| (a) Subject to compliance with Insurance Code Chapter
843 (concerning Health Maintenance Organizations), this chapter, and
other applicable insurance laws and regulations of this state, a domestic
HMO, which is a member of a holding company system with assets in
an aggregate amount in excess of $1 billion and a tangible net worth
of at least $100 million and having affiliates licensed in this state
may authorize an affiliated corporation that, if other than the ultimate
holding company, is solvent with at least $10 million tangible net
worth and whose performance and obligations under a written agreement
with the HMO are guaranteed by the ultimate holding company to invest,
hold, and administer as agent or nominee on behalf of the domestic
HMO bonds, notes, or other evidences of indebtedness that are authorized
and permissible investments under Insurance Code Chapter 843 and other
applicable insurance laws and regulations of this state that apply
to HMOs, and which mature within one year of the date of acquisition.
The securities must be invested, held, and administered under a written
agreement authorized by the board of directors of the HMO or an authorized
committee, and submitted to the commissioner for prior approval. Approval
must be based on satisfactory evidence that the agreement will facilitate
the operations of the domestic HMO and will not unreasonably diminish
the service to or protection of the domestic HMO's enrollees within
this state.
(b) The agreement must:
(1) specify in which office location it will maintain
records adequate to identify and verify the securities (or proportionate
interest therein) belonging to the HMO; and
(2) allow the commissioner or the commissioner's designee
to examine all records relating to those securities held subject to
the agreement and must agree to furnish these records at the principal
office of the HMO within 10 business days of a request by the commissioner
or any of the department's commissioned examiners.
(c) The HMO may authorize the affiliate to:
(1) hold the securities of the HMO in bulk, in certificates
issued in the name of the affiliate or its nominee, and to commingle
them with securities owned by other affiliates of the affiliate;
(2) provide for the securities to be held by a custodian,
including the custodian of securities of the affiliate, or in a clearing
corporation or the Federal Reserve Book Entry System as provided in
this subchapter; and
(3) purchase, sell, or otherwise dispose of the securities
in compliance with instructions received from the HMO.
(d) If required by the commissioner, the HMO must report
annually to the department:
(1) all investments with the affiliate under this section;
(2) the market value of all securities held by the
affiliate on behalf of the HMO as of December 31 of the year next
preceding or other date as the commissioner may require; and
(3) the financial condition of the affiliate including,
at the commissioner's discretion, balance sheets, income statements,
and supporting schedules with an opinion on those financial statements
by an independent certified public accountant for the most recent
fiscal year.
(e) All of the investments and transactions between
or among affiliates and the HMO must otherwise comply with all other
applicable provisions of Insurance Code Chapters 823 (concerning Insurance
Holding Systems) and 843, and other applicable insurance laws and
regulations of this state.
(f) If the HMO or the affiliate does not comply with
Insurance Code Chapters 823 and 843 and other applicable insurance
laws and regulations of this state, or does not comply with the written
agreement governing the investing, holding, and administering of securities,
then the commissioner's approval will be withdrawn after reasonable
notice and ample opportunity to cure the noncompliance. If the HMO
wishes to continue the arrangement, it must submit a request to the
commissioner for approval.
(g) On the withdrawal of approval of the agreement,
the HMO must undertake to obtain, and the affiliated corporation must
undertake to return, investments or funds resulting from the sale
or maturity of those investments in which the affiliated corporation
invested, held, and administered on behalf of the HMO and the return
must be accomplished within 90 days unless:
(1) the commissioner determines that the 90-day period
creates a hazard to the public, in which case the commissioner may
designate that the period may not exceed 30 days from the date of
determination; or
(2) the commissioner extends the period for specific
investments on request by the HMO and affiliated corporation, but
in no event to exceed one year from the date of the withdrawal of
approval.
(h) The affiliate must be organized under the laws
of one of the states of the United States of America or of the District
of Columbia.
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