84R11360 LED-F
	By: Eltife	S.B. No. 1196

	A BILL TO BE ENTITLED
	AN ACT
	relating to the regulation of funding agreements, guaranteed
	investment contracts, and synthetic guaranteed investment
	contracts issued by a life insurer.
	BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
	SECTION 1.  Section 443.301, Insurance Code, is amended to
	read as follows:
	Sec. 443.301.  PRIORITY OF DISTRIBUTION.  The priority of
	payment of distributions on unsecured claims must be in accordance
	with the order in which each class of claims is set forth in this
	section. Every claim in each class shall be paid in full, or
	adequate funds retained for their payment, before the members of
	the next class receive payment, and all claims within a class must
	be paid substantially the same percentage of the amount of the
	claim. Except as provided by Subsections (a)(2), (a)(3), (i), and
	(k), subclasses may not be established within a class. No claim by a
	shareholder, policyholder, or other creditor shall be permitted to
	circumvent the priority classes through the use of equitable
	remedies. The order of distribution of claims shall be:
	(a)  Class 1.  (1)  The costs and expenses of administration
	expressly approved or ratified by the liquidator, including the
	following:
	(A)  the actual and necessary costs of preserving
	or recovering the property of the insurer;
	(B)  reasonable compensation for all services
	rendered on behalf of the administrative supervisor or receiver;
	(C)  any necessary filing fees;
	(D)  the fees and mileage payable to witnesses;
	(E)  unsecured loans obtained by the receiver; and
	(F)  expenses, if any, approved by the
	rehabilitator of the insurer and incurred in the course of the
	rehabilitation that are unpaid at the time of the entry of the order
	of liquidation.
	(2)  The reasonable expenses of a guaranty association,
	including overhead, salaries and other general administrative
	expenses allocable to the receivership to include administrative
	and claims handling expenses and expenses in connection with
	arrangements for ongoing coverage, other than expenses incurred in
	the performance of duties under Section 462.002(3), 463.108,
	463.111, 463.113, 463.353, or 2602.113 or similar duties under the
	statute governing a similar organization in another state.  In the
	case of the Texas Property and Casualty Insurance Guaranty
	Association and other property and casualty guaranty associations,
	the expenses shall include loss adjustment expenses, including
	adjusting and other expenses and defense and cost containment
	expenses.  In the event that there are insufficient assets to pay
	all of the costs and expenses of administration under Subsection
	(a)(1) and the expenses of a guaranty association, the costs and
	expenses under Subsection (a)(1) shall have priority over the
	expenses of a guaranty association.  In this event, the expenses of
	a guaranty association shall be paid on a pro rata basis after the
	payment of costs and expenses under Subsection (a)(1) in full.
	(3)  For purposes of Subsection (a)(1)(E), any
	unsecured loan obtained by the receiver, unless by its terms it
	otherwise provides, has priority over all other costs of
	administration.  Absent agreement to the contrary, all claims in
	this subclass share pro rata.
	(4)  Except as expressly approved by the receiver, any
	expenses arising from a duty to indemnify the directors, officers,
	or employees of the insurer are excluded from this class and, if
	allowed, are Class 5 claims.
	(b)  Class 2.  (1)  All claims under policies of insurance
	and annuity contracts, including funding agreements, guaranteed
	investment contracts, synthetic guaranteed investment contracts,
	third-party claims, claims under nonassessable policies for
	unearned premium, claims of obligees and, subject to the discretion
	of the receiver, completion contractors under surety bonds and
	surety undertakings other than bail bonds, mortgage or financial
	guaranties, or other forms of insurance offering protection against
	investment risk, claims by principals under surety bonds and surety
	undertakings for wrongful dissipation of collateral by the insurer
	or its agents, and claims incurred during the extension of coverage
	provided for in Section 443.152. For purposes of this subdivision,
	"annuity contract," "funding agreement," "guaranteed investment
	contract," and "synthetic guaranteed investment contract" have the
	meanings assigned by Section 1154.003.
	(2)  All other claims incurred in fulfilling the
	statutory obligations of a guaranty association not included in
	Class 1, including indemnity payments on covered claims and, in the
	case of the Life, Accident, Health, and Hospital Service Insurance
	Guaranty Association or another life and health guaranty
	association, all claims as a creditor of the impaired or insolvent
	insurer for all payments of and liabilities incurred on behalf of
	covered claims or covered obligations of the insurer and for the
	funds needed to reinsure those obligations with a solvent insurer.
	(3)  Claims for benefits under a health care plan
	issued by a health maintenance organization.
	(4)  Claims under insurance policies or contracts for
	benefits issued by an unauthorized insurer.
	(5)  Notwithstanding any provision of this chapter, the
	following claims are excluded from Class 2 priority:
	(A)  obligations of the insolvent insurer arising
	out of reinsurance contracts;
	(B)  obligations, excluding unearned premium
	claims on policies other than reinsurance agreements, incurred
	after:
	(i)  the expiration date of the insurance
	policy;
	(ii)  the policy has been replaced by the
	insured or canceled at the insured's request; or
	(iii)  the policy has been canceled as
	provided by this chapter;
	(C)  obligations to insurers, insurance pools, or
	underwriting associations and their claims for contribution,
	indemnity, or subrogation, equitable or otherwise;
	(D)  any claim that is in excess of any applicable
	limits provided in the insurance policy issued by the insurer;
	(E)  any amount accrued as punitive or exemplary
	damages unless expressly covered under the terms of the policy;
	(F)  tort claims of any kind against the insurer
	and claims against the insurer for bad faith or wrongful settlement
	practices; and
	(G)  claims of the guaranty associations for
	assessments not paid by the insurer, which must be paid as claims in
	Class 5.
	(c)  Class 3.  Claims of the federal government not included
	in Class 2.
	(d)  Class 4.  Debts due employees for services or benefits
	to the extent that the debts do not exceed $5,000 or two months
	salary, whichever is the lesser, and represent payment for services
	performed within one year before the entry of the initial order of
	receivership.  This priority is in lieu of any other similar
	priority that may be authorized by law as to wages or compensation
	of employees.
	(e)  Class 5.  Claims of other unsecured creditors not
	included in Classes 1 through 4, including claims under reinsurance
	contracts, claims of guaranty associations for assessments not paid
	by the insurer, and other claims excluded from Class 2.
	(f)  Class 6.  Claims of any state or local governments,
	except those specifically classified elsewhere in this section.
	Claims of attorneys for fees and expenses owed them by an insurer
	for services rendered in opposing a formal delinquency proceeding.
	In order to prove the claim, the claimant must show that the insurer
	that is the subject of the delinquency proceeding incurred the fees
	and expenses based on its best knowledge, information, and belief,
	formed after reasonable inquiry, indicating opposition was in the
	best interests of the insurer, was well grounded in fact, and was
	warranted by existing law or a good faith argument for the
	extension, modification, or reversal of existing law, and that
	opposition was not pursued for any improper purpose, such as to
	harass or to cause unnecessary delay or needless increase in the
	cost of the litigation.
	(g)  Class 7.  Claims of any state or local government for a
	penalty or forfeiture, but only to the extent of the pecuniary loss
	sustained from the act, transaction, or proceeding out of which the
	penalty or forfeiture arose, with reasonable and actual costs
	occasioned thereby. The balance of the claims must be treated as
	Class 9 claims under Subsection (i).
	(h)  Class 8.  Except as provided in Sections 443.251(b) and
	(d), late filed claims that would otherwise be classified in
	Classes 2 through 7.
	(i)  Class 9.  Surplus notes, capital notes or contribution
	notes or similar obligations, premium refunds on assessable
	policies, and any other claims specifically assigned to this class.
	Claims in this class are subject to any subordination agreements
	related to other claims in this class that existed before the entry
	of the liquidation order.
	(j)  Class 10.  Interest on allowed claims of Classes 1
	through 9, according to the terms of a plan proposed by the
	liquidator and approved by the receivership court.
	(k)  Class 11.  Claims of shareholders or other owners
	arising out of their capacity as shareholders or other owners, or
	any other capacity, except as they may be qualified in Class 2, 5,
	or 10. Claims in this class are subject to any subordination
	agreements related to other claims in this class that existed
	before the entry of the liquidation order.
	SECTION 2.  Subtitle C, Title 7, Insurance Code, is amended
	by adding Chapter 1154 to read as follows:
	CHAPTER 1154. FUNDING AGREEMENTS, GUARANTEED INVESTMENT CONTRACTS,
	AND SYNTHETIC GUARANTEED INVESTMENT CONTRACTS
	SUBCHAPTER A. GENERAL PROVISIONS
	Sec. 1154.001.  SHORT TITLE. This chapter may be cited as
	the Act for the Regulation of Funding Agreements, Guaranteed
	Investment Contracts, and Synthetic Guaranteed Investment
	Contracts.
	Sec. 1154.002.  PURPOSE; LEGISLATIVE INTENT; CONSTRUCTION.
	(a) The purpose of this chapter is to:
	(1)  promote the public welfare by regulating funding
	agreements, guaranteed investment contracts, and synthetic
	guaranteed investment contracts; and
	(2)  clarify and codify the existing law pertaining to
	funding agreements, guaranteed investment contracts, and synthetic
	guaranteed investment contracts.
	(b)  This chapter shall be liberally construed.
	Sec. 1154.003.  DEFINITIONS. In this chapter:
	(1)  "Allocated group annuity contract" means a group
	annuity contract or group annuity certificate under which the life
	insurer establishes and maintains individual account records and
	investment account balances for the group participants to allocate
	and guarantee a specific payment amount to each group member.
	(2)  "Annuity contract" means a contract, including a
	funding agreement, guaranteed investment contract, and synthetic
	guaranteed investment contract, issued by a life insurer, with or
	without a mortality or morbidity contingency, under which:
	(A)  the owner deposits cash or assets in one or
	more installments with the life insurer; and
	(B)  the owner or a beneficiary designated by the
	owner has a right to receive periodic payments for a specified
	future term.
	(3)  "Funding agreement" means a type of annuity
	contract under which a life insurer:
	(A)  accepts and accumulates funds, including
	noncash assets; and
	(B)  makes one or more payments at a future date in
	amounts that are not based on mortality or morbidity contingencies.
	(4)  "Governmental body" means a federal, state,
	municipal, local, or foreign court, tribunal, governmental
	department, commission, board, bureau, agency, authority,
	instrumentality, regulatory body, or quasi-regulatory body.
	(5)  "Group" means a group to which a group life
	insurance policy may be issued under Subchapter B, Chapter 1131.
	(6)  "Group annuity certificate" means a certificate
	issued to a group member in connection with the group member's group
	annuity contract.
	(7)  "Group annuity contract" means an annuity contract
	issued to a group and not an individual.
	(8)  "Guaranteed investment contract" means a type of
	annuity contract issued by a life insurer:
	(A)  that is a funding vehicle typically issued to
	a retirement plan; and
	(B)  under which the life insurer accepts a
	deposit or series of deposits from the purchaser and guarantees to
	pay a specified interest rate of return on the funds deposited
	during a specified period.
	(9)  "Life insurer" means an insurance company
	authorized to engage in the business of life insurance, including
	issuing annuity contracts, in this state.
	(10)  "Synthetic guaranteed investment contract" means
	a group annuity contract or other agreement issued by a life insurer
	that, wholly or partly, establishes the life insurer's obligations
	by reference to a segregated portfolio of assets that the life
	insurer does not own.
	(11)  "Unallocated group annuity contract" means a
	group annuity contract or group annuity certificate that is not
	issued to and owned by an individual, except to the extent of any
	annuity benefits guaranteed to an individual by an insurer under
	the contract or certificate.
	Sec. 1154.004.  APPLICABILITY OF CERTAIN OTHER LAW.
	Chapters 521, 1107, 1115, and 1131 do not apply to funding
	agreements or guaranteed investment contracts without mortality or
	morbidity contingencies.
	Sec. 1154.005.  RULES. The commissioner may adopt rules to
	implement or clarify this chapter.
	SUBCHAPTER B. FUNDING AGREEMENTS
	Sec. 1154.051.  ESTABLISHMENT OF FUNDING AGREEMENTS. (a) A
	life insurer may issue a funding agreement to generate an income
	stream for the purchaser of the agreement or fund a future liability
	of the purchaser or the purchaser's designee. A life insurer may
	issue a funding agreement to:
	(1)  an accredited investor, as defined by 17 C.F.R.
	Section 230.501; or
	(2)  a governmental body.
	(b)  A life insurer that issues a funding agreement in this
	state engages in the business of insurance for the purpose of
	regulation.
	SUBCHAPTER C. GUARANTEED INVESTMENT CONTRACTS
	Sec. 1154.101.  ESTABLISHMENT OF GUARANTEED INVESTMENT
	CONTRACTS. A life insurer may issue a guaranteed investment
	contract to provide a benefit in a fixed amount or a variable amount
	or a fixed amount and a variable amount. A life insurer may issue a
	guaranteed investment contract to a group as an allocated or
	unallocated group annuity contract.
	SECTION 3.  This Act takes effect September 1, 2015.