(a) Purpose. The purpose of implementing a risk-based
capital and surplus provision is to require a minimum level of capital
and surplus to absorb the financial, underwriting, and investment
risks assumed by a carrier.
(b) Scope.
(1) Life companies. This section applies to any carrier
authorized to do business in Texas as an insurance company that writes
or assumes a life insurance or annuity contract or assumes liability
on or indemnifies one person for any risk under an accident and health
insurance policy, or any combination of these policies, in an amount
that exceeds $10,000 including: capital stock companies, mutual life
companies, limited purpose subsidiary life insurance companies, and
stipulated premium insurance companies.
(2) Property and casualty companies. This section applies
to all domestic, foreign, and alien property and casualty companies
subject to the provisions of Insurance Code §822.210 and §982.106,
including county mutual insurance companies that do not meet the express
criteria contained in Insurance Code §912.056(f), but excluding
monoline financial guaranty insurers, monoline mortgage guaranty insurers,
title insurers, and those insurers subject to Insurance Code §822.205.
(3) Health maintenance organizations and certain health
carriers. This section applies to all domestic and foreign health
maintenance organizations subject to the provisions of Insurance Code
Chapter 843 and carriers that file the NAIC Health Annual Statement
with TDI under TDI filing requirements.
(4) Fraternal benefit societies. This section applies
to all domestic and foreign fraternal benefit societies.
(c) Definitions. The following words and terms, when
used in this section, have the following meanings, unless the context
clearly indicates otherwise.
(1) Annual financial statement--The annual statement
to be used by carriers under §7.68 of this title.
(2) Authorized control level--The result determined
using the sources of information under subsection (d) of this section,
including the RBC formula in accord with the RBC instructions.
(3) Carrier--An insurer, health maintenance organization,
or fraternal benefit society included within the scope of subsection
(b) of this section.
(4) NAIC--National Association of Insurance Commissioners.
(5) RBC--Risk-based capital.
(6) RBC formula--NAIC risk-based capital formula.
(7) RBC instructions--NAIC Risk-Based Capital Report
Including Overview and Instructions for Companies.
(8) Total adjusted capital--A carrier's adjusted statutory
capital and surplus as determined using the sources of information
under subsection (d) of this section, including the RBC formula in
accord with the RBC instructions.
(d) Sources of information for determining RBC. The
commissioner reserves all authority and discretion to resolve any
issues in Texas concerning RBC. The commissioner and carriers will
refer to the sources in paragraphs (1) - (4) of this subsection in
the respective order of priority listed to determine RBC:
(1) Texas statutes;
(2) TDI rules;
(3) commissioner orders; and
(4) except as provided in this section, as applicable
to the carrier:
(A) the NAIC Life Risk-Based Capital Report Including
Overview and Instructions for Companies, which includes the RBC formula,
for the period being reported.
(B) the NAIC Fraternal Risk-Based Capital Report Including
Overview and Instructions for Companies, which includes the RBC formula,
for the period being reported.
(C) the NAIC Property and Casualty Risk-Based Capital
Report Including Overview and Instructions for Companies, which includes
the RBC formula, for the period being reported.
(D) the NAIC Health Risk-Based Capital Report Including
Overview and Instructions for Companies, which includes the RBC formula,
for the period being reported.
(e) Filing requirements. All carriers must file electronic
versions of the RBC reports and any supplemental RBC forms and reports
with the NAIC in accord with and by the due dates specified in sources
of information for determining RBC listed in subsection (d) of this
section, including the RBC instructions.
(f) Conflicts. In the event of a conflict between the
Insurance Code, any TDI rule, any specific requirement of this section,
and the RBC formula or the RBC instructions, the Insurance Code, rule,
or specific requirement of this section takes precedence and in all
respects controls. The requirements of this section do not repeal,
modify, or amend any TDI rule or any Insurance Code provision.
(g) Actions of commissioner. The level of risk-based
capital is calculated and reported annually. Depending on the results
computed by the risk-based capital formula, the commissioner of insurance
may take a number of remedial actions, as considered necessary. The
ratio result of the total adjusted capital-to-authorized control level
risk-based capital requires the following actions related to a carrier
within the specified ranges:
(1) A carrier reporting total adjusted capital of 150
percent to 200 percent of authorized control level risk-based capital
triggers a company action level under which the carrier must prepare
a comprehensive financial plan that identifies the conditions that
contribute to the carrier's financial condition. The plan must contain
proposals to correct areas of substantial regulatory concern and projections
of the carrier's financial condition, both with and without the proposed
corrections. The plan must list the key assumptions underlying the
projections and identify the concerns associated with the carrier's
business. The RBC plan must be submitted within 45 days of filing
the RBC report with the NAIC. After review, the commissioner will
notify the carrier if the plan is satisfactory or not satisfactory.
If the commissioner notifies the carrier that the plan is not satisfactory,
the carrier must prepare a revised plan and submit it to the commissioner.
Failure to file this comprehensive financial plan triggers the regulatory
action level described in this subsection.
(2) A carrier reporting total adjusted capital of 100
percent to 150 percent of authorized control level risk-based capital
triggers a regulatory action level initiative. At this action level,
a carrier must file an RBC plan or revised RBC plan within 45 days
of filing the RBC report with the NAIC, and the commissioner must
perform any examinations or analyses to the carrier's business and
operations that are deemed necessary. The commissioner may issue orders
specifying corrective actions to be taken or may require other appropriate
action.
(3) A carrier reporting total adjusted capital of 70
percent to 100 percent of authorized control level risk-based capital
triggers an authorized control level. In addition to the remedies
available at the carrier and regulatory action levels described in
this subsection, the commissioner may take other action deemed necessary,
including initiating a regulatory intervention to place a carrier
under regulatory control.
(4) A carrier reporting total adjusted capital of less
than 70 percent of authorized control level triggers a mandatory control
level that subjects the carrier to one of the following actions:
(A) being placed in supervision or conservation;
(B) being determined to be in hazardous financial condition
as provided by Insurance Code Chapter 404 and §8.3 of this title
regardless of percentage of assets in excess of liabilities;
(C) being determined to be impaired as provided by
Insurance Code §§404.051 and 404.052 or 841.206; or
(D) any other applicable sanctions under the Insurance
Code.
(5) A life company described in subsection (b)(1) of
this section is subject to a trend test described in the RBC formula
and RBC instructions, if its total adjusted capital-to-authorized
control level risk-based capital is between 200 percent and 300 percent.
Any life insurer that trends below 190 percent of total adjusted capital-to-authorized
control level risk-based capital triggers the company action level.
(6) A property and casualty company described in subsection
(b)(2) of this section is subject to a trend test if its total adjusted
capital-to-authorized control level risk-based capital is between
200 percent and 300 percent. If the result of the trend test as determined
by the RBC formula and RBC instructions is "YES," the insurer triggers
regulatory attention at the company action level.
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