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Statutes > Texas > Insurance-code > Title-4-regulation-of-solvency > Chapter-493-reinsurance-for-property-and-casualty-insurers

INSURANCE CODE

TITLE 4. REGULATION OF SOLVENCY

SUBTITLE F. REINSURANCE

CHAPTER 493. REINSURANCE FOR PROPERTY AND

CASUALTY INSURERS

SUBCHAPTER A. GENERAL PROVISIONS

Sec. 493.001. DEFINITIONS. In this chapter:

(1) "Assuming insurer" means an insurer that, under a

reinsurance contract, incurs an obligation to a ceding insurer,

the performance of which is contingent on the ceding insurer

incurring liability or loss under the ceding insurer's insurance

contract with a third person.

(2) "Qualified United States financial institution" means 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 of the United States;

and

(B) is regulated, supervised, and examined by a federal or state

authority that has regulatory authority over banks and trust

companies.

Added by Acts 2005, 79th Leg., Ch.

727, Sec. 1, eff. April 1, 2007.

Sec. 493.002. APPLICABILITY OF CHAPTER. (a) Except as provided

by Subsection (b), this chapter applies to all insurers,

including:

(1) a stock or mutual property and casualty insurance company;

(2) a Mexican casualty insurance company;

(3) a Lloyd's plan;

(4) a reciprocal or interinsurance exchange;

(5) a nonprofit legal service corporation;

(6) a county mutual insurance company;

(7) a farm mutual insurance company;

(8) a risk retention group; and

(9) any insurer writing a line of insurance regulated by Title

10.

(b) This chapter does not apply to a ceding insurer domiciled in

another state that regulates credit for reinsurance under

statutes, rules, or regulations substantially similar in

substance and effect to this chapter if the ceding insurer on

request provides the commissioner with:

(1) evidence of the similarity in the form of those statutes,

rules, or regulations; and

(2) an interpretation of the standards used by the state of

domicile.

Added by Acts 2005, 79th Leg., Ch.

727, Sec. 1, eff. April 1, 2007.

Sec. 493.003. RULES. The commissioner may adopt necessary and

reasonable rules under this chapter to protect the public

interest.

Added by Acts 2005, 79th Leg., Ch.

727, Sec. 1, eff. April 1, 2007.

SUBCHAPTER B. REINSURANCE

Sec. 493.051. REINSURANCE AUTHORIZED. (a) An insurer

authorized to engage in the business of insurance in this state

may reinsure, in any solvent assuming insurer, any risk or part

of a risk that both insurers are authorized by law to assume.

(b) An insurer authorized to engage in business in this state

that writes any line of insurance regulated by Title 10 may

provide reinsurance under this chapter while the insurer is in

compliance with law.

Added by Acts 2005, 79th Leg., Ch.

727, Sec. 1, eff. April 1, 2007.

Sec. 493.052. LIMITATION ON REINSURANCE OF ENTIRE OUTSTANDING

BUSINESS. (a) An insurer may not reinsure the insurer's entire

outstanding business in an assuming insurer unless the assuming

insurer is authorized to engage in the business of insurance in

this state.

(b) Before the date of reinsurance:

(1) the reinsurance contract must be submitted to the

commissioner; and

(2) the commissioner must approve the contract as fully

protecting the interests of all policyholders.

Added by Acts 2005, 79th Leg., Ch.

727, Sec. 1, eff. April 1, 2007.

Sec. 493.053. FILING OF REINSURANCE SCHEDULES. The commissioner

shall require each insurer to file reinsurance schedules:

(1) when the insurer makes the insurer's annual report; and

(2) at other times as the commissioner directs.

Added by Acts 2005, 79th Leg., Ch.

727, Sec. 1, eff. April 1, 2007.

Sec. 493.054. ACCOUNTING FOR REINSURANCE CONTRACTS. (a) An

insurer shall account for reinsurance contracts and shall record

the contracts in the insurer's financial statements in a manner

that accurately reflects the effect of the contracts on the

insurer's financial condition.

(b) A reinsurance contract may contain a provision allowing the

offset of mutual debts and credits between the ceding insurer and

the assuming insurer, whether arising out of one or more

reinsurance contracts.

(c) The commissioner may adopt reasonable rules relating to:

(1) the accounting and financial statement requirements of this

section and the treatment of reinsurance contracts between

insurers, 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 contracts; and

(2) any contingencies arising from reinsurance contracts.

Added by Acts 2005, 79th Leg., Ch.

727, Sec. 1, eff. April 1, 2007.

Sec. 493.055. LIMITATION ON RIGHTS AGAINST REINSURER. A person

does not have a right against a reinsurer that is not

specifically stated in:

(1) the reinsurance contract; or

(2) a specific agreement between the reinsurer and the person.

Added by Acts 2005, 79th Leg., Ch.

727, Sec. 1, eff. April 1, 2007.

SUBCHAPTER C. CREDIT FOR REINSURANCE

Sec. 493.101. EXCLUSIVE PROCEDURE FOR TAKING CREDIT FOR

REINSURANCE. A ceding insurer may take a credit for reinsurance,

as an asset or as a deduction from liability, only as provided by

this chapter.

Added by Acts 2005, 79th Leg., Ch.

727, Sec. 1, eff. April 1, 2007.

Sec. 493.102. CREDIT FOR REINSURANCE GENERALLY. (a) A ceding

insurer may be allowed credit for reinsurance ceded, as an asset

or as a deduction from liability, only if the reinsurance is

ceded to an assuming insurer that:

(1) is authorized to engage in the business of insurance or

reinsurance in this state;

(2) is accredited as a reinsurer in this state, as provided by

Section 493.103; or

(3) subject to Subchapter D, maintains, in a qualified United

States financial institution that has been granted the authority

to operate with fiduciary powers, a trust fund to pay valid

claims of:

(A) the assuming insurer's United States policyholders and

ceding insurers; and

(B) the policyholders' and ceding insurers' assigns and

successors in interest.

(b) Notwithstanding Subsection (a), a ceding insurer may be

allowed credit for reinsurance ceded to an assuming insurer that

does not meet the requirements of that subsection, but only with

respect to the insurance of risks located in a jurisdiction in

which the reinsurance is required by the jurisdiction's law,

including regulations, to be ceded to an assuming insurer that

does not meet the requirements of that subsection.

Added by Acts 2005, 79th Leg., Ch.

727, Sec. 1, eff. April 1, 2007.

Sec. 493.103. ACCREDITED REINSURER. For purposes of Section

493.102(a)(2), an insurer is accredited as a reinsurer in this

state if the insurer:

(1) submits to this state's jurisdiction;

(2) submits to this state's authority to examine the insurer's

books and records;

(3) is domiciled and authorized to engage in the business of

insurance or reinsurance in at least one state or, if the insurer

is a United States branch of an alien assuming insurer, is

entered through and authorized to engage in the business of

insurance or reinsurance in at least one state;

(4) annually files with the department a copy of the annual

statement the insurer files with the insurance department of the

insurer's state of domicile; and

(5) maintains a surplus as regards policyholders in an amount of

at least $20 million.

Added by Acts 2005, 79th Leg., Ch.

727, Sec. 1, eff. April 1, 2007.

Sec. 493.104. CREDIT FOR FUNDS SECURING REINSURANCE OBLIGATIONS.

(a) Subject to Subsection (b), any asset or deduction from

liability for reinsurance ceded to an assuming insurer that does

not meet the requirements of Section 493.102 shall be allowed in

an amount that does not exceed the liabilities carried by the

ceding insurer and in the amount of funds held by or on behalf of

the ceding insurer under a reinsurance contract with the assuming

insurer, including funds held in trust for the ceding insurer, as

security for the payment of obligations under the contract.

(b) The funds held as security:

(1) must be 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 that has been granted the authority to

operate with fiduciary powers; and

(2) may be in the form of:

(A) cash;

(B) securities that:

(i) are readily marketable over a national exchange;

(ii) have a maturity date of not later than one year;

(iii) are listed by the Securities Valuation Office of the

National Association of Insurance Commissioners; and

(iv) qualify as admitted assets;

(C) subject to Section 493.105, a clean, irrevocable,

unconditional letter of credit, issued or confirmed by a

qualified United States financial institution that has been

determined by the commissioner or the Securities Valuation Office

of the National Association of Insurance Commissioners to meet

the standards of financial condition and standing that are

considered necessary and appropriate to regulate the quality of

financial institutions whose letters of credit will be acceptable

to the commissioner; or

(D) another form of security acceptable to the commissioner.

Added by Acts 2005, 79th Leg., Ch.

727, Sec. 1, eff. April 1, 2007.

Sec. 493.105. ACCEPTABILITY OF CERTAIN LETTERS OF CREDIT. A

letter of credit issued or confirmed by an institution that meets

the standards prescribed by Section 493.104(b)(2)(C) as of the

date the letter is issued or confirmed, but later fails to meet

those standards, continues to be acceptable as security under

Section 493.104 until the earliest of:

(1) the letter's expiration;

(2) the letter's extension, renewal, modification, or amendment

after the date the institution fails to meet those standards; or

(3) the expiration of the three-month period after the date the

institution fails to meet those standards.

Added by Acts 2005, 79th Leg., Ch.

727, Sec. 1, eff. April 1, 2007.

Sec. 493.106. CREDIT FOR REINSURANCE: DIRECT PAYMENT ON

LIABILITY REQUIRED. (a) A ceding insurer may not be given

credit for reinsurance ceded, as an asset or as a deduction from

liability, in an accounting or financial statement unless the

reinsurance is payable by the assuming insurer:

(1) on the liability of the ceding insurer under the contracts

reinsured, without diminution because of the ceding insurer's

insolvency; and

(2) directly to the ceding insurer or to the ceding insurer's

domiciliary liquidator or receiver.

(b) Subsection (a)(2) does not apply if:

(1) the reinsurance contract specifically provides that, if the

ceding insurer is insolvent, the reinsurance is payable to a

payee other than one described by Subsection (a)(2); or

(2) the assuming insurer, with the direct insured's consent, has

assumed the ceding insurer's policy obligations to the payee as

the assuming insurer's direct obligations to the payee under the

policy as a substitute for the ceding insurer's obligations.

Added by Acts 2005, 79th Leg., Ch.

727, Sec. 1, eff. April 1, 2007.

Sec. 493.107. REQUEST FOR INFORMATION FROM ASSUMING INSURER.

(a) The commissioner may request that an assuming insurer not

meeting the requirements of Section 493.102 file:

(1) financial statements certified and audited by an independent

certified public accountant;

(2) a certified copy of the certificate or letter of authority

from the domiciliary jurisdiction; and

(3) information on the principals and management of the assuming

insurer.

(b) If an assuming insurer does not comply with a request under

this section, the commissioner may issue a directive prohibiting

all authorized insurers from taking credit for business ceded to

the assuming insurer after the effective date of the directive.

(c) An unauthorized insurer that is included in the most recent

quarterly listing published by the International Insurers

Department of the National Association of Insurance Commissioners

is considered to have complied with a request under this section.

Added by Acts 2005, 79th Leg., Ch.

727, Sec. 1, eff. April 1, 2007.

SUBCHAPTER D. REQUIREMENTS FOR TRUST CREDIT ALLOWANCE

Sec. 493.151. APPLICABILITY OF SUBCHAPTER. This subchapter

applies to a trust that is used to qualify for a reinsurance

credit under Section 493.102(a)(3) and to the assuming insurer

that maintains the trust fund.

Added by Acts 2005, 79th Leg., Ch.

727, Sec. 1, eff. April 1, 2007.

Sec. 493.152. COMPOSITION OF TRUST. (a) If the assuming

insurer is a single insurer, the trust must:

(1) consist of a trusteed account representing the assuming

insurer's liabilities attributable to business written in the

United States; and

(2) include a trusteed surplus of at least $20 million.

(b) If the assuming insurer is a group of insurers that includes

an unincorporated individual insurer:

(1) the trust must:

(A) consist of a trusteed account representing the group's

liabilities attributable to business written in the United

States; and

(B) include a trusteed surplus of at least $100 million; and

(2) the group shall make available to the department an annual

certification by the group's domiciliary regulator and its

independent public accountants of each underwriter's solvency.

(c) If the assuming insurer is a group of incorporated insurers

under common administration that has continuously engaged in the

business of insurance for at least three years, is under the

supervision of the Department of Trade and Industry of the United

Kingdom, and has an aggregate policyholders' surplus of $10

billion:

(1) the trust must:

(A) consist of a trusteed account representing the group's

several liabilities attributable to business written in the

United States under reinsurance contracts issued in the name of

the group; and

(B) include a trusteed surplus of not less than $100 million

held jointly for the benefit of United States insurers that have

ceded business to any member of the group; and

(2) each member of the group shall make available to the

department an annual certification by the member's domiciliary

regulator and its independent public accountants of each member's

solvency.

Added by Acts 2005, 79th Leg., Ch.

727, Sec. 1, eff. April 1, 2007.

Sec. 493.153. FORM OF TRUST. The trust must be established in a

form approved by the commissioner.

Added by Acts 2005, 79th Leg., Ch.

727, Sec. 1, eff. April 1, 2007.

Sec. 493.154. TERMS OF TRUST. (a) The trust instrument must

provide that contested claims are valid and enforceable on the

final order of any court in the United States.

(b) The trust must vest legal title to the trust's assets in the

trustees of the trust for:

(1) the trust's United States policyholders and ceding insurers;

and

(2) the policyholders' and ceding insurers' assigns and

successors in interest.

(c) The trust must remain in effect as long as the assuming

insurer has outstanding obligations under a reinsurance contract

subject to the trust.

Added by Acts 2005, 79th Leg., Ch.

727, Sec. 1, eff. April 1, 2007.

Sec. 493.155. REPORTS AND CERTIFICATION. (a) Not later than

February 28 of each year, the trustees of the trust shall:

(1) report to the department in writing, showing the balance of

the trust and listing the trust's investments at the end of the

preceding year; and

(2) certify the date of termination of the trust, if termination

is planned, or certify that the trust will not expire before

December 31 of the year of the report.

(b) To enable the commissioner to determine the sufficiency of

the trust fund under Section 493.102(a)(3), the assuming insurer

shall report to the department not later than March 1 of each

year information substantially the same as the information

required to be reported by an authorized insurer on the National

Association of Insurance Commissioners' Annual Statement form.

Added by Acts 2005, 79th Leg., Ch.

727, Sec. 1, eff. April 1, 2007.

Sec. 493.156. CERTAIN TRUSTEED ASSUMING INSURERS: REQUIREMENTS

FOR REINSURANCE CONTRACT. (a) A ceding insurer may not be

allowed credit under Section 493.102(a)(3) for reinsurance ceded

to an assuming insurer that is not authorized or accredited to

engage in the business of insurance or reinsurance in this state

unless the assuming insurer agrees in the reinsurance contract:

(1) that, if the assuming insurer fails to perform the assuming

insurer's obligations under the reinsurance contract, the

assuming insurer, at the request of the ceding insurer, will:

(A) submit to the jurisdiction of a court in any state of the

United States;

(B) comply with all requirements necessary to give the court

jurisdiction; and

(C) abide by the final decision of that court or, if the court's

decision is appealed, of the appellate court; and

(2) to designate the commissioner or an attorney as an agent for

service of process in any action, suit, or proceeding instituted

by or on behalf of the ceding insurer.

(b) This section is not intended to conflict with or override a

provision in a reinsurance contract that requires the parties to

arbitrate the parties' disputes.

Added by Acts 2005, 79th Leg., Ch.

727, Sec. 1, eff. April 1, 2007.

Sec. 493.157. EXAMINATION OF TRUST AND ASSUMING INSURER. The

trust and the assuming insurer are subject to examination as

determined by the commissioner.

Added by Acts 2005, 79th Leg., Ch.

727, Sec. 1, eff. April 1, 2007.

State Codes and Statutes

Statutes > Texas > Insurance-code > Title-4-regulation-of-solvency > Chapter-493-reinsurance-for-property-and-casualty-insurers

INSURANCE CODE

TITLE 4. REGULATION OF SOLVENCY

SUBTITLE F. REINSURANCE

CHAPTER 493. REINSURANCE FOR PROPERTY AND

CASUALTY INSURERS

SUBCHAPTER A. GENERAL PROVISIONS

Sec. 493.001. DEFINITIONS. In this chapter:

(1) "Assuming insurer" means an insurer that, under a

reinsurance contract, incurs an obligation to a ceding insurer,

the performance of which is contingent on the ceding insurer

incurring liability or loss under the ceding insurer's insurance

contract with a third person.

(2) "Qualified United States financial institution" means 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 of the United States;

and

(B) is regulated, supervised, and examined by a federal or state

authority that has regulatory authority over banks and trust

companies.

Added by Acts 2005, 79th Leg., Ch.

727, Sec. 1, eff. April 1, 2007.

Sec. 493.002. APPLICABILITY OF CHAPTER. (a) Except as provided

by Subsection (b), this chapter applies to all insurers,

including:

(1) a stock or mutual property and casualty insurance company;

(2) a Mexican casualty insurance company;

(3) a Lloyd's plan;

(4) a reciprocal or interinsurance exchange;

(5) a nonprofit legal service corporation;

(6) a county mutual insurance company;

(7) a farm mutual insurance company;

(8) a risk retention group; and

(9) any insurer writing a line of insurance regulated by Title

10.

(b) This chapter does not apply to a ceding insurer domiciled in

another state that regulates credit for reinsurance under

statutes, rules, or regulations substantially similar in

substance and effect to this chapter if the ceding insurer on

request provides the commissioner with:

(1) evidence of the similarity in the form of those statutes,

rules, or regulations; and

(2) an interpretation of the standards used by the state of

domicile.

Added by Acts 2005, 79th Leg., Ch.

727, Sec. 1, eff. April 1, 2007.

Sec. 493.003. RULES. The commissioner may adopt necessary and

reasonable rules under this chapter to protect the public

interest.

Added by Acts 2005, 79th Leg., Ch.

727, Sec. 1, eff. April 1, 2007.

SUBCHAPTER B. REINSURANCE

Sec. 493.051. REINSURANCE AUTHORIZED. (a) An insurer

authorized to engage in the business of insurance in this state

may reinsure, in any solvent assuming insurer, any risk or part

of a risk that both insurers are authorized by law to assume.

(b) An insurer authorized to engage in business in this state

that writes any line of insurance regulated by Title 10 may

provide reinsurance under this chapter while the insurer is in

compliance with law.

Added by Acts 2005, 79th Leg., Ch.

727, Sec. 1, eff. April 1, 2007.

Sec. 493.052. LIMITATION ON REINSURANCE OF ENTIRE OUTSTANDING

BUSINESS. (a) An insurer may not reinsure the insurer's entire

outstanding business in an assuming insurer unless the assuming

insurer is authorized to engage in the business of insurance in

this state.

(b) Before the date of reinsurance:

(1) the reinsurance contract must be submitted to the

commissioner; and

(2) the commissioner must approve the contract as fully

protecting the interests of all policyholders.

Added by Acts 2005, 79th Leg., Ch.

727, Sec. 1, eff. April 1, 2007.

Sec. 493.053. FILING OF REINSURANCE SCHEDULES. The commissioner

shall require each insurer to file reinsurance schedules:

(1) when the insurer makes the insurer's annual report; and

(2) at other times as the commissioner directs.

Added by Acts 2005, 79th Leg., Ch.

727, Sec. 1, eff. April 1, 2007.

Sec. 493.054. ACCOUNTING FOR REINSURANCE CONTRACTS. (a) An

insurer shall account for reinsurance contracts and shall record

the contracts in the insurer's financial statements in a manner

that accurately reflects the effect of the contracts on the

insurer's financial condition.

(b) A reinsurance contract may contain a provision allowing the

offset of mutual debts and credits between the ceding insurer and

the assuming insurer, whether arising out of one or more

reinsurance contracts.

(c) The commissioner may adopt reasonable rules relating to:

(1) the accounting and financial statement requirements of this

section and the treatment of reinsurance contracts between

insurers, 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 contracts; and

(2) any contingencies arising from reinsurance contracts.

Added by Acts 2005, 79th Leg., Ch.

727, Sec. 1, eff. April 1, 2007.

Sec. 493.055. LIMITATION ON RIGHTS AGAINST REINSURER. A person

does not have a right against a reinsurer that is not

specifically stated in:

(1) the reinsurance contract; or

(2) a specific agreement between the reinsurer and the person.

Added by Acts 2005, 79th Leg., Ch.

727, Sec. 1, eff. April 1, 2007.

SUBCHAPTER C. CREDIT FOR REINSURANCE

Sec. 493.101. EXCLUSIVE PROCEDURE FOR TAKING CREDIT FOR

REINSURANCE. A ceding insurer may take a credit for reinsurance,

as an asset or as a deduction from liability, only as provided by

this chapter.

Added by Acts 2005, 79th Leg., Ch.

727, Sec. 1, eff. April 1, 2007.

Sec. 493.102. CREDIT FOR REINSURANCE GENERALLY. (a) A ceding

insurer may be allowed credit for reinsurance ceded, as an asset

or as a deduction from liability, only if the reinsurance is

ceded to an assuming insurer that:

(1) is authorized to engage in the business of insurance or

reinsurance in this state;

(2) is accredited as a reinsurer in this state, as provided by

Section 493.103; or

(3) subject to Subchapter D, maintains, in a qualified United

States financial institution that has been granted the authority

to operate with fiduciary powers, a trust fund to pay valid

claims of:

(A) the assuming insurer's United States policyholders and

ceding insurers; and

(B) the policyholders' and ceding insurers' assigns and

successors in interest.

(b) Notwithstanding Subsection (a), a ceding insurer may be

allowed credit for reinsurance ceded to an assuming insurer that

does not meet the requirements of that subsection, but only with

respect to the insurance of risks located in a jurisdiction in

which the reinsurance is required by the jurisdiction's law,

including regulations, to be ceded to an assuming insurer that

does not meet the requirements of that subsection.

Added by Acts 2005, 79th Leg., Ch.

727, Sec. 1, eff. April 1, 2007.

Sec. 493.103. ACCREDITED REINSURER. For purposes of Section

493.102(a)(2), an insurer is accredited as a reinsurer in this

state if the insurer:

(1) submits to this state's jurisdiction;

(2) submits to this state's authority to examine the insurer's

books and records;

(3) is domiciled and authorized to engage in the business of

insurance or reinsurance in at least one state or, if the insurer

is a United States branch of an alien assuming insurer, is

entered through and authorized to engage in the business of

insurance or reinsurance in at least one state;

(4) annually files with the department a copy of the annual

statement the insurer files with the insurance department of the

insurer's state of domicile; and

(5) maintains a surplus as regards policyholders in an amount of

at least $20 million.

Added by Acts 2005, 79th Leg., Ch.

727, Sec. 1, eff. April 1, 2007.

Sec. 493.104. CREDIT FOR FUNDS SECURING REINSURANCE OBLIGATIONS.

(a) Subject to Subsection (b), any asset or deduction from

liability for reinsurance ceded to an assuming insurer that does

not meet the requirements of Section 493.102 shall be allowed in

an amount that does not exceed the liabilities carried by the

ceding insurer and in the amount of funds held by or on behalf of

the ceding insurer under a reinsurance contract with the assuming

insurer, including funds held in trust for the ceding insurer, as

security for the payment of obligations under the contract.

(b) The funds held as security:

(1) must be 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 that has been granted the authority to

operate with fiduciary powers; and

(2) may be in the form of:

(A) cash;

(B) securities that:

(i) are readily marketable over a national exchange;

(ii) have a maturity date of not later than one year;

(iii) are listed by the Securities Valuation Office of the

National Association of Insurance Commissioners; and

(iv) qualify as admitted assets;

(C) subject to Section 493.105, a clean, irrevocable,

unconditional letter of credit, issued or confirmed by a

qualified United States financial institution that has been

determined by the commissioner or the Securities Valuation Office

of the National Association of Insurance Commissioners to meet

the standards of financial condition and standing that are

considered necessary and appropriate to regulate the quality of

financial institutions whose letters of credit will be acceptable

to the commissioner; or

(D) another form of security acceptable to the commissioner.

Added by Acts 2005, 79th Leg., Ch.

727, Sec. 1, eff. April 1, 2007.

Sec. 493.105. ACCEPTABILITY OF CERTAIN LETTERS OF CREDIT. A

letter of credit issued or confirmed by an institution that meets

the standards prescribed by Section 493.104(b)(2)(C) as of the

date the letter is issued or confirmed, but later fails to meet

those standards, continues to be acceptable as security under

Section 493.104 until the earliest of:

(1) the letter's expiration;

(2) the letter's extension, renewal, modification, or amendment

after the date the institution fails to meet those standards; or

(3) the expiration of the three-month period after the date the

institution fails to meet those standards.

Added by Acts 2005, 79th Leg., Ch.

727, Sec. 1, eff. April 1, 2007.

Sec. 493.106. CREDIT FOR REINSURANCE: DIRECT PAYMENT ON

LIABILITY REQUIRED. (a) A ceding insurer may not be given

credit for reinsurance ceded, as an asset or as a deduction from

liability, in an accounting or financial statement unless the

reinsurance is payable by the assuming insurer:

(1) on the liability of the ceding insurer under the contracts

reinsured, without diminution because of the ceding insurer's

insolvency; and

(2) directly to the ceding insurer or to the ceding insurer's

domiciliary liquidator or receiver.

(b) Subsection (a)(2) does not apply if:

(1) the reinsurance contract specifically provides that, if the

ceding insurer is insolvent, the reinsurance is payable to a

payee other than one described by Subsection (a)(2); or

(2) the assuming insurer, with the direct insured's consent, has

assumed the ceding insurer's policy obligations to the payee as

the assuming insurer's direct obligations to the payee under the

policy as a substitute for the ceding insurer's obligations.

Added by Acts 2005, 79th Leg., Ch.

727, Sec. 1, eff. April 1, 2007.

Sec. 493.107. REQUEST FOR INFORMATION FROM ASSUMING INSURER.

(a) The commissioner may request that an assuming insurer not

meeting the requirements of Section 493.102 file:

(1) financial statements certified and audited by an independent

certified public accountant;

(2) a certified copy of the certificate or letter of authority

from the domiciliary jurisdiction; and

(3) information on the principals and management of the assuming

insurer.

(b) If an assuming insurer does not comply with a request under

this section, the commissioner may issue a directive prohibiting

all authorized insurers from taking credit for business ceded to

the assuming insurer after the effective date of the directive.

(c) An unauthorized insurer that is included in the most recent

quarterly listing published by the International Insurers

Department of the National Association of Insurance Commissioners

is considered to have complied with a request under this section.

Added by Acts 2005, 79th Leg., Ch.

727, Sec. 1, eff. April 1, 2007.

SUBCHAPTER D. REQUIREMENTS FOR TRUST CREDIT ALLOWANCE

Sec. 493.151. APPLICABILITY OF SUBCHAPTER. This subchapter

applies to a trust that is used to qualify for a reinsurance

credit under Section 493.102(a)(3) and to the assuming insurer

that maintains the trust fund.

Added by Acts 2005, 79th Leg., Ch.

727, Sec. 1, eff. April 1, 2007.

Sec. 493.152. COMPOSITION OF TRUST. (a) If the assuming

insurer is a single insurer, the trust must:

(1) consist of a trusteed account representing the assuming

insurer's liabilities attributable to business written in the

United States; and

(2) include a trusteed surplus of at least $20 million.

(b) If the assuming insurer is a group of insurers that includes

an unincorporated individual insurer:

(1) the trust must:

(A) consist of a trusteed account representing the group's

liabilities attributable to business written in the United

States; and

(B) include a trusteed surplus of at least $100 million; and

(2) the group shall make available to the department an annual

certification by the group's domiciliary regulator and its

independent public accountants of each underwriter's solvency.

(c) If the assuming insurer is a group of incorporated insurers

under common administration that has continuously engaged in the

business of insurance for at least three years, is under the

supervision of the Department of Trade and Industry of the United

Kingdom, and has an aggregate policyholders' surplus of $10

billion:

(1) the trust must:

(A) consist of a trusteed account representing the group's

several liabilities attributable to business written in the

United States under reinsurance contracts issued in the name of

the group; and

(B) include a trusteed surplus of not less than $100 million

held jointly for the benefit of United States insurers that have

ceded business to any member of the group; and

(2) each member of the group shall make available to the

department an annual certification by the member's domiciliary

regulator and its independent public accountants of each member's

solvency.

Added by Acts 2005, 79th Leg., Ch.

727, Sec. 1, eff. April 1, 2007.

Sec. 493.153. FORM OF TRUST. The trust must be established in a

form approved by the commissioner.

Added by Acts 2005, 79th Leg., Ch.

727, Sec. 1, eff. April 1, 2007.

Sec. 493.154. TERMS OF TRUST. (a) The trust instrument must

provide that contested claims are valid and enforceable on the

final order of any court in the United States.

(b) The trust must vest legal title to the trust's assets in the

trustees of the trust for:

(1) the trust's United States policyholders and ceding insurers;

and

(2) the policyholders' and ceding insurers' assigns and

successors in interest.

(c) The trust must remain in effect as long as the assuming

insurer has outstanding obligations under a reinsurance contract

subject to the trust.

Added by Acts 2005, 79th Leg., Ch.

727, Sec. 1, eff. April 1, 2007.

Sec. 493.155. REPORTS AND CERTIFICATION. (a) Not later than

February 28 of each year, the trustees of the trust shall:

(1) report to the department in writing, showing the balance of

the trust and listing the trust's investments at the end of the

preceding year; and

(2) certify the date of termination of the trust, if termination

is planned, or certify that the trust will not expire before

December 31 of the year of the report.

(b) To enable the commissioner to determine the sufficiency of

the trust fund under Section 493.102(a)(3), the assuming insurer

shall report to the department not later than March 1 of each

year information substantially the same as the information

required to be reported by an authorized insurer on the National

Association of Insurance Commissioners' Annual Statement form.

Added by Acts 2005, 79th Leg., Ch.

727, Sec. 1, eff. April 1, 2007.

Sec. 493.156. CERTAIN TRUSTEED ASSUMING INSURERS: REQUIREMENTS

FOR REINSURANCE CONTRACT. (a) A ceding insurer may not be

allowed credit under Section 493.102(a)(3) for reinsurance ceded

to an assuming insurer that is not authorized or accredited to

engage in the business of insurance or reinsurance in this state

unless the assuming insurer agrees in the reinsurance contract:

(1) that, if the assuming insurer fails to perform the assuming

insurer's obligations under the reinsurance contract, the

assuming insurer, at the request of the ceding insurer, will:

(A) submit to the jurisdiction of a court in any state of the

United States;

(B) comply with all requirements necessary to give the court

jurisdiction; and

(C) abide by the final decision of that court or, if the court's

decision is appealed, of the appellate court; and

(2) to designate the commissioner or an attorney as an agent for

service of process in any action, suit, or proceeding instituted

by or on behalf of the ceding insurer.

(b) This section is not intended to conflict with or override a

provision in a reinsurance contract that requires the parties to

arbitrate the parties' disputes.

Added by Acts 2005, 79th Leg., Ch.

727, Sec. 1, eff. April 1, 2007.

Sec. 493.157. EXAMINATION OF TRUST AND ASSUMING INSURER. The

trust and the assuming insurer are subject to examination as

determined by the commissioner.

Added by Acts 2005, 79th Leg., Ch.

727, Sec. 1, eff. April 1, 2007.


State Codes and Statutes

State Codes and Statutes

Statutes > Texas > Insurance-code > Title-4-regulation-of-solvency > Chapter-493-reinsurance-for-property-and-casualty-insurers

INSURANCE CODE

TITLE 4. REGULATION OF SOLVENCY

SUBTITLE F. REINSURANCE

CHAPTER 493. REINSURANCE FOR PROPERTY AND

CASUALTY INSURERS

SUBCHAPTER A. GENERAL PROVISIONS

Sec. 493.001. DEFINITIONS. In this chapter:

(1) "Assuming insurer" means an insurer that, under a

reinsurance contract, incurs an obligation to a ceding insurer,

the performance of which is contingent on the ceding insurer

incurring liability or loss under the ceding insurer's insurance

contract with a third person.

(2) "Qualified United States financial institution" means 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 of the United States;

and

(B) is regulated, supervised, and examined by a federal or state

authority that has regulatory authority over banks and trust

companies.

Added by Acts 2005, 79th Leg., Ch.

727, Sec. 1, eff. April 1, 2007.

Sec. 493.002. APPLICABILITY OF CHAPTER. (a) Except as provided

by Subsection (b), this chapter applies to all insurers,

including:

(1) a stock or mutual property and casualty insurance company;

(2) a Mexican casualty insurance company;

(3) a Lloyd's plan;

(4) a reciprocal or interinsurance exchange;

(5) a nonprofit legal service corporation;

(6) a county mutual insurance company;

(7) a farm mutual insurance company;

(8) a risk retention group; and

(9) any insurer writing a line of insurance regulated by Title

10.

(b) This chapter does not apply to a ceding insurer domiciled in

another state that regulates credit for reinsurance under

statutes, rules, or regulations substantially similar in

substance and effect to this chapter if the ceding insurer on

request provides the commissioner with:

(1) evidence of the similarity in the form of those statutes,

rules, or regulations; and

(2) an interpretation of the standards used by the state of

domicile.

Added by Acts 2005, 79th Leg., Ch.

727, Sec. 1, eff. April 1, 2007.

Sec. 493.003. RULES. The commissioner may adopt necessary and

reasonable rules under this chapter to protect the public

interest.

Added by Acts 2005, 79th Leg., Ch.

727, Sec. 1, eff. April 1, 2007.

SUBCHAPTER B. REINSURANCE

Sec. 493.051. REINSURANCE AUTHORIZED. (a) An insurer

authorized to engage in the business of insurance in this state

may reinsure, in any solvent assuming insurer, any risk or part

of a risk that both insurers are authorized by law to assume.

(b) An insurer authorized to engage in business in this state

that writes any line of insurance regulated by Title 10 may

provide reinsurance under this chapter while the insurer is in

compliance with law.

Added by Acts 2005, 79th Leg., Ch.

727, Sec. 1, eff. April 1, 2007.

Sec. 493.052. LIMITATION ON REINSURANCE OF ENTIRE OUTSTANDING

BUSINESS. (a) An insurer may not reinsure the insurer's entire

outstanding business in an assuming insurer unless the assuming

insurer is authorized to engage in the business of insurance in

this state.

(b) Before the date of reinsurance:

(1) the reinsurance contract must be submitted to the

commissioner; and

(2) the commissioner must approve the contract as fully

protecting the interests of all policyholders.

Added by Acts 2005, 79th Leg., Ch.

727, Sec. 1, eff. April 1, 2007.

Sec. 493.053. FILING OF REINSURANCE SCHEDULES. The commissioner

shall require each insurer to file reinsurance schedules:

(1) when the insurer makes the insurer's annual report; and

(2) at other times as the commissioner directs.

Added by Acts 2005, 79th Leg., Ch.

727, Sec. 1, eff. April 1, 2007.

Sec. 493.054. ACCOUNTING FOR REINSURANCE CONTRACTS. (a) An

insurer shall account for reinsurance contracts and shall record

the contracts in the insurer's financial statements in a manner

that accurately reflects the effect of the contracts on the

insurer's financial condition.

(b) A reinsurance contract may contain a provision allowing the

offset of mutual debts and credits between the ceding insurer and

the assuming insurer, whether arising out of one or more

reinsurance contracts.

(c) The commissioner may adopt reasonable rules relating to:

(1) the accounting and financial statement requirements of this

section and the treatment of reinsurance contracts between

insurers, 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 contracts; and

(2) any contingencies arising from reinsurance contracts.

Added by Acts 2005, 79th Leg., Ch.

727, Sec. 1, eff. April 1, 2007.

Sec. 493.055. LIMITATION ON RIGHTS AGAINST REINSURER. A person

does not have a right against a reinsurer that is not

specifically stated in:

(1) the reinsurance contract; or

(2) a specific agreement between the reinsurer and the person.

Added by Acts 2005, 79th Leg., Ch.

727, Sec. 1, eff. April 1, 2007.

SUBCHAPTER C. CREDIT FOR REINSURANCE

Sec. 493.101. EXCLUSIVE PROCEDURE FOR TAKING CREDIT FOR

REINSURANCE. A ceding insurer may take a credit for reinsurance,

as an asset or as a deduction from liability, only as provided by

this chapter.

Added by Acts 2005, 79th Leg., Ch.

727, Sec. 1, eff. April 1, 2007.

Sec. 493.102. CREDIT FOR REINSURANCE GENERALLY. (a) A ceding

insurer may be allowed credit for reinsurance ceded, as an asset

or as a deduction from liability, only if the reinsurance is

ceded to an assuming insurer that:

(1) is authorized to engage in the business of insurance or

reinsurance in this state;

(2) is accredited as a reinsurer in this state, as provided by

Section 493.103; or

(3) subject to Subchapter D, maintains, in a qualified United

States financial institution that has been granted the authority

to operate with fiduciary powers, a trust fund to pay valid

claims of:

(A) the assuming insurer's United States policyholders and

ceding insurers; and

(B) the policyholders' and ceding insurers' assigns and

successors in interest.

(b) Notwithstanding Subsection (a), a ceding insurer may be

allowed credit for reinsurance ceded to an assuming insurer that

does not meet the requirements of that subsection, but only with

respect to the insurance of risks located in a jurisdiction in

which the reinsurance is required by the jurisdiction's law,

including regulations, to be ceded to an assuming insurer that

does not meet the requirements of that subsection.

Added by Acts 2005, 79th Leg., Ch.

727, Sec. 1, eff. April 1, 2007.

Sec. 493.103. ACCREDITED REINSURER. For purposes of Section

493.102(a)(2), an insurer is accredited as a reinsurer in this

state if the insurer:

(1) submits to this state's jurisdiction;

(2) submits to this state's authority to examine the insurer's

books and records;

(3) is domiciled and authorized to engage in the business of

insurance or reinsurance in at least one state or, if the insurer

is a United States branch of an alien assuming insurer, is

entered through and authorized to engage in the business of

insurance or reinsurance in at least one state;

(4) annually files with the department a copy of the annual

statement the insurer files with the insurance department of the

insurer's state of domicile; and

(5) maintains a surplus as regards policyholders in an amount of

at least $20 million.

Added by Acts 2005, 79th Leg., Ch.

727, Sec. 1, eff. April 1, 2007.

Sec. 493.104. CREDIT FOR FUNDS SECURING REINSURANCE OBLIGATIONS.

(a) Subject to Subsection (b), any asset or deduction from

liability for reinsurance ceded to an assuming insurer that does

not meet the requirements of Section 493.102 shall be allowed in

an amount that does not exceed the liabilities carried by the

ceding insurer and in the amount of funds held by or on behalf of

the ceding insurer under a reinsurance contract with the assuming

insurer, including funds held in trust for the ceding insurer, as

security for the payment of obligations under the contract.

(b) The funds held as security:

(1) must be 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 that has been granted the authority to

operate with fiduciary powers; and

(2) may be in the form of:

(A) cash;

(B) securities that:

(i) are readily marketable over a national exchange;

(ii) have a maturity date of not later than one year;

(iii) are listed by the Securities Valuation Office of the

National Association of Insurance Commissioners; and

(iv) qualify as admitted assets;

(C) subject to Section 493.105, a clean, irrevocable,

unconditional letter of credit, issued or confirmed by a

qualified United States financial institution that has been

determined by the commissioner or the Securities Valuation Office

of the National Association of Insurance Commissioners to meet

the standards of financial condition and standing that are

considered necessary and appropriate to regulate the quality of

financial institutions whose letters of credit will be acceptable

to the commissioner; or

(D) another form of security acceptable to the commissioner.

Added by Acts 2005, 79th Leg., Ch.

727, Sec. 1, eff. April 1, 2007.

Sec. 493.105. ACCEPTABILITY OF CERTAIN LETTERS OF CREDIT. A

letter of credit issued or confirmed by an institution that meets

the standards prescribed by Section 493.104(b)(2)(C) as of the

date the letter is issued or confirmed, but later fails to meet

those standards, continues to be acceptable as security under

Section 493.104 until the earliest of:

(1) the letter's expiration;

(2) the letter's extension, renewal, modification, or amendment

after the date the institution fails to meet those standards; or

(3) the expiration of the three-month period after the date the

institution fails to meet those standards.

Added by Acts 2005, 79th Leg., Ch.

727, Sec. 1, eff. April 1, 2007.

Sec. 493.106. CREDIT FOR REINSURANCE: DIRECT PAYMENT ON

LIABILITY REQUIRED. (a) A ceding insurer may not be given

credit for reinsurance ceded, as an asset or as a deduction from

liability, in an accounting or financial statement unless the

reinsurance is payable by the assuming insurer:

(1) on the liability of the ceding insurer under the contracts

reinsured, without diminution because of the ceding insurer's

insolvency; and

(2) directly to the ceding insurer or to the ceding insurer's

domiciliary liquidator or receiver.

(b) Subsection (a)(2) does not apply if:

(1) the reinsurance contract specifically provides that, if the

ceding insurer is insolvent, the reinsurance is payable to a

payee other than one described by Subsection (a)(2); or

(2) the assuming insurer, with the direct insured's consent, has

assumed the ceding insurer's policy obligations to the payee as

the assuming insurer's direct obligations to the payee under the

policy as a substitute for the ceding insurer's obligations.

Added by Acts 2005, 79th Leg., Ch.

727, Sec. 1, eff. April 1, 2007.

Sec. 493.107. REQUEST FOR INFORMATION FROM ASSUMING INSURER.

(a) The commissioner may request that an assuming insurer not

meeting the requirements of Section 493.102 file:

(1) financial statements certified and audited by an independent

certified public accountant;

(2) a certified copy of the certificate or letter of authority

from the domiciliary jurisdiction; and

(3) information on the principals and management of the assuming

insurer.

(b) If an assuming insurer does not comply with a request under

this section, the commissioner may issue a directive prohibiting

all authorized insurers from taking credit for business ceded to

the assuming insurer after the effective date of the directive.

(c) An unauthorized insurer that is included in the most recent

quarterly listing published by the International Insurers

Department of the National Association of Insurance Commissioners

is considered to have complied with a request under this section.

Added by Acts 2005, 79th Leg., Ch.

727, Sec. 1, eff. April 1, 2007.

SUBCHAPTER D. REQUIREMENTS FOR TRUST CREDIT ALLOWANCE

Sec. 493.151. APPLICABILITY OF SUBCHAPTER. This subchapter

applies to a trust that is used to qualify for a reinsurance

credit under Section 493.102(a)(3) and to the assuming insurer

that maintains the trust fund.

Added by Acts 2005, 79th Leg., Ch.

727, Sec. 1, eff. April 1, 2007.

Sec. 493.152. COMPOSITION OF TRUST. (a) If the assuming

insurer is a single insurer, the trust must:

(1) consist of a trusteed account representing the assuming

insurer's liabilities attributable to business written in the

United States; and

(2) include a trusteed surplus of at least $20 million.

(b) If the assuming insurer is a group of insurers that includes

an unincorporated individual insurer:

(1) the trust must:

(A) consist of a trusteed account representing the group's

liabilities attributable to business written in the United

States; and

(B) include a trusteed surplus of at least $100 million; and

(2) the group shall make available to the department an annual

certification by the group's domiciliary regulator and its

independent public accountants of each underwriter's solvency.

(c) If the assuming insurer is a group of incorporated insurers

under common administration that has continuously engaged in the

business of insurance for at least three years, is under the

supervision of the Department of Trade and Industry of the United

Kingdom, and has an aggregate policyholders' surplus of $10

billion:

(1) the trust must:

(A) consist of a trusteed account representing the group's

several liabilities attributable to business written in the

United States under reinsurance contracts issued in the name of

the group; and

(B) include a trusteed surplus of not less than $100 million

held jointly for the benefit of United States insurers that have

ceded business to any member of the group; and

(2) each member of the group shall make available to the

department an annual certification by the member's domiciliary

regulator and its independent public accountants of each member's

solvency.

Added by Acts 2005, 79th Leg., Ch.

727, Sec. 1, eff. April 1, 2007.

Sec. 493.153. FORM OF TRUST. The trust must be established in a

form approved by the commissioner.

Added by Acts 2005, 79th Leg., Ch.

727, Sec. 1, eff. April 1, 2007.

Sec. 493.154. TERMS OF TRUST. (a) The trust instrument must

provide that contested claims are valid and enforceable on the

final order of any court in the United States.

(b) The trust must vest legal title to the trust's assets in the

trustees of the trust for:

(1) the trust's United States policyholders and ceding insurers;

and

(2) the policyholders' and ceding insurers' assigns and

successors in interest.

(c) The trust must remain in effect as long as the assuming

insurer has outstanding obligations under a reinsurance contract

subject to the trust.

Added by Acts 2005, 79th Leg., Ch.

727, Sec. 1, eff. April 1, 2007.

Sec. 493.155. REPORTS AND CERTIFICATION. (a) Not later than

February 28 of each year, the trustees of the trust shall:

(1) report to the department in writing, showing the balance of

the trust and listing the trust's investments at the end of the

preceding year; and

(2) certify the date of termination of the trust, if termination

is planned, or certify that the trust will not expire before

December 31 of the year of the report.

(b) To enable the commissioner to determine the sufficiency of

the trust fund under Section 493.102(a)(3), the assuming insurer

shall report to the department not later than March 1 of each

year information substantially the same as the information

required to be reported by an authorized insurer on the National

Association of Insurance Commissioners' Annual Statement form.

Added by Acts 2005, 79th Leg., Ch.

727, Sec. 1, eff. April 1, 2007.

Sec. 493.156. CERTAIN TRUSTEED ASSUMING INSURERS: REQUIREMENTS

FOR REINSURANCE CONTRACT. (a) A ceding insurer may not be

allowed credit under Section 493.102(a)(3) for reinsurance ceded

to an assuming insurer that is not authorized or accredited to

engage in the business of insurance or reinsurance in this state

unless the assuming insurer agrees in the reinsurance contract:

(1) that, if the assuming insurer fails to perform the assuming

insurer's obligations under the reinsurance contract, the

assuming insurer, at the request of the ceding insurer, will:

(A) submit to the jurisdiction of a court in any state of the

United States;

(B) comply with all requirements necessary to give the court

jurisdiction; and

(C) abide by the final decision of that court or, if the court's

decision is appealed, of the appellate court; and

(2) to designate the commissioner or an attorney as an agent for

service of process in any action, suit, or proceeding instituted

by or on behalf of the ceding insurer.

(b) This section is not intended to conflict with or override a

provision in a reinsurance contract that requires the parties to

arbitrate the parties' disputes.

Added by Acts 2005, 79th Leg., Ch.

727, Sec. 1, eff. April 1, 2007.

Sec. 493.157. EXAMINATION OF TRUST AND ASSUMING INSURER. The

trust and the assuming insurer are subject to examination as

determined by the commissioner.

Added by Acts 2005, 79th Leg., Ch.

727, Sec. 1, eff. April 1, 2007.