CHAPTER 401. AUDITS AND EXAMINATIONS
INSURANCE CODE
TITLE 4. REGULATION OF SOLVENCY
SUBTITLE A. GENERAL PROVISIONS
CHAPTER 401. AUDITS AND EXAMINATIONS
SUBCHAPTER A. INDEPENDENT AUDIT OF FINANCIAL STATEMENTS
Sec. 401.001. DEFINITIONS. In this subchapter:
(1) "Accountant" means an independent certified public
accountant or accounting firm that meets the requirements of
Section 401.011.
(2) "Affiliate" has the meaning assigned by Section 823.003.
(3) "Health maintenance organization" means a health maintenance
organization authorized to engage in business in this state.
(4) "Insurer" means an insurer authorized to engage in business
in this state, including:
(A) a life, health, or accident insurance company;
(B) a fire and marine insurance company;
(C) a general casualty company;
(D) a title insurance company;
(E) a fraternal benefit society;
(F) a mutual life insurance company;
(G) a local mutual aid association;
(H) a statewide mutual assessment company;
(I) a mutual insurance company other than a mutual life
insurance company;
(J) a farm mutual insurance company;
(K) a county mutual insurance company;
(L) a Lloyd's plan;
(M) a reciprocal or interinsurance exchange;
(N) a group hospital service corporation;
(O) a stipulated premium company; and
(P) a nonprofit legal services corporation.
(5) "Subsidiary" has the meaning assigned by Section 823.003.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 1, eff. April 1, 2007.
Sec. 401.002. PURPOSE OF SUBCHAPTER. The purpose of this
subchapter is to require an annual audit by an independent
certified public accountant of the financial statements reporting
the financial condition and the results of operations of each
insurer or health maintenance organization.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 1, eff. April 1, 2007.
Sec. 401.003. EFFECT OF SUBCHAPTER ON AUTHORITY TO EXAMINE.
This subchapter does not limit the commissioner's authority to
order or the department's authority to conduct an examination of
an insurer or health maintenance organization under this code or
the commissioner's rules.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 1, eff. April 1, 2007.
Sec. 401.004. FILING AND EXTENSIONS FOR FILING OF AUDITED
FINANCIAL REPORT. (a) Unless exempt under Section 401.006,
401.007, or 401.008 and except as otherwise provided by Sections
401.005 and 401.016, an insurer or health maintenance
organization shall:
(1) have an annual audit performed by an accountant; and
(2) file with the commissioner on or before June 30 an audited
financial report for the preceding calendar year.
(b) The commissioner may require an insurer or health
maintenance organization to file an audited financial report on a
date that precedes June 30. The commissioner must notify the
insurer or health maintenance organization of the filing date not
later than the 90th day before that date.
(c) An insurer or health maintenance organization may request an
extension of the filing date by submitting the request in writing
before the 10th day preceding the filing date. The request must
include sufficient detail for the commissioner to make an
informed decision on the requested extension. The commissioner
may extend the filing date for one or more 30-day periods if the
commissioner determines that there is good cause for the
extension based on a showing by the insurer or health maintenance
organization and the insurer's or health maintenance
organization's accountant of the reasons for requesting the
extension.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 1, eff. April 1, 2007.
Sec. 401.005. ALTERNATIVE FILING FOR CANADIAN OR BRITISH
INSURERS OR HEALTH MAINTENANCE ORGANIZATIONS. (a) Instead of
the audited financial report required by Section 401.004, an
insurer or health maintenance organization domiciled in Canada or
the United Kingdom may file the insurer's or health maintenance
organization's annual statement of total business on the form
filed by the insurer or health maintenance organization with the
appropriate regulatory authority in the country of domicile. The
statement must be audited by an independent accountant chartered
in the country of domicile.
(b) The chartered accountant must be registered with the
commissioner under Section 401.014(a). The registration must be
accompanied by a statement, signed by the accountant, indicating
that the accountant is aware of the requirements of this
subchapter and affirming that the accountant will express the
accountant's opinion in conformity with those requirements.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 1, eff. April 1, 2007.
Sec. 401.006. EXEMPTION FOR CERTAIN SMALL INSURERS AND HEALTH
MAINTENANCE ORGANIZATIONS. (a) An insurer or health maintenance
organization that has less than $1 million in direct premiums
written in this state during a calendar year is exempt from the
requirement to file an audited financial report if the insurer or
health maintenance organization submits an affidavit, made under
oath by one of the insurer's or health maintenance organization's
officers, that specifies the amount of direct premiums written in
this state during that period.
(b) Notwithstanding Subsection (a), the commissioner may require
an insurer or health maintenance organization, other than a
fraternal benefit society that does not have any direct premiums
written in this state for accident and health insurance during a
calendar year, to comply with this subchapter if the commissioner
finds that the insurer's or health maintenance organization's
compliance is necessary for the commissioner to fulfill the
commissioner's statutory responsibilities.
(c) An insurer or health maintenance organization that has
assumed premiums of at least $1 million under reinsurance
agreements is not exempt under Subsection (a).
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 1, eff. April 1, 2007.
Sec. 401.007. EXEMPTION FOR CERTAIN FOREIGN OR ALIEN INSURERS OR
HEALTH MAINTENANCE ORGANIZATIONS. (a) A foreign or alien
insurer or health maintenance organization that files an audited
financial report in another state in accordance with that state's
requirements for audited financial reports may be exempt from
filing a report under this subchapter if the commissioner finds
that the other state's requirements are substantially similar to
the requirements prescribed by this subchapter.
(b) An insurer or health maintenance organization exempt under
this section shall file with the commissioner a copy of:
(1) the audited financial report, the report on significant
deficiencies in internal controls, and the accountant's letter of
qualifications filed with the other state; and
(2) any notification of adverse financial conditions report
filed with the other state.
(c) The reports and letter required by Subsection (b)(1) must be
filed in accordance with the filing dates prescribed by Sections
401.004 and 401.019. The report required by Subsection (b)(2)
must be filed in accordance with the filing date prescribed by
Section 401.017.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 1, eff. April 1, 2007.
Sec. 401.008. HARDSHIP EXEMPTION. (a) An insurer or health
maintenance organization that is not eligible for an exemption
under Section 401.006 or 401.007 may apply to the commissioner
for a hardship exemption.
(b) Subject to Subsection (c), the commissioner may grant an
exemption under this section if the commissioner finds, after
reviewing the application, that compliance with this subchapter
would constitute a severe financial or organizational hardship
for the insurer or health maintenance organization. The
commissioner may grant the exemption at any time for one or more
specified periods.
(c) The commissioner may not grant an exemption under this
section if:
(1) the exemption would diminish the department's ability to
monitor the financial condition of the insurer or health
maintenance organization; or
(2) the insurer or health maintenance organization:
(A) during the five-year period preceding the date the
application for the exemption is made:
(i) has been placed under supervision, conservatorship, or
receivership;
(ii) has undergone a change in control, as described by Section
823.005; or
(iii) has been subject to a significant number of complaints, as
determined by the commissioner;
(B) has been identified by the department as troubled;
(C) has been or is the subject of a disciplinary action by the
department; or
(D) is not complying with the law or with a rule adopted by the
commissioner.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 1, eff. April 1, 2007.
Sec. 401.009. CONTENTS OF AUDITED FINANCIAL REPORT. (a) An
audited financial report required under Section 401.004 must:
(1) describe the financial condition of the insurer or health
maintenance organization as of the end of the most recent
calendar year and the results of the insurer's or health
maintenance organization's operations, changes in financial
position, and changes in capital and surplus for that year;
(2) conform to the statutory accounting practices prescribed or
otherwise permitted by the insurance regulator in the insurer's
or health maintenance organization's state of domicile; and
(3) include:
(A) the report of an accountant;
(B) a balance sheet that reports admitted assets, liabilities,
capital, and surplus;
(C) a statement of gain or loss from operations;
(D) a statement of cash flows;
(E) a statement of changes in capital and surplus;
(F) any notes to financial statements;
(G) supplementary data and information, including any additional
data or information required by the commissioner; and
(H) information required by the department to conduct the
insurer's or health maintenance organization's examination under
Subchapter B.
(b) The notes to financial statements required by Subsection
(a)(3)(F) must include:
(1) a reconciliation of any differences between the audited
statutory financial statements and the annual statements filed
under this code, with a written description of the nature of
those differences;
(2) any notes required by the appropriate National Association
of Insurance Commissioners annual statement instructions or by
generally accepted accounting principles; and
(3) a summary of the ownership of the insurer or health
maintenance organization and that entity's relationship to any
affiliated company.
(c) An insurer or health maintenance organization required under
Section 401.004 to file an audited financial report that does not
retain an independent certified public accountant to perform an
annual audit for the previous year may not be required to include
in the report audited statements of operations, cash flows, or
changes in capital and surplus for the first year. The insurer
or health maintenance organization must include those statements
in the first-year report and label the statements as unaudited.
The insurer or health maintenance organization must include in
the first-year report all other reports described by Section
401.004.
(d) The commissioner shall adopt rules governing the information
to be included in the audited financial report under Subsection
(a)(3)(H).
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 1, eff. April 1, 2007.
Sec. 401.010. REQUIREMENTS FOR FINANCIAL STATEMENTS IN AUDITED
FINANCIAL REPORT. (a) An accountant must audit the financial
reports provided by an insurer or health maintenance organization
for purposes of an audit under this subchapter. The accountant
who audits the reports must conduct the audit in accordance with
generally accepted auditing standards or with standards adopted
by the Public Company Accounting Oversight Board, as applicable,
and must consider the standards specified in the Financial
Condition Examiner's Handbook adopted by the National Association
of Insurance Commissioners or other analogous nationally
recognized standards adopted by commissioner rule.
(b) The financial statements included in the audited financial
report must be prepared in a form and using language and
groupings substantially the same as those of the relevant
sections of the insurer's or health maintenance organization's
annual statement filed with the commissioner. Beginning in the
second year in which an insurer or health maintenance
organization is required to file an audited financial report, the
financial statements must also be comparative, presenting the
amounts as of December 31 of the reported year and the amounts as
of December 31 of the preceding year.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 1, eff. April 1, 2007.
Amended by:
Acts 2007, 80th Leg., R.S., Ch.
730, Sec. 3B.001(a), eff. September 1, 2007.
Acts 2007, 80th Leg., R.S., Ch.
921, Sec. 9.001(a), eff. September 1, 2007.
Sec. 401.011. QUALIFICATIONS OF ACCOUNTANT; ACCEPTANCE OF
AUDITED FINANCIAL REPORT. (a) Except as provided by Subsections
(c) and (d), the commissioner shall accept an audited financial
report from an independent certified public accountant or
accounting firm that:
(1) is a member in good standing of the American Institute of
Certified Public Accountants and is in good standing with all
states in which the accountant or firm is licensed to practice,
as applicable; and
(2) conforms to the American Institute of Certified Public
Accountants Code of Professional Conduct and to the rules of
professional conduct and other rules of the Texas State Board of
Public Accountancy or a similar code.
(b) If the insurer or health maintenance organization is
domiciled in Canada, the commissioner shall accept an audited
financial report from an accountant chartered in Canada. If the
insurer or health maintenance organization is domiciled in Great
Britain, the commissioner shall accept an audited financial
report from an accountant chartered in Great Britain.
(c) A partner or other person responsible for rendering a report
for an insurer or health maintenance organization for seven
consecutive years may not, during the two-year period after that
seventh year, render a report for the insurer or health
maintenance organization or for a subsidiary or affiliate of the
insurer or health maintenance organization that is engaged in the
business of insurance. The commissioner may determine that the
limitation provided by this subsection does not apply to an
accountant for a particular insurer or health maintenance
organization if the insurer or health maintenance organization
demonstrates to the satisfaction of the commissioner that the
limitation's application to the insurer or health maintenance
organization would be unfair because of unusual circumstances.
In making the determination, the commissioner may consider:
(1) the number of partners or individuals the accountant
employs, the expertise of the partners or individuals the
accountant employs, or the number of the accountant's insurance
clients;
(2) the premium volume of the insurer or health maintenance
organization; and
(3) the number of jurisdictions in which the insurer or health
maintenance organization engages in business.
(d) The commissioner may not accept an audited financial report
prepared wholly or partly by an individual or firm who the
commissioner finds:
(1) has been convicted of fraud, bribery, a violation of the
Racketeer Influenced and Corrupt Organizations Act (18 U.S.C.
Section 1961 et seq.), or a state or federal criminal offense
involving dishonest conduct;
(2) has violated the insurance laws of this state with respect
to a report filed under this subchapter;
(3) has demonstrated a pattern or practice of failing to detect
or disclose material information in reports filed under this
subchapter; or
(4) has directly or indirectly entered into an agreement of
indemnity or release of liability regarding an audit of an
insurer.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 1, eff. April 1, 2007.
Amended by:
Acts 2007, 80th Leg., R.S., Ch.
730, Sec. 3B.002(a), eff. September 1, 2007.
Acts 2007, 80th Leg., R.S., Ch.
921, Sec. 9.002(a), eff. September 1, 2007.
Sec. 401.012. HEARING ON ACCOUNTANT QUALIFICATIONS; REPLACEMENT
OF ACCOUNTANT. The commissioner may hold a hearing to determine
if an accountant is qualified and independent. If, after
considering the evidence presented, the commissioner determines
that an accountant is not qualified and independent for purposes
of expressing an opinion on the financial statements in an
audited financial report filed under this subchapter, the
commissioner shall issue an order directing the insurer or health
maintenance organization to replace the accountant with a
qualified and independent accountant.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 1, eff. April 1, 2007.
Sec. 401.013. ACCOUNTANT'S LETTER OF QUALIFICATIONS. (a) The
audited financial report required under Section 401.004 must be
accompanied by a letter provided by the accountant who performed
the audit stating:
(1) the accountant's general background and experience;
(2) the experience of each individual assigned to prepare the
audit in auditing insurers or health maintenance organizations
and whether the individual is an independent certified public
accountant; and
(3) that the accountant:
(A) is properly licensed by an appropriate state licensing
authority, is a member in good standing of the American Institute
of Certified Public Accountants, and is otherwise qualified under
Section 401.011;
(B) is independent from the insurer or health maintenance
organization and conforms to the standards of the profession
contained in the American Institute of Certified Public
Accountants Code of Professional Conduct, the statements of that
institute, and the rules of professional conduct adopted by the
Texas State Board of Public Accountancy, or a similar code;
(C) understands that:
(i) the audited financial report and the accountant's opinion on
the report will be filed in compliance with this subchapter; and
(ii) the commissioner will rely on the report and opinion in
monitoring and regulating the insurer's or health maintenance
organization's financial position; and
(D) consents to the requirements of Section 401.020 and agrees
to make the accountant's work papers available for review by the
department or the department's designee.
(b) Subsection (a)(2) does not prohibit an accountant from using
any staff the accountant considers appropriate if use of that
staff is consistent with generally accepted auditing standards.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 1, eff. April 1, 2007.
Sec. 401.014. REGISTRATION OF ACCOUNTANT. (a) Not later than
December 31 of the calendar year to be covered by an audited
financial report required by this subchapter, an insurer or
health maintenance organization must register in writing with the
commissioner the name and address of the accountant retained to
prepare the report.
(b) The insurer or health maintenance organization must include
with the registration a statement signed by the accountant:
(1) indicating that the accountant is aware of the requirements
of this subchapter and of the rules of the insurance department
of the insurer's or health maintenance organization's state of
domicile that relate to accounting and financial matters; and
(2) affirming that the accountant will express the accountant's
opinion on the financial statements in terms of the statements'
conformity to the statutory accounting practices prescribed or
otherwise permitted by the insurance department described by
Subdivision (1) and specifying any exceptions the accountant
believes are appropriate.
(c) The commissioner may not accept an audited financial report
prepared by an accountant who is not registered under this
section.
(d) The commissioner may not accept the registration of a person
who does not qualify under Section 401.011 or does not comply
with the other requirements of this subchapter.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 1, eff. April 1, 2007.
Sec. 401.015. RESIGNATION OR DISMISSAL OF ACCOUNTANT; STATEMENT
CONCERNING DISAGREEMENTS. (a) If an accountant who signed an
audited financial report for an insurer or health maintenance
organization resigns as accountant for the insurer or health
maintenance organization or is dismissed by the insurer or health
maintenance organization after the report is filed, the insurer
or health maintenance organization shall notify the department
not later than the fifth business day after the date of the
resignation or dismissal.
(b) Not later than the 10th business day after the date the
insurer or health maintenance organization notifies the
department under Subsection (a), the insurer or health
maintenance organization shall file a written statement with the
commissioner advising the commissioner of any disagreements
between the accountant and the insurer's or health maintenance
organization's personnel responsible for presenting the insurer's
or health maintenance organization's financial statements that:
(1) relate to accounting principles or practices, financial
statement disclosure, or auditing scope or procedures;
(2) occurred during the 24 months preceding the date of the
resignation or dismissal; and
(3) would have caused the accountant to note the disagreement in
connection with the audited financial report if the disagreement
were not resolved to the satisfaction of the accountant.
(c) The statement required by Subsection (b) must include a
description of disagreements that were resolved to the
accountant's satisfaction and those that were not resolved to the
accountant's satisfaction.
(d) The insurer or health maintenance organization shall file
with the statement required by Subsection (b) a letter signed by
the accountant stating whether the accountant agrees with the
insurer's or health maintenance organization's statement and, if
not, the reasons why the accountant does not agree. If the
accountant fails to provide the letter, the insurer or health
maintenance organization shall file with the commissioner a copy
of a written request to the accountant for the letter.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 1, eff. April 1, 2007.
Sec. 401.016. AUDITED COMBINED OR CONSOLIDATED FINANCIAL
STATEMENTS. (a) An insurer or health maintenance organization
described by Section 401.001(3) or (4) that is required to file
an audited financial report under this subchapter may apply in
writing to the commissioner for approval to file audited combined
or consolidated financial statements instead of separate audited
financial reports if the insurer or health maintenance
organization:
(1) is part of a group of insurers or health maintenance
organizations that uses a pooling arrangement or 100 percent
reinsurance agreement that affects the solvency and integrity of
the insurer's or health maintenance organization's reserves; and
(2) cedes all of the insurer's or health maintenance
organization's direct and assumed business to the pool.
(b) An insurer or health maintenance organization must file an
application under Subsection (a) not later than December 31 of
the calendar year for which the audited combined or consolidated
financial statements are to be filed.
(c) An insurer or health maintenance organization that receives
approval from the commissioner under this section shall file a
columnar combining or consolidating worksheet for the audited
combined or consolidated financial statements that includes:
(1) the amounts shown on the audited combined or consolidated
financial statements;
(2) the amounts for each insurer or health maintenance
organization stated separately;
(3) the noninsurance operations shown on a combined or
individual basis;
(4) explanations of consolidating and eliminating entries; and
(5) a reconciliation of any differences between the amounts
shown in the individual insurer or health maintenance
organization columns of the worksheet and comparable amounts
shown on the insurer's or health maintenance organization's
annual statements.
(d) An insurer or health maintenance organization that does not
receive approval from the commissioner to file audited combined
or consolidated financial statements for the insurer or health
maintenance organization and any of the insurer's or health
maintenance organization's subsidiaries or affiliates shall file
a separate audited financial report.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 1, eff. April 1, 2007.
Sec. 401.017. NOTICE OF ADVERSE FINANCIAL CONDITION OR
MISSTATEMENT OF FINANCIAL CONDITION. (a) An insurer or health
maintenance organization required to file an audited financial
report under this subchapter shall require the insurer's or
health maintenance organization's accountant to immediately
notify the board of directors of the insurer or health
maintenance organization or the insurer's or health maintenance
organization's audit committee in writing of any determination by
that accountant that:
(1) the insurer or health maintenance organization has
materially misstated the insurer's or health maintenance
organization's financial condition as reported to the
commissioner as of the balance sheet date being audited; or
(2) the insurer or health maintenance organization does not meet
the minimum capital and surplus requirements prescribed by this
code for the insurer or health maintenance organization as of
that date.
(b) An insurer or health maintenance organization that receives
a notice described by Subsection (a) shall:
(1) provide to the commissioner a copy of the notice not later
than the fifth business day after the date the insurer or health
maintenance organization receives the notice; and
(2) provide to the accountant evidence that the notice was
provided to the commissioner.
(c) If the accountant does not receive the evidence required by
Subsection (b)(2) on or before the fifth business day after the
date the accountant notified the insurer or health maintenance
organization under Subsection (a), the accountant shall file with
the commissioner a copy of the accountant's written notice not
later than the 10th business day after the date the accountant
notified the insurer or health maintenance organization.
(d) An accountant is not liable to an insurer or health
maintenance organization or the insurer's or health maintenance
organization's policyholders, shareholders, officers, employees,
directors, creditors, or affiliates for a statement made under
this section if the statement was made in good faith to comply
with this section.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 1, eff. April 1, 2007.
Sec. 401.018. INFORMATION DISCOVERED AFTER DATE OF AUDITED
FINANCIAL REPORT. If, after the date of an audited financial
report filed under this subchapter, the accountant becomes aware
of facts that might have affected the report, the accountant must
take action as prescribed in Volume 1, AU Section 561,
Professional Standards of the American Institute of Certified
Public Accountants.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 1, eff. April 1, 2007.
Sec. 401.019. REPORT ON SIGNIFICANT DEFICIENCIES IN INTERNAL
CONTROL. (a) In addition to the audited financial report
required by this subchapter, each insurer or health maintenance
organization shall provide to the commissioner a written report
of significant deficiencies required and prepared by an
accountant in accordance with the Professional Standards of the
American Institute of Certified Public Accountants.
(b) The insurer or health maintenance organization shall
annually file with the commissioner the report required by this
section not later than the 60th day after the date the audited
financial report is filed. The insurer or health maintenance
organization shall also provide a description of remedial actions
taken or proposed to be taken to correct significant
deficiencies, if the actions are not described in the
accountant's report.
(c) The report must follow generally the form for communication
of internal control structure matters noted in an audit described
in Statement on Auditing Standard (SAS) No. 60, AU Section 325,
Professional Standards of the American Institute of Certified
Public Accountants.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 1, eff. April 1, 2007.
Sec. 401.020. ACCOUNTANT WORK PAPERS. (a) In this section,
"work papers" means the records kept by an accountant of the
procedures followed, the tests performed, the information
obtained, and the conclusions reached that are pertinent to the
accountant's audit of an insurer's or health maintenance
organization's financial statements. The term includes work
programs, analyses, memoranda, letters of confirmation and
representation, abstracts of company documents and schedules, and
commentaries prepared or obtained by the accountant in the course
of auditing the financial statements that support the
accountant's opinion.
(b) An insurer or health maintenance organization required to
file an audited financial report under this subchapter shall
require the insurer's or health maintenance organization's
accountant to make available for review by the department's
examiners the work papers and any record of communications
between the accountant and the insurer or health maintenance
organization relating to the accountant's audit that were
prepared in conducting the audit. The insurer or health
maintenance organization shall require that the accountant retain
the work papers and records of communications until the earlier
of:
(1) the date the department files a report on the examination
covering the audit period; or
(2) the seventh anniversary of the date of the last day of the
audit period.
(c) The department may copy and retain the copies of pertinent
work papers when the department's examiners conduct a review
under Subsection (b). The review is considered an investigation,
and work papers obtained during that investigation may be made
confidential by the commissioner, unless the work papers are
admitted as evidence in a hearing before a governmental agency or
in a court.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 1, eff. April 1, 2007.
Sec. 401.021. PENALTY FOR FAILURE TO COMPLY. (a) If an insurer
or health maintenance organization fails to comply with this
subchapter, the commissioner shall order that the insurer's or
health maintenance organization's annual audit be performed by a
qualified independent certified public accountant.
(b) The commissioner shall assess against the insurer or health
maintenance organization the cost of auditing the insurer's or
health maintenance organization's financial statement under this
section.
(c) The insurer or health maintenance organization shall pay to
the commissioner the amount of the assessment not later than the
30th day after the date the commissioner issues the notice of
assessment to the insurer or health maintenance organization.
(d) Money collected under this section shall be deposited to the
credit of the Texas Department of Insurance operating account for
use by the commissioner and the department to pay the expenses
incurred under this subchapter.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 1, eff. April 1, 2007.
SUBCHAPTER B. EXAMINATION OF CARRIERS
Sec. 401.051. DUTY TO EXAMINE CARRIERS. (a) The department or
an examiner appointed by the department shall visit at the
carrier's principal office:
(1) each carrier that is organized under the laws of this state;
and
(2) each other carrier that is authorized to engage in business
in this state.
(b) The department or an examiner appointed by the department
may visit the carrier for the purpose of investigating the
carrier's affairs and condition. The department or an examiner
appointed by the department shall examine the carrier's financial
condition and ability to meet the carrier's liabilities and
compliance with the laws of this state that affect the conduct of
the carrier's business.
(c) The department or an examiner appointed by the department
may conduct the visit and examination of a carrier described by
Subsection (a)(2) alone or with representatives of the insurance
supervising departments of other states.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 1, eff. April 1, 2007.
Sec. 401.052. FREQUENCY OF EXAMINATION. (a) Subject to
Subsection (b) and except as provided by the rules adopted under
that subsection, the department shall visit and examine a carrier
as frequently as the department considers necessary. At a
minimum, the department shall examine a carrier not less
frequently than once every five years.
(b) The commissioner shall adopt rules governing the frequency
of examinations of carriers that have been organized or
incorporated for less than five years.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 1, eff. April 1, 2007.
Amended by:
Acts 2007, 80th Leg., R.S., Ch.
188, Sec. 1, eff. September 1, 2007.
Sec. 401.053. EXAMINATION PERIOD. Unless the department
requests that an examination cover a longer period, the
examination must cover the period beginning on the last day
covered by the most recent examination and ending on December 31
of the year preceding the year in which the examination is being
conducted.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 1, eff. April 1, 2007.
Sec. 401.054. POWERS RELATED TO EXAMINATION. The department or
the examiner appointed by the department:
(1) has free access, and may require the carrier or the
carrier's agent to provide free access, to all books and papers
of the carrier or the carrier's agent that relate to the
carrier's business and affairs; and
(2) has the authority to summon and examine under oath, if
necessary, an officer, agent, or employee of the carrier or any
other person in relation to the carrier's affairs and condition.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 1, eff. April 1, 2007.
Sec. 401.055. EFFECT OF SUBCHAPTER ON AUTHORITY TO USE
INFORMATION. This subchapter does not limit the commissioner's
authority to use a final or preliminary examination report, an
examiner's or company's work papers or other documents, or any
other information discovered or developed during an examination
in connection with a legal or regulatory action that the
commissioner, in the commissioner's sole discretion, considers
appropriate.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 1, eff. April 1, 2007.
Sec. 401.056. RULES RELATED TO REPORTS AND HEARINGS. The
commissioner by rule shall adopt:
(1) procedures governing the filing and adoption of an
examination report;
(2) procedures governing a hearing to be held under this
subchapter; and
(3) guidelines governing an order issued under this subchapter.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 1, eff. April 1, 2007.
Sec. 401.057. USE OF AUDIT AND WORK PAPERS. (a) In this
section, "work papers" has the meaning assigned by Section
401.020(a).
(b) In conducting an examination under this subchapter, the
department shall use audits and work papers that the carrier
makes available to the department and that are prepared by an
accountant or accounting firm meeting the qualifications of
Section 401.011. The department may conduct a separate audit of
the carrier if necessary. Work papers developed in the audit
shall be maintained in the manner provided by Sections 401.020(b)
and (c).
(c) The carrier shall provide the department with:
(1) the work papers of an accountant or accounting firm or the
carrier; and
(2) a record of any communications between the accountant or
accounting firm and the carrier that relate to an audit.
(d) The accountant or accounting firm shall deliver the
information described by Subsection (c) to the examiner. The
examiner shall retain the information during the department's
examination of the carrier.
(e) Information obtained under this section is confidential and
may not be disclosed to the public except when introduced as
evidence in a hearing.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 1, eff. April 1, 2007.
Sec. 401.058. CONFIDENTIALITY OF REPORTS AND RELATED
INFORMATION. (a) A final or preliminary examination report and
any information obtained during an examination are confidential
and are not subject to disclosure under Chapter 552, Government
Code.
(b) Subsection (a) applies if the examined carrier is under
supervision or conservatorship. Subsection (a) does not apply to
an examination conducted in connection with a liquidation or
receivership under this code or another insurance law of this
state.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 1, eff. April 1, 2007.
Sec. 401.059. DETERMINATION OF VALUE. In determining the value
or market value of an investment in or on real estate or an
improvement to real estate by a carrier authorized to engage in
business in this state, the department, in administering this
code, may consider any factor or matter that the department
considers proper and material, including:
(1) an appraisal by a real estate board or other qualified
person;
(2) an affidavit by another person familiar with those values;
(3) a tax valuation;
(4) the cost of acquisition after deducting for depreciation and
obsolescence;
(5) the cost of replacement;
(6) sales of other comparable property;
(7) enhancement in value from any cause;
(8) income received or to be received; and
(9) any improvements made.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 1, eff. April 1, 2007.
Sec. 401.060. RIGHT TO INFORMATION RELATING TO DETERMINATION OF
VALUE OR MARKET VALUE. (a) If the department determines the
value or market value of an insurer's investment in or on real
estate or an improvement to real estate, the insurer is entitled
to make a written request for a written finding by the
commissioner in relation to that determination.
(b) Not later than the 10th day after the date the commissioner
receives a request under Subsection (a), the commissioner shall
enter a written order or finding that:
(1) states separately the department's findings on each factor
or matter on which the department relied in making the
determination; and
(2) includes the name and address of each person who provided
evidence relating to a factor or matter on which the department
relied in making the determination.
(c) The commissioner shall provide to the insurer that requested
a written finding under this section a copy of the finding or
order.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 1, eff. April 1, 2007.
Sec. 401.061. DISCIPLINARY ACTION FOR FAILURE TO COMPLY WITH
SUBCHAPTER. A carrier is subject to disciplinary action under
Chapter 82 if the carrier or the carrier's agent fails or refuses
to comply with:
(1) this subchapter or a rule adopted under this subchapter; or
(2) a request by the department or an appointed examiner to be
examined or to provide information requested as part of an
examination.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 1, eff. April 1, 2007.
Sec. 401.062. STAY OF RULE, ORDER, DECISION, OR FINDING. The
filing of a petition under Subchapter D, Chapter 36, for judicial
review of a rule, order, decision, or finding of the commissioner
or department under this subchapter operates as a stay of the
rule, order, decision, or finding until the court directs
otherwise.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 1, eff. April 1, 2007.
SUBCHAPTER C. EXAMINERS AND ACTUARIES
Sec. 401.101. USE OF DEPARTMENT EXAMINER OR OTHER QUALIFIED
PERSON OR FIRM. The department may use a salaried department
examiner or may appoint a qualified person or firm to perform an
examination of an insurance organization as provided by law or to
assist in the performance of an examination.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 1, eff. April 1, 2007.
Sec. 401.102. LEGISLATIVE INTENT AS TO APPOINTMENT OR EMPLOYMENT
OF EXAMINERS AND ACTUARIES. (a) The legislature recognizes that
experienced, highly qualified examiners and actuaries are
necessary for the department to effectively monitor and regulate
the solvency of insurers in this state. It is the intent of the
legislature that the department, in appointing or employing an
examiner or actuary, select a person who:
(1) has substantial experience in financial matters relating to
insurance or other areas of financial activity that are
compatible with the business of insurance; and
(2) is recognized for the outstanding quality of the person's
work in relation to areas of responsibility typically assigned to
an examiner or actuary in the insurance field.
(b) The legislature pledges to provide to the department the
necessary funding to implement this section and to support the
department in the department's efforts to attract the highly
qualified persons necessary to fulfill regulatory
responsibilities relating to insurer solvency assigned to those
persons under the insurance laws of this state.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 1, eff. April 1, 2007.
Sec. 401.103. APPOINTMENT OF EXAMINERS AND ACTUARIES. (a) The
department shall appoint:
(1) a chief examiner and the number of assistant examiners the
department considers necessary to conduct examinations of
insurance companies, corporations, and associations at the
expense of the insurance company, corporation, or association as
provided by law; and
(2) the number of actuaries the department considers necessary
to:
(A) advise the department in connection with the performance of
the department's duties; and
(B) otherwise aid and counsel the department in connection with
the examinations.
(b) The department may increase or decrease the number of
examiners or actuaries as needed for examination duties.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 1, eff. April 1, 2007.
Sec. 401.104. APPOINTMENT OF EXAMINERS, ACTUARIES, AND OTHER
PERSONS FOR CERTAIN EXAMINATIONS. (a) The department may
commission a department actuary, the chief examiner, another
department examiner or employee, or any other person to conduct
or assist in the examination of a company that is not organized
under the laws of this state.
(b) The department may compensate a person described by
Subsection (a). If the department compensates the person, the
person may not receive any other compensation while the person is
assigned to the examination.
(c) Except as provided by this section and Section 401.152, a
department actuary or examiner may not continue to serve in that
capacity if the person directly or indirectly accepts employment
or compensation for a service rendered or to be rendered from any
insurance company for any reason.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 1, eff. April 1, 2007.
Sec. 401.105. OATH OF EXAMINERS AND ASSISTANTS. Before entering
into the duties of appointment as an examiner or assistant
examiner, an individual must take and file in the office of the
secretary of state an oath to:
(1) support the constitution of this state;
(2) faithfully conduct the individual's duties of office;
(3) make fair and impartial examinations;
(4) not accept, directly or indirectly, as a gift or emolument
any pay for the discharge of the individual's duty, other than
the compensation to which the individual is entitled by law; and
(5) not reveal the condition of a corporation, firm, or person
or any information secured while examining a corporation, firm,
or person to anyone other than:
(A) the department or an authorized representative of the
department; or
(B) as required when testifying in an administrative hearing
under this code or another insurance law of this state or in
court.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 1, eff. April 1, 2007.
Sec. 401.106. RIGHT OF ACTION ON BOND. If an examiner or
assistant examiner knowingly makes a false report or gives any
information in violation of law that relates to an examination of
a corporation, firm, or person, the corporation, firm, or person
has a right of action on a bond authorized under Chapter 653,
Government Code, for the entity's injuries in a suit brought in
the name of the state at the relation of the entity.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 1, eff. April 1, 2007.
Sec. 401.107. REGISTRATION OF CONTRACT EXAMINERS. (a) A person
with whom another state contracts to perform any examination
initiated by the other state of an insurer domiciled in this
state shall register with and provide the following information
to the department's chief examiner:
(1) the person's name;
(2) if the person is not an individual, the identity of each
examiner or other person who will perform any part of the
examination;
(3) the name of the state that contracted with the person;
(4) the identity of the insurer to be examined; and
(5) a description of each issue that the person has been
contracted to examine.
(b) It is a violation of this code for a person to accept
compensation from multiple states for the same examination, if
doing so results in duplicative costs to the insurer being
examined. It is not a violation of this code for:
(1) an examiner to conduct an examination of an insurer for the
benefit of multiple states in a coordinated examination; and
(2) the examiner to accept compensation from the states
participating in the coordinated examination to reduce the
examination costs to the insurer being examined.
Added by Acts 2009, 81st Leg., R.S., Ch.
1030, Sec. 2, eff. June 19, 2009.
SUBCHAPTER D. EXAMINATION EXPENSES
Sec. 401.151. EXPENSES OF EXAMINATION OF DOMESTIC INSURER. (a)
A domestic insurer examined on behalf of this state by the
department or under the department's authority shall pay the
expenses of the examination in an amount the commissioner
certifies as just and reasonable.
(b) The department shall collect an assessment at the time of
the examination to cover all expenses attributable directly to
that examination, including:
(1) the salaries and expenses of department employees; and
(2) expenses described by Section 803.007.
(c) The department shall also impose an annual assessment on
domestic insurers in an amount sufficient to meet all other
expenses and disbursements necessary to comply with the laws of
this state relating to the examination of insurers.
(d) In determining the amount of the assessment under Subsection
(c), the department:
(1) shall consider:
(A) the insurer's annual premium receipts or admitted assets, or
both, that are not attributable to 90 percent of pension plan
contracts as defined by Section 818(a), Internal Revenue Code of
1986; or
(B) the total amount of the insurer's insurance in force; and
(2) may not consider insurance premiums for insurance contracted
for by a state or federal governmental entity to provide welfare
benefits to designated welfare recipients or contracted for in
accordance with or in furtherance of Title 2, Human Resources
Code, or the federal Social Security Act (42 U.S.C. Section 301
et seq.).
(e) The amount of all examination and evaluation fees paid to
the state by an insurer in each taxable year shall be allowed as
a credit on the amount of premium taxes due.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 1, eff. April 1, 2007.
Amended by:
Acts 2007, 80th Leg., R.S., Ch.
932, Sec. 17, eff. June 15, 2007.
Sec. 401.152. EXPENSES OF EXAMINATION OF OTHER INSURERS. (a)
An insurer not organized under the laws of this state shall
reimburse the department for the salary and expenses of each
examiner participating in an examination of the insurer and for
other department expenses that are properly allocable to the
department's participation in the examination.
(b) An insurer shall pay the expenses under this section
regardless of whether the examination is made only by the
department or jointly with the insurance supervisory authority of
another state.
(c) The insurer shall pay the expenses directly to the
department on presentation of an itemized written statement from
the commissioner.
(d) The commissioner shall determine the salary of an examiner
participating in an examination of an insurer's books or records
located in another state based on the salary rate recommended by
the National Association of Insurance Commissioners or the
examiner's regular salary rate.
(e) The limitations provided by Sections 803.007(1) and (2)(B)
for a domestic company apply to a foreign insurer.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 1, eff. April 1, 2007.
Sec. 401.153. REIMBURSEMENT OF EXPENSES OF CERTAIN PERSONS OR
FIRMS. (a) A person or firm appointed by the department to
examine an insurer or to assist in the insurer's examination
shall be paid for those services at the usual and customary rates
charged for those services. The insurer being examined shall pay
the fee for those services.
(b) The commissioner may disapprove the payment of a fee under
Subsection (a) if the fee is excessive in relation to the
services actually performed.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 1, eff. April 1, 2007.
Sec. 401.154. TAX CREDIT AUTHORIZED. An insurer is entitled to
a credit on the amount of premium taxes to be paid by the insurer
for all examination fees paid under Section 401.153. The insurer
may take the credit for the taxable year during which the
examination fees are paid and may take the credit to the same
extent the insurer may take a credit for examination fees paid
when a salaried department examiner conducts the examination.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 1, eff. April 1, 2007.
Amended by:
Acts 2007, 80th Leg., R.S., Ch.
932, Sec. 18, eff. June 15, 2007.
Sec. 401.155. ADDITIONAL ASSESSMENTS. (a) The department shall
impose additional assessments against insurers on a pro rata
basis as necessary to:
(1) cover all expenses and disbursements required by law; and
(2) comply with this subchapter and Sections 401.103, 401.104,
401.105, and 401.106.
(b) The department shall use any surplus resulting from an
assessment under this section to reduce the amount of subsequent
assessments.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 1, eff. April 1, 2007.
Sec. 401.156. DEPOSIT AND USE OF ASSESSMENT AND FEE. (a) The
department shall deposit an assessment or fee collected under
this subchapter to the credit of the Texas Department of
Insurance operating account.
(b) Money deposited under this section shall be used to pay the
salaries and expenses of actuaries and examiners and all other
expenses relating to examinations of insurers.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 1, eff. April 1, 2007.
SUBCHAPTER E. CONFIDENTIALITY OF CERTAIN INFORMATION
Sec. 401.201. CONFIDENTIALITY OF EARLY WARNING SYSTEM
INFORMATION. Information relating to the financial solvency of
an organization regulated by the department under this code or
another insurance law of this state that is obtained by the
department's early warning system is confidential and is not
subject to disclosure under Chapter 552, Government Code.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 1, eff. April 1, 2007.