CHAPTER 427. SUBORDINATED INDEBTEDNESS
INSURANCE CODE
TITLE 4. REGULATION OF SOLVENCY
SUBTITLE B. RESERVES AND INVESTMENTS
CHAPTER 427. SUBORDINATED INDEBTEDNESS
SUBCHAPTER A. GENERAL PROVISIONS
Sec. 427.001. APPLICABILITY OF CHAPTER. This chapter applies to
an insurer or health maintenance organization as defined by
Section 401.001.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 1, eff. April 1, 2007.
Sec. 427.002. RULES. The commissioner shall adopt rules
necessary to implement this chapter.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 1, eff. April 1, 2007.
SUBCHAPTER B. LOAN, ADVANCE, AND OTHER INDEBTEDNESS
Sec. 427.051. LOAN OR ADVANCE PERMITTED. An insurer or health
maintenance organization may obtain a loan or an advance,
repayable with interest, of:
(1) cash;
(2) cash equivalents; or
(3) other assets that have a readily determinable value and are
satisfactory to the commissioner.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 1, eff. April 1, 2007.
Sec. 427.052. SUBORDINATED LIABILITY PERMITTED. (a) An insurer
or health maintenance organization may assume a subordinated
liability for repayment of a loan or advance described by Section
427.051 and payment of interest on the loan or advance if the
insurer or health maintenance organization and the creditor
execute a written agreement stating that the creditor may be paid
only out of that portion of the insurer's or health maintenance
organization's surplus that exceeds the greater of:
(1) a minimum surplus amount set in the agreement; or
(2) a minimum surplus amount of $500,000.
(b) The department or commissioner may not require the agreement
to provide a minimum surplus amount that is different from the
amount described by this section.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 1, eff. April 1, 2007.
Sec. 427.053. APPROVAL OF AGREEMENT REQUIRED. (a) An insurer
or health maintenance organization must submit the written
agreement under Section 427.052 to the commissioner for approval
of the form and content of the agreement.
(b) The commissioner must approve or disapprove the agreement
not later than the 30th day after the date the insurer or health
maintenance organization submits the agreement. If the
commissioner fails to act as required by this subsection, the
agreement is considered approved.
(c) An insurer or health maintenance organization may assume a
subordinated liability only after the commissioner has approved
the agreement under this chapter or Subchapter C, Chapter 823.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 1, eff. April 1, 2007.
Sec. 427.054. LIABILITY. (a) A loan or advance made under this
chapter, including any interest accruing on the loan or advance,
is a legal liability of the insurer or health maintenance
organization, and a liability with respect to the insurer's or
health maintenance organization's financial statement, only to
the extent provided by the terms of the loan or advance
agreement.
(b) Notwithstanding Subsection (a), if the loan or advance
agreement provides for a sinking fund out of which the loan or
advance is to be repaid, the loan or advance is a legal liability
of the insurer or health maintenance organization, and a
liability with respect to the insurer's or health maintenance
organization's financial statement, only to the extent of the
amounts accumulated and held in the sinking fund. By agreement
of the parties, any portion of the amounts accumulated in the
sinking fund may be returned to the surplus of the insurer or
health maintenance organization at any time and any amount
returned may not be a legal liability of the insurer or health
maintenance organization or a liability with respect to the
insurer's or health maintenance organization's financial
statement.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 1, eff. April 1, 2007.
Sec. 427.055. PAYMENT OF PRINCIPAL OR INTEREST ON CERTAIN
LIABILITIES. (a) An insurer or health maintenance organization
may not pay principal or interest on a subordinated liability
assumed under Section 427.052 or Subchapter C, Chapter 823, on or
after September 1, 1995, unless:
(1) the payment complies with a schedule of payments contained
in the agreement approved by the commissioner in accordance with
Section 427.052 or Subchapter C, Chapter 823; or
(2) if the payment does not comply with the schedule of payments
contained in the agreement or the agreement does not contain a
payment schedule, the insurer or health maintenance organization
provides written notice to the commissioner not later than the
15th day before the scheduled payment date.
(b) A loan, debenture, revenue bond, or advance agreement issued
to an insurer or health maintenance organization before September
1, 1995, and any subsequent payment of principal or interest on
the indebtedness are governed by the law in effect on the date of
issuance.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 1, eff. April 1, 2007.