HBA-ATS H.B. 2711 76(R)    BILL ANALYSIS


Office of House Bill AnalysisH.B. 2711
By: Thompson
Insurance
4/11/1999
Introduced



BACKGROUND AND PURPOSE 

Article 21.39-B (Restriction on Transactions with Funds and Assets)
prohibits the director, member of a committee, or officer, or the clerk of
a domestic insurance company, who is charged with the duty of handling or
investing its funds, from depositing or investing those funds, except in
the corporate name of the insurer.  Despite this prohibition, it is a
common practice for two or more domestic insurers that operate together
under a holding company or under an administrative services agreement (to
share costs) to operate a risk pool.  Insurers in the risk pool spread the
risk they assumed when they agreed to cover a particular group by having
the pool or affiliates of the parent insurers reinsure the policies.  The
funds of the pool are usually deposited into one account.  Only after the
funds have been deposited are they then allocated to each participant in
the pool.  This practice may violate the prohibition against depositing
funds except in the corporate name of the insurer even if funds are not
misapplied. 

H.B. 2711 prohibits the official of a domestic insurer who is in charge of
the insurer's funds from depositing them, except in the insurer's corporate
name, in a pooling account with one or more affiliates, or in accordance
with a reinsurance agreement with an affiliate.  If the domestic insurer's
funds are deposited in a pooling account, only the domestic insurer and its
affiliates are authorized to hold funds in the pooling account.  Moreover,
the financial books and records of the companies in the pooling arrangement
must be detailed enough to identify specific insurance policies and
policyholders with premium funds received by the particular company issuing
the insurance.  A reinsurance agreement between a domestic insurer and its
affiliates must specifically authorize the deposit of premium funds to the
account of the affiliate that is assuming the reinsurance. 

RULEMAKING AUTHORITY

It is the opinion of the Office of House Bill Analysis that this bill does
not expressly delegate any additional rulemaking authority to a state
officer, department, agency, or institution. 

SECTION BY SECTION ANALYSIS

SECTION 1.  Amends Article 21.39-B, Insurance Code, to prohibit the
official of a domestic insurer who is in charge of the insurer's funds from
depositing them, except in the insurer's corporate name, in a pooling
account with one or more affiliates, or in accordance with a reinsurance
agreement with an affiliate.  Authorizes only the domestic insurer and its
affiliate, if the domestic insurer's funds are deposited in a pooling
account, to hold funds in the pooling account.  Provides that the financial
books and records of the companies must be detailed enough to identify
specific insurance policies and policyholders with premium funds received
by the particular company issuing the insurance. Provides that a
reinsurance agreement between a domestic insurer and its affiliates must
specifically authorize the deposit of premium funds to the account of the
affiliate that is assuming the reinsurance.  Makes conforming changes. 

SECTION 2.  Effective date: September 1, 1999.

SECTION 3.  Emergency clause.