a money
market mutual fund that:
(i) invests only in obligations issued, guaranteed or
insured by the federal government of the United States or
collateralized repurchase agreements composed of these
obligations; and
(ii) qualifies for investment without a reserve under the
Purposes and Procedures of the Securities Valuation Office or any
successor publication; or
(B) class one money market mutual fund which is a money
market mutual fund that qualifies for investment using the bond
class one reserve factor under the Purposes and Procedures of the
Securities Valuation Office or any successor publication.
(2) For purposes of complying with Subsection (h) of this
section, money market funds qualifying for listing within these
categories must conform to the Purposes and Procedures of the
Securities Valuation Office or such successor publication;
(t) The percentage authorizations and limitations set forth
in any or all of the provisions of this Article 3.33 shall apply
only at the time of the original acquisition of an investment or at
the time a transaction is entered into and shall not be applicable
to the insurer or such investment or transaction thereafter except
as provided in Subsection (w) of this section. In addition, any
investment, once qualified under any subsection of this section,
shall remain qualified notwithstanding any refinancing,
restructuring or modification of such investment provided that, the
insurer shall not engage in any such refinancing, restructuring or
modification of any investment for the purpose of circumventing the
requirements or limitations of this article.
(u) Risk Control Transactions. An insurer may use
derivative instruments to engage in hedging transactions,
replication transactions and income generation transactions as set
forth herein.
(1) For the purposes of this Subsection (u), the following
definitions shall apply:
(A) "Acceptable collateral" means cash, cash equivalents,
letters or credit and direct obligations, or securities that are
fully guaranteed as to principal and interest by, the government of
the United States.
(B) "Business entity" includes a sole proprietorship,
corporation, limited liability company, association, partnership,
joint stock company, joint venture, mutual fund, bank, trust, joint
tenancy or other similar form of business organization, whether
organized for-profit or not-for-profit.
(C) "Cap" means an agreement obligating the seller to make
payments to the buyer with each payment based on the amount by which
a reference price or level or the performance or value of one or
more underlying interests exceeds a predetermined number,
sometimes called the strike rate or strike price.
(D) "Cash equivalents" means short-term, highly rated,
highly liquid and readily marketable investments or securities,
which includes money market funds as defined in Subsection (s). For
purposes of this definition:
(i) "short-term" means investments with a remaining term to
maturity of one year or less; and
(ii) "highly rated" means an investment rated "P-1" by
Moody's Investors Service, Inc., or "A-1" by the Standard and Poor's
Division of the McGraw Hill Companies, Inc., or its equivalent
rating by a nationally recognized statistical rating organization
recognized by the Securities Valuation Office.
(E) "Collar" means an agreement to receive payments as the
buyer of an option, cap or floor and to make payments as the seller
of a different option, cap or floor.
(F) "Counterparty exposure amount" means:
(i) for an over-the-counter derivative instrument not
entered into pursuant to a written master agreement which provides
for netting of payments owed by the respective parties:
(a) the market value of the over-the-counter derivative
instrument if the liquidation of the derivative instrument would
result in a final cash payment to the insurer; or
(b) zero if the liquidation of the derivative instrument
would not result in a final cash payment to the insurer;
(ii) for over-the-counter derivative instruments entered
into pursuant to a written master agreement which provides for
netting of payments owed by the respective parties, and the
domiciliary jurisdiction of the counterparty is either within the
United States, or if not within the United States, is within a
foreign (not United States) jurisdiction listed in the Purposes and
Procedures Manual of the Securities Valuation Office as eligible
for netting, the greater of zero or the net sum payable to the
insurer in connection with all derivative instruments subject to
the written master agreement upon their liquidation in the event of
default by the counterparty pursuant to the master agreement
(assuming no conditions precedent to the obligations of the
counterparty to make such a payment and assuming no setoff of
amounts payable pursuant to any other instrument or agreement);
(iii) for purposes of this definition, market value or the
net sum payable, as the case may be, shall be determined at the end
of the most recent quarter of the insurer's fiscal year and shall be
reduced by the market value of acceptable collateral held by the
insurer or a custodian on the insurer's behalf.
(G) "Derivative instrument" means any agreement, option or
instrument, or any series or combinations thereof:
(i) to make or take delivery of, or assume or relinquish, a
specified amount of one or more underlying interests, or to make a
cash settlement in lieu thereof; or
(ii) that have a price, performance, value or cash flow
based primarily upon the actual or expected price, yield, level,
performance, value or cash flow of one or more underlying
interests.
Derivative instruments include options, warrants not
otherwise permitted to be held by the insurer under this article,
caps, floors, collars, swaps, swaptions, forwards, futures and any
other agreements, options or instruments substantially similar
thereto, or any series or combinations thereof.
Derivative instruments do not include collateralized
mortgage obligations, other asset-backed securities,
principal-protected structured securities, floating rate
securities, or instruments which an insurer is otherwise permitted
to invest in or receive under this article other than under this
subsection, and any debt obligations of the insurer.
(H) "Derivative transaction" means a transaction involving
the use of one or more derivative instruments. Dollar roll
transactions, repurchase transactions, reverse repurchase
transactions and securities lending transactions shall not be
included as derivative transactions for purposes of this
subsection.
(I) "Floor" means an agreement obligating the seller to make
payments to the buyer in which each payment is based on the amount
by which a predetermined number, sometimes called the floor rate or
price, exceeds a reference price, level, performance or value of
one or more underlying interests.
(J) "Forward" means an agreement (other than a future) to
make or take delivery in the future of one or more underlying
interests, or effect a cash settlement, based on the actual or
expected price, level, performance or value of such underlying
interests, but shall not mean or include spot transactions effected
within customary settlement periods, when-issued purchases or
other similar cash market transactions.
(K) "Future" means an agreement, traded on a futures
exchange, to make or take delivery of, or effect a cash settlement
based on the actual or expected price, level, performance or value
of, one or more underlying interests.
(L) "Futures exchange" means a foreign or domestic
exchange, contract market or board of trade on which trading in
futures is conducted and, in the United States, which has been
authorized for such trading by the Commodities Futures Trading
Commission or any successor thereof.
(M) "Hedging transaction" means a derivative transaction
which is entered into and maintained to manage:
(i) the risk of a change in the value, yield, price, cash
flow or quantity of assets or liabilities (or a portfolio of assets
and/or liabilities) which the insurer has acquired or incurred or
anticipates acquiring or incurring; or
(ii) the currency exchange rate risk related to assets or
liabilities (or a portfolio of assets and/or liabilities) which an
insurer has acquired or incurred or anticipates acquiring or
incurring.
(N) "Income generation transaction" means a derivative
transaction which is entered into to generate income. A derivative
transaction which is entered into as a hedging transaction or a
replication transaction shall not be considered an income
generation transaction.
(O) "Market value" means the price for the security or
derivative instrument obtained from a generally recognized source
or the most recent quotation from such a source or, to the extent no
generally recognized source exists, the price for the security or
derivative instrument as determined pursuant to the terms of the
instrument or in good faith by the insurer as can be reasonably
demonstrated to the Commissioner upon request, plus accrued but
unpaid income thereon to the extent not included in the price as of
the date.
(P) "Option" means an agreement giving the buyer the right
to buy or receive (a "call option"), sell or deliver (a "put
option"), enter into, extend or terminate or effect a cash
settlement based on the actual or expected price, spread, level,
performance or value of one or more underlying interests.
(Q) "Over-the-counter derivative instrument" means a
derivative instrument entered into with a business entity, other
than through a securities exchange, futures exchange, or cleared
through a qualified clearinghouse.
(R) "Potential exposure" means:
(i) as to a futures position, the amount of initial margin
required for that position; or
(ii) as to swaps, collars and forwards, one-half percent
times the notional amount times the square root of the remaining
years to maturity.
(S) "Qualified clearinghouse" means a clearinghouse subject
to the rules of a securities exchange or a futures exchange, which
provides clearing services, including acting as a counterparty to
each of the parties to a transaction such that the parties no longer
have credit risk to each other.
(T) "Replication transaction" means a derivative
transaction or combination of derivative transactions effected
either separately or in conjunction with cash market investments
included in the insurer's investment portfolio in order to
replicate the risks and returns of another authorized transaction,
investment or instrument and/or operate as a substitute for cash
market transactions. A derivative transaction entered into by the
insurer as a hedging transaction shall not be considered a
replication transaction.
(U) "Securities exchange" means:
(i) an exchange registered as a national securities
exchange or a securities market registered under the Securities
Exchange Act of 1934 (15 U.S.C. Section 78 et seq.), as amended;
(ii) Private Offerings Resales and Trading through
Automated Linkages (PORTAL); or
(iii) a designated offshore securities market as defined in
Securities Exchange Commission Regulation S, 17 C.F.R. Part 230, as
amended.
(V) "Swap" means an agreement to exchange or to net payments
at one or more times based on the actual or expected price, yield,
level, performance or value of one or more underlying interests.
(W) "Swaption" means an option to purchase or sell a swap at
a given price and time or at a series of prices and times. A
swaption does not mean a swap with an embedded option.
(X) "Underlying interest" means the assets, liabilities or
other interests, or a combination thereof, underlying a derivative
instrument, such as any one or more securities, currencies, rates,
indices, commodities or derivatives instruments.
(Y) "Warrant" means an instrument that gives the holder the
right to purchase or sell the underlying interest at a given price
and time or at a series of prices and times outlined in the warrant
agreement.
(2) Prior to entering into any derivative transaction, the
board of directors of the insurer shall approve a derivative use
plan, as part of the investment plan required in Section 3 of this
article, that:
(A) describes investment objectives and risk constraints,
such as counterparty exposure amounts;
(B) defines permissible transactions identifying the risks
to be hedged, the assets or liabilities being replicated; and
(C) requires compliance with internal control procedures.
(3) The insurer shall establish written internal control
procedures that provide for:
(A) a quarterly report to the board of directors that
reviews:
(i) all derivative transactions entered into, outstanding
or closed out;
(ii) the results and effectiveness of the derivatives
program; and
(iii) the credit risk exposure to each counterparty for
over-the-counter derivative transactions based upon the
counterparty exposure amount;
(B) a system for determining whether hedging or replication
strategies utilized have been effective;
(C) a system of regular reports (not less frequently than
monthly) to management including:
(i) a description of all the derivative transactions
entered into, outstanding or closed out during the period since the
last report;
(ii) the purpose of each outstanding derivative
transaction;
(iii) a performance review of the derivative instrument
program; and
(iv) the counterparty exposure amount for over-the-counter
derivative transactions;
(D) written authorizations that identify the
responsibilities and limitations of authority of persons
authorized to effect and maintain derivative transactions;
(E) documentation appropriate for each transaction
including:
(i) the purpose of the transaction;
(ii) the assets or liabilities to which the transaction
relates;
(iii) the specific derivative instrument used in the
transaction;
(iv) for over-the-counter derivative instrument
transactions, the name of the counterparty and the counterparty
exposure amount; and
(v) for exchange-traded derivative instruments, the name of
the exchange and the name of the firm that handled the transaction.
(4) An insurer shall be able to demonstrate to the
commissioner, upon request, the intended hedging characteristics
and ongoing effectiveness of the derivative transaction or
combination of transactions through cash flow testing, duration
analysis or other appropriate analysis.
(5) An insurer shall include all counterparty exposure
amounts in determining compliance with the limitations of
Subsection (c).
(6)(a) Ten days prior to entering into the initial hedging
transaction, the insurer shall notify the commissioner in writing
that: (i) the insurer's board of directors has adopted an
investment plan which authorizes hedging transactions, and (ii) all
hedging transactions will comply with this Subsection (u).
Insurers already engaged in hedging transactions shall notify the
commissioner as set forth in the preceding sentence within 30 days
of the effective date of this Subsection (u). Thereafter, an
insurer may enter into hedging transactions under this subsection,
if as a result of and after giving effect to each such transaction:
(A) the aggregate statement value of all outstanding
options (other than collars), caps, floors, swaptions and warrants
(not attached to another financial instrument purchased by the
insurer) pursuant to this subsection does not exceed 7.5 percent of
its assets;
(B) the aggregate statement value of all outstanding
options (other than collars), swaptions, warrants, caps and floors
written by the insurer pursuant to this subsection does not exceed
three percent of its assets; and
(C) the aggregate potential exposure of all outstanding
collars, swaps, forwards and futures entered into or acquired by
the insurer pursuant to this subsection does not exceed 6.5 percent
of its assets.
(b) Whenever the derivative transactions entered into under
this Subsection (u)(6), are not in compliance with this Subsection
(u) or, if continued, may now or subsequently, create a hazardous
financial condition to the insurer which affects its policyholders,
creditors or the general public, the commissioner may, after notice
and an opportunity for a hearing, order the insurer to take such
action as may be reasonably necessary to (i) rectify a hazardous
financial condition, or (ii) to prevent an impending hazardous
financial condition from occurring.
(7) An insurer may only enter into an income generation
transaction if:
(A) as a result of and after giving effect to the
transaction, the aggregate statement value of admitted assets that
are then subject to call or that generate the cash flows for
payments required to be made by the insurer under caps and floors
sold by the insurer and then outstanding under this subsection,
plus the statement value of admitted assets underlying derivative
instruments then subject to calls sold by the insurer and
outstanding under this subsection, plus the purchase price of
assets subject to puts then outstanding under this subsection does
not exceed 10 percent of its assets; and
(B) the transaction is one of the following types, is
covered in the manner specified below and meets the other
requirements specified below:
(i) sales of call options on assets, provided that the
insurer holds or has a currently exercisable right to acquire the
underlying assets during the entire period that the option is
outstanding;
(ii) sales of put options on assets, provided that the
insurer holds sufficient cash, cash equivalents or interests in a
short-term investment pool to purchase the underlying assets upon
exercise during the entire period that the option is outstanding,
and has the ability to hold the underlying assets in its portfolio.
If the total market value of all put options sold by the insurer
exceeds two percent of the insurer's assets, the insurer shall set
aside pursuant to a custodial or escrow agreement cash or cash
equivalents having a market value equal to the amount of its put
option obligations in excess of two percent of the insurer's assets
during the entire period the option is outstanding;
(iii) sales of call options on derivative instruments
(including swaptions), provided that the insurer holds or has a
currently exercisable right to acquire assets generating the cash
flow to make any payments for which the insurer is liable pursuant
to the underlying derivative instruments during the entire period
that the call options are outstanding and has the ability to enter
into the underlying derivative transactions for its portfolio; and
(iv) sales of caps and floors, provided that the insurer
holds or has a currently exercisable right to acquire assets
generating the cash flow to make any payments for which the insurer
is liable pursuant to the caps and floors during the entire period
that the caps and floors are outstanding.
(8)(a) An insurer may enter into replication transactions
only with prior written approval from the Commissioner, provided
that:
(A) the insurer would otherwise be authorized to invest its
funds under this article in the asset being replicated; and
(B) the asset being replicated is subject to all the
provisions and limitations on the making thereof specified in this
article with respect to investments by the insurer as if the
transaction constituted a direct investment by the insurer in the
replicated asset.
(b) The commissioner may adopt such rules and regulations
regarding replication transactions as may be fair and reasonable to
implement this Subsection (u)(8).
(9) An insurer may purchase or sell one or more derivative
instruments to offset, in whole or in part, any derivative
instrument previously purchased or sold, as the case may be,
without regard to the quantitative limitations of this subsection,
provided that such offsetting transaction utilizes the same type of
derivative instrument as the derivative instrument being offset.
(10) Trading Requirements. Each derivative instrument
shall be:
(A) traded on a securities exchange;
(B) entered into with, or guaranteed by, a business entity;
(C) issued or written by or entered into with the issuer of
the underlying interest on which the derivative instrument is
based; or
(D) in the case of futures, traded through a broker which is
registered as a futures commission merchant under the Commodity
Exchange Act or which has received exemptive relief from such
registration under Rule 30.10 promulgated under the Commodity
Exchange Act.
(11) Article 3.39-2 shall not apply to transactions
authorized by this Subsection (u).
(v) Distributions, Reinsurance, and Merger. No provision
of this article prohibits the acquisition by an insurer of
additional obligations, securities, or other assets if received as
a dividend or as a distribution of assets, nor does this article
apply to securities, obligations, or other assets accepted incident
to the workout, adjustment, restructuring or similar realization of
any kind of investment or transaction when deemed by the insurer's
board of directors or by a committee appointed by the board of
directors to be in the best interests of the insurer, if the
investment or transaction had previously been authorized, nor does
this article apply to assets acquired pursuant to a lawful
agreement of bulk reinsurance, merger, or consolidation if such
assets constituted legal and authorized investments for the ceding,
merged or consolidated company. No obligation, security or other
asset acquired as permitted by this subsection need be qualified
under any other subsection of this article.
(w) Qualification of Investments. The qualification or
disqualification of an investment under one subsection of this
section does not prevent its qualification in whole or in part under
another subsection, and an investment authorized by more than one
subsection may be held under whichever authorizing subsection the
insurer elects. An investment or transaction qualified under any
subsection at the time it was acquired or entered into by the
insurer shall continue to be qualified under that subsection. An
investment, in whole or in part, may be transferred from time to
time, at the election of the insurer, to the authority of any
subsection under which it then qualifies, whether or not it
originally qualified thereunder.

Aggregate Diversification Requirements
Sec. 5. The following provisions govern and take precedence
over each and every provision of Section 4, except Subsections (q),
(t) and (v):
(a) Investment in all or any types of securities, loans,
obligations, or evidences of indebtedness of a single issuer or
borrower (which shall include such issuer's or borrower's
majority-owned subsidiaries or parent or the majority-owned
subsidiaries of such parent), other than those authorized
investments that are either direct obligations of or guaranteed by
the full faith and credit of the United States of America, the State
of Texas, or a political subdivision thereof or are insured by an
agency of the United States of America or the State of Texas shall
not in the aggregate exceed five percent of the insurer's assets
except for those investments provided for in Subsections (e) and
(f) of Section 4 of this article; and
(b) The aggregate investment in real property authorized by
Subsections (l), (m), (o), and (p) of Section 4 may not exceed
33-1/3 percent of the insurer's assets; provided, in the event an
insurer acquires real property under Subdivision (4) of Subsection
(l) of Section 4 and such acquisition causes such aggregate real
estate to exceed the limitation set forth herein, the insurer shall
either dispose of sufficient excess real property to come within
such limitations within 10 years of such acquisition or it may not
thereafter admit as an asset the value of the real property in
excess of such limitation; should an insurer's real property
acquisitions exceed such 33-1/3 percent limitation, no additional
real property acquisitions under Subdivisions (1) and (2) of
Subsection (l), and Subsections (m), (o), and (p) of Section 4 of
this article are authorized until such excess is removed.

Prior Approval Exception
Sec. 6. The quantitative limitations respecting any
investment authorized in Section 4 may be waived by prior written
approval of the commissioner; provided:
(a) A hearing is held to determine whether approval should
be granted;
(b) The applicant seeking prior approval establishes that
unreasonable or unnecessary loss or harm to the insurer will result
if approval is withheld;
(c) The excessive investment will not have a material
adverse effect upon the insurer;
(d) The size of the investment is reasonable in relation to
the insurer's assets, capital, surplus, and liabilities; and
(e) The commissioner's prior authorization may treat the
resulting excess investment as an asset not admitted.

Accounting Provisions
Sec. 7. (a) The term "assets" as used in this article shall
mean the statutory accounting admitted assets of the insurer,
including lawful money of the United States, whether in the form of
cash or demand deposits in solvent banks, savings and loan
associations, and credit unions and branches thereof, organized
under the laws of the United States of America or its states, when
held in accordance with the laws or regulations applicable to such
entities, less the insurer's separate accounts that are subject to
Part III of Article 3.39, Article 3.72, Article 3.73, and Article
3.75 of this code.
(b) Each insurer shall maintain reasonable, adequate, and
accurate evidence of its ownership of its assets and investments.
(c) The ownership of governmental or corporate securities
shall be evidenced as provided for in Article 21.39-B, Section 4, of
this code.
(d) Other than investments made as a participation in a
partnership or joint venture, or as otherwise provided in Article
21.39-B of this code, investments shall be held solely in the name
of the insurer.

Investments of Companies Reinsured
Sec. 8. In any case in which a domestic insurance company
shall assume and reinsure the business and take over the assets of
another insurance company, either domestic or foreign, all assets
or investments of such reinsured company that were authorized as
proper assets or investments for the funds of such reinsured
company, and which are taken over by such domestic company, shall be
considered as valid assets or investments of such reinsuring
domestic company under the laws of this state; provided such assets
or investments are approved by the Commissioner of Insurance of
this state, and the same are taken over on terms satisfactory to
said commissioner, and upon the condition that the commissioner
shall have the power to require the reinsuring domestic company to
reasonably dispose of any of such assets or investments as do not
otherwise meet the requirements of this article within such time
schedule as will minimize any financial loss or other hardship by
the disposition of such asset or investment.

Rules and Regulations
Sec. 9. The State Board of Insurance may adopt such rules,
regulations, minimum standards, or limitations which are fair and
reasonable as may be appropriate for the augmentation and
implementation of this article.

Real Estate Brokerage
Sec. 10. Domestic companies as defined in Section 5 of
Article 3.01 of this code and other insurers specifically made
subject to the provisions of this article shall not engage in the
business of a real estate broker or a real estate salesman as
defined by The Real Estate License Act, as amended (Article 6573a,
Vernon's Texas Civil Statutes), except that such insurers may hold,
improve, maintain, manage, rent, lease, sell, exchange, or convey
any of the real property interests owned as investments under
Section 4 of this article.

Added by Acts 1985, 69th Leg., ch. 36, Sec. 1, eff. Jan. 1, 1986.
Sec. 4 amended by Acts 1989, 71st Leg., ch. 187, Sec. 3, eff. Aug.
28, 1989; Acts 1991, 72nd Leg., ch. 408, Sec. 7, eff. Aug. 26, 1991;
Acts 1993, 73rd Leg., ch. 685, Sec. 7.11, eff. Sept. 1, 1993; Sec. 2
amended by Acts 1997, 75th Leg., ch. 556, Sec. 1, eff. Sept. 1,
1997; Sec. 3 amended by Acts 1997, 75th Leg., ch. 556, Sec. 2, eff.
Sept. 1, 1997; Sec. 3A added by Acts 1997, 75th Leg., ch. 556, Sec.
3, eff. Sept. 1, 1997; Sec. 4 amended by Acts 1997, 75th Leg., ch.
556, Sec. 4, eff. Sept. 1, 1997; Sec. 5 amended by Acts 1997, 75th
Leg., ch. 556, Sec. 5, eff. Sept. 1, 1997; Sec. 7 amended by Acts
1997, 75th Leg., ch. 556, Sec. 6, eff. Sept. 1, 1997; Sec. 1 amended
by Acts 2003, 78th Leg., ch. 487, Sec. 2, eff. Sept. 1, 2003.

Art. 3.38. NOT TO APPLY TO FRATERNAL SOCIETIES. Nothing in
this chapter shall be held to apply to fraternal benefit societies
as defined by the laws of this State.

Acts 1951, 52nd Leg., ch. 491.

Art. 3.39. AUTHORIZED INVESTMENTS AND LOANS FOR "DOMESTIC"
LIFE INSURANCE COMPANIES.

Article repealed effective April 1, 2007

Part I. Authorized Investments
A life insurance company organized under the laws of this
state may invest its several funds, identified as follows, in the
following securities, respectively, and none other:

A. ANY OF ITS FUNDS AND ACCUMULATIONS
1. U. S. Bonds and Obligations Guaranteed by the United
States. The bonds, treasury bills, notes and certificates of
indebtedness of the United States or any other obligation or
security fully guaranteed as to principal and interest by the full
faith and credit of the United States.
2. Canadian Bonds. The bonds of the Dominion of Canada or any
province or city of the Dominion of Canada.
3. State, County and City Bonds. The bonds of any state,
county, or city of the United States.
4. County, City and School District Bonds. Any bonds or
interest-bearing warrants issued by authority of law by any county,
city, town, school district or other municipality or subdivision,
which is now or hereafter may be constituted or organized under the
laws of any state in the United States, and which is authorized to
issue such bonds and warrants under the Constitution and laws of the
state in which it is situated; provided legal provision has been
made by a tax to meet said obligations.
5. Bonds of Educational Institutions. Any bonds or
interest-bearing warrants issued by authority of law by any
educational institution which is now or hereafter may be
constituted or organized under the laws of any state in the United
States, and which is authorized to issue such bonds and warrants
under the Constitution and laws of the state in which it is
situated; provided legal provision has been made by a tax to meet
said obligations.
6. Revenue Bonds, etc., of Educational Institutions. The
bonds and warrants, including revenue and special obligations, of
any educational institution located in any state in the United
States when special revenue or income to meet the principal and
interest payments as they accrue upon such obligations shall have
been appropriated, pledged or otherwise provided by such
educational institution.
7. Bonds and Warrants of Municipally Owned Systems. The bonds
and warrants payable from designated revenues of any city, county,
drainage district, road district, town, township, village or other
civil administration, agency, authority, instrumentality, or
subdivision which is now or hereafter may be constituted or
organized under the laws of any state in the United States, and
which is authorized to issue such bonds and warrants under the
Constitution and laws of the state in which it is situated;
provided special revenue or income to meet the principal and
interest payments as they accrue upon such obligations shall have
been appropriated, pledged or otherwise provided by such
municipality.
8. Paving Certificates. Any paving certificates or other
certificates or evidence of indebtedness issued by any city in any
state in the United States and secured by a first lien on real
estate.
9. Bonds Issued Under Federal Farm Loan Act. Bonds issued
under and by virtue of the Federal Farm Loan Act approved July 17,
1916 (12 U.S.C.A. Sec. 641 et seq.), when such bonds are issued
against and secured by promissory notes, or obligations, the
payment of which is secured by mortgage, deed of trust, or other
valid lien upon unincumbered real estate situated in this state.
10. Corporate First Mortgage Bonds, Notes and Debentures.
(1) First mortgage bonds or first lien notes on real estate or
personal property: (a) of any solvent corporation which has not
defaulted in the payment of any debt within five (5) years next
preceding such investment; or (b) of any solvent corporation which
has not been in existence for five (5) consecutive years but whose
first mortgage bonds or first lien notes on real estate or personal
property are fully guaranteed by a solvent corporation which has
not defaulted in the payment of any debt within five (5) years next
preceding such investment; or (c) of any solvent corporation which
has not been in existence for five (5) consecutive years but whose
first mortgage bonds or first lien notes on real estate or personal
property are secured by leases or other contracts executed by a
solvent corporation which has not defaulted in the payment of any
debt within five (5) years next preceding such investment, the
required rentals or other required payments under which leases or
other contracts are sufficient in any and every circumstance to pay
interest and principal when due on such bonds or notes; or (d) of
any solvent corporation which has not been in existence for five (5)
consecutive years next preceding such investment, provided such
corporation has succeeded to the business and assets and has
assumed the liabilities of another corporation, and which
corporation and the corporation so succeeded have not defaulted in
the payment of any debt within five (5) years next preceding such
investment; or (2) in the notes or debentures of any such
corporation with a net worth of not less than Five Million Dollars
($5,000,000) where no prior lien exists in excess of 10 percent of
the net worth of such corporation, and, under the provisions of the
indenture providing for the issuance of such notes or debentures,
no such prior lien can be created in excess of 10 percent of the net
worth of such corporation, against the real or personal property of
such corporation at the time the notes or debentures were issued;
or (3) in the notes or debentures of any solvent corporation which
has not been in existence for five (5) consecutive years where no
prior lien exists, and, under the provisions of the indenture
providing for the issuance of such notes or debentures, no such
prior lien can be created against the real or personal property of
such corporation at the time the notes or debentures were issued,
but whose notes or debentures are secured by leases or other
contracts executed by a solvent corporation which has not defaulted
in the payment of any debt within five (5) years next preceding such
investment and has a net worth of at least Five Million Dollars
($5,000,000), the required rentals or other required payments under
which leases or other contracts are sufficient in any and every
circumstance to pay interest and principal when due on such bonds or
notes, or whose notes or debentures are fully guaranteed by any such
corporation; or (4) in the bonds, bills of exchange, or other
commercial notes or bills of any solvent corporation which has not
defaulted in the payment of any debt within five (5) years next
preceding such investment, or of any solvent corporation which has
not been in existence for five (5) consecutive years next preceding
such investment, provided such corporation has succeeded to the
business and assets and has assumed the liabilities of another
corporation, and which corporation and the corporation so succeeded
have not defaulted in the payment of any debt within five (5) years
next preceding such investment, and which corporation has a net
worth of not less than Fifty Million Dollars ($50,000,000) and has
no long-term indebtedness in excess of its net worth, as evidenced
by its latest published financial statements or other financial
data available to the public; but in no event shall the amount of
such investment in the bonds, notes, debentures, or other
obligations of any one such corporation exceed five percent (5%) of
the admitted assets of the insurance company making such
investment.
11. Shares of Savings and Loan Associations. The shares,
stock, share accounts or savings accounts, and investment
certificates of Savings and Loan Associations doing business in
this state where such association has qualified for participation
in insurance issued by the Federal Savings and Loan Insurance
Corporation; no such investment shall exceed twenty per cent (20%)
of the total assets of any such Individual Savings and Loan
Association.
12. Bank and Bank Holding Company Stocks. The stock of banks,
either state or national, that are members of the Federal Deposit
Insurance Corporation and the stock of bank holding companies as
defined in the Bank Holding Company Act of 1956 (12 U.S.C.A. 1841 et
seq.) as amended by the Bank Holding Company Act Amendments of 1970
(12 U.S.C.A. 1841 et seq., 1971 et seq.) enacted by the United
States Congress; no such investment shall exceed twenty per cent
(20%) of the total outstanding shares of the stock of any such bank
or bank holding company and in no event shall the amount of
investment in any such stock exceed ten per cent (10%) of the
admitted assets of the insurance company making such investment.
13. Debentures of Public Utility Corporations. The
debentures of any solvent public utility corporation which has not
defaulted in the payment of any debt within five (5) years next
preceding such investment, or of any solvent public utility
corporation which has not been in existence for five (5)
consecutive years next preceding such investment provided such
corporation has succeeded to the business and assets and has
assumed the liabilities of another such corporation, and which
public utility corporation and public utility corporation so
succeeded have not defaulted in the payment of any debt within five
(5) years next preceding such investment; provided further, that
such public utility corporation shall not have failed in any one of
the five (5) years next preceding such investment to have earned,
after taxes, including income taxes, and after deducting proper
charges for replacements, depreciation and obsolescence, a sum
applicable to interest on its outstanding indebtedness equal at
least to two times the amount of interest due for that year, or
where, in the case of issuance of new debentures, such earnings
applicable to interest are equal to at least two times the amount of
annual interest on such public utility corporation's obligations
after giving effect to such new financing; or, in the case of a
public utility corporation which has not been in existence for five
(5) consecutive years next preceding such investment but has
succeeded to the business and assets and has assumed the
liabilities of another such corporation, and which public utility
corporation and the public utility corporation so succeeded have
not failed in any one of the five (5) years next preceding such
investment to have earned, after taxes, including income taxes, and
after deducting proper charges for replacements, depreciation and
obsolescence, a sum applicable to interest on the outstanding
indebtedness equal to at least two times the amount of interest due
for that year, to where in the case of issuance of new debentures
such earnings applicable to interest are equal to at least two times
the amount of annual interest on such public utility corporation's
obligations after giving effect to such new financing; but in no
event shall the amount of such investment in debentures under this
Subdivision exceed five per cent (5%) of the admitted assets of the
insurance company making the investment.
14. Preferred Stock of Public Utility Corporations. The
preferred stock of any solvent public utility corporation which has
not defaulted in the payment of any debt within five (5) years next
preceding such investment, or of any solvent public utility
corporation which has not been in existence for five (5)
consecutive years next preceding such investment provided such
corporation has succeeded to the business and assets and has
assumed the liabilities of another corporation, and which public
utility corporation and the public utility corporation so succeeded
have not defaulted in the payment of any debt within five (5) years
next preceding such investment; provided further, that such public
utility corporation shall not have failed in any one of the five (5)
years next preceding such investment to have earned a sum
applicable to dividends on such preferred stock equal to at least
three times the amount of dividends due in that year, or, in the
case of issuance of new preferred stock such earnings applicable to
dividends are equal at least to three times the amount of the annual
dividend requirements after giving effect to such new financing,
and where the bonds and debentures are eligible investments for
such insurance company; or, in the case of a public utility
corporation which has not been in existence for five (5)
consecutive years next preceding such investment, but has succeeded
to the business and assets and has assumed the liabilities of
another such corporation, and which public utility corporation and
the public utility corporation so succeeded have not failed in any
one of the five (5) years next preceding such investment to have
earned a sum applicable to the dividends on such preferred stock
equal to at least three times the amount of dividends due in that
year, or, in the case of issuance of new preferred stock, such
earnings applicable to dividends are equal at least to three times
the amount of the annual dividend requirements after giving effect
to such new financing, and where the bonds and debentures are
eligible investments for such insurance company; provided that any
preferred stock so purchased shall be of an issue which is entitled
to first claim upon the net earnings of such public utility
corporation after deducting such sum as may be necessary to service
any outstanding bonds and debentures, but in no event shall the
amount of such investment in preferred stock under this Subdivision
exceed two and one-half per cent (2-1/2%) of the admitted assets of
the insurance company making the investment.
15. Securities Not Otherwise Specified. Notwithstanding any
expressed or implied prohibitions, a life insurance company may,
after the effective date of this amendment, invest any of its funds
and accumulations in investments which do not otherwise qualify
under any other provision of Chapter 3 of the Insurance Code;
provided, however, that the amount of any one such investment under
this Section shall not exceed one per cent (1%) of the admitted
assets of any such life insurance company; and provided further,
that the investments authorized by this Section shall not exceed
the lesser of (a) five per cent (5%) of its admitted assets, or (b)
the amount of its capital and surplus in excess of Two Hundred
Thousand Dollars ($200,000) as shown on its last annual statement
preceding the date of the acquisition of such investment as filed
with the State Board of Insurance.
Nothing herein shall be construed or applied so as to
authorize any life insurance company to invest any of its funds or
accumulations in real property unless already authorized to do so
by this Act or some other existing law of the State of Texas.
15A. Other Bonds. A company may also invest its funds and
accumulations in:
(1) bonds issued, assumed, or guaranteed by the
Inter-American Development Bank, the International Bank for
Reconstruction and Development (the World Bank), the African
Development Bank, the Asian Development Bank, and the International
Finance Corporation; and
(2) bonds issued, assumed, or guaranteed by the State of
Israel.
16. Securities Authorized by Special Acts of the Legislature.
Securities authorized under Articles: 842a; 842a-1; 881a-24;
1187a; 5890c; 6795b-1; 7880-19a; 8247a; 8280-133; 8280-134;
8280-137; 8280-138; and 8280-139 of the Revised Civil Statutes of
Texas.
17. Other Securities Specifically Authorized by Law.
(1) Equipment trust obligations or certificates that are
adequately secured or other adequately secured instruments
evidencing an interest in transportation equipment that is in whole
or in part within the United States and a right to receive
determined portions of rental, purchase, or other fixed obligatory
payments for the use or purchase of the transportation equipment;
and
(2) Such other securities as are now or may hereafter be
specifically authorized by law.

B. POLICY RESERVES AND SURPLUS
1. Specified Municipal Bonds. It may invest its policy
reserves and surplus over and above its capital in "Municipal
Bonds" issued under and by virtue of Chapter 280, Acts 1929, 41st
Legislature.

C. CAPITAL, SURPLUS AND CONTINGENCY FUNDS OVER AND ABOVE POLICY
RESERVES
It may invest its capital, surplus and contingency funds over
and above the amount of its policy reserves in the following
securities:
1. Capital Stock, Bonds, and other Obligations of
Corporations. The capital stock, bonds, bills of exchange, or
other commercial notes or bills and securities of any solvent
corporation which has not defaulted in the payment of any debt
within five (5) years next preceding such investment, or of any
solvent corporation which has not been in existence for five (5)
consecutive years next preceding such investment, provided such
corporation has succeeded to the business and assets and has
assumed the liabilities of another corporation, and which
corporation and the corporation so succeeded have not defaulted in
the payment of any debt within five (5) years next preceding such
investment.
2. Bonds or Notes of Educational or Religious Corporations.
The bonds or notes of any educational or religious corporation
where provision has been made for the payment of a sufficient amount
of the first weekly or monthly revenues thereof to an interest and
sinking fund account in a bank or trust company as an independent
paying agent.
3. Limitation of Investments. It may not invest in its own
capital stock nor in the stock of any one corporation to any extent
more than ten per cent (10%) of the amount of its own capital,
surplus, and contingent funds, nor in the stock of any
manufacturing corporation with a net worth of less than Twenty-Five
Thousand Dollars ($25,000), nor in the stock of any oil corporation
with a net worth of less than Five Hundred Thousand Dollars
($500,000); provided, however, that it may own and invest not more
than twenty-five per cent (25%) of its capital, surplus and
contingency funds in the capital stock of one fire and casualty
insurance company, provided such investment gives it a majority of
the outstanding stock of such fire and casualty insurance company;
and provided further, it may additionally invest that portion of
its surplus funds which is in excess of the greater amount of either
(a) ten per cent (10%) of its admitted assets as determined from its
latest annual statement on file with the State Board of Insurance or
(b) the minimum capital and surplus requirements for incorporating
a life insurance company under Chapter 3 of the Insurance Code, as
amended, as it may be amended, in the capital stock, bonds and other
obligations of any one or more solvent corporations.
4. Certain Life Income Interests.
(a) Life income interest in an irrevocable express
testamentary trust that has as the fee simple recipient of all the
corpus of the trust one or more Texas public charities, Texas
churches, Texas educational institutions or Texas scientific
institutions; provided each recipient is recognized by the
Internal Revenue Service of the United States as exempt from
payment of income taxes and provided further that (1) the corpus of
any such trust is in whole or in part composed of interests in real
estate, stocks, bonds, debentures and other securities of an
aggregate total value of not less than $5,000,000; and (2) the
corpus of any such trust produces annual income of not less than
$100,000.
(b) No life insurance company's interest in any such trust
shall exceed ten per cent (10%) of its admitted assets.
(c) Before such interest shall be acquired, satisfactory
evidence shall be presented to the Commissioner of Insurance as
follows:
(1) That the interest is subject to and recognized as
transferable,
(2) That the interest is capable of reasonable valuation,
(3) That a market for sale of such interest exists,
(4) That the life income interest is supported by life
insurance in an amount not less than its admitted value and in form
approved by the Commissioner of Insurance.
(d) In valuing such interest on its books, the life
insurance company shall value the interest only on the basis of the
lesser of, (1) the recognized market established in accordance with
Section (c)(3) above, or (2) the ratio that such fractional life
income interest in the income of the trust bears to the total market
value of the properties held by the trust that are of the type of
property a life insurance company can lawfully acquire under the
investment statutes of the State of Texas.

D. CAPITAL, SURPLUS AND CONTINGENCY FUNDS NOT TO EXCEED 10%
1. Capital Stock of Other Insurance Corporations. It may
invest not to exceed ten per cent (10%) of its capital, surplus, and
contingency funds, in not more than twenty per cent (20%) of the
capital stock of any other insurance company, now or hereafter
organized under this Chapter, whose principal business is the
reinsurance, either partially or wholly, of risks ceded to it by
other life insurance companies. The investment herein authorized
may be made by purchase of stock then issued and outstanding or by
subscription to and payment for the increase in the capital stock of
such reinsurance corporation.

E. MINIMUM CAPITAL AND SURPLUS
1. Requirement as to Investment of Minimum Capital and
Surplus. Notwithstanding other provisions of this Article 3.39 of
this Code, the capital and surplus of a company hereafter organized
under Article 3.02 of this Code and the free surplus of a company
hereafter organized under Article 11.01 of this Code shall, at the
time of incorporation, consist only of lawful money of the United
States, or bonds of the United States, or of this state, or of any
county or incorporated municipality thereof, or government insured
mortgage loans which are otherwise authorized by this Chapter, and
shall not include any real estate; provided, however, that fifty
per cent (50%) of the minimum capital may be invested in first
mortgage real estate loans; and the minimum capital of a company
hereafter organized under said Article 3.02 and the minimum free
surplus of a company hereafter organized under said Article 11.01
at all times shall be maintained in cash or in the same classes of
investments. After the granting of charter the surplus in excess of
such One Hundred Thousand Dollars ($100,000) may be invested as
otherwise provided in this Code for Stock Companies.

F. GENERAL
1. Investment in Foreign Securities. Any such company
legally authorized to transact business in a foreign country may
invest in the same kind of securities of said country as
hereinbefore authorized in the United States of America for an
aggregate amount not exceeding the reserve on the business in force
in said country.
2. Investments to be Approved by Board of Directors. No
investment shall be made by any such insurance company, unless the
same shall first have been authorized by the Board of Directors or
by a committee charged with the duty of supervising such
investments.
3. Investments of Companies Reinsured. In any case in which a
life insurance company organized under the laws of this state shall
reinsure the business and take over the assets of another life
insurance company, either domestic or foreign, all investments of
such reinsured company that were authorized, when made, by the laws
of the state in which it was organized, as proper securities for
investment of the funds of a life insurance company, and which are
taken over by such reinsuring company, shall be considered as valid
securities of such reinsuring company under the laws of this state,
provided such investments are approved by the Board of Insurance
Commissioners of this state, and the same are taken over on terms
satisfactory to said Board; and upon the condition that the Board
of Insurance Commissioners shall have the power to require the
reinsuring company to dispose of such investments upon such notice
as it may deem reasonable.
4. Not to Invest in Stock Subject to Assessment. No such
insurance company shall invest any of its funds in any stock on
account of which the holder or owner thereof may in any event be or
become liable to any assessment except for taxes.
5. Certain Investment Privileges are Cumulative. The
investment powers conferred by Paragraphs Nos. 11 and 12, Section
A, are in addition to those conferred by Paragraphs Nos. 1, 2 and 3,
Section C, and are not to be construed as restricting the powers
already granted by said Paragraphs Nos. 1, 2 and 3 of Section C and
Paragraphs Nos. 11 and 12, Section A, and the powers conferred
herein are cumulative with respect to Paragraphs Nos. 1, 2 and 3,
Section C, and the powers conferred therein.

Part II. Authorized Loans
A life insurance company organized under the laws of this
state may loan its several funds identified as follows, taking as
collateral security for the payment of such loans the securities
named below, and none other.

A. ANY OF ITS FUNDS ACCUMULATIONS
Such company may loan any of its funds and accumulations on
the following securities:
1. First Liens Upon Real Estate. First liens upon real
estate, the title to which is valid and provided the amount of the
loan does not exceed: (a) seventy-five (75%) per cent of the value
of such real estate; or (b) ninety (90%) per cent of the value of
such real estate if it contains only a dwelling designed
exclusively for occupancy by not more than four families for
residential purposes; or (c) ninety-five (95%) per cent of the
value of such real estate if it contains only a dwelling designed
exclusively for occupancy by not more than four families for
residential purposes, and the portion of the unpaid balance of such
loan which is in excess of an amount equal to eighty (80%) per cent
of such value is guaranteed or insured by a mortgage insurance
company qualified to do business in the State of Texas; provided,
however, that loans in excess of seventy-five (75%) per cent of the
value of such real estate authorized under (b) or (c) hereof shall
not be originated by such company; provided, however, that the
aggregate amount of loans secured by first liens on real estate to
any one corporation, company, partnership, individual, or any
affiliated person or group may not exceed ten (10%) per cent of the
admitted assets of such insurer, and provided further that the
amount of any such single loan secured by a first lien on real
estate may not exceed five (5%) per cent of the admitted assets of
the insurer. The limitation provided by this subsection shall not
apply to any first lien on real estate where the Commissioner of
Insurance finds that: (1) the making or acquiring of such lien is
beneficial to and protects the interest of the insurer and (2) no
substantial damage to the policyholders and creditors of such
insurer appears probable from the taking or acquiring of such lien.
2. First Liens Upon Leasehold Estates. First liens upon
leasehold estates in real property and improvements situated
thereon, the title to which is valid; provided that the duration of
any loan upon such leasehold estates shall not exceed a period equal
to four-fifths (4/5) of the then unexpired term of such leasehold
estate, provided the unexpired term of the leasehold estate must
extend at least ten (10) years beyond the term of the loan, and any
such loan shall be payable only in equal monthly, quarterly,
semi-annual or annual installments, on principal and interest
during a period not exceeding four-fifths (4/5) of the then
unexpired term of such leasehold estate.
3. Collateral Securities. Upon any obligation secured
collaterally by any such first liens on real estate or leasehold
estates.
4. Policy Loans. Security of its own policies. No loan on
any policy shall exceed the reserve values thereof.
5. Other Securities. It may loan any of its funds and
accumulations, taking as collateral to secure the payment of such
loan, any of the securities named or referred to in Part 1 of this
Article 3.39 above in which it may invest any of its funds and
accumulations.
6. Restrictions as to Value of Real Estate Removed Where
Loans Insured by the United States. The foregoing restrictions as
to the value of the real estate security compared to the amount
loaned thereon and as to the duration of such loans shall not be
applied to loans if the entire amount of the indebtedness is insured
or guaranteed in any manner by the United States, the Federal
Housing Administration pursuant to the National Housing Act of
1934, as amended (12 U.S.C.A. Sec. 1701 et seq.), or by the State of
Texas, or, if not wholly insured or guaranteed, the difference
between the entire amount of the indebtedness and that portion
thereof insured or guaranteed by the United States, the Federal
Housing Administration pursuant to the National Housing Act of
1934, as amended, or by the State of Texas, would not exceed the
amount of loan permissible under said restrictions.
7. Loans to be Authorized by Board of Directors. No loan,
except policy loans, shall be made by any such insurance company
unless the same shall first have been authorized by the Board of
Directors or by a committee charged with the duty of supervising
such loans.
8. Insurance Requirements. If any part of the value of
buildings is required to be included in the value of such real
estate to attain the minimum authorized value of the security, such
buildings shall be insured against loss by fire in a company
authorized to transact business in the state in which such real
estate is located, or in a company recognized as acceptable for such
purpose by the insurance regulatory official of the state in which
such real estate is located, which insurance shall be in an amount
of at least fifty per cent (50%) of the value of such buildings;
provided, that the insurance coverage need not exceed the
outstanding balance owed to the lending company when the
outstanding balance falls below fifty per cent (50%) of the value of
the buildings. The loss clause shall be payable to such company.

B. CAPITAL, SURPLUS AND CONTINGENCY FUNDS OVER AND ABOVE POLICY
RESERVES
1. Capital Stock, Bonds, and Other Obligations of Solvent
Corporations, and Educational or Religious Corporations. It may
loan its capital, surplus, and contingency funds, or any part
thereof over and above the amount of its policy reserves, taking as
security therefor the capital stock, bonds, bills of exchange, or
other commercial notes or bills and the securities of any solvent
corporation which has not defaulted in the payment of any debt
within five (5) years next preceding such investment; or of any
solvent corporation which has not been in existence for five (5)
consecutive years next preceding such investment, provided such
corporation has succeeded to the business and assets and has
assumed the liabilities of another corporation, and which
corporation and the corporation so succeeded have not defaulted in
the payment of any debt within five (5) years next preceding such
investment; or in the bonds or notes of any Educational or
Religious Corporation where provision has been made for the payment
of a sufficient amount of the first weekly or monthly revenues
thereof to an interest and sinking fund account in a bank or trust
company as an independent paying agent; provided, the market value
of such stock, bills of exchange, or other commercial notes or bills
and securities shall be at all times during the continuance of such
loan at least fifty per cent (50%) more than the sum loaned thereon;
provided that it shall not take as collateral security for any loan
its own capital stock, nor shall it take as collateral security for
any loan the stock of any one corporation to any extent more than
ten per cent (10%) of the amount of its own capital, surplus, and
contingency funds, nor shall it take as collateral security for any
loan the stock of any manufacturing corporation with a net worth of
less than Twenty-Five Thousand Dollars ($25,000), nor the stock of
any oil corporation with a net worth of less than Five Hundred
Thousand Dollars ($500,000); and provided further, that it shall
not take as collateral security for any such loan any stock on
account of which the holder or owner thereof may in any event be or
become liable to any assessment except for taxes.

Part III. Separate Accounts [Repealed]
Repealed by Acts 1983, 68th Leg., p. 4131, ch. 648, Sec. 3,
eff. Sept. 1, 1984.

Acts 1951, 52nd Leg., ch. 491. Amended by Acts 1955, 54th Leg., p.
916, ch. 363, Sec. 12; Acts 1959, 56th Leg., p. 54, ch. 29, Sec. 1;
Acts 1959, 56th Leg., p. 96, ch. 49, Sec. 3; Acts 1959, 56th Leg.,
p. 626, ch. 282, Sec. 1; Acts 1959, 56th Leg., p. 890, ch. 411, Sec.
1 to 3; Acts 1961, 57th Leg., p. 925, ch. 410, Sec. 1; Acts 1963,
58th Leg., p. 432, ch. 151, Sec. 1; Acts 1963, 58th Leg., p. 967,
ch. 389, Sec. 1; Acts 1965, 59th Leg., p. 375, ch. 181, eff. Aug.
30, 1965; Acts 1965, 59th Leg., p. 497, ch. 257, Sec. 1 to 10, eff.
Aug. 30, 1965; Acts 1967, 60th Leg., p. 1829, ch. 707, Sec. 1, eff.
Aug. 28, 1967; Acts 1969, 61st Leg., p. 229, ch. 91, Sec. 1, eff.
April 5, 1969; Acts 1969, 61st Leg., p. 2132, ch. 736, Sec. 1, eff.
June 12, 1969; Acts 1971, 62nd Leg., p. 1561, ch. 422, Sec. 1, eff.
Aug. 30, 1971; Acts 1971, 62nd Leg., p. 1668, ch. 472, Sec. 2, eff.
Aug. 30, 1971; Acts 1973, 63rd Leg., p. 398, ch. 176, Sec. 1, eff.
May 25, 1973; Acts 1973, 63rd Leg., p. 1739, ch. 631, Sec. 1, eff.
Aug. 27, 1973; Acts 1975, 64th Leg., p. 1109, ch. 418, Sec. 1, eff.
June 19, 1975; Acts 1977, 65th Leg., p. 202, ch. 101, Sec. 1, eff.
Aug. 29, 1977; Acts 1979, 66th Leg., p. 327, ch. 151, Sec. 2, eff.
May 11, 1979; Acts 1979, 66th Leg., p. 1217, ch. 589, Sec. 1, eff.
June 13, 1979.

Part I, Sec. A, Par. 15A amended by Acts 1985, 69th Leg., ch. 542,
Sec. 4, eff. Aug. 26, 1985; amended by Acts 1991, 72nd Leg., ch.
408, Sec. 8, eff. Aug. 26, 1991.

Art. 3.39a. LIFE INSURANCE COMPANY PROHIBITED FROM
SUBSCRIBING TO OR UNDERWRITING PURCHASE OR SALE OF SECURITIES OR
PROPERTY.

Article repealed effective April 1, 2007
No life insurance company organized under the laws of this
state shall subscribe to, or participate in, any underwriting of
the purchase or sale of securities or property or enter into any
such transaction for such purpose, or sell on account of such
company jointly with any other person, firm or corporation, nor
shall any such company enter into any agreement to withhold from
sale any of its property, but the disposition of its property shall
be at all times within the control of its Board of Directors.

Added by Acts 1961, 57th Leg., p. 925, ch. 410, Sec. 2.

Art. 3.40. MAY HOLD REAL ESTATE.

Article repealed effective April 1, 2007
Every such insurance company may secure, hold and convey real
property only for the following purposes and in the following
manner:
1(a). One building site and office building for its
accommodation in the transaction of its business and for lease and
rental; and such office building may be on ground on which the
company owns a lease having not less than fifty (50) years to run
from the date of its acquisition by the company, provided that the
company shall own, or be entitled to the use of, all the
improvements thereon, and that the value of such improvements shall
at least equal the value of the ground, and shall be not less than
twenty (20) times the annual average ground rentals payable under
such lease; and provided such office building shall have an annual
average net rental of at least twice such annual ground rental; and
provided further, that such company shall be liable for and shall
pay all State and local taxes levied and assessed against such
ground and the improvements thereon, which for the purposes of
taxation shall be deemed real estate owned by the company. Provided
that an acquisition of such an office building on leased ground
shall be approved by the State Board of Insurance before such
investment.
Branch office buildings in the State of Texas and elsewhere
within the United States wherein such company is authorized to do
business as shall be requisite for its convenient accommodation in
the transaction of its business and for lease and rental and also
parking facilities adjacent to or in the vicinity of each office
building owned by such insurance company as shall be reasonably
requisite for such insurance company and tenants of the buildings;
however, at least fifty per cent (50%) of the space in each such
branch office building which is available for occupancy for
business purposes shall be used by such insurance company for the
transaction of its business and not for lease and rental to others;
provided, however, that such investments in the properties
described in this paragraph shall only be made in towns or cities
having a population of fifteen thousand (15,000) or more according
to the last Federal Census.
1(b). No such company shall make any investment in the
properties described in Subdivision 1(a) above if, after making
such investment, the total investment of the company in such
properties is in excess of thirty-three and one-third per cent
(33-1/3%) of its admitted assets as of December 31st next preceding
the date of such investment; provided, however, that such
investment may be increased to as much as fifty per cent (50%) of
the company's admitted assets upon advance approval by the State
Board of Insurance; provided further, that such investment may be
further increased if the amount of such additional increase is paid
for only from surplus funds and is not included as an admitted asset
of the company.
1(c). The value of each such investment in the properties
described in Subdivision 1(a) shall be subject to the approval by
the State Board of Insurance; and the Board may, in its discretion,
at the time such investment is made or any time when an examination
of the company is being made, cause any such investment to be
appraised by an appraiser appointed or approved by the Board, and
the reasonable expense of such appraisal shall be paid by such
insurance company and shall be deemed to be a part of the expense of
examination of such company. No such insurance company may
hereafter make any increase in the valuation of any of the
properties described in Subdivision 1(a) unless and until such
increased valuation shall be likewise approved by the Board,
subject to the limitations and conditions set out in Subdivision
1(b);
2. Such as have been acquired in good faith by way of security
for loans previously contracted or for moneys due;
3. Such as have been conveyed to it in the satisfaction of
debts previously contracted in the course of its dealings;
4. Such as have been purchased at sales under judgment or
decrees of court, or mortgage or other liens held by such companies.
5. All such real property specified in Subdivisions 2, 3, and
4 of this Article which shall not be necessary for its accommodation
in the convenient transactions of its business, except interests in
minerals and royalties reserved upon the sale of land acquired
under such Subdivisions 2, 3, and 4 hereof, and further excepting
interests in producing royalties and producing overriding
royalties otherwise acquired, shall be sold and disposed of within
five (5) years after the company shall have acquired title to the
same, or within five (5) years after the same shall have ceased to
be necessary for the accommodation of its business. It shall not
hold such property for a longer period, unless it shall procure a
certificate from the Board that its interests will suffer
materially by the forced sale thereof; in which event the time for
the sale may be extended to such time as the Board shall direct in
such certificate.
In addition to, and without limitation on, the purposes for
which real property may be acquired, secured, held or retained
pursuant to other provisions of this Article, every such insurance
company may secure, hold, retain and convey production payments,
producing royalties and producing overriding royalties as an
investment for the production of income; provided, however, that
the total amount of all such investments in production payments,
producing royalties and producing overriding royalties plus the
total amount of investments in home office and branch office
properties under Subdivision 1(a) of this Article shall not exceed
the total amount permitted by and shall be subject to all of the
limitations and restrictions of Subdivisions 1(b) and 1(c) of this
Article and for this purpose all investments in production
payments, producing royalties and producing overriding royalties
pursuant to the provisions of this paragraph shall be deemed to be
"properties described in Subdivision 1(a)" of this Article; and
provided further, that in valuing each such production payment,
producing royalty and producing overriding royalty for the purposes
of Subdivision 1(c) of this Article the State Board of Insurance may
establish such value as being the maximum amount which the company
purchasing such production payment, producing royalty and
producing overriding royalty could loan against a first lien on
such production payment, producing royalty and producing
overriding royalty under the provisions of Part II, Section A,
Subsection 2 of Article 3.39 of the Insurance Code; and provided
further, no such company shall make any investment in such
production payments, producing royalties and producing overriding
royalties solely as an investment for the production of income if,
after making such investment, the total investment of the company
at cost in such production payments, producing royalties and
producing overriding royalties is in excess of ten per cent (10%) of
its admitted assets as of December 31st next preceding the date of
such investment. For the purposes of this paragraph, a production
payment is defined to mean a right to oil, gas or other minerals in
place or as produced that entitles its owner to a specified fraction
of production until a specified sum of money, or a specified number
of units of oil, gas or other minerals, has been received; a
royalty and an overriding royalty are each defined to mean a right
to oil, gas and other minerals in place or as produced that entitles
the owner to a specified fraction of production without limitation
to a specified sum of money, or a specified number of units of oil,
gas or other minerals; "producing" is defined to mean producing
oil, gas or other minerals in paying quantities, provided that it
shall be deemed that oil, gas or other minerals are being produced
in paying quantities if a well has been "shut in" and "shut in
royalties" are being paid. In the event production in paying
quantities should cease from any such royalty interest or
overriding royalty interest held by any insurance company, such
royalty or overriding royalty shall be sold and disposed of within
two (2) years after such production shall have ceased, unless
production in paying quantities shall have been resumed, or unless
such Insurance Company shall have procured a certificate from the
Board that its interests will suffer materially by the forced sale
thereof; in which event the sale may be extended to such time as the
Board shall direct in such certificate.

Acts 1951, 52nd Leg., ch. 491. Amended by Acts 1955, 54th Leg., p.
916, ch. 363, Sec. 13; Acts 1959, 56th Leg., p. 890, ch. 411, Sec.
4; Acts 1961, 57th Leg., p. 627, ch. 294, Sec. 1; Acts 1961, 57th
Leg., p. 1049, ch. 467, Sec. 4; Acts 1969, 61st Leg., p. 1529, ch.
464, Sec. 1, eff. Sept. 1, 1969; Acts 1977, 65th Leg., p. 207, ch.
102, Sec. 1, eff. Aug. 29, 1977.

Art. 3.40-1. INVESTMENTS IN INCOME PRODUCING REAL ESTATE.

Article repealed effective April 1, 2007
Sec. 1. Notwithstanding any provision or limitation of
Article 3.40 of this Code, any life insurance company organized
under the laws of this state may invest any of its funds and
accumulations in improved income producing real estate or any
interest therein, and may hold, improve, maintain, manage, lease,
sell or convey such property or interest therein, subject to the
following terms, conditions and limitations:
(1) The term "improved income producing real estate" as used
in this Article shall include all commercial and industrial real
property, a substantial portion of which has been materially
enhanced in value by the construction of durable, permanent-type
buildings and other improvements costing an amount at least equal
to the value of such real estate exclusive of building and
improvements, as may be held or acquired by purchase or lease, or
otherwise, for the production of income, excepting any
agricultural, horticultural, farm and ranch property, residential
property, single or multiunit family dwelling property, which is
expressly excluded.
(2) The total amount invested by any such company in all
such income producing property and improvements thereof shall not
exceed fifteen per centum of its admitted assets, provided,
however, that the amount invested in any one such property and its
improvements shall not exceed five per centum of its admitted
assets. The admitted assets of the company at any time shall be
determined from its annual statement made as of the last preceding
December 31 and filed with the State Board of Insurance as required
by law. The value of any investment made under this Article shall
be subject to Subdivision 1(c) of Article 3.40 of this Code.
(3) The investment authority granted by this Article 3.40-1
is in addition to and separate and apart from that granted by
Article 3.40 of this Code, provided, however, that no such company
shall make any investment in the properties described in this
Article 3.40-1 which when added to those described in subdivision
1(a) of Article 3.40 of this Code would be in excess of the
limitations provided by subdivision 1(b) of Article 3.40 of this
Code.
Sec. 2. The property owned by such life insurance company
pursuant to this Article shall not be classified as "Texas
Securities".
Sec. 3. Nothing contained in this Article shall permit such a
life insurance company to purchase undeveloped real estate for the
purpose of development or subdivision.
Sec. 4. No life insurance company may invest more than one per
centum of its admitted assets in income producing real estate in any
one year during the first seven years after the effective date of
this Act, provided, however, if a life insurance company invests
less than one per centum of its admitted assets in income producing
real estate during any one year such life insurance company may
thereafter, at any time, invest the difference between the
percentage of admitted assets invested and one per centum of
admitted assets and such percentage shall be in addition to and
cumulative of the amount of income producing real estate in which
such life insurance company may invest in any particular year
hereunder.

Added by Acts 1967, 60th Leg., p. 1753, ch. 660, Sec. 1, eff. Aug.
28, 1967. Amended by Acts 1981, 67th Leg., p. 2657, ch. 713, Sec. 1,
eff. Aug. 31, 1981.

Art. 3.41. AUTHORIZED INVESTMENTS IN SECURITIES OR PROPERTY
FOR FOREIGN COMPANIES.

Article repealed effective April 1, 2007
The assets of any "foreign company" shall be invested in
securities or property of the same classes permitted by the laws of
this State as to "domestic" companies or by other laws of this State
in other securities approved by the Board of Insurance
Commissioners as being of substantially the same grade.

Acts 1951, 52nd Leg., ch. 491.

Art. 3.41a. STUDENT LOANS.

Article repealed effective April 1, 2007
A foreign or domestic life insurance company may make loans
to a student enrolled in an institution of higher education
provided that the principal amount of the loans is insured by the
federal government pursuant to the provisions of the Federal Higher
Education Act of 1965, as amended (P.L. 89-329, as amended), or by
the Texas Guaranteed Student Loan Corporation, Section 57.01 et
seq., Texas Education Code, as added.

Added by Acts 1971, 62nd Leg., p. 1924, ch. 581, Sec. 1, eff. June 1,
1971. Amended by Acts 1981, 67th Leg., p. 18, ch. 13, Sec. 1, eff.
March 20, 1981.

SUBCHAPTER D. POLICIES AND BENEFICIARIES

Art. 3.49-3. LIFE INSURANCE AND ANNUITY CONTRACTS OF A
SPOUSE. A spouse shall have management, control and disposition of
any contract of life insurance or annuity heretofore or hereafter
issued in his or her name or to the extent provided by the contract
or any assignment thereof without the joinder or consent of the
other spouse.

Added by Acts 1967, 60th Leg., p. 740, ch. 309, Sec. 4, eff. Jan. 1,
1968.

SUBCHAPTER E. GROUP, INDUSTRIAL AND CREDIT INSURANCE

Art. 3.50-7A. LIMITATIONS APPLICABLE TO TEXAS SCHOOL
EMPLOYEES UNIFORM GROUP COVERAGE PROGRAM.

Text of article as added by Acts 2003, 78th Leg., ch. 201, Sec. 56
(a) This article applies only to the uniform group coverage
program established under Article 3.50-7 of this code. A term used
in this article has the meaning assigned by Section 2, Article
3.50-7, of this code.
(b) The Teacher Retirement System of Texas, as trustee, may
not contract for or provide a health coverage plan that excludes
from participation in the network a general hospital that:
(1) is located in within the geographical service area or
areas of the health coverage plan that includes a county that:
(A) has a population of at least 100,000 and not more than
175,000; and
(B) is located in the Texas-Louisiana border region, as that
term is defined in Section 2056.002(e), Government Code; and
(2) agrees to provide medical and health care services under
the plan subject to the same terms and conditions as other hospital
providers under the plan.

Added by Acts 2003, 78th Leg., ch. 201, Sec. 56, eff. Sept. 1, 2003.

For text of article as added by Acts 2003, 78th Leg., ch. 213, Sec.
4, see Article 3.50-7A, post

Art. 3.50-7A. PRIOR AUTHORIZATION FOR CERTAIN DRUGS PROVIDED
UNDER TEXAS SCHOOL EMPLOYEES UNIFORM GROUP COVERAGE PROGRAM.

Text of article as added by Acts 2003, 78th Leg., ch. 213, Sec. 4
(a) In this article, "drug formulary" means a list of drugs
preferred for use and eligible for coverage by a health coverage
plan.
(b) A health coverage plan provided under the uniform group
coverage program established under Article 3.50-7 of this code that
uses a drug formulary in providing a prescription drug benefit must
require prior authorization for coverage of the following
categories of prescribed drugs if the specific drug prescribed is
not included in the formulary:
(1) a gastrointestinal drug;
(2) a cholesterol-lowering drug;
(3) an anti-inflammatory drug;
(4) an antihistamine drug; and
(5) an antidepressant drug.
(c) Every six months the Teacher Retirement System of Texas
shall submit to the comptroller and Legislative Budget Board a
report regarding any cost savings achieved in the uniform group
coverage program through implementation of the prior authorization
requirement of this article. A report must cover the previous
six-month period.

Added by Acts 2003, 78th Leg., ch. 213, Sec. 4, eff. Sept. 1, 2003.

For text of article as added by Acts 2003, 78th Leg., ch. 201, Sec.
56, see Article 3.50-7A, ante

Art. 3.50-7B. DISEASE MANAGEMENT SERVICES. (a) In this
article, "disease management services" means services to assist an
individual manage a disease or other chronic health condition, such
as heart disease, diabetes, respiratory illness, end-stage renal
disease, HIV infection, or AIDS, and with respect to which the
Teacher Retirement System of Texas identifies populations
requiring disease management.
(b) A health coverage plan provided under Article 3.50-7 of
this code must provide disease management services or coverage for
disease management services in the manner required by the Teacher
Retirement System of Texas, including:
(1) patient self-management education;
(2) provider education;
(3) evidence-based models and minimum standards of care;
(4) standardized protocols and participation criteria; and
(5) physician-directed or physician-supervised care.

Added by Acts 2003, 78th Leg., ch. 589, Sec. 2, eff. June 20, 2003.

Art. 3.51. GROUP INSURANCE FOR EMPLOYEES OF STATE AND ITS
SUBDIVISIONS AND COLLEGE AND SCHOOL EMPLOYEES. Sec. 1. (a) The
State of Texas and each of its political, governmental and
administrative subdivisions, departments, agencies, associations
of public employees, and the governing boards and authorities of
each state university, colleges, common and independent school
districts or of any other agency or subdivision of the public school
system of the State of Texas are authorized to procure contracts
with any insurance company authorized to do business in this state
insuring their respective employees, or if an association of public
employees is the policyholder, insuring its respective members, or
any class or classes thereof under a policy or policies of group
health, accident, accidental death and dismemberment, disability
income replacement and hospital, surgical and/or medical expense
insurance or a group contract providing for annuities. The
dependents of any such employees or association members, as the
case may be, may be insured under group policies which provide
hospital, surgical and/or medical expense insurance. The insureds'
contributions to the premiums for such insurance or annuities
issued to the employer or to an association of public employees as
the policyholder may be deducted by the employer from the insureds'
salaries when authorized in writing by the respective employees so
to do. The premium for the policy or contract may be paid in whole
or in part from funds contributed by the employer or in whole or in
part from funds contributed by the insured employees. When an
association of public employees is the holder of such a policy of
insurance or contract, the premium for employees that are members
of such association may be paid in whole or in part by the State of
Texas or other agency authorized to procure contracts or policies
of insurance under this section, or in whole or in part from funds
contributed by the insured employees that are members of such
association; provided, however, that any monies or credits
received by or allowed to the policyholder or contract holder
pursuant to any participation agreement contained in or issued in
connection with the policy or contract shall be applied to the
payment of future premiums and to the pro rata abatement of the
insured employee's contribution therefor.
The term employees as used herein in addition to its usual
meaning shall include elective and appointive officials of the
state.
(b) Independent School Districts procuring policies
insuring their employees under this Section may pay all or any
portion of the premiums on such policies from the local funds of
such Independent School District, but in no event shall any part of
such premiums be paid from funds paid such districts by the State of
Texas.
Sec. 2. All group insurance contracts effected pursuant
hereto shall conform and be subject to all the provisions of any
existing or future laws concerning group insurance.
Sec. 3. (a) Notwithstanding any other provision of this
article, a common or independent school district or any other
agency or subdivision of the public school system of this state that
is participating in the uniform group coverage program established
under Article 3.50-7 of this code may not procure contracts under
this article for health insurance coverage and may not renew a
health insurance contract procured under this article after the
date on which the program of coverages provided under Article
3.50-7 of this code is implemented.
(b) This section does not preclude an entity described by
Subsection (a) of this section from procuring contracts under this
article for the provision of optional insurance coverages for the
employees of the entity.

Acts 1951, 52nd Leg., ch. 491. Amended by Acts 1961, 57th Leg., p.
840, ch. 376, Sec. 1; Acts 1967, 60th Leg., p. 239, ch. 126, Sec. 1,
eff. Aug. 28, 1967; Acts 1967, 60th Leg., p. 1007, ch. 437, Sec. 2,
eff. Aug. 28, 1967; Acts 1969, 61st Leg., p. 1371, ch. 414, Sec. 2,
eff. Sept. 1, 1969.

Sec. 3 added by Acts 2001, 77th Leg., ch. 1187, Sec. 3.16, eff.
Sept. 1, 2001.

Art. 3.51-1. PAYMENT OF GROUP INSURANCE PREMIUMS BY CITIES,
TOWNS OR VILLAGES. Any incorporated city, town or village in the
State of Texas which is authorized by law to procure a contract
insuring its respective employees or any class or classes thereof
under a policy or policies of group insurance covering one or more
risks may pay all or any portion of the premiums on such policy or
policies from the local funds of such city, town or village.

Added by Acts 1963, 58th Leg., p. 323, ch. 121, Sec. 1. Amended by
Acts 1981, 67th Leg., p. 1868, ch. 445, Sec. 1, eff. June 11, 1981.

Art. 3.51-2. COUNTY AND POLITICAL SUBDIVISION OF THE STATE OF
TEXAS--OFFICIALS, EMPLOYEES, AND RETIREES. (a) Each county or
political subdivision of the State of Texas is authorized to
procure contracts insuring its officials, employees, and retirees
or any class or classes thereof under a policy or policies of group
life, group health, accident, accidental death and dismemberment,
and hospital, surgical, and/or medical expense insurance. The
dependents of any such officials, employees, and retirees may be
insured under group policies which provide health, hospital,
surgical and/or medical expense insurance. The employees'
contributions to the premiums for such insurance issued to the
employer as the policyholder may be deducted by the employer from
the employees' salaries when authorized in writing by the
respective employees so to do; provided, however, no state funds
shall be used to procure such contracts, nor shall any state funds
be used to pay premiums under said contracts of insurance.
(b) Any county or political subdivision of the State of
Texas which is authorized by law to procure a contract insuring its
respective officials, employees, and retirees or any class or
classes thereof under a policy or policies of group insurance
covering one or more risks may pay all or any portion of the
premiums on such policy or policies from the local funds of such
county or political subdivision of the State of Texas. A county or
political subdivision of the State of Texas may also pay all or any
portion of the premiums on group health, hospital, surgical and/or
medical expense insurance coverage for dependents of officials,
employees, and retirees.
(c) Each county or political subdivision of the State of
Texas is authorized to establish a fund to provide for the life,
health, accident, accidental death and dismemberment, and
hospital, surgical, and/or medical insurance of its officials,
employees and their dependents, and retirees, to be known as the
"health and insurance fund--employees and dependents." There shall
be credited to such fund such deductions as may be agreed to in
writing by any such official, employee, and retiree and
contributions from the county or political subdivision, from which
fund payment shall be authorized only for the payment of premiums on
life, group health, accident, accidental death and dismemberment,
and hospital, surgical, and/or medical expense insurance for
officials, employees, and retirees, and their dependents, under
such rules and regulations as may be adopted by the county or
political subdivision, which claims shall be payable under existing
laws in like manner as other county or other political subdivision
claims. No deduction from the salary of any official, employee, or
retiree shall be made except when he shall have consented in writing
to such deduction.

Added by Acts 1967, 60th Leg., p. 1090, ch. 479, Sec. 1, eff. Aug.
28, 1967. Amended by Acts 1975, 64th Leg., p. 278, ch. 120, Sec. 1,
eff. Sept. 1, 1975; Acts 1979, 66th Leg., p. 537, ch. 252, Sec. 1,
eff. Aug. 27, 1979.

Amended by Acts 1983, 68th Leg., p. 1698, ch. 321, Sec. 1, eff. Aug.
29, 1983.

Art. 3.51-4. PAYMENT OF PREMIUMS OF GROUP LIFE AND HEALTH
INSURANCE POLICIES FOR RETIREES OF THE CENTRAL EDUCATION AGENCY,
THE TEXAS REHABILITATION COMMISSION, THE COORDINATING BOARD, TEXAS
COLLEGE AND UNIVERSITY SYSTEM, RETIRED EMPLOYEES OF THE TEXAS
DEPARTMENT OF MENTAL HEALTH AND MENTAL RETARDATION WHO ACCEPTED
RETIREMENT UNDER THE TEACHER RETIREMENT SYSTEM OF TEXAS, RETIRED
EMPLOYEES OF THE TEXAS YOUTH COMMISSION WHO ACCEPTED RETIREMENT
UNDER THE TEACHER RETIREMENT SYSTEM OF TEXAS, AND RETIRED EMPLOYEES
OF THE TEACHER RETIREMENT SYSTEM OF TEXAS WHO ACCEPTED RETIREMENT
UNDER THE TEACHER RETIREMENT SYSTEM OF TEXAS. The premium cost of
group life, health, accident, hospital, surgical and/or medical
expense insurance for retirees of the Central Education Agency, the
Texas Rehabilitation Commission, the Coordinating Board, Texas
College and University System, for retired employees of the Texas
Department of Mental Health and Mental Retardation, the Texas Youth
Commission, and the Teacher Retirement System of Texas who accepted
retirement under the Teacher Retirement System of Texas pursuant to
Chapter 3, Texas Education Code, shall be paid by the State of
Texas, subject to the following limitations and conditions:
(a) Payment shall be from the funds of the agency,
commission, board or department from which the officer or employee
retired, shall be limited to the same amount allowed active
employees under current group life and health insurance programs of
the agency, commission, board or department, and shall be made in
accordance with rules and regulations to be established no later
than September 1, 1973, by the Central Education Agency, the Texas
Rehabilitation Commission, and the Coordinating Board, Texas
College and University System for its respective retirees and no
later than September 1, 1975, by the Texas Department of Mental
Health and Mental Retardation, the Texas Youth Commission, and the
Teacher Retirement System of Texas for their retired employees who
accepted retirement under the Teacher Retirement System of Texas
pursuant to Chapter 3, Texas Education Code.
(b) The agency, commission, board and department shall
certify to the state comptroller of public accounts each month the
amount required each month to pay the insurance premiums of the said
retirees, and the State of Texas shall pay the amount so ascertained
each month, beginning September 1, 1973, to the Central Education
Agency, the Texas Rehabilitation Commission, and the Coordinating
Board, Texas College and University System, and beginning September
1, 1975, to the Texas Department of Mental Health and Mental
Retardation and the Texas Youth Commission.

Added by Acts, 1973, 63rd Leg., p. 600, ch. 254, Sec. 1, eff. June
11, 1973. Amended by Acts 1975, 64th Leg., p. 1027, ch. 394, Sec. 1,
eff. June 19, 1975.

Amended by Acts 1983, 68th Leg., p. 181, ch. 44, art. 3, Sec. 1, eff.
April 26, 1983; Acts 1997, 75th Leg., ch. 1423, Sec. 11.13, eff.
Sept. 1, 1997.

Art. 3.51-5. PAYMENTS OF GROUP LIFE AND HEALTH INSURANCE
PREMIUMS FOR RETIRED EMPLOYEES OF THE TEXAS CENTRAL EDUCATION
AGENCY, THE TEXAS REHABILITATION COMMISSION, THE TEXAS DEPARTMENT
OF MENTAL HEALTH AND MENTAL RETARDATION, THE TEXAS YOUTH
COMMISSION, A TEXAS SENIOR COLLEGE OR UNIVERSITY, AND THE
COORDINATING BOARD, TEXAS COLLEGE AND UNIVERSITY SYSTEM. (a) The
costs of group life and health insurance premiums to persons
retired under the Teacher Retirement Act, who at the time of their
retirement were employed by the Texas Central Education Agency, the
Texas Rehabilitation Commission, the Texas Department of Mental
Health and Mental Retardation, the Texas Youth Commission, a Texas
senior college or university, and the Coordinating Board, Texas
College and University System, shall be fully paid from the funds of
such agency, commission, institution, or board under the following
provisions and conditions: (1) The coverage of this Act shall
extend to all such retired persons within the limits of eligibility
under state contracts in force on the effective date of this Act or
as may be otherwise provided by law; (2) such payment shall be in
accordance with rules and regulations established by such agency,
commission, institution, or board; (3) such agency, commission,
institution, and board shall certify to the Comptroller of Public
Accounts each month the amount so ascertained each month to such
agency, commission, institution, and board; (4) payments shall
begin on the first day of the month following the month in which
this Act takes effect and shall continue to be paid until otherwise
provided by law.
(b) There are hereby authorized to be paid out of the funds
of each agency, commission, institution, or board named in the Act
the sums necessary to fund the payments of premiums provided in this
Act.

Added by Acts 1975, 64th Leg., p. 1062, ch. 408, Sec. 1, eff. Sept.
1, 1975.

Amended by Acts 1983, 68th Leg., p. 182, ch. 44, art. 3, Sec. 2, eff.
April 26, 1983; Subsec.(a) amended by Acts 1997, 75th Leg., ch.
1423, Sec. 11.14, eff. Sept. 1, 1997.

Art. 3.51-7. PAYMENTS OF ADDITIONAL DEATH BENEFITS FOR
RETIRED APPOINTED OFFICERS AND EMPLOYEES OF THE TEACHER RETIREMENT
SYSTEM OF TEXAS, AND THE TEXAS CENTRAL EDUCATION AGENCY, AND THE
TEXAS SCHOOLS FOR THE BLIND AND VISUALLY IMPAIRED AND FOR THE
DEAF. (a) This article shall apply only to persons retired as
annuitants under the provisions of the Teacher Retirement System of
Texas who were immediately prior to retirement appointed officers
or employees of the Central Education Agency, the Teacher
Retirement System of Texas, the Texas School for the Blind and
Visually Impaired, or for the Texas School for the Deaf.
(b) There shall be paid from the funds of the Central
Education Agency, the Teacher Retirement System of Texas, the Texas
School for the Blind and Visually Impaired, or for the Texas School
for the Deaf an additional lump-sum death benefit in such amount as,
when added to any lump-sum death benefit payable under the
provisions of the Teacher Retirement System of Texas, shall equal
$5,000 upon satisfactory proof of the death, occurring on or after
September 1, 1977, of any person defined in Part (a) of this
article. Each such additional lump-sum death benefit shall be paid
from the funds of the agency or school from which such person
retired.
(c) Such benefit shall be paid as provided by the laws of
descent and distribution unless the retiree has directed in writing
that it be paid otherwise.
(d) Such payment shall be made in accordance with rules and
regulations established by the Central Education Agency, the
Teacher Retirement System of Texas, the Texas School for the Blind
and Visually Impaired, or for the Texas School for the Deaf, and
each shall certify to the Comptroller of Public Accounts of Texas
each month the amounts of all such payments made in the preceding
month.
(e) There are hereby authorized to be paid out of the funds
of the Central Education Agency, the Teacher Retirement System of
Texas, the Texas School for the Blind and Visually Impaired, or for
the Texas School for the Deaf the sums necessary to pay such
additional lump-sum death benefits.

Added by Acts 1977, 65th Leg., p. 1272, ch. 494, Sec. 1, eff. June
15, 1977.

Amended by Acts 1989, 71st Leg., ch. 247, Sec. 17, eff. June 14,
1989; Subsec. (d) amended by Acts 1997, 75th Leg., ch. 1423, Sec.
11.15, eff. Sept. 1, 1997.

SUBCHAPTER F. MISCELLANEOUS PROVISIONS

Art. 3.56. FAILURE TO REPORT OR INVEST .

Article repealed effective April 1, 2007
If any such company shall intentionally fail or refuse to
make the investments required by this chapter, or make any report
required by this chapter, or to make any special report requested by
the Board of Insurance Commissioners under authority of this
chapter, or generally to comply with any provision or requirements
of this chapter, while holding a certificate of authority to
transact business in this State, or after it shall cease to write
new business or cease to hold such certificate, such failure or
refusal shall subject such company, in addition to the penalty
provided in the preceding article, in cases to which said article
may be applicable, to the payment of a penalty of Twenty-five
($25.00) Dollars per day for each day that such company shall remain
in default after the Board shall notify such company of such
default, in the manner provided in the preceding article, to be
recovered in a suit that may be brought by the Attorney General in
behalf of the State in the District Court of Travis County. In any
suit brought to recover such penalty, there shall be a prima facie
presumption subject to rebuttal, that any default that may have
occurred was intentional; that the notice required by this chapter
was given, and the burden of proof shall be on the defendant company
to prove that the investments required by this chapter were made as
herein required whenever the question of whether or not such
investments were thus made is in issue.

Act 1951, 52nd Leg., ch. 491.

SUBCHAPTER G. ACCIDENT AND SICKNESS INSURANCE

Art. 3.70-3D. CONSUMER ASSISTANCE PROGRAM FOR HEALTH
MAINTENANCE ORGANIZATIONS.

Text of article effective upon appropriation of funds
(a) The consumer assistance program for health maintenance
organizations is established. The commissioner may contract,
through a request for proposals, with a nonprofit organization to
operate the program.
(b) The program shall:
(1) assist individual consumers in complaints or appeals
within the operation of a health maintenance organization, and
outside of the operation of a health maintenance organization,
including appeals under Article 21.58A of this code or in Medicaid
and Medicare fair hearings; and
(2) refer consumers to other programs or agencies if
appropriate.
(c) The program may:
(1) operate a statewide clearinghouse for objective
consumer information about health care coverage, including options
for obtaining health care coverage; and
(2) accept gifts, grants, or donations from any source for
the purpose of operating the program. The program may charge
reasonable fees to consumers to support the program.
(d) The commissioner or an entity contracting with the
commissioner to implement this article may establish an advisory
committee composed of consumers, health care providers, and health
care plan representatives.
(e) A nonprofit organization contracting with the
commissioner pursuant to Subsection (a) must not be involved in
providing health care or health care plans and must demonstrate
that it has expertise in providing direct assistance to consumers
with respect to their concerns and problems with health maintenance
organizations.

Added by Acts 1999, 76th Leg., ch. 1457, Sec. 5, eff. Sept. 1, 1999.

Disclaimer: These codes may not be the most recent version. Texas may have more current or accurate information. We make no warranties or guarantees about the accuracy, completeness, or adequacy of the information contained on this site or the information linked to on the state site. Please check official sources.

This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.