| (a) Prior approval and notice.
(1) The prior written approval of the commissioner
is required for the transactions specified in the Act, §823.102.
This section only applies to sales, purchases, exchanges, loans or
extensions of credit or guarantees, or investments, including an amendment
or modification of an affiliate agreement previously filed under this
section.
(2) The following transactions under the Act, §823.103,
including any amendments or modification of an agreement as previously
filed between a domestic insurer and any person in its holding company
system may not be entered into unless the insurer has notified the
commissioner in writing of its intention to enter into any like transaction
at least 30 days prior, or a shorter period as the commissioner may
permit, and the commissioner has not disapproved it within the period:
(A) sales, purchases, exchanges, loans or extensions
of credit or guarantees, or investments;
(B) reinsurance agreements, including reinsurance treaties,
or pooling agreements, or any amendments or modification to any agreement,
and those agreements that may require as consideration the transfer
of assets from an insurer to a nonaffiliate, if an agreement or understanding
exists between the insurer and nonaffiliate that any portion of the
assets will be transferred to one or more affiliates of the insurer;
(C) any contract, agreement, or arrangement for the
furnishing or receiving of services or facilities on a regular or
systematic basis; or
(D) management or service agreements, cost sharing
agreements, rental or leasing agreements must at a minimum, to the
extent not inconsistent with applicable law or regulation, and as
applicable:
(i) identify the person providing services and the
nature of the services;
(ii) set forth the methods to allocate costs to include
Insurance Code §823.101(e);
(iii) require timely settlement, at least every 90
days, and compliance with the requirements in the Accounting Practices
and Procedures Manual published by the National Association of Insurance
Commissioners;
(iv) prohibit advancement of funds by the insurer to
the affiliate except to pay for services defined in the agreement;
(v) state that the insurer will maintain oversight
for functions provided to the insurer by the affiliate and that the
insurer will monitor services annually for quality assurance;
(vi) define books and records of the insurer to include
all books and records developed or maintained under or related to
the agreement;
(vii) specify that all books and records of the insurer
are and remain the property of the insurer and are subject to control
of the insurer;
(viii) state that all funds and invested assets of
the insurer are the exclusive property of the insurer, held for the
benefit of the insurer and are subject to the control of the insurer;
(ix) include standards for termination of the agreement
with and without cause;
(x) include indemnifying the insurer in the event of
gross negligence or willful misconduct by the affiliate providing
the services;
(xi) specify that, if the insurer is placed in receivership
or seized by the commissioner under Insurance Code Chapter 443:
(I) all of the rights of the insurer under the agreement
extend to the receiver or commissioner; and
(II) all books and records will immediately be made
available to the receiver or the commissioner, and must be turned
over to the receiver or commissioner immediately upon the receiver
or the commissioner's request;
(xii) specify that the affiliate has no automatic right
to terminate the agreement if the insurer is placed in receivership
under Insurance Code Chapter 443; and
(xiii) specify that the affiliate will continue to
maintain any systems, programs, or other infrastructure notwithstanding
a seizure by the commissioner under Insurance Code Chapter 443, and
will make them available to the receiver, for so long as the affiliate
continues to receive timely payment for services rendered;
(E) agreements to consolidate federal income tax returns,
which agreements must provide that a domestic insurer will be adequately
indemnified in the event the Internal Revenue Service levies upon
the insurance company's assets for unpaid taxes in excess of the amount
paid under the agreement;
(F) transactions with affiliated financial institutions,
other than fully insured deposits;
(G) participation in an investment pool by a property
and casualty insurer under Insurance Code Chapter 424; and
(H) any material transactions which the commissioner
has determined after notice may adversely affect the interest of the
insurer's policyholders or of the public.
(3) A domestic insurer may not enter into transactions
that are part of a plan or series of similar transactions with persons
within the holding company system to avoid the statutory threshold
amount and avoid review. If the commissioner determines that the transactions
were entered into over any 12-month period for that purpose, the commissioner
may consider the series of transactions with regard to their cumulative
effect and may apply the applicable statutory thresholds or the commissioner
may apply sanctions under the Code.
(4) Nothing in this rule will authorize or permit any
transactions which, in the case of a noncontrolled insurer, would
be otherwise contrary to law.
(5) The commissioner, in reviewing transactions, must
consider whether the transactions comply with the standards set forth
in subsection (c) of this section and whether they may adversely affect
the interest of policyholders. Any disapproval by the commissioner
of any of the transactions must set forth the specific reasons for
the disapproval.
(6) The approval of any transaction under this subsection
is deemed an amendment under §7.203(e) of this title (relating
to Registration of Insurers) to an insurer's registration statement
without further filing.
(b) Transactions. An insurer required to request approval
of transactions under subsection (a)(1) of this section and give notices
of proposed transactions under subsection (a)(2) of this section,
must furnish the required information on Form D (relating to Prior
Notice of a Transaction) including the applicable filing fee provided
for in §7.1301(d)(23) of this title (relating to Regulatory Fees).
The descriptions must in all cases include at least the following:
the nature and purpose of the transaction; the nature and amounts
of any payments or transfers of assets between the parties; the identities
of all parties to the transactions; whether any officers or directors
of a party are pecuniarily interested, and copies of any proposed
contracts, agreements, or memoranda of understanding between the parties
relating to the transaction along with sufficient competent documentation
evidencing compliance with the standards specified in Insurance Code
§823.101, and evidencing that the transaction will not adversely
affect the interest of policyholders. Proposed contracts, agreements,
or memoranda of understanding must provide for settlement within 90
days. No request or notice is deemed filed with the commissioner until
the date all of the material has been provided.
(c) Transactions with affiliates and others. Material
transactions by registered insurers with their holding companies,
subsidiaries, or affiliates are subject to the standards specified
in the Act, §823.101.
(d) Extraordinary dividends and other distributions.
(1) An insurer subject to registration under §7.203(a)
of this title must not pay any extraordinary dividend or make any
other extraordinary distribution to its shareholders until:
(A) 30 days after the commissioner has received written
notice in accord with §7.213 of this title (relating to Form
E) of the declaration, including the applicable filing fee under §7.1301(d)(23)
of this title, provided the commissioner has not disapproved the payment;
or
(B) the commissioner approves the payment within the
30-day period. The written notice required under this paragraph will
be deemed filed with the commissioner only when all material sufficient
to constitute a complete filing, including documentation to support
each of the standards set forth in the Act, §823.008, and the
payment of any required filing fee under §7.1301(d)(23) of this
title have been provided.
(2) For purposes of these sections:
(A) an extraordinary dividend or distribution includes
any dividend or distribution of cash or other property, whose fair
market value together with that of other dividends or distributions
made within the preceding 12 months under the Act, §823.107;
(B) an extraordinary dividend or distribution must
not include pro rata distributions of any class of an insurer's own
securities;
(C) in determining the 12-month cumulative amount for
dividends or distributions, the calculation must be based on the payment
date(s) of the dividends or distributions.
(3) Notwithstanding any other provision of law, an
insurer may declare an extraordinary dividend or distribution under
the conditions specified in the Act, §823.107.
(e) Adequacy of surplus. For the purposes of these
sections, in determining whether an insurer's surplus as regards policyholders
is reasonable in relation to the insurer's outstanding liabilities
and adequate to its financial needs, the factors specified in the
Act, §823.008, among others, must be considered.
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| Source Note: The provisions of this §7.204 adopted to be effective January 1, 1976; amended to be effective November 30, 1984, 9 TexReg 5926; amended to be effective April 29, 1988, 13 TexReg 1761; amended to be effective April 13, 1992, 17 TexReg 2273; amended to be effective July 14, 1994, 19 TexReg 5098; amended to be effective May 15, 1996, 21 TexReg 3798; amended to be effective May 5, 2002, 27 TexReg 3559; amended to be effective May 26, 2013, 38 TexReg 3033 |
