TITLE 28.INSURANCE

Part 1. TEXAS DEPARTMENT OF INSURANCE

Chapter 5. PROPERTY AND CASUALTY INSURANCE

Subchapter C. TEXAS MEDICAL LIABILITY INSURANCE UNDERWRITING ASSOCIATION

28 TAC §5.2006

The Texas Department of Insurance proposes new §5.2006 concerning reinsurance in the operation of the Texas Medical Liability Insurance Underwriting Association (JUA). The JUA is established by Insurance Code Article 21.49-3 to provide medical liability insurance on a self-supporting basis to physicians and health care providers who are in one of the named categories eligible for such coverage. Article 21.49-3, §3A(a) provides that the Commissioner of Insurance shall establish by order the categories of physicians and health care providers eligible to obtain coverage from the JUA and may revise his order to include or exclude from eligibility particular categories of such physicians and health care providers. In accord with Article 21.49-3, §3(b)(4), the JUA shall have the power on behalf of its members to, among other things, cede and purchase reinsurance, and rules governing the JUA provide that such reinsurance shall be governed by rules promulgated by the commissioner. By Commissioner's Order No. 00-0175, dated February 14, 2000, the commissioner ordered that not-for-profit nursing homes shall be included as a category of providers eligible to obtain insurance coverage from the JUA pursuant to Insurance Code Article 21.49-3. The department proposes rules to govern the JUA's authority to cede and purchase reinsurance in order to (i) accommodate the inclusion of not-for-profit nursing homes as a category of providers eligible to obtain insurance coverage from the JUA, (ii) maintain the statutory purpose of the JUA to provide medical liability insurance on a self-supporting basis, (iii) protect the operations of the JUA and the policyholder's stabilization reserve fund, and (iv) protect the general revenue of the State of Texas. Proposed §5.2006 sets forth the purpose of the section as providing authority necessary to implement Insurance Code Article 21.49-3, §3(b)(4) and allows the JUA to develop a reinsurance program, subject to prior approval by the commissioner.

Marilyn Hamilton, Deputy Commissioner of the Commercial Property/Casualty Division, has determined that for each year of the first five years that the proposed new section will be in effect, there will be no fiscal implications to state or local government as a result of enforcing or administering the new section and that there will be no effect on local employment or the local economy.

Ms. Hamilton has also determined that for each year of the first five years the proposed section will be in effect, the public benefit anticipated as a result of administering the section will be the protection of the operations of the JUA in providing medical liability insurance on a self-supporting basis. An additional public benefit includes reducing policyholder and member exposure to assessments thereby protecting the general revenue of the State of Texas. There is no mandated economic cost to the JUA as a result of the adoption of the proposed section. If, however, in fulfillment of its statutory purpose to provide medical liability insurance on a self-supporting basis, the JUA opts to develop a reinsurance program, the costs to the JUA to provide and administer the reinsurance program in compliance with the proposed section will be recouped from policyholders. In addition, the JUA, which was created pursuant to Article 21.49-3 of the Insurance Code, was not formed for the purpose of making a profit, and therefore, the provisions of the Government Code, §§2006.001-2006.002, regarding adverse economic effect on small and micro-businesses, do not apply to this proposed section.

To be considered, all comments on the proposal must be submitted in writing no later than 5 p.m. on May 22, 2000, to Lynda H. Nesenholtz, General Counsel and Chief Clerk, Mail Code 113-2A, Texas Department of Insurance, P.O. Box 149104, Austin, Texas, 78714-9104. An additional copy of the comments must be submitted simultaneously to Marilyn Hamilton, Deputy Commissioner, Commercial Property/Casualty Division, Mail Code 104-PC, Texas Department of Insurance, P.O. Box 149104, Austin, Texas 78714-9104. A request for a public hearing should be submitted separately to the Chief Clerk's office.

The new section is proposed pursuant to the Insurance Code Article 21.49-3 and §36.001. Article 21.49-3 provides that the JUA shall have the power on behalf of its members to, among other things, cede and purchase reinsurance; such reinsurance shall be governed by the plan of operation promulgated by the Commissioner of Insurance. Insurance Code §36.001 authorizes the Commissioner of Insurance to adopt rules for the conduct and execution of the duties and functions of the Texas Department of Insurance only as authorized by statute.

The following statute is affected by this proposal: Insurance Code Article 21.49-3

§5.2006.Reinsurance.

Pursuant to Article 21.49-3, §3(b)(4) of the Insurance Code, the Texas Medical Liability Insurance Underwriting Association (JUA) may cede and purchase reinsurance. The purpose of this section is to implement Article 21.49-3, §3(b)(4) of the Insurance Code.

(1)

The JUA may develop a reinsurance program that will provide for the purchase of reinsurance and that will maintain the purpose of the JUA to provide medical liability insurance on a self-supporting basis.

(2)

A reinsurance program shall be subject to prior approval by the Commissioner of Insurance, and such prior approval must be obtained before implementation of the reinsurance program. The program shall include, but is not limited to, the proposed reinsurance program structure and terms, including the reinsurance proposal and proposed reinsurance contract terms and conditions; cost of the proposed reinsurance program; the recommended percentage of reinsured business to be assumed by each individual reinsurer; a summary of the financial condition of each recommended reinsurer; the JUA's costs to administer the reinsurance program; compliance with §§7.601 - 7.615 of this title (relating to Reinsurance), to the extent that such provisions do not conflict with this section or Article 21.49-3 of the Insurance Code, or unless such provisions are waived by the Commissioner; and any other information the Commissioner deems necessary to enable the Commissioner to determine whether to approve or disapprove the reinsurance program. The JUA shall submit to the Commissioner, no later than 90 days before expiration of the reinsurance contract, the proposed renewal reinsurance program or a statement of the reasons why a reinsurance program is no longer necessary.

(3)

The JUA shall submit written notice of any amendment(s) to any existing reinsurance contract to the Commissioner of Insurance at least 60 days prior to the effective date of the proposed amendment(s). The notice shall include an explanation of the reason for the amendment(s) and a copy of the draft amendment(s). The amendment(s) shall be deemed approved by the Commissioner unless within 60 days following the submission of the written notice the Commissioner disapproves the amendment(s).

This agency hereby certifies that the proposal has been reviewed by legal counsel and found to be within the agency's legal authority to adopt.

Filed with the Office of the Secretary of State, on April 10, 2000.

TRD-200002546

Lynda Nesenholtz

General Counsel and Chief Clerk

Texas Department of Insurance

Earliest possible date of adoption: May 21, 2000

For further information, please call: (512) 463-6327

Subchapter E. TEXAS WINDSTORM INSURANCE ASSOCIATION

1. PLAN OF OPERATION

28 TAC §5.4008

The Texas Department of Insurance proposes amendments to §5.4008, concerning building code specifications in the plan of operation of the Texas Windstorm Insurance Association (Association or TWIA). The purpose of the Association is to provide windstorm and hail insurance coverage to residents in designated catastrophe areas who are unable to obtain such coverage in the voluntary market. The Association's plan of operation specifies in §5.4008 the applicable building code standards to qualify for coverage from the Association for structures located in designated catastrophe areas which were constructed, repaired, or to which additions are made on and after September 1, 1998, the effective date of the Building Code for Windstorm Resistant Construction (the code). The proposed amendments are necessary to make editorial and clarifying changes that make the code more user-friendly and easier to use.

The proposed amendments are a result of recommendations by the Building Code Advisory Committee on Specifications and Maintenance to expand the available use of the code in the designated catastrophe areas. Article 21.49, §6C, Insurance Code requires the Commissioner to appoint a Building Code Advisory Committee on Specifications and Maintenance (advisory committee) to advise and make recommendations to the Commissioner on building specifications in the TWIA plan of operation for structures to be eligible for windstorm and hail insurance through the TWIA.

The advisory committee met on February 3, 2000 to consider the proposed recommendations presented by the department staff and voted to recommend certain building code changes to the commissioner for his consideration. The advisory committee's recommended changes were submitted to the commissioner on February 11, 2000 and those recommendations were accepted and are to be considered at a rulemaking hearing.

The proposed amendments to the code are as follows:

A. Section 100, General Requirements: Editorial changes are made in this section to remove the reference to the wind load provisions of ASCE 7-95. The prescriptive requirements within the Code and the wind pressures specified in this section are based on ASCE 7-93. The reference to ASCE 7-95 promotes confusion.

B. Section 200, Basic Definitions, Assumptions, and Limitations of the Prescriptive Code.

1. 207, Limitations on the Prescriptive Code. Information presented in the building limitations tables is to be expanded so that the tables are easier to use. A clarification is provided to indicate that the span and spacing limitations for floor systems apply to all types of floor framing members.

C. Section 300, Prescriptive Requirements, Area Inland of the Dividing Line.

1. 301, Foundations. A clarification provides guidance for anchor bolt embedment along a raised curb. Tables have been added to provide shear and uplift capacities for alternative anchors to be determined based on the uplift and shear load of the default inch diameter anchor bolt. For the selection of alternative anchors, tables are included to tabulate the appropriate uplift load to use depending on the building type and wall height. A clarification is provided in the text, in the fastening schedule and in an illustration to indicate the proper placement of fasteners for attaching a ledger strip to a beam where the ledger strip provides support for floor joists in the construction of a piling or pier and beam foundation. For pier and beam construction, a table is added to provide options for beam sizes. Text is included to emphasize that a standard 90-degree hook shall be provided in the footing of the pier as shown in the existing figure in the appendix. A clarification is added to indicate the proper placement of reinforcement in the footings of piers.

2. 303, Wood Stud Wall Framing. A clarification is provided to indicate that the table for uplift loads at gable endwalls applies to one-, two- and three-story structures. An editorial change is provided to clarify that the spacers between the lumber used for headers can be wood structural panels and are not limited to the use of plywood only. A separate header table is added for headers constructed with Southern Pine lumber. A reference to header requirements for interior loadbearing walls is removed. Editorial changes are added to clarify the application of the garage door header tables and to expand options for the selection of glued-laminated beams. A correction is made to framing around garage door openings regarding the uplift capacity of anchor bolts used to transfer uplift loads to the foundation. An editorial change is provided to clarify that only one holddown connector is required at each building corner, unless otherwise specified in the Code. Another editorial change clarifies that standard inch anchor bolts may be used to anchor holddown connectors to the foundation, if the required capacity of the holddown is less than the tensile capacity of the anchor bolt embedded in concrete. A table has also been included to provide capacity values for both the inch and inch anchor bolts for use with holddown connectors. An editorial change is provided to renumber and relocate an illustration relating to shear transfer.

4. 305, Ceiling Framing. A clarification is added regarding the construction of the ceiling diaphragm and gable endwall framing. A figure is revised to clarify that sheathing must be applied to the wall when installing a brick veneer.

5. 306, Roof Framing. A clarification is provided to indicate that the dimensions of the truss shall not exceed the limitations specified in Section 207. Guidance is provided for determining the anchorage of wall studs when roof trusses are used. A table is provided to specify the maximum allowable anchorage for the bearing points of a truss. Additional text is added to clarify the attachment of roof sheathing along the perimeter of the roof and at gable endwalls.

6. 307, Roof Coverings. ASTM standards are added to stipulate the minimum requirements for underlayment. A revision to the fastening requirements for the double layer application of felt is included so that the fastening pattern will be the same as required for attachment of a single layer application. An option is included which provides guidance for the attachment of underlayment for shingles that pass Underwriters Laboratories (UL) Standard 997 and are rated at wind speeds which meet the Code's minimum fastest mile wind speed requirement of 95 mph.

7. 311, Miscellaneous Construction. An editorial change was made to correct a conflict between the text and a table relating to the attachment of the beam to post connection in post frame construction. A clarification is provided for the attachment of purlins to roof framing in post frame construction. Fastener requirements have been added for the attachment of corrugated metal siding or wood structural panel siding in post frame construction. The fastener requirements have been revised for the attachment of a corrugated metal roof to purlins or a solid deck in post frame construction. The supported overhangs and covered porches section is revised to make the section easier to read and to understand. Guidance is provided for the attachment of overhang roof framing members to the main structure and to provide a table for uplift capacities for bolts connecting beams to posts. A clarification is also provided to specify the measurement of posts supporting beams used in overhangs and porches. A clarification is provided to address the construction of ceiling framing in portable and temporary buildings. A new section is added to provide an option for the construction of a detached garage which can not be constructed in accordance with Section 303.

8. 312, Reroofing a Wood Shingle or Shake Roof. A clarification is provided to address the application of wood structural panels over space boards.

9. 313, Additions, Renovations, and Repairs. A new section is added to address the connection of rafters from an addition to the roof framing of an existing structure. A new section is added to address the connection of the wall framing for an addition to an existing structure.

D. Section 400, Prescriptive Requirements, Area Seaward of Established Dividing Line.

1. 401, Foundations. A clarification provides guidance for anchor bolt embedment along a raised curb. Tables have been added to provide shear and uplift capacities for alternative anchors to be determined based on the uplift and shear load of the default inch diameter anchor bolt. For the selection of alternative anchors, tables are included to tabulate the appropriate uplift load to use depending on the building type and wall height. A clarification is provided in the text, in the fastening schedule and in an illustration to indicate the proper placement of fasteners for attaching a ledger strip to a beam where the ledger strip provides support for floor joists in the construction of a piling or pier and beam foundation. For pier and beam construction, a table is added to provide options for beam sizes. Text is included to emphasize that a standard 90-degree hook shall be provided in the footing of the pier as shown in the existing figure in the appendix. A clarification is added to indicate the proper placement of reinforcement in the footings of piers.

2. 402, Floor Framing. An editorial change is provided to correct two values in one of the span tables for floor joists.

3. 403, Wood Stud Wall Framing. A clarification is provided to indicate that the table for uplift loads at gable endwalls applies to one-, two- and three-story structures. An editorial change is provided to clarify that the spacers between the lumber used for headers can be wood structural panels and are not limited to the use of plywood only. A separate header table is added for headers constructed with Southern Pine lumber. A reference to header requirements for interior loadbearing walls is removed. Editorial changes are added to clarify the application of the garage door header tables and to expand options for the selection of glued-laminated beams. A correction is made to framing around garage door openings regarding the uplift capacity of anchor bolts used to transfer uplift loads to the foundation. An editorial change is provided to clarify that only one holddown connector is required at each building corner, unless otherwise specified in the Code. Another editorial change clarifies that standard inch anchor bolts may be used to anchor holddown connectors to the foundation, if the required capacity of the holddown is less than the tensile capacity of the anchor bolt embedded in concrete. A table has also been included to provide capacity values for both the inch and inch anchor bolts for use with holddown connectors. An editorial change is provided to renumber and relocate an illustration relating to shear transfer.

4. 405, Ceiling Framing. A clarification is added regarding the construction of the ceiling diaphragm and gable endwall framing. A figure is revised to clarify that sheathing must be applied to the wall when installing a brick veneer.

5. 406, Roof Framing. A clarification is provided to indicate that the dimensions of the truss shall not exceed the limitations specified in Section 207. Guidance is provided for determining the anchorage of wall studs when roof trusses are used. A table is provided to specify the maximum allowable anchorage for the bearing points of a truss. Additional text is added to clarify the attachment of roof sheathing along the perimeter of the roof and at gable endwalls.

6. 407, Roof Coverings. ASTM standards are added to stipulate the minimum requirements for underlayment. A revision to the fastening requirements for the double layer application of felt is included so that the fastening pattern will be the same as that required for attachment of a single layer application. An option is included which provides guidance for the attachment of underlayment for shingles that pass Underwriters Laboratories (UL) Standard 997 and are rated at wind speeds which meet the Code's minimum fastest mile wind speed requirement of 100 mph.

7. 411, Miscellaneous Construction. An editorial change is made to correct a conflict between the text and a table relating to the attachment of the beam to post connection in post frame construction. A clarification is provided for the attachment of purlins to roof framing in post frame construction. Requirements for fasteners are added for the attachment of corrugated metal siding or wood structural panel siding in post frame construction. The fastener requirements have been revised for the attachment of a corrugated metal roof to purlins or a solid deck in post frame construction. The supported overhangs and covered porches section is revised to make the section easier to read and to understand. Guidance is provided for the attachment of overhang roof framing members to the main structure and to provide a table for uplift capacities for bolts connecting beams to posts. A clarification is also provided to specify the measurement of posts supporting beams used in overhangs and porches. A clarification is provided to address the construction of ceiling framing in portable and temporary buildings. A new section is added to provide an option for the construction of a detached garage which can not be constructed in accordance with Section 403.

8. 412, Reroofing a Wood Shingle or Shake Roof. A clarification is provided to address the application of wood structural panels over space boards.

9. 413, Additions, Renovations, and Repairs. A new section is added to address the connection of rafters from an addition to the roof framing of an existing structure. A new section is added to address the connection of the wall framing for an addition to an existing structure.

E. Appendices.

1. Windstorm Offices. Updated telephone numbers and addresses of the Texas Department of Insurance's windstorm field offices are added to this appendix.

2. TDI Standard TDI 1-98. An editorial change has been made to define porosity.

3. Fastening Schedule. An editorial change has been made regarding the fasteners required for securing spaced boards to roof framing and for the attachment of wood structural panels to spaced boards. Copies of the proposed amendments to the Building Code for Windstorm Resistant Construction, are available from the Office of the Chief Clerk, MC 113-2A, Texas Department of Insurance, P.O. Box 149104, Austin, Texas 78714-9104.

The department will consider the adoption of amendments to §5.4008 in a public hearing under Docket Number 2446, scheduled for 10:00 a.m. on May 11, 2000 in Room 100 of the William P. Hobby, Jr. State Office Building, 333 Guadalupe Street, Austin, Texas.

Alexis Dick, Deputy Commissioner for the Inspections Group, has determined that for each year of the first five years that the proposed amendments will be in effect, there will be no fiscal implications for state or local government as a result of enforcing or administering the section. Ms. Dick has also determined that there will be no adverse effect on local employment or the local economy.

Ms. Dick has also determined that for each year of the first five years the amended section is in effect, the public benefit anticipated as a result of adopting this amended section will be the facilitation of compliance by coastal builders with the new coastal building code by making editorial and clarifying changes that result in a code which is more user-friendly and easier for builders and inspectors to use. There is no anticipated adverse economic effect on large, small or micro-businesses who are required to comply with the proposed amendment because the amendments make only editorial and clarifying changes and do not add any prescriptive requirements to the code that make the code more restrictive. Any small business or micro-business that is required to comply with the proposed amendments to §5.4008 will incur no costs in addition to those costs that would be incurred under the section as currently adopted.

To be considered, comments on the proposed amendments must be submitted no later than 5 p.m. on May 22, 2000 to Lynda H. Nesenholtz, General Counsel and Chief Clerk, MC 113-2A, Texas Department of Insurance, P.O. Box 149104, Austin, Texas, 78714-9104. An additional copy of the comment should be simultaneously submitted to Alexis Dick, Deputy Commissioner, Inspections Group, MC 103-1A, Texas Department of Insurance, P.O. Box 149104, Austin, Texas 78714-9104.

The amendments are proposed pursuant to the Insurance Code Article 21.49 and §36.001. Article 21.49, §6A specifies building code requirements and approval or inspection procedures for windstorm and hail insurance through the Association. Article 21.49, §6C requires the Commissioner to appoint a Building Code Advisory Committee on Specifications and Maintenance to advise and make recommendations to the Commissioner on building specifications and maintenance in the Association's plan of operation for structures to be eligible for windstorm and hail insurance through the Association. Article 21.49, §5(c) provides that the Commissioner of Insurance by rule shall adopt the Association's plan of operation with the advice of the Association's board of directors. Insurance Code, §36.001 authorizes the Commissioner of Insurance to adopt rules and regulations, which must be for general and uniform application, for the conduct and execution of the duties and function of the Texas Department of Insurance only as authorized by statute.

The following statute is affected by this proposal: Insurance Code, Article 21.49

§5.4008.Applicable Building Code Standards in Designated Catastrophe Areas for Structures Constructed, Repaired or to Which Additions Are Made On and After September 1, 1998.

(a)

Areas Seaward of the Intracoastal Canal. To be eligible for catastrophe property insurance, structures located in designated catastrophe areas which are seaward of the Intracoastal Canal and constructed, repaired, or to which additions are made on and after September 1, 1998, shall comply with the Building Code for Windstorm Resistant Construction. The Texas Department of Insurance adopts by reference the Building Code for Windstorm Resistant Construction, effective September 1, 1998. Amendments to the Building Code for Windstorm Resistant Construction are adopted by reference to be effective August 1, 2000 [ December 31, 1998 ].

(b)

Areas Inland of the Intracoastal Canal and Within Approximately 25 Miles of the Texas Coastline and east of the Specified Boundary Line and Certain Areas in Harris County.

(1)

To be eligible for catastrophe property insurance, structures located in designated catastrophe areas specified in paragraphs (2)(A) and (B) of this subsection and constructed, repaired, or to which additions are made on and after September 1, 1998, shall comply with the Building Code for Windstorm Resistant Construction which is adopted by reference in subsection (a) of this section and any applicable amendments adopted by reference to be effective August 1, 2000 [ December 31, 1998 ].

(2)

(No change.)

(c)-(d)

(No change.)

This agency hereby certifies that the proposal has been reviewed by legal counsel and found to be within the agency's legal authority to adopt.

Filed with the Office of the Secretary of State, on April 10, 2000.

TRD-200002547

Lynda Nesenholtz

General Counsel and Chief Clerk

Texas Department of Insurance

Earliest possible date of adoption: May 21, 2000

For further information, please call: (512) 463-6327

Chapter 7. CORPORATE AND FINANCIAL REGULATION

Subchapter A. EXAMINATION AND FINANCIAL ANALYSIS

28 TAC §7.25, §7.26

(Editor's note: The text of the following sections proposed for repeal will not be published. The sections may be examined in the offices of the Texas Department of Insurance or in the Texas Register office, Room 245, James Earl Rudder Building, 1019 Brazos Street, Austin.)

The Texas Department of Insurance proposes the repeal of §7.25 and §7.26 concerning the relocation by a domestic insurer of its principle offices, books and records outside of this state. The repeal of the sections is necessary to implement the amendment of Insurance Code Article 1.28 by House Bill 3304, 76th Legislature, 1999. To implement the amendment, the department is proposing a new §7.25 which appears elsewhere in this issue of the Texas Register . The new §7.25 will replace the existing §7.25 and §7.26.

Betty Patterson, CPA, Senior Associate Commissioner-Financial Program for the Texas Department of Insurance has determined that, for the first five-year period the repeal of the sections will be in effect, there will be no fiscal implications for state or local government or small business as a result of enforcing or administering the repeal, and there will be no effect on local employment or local economy.

Ms. Patterson also has determined that, for each year of the first five years the repeal of the sections will be in effect, the public benefit anticipated as a result of the repeal of the sections will be an improved procedure for the Commissioner of Insurance to act on applications by domestic insurers and health maintenance organizations to move some or all of their books and records outside the state. There will be no economic cost to persons who are required to comply with the repeal as proposed.

To be considered, all comments must be in writing and received no later than 5:00 p.m. on May 22, 2000 by Lynda H. Nesenholtz, General Counsel and Chief Clerk, Mail Code 113-2A, Texas Department of Insurance, P.O. Box 149104, Austin, Texas, 78714-9104. An additional copy of the comments should be submitted to Betty Patterson, CPA, Senior Associate Commissioner-Financial Program, Mail Code 305-2A, Texas Department of Insurance, P.O. Box 149104, Austin, Texas, 78714-9104. Any requests for a public hearing should be submitted separately to the Office of the Chief Clerk.

The repeal of the sections is proposed under the Insurance Code, Article 1.28 and §36.001. Article 1.28 authorizes the Commissioner of Insurance to adopt rules to implement the article and Article 1.03A authorizes the Commissioner of Insurance to adopt rules for the conduct and execution of the duties and functions of the department as authorized by statute.

Insurance Code, Article 1.28 is affected by the repeal of the sections.

§7.25.Records under the Insurance Code, Article 1.28.

§7.26.Commencement of 30-Day Review Period under the Insurance Code, Article 1.28.

This agency hereby certifies that the proposal has been reviewed by legal counsel and found to be within the agency's legal authority to adopt.

Filed with the Office of the Secretary of State, on April 10, 2000.

TRD-200002549

Lynda Nesenholtz

General Counsel and Chief Clerk

Texas Department of Insurance

Earliest possible date of adoption: May 21, 2000

For further information, please call: (512) 463-6327

28 TAC §7.25

The Texas Department of Insurance proposes new §7.25 concerning the relocation by a domestic insurer of its principal offices, books and records outside of this state. For brevity, "principal offices, books and records" will be referred to as "records" in this notice of proposed rule. In order to implement the amendments made by House Bill 3304, 76th Legislature, 1999, to Insurance Code Article 1.28 and current departmental practices, the department proposes to repeal the existing §7.25 and §7.26 and propose a new §7.25. The proposed repeal is published elsewhere in this issue of the Texas Register . Under Article 1.28, a domestic insurer that is a member of an insurance holding company system must obtain the prior approval of the Commissioner of Insurance (commissioner) to relocate its records from Texas to another state. The legislation also added health maintenance organizations that are affiliated with other health maintenance organizations or health care providers to the persons that are subject to Insurance Code Article 1.28. The legislation further provided the commissioner with the authority to adopt rules concerning the maintenance of records of insurers subject to Insurance Code Article 1.28, with persons that are not affiliated with the insurer under Insurance Code Article 21.49-1 (Insurance Holding Company System Regulatory Act). The proposed section sets out the procedures to be followed for an insurer to relocate its records outside the state. The section is necessary to set forth an improved procedure to be used by the department to take action on applications of domestic insurers and health maintenance organizations to move some or all of their books and records outside the state. Under the existing §7.25, which is being proposed for repeal, applicants are required to complete a form adopted by the department. Under the proposed section there is no adopted application form. Applicants may submit the information required by the section in a manner they consider most efficient.

Subsection (a) of the proposed section describes the purpose and scope of the section and summarizes the procedure a domestic insurer must follow to relocate. Subsection (b) defines certain terms used in the proposed section. In particular the term "eligible insurer" is defined to include all persons subject to Insurance Code Article 1.28. Subsection (c) establishes the requirement of Insurance Code Article 1.28 that an eligible insurer must notify the department of its desire to relocate its records out of state. Subsection (d) describes the information an eligible insurer is required to provide the department in the notice so the commissioner may make an informed decision to approve or disapprove the request. Subsection (e) requires additional information that must be provided to the department in the notice when the eligible insurer intends for another person to possess and maintain the records out of state. Subsection (f) requires an eligible insurer to have a written agreement with a person who is an affiliate of the eligible insurer and who will maintain any of the eligible insurer's records out of state. Subsection (f) also requires such agreement to include certain provisions and requires the agreement to meet the standards of Insurance Code Article 21.49-1, §4(d)(2), which governs transactions between affiliates in an insurance holding company system. Subsection (g) proposes requirements and restrictions in addition to those in subsection (f), when an eligible insurer engages another person that is not an affiliate of the eligible insurer to maintain its records. Subsection (h) provides that the 30-day period established by Insurance Code Article 1.28, during which the commissioner must approve or disapprove the request, begins to run when the department notifies the eligible insurer that the notice to relocate records is complete. Subsection (i) requires an eligible insurer that has previously received approval to move its records out of state pursuant to Insurance Code Article 1.28, and that desires to relocate those records again, must file a notice of intent to relocate records and obtain the approval of the commissioner before relocating those records. Subsection (j) provides that an eligible insurer does not have to amend its articles of incorporation or similar organization document when it relocates it principal offices and/or its books and records. Subsection (k) provides the commissioner may revoke an eligible insurer's authority to maintain its records outside the state. Subsection (l) describes how sample service of process forms required by Insurance Code Article 1.28(e) may be obtained.

Betty Patterson, CPA, Senior Associate Commissioner-Financial Program for the Texas Department of Insurance, has determined that, for each year of the first five years the section as proposed will be in effect, there will be no fiscal impact to state and local governments as a result of the enforcement or administration of the rule. There will be no measurable effect on local employment or the local economy as a result of the proposal.

Ms. Patterson also has determined that, for each year of the first five years the new section is in effect, the public benefit anticipated as a result of the section will be more effective and efficient regulation of insurers by providing the department effective oversight of insurers' records that are located out of state. Examinations of insurers are more efficient when the location of records are known to the department prior to the commencement of an examination. Examination personnel can be effectively deployed to conduct the examination. Only insurers that desire to relocate their records will incur any cost as a result of the proposed section. Probable economic costs to eligible insurers complying with the new section each year of the first five years the proposed section will be in effect are generally the result of the legislative enactment and amendments of Insurance Code Article 1.28 and are not a result of the adoption and implementation of the proposed section. To the extent the proposed section imposes any costs on insurers that desire to relocate their records, that cost is a result of the insurer's voluntary decision to relocate its records and is necessary to provide the commissioner the information necessary to make the decision required by Insurance Code Article 1.28 to approve or disapprove an insurer's request to relocate its records outside this state. Based on the department's knowledge of insurer costs and discussions with insurers, the cost of preparing the notice of intent to relocate records would range from $1,000 to $5,000. At the low end of the range would be an insurer who merely wanted to relocate its principal office and all its records out of state. At the high end, would be an insurer that wanted to relocate its records by delivering possession of them to another person, located out of state, that is not affiliated with the insurer, or a health maintenance organization that is not a member of an insurance holding company system and must complete the Form B required by subsection (d)(11). In the case of an insurer that desires to relocate its records out of state with an affiliate, the agreement between the insurer and the affiliate required by subsection (f) is also required by Insurance Code Article 21.49-1, §4(d)(2) regardless of the requirement of this section. Based on the cost for each hour of labor required to prepare the notice of intent to relocate the records, both small businesses and the largest business affected by this section would incur the same cost of compliance. The department finds it is neither legal nor feasible to reduce the effect of the proposed section for micro or small businesses that desire to relocate their records out of state because the notice that is required by Article 1.28 and the information that is required by the proposed section is necessary for the commissioner to make an informed decision to approve or disapprove a requested relocation regardless of the size of the eligible insurer.

To be considered, all comments must be in writing and received no later than 5:00 p.m. on May 22, 2000 by Lynda H. Nesenholtz, General Counsel and Chief Clerk, Mail Code 113-2A, Texas Department of Insurance, P.O. Box 149104, Austin, Texas, 78714-9104. An additional copy of the comments should be simultaneously submitted to Betty Patterson, CPA, Senior Associate Commissioner-Financial Program, Mail Code 305-2A, Texas Department of Insurance, P.O. Box 149104, Austin, Texas, 78714-9104. Any requests for a public hearing should be submitted separately to the Office of the Chief Clerk.

The new section is proposed under the Insurance Code Articles 1.28, 1.32 and 21.49-1 and §36.001. Article 1.28 authorizes the Commissioner of Insurance to adopt rules allowing the maintenance of books and records of a domestic insurer subject to Insurance Code Article 1.28 with a nonaffiliated person other than an agency and to allow a domestic health maintenance organization to comply with Insurance Code Article 1.28. Article 1.32 authorizes the Commissioner of Insurance to fix standards for evaluating the financial condition of an insurer. Article 21.49-1, §11 authorizes the Commissioner to adopt rules to carry out the provisions of the article. Section 36.001 authorizes the Commissioner of Insurance to adopt rules for the conduct and execution of the powers and duties of the department as authorized by statute.

Insurance Code Articles 1.28, 1.32 and 21.49-1 are affected by the proposed section.

§7.25.Out of State Books and Records.

(a)

Purpose and Scope. The purpose of this section is to describe the procedure an eligible insurer must follow when it desires to relocate and maintain all or any portion of its books, records, and accounts and its principal offices outside this state at a location within the United States. To facilitate brevity, "all or any portion of its books, records, and accounts and its principal offices" will be referred to as "records" in this section. Insurance Code Article 1.28 and this section describe the standards that an insurer must meet to be eligible to relocate its records outside this state and sets forth the information an eligible insurer must provide to the department in its notice of intent to relocate records so that the commissioner can make an informed decision to approve or disapprove the proposed relocation. The normal records relating to the business produced by an agency of an eligible insurer are not subject to Insurance Code Article 1.28. The department interprets the term "agency" in Insurance Code Article 1.28 to mean a person described in Insurance Code Article 21.02. An eligible insurer that desires to relocate its records to an out of state location must provide the information required by subsection (d) of this section. An eligible insurance company that desires to deliver possession of its records to another person located out of state who is an affiliate of the eligible insurer must also provide the information required by subsections (e) and (f) of this section. When that person is not affiliated with the eligible insurer, the person must comply with the provisions of subsections (e)-(g) of this section. Records of a health maintenance organization relating to its quality assurance program are not subject to this section.

(b)

Definitions. The following words and terms, when used in this section, shall have the following meanings, unless the context clearly indicates otherwise.

(1)

Affiliate--As defined in the Insurance Code Article 21.49-1, §2(a).

(2)

Domestic insurance company--As defined in the Insurance Code Article 1.28, §1(a).

(3)

Eligible insurer--A domestic insurance company that is:

(A)

an affiliate of an insurance holding company system;

(B)

a health maintenance organization that is an affiliate of another health maintenance organization or health care provider; or

(C)

a nonprofit legal services corporation that is an affiliate of an insurance holding company system and whose claims and daily affairs are handled under contract by a foreign insurer licensed to do a similar business in this state.

(4)

Health care provider--Is the same as the term "provider" in Insurance Code Article 20A.02(t).

(5)

Insurance holding company system--As defined in the Insurance Code Article 21.49-1, §2(i).

(c)

Notice of Intent to Relocate Records. An eligible insurer desiring to change the location of its records to a location outside this state must file with Financial Analysis and Examinations, 333 Guadalupe, Austin, Texas 78701 or P.O. Box 149099, Austin, Texas 78714-9099, Mail Code 303-1A an original and one copy of a notice of intent to relocate records setting forth the information required by subsection (d) of this section, accompanied by the required filing fee established in §7.1301(d)(18) of this title (relating to Fees). Alternatively, an eligible insurer complies with this section when it provides the department the information required by this section in an agreement with an affiliate, and such agreement has been approved or not disapproved as required by Insurance Code Article 21.49-1, §4.

(d)

Contents of Notice of Intent to Relocate Records. The notice of intent to relocate records required by Insurance Code Article 1.28 and subsection (c) of this section must provide:

(1)

the name of the eligible insurer desiring to relocate its records outside the state;

(2)

the street address of the eligible insurer's principal office or offices (if there is more than one principal office, identify the activities that are performed at each principal office; e.g., accounting, actuarial, investments, underwriting, claims, marketing, data processing, human resources and corporate matters);

(3)

the street address of the location or locations of the eligible insurer's records before the proposed relocation of records (if there is more than one location, identify the records that are maintained at each location; e.g., accounting, actuarial, investments, underwriting, claims, marketing, data processing, human resources and corporate matters);

(4)

the street address of the eligible insurer's principal office or offices after the proposed relocation of records (if there is more than one principal office, identify the activities that will be performed at each principal office; e.g., accounting, actuarial, investments, underwriting, claims, marketing, data processing, human resources and corporate matters);

(5)

the street address of the proposed location or locations of the eligible insurer's records;

(6)

a detailed description of the records that will be maintained at the proposed location or locations named in paragraph (5) of this subsection;

(7)

the anticipated effective date of the proposed relocation of the eligible insurer's records;

(8)

a description of the eligible insurer's affiliation with an insurance holding company system or health maintenance organizations or health care providers;

(9)

if the eligible insurer is affiliated with an insurance holding company system, a statement that the eligible insurer has made the necessary filings required by the Insurance Code Article 21.49-1;

(10)

if the eligible insurer is affiliated with an insurance holding company system, a statement that the eligible insurer is in compliance with the Insurance Code Article 21.49-1;

(11)

if the eligible insurer is a health maintenance organization that is not affiliated with an insurance holding company system, but is affiliated with other health maintenance organizations or health care providers, the health maintenance organization must furnish the information as set forth in §7.210 of this title (relating to Form B);

(12)

a description of any actual, proposed, or contemplated financial involvement with respect to the relocation of the records by an officer, director or employee or a person who is the beneficial owner, directly or indirectly, of 10% or more of the voting securities of the eligible insurer or affiliated insurance holding company system or health maintenance organization;

(13)

an analysis of the benefits to the eligible insurer anticipated as a result of the relocation of the records, including the impact on the location being abandoned;

(14)

a description of the impact of the relocation of the records on policyholders and claimants;

(15)

a service of process form executed by the eligible insurer (see subsection (l) of this section to obtain an example of an acceptable form);

(16)

a service of process form executed by a controlling person of the eligible insurer (see subsection (l) of this section to obtain an example of an acceptable form);

(17)

if the records of the eligible insurer will be maintained by a person other than the eligible insurer, state the name of the person who will be maintaining the records of the eligible insurer;

(18)

if a person is named in paragraph (17) of this subsection, provide the information in subsection (e) of this section; and

(19)

such other information as the department may require so that an informed determination can be made to approve or disapprove the proposed relocation of records out of state.

(e)

Additional Information Required for the Relocation and Possession of Records with a Person Other than the Eligible Insurer. If the eligible insurer intends for a person other than the eligible insurer to possess and maintain its records, the following information must be included in the notice of intent to relocate records:

(1)

the name of the person who will possess and maintain the records;

(2)

the names of the directors, executive officers, principals or principal shareholders of the person named in paragraph (1) of this subsection;

(3)

a statement describing the person's affiliation with the insurance holding company system or health maintenance organization or health care providers named in subsection (d)(8) of this section, if any;

(4)

an explanation and description of control mechanisms in place to assure the effective and efficient reconciliation of the records to be maintained by the person with those corporate records maintained by the eligible insurer;

(5)

an explanation of how the eligible insurer will maintain direct supervision, management and control of the records that are relocated;

(6)

a copy of the agreement between the eligible insurer and the person possessing and maintaining the records. The agreement must comply with the requirements of subsection (f) of this section;

(7)

a description of the additional management reporting systems and internal controls that the eligible insurer will use relative to its arrangement with the person possessing and maintaining the records of the eligible insurer; and

(8)

a description of any existing computer link-up that will permit on-line access to the eligible insurer by departmental examiners, or an explanation acceptable to the commissioner of insurance why such link-up would not be practical.

(f)

Agreement Between Eligible Insurer and Person to Maintain Records. An eligible insurer must have a written agreement with the person possessing and maintaining the records of the eligible insurer.

(1)

The agreement shall include:

(A)

a description of the functions to be performed by the person possessing and maintaining the records;

(B)

a provision that requires the records of the eligible insurer be under the eligible insurer's direct supervision, management and control;

(C)

a provision authorizing the department to examine, at the eligible insurer's expense, the records and operations of the person possessing and maintaining the records of the eligible insurer at the location of such records, regarding the arrangement with the eligible insurer; and

(D)

a provision requiring the person possessing and maintaining the records to fully cooperate with the department staff during an examination conducted pursuant to subparagraph (C) of this paragraph.

(2)

The agreement required by this section is subject to the standards in Insurance Code Article 21.49-1, §4.

(3)

If the person possessing and maintaining the records of the eligible insurer is not an affiliate of the eligible insurer under Insurance Code Article 21.49-1, the agreement between the nonaffiliated person and the eligible insurer must also comply with subsection (g) of this section.

(g)

Requirements and Restrictions Applicable to Nonaffiliated Person Maintaining Records. When an eligible insurer desires to have a nonaffiliated person maintain its records, there must be a written agreement between the eligible insurer and the nonaffiliated person that contains the provisions described in subsection (f) of this section and paragraphs (1)-(8) of this subsection.

(1)

Only records related to policyholder claims, policy administration and related processes may be maintained by the nonaffiliated person.

(2)

Only active claims files may be maintained by a nonaffiliated person.

(3)

Claim files, when closed, must be returned to the eligible insurer within 60 days of closing.

(4)

Copies of active claim files will be maintained by the eligible insurer at all times, unless the commissioner's approval of the relocation of the records finds that it would not be practical and specifically waives this requirement.

(5)

Active claim files maintained by the nonaffiliated person must be provided to examiners representing the department on site within three days of request.

(6)

Representatives of the nonaffiliated person responsible for the maintenance of the eligible insurer's records must be reasonably available at the location of the eligible insurer's records when examiners representing the department are at the location.

(7)

The nonaffiliated person must be licensed by the department to perform the services contemplated by the arrangement with the eligible insurer.

(8)

A requirement that the eligible insurer must audit the nonaffiliated person at least once each 6 months to evaluate the internal controls and compliance with the agreement between the eligible insurer and the nonaffiliated person (performance audit) with regard to the records of the eligible insurer maintained by the nonaffiliated person. Such audits shall be conducted by persons who are knowledgeable in the claims adjusting process and internal controls; auditors should include representatives of the eligible insurer's internal audit department and/or the audit committee of the board of directors of the eligible insurer; and the audit reports must be reviewed by the board of directors of the eligible insurer and the nonaffiliated person.

(h)

Accepted Filing of Notice of Intent. The commissioner may approve or disapprove the notice of intent to relocate records within 30 days after a complete notice is filed with the department. The written notice required under this section shall be considered complete and filed with the department only when all materials sufficient to allow the commissioner to conduct an informed decision on the application, including any information subsequently requested by the commissioner, are filed. If within 30 days after the date that the eligible insurer files its complete notice of intent to relocate records, including the applicable filing fee, the commissioner does not request additional information and has not disapproved such notice, the notice shall be deemed approved.

(i)

Relocation of Records Approved to be Located Out of State. An eligible insurer that has relocated records out of state pursuant to Insurance Code Article 1.28 and this section and desires to relocate those records to another location, must file with the department the notice of intent to relocate records required by subsection (c) of this section. The eligible insurer may use the previously approved notice of intent to relocate records to comply with this subsection to the extent there has been no change in the information previously submitted.

(j)

Articles of Incorporation or Charter. An eligible insurer that relocates its records out of state is not required to amend its articles of incorporation, charter or other organizational document to reflect the relocation to the extent there has been no change in such documents as a result of the relocation.

(k)

Revocation of Authority to Relocate Records. The commissioner of insurance, upon notice and opportunity for hearing, may limit or revoke the authority of an eligible insurer to maintain records outside this state if the eligible insurer or person possessing and maintaining the records of the eligible insurer fails or refuses to comply with a request to provide information as part of an examination, or if the commissioner determines that the continued operations of the eligible insurer might be hazardous to policyholders, creditors or the general public.

(l)

Examples of the service of process form to be executed by the eligible insurer (TDI/SOP (2000)) and the controlling person (TDI/SOP-CP (2000)) under subsection (d)(15) and (16) of this section are available from the Company Licensing and Registration Division, Texas Department of Insurance, 333 Guadalupe. P.O. Box 149104, Austin, Texas 78714-9104.

This agency hereby certifies that the proposal has been reviewed by legal counsel and found to be within the agency's legal authority to adopt.

Filed with the Office of the Secretary of State, on April 10, 2000.

TRD-200002548

Lynda Nesenholtz

General Counsel and Chief Clerk

Texas Department of Insurance

Earliest possible date of adoption: May 21, 2000

For further information, please call: (512) 463-6327