CHAPTER 427. SUBORDINATED INDEBTEDNESS - Texas Statutes

INSURANCE CODE

TITLE 4. REGULATION OF SOLVENCY

SUBTITLE B. RESERVES AND INVESTMENTS

CHAPTER 427. SUBORDINATED INDEBTEDNESS

SUBCHAPTER A. GENERAL PROVISIONS

Sec. 427.001. APPLICABILITY OF CHAPTER. This chapter applies to

an insurer or health maintenance organization as defined by

Section 401.001.

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

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

Sec. 427.002. RULES. The commissioner shall adopt rules

necessary to implement this chapter.

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

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

SUBCHAPTER B. LOAN, ADVANCE, AND OTHER INDEBTEDNESS

Sec. 427.051. LOAN OR ADVANCE PERMITTED. An insurer or health

maintenance organization may obtain a loan or an advance,

repayable with interest, of:

(1) cash;

(2) cash equivalents; or

(3) other assets that have a readily determinable value and are

satisfactory to the commissioner.

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

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

Sec. 427.052. SUBORDINATED LIABILITY PERMITTED. (a) An insurer

or health maintenance organization may assume a subordinated

liability for repayment of a loan or advance described by Section

427.051 and payment of interest on the loan or advance if the

insurer or health maintenance organization and the creditor

execute a written agreement stating that the creditor may be paid

only out of that portion of the insurer's or health maintenance

organization's surplus that exceeds the greater of:

(1) a minimum surplus amount set in the agreement; or

(2) a minimum surplus amount of $500,000.

(b) The department or commissioner may not require the agreement

to provide a minimum surplus amount that is different from the

amount described by this section.

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

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

Sec. 427.053. APPROVAL OF AGREEMENT REQUIRED. (a) An insurer

or health maintenance organization must submit the written

agreement under Section 427.052 to the commissioner for approval

of the form and content of the agreement.

(b) The commissioner must approve or disapprove the agreement

not later than the 30th day after the date the insurer or health

maintenance organization submits the agreement. If the

commissioner fails to act as required by this subsection, the

agreement is considered approved.

(c) An insurer or health maintenance organization may assume a

subordinated liability only after the commissioner has approved

the agreement under this chapter or Subchapter C, Chapter 823.

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

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

Sec. 427.054. LIABILITY. (a) A loan or advance made under this

chapter, including any interest accruing on the loan or advance,

is a legal liability of the insurer or health maintenance

organization, and a liability with respect to the insurer's or

health maintenance organization's financial statement, only to

the extent provided by the terms of the loan or advance

agreement.

(b) Notwithstanding Subsection (a), if the loan or advance

agreement provides for a sinking fund out of which the loan or

advance is to be repaid, the loan or advance is a legal liability

of the insurer or health maintenance organization, and a

liability with respect to the insurer's or health maintenance

organization's financial statement, only to the extent of the

amounts accumulated and held in the sinking fund. By agreement

of the parties, any portion of the amounts accumulated in the

sinking fund may be returned to the surplus of the insurer or

health maintenance organization at any time and any amount

returned may not be a legal liability of the insurer or health

maintenance organization or a liability with respect to the

insurer's or health maintenance organization's financial

statement.

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

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

Sec. 427.055. PAYMENT OF PRINCIPAL OR INTEREST ON CERTAIN

LIABILITIES. (a) An insurer or health maintenance organization

may not pay principal or interest on a subordinated liability

assumed under Section 427.052 or Subchapter C, Chapter 823, on or

after September 1, 1995, unless:

(1) the payment complies with a schedule of payments contained

in the agreement approved by the commissioner in accordance with

Section 427.052 or Subchapter C, Chapter 823; or

(2) if the payment does not comply with the schedule of payments

contained in the agreement or the agreement does not contain a

payment schedule, the insurer or health maintenance organization

provides written notice to the commissioner not later than the

15th day before the scheduled payment date.

(b) A loan, debenture, revenue bond, or advance agreement issued

to an insurer or health maintenance organization before September

1, 1995, and any subsequent payment of principal or interest on

the indebtedness are governed by the law in effect on the date of

issuance.

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

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