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RULE §19.1205Escrow Accounts

(a) Separate and identifiable escrow accounts are allowed if such accounts meet all requirements of the Insurance Code, Article 21.07-3, and this subchapter.

(b) The managing general agent shall maintain all escrow accounts in a bank that is a member of the Federal Reserve System and whose accounts are insured by the Federal Deposit Insurance Corporation. Such accounts may consist of any one or all of the following vehicles listed in paragraphs (1)-(7) of this subsection:

  (1) checking accounts;

  (2) pass book savings accounts;

  (3) money market accounts;

  (4) certificates of deposit;

  (5) United States treasury bills, notes, or bonds;

  (6) real estate repurchase agreements for which the underlying collateral is United States government securities;

  (7) non-assessable money market mutual funds which are primarily invested in United States government securities.

(c) Other than as specified in subsection (b) of this section, the MGA may not place fiduciary monies from or in any escrow account into accounts or investments:

  (1) that consist of common or preferred stock or so-called junk bonds, to include at a minimum, but not be limited to, all those securities rated Category Number 3 and below by the Securities Valuation Office of the National Association of Insurance Commissioners; or

  (2) that are primarily invested in common or preferred stock or so-called junk bonds as described in paragraph (1) of this subsection.

(d) All monies received by an MGA on behalf of an insurer, including without limitation, all premiums, policy fees, salvage and subrogation recoveries, and reinsurance recoveries, shall be deposited in the escrow account required by the Insurance Code, Article 21.07-3, §3C(c).

(e) All withdrawals from the escrow account required by the Insurance Code, Article 21.07-3, §3C(c), must be evidenced by detailed accounting which clearly reflects each withdrawal. Funds may be withdrawn from the escrow account only for the following purposes listed in paragraphs (1)-(8) of this subsection:

  (1) accounts due to insurers;

  (2) commissions to agents and managing general agents and expenses, such as fees for inspections, premium audits, and motor vehicle reports, specified within the terms of the MGA contract;

  (3) return premiums;

  (4) loss and loss adjustment expenses;

  (5) money deposited in error;

  (6) withdrawals of any interest belonging to the MGA;

  (7) withdrawals from escrow accounts for the purposes of making investments authorized under this subchapter;

  (8) payment of reinsurance premiums authorized by §19.1204 of this title (relating to Contract Provisions); provided, however, that the MGA must report the payment of such premiums to the insurer on a monthly basis.

(f) Ownership of the interest on the escrow account required by the Insurance Code, Article 21.07-3, §3C(c), belongs to the MGA unless otherwise specified in the contract.

Source Note: The provisions of this §19.1205 adopted to be effective October 24, 1991, 16 TexReg 5776.

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