Bill Lets Insurers Hand Off Your Policy, No Opt-Out

The text as introduced · 3,889 words

89R1195 MEW-F

By: Cook
H.B. No. 3999

A BILL TO BE ENTITLED

AN ACT

relating to the transfer and statutory novation of insurance

policies from a transferring insurer to an assuming insurer through

an insurance business transfer plan; authorizing fees.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:

SECTION 1. Subtitle A, Title 6, Insurance Code, is amended

by adding Chapter 806 to read as follows:

CHAPTER 806. INSURANCE BUSINESS TRANSFERS

SUBCHAPTER A. GENERAL PROVISIONS

Sec. 806.001. DEFINITIONS. In this chapter:

(1) "Affiliate" means a person that directly or

indirectly through one or more intermediaries controls, is

controlled by, or is under common control with a specified person.

(2) "Applicant" means an assuming insurer, a

transferring insurer, or a reinsurer applying under Subchapter B.

(3) "Assuming insurer" means an insurer domiciled in

this state that assumes or seeks to assume policies from a

transferring insurer under this chapter. An assuming insurer may

be a captive insurance company established under Chapter 964.

(4) "Implementation order" means an order issued by

the court under Section 806.104.

(5) "Insurance business transfer" means a transfer and

novation by a transferring insurer to an assuming insurer made

under this chapter.

(6) "Insurance business transfer plan" means the plan

submitted to the department to accomplish an insurance business

transfer, including any associated transfer of assets and rights

from or on behalf of the transferring insurer to the assuming

insurer.

(7) "Insurer" means an insurance or surety company,

including a reinsurance company. The term includes a corporation,

company, partnership, association, society, order, individual, or

aggregation of individuals engaging in or proposing or attempting

to engage in any kind of insurance or surety business, including the

exchanging of reciprocal or interinsurance contracts between

individuals, partnerships, and corporations.

(8) "Policy" means a policy, annuity contract,

certificate of insurance, or a contract of reinsurance under which

the insurer agrees to assume an obligation, risk, or both of the

policyholder or to make payments on behalf of, or to, the

policyholder or the policyholder's beneficiaries. The term

includes property, casualty, life, health, and any other line of

insurance the commissioner finds is suitable for an insurance

business transfer.

(9) "Policyholder" means an insured or a reinsured

under a policy that is part of the subject business.

(10) "Subject business" means the policy or policies

that are the subject of the insurance business transfer plan.

(11) "Transfer and novation" means the transfer of

insurance obligations, risks, or both of existing or in-force

policies from a transferring insurer to an assuming insurer that is

intended to effect a novation of the transferred policies that

results in the assuming insurer becoming directly liable to the

policyholders of the transferring insurer on the extinguishment of

the transferring insurer's insurance obligations, risks, or both

under the transferred policies.

(12) "Transferring insurer" means an insurer or

reinsurer that transfers and novates or seeks to transfer and

novate obligations, risks, or both under one or more policies to an

assuming insurer under an insurance business transfer plan.

Sec. 806.002. CONSENT TO ONGOING COMMISSIONER OVERSIGHT.

An insurer subject to this chapter is considered to consent to the

jurisdiction of the commissioner with regard to ongoing oversight

of operations, management, and solvency relating to the transferred

business, including the authority of the commissioner to conduct

financial analysis and examinations.

Sec. 806.003. AUTHORITY OF COURT. Notwithstanding any

other law, a court may issue an order, process, or judgment that is

necessary or appropriate to carry out this chapter. This chapter

may not be construed to preclude a court from, on the court's own

motion, taking any action or making any determination necessary or

appropriate to enforce or implement an order or rule of the court or

to prevent an abuse of power.

Sec. 806.004. NOTICE REQUIREMENTS. (a) When notice is

required to be given by the applicant under this chapter and except

as otherwise permitted or directed by a court or the commissioner,

the applicant shall provide the notice not later than the 45th day

after the date of the event that requires notice:

(1) to the chief insurance regulator in each

jurisdiction in which:

(A) the applicant holds or has ever held a

certificate of authority; and

(B) policies that are part of the subject

business were issued or policyholders currently reside;

(2) to the National Conference of Insurance Guaranty

Funds, the National Organization of Life and Health Insurance

Guaranty Associations, and each state insurance guaranty

association for a state in which:

(A) the applicant holds or has ever held a

certificate of authority; and

(B) policies that are part of the subject

business were issued or policyholders currently reside;

(3) to each reinsurer of the applicant:

(A) under the notice provisions of each

reinsurance agreement applicable to the policies that are part of

the subject business; or

(B) if a reinsurance agreement does not have a

notice provision, by an internationally recognized delivery

service;

(4) to each policyholder holding a policy that is part

of the subject business, at the policyholder's last known address

as indicated by the records of the applicant or to the address to

which premium notices or other policy documents are sent, and for a

notice of transfer, to the transferring insurer's agents or brokers

of record on the subject business; and

(5) by publication in:

(A) a newspaper of general circulation in the

state in which the applicant has the applicant's principal place of

business; and

(B) each publication required by the

commissioner.

(b) If notice is provided in accordance with this section,

an intended recipient of the notice is considered to have received

the notice for purposes of this chapter, regardless of whether the

recipient received actual notice, and the intended recipient may

not raise notice to challenge an order issued under this chapter.

(c) The commissioner shall provide the required notice in

accordance with this section on behalf of an applicant for which the

commissioner has been named as receiver.

(d) Notice under this section may be provided by first-class

mail, facsimile, or electronic means.

Sec. 806.005. RULEMAKING AUTHORITY. The commissioner may

adopt rules consistent with this chapter as necessary to implement

this chapter.

Sec. 806.006. CONFIDENTIALITY. The status of any part of an

application for an insurance business transfer as confidential at

the time of application, including any documents, materials,

communications, or other information submitted to the commissioner

in contemplation of the application, is not affected by the process

provided by this chapter.

SUBCHAPTER B. INITIAL APPLICATION; COMMISSIONER REVIEW

Sec. 806.051. COMMISSIONER AND COURT APPROVAL REQUIRED.

After obtaining an independent expert report under Section 806.052,

an applicant shall file an insurance business transfer plan with:

(1) the commissioner for review and approval under

this subchapter; and

(2) a court for approval under Subchapter C on

receiving the commissioner's approval.

Sec. 806.052. INDEPENDENT EXPERT; REPORT. (a) The

commissioner shall appoint an independent expert from a list of at

least two nominees, submitted jointly by the transferring insurer

and the assuming insurer, to assist the commissioner and the court

in connection with the commissioner's and the court's review of a

proposed insurance business transfer. The commissioner may, in the

commissioner's sole discretion, reject the nominees and appoint

another person as the independent expert.

(b) The independent expert must be an impartial person who:

(1) has no financial interest in either the assuming

insurer or transferring insurer;

(2) has not been employed by or acted as an officer,

director, consultant, or other independent contractor for either

the assuming insurer or transferring insurer during the preceding

12 months;

(3) is not appointed by the commissioner to assist in

any capacity in an insurer rehabilitation or delinquency

proceeding;

(4) receives no compensation in connection with the

applicable transaction under this chapter, other than a fee based

on a fixed or hourly basis that is not contingent on the approval or

completion of the insurance business transfer; and

(5) provides proof of insurance coverage that is

satisfactory to the commissioner.

(c) The independent expert shall submit a report to the

commissioner in the form and manner prescribed by the commissioner

regarding the proposed insurance business transfer. The report

must include:

(1) a summary of the terms of the insurance business

transfer plan to the extent relevant to the independent expert's

report;

(2) the scope of the independent expert's report;

(3) an analysis of the transferring insurer's

actuarial review of reserves for the subject business to determine

the reserve adequacy;

(4) an analysis of the financial conditions of the

transferring insurer and the assuming insurer and the effect the

transfer will have on the financial condition of each company;

(5) a review of the plans or proposals the assuming

insurer has with respect to the administration of the policies

subject to the transfer;

(6) a statement as to whether the transfer has a

material adverse impact on the policyholders, reinsurers, and

claimants of the transferring insurer and the assuming insurer;

(7) an analysis of the assuming insurer's corporate

governance structure to ensure that there is proper board and

management oversight and expertise to manage the subject business;

(8) the independent expert's opinion of the likely

effects of the transfer on policyholders, reinsurers, and

claimants, distinguishing between:

(A) transferring policyholders, reinsurers, and

claimants;

(B) policyholders, reinsurers, and claimants of

the transferring insurer whose policies will not be transferred;

and

(C) policyholders, reinsurers, and claimants of

the assuming insurer;

(9) consideration of whether the security positions of

policyholders that are affected by the transfer are materially

adversely affected by the transfer;

(10) a statement of the independent expert's

professional qualifications and a description of the experience

that qualifies the independent expert as an expert suitable for the

appointment;

(11) a statement of whether the independent expert

has, or has had, a direct or indirect interest in the transferring

insurer or the assuming insurer or an affiliate of the transferring

insurer or the assuming insurer;

(12) a list and summary of each document, report, and

other material information the independent expert considered in

preparing the report and whether any information requested was not

provided;

(13) the extent to which the independent expert relied

on information provided by or the judgment of another person;

(14) each person on whom the independent expert has

relied and why, in the independent expert's opinion, that reliance

is reasonable;

(15) for each opinion that the independent expert

expresses in the report, the facts and circumstances supporting the

opinion; and

(16) any other information the commissioner requests

be included in the report for purposes of reviewing the transfer.

Sec. 806.053. APPLICATION REQUIREMENTS. (a) An insurance

business transfer plan submitted for commissioner approval must

include the following information or an explanation of why the

information is not included:

(1) the name, address, and telephone number and the

direct and indirect controlling persons, if any, of the

transferring insurer and the assuming insurer;

(2) a summary of the plan;

(3) identification and description of the subject

business;

(4) the most recent audited financial statements and

statutory annual and quarterly reports of the transferring insurer

and the assuming insurer filed with each insurer's domiciliary

regulator;

(5) the most recent actuarial report and opinion that

quantify the liabilities associated with the subject business;

(6) pro forma financial statements showing the

projected statutory balance sheet, results of operations, and cash

flows of the assuming insurer for the three years following the

proposed transfer and novation;

(7) officers' certificates of the transferring insurer

and the assuming insurer attesting that each has obtained all

required internal approvals and authorizations regarding the plan

and completed all necessary and appropriate actions relating to the

plan;

(8) a proposal for plan implementation and

administration, including the form of notice to be provided under

the plan to a policyholder whose policy is part of the subject

business;

(9) a full description of how notice will be provided;

(10) a description of any reinsurance arrangements

that would pass to the assuming insurer under the plan;

(11) a description of any guarantee or additional

reinsurance that will cover the subject business following the

transfer and novation;

(12) a description of the assuming insurer's proposed

investment policies and any contemplated third-party claims

management and administration arrangements;

(13) a description of how the transferring insurer and

the assuming insurer will be licensed for guaranty association

coverage purposes;

(14) evidence of approval of or non-objection to the

transfer from the chief insurance regulator of the state of the

transferring insurer's domicile; and

(15) the report of the independent expert prepared

under Section 806.052.

(b) The commissioner may require an insurance business

transfer plan submitted under Subsection (a) to include additional

information the commissioner considers necessary for the plan's

review and approval.

Sec. 806.054. COMMISSIONER REVIEW. (a) Not later than the

60th business day after the date of receipt of a complete insurance

business transfer plan, the commissioner shall review the plan and

determine whether the applicant is authorized to submit the plan to

a court. The commissioner may extend the review period for an

additional 30 business days.

(b) The commissioner shall authorize the submission of the

insurance business transfer plan to the court unless the

commissioner finds that the transfer would have a material adverse

impact on the interests of policyholders, reinsurers, or claimants

that are part of the subject business.

(c) If the commissioner determines that the insurance

business transfer would have a material adverse impact on the

interests of policyholders, reinsurers, or claimants that are part

of the subject business, the commissioner shall notify the

applicant and specify any modifications, supplements, amendments,

or additional information or documentation with respect to the

insurance business transfer plan that the applicant must provide to

the commissioner before the commissioner will approve the plan's

submission to a court.

(d) If the commissioner determines that the insurance

business transfer plan may be submitted to a court, the

commissioner shall provide that determination in writing to the

applicant.

Sec. 806.055. CONSEQUENCES OF MATERIAL ADVERSE IMPACT

DETERMINATION. (a) Not later than the 30th day after the date the

commissioner notifies the applicant of a material adverse impact

under Section 806.054, the applicant may file an amended insurance

business transfer plan providing the modifications, supplements,

amendments, or additional information or documentation requested

by the commissioner. The applicant may request in writing an

extension of time of an additional 30 days.

(b) If the applicant does not make an amended filing within

the time period provided by Subsection (a), including any extension

of time granted by the commissioner, the insurance business

transfer plan filing terminates and a subsequent filing by the

applicant:

(1) is considered a new filing; and

(2) must comply with all provisions of this chapter as

if the previous filing had never been made.

(c) The commissioner's time for review as provided under

Section 806.054 for an amended insurance business transfer plan

received under Subsection (a) commences on the date the

commissioner receives all modifications, supplements, amendments,

or additional information or documentation requested by the

commissioner under Section 806.054(c).

SUBCHAPTER C. APPLICATION FOR COURT APPROVAL

Sec. 806.101. APPLICATION. (a) Not later than the 30th day

after the date an applicant receives notice of the commissioner's

determination under Section 806.054(d) that the applicant may

submit the insurance business transfer plan to a court, the

applicant shall file a verified petition with a district court in a

county with a population of more than one million seeking approval

of the plan. On written request by the applicant, the commissioner

may extend the period for filing the petition for an additional 30

days.

(b) The applicant's petition must:

(1) include the insurance business transfer plan;

(2) identify any documents and witnesses that the

applicant intends to present at a hearing regarding the petition;

and

(3) state each reason the applicant asks the court to

find no material adverse impact to policyholders, reinsurers, or

claimants affected by the proposed insurance business transfer.

(c) Not later than the 30th day after the date of filing of

the petition, the applicant shall file a request for the court to

enter a preliminary scheduling order, which must include a date and

time for a status conference. The status conference must occur not

later than the 14th day after the date the comment period required

by Section 806.102 concludes.

(d) The commissioner must be a party to the proceedings

before the court concerning a petition filed under this section and

shall be served with copies of all filings as required by the Texas

Rules of Civil Procedure. The commissioner's position in the

proceedings is not limited by the commissioner's initial review of

the insurance business transfer plan that is the subject of the

petition.

Sec. 806.102. NOTICE AND COMMENT PERIOD. (a) Not later

than the 45th day after receipt of the preliminary scheduling order

under Section 806.101(c), the applicant shall provide notice of the

application for court approval of the insurance business transfer

plan. The notice commences a comment period that expires on the

61st day after the date the notice is provided.

(b) The notice provided to policyholders under this section

must include:

(1) the date and time of the status conference;

(2) the name, address, and telephone number of the

assuming insurer and the transferring insurer;

(3) a statement that a policyholder may comment on or

object to the transfer and novation;

(4) the procedures and deadline for submitting

comments or objections on the insurance business transfer plan;

(5) a summary of any effect that the transfer and

novation will have on the policyholder's rights;

(6) a statement that the assuming insurer is

authorized, as provided by this chapter, to assume the subject

business and that court approval of the insurance business transfer

plan will extinguish all rights of policyholders under policies

that are part of the subject business against the transferring

insurer;

(7) a statement that policyholders will not have the

opportunity to opt out of or otherwise reject the transfer and

novation;

(8) contact information for the department from which

the policyholder may obtain additional information; and

(9) either:

(A) information on how an electronic copy of the

insurance business transfer plan may be accessed; or

(B) if policyholders are unable to readily access

electronic copies, hard copies by first-class mail.

Sec. 806.103. PARTICIPATION IN COURT PROCEEDINGS.

(a) Only a party to the insurance business transfer plan, or a

third party or other person who files a request to provide comments

or objections or to be heard in the matter on the basis that the

person believes the person will be materially adversely affected by

approval and implementation of the plan, may present evidence or

comments to the court at a hearing.

(b) Participation by a third party does not confer standing

as a party on that third party.

(c) Each person participating in the hearing shall:

(1) follow the process established by the court; and

(2) pay the person's own costs and attorney fees.

Sec. 806.104. COURT APPROVAL OF PLAN. (a) The applicant

shall present the insurance business transfer plan for approval by

the court following the expiration of the comment period under

Section 806.102.

(b) At any time before the court issues an order approving

the insurance business transfer plan, the applicant may withdraw

the plan without prejudice.

(c) If the court finds that the implementation of the

insurance business transfer plan would not materially adversely

affect the interests of policyholders, reinsurers, or claimants

that are part of the subject business, the court shall enter a

judgment and implementation order. The judgment and implementation

order must:

(1) order implementation of the plan;

(2) order a statutory novation with respect to all

policyholders or reinsured persons and their respective policies

and reinsurance agreements under the subject business:

(A) extinguishing all rights of policyholders

under policies that are part of the subject business against the

transferring insurer; and

(B) providing that:

(i) the transferring insurer has no further

rights, obligations, or liabilities with respect to those policies;

and

(ii) the assuming insurer has all rights,

obligations, and liabilities as if the assuming insurer were the

original insurer of those policies;

(3) release the transferring insurer from all

obligations or liabilities under policies that are part of the

subject business;

(4) authorize and order the transfer of property or

liabilities, including the ceded reinsurance of transferred

policies and contracts on the subject business, notwithstanding any

nonassignment provisions in any reinsurance contract;

(5) order the applicant to provide notice of the

transfer and novation in accordance with Section 806.004; and

(6) make other provisions with respect to incidental,

consequential, and supplementary matters as necessary to ensure the

plan is fully and effectively carried out.

(d) On filing of the court's order under Subsection (c), the

subject business vests in and becomes the liabilities of the

assuming insurer.

Sec. 806.105. COURT DISAPPROVAL OF PLAN. If the court finds

that the insurance business transfer plan should not be approved,

the court by order may:

(1) deny the petition; or

(2) provide the applicant leave to file an amended

insurance business transfer plan and petition.

Sec. 806.106. RIGHT TO APPEAL. This chapter may not be

construed to affect a party's right to appeal an order of the court.

SUBCHAPTER D. FEES AND COSTS

Sec. 806.151. FILING FEE. At the time of filing an

application with the commissioner for review and approval of an

insurance business transfer plan, an applicant shall pay a

nonrefundable fee to the department of $10,000.

Sec. 806.152. COMMISSIONER COSTS. (a) The commissioner

may retain independent attorneys, appraisers, actuaries, certified

public accountants, authorized consultants, or other professionals

and specialists to assist the commissioner in connection with the

review of an insurance business transfer plan under this chapter.

(b) An applicant shall reimburse the commissioner for any

cost incurred under Subsection (a).

Sec. 806.153. INDEPENDENT EXPERT COSTS AND FEES. (a) The

transferring insurer and the assuming insurer are jointly obligated

to pay any compensation, costs, and expenses of the independent

expert, and any consultants retained by the independent expert and

approved by the commissioner, incurred in fulfilling the

obligations of the independent expert under this chapter.

(b) This chapter may not be construed to create a duty of the

independent expert to any party other than the commissioner or the

court.

Sec. 806.154. FAILURE TO PAY COSTS OR FEES. (a) A fee or

cost provided by this subchapter must be paid not later than the

30th day after the date of demand for payment.

(b) If a party fails to pay a required fee or cost within the

time period described by Subsection (a), the commissioner may:

(1) if the court has not filed an implementation

order, request that the court dismiss the petition for approval of

the insurance business transfer plan; or

(2) if the court has filed an implementation order,

suspend or revoke the assuming insurer's certificate of authority

to transact insurance business in this state.

Sec. 806.155. DEPOSIT OF AMOUNTS COLLECTED. The department

shall deposit any amounts collected under this chapter relating to

the review of an insurance business transfer plan application to

the credit of the Texas Department of Insurance operating account.

SECTION 2. The changes in law made by this Act apply only to

an insurance business transfer under a contract entered into or

agreement made on or after the effective date of this Act.

SECTION 3. This Act takes effect September 1, 2025.