CHAPTER 862. FIRE AND MARINE INSURANCE COMPANIES - Texas Statutes

INSURANCE CODE

TITLE 6. ORGANIZATION OF INSURERS AND RELATED ENTITIES

SUBTITLE D. CASUALTY COMPANIES

CHAPTER 862. FIRE AND MARINE INSURANCE COMPANIES

SUBCHAPTER A. REGULATION OF FIRE AND MARINE INSURANCE COMPANIES

Sec. 862.001. ANNUAL STATEMENT. (a) Each year the president or

vice president and the secretary of a fire, marine, or inland

marine insurance company shall:

(1) prepare under oath a complete and accurate statement of the

condition of the company as of December 31 of the preceding year;

and

(2) file the statement with the department before the 62nd day

of the year in which it is prepared.

(b) The annual statement must show:

(1) the name and location of the company;

(2) the names and residences of the company's officers;

(3) the amount of the capital stock of the company;

(4) the amount of capital stock paid up;

(5) the property and assets held by the company, specifying:

(A) the location, description, and value, as near as may be, of

real property owned by the company and, if the company is

organized under the laws of this state, the annual statement must

include an abstract of the title to that real property;

(B) the amount of cash on hand and on deposit in banks to the

credit of the company and the names of those banks;

(C) the amount of cash held by agents of the company and the

names of those agents;

(D) the amount of cash in the course of transmission;

(E) the amount of loans secured by a first mortgage on real

property, the rate of interest on each loan, the location and

value of each property, and the name of each mortgagor;

(F) the amount of all other bonds and loans, the rate of

interest on each bond or loan, and a description of the security

given for each bond or loan;

(G) the amount due the company from judgments that have been

obtained and a description of each judgment;

(H) the amount of all stock owned by the company, including a

description of the stock, the amount and number of shares, and

the par and market values of each kind of stock;

(I) the amount of stock held by the company as collateral

security for loans, including the amount loaned on the stock and

the par and market values of the stock;

(J) the amount of interest due and unpaid to the company;

(K) a description and value of all other securities; and

(L) if the total value of the equipment exceeds $2,000, the

value of all electronic machines that comprise a data processing

system or systems and of all other office equipment, furniture,

machines, and labor-saving devices purchased for and used in

connection with the business of the insurance company to the

extent that the total actual cash market value of those assets is

less than five percent of the other admitted assets shown on the

statement;

(6) the liabilities of the company, specifying:

(A) losses adjusted and due;

(B) losses adjusted and not due;

(C) losses unadjusted;

(D) losses in suspense and the cause for suspension;

(E) losses resisted and in litigation;

(F) dividends, in scrip or cash, specifying the amount of each

declared but not due;

(G) dividends declared and due;

(H) the amount required by law as reserve on all unexpired

risks, computed as required by this code;

(I) the amount due banks or other creditors, the name of each

bank or creditor, and the amount due each bank or creditor;

(J) the amount of money borrowed by the company, the name of

each lender, a description of the security given for each loan,

and the rate of any interest; and

(K) all other claims against the company and a description of

each claim;

(7) the income of the company during the preceding year,

specifying:

(A) separately the amount received, after deducting reinsurance,

as fire, marine, and inland marine transportation premiums;

(B) the amount received as interest; and

(C) the amount received from all other sources;

(8) the expenditures of the company during the preceding year,

specifying:

(A) the amount of losses paid, showing losses that accrued

before and that accrued after the date of the preceding

statement, and the amount at which losses were estimated in that

statement;

(B) the amount paid as dividends;

(C) the amount paid for return premiums, commissions, salaries,

expenses, and other charges of officers, agents, and employees;

(D) the amount paid for federal, state, and local taxes and

duties; and

(E) the amount paid for all other expenses;

(9) the largest amount insured by the company in a single risk,

naming that risk;

(10) the amount of risks written during the preceding year;

(11) the amount of risks in force that have less than one year

to run;

(12) the amount of risks in force that have more than one year

but less than three years to run;

(13) the amount of risks that have more than three years to run;

and

(14) a statement of whether dividends are declared on premiums

received for risks not terminated.

(c) The commissioner may adopt rules defining electronic

machines and systems, office equipment, furniture, machines, and

labor-saving devices as specified in Subsection (b)(5)(L) and

stating the maximum period for which each class of equipment may

be amortized.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,

2003.

Sec. 862.002. PROHIBITIONS RELATING TO HOLDING REAL PROPERTY;

EXCEPTIONS. (a) A fire, marine, or inland marine insurance

company may not purchase, hold, or convey real property, except

as provided by Subsections (b) and (c).

(b) The company may erect and maintain buildings ample and

adequate for the transaction of the company's business.

(c) Subsection (a) does not apply to:

(1) real property mortgaged to the company in good faith as

security for a loan previously contracted or for money due;

(2) real property conveyed to the company in satisfaction of a

debt previously contracted in the legitimate business of the

company or for money due;

(3) real property purchased under a judgment, decree, or

mortgage obtained or made for a debt under Subdivision (2); or

(4) a mineral or royalty interest reserved on the sale of real

property acquired under Subdivision (1), (2), or (3) before

January 1, 1942.

(d) A fire, marine, or inland marine insurance company may not

invest more than 33-1/3 percent of the company's admitted assets

in real property. A fire, marine, or inland marine insurance

company may not invest any of its capital or minimum surplus in

real property, other than real property described by Subsection

(c).

(e) Section 861.258 applies to real property acquired under

Subsection (c)(1), (2), or (3).

(f) The commissioner shall appoint at least two competent and

disinterested residents of this state to appraise real property

described by Subsection (b) when the property is acquired or when

the company applies for amendment to its charter. The company

shall pay to the commissioner the reasonable cost of the

appraisal.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,

2003.

Sec. 862.003. ADMITTED ASSETS. The value of the property of the

company shown on the report as determined under Section 862.001

and the rules adopted by the commissioner adopted under that

section is considered to be an admitted asset of the company for

all purposes.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,

2003.

SUBCHAPTER B. INSURANCE COVERAGE PROVIDED BY FIRE AND MARINE

INSURANCE COMPANIES

Sec. 862.051. KINDS OF INSURANCE AUTHORIZED. On filing notice

of its intent with the department, an insurance company engaged

in the business of insurance in this state under an appropriate

certificate of authority may:

(1) insure houses, buildings, and other property against loss or

damage by fire;

(2) insure goods, merchandise, and other property in the course

of transportation by land or water, or vessels afloat, regardless

of their location;

(3) insure motor vehicles, whether stationary or being operated

under the motor vehicle's own power, against loss or damage by

fire, lightning, windstorm, hail storm, tornado, cyclone,

explosion, transportation by land or water, theft, and collision;

(4) lend money on bottomry or respondentia;

(5) obtain insurance against:

(A) any loss or risk the company has incurred in the course of

its business; and

(B) any loss or risk on an interest that the company has in

property because of a loan it has made on bottomry or

respondentia; and

(6) take any action proper to promote an activity described by

this section.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,

2003.

Sec. 862.052. PROHIBITIONS RELATING TO LIFE INSURANCE AND LIFE

INSURANCE COMPANIES. (a) An insurance company authorized by its

charter to write fire, marine, lightning, tornado, or inland

marine insurance in this state may not write life insurance.

(b) An insurance company authorized to write life insurance in

this state may not write fire, marine, or inland marine insurance

or any other insurance described by Section 862.051.

(c) The commissioner shall enforce this section.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,

2003.

Sec. 862.053. FIRE INSURANCE: TOTAL LOSS OF REAL PROPERTY. (a)

A fire insurance policy, in case of a total loss by fire of

property insured, shall be held and considered to be a liquidated

demand against the company for the full amount of such policy.

This subsection does not apply to personal property.

(b) An insurance company shall incorporate verbatim the

provisions of Subsection (a) in each fire insurance policy issued

as coverage on real property in this state.

(c) The commissioner shall require compliance with this section.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,

2003. Amended by Acts 2003, 78th Leg., ch. 1276, Sec. 10A.220,

eff. Sept. 1, 2003.

Sec. 862.054. FIRE INSURANCE: BREACH BY INSURED; PERSONAL

PROPERTY COVERAGE. Unless the breach or violation contributed to

cause the destruction of the property, a breach or violation by

the insured of a warranty, condition, or provision of a fire

insurance policy or contract of insurance on personal property,

or of an application for the policy or contract:

(1) does not render the policy or contract void; and

(2) is not a defense to a suit for loss.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,

2003.

Sec. 862.055. FIRE INSURANCE: INTEREST OF MORTGAGEE OR TRUSTEE.

(a) The interest of a mortgagee or trustee under a fire

insurance contract covering property located in this state may

not be invalidated by:

(1) an act or neglect of the mortgagor or owner of the property;

or

(2) the occurrence of a condition beyond the mortgagor's or

owner's control.

(b) A provision of a contract that conflicts with Subsection (a)

is void.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,

2003.

SUBCHAPTER C. REINSURANCE AND RESERVES

Sec. 862.101. FIRE AND ALLIED LINES OF INSURANCE: AUTHORIZED AND

REQUIRED REINSURANCE. (a) In this section, "fire and allied

lines of insurance" has the meaning assigned by statute, rules

adopted by the commissioner, or lawful custom.

(b) An insurance or reinsurance company that is authorized to

write or reinsure fire and allied lines of insurance in this

state may reinsure all or any part of a single risk in one or

more other solvent insurers.

(c) An insurance company that is incorporated under the laws of

the United States or a state of the United States and authorized

to write fire and allied lines of insurance in this state may

not, unless the excess is reinsured by the company in another

solvent insurer, expose itself to any loss or hazard on a single

risk in an amount that exceeds 10 percent of the company's

paid-up capital stock and surplus.

(d) An insurance company that is incorporated under the laws of

a jurisdiction other than the United States or a state of the

United States and authorized to write fire and allied lines of

insurance in this state may not, unless the excess is reinsured

by the company in another solvent insurer, expose itself to any

loss or hazard on a single risk in an amount that exceeds the sum

of:

(1) 10 percent of the company's deposit with the statutory

officer in the state through which the company is authorized to

do business in the United States; and

(2) 10 percent of the other policyholders' surplus of the

company's United States branch.

(e) Subsections (c) and (d) do not apply in connection with the

writing of insurance for cotton in bales or for grain.

(f) Reinsurance that is required or permitted by this section

must comply with:

(1) Subchapter A, Chapter 491;

(2) Sections 492.051(b) and (c); and

(3) Chapter 493.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,

2003.

Amended by:

Acts 2007, 80th Leg., R.S., Ch.

730, Sec. 2E.067, eff. April 1, 2009.

Sec. 862.102. REINSURANCE OR RESERVES REQUIRED FOR FIRE

INSURANCE. (a) An insurance company writing fire insurance in

this state shall maintain reinsurance or unearned premium

reserves on its policies in force.

(b) The commissioner may require that reserves required by

Subsection (a) equal the unearned portions of the gross premiums

in force after deducting reinsurance under Section 862.101, as

computed on each respective risk from the policy's date of issue.

(c) If the commissioner does not impose a requirement under

Subsection (b), the portions of the gross premium in force held

as reinsurance or unearned premium reserves after deducting

reinsurance under Section 862.101 shall be computed as follows:

Term for Which Policy Was Written

Reserve for Unearned Premium

1 year or less

1/2

2 years

1st year 3/4

2nd year 1/4

3 years

1st year 5/6

2nd year 1/2

3rd year 1/6

4 years

1st year 7/8

2nd year 5/8

3rd year 3/8

4th year 1/8

5 years

1st year 9/10

2nd year 7/10

3rd year 1/2

4th year 3/10

5th year 1/10

More than 5 years

pro rata

(d) Notwithstanding Subsection (c), an insurance company may

compute, or the commissioner may require an insurance company to

compute, the reserves on a quarterly, monthly, or more frequent

pro rata basis.

(e) An insurance company that adopts a method for computing the

reserve may not adopt another method without commissioner

approval.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,

2003.

Sec. 862.103. REINSURANCE OR RESERVES REQUIRED FOR HOME WARRANTY

INSURANCE COMPANIES. (a) An insurance company writing home

warranty insurance in this state shall maintain reinsurance or

unearned premium reserves on its policies in force.

(b) Reserves required by Subsection (a) shall be computed in the

same manner and to the same extent as is fire insurance under

Section 862.102.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,

2003.

Sec. 862.104. RESERVES REQUIRED FOR OCEAN AND INLAND MARINE TRIP

INSURANCE COMPANIES. The total of the premiums on ocean and

inland marine trip insurance risks not terminated is considered

to be unearned, and the insurance company shall maintain a

reserve equal to the total of the premiums for those policies.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,

2003.

SUBCHAPTER D. IMPAIRMENT OF SURPLUS

Sec. 862.151. REDUCTION OF CAPITAL STOCK AND PAR VALUE OF

SHARES. (a) If the minimum surplus of a fire, marine, or inland

marine insurance company is impaired in excess of the amount

permitted under Subchapter B, Chapter 404, the commissioner may

allow the company to amend its charter as provided by Sections

822.157 and 822.158 to reduce the amount of the company's capital

stock and the par value of its shares in proportion to the extent

of the permitted amount of impairment.

(b) A company acting under Subsection (a):

(1) may not reduce the par value of its shares below the sum

computed under Section 822.055;

(2) may not deduct from the assets and property on hand more

than $125,000;

(3) shall retain the remainder of the assets and property on

hand as surplus assets;

(4) may not distribute any of the assets or property to the

shareholders; and

(5) may not reduce the capital stock or surplus of the company

to an amount less than the minimum capital and the minimum

surplus required by Sections 822.202, 822.210, and 822.211,

subject to Subchapter B, Chapter 404.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,

2003.

Amended by:

Acts 2007, 80th Leg., R.S., Ch.

730, Sec. 2E.068, eff. April 1, 2009.

Sec. 862.152. MAKING GOOD ON IMPAIRMENT. (a) This section

applies to a fire, marine, or inland marine insurance company

that receives notice from the commissioner under Subchapter B,

Chapter 404, to make good within 60 days:

(1) any impairment of the company's required capital; or

(2) the company's surplus.

(b) The company shall promptly call on its shareholders for an

amount necessary to make the company's capital and surplus equal

to the amount required by Sections 822.054 and 822.210, subject

to Subchapter B, Chapter 404.

(c) The shareholders of the company shall be informed of a call

under Subsection (b):

(1) by personal notice; or

(2) by advertisement for the time and in the manner approved by

the commissioner.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,

2003.

Amended by:

Acts 2007, 80th Leg., R.S., Ch.

730, Sec. 2E.069, eff. April 1, 2009.

Sec. 862.153. FAILURE OF SHAREHOLDER TO PAY. (a) If a

shareholder of the insurance company who is given notice under

Section 862.152 does not pay the amount called for by the company

under that section, the company may:

(1) require the return of the original certificate of stock held

by the shareholder; and

(2) issue a new certificate for a number of shares that the

shareholder may be entitled to in the proportion that the value

of the funds of the company, computed without inclusion of any

money or other property paid by shareholders in response to the

notice under Section 862.152, bears to the total amount of the

original capital and the minimum surplus of the company required

by Section 822.054 or 822.210, subject to Subchapter B, Chapter

404.

(b) The value of any shares for which new certificates are

issued under Subsection (a)(2) shall be computed under the

direction of the commissioner. The insurance company shall pay

for the fractional parts of shares.

(c) Any interested person may pay all or any part of the amount

of the deficit resulting from a shareholder default under

Subsection (a). The company shall issue to each person who makes

a payment a stock certificate that is representative of the

number of shares to which the person is entitled. The certificate

must be for the number of shares in proportion to the total

number of forfeited shares that the payment made by the person

bears to the deficit that resulted from the forfeited shares.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,

2003.

Amended by:

Acts 2007, 80th Leg., R.S., Ch.

730, Sec. 2E.070, eff. April 1, 2009.

Sec. 862.154. CREATION AND DISPOSAL OF NEW STOCK. (a) A fire,

marine, or inland marine insurance company that complies with

Sections 822.155, 822.157, and 822.158 may:

(1) create new stock;

(2) dispose of the new stock according to applicable law; and

(3) issue new certificates for the new stock.

(b) The insurance company shall sell any new stock created under

Subsection (a) for an amount sufficient to make up any impairment

of the company's required minimum capital and to make up the

surplus of the company as required by Section 822.054 or 822.210,

subject to Subchapter B, Chapter 404, but may not impair the

capital of the company.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,

2003.

Amended by:

Acts 2007, 80th Leg., R.S., Ch.

730, Sec. 2E.071, eff. April 1, 2009.