CHAPTER 422. ASSET PROTECTION ACT
INSURANCE CODE
TITLE 4. REGULATION OF SOLVENCY
SUBTITLE B. RESERVES AND INVESTMENTS
CHAPTER 422. ASSET PROTECTION ACT
SUBCHAPTER A. GENERAL PROVISIONS
Sec. 422.001. SHORT TITLE. This chapter may be cited as the
Asset Protection Act.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 1, eff. April 1, 2007.
Sec. 422.002. PURPOSES. (a) The purposes of this chapter are
to:
(1) require an insurer to maintain unencumbered assets in an
amount equal to the insurer's reserve liabilities;
(2) provide preferential claims against assets in favor of an
owner, beneficiary, assignee, certificate holder, or third-party
beneficiary of an insurance policy; and
(3) prevent the pledge or encumbrance of assets in excess of
certain amounts without a prior written order of the
commissioner.
(b) This chapter and the powers granted and functions authorized
by this chapter shall be exercised to accomplish the purposes of
this chapter.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 1, eff. April 1, 2007.
Sec. 422.003. DEFINITIONS. In this chapter:
(1) "Asset" means any property in which an insurer owns a legal
or equitable interest.
(2) "Claimant" means an owner, beneficiary, assignee,
certificate holder, or third-party beneficiary of an insurance
benefit or right arising from the coverage of an insurance policy
to which this chapter applies.
(3) "Reserve assets" means the assets of an insurer that are
authorized investments for policy reserves under this code.
(4) "Reserve liabilities" means the liabilities that an insurer
is required under this code to establish for all of the insurer's
outstanding insurance policies.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 1, eff. April 1, 2007.
Sec. 422.004. APPLICABILITY OF CHAPTER. This chapter applies
to:
(1) the following domestic insurers:
(A) a stock life, health, or accident insurance company;
(B) a mutual life, health, or accident insurance company;
(C) a stock fire or casualty insurance company;
(D) a mutual fire or casualty insurance company;
(E) a title insurance company;
(F) a mutual assessment company;
(G) a local mutual aid association;
(H) a local mutual burial association;
(I) a statewide mutual assessment company;
(J) a stipulated premium company;
(K) a fraternal benefit society;
(L) a group hospital service corporation;
(M) a county mutual insurance company;
(N) a Lloyd's plan;
(O) a reciprocal or interinsurance exchange;
(P) a farm mutual insurance company; and
(Q) a mortgage guaranty insurer; and
(2) all kinds of insurance written by an insurer to which this
chapter applies.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 1, eff. April 1, 2007.
Sec. 422.005. EXEMPTIONS. (a) This chapter does not apply to:
(1) variable contracts for which separate accounts are required
to be maintained;
(2) a reinsurance agreement or any trust account related to the
reinsurance agreement if the agreement and trust account meet the
requirements of Chapter 492 or 493;
(3) an assessment-as-needed company or insurance coverage
written by an assessment-as-needed company;
(4) an insurer while:
(A) the insurer is subject to a conservatorship order issued by
the commissioner; or
(B) a court-appointed receiver is in charge of the insurer's
affairs; or
(5) an insurer's reserve assets that are held, deposited,
pledged, or otherwise encumbered to secure, offset, protect, or
meet the insurer's reserve liabilities established in a
reinsurance agreement under which the insurer reinsures the
insurance policy liabilities of a ceding insurer if:
(A) the ceding insurer and the reinsurer are authorized to
engage in business in this state; and
(B) in accordance with a written agreement between the ceding
insurer and the reinsurer, reserve assets substantially equal to
the reserve liabilities the reinsurer must establish on the
reinsured business are:
(i) deposited by or withheld from the reinsurer and held in the
custody of the ceding insurer, or deposited and held in a trust
account with a state or national bank domiciled in this state, as
security for the payment of the reinsurer's obligations under the
reinsurance agreement;
(ii) held subject to withdrawal by the ceding insurer; and
(iii) held under the separate or joint control of the ceding
insurer.
(b) Notwithstanding this section, the commissioner may examine
any asset, reinsurance agreement, or deposit arrangement
described by Subsection (a)(5) at any time, in accordance with
the commissioner's authority under this code to examine an
insurer.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 1, eff. April 1, 2007.
Sec. 422.006. CONFLICT WITH OTHER LAW. If this chapter
conflicts with another law relating to the subject matter or
application of this chapter, this chapter controls.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 1, eff. April 1, 2007.
SUBCHAPTER B. ENCUMBRANCE OF ASSETS
Sec. 422.051. RESTRICTIONS ON ENCUMBRANCE OF ASSETS. (a) An
insurer shall at all times maintain unencumbered assets in an
amount equal to the insurer's reserve liabilities.
(b) An insurer may not pledge or otherwise encumber:
(1) the insurer's assets in an amount that exceeds the amount of
the insurer's capital and surplus; or
(2) more than 10 percent of the insurer's reserve assets.
(c) Notwithstanding any other provision of this section, on
application made to the commissioner, the commissioner may issue
a written order approving the pledge or encumbrance of an
insurer's asset in any amount if the commissioner determines that
the pledge or encumbrance will not adversely affect the insurer's
solvency.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 1, eff. April 1, 2007.
Sec. 422.052. REPORT TO COMMISSIONER. (a) Not later than the
10th day after the date an insurer pledges or otherwise encumbers
an asset, the insurer shall report in writing to the
commissioner:
(1) the amount and identity of the pledged or encumbered asset;
and
(2) the terms of the transaction.
(b) Annually, or more often as required by the commissioner, the
insurer shall file with the commissioner a statement sworn to by
the insurer's chief executive officer that:
(1) title to assets that equal the amount of the insurer's
reserve liabilities and that are not pledged or otherwise
encumbered is vested in the insurer;
(2) the only assets of the insurer that are pledged or otherwise
encumbered are those identified and reported in the sworn
statement, and no other assets of the insurer are pledged or
otherwise encumbered; and
(3) the terms of the transaction pledging or otherwise
encumbering the assets are those reported in the sworn statement.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 1, eff. April 1, 2007.
Sec. 422.053. CLAIMANT LIEN ON CERTAIN ASSETS. (a) A person,
corporation, association, or other legal entity that accepts as
security for an insurer's debt or other obligation a pledge or
encumbrance of an asset of the insurer that is not made in
accordance with this chapter is considered to have accepted the
asset subject to a superior, preferential, and automatically
perfected lien in favor of a claimant of the insurer.
(b) Subsection (a) does not apply to an asset of an insurer in
conservatorship or receivership if the commissioner in the
conservatorship proceeding, or the court in which the
receivership is pending, approves the pledge or encumbrance of
the asset.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 1, eff. April 1, 2007.
Sec. 422.054. PREFERENTIAL CLAIMS ON LIQUIDATION. If an insurer
is involuntarily or voluntarily liquidated, a claimant of the
insurer has a prior and preferential claim against all assets of
the insurer other than the assets that have been pledged or
encumbered in accordance with this chapter. All claimants have
equal status, and their prior and preferential claim is superior
to any claim or cause of action against the insurer by any other
person, corporation, association, or legal entity.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 1, eff. April 1, 2007.