Part 1.
TEXAS DEPARTMENT OF INSURANCE
Chapter 1.
GENERAL ADMINISTRATION
Subchapter C. ASSESSMENT OF MAINTENANCE TAXES AND FEES
28 TAC §1.414
The Commissioner of Insurance adopts amendments to §1.414,
concerning assessment of maintenance taxes and fees for payment in the year
2006. The amended section is adopted without changes to the text proposed
in the November 25, 2005, issue of the
Texas Register
(30 TexReg 7804).
The amendments are necessary to adjust the rates of assessment for maintenance
taxes and fees for 2006 to provide the revenue necessary to fund appropriations
made by the Legislature to fund regulation of the insurance industry in Texas.
In addition, the amendments are necessary to set maintenance tax assessment
rates to implement HB 7, Acts 2005, 79th Legislature, Regular Session ch.
265, eff. Sept. 1, 2005, which transferred the functions of the Texas Workers'
Compensation Commission (TWCC) to the Department's newly created Division
of Workers' Compensation (DWC) and established the Office of Injured Employee
Counsel (OIEC), a separate agency to help injured employees in the workers'
compensation system. HB 7 transferred funding of the DWC and the OIEC from
the State General Revenue Fund to the Department's operating account, as provided
in the Labor Code §403.001, and granted authorization to the Commissioner
of Insurance to assess maintenance taxes for the operation of the DWC and
to prosecute workers' compensation insurance fraud in Texas, as provided in
the Labor Code §403.002 and §403.003. The amended section is also
necessary to set assessment rates for workers' compensation self-insurance
groups to implement HB 2095, Acts 2003, 78th Legislature, Regular Session,
ch.275, eff. Sept. 1, 2003 codified as Labor Code Chapter 407A.
Insurance Code §201.001 creates the Texas Department of Insurance
operating account and authorizes the Commissioner to administer the money
in the account and to spend money from the account in accordance with state
law, rules adopted by the Commissioner, and the General Appropriations Act.
Section 201.001 also provides that the money deposited to the credit of the
account may be used for any purpose for which money in the account is authorized
to be used by law. Section 251.001 of the Insurance Code provides that collected
maintenance taxes must be deposited in the general revenue fund and reallocated
to the Texas Department of Insurance operating account. The General Appropriations
Act (SB 1, 79th Legislature, Regular Session) mandates that the Department's
operating account in 2006 be used to pay the expenses for the operation of
the Department as well as the expenses for the operation of the newly created
DWC within the Department; the OIEC, a newly created agency which assumed
some functions of the TWCC; and other state agencies. The operation of the
DWC was formerly funded by maintenance taxes assessed by the TWCC. The functions
to be performed by the OIEC were funded from the maintenance taxes assessed
by the TWCC.
Several statutes require the Department to set maintenance tax assessment
rates for the various lines of insurance to fund the appropriations made by
the legislature from the Department's operating account. Section 1.414 sets
rates for maintenance tax assessment on individual lines of insurance and
applies those rates to the gross premium receipts for the calendar year 2005,
or some other basis specified by statute, to life, accident, and health insurance;
motor vehicle insurance; casualty insurance, and fidelity, guaranty and surety
bonds; fire insurance and allied lines, including inland marine; workers'
compensation insurance; title insurance; health maintenance organizations;
third party administrators; and corporations issuing prepaid legal services
contracts. The factors considered in the Department's rate setting process
are: (i) the appropriations made by the legislature, including the legislative
mandates to fund the expenses of the DWC and the OIEC and to fund Department
and OIEC employee salary increases; ii) the cost to regulate each line of
insurance; (iii) the Department operating account ending balance; (iv) non-maintenance
tax revenues; and (v) the statutory caps for each line of insurance. In the
absence of changes in these factors, maintenance tax rates and revenues should
remain constant from year to year. Based on material changes in appropriations
made by the Legislature and the prior year Department operating account ending
balance, the Department has determined that approximately $54 million is needed
from maintenance taxes to fund the Department's operating account legislative
appropriations, excluding the $52 million needed to fund DWC and OIEC. Based
on these factors the Department determined that a total of approximately $106
million is needed from maintenance taxes to fund the insurance operating account
legislative appropriations for 2006. Approximately $52 million of the $106
million is needed to fund the insurance operating account legislative appropriations
for the DWC and OIEC operating expenses, and $54 million is needed to fund
the remainder of the insurance operating account legislative appropriations,
including the operation of the Department. Any comparison of the proposed
rates for 2006 to the rates adopted for 2005, however, must exclude the proposed
rates for the DWC and the OIEC and their projected revenue need of $52 million
because that projected revenue amount was not included in the calculations
for the 2005 rates. The $54 million maintenance tax need is an increase of
$20 million from the 2005 maintenance tax need of $34 million. The increased
need requires rates above the 2004 and 2005 adopted rates. The proposed 2006
rates are projected by the Department to produce the revenue of approximately
the 2003 amount of $55 million. The rates adopted in 2005, as well as those
adopted in 2004, were unusually low due to mandatory budget reductions by
the Legislature that resulted in lower spending than expected and a one-year
revenue collection greater than expected because of higher premiums than projected.
Therefore, the resulting balance in the Department's operating account created
by the budget reductions and greater revenues than expected resulted in the
lower rates in 2004 and 2005. Also, new legislative mandates that require
additional funding of approximately $11 million from the Department's operating
account further increase the total amount needed to fund the Department's
operating account legislative appropriations for 2006. Therefore, the resulting
ending balance in the Department's operating account created by the budget
reductions and greater revenues than expected resulted in the lower rates
in 2004 and 2005. Also new legislative mandates to provide additional funding
of approximately $11 million from the Department's operating account further
increase the total amount needed to fund the Department's operating account
legislative appropriations for 2006. These new mandates, funding a state wide
salary increase for employees of the Department, and a lower ending balance
in the Department's operating account are the primary reasons for the increase
in maintenance tax rates for 2006, excluding DWC and OIEC, a separate agency
to help injured employees in the workers' compensation system.
The maintenance tax rates needed to fund the DWC and OIEC in 2006, as determined
by the Department, are 15 percent higher than the 2005 rates. This is the
result of several factors. HB 7 transferred funding of the DWC and the OIEC
from the State General Revenue Fund to the Department's operating account.
Maintenance tax rates set by the former TWCC were set to fund operations of
that agency through December of each year. The transfer of the funds to the
Department's operating account, however, requires revenues from the maintenance
taxes to fund operations of the DWC and the OIEC through April of each year;
this means that the funding period is extended for an additional four months
which contributes to the rate increase. Additionally, the rates set by TWCC
in 2004 were set low in order to spend down available funds. The Department
incorporated provisions of HB 7 into the rate setting process for the newly
created DWC within the Texas Department of Insurance and the OIEC, a separate
new agency. All of these factors together contributed to the 15 percent increase
in the maintenance tax assessment rate to fund the DWC and OIEC operating
expenses.
Section 1.414 sets rates of assessment and applies those rates to the gross
premium receipts for the calendar year 2005, or some other basis specified
by statute, to life, accident, and health insurance; motor vehicle insurance;
casualty insurance, and fidelity, guaranty and surety bonds; fire insurance
and allied lines, including inland marine; workers' compensation insurance;
title insurance; health maintenance organizations; third party administrators;
and corporations issuing prepaid legal services contracts. The Department
anticipates the adopted rates will produce revenue of $106,221,189 to fund
appropriations made by the Legislature. The amended section implements HB
7, which transferred the functions of the TWCC to the Department's new created
DWC and established the OIEC, by adding new paragraphs (5) and (6) of subsection
(a) and subsection (d) to include the maintenance tax rates previously assessed
by the TWCC. The amended section also implements HB 2095, Acts 2003, 78th
Legislature, Regular Session, ch.275, eff. Sept. 1, 2003, codified as Labor
Code Chapter 407A by adding paragraph (7) to subsection (a) set a rate of
assessment for workers' compensation self-insurance groups.
Comment: Commenters expressed concern over what they characterized as the
substantial increase in the proposed rates of assessment for 2006 over the
rates adopted for 2005.
Agency Response: The Department estimates that the proposed rates will
produce $106 million in 2006 which is needed to fund legislative appropriations
for 2006 from the Department's operating account. An accurate comparison of
the proposed rates for 2006 to the rates adopted for 2005, however, must exclude
the proposed rates for the DWC and the OIEC and their projected revenue need
of $52 million, because that projected revenue amount was not included in
the calculations for 2005. The factors considered in the Department's rate
setting process are: (i) the appropriations made by the legislature, (ii)
the cost to regulate each line of insurance, (iii) prior year fund balance,
(iv) non-maintenance tax revenues, and (v) statutory caps for each line of
insurance. In the absence of changes in these factors, maintenance tax rates
and revenues should remain constant from year to year. Based on material changes
in appropriations made by the Legislature and the prior year Department operating
account ending balance, the Department has determined that approximately $54
million is needed from maintenance taxes to fund the Department's operating
account legislative appropriations, excluding the $52 million needed to fund
DWC and OIEC. The $54 million maintenance tax need is an increase of $20 million
from the 2005 maintenance tax need of $34 million. The increased need requires
rates above the 2004 and 2005 adopted rates. The proposed 2006 rates are projected
by the Department to produce the revenue of approximately the 2003 amount
of $55 million. Also, any accurate rate comparison between 2005 rates and
2006 proposed rates must consider that the rates adopted in 2005, as well
as in 2004, were unusually low due to legislatively mandated budget reductions
that resulted in lower spending than expected and a one-year revenue collection
greater than expected because of higher premiums than projected. Therefore,
the resulting ending balance in the Department's operating account created
by the budget reductions and greater revenues than expected resulted in the
lower rates in 2004 and 2005. Also new legislative mandates to provide additional
funding of approximately $11 million from the Department's operating account
further increase the total amount needed to fund the Department's operating
account legislative appropriations for 2006. These new mandates, funding a
state wide salary increase for employees of the Department, and a lower ending
balance in the Department's operating account are the primary reasons for
the increase in maintenance tax rates for 2006, excluding DWC and OIEC.
Comment: Commenters questioned the Legislature's inclusion of certain mandates
in the General Appropriations Act in determining the proposed rates, because
those mandates did not provide funding for the Department or were unrelated
to the regulation of insurance. They questioned whether the proposed rates
should impose a tax which provides funds other than those necessary to pay
the Department's expenses for regulating insurance. Some commenters additionally
asserted that the maintenance tax statutes conflict with certain mandates
in the General Appropriations Act because the maintenance tax statutes are
substantive laws that require funds raised from the maintenance taxes to be
used exclusively to pay the Department's expenses. They stated this conflict
invalidated those mandates in the General Appropriations Act and that the
Department should not include those mandates in determining the rates of assessment.
Agency Response: It is the Department's position that the maintenance tax
rates proposed for 2006 are properly determined within the Department's statutory
authority and in accordance with legally valid legislative mandates in the
General Appropriations Act (SB 1, 79th Legislature, Regular Session). Insurance
Code §201.001 creates the Texas Department of Insurance operating account
and authorizes the Commissioner to administer the money in the account and
to spend money from the account in accordance with state law, rules adopted
by the Commissioner, and the General Appropriations Act. Section 201.001 also
provides that the money deposited to the credit of the account may be used
for any purpose for which money in the account is authorized to be used by
law. Section 251.001 of the Insurance Code provides that collected maintenance
taxes must be deposited in the general revenue fund and reallocated to the
Texas Department of Insurance operating account. The General Appropriations
Act (SB 1, 79th Legislature, Regular Session) mandates that the Department's
operating account in 2006 be used to pay the expenses for the operation of
the Department as well as the expenses for the operation of the newly created
DWC within the Department; the OIEC, a newly created agency which assumed
some functions of the TWCC; and other state agencies. The operation of the
DWC was formerly funded by maintenance taxes assessed by the TWCC. The functions
to be performed by the OIEC were funded from the maintenance taxes assessed
by the TWCC.
Several statutes require the Department to set maintenance tax assessment
rates to fund the appropriations made by the Legislature from the Department's
operating account. These maintenance tax statutes provide that the maintenance
taxes are to be deposited in the Department's operating account. None of these
statutes provide that the revenues from the maintenance taxes are exclusively
for the use of the Department's expenses for regulating insurance. The Department's
operating account is used to pay the expenses for the operation of the Department
and other state agencies as mandated by the legislature in the General Appropriations
Act. Since the Legislature in the General Appropriations Act appropriated
funds from the Department's operating account for specific designated purposes,
the Department and the Commissioner in setting the maintenance tax rates are
responding to the legislative intent expressed in the General Appropriations
Act.
In addition, the Department does not agree with the commenters that there
is conflict between the maintenance tax statutes and certain mandates in the
General Appropriations Act. It is the Department's position that the maintenance
tax statutes are in harmony with the General Appropriations Act because they
do not state that the revenues from the taxes are exclusively for the use
of the operation of the Department. This interpretation of the laws is supported
by the Code Construction Act, Government Code Chapter 311. Government Code §311.021
provides that in interpreting an enacted statute it is presumed that the entire
statute is intended to be effective. The application of this statutory principle
to the General Appropriations Act results in the interpretation that every
provision of that Act, including the legislative mandates that the commenters
argue cannot be legally funded with maintenance taxes, must be implemented,
i.e., funded, by the Department in accordance with the method of funding directed
by the Legislature. Further support for this interpretation is provided in
Section 311.025 of the Government Code which provides that in the event of
an irreconcilable conflict between enacted statutes, whether at the same or
different sessions, the statute latest in date of enactment prevails. The
General Appropriations Act, which was adopted on June 18, 2005 is clearly
the later enactment because the various maintenance tax statutes were enacted
in previous sessions except for those enacted in HB 7 which were adopted on
September 1, 2005. Therefore, under this statutory legal principle, the Commissioner
of Insurance is required to include the legislative mandates in the General
Appropriations Act in determining the rates of assessment under the maintenance
tax statutes.
An analysis of the Legislature's authority to appropriate state money also
supports the Department's position that the maintenance tax rates proposed
for 2006 are properly determined within the Department's statutory authority
and in accordance with legally valid legislative mandates. The appropriation
of state money is a legislative function. Articles III and VIII of the Texas
Constitution grant the Legislature the authority to enact legislation and
to raise state revenue. (Tex. Att'y Gen. Op. No. JM-772 (1987): "A corollary
of the Legislature's exclusive control over the appropriation of state funds
is its exclusive control over how state funds are to be spent.") Section 6
of Article VIII of the Texas Constitution provides that no money shall be
drawn from the state treasury unless pursuant to an appropriation "made by
law." (Bullock v. Calvert, 480 S.W.2d 367, 370-371 (Tex. 1972).) Section 6
has been construed consistently to require an appropriation by the Legislature
before any money can be paid out of the state treasury. (Lightfoot v. Lane,
140 S.W. 89 (Tex. 1911); Pickle v. Finley, 44 S.W. 480 (Tex. 1898).) As such,
funds in the state treasury may not be expended without a legislative appropriation.
An appropriation may be effected either by the constitution, by statute, or
by a general appropriations bill. The constitution vests in the Legislature
authority to direct how public funds shall be used and to allocate the funds
among state agencies. TEX. CONST. art. III, §§35, 44; art. VIII, §
6. The Legislature exercises this power by enacting general laws defining
the agency's powers and duties and by appropriating funds to the agency to
carry out its legislative mandate. The Legislature appropriated funds to the
Department so that the Department can carry out its legislative mandate. The
Legislature's authority to appropriate funds to other entities from the Department's
operating account is derived from its authority to allocate state funds among
state agencies. The Department's expenditure of funds from its operating account
is to carry out the Department's statutory duties and obligations. The funds
appropriated by the Legislature to other entities are to be expended by those
entities to accomplish their legislative purposes. Because the funds in the
Department's operating account are generated by the assessment of maintenance
taxes on insurers and other entities regulated by the Department does not
mean that the Legislature lacks the authority to appropriate or allocate those
funds to other entities. Therefore, it is the Department's position that the
Commissioner is properly exercising the statutory authority provided in §201.001
of the Insurance Code, which permits the Commissioner to administer and spend
money in the operating account in accordance with state law, rules adopted
by the Commissioner, and the General Appropriations Act. For these reasons
the Department does not find that it is legal or feasible to adjust the maintenance
tax rates in accordance with the commenters' objections.
Comment: A commenter stated that the industry expected workers' compensation
costs to go down and expressed surprise that the maintenance tax rates related
to the DWC and the OIEC were increasing.
Agency Response: The 15 percent increase in the maintenance tax rates to
fund the DWC and OIEC was the result of several factors. The Department incorporated
provisions of HB 7 into the rate setting process for the newly created DWC
within the Texas Department of Insurance and the OIEC, a separate new agency
established to help injured employees in the workers' compensation system.
HB 7 also transferred funding of the DWC and the OIEC from the State General
Revenue Fund to the Department's operating account, as provided in the Labor
Code §403.001, and granted authorization to the Commissioner of Insurance
to assess maintenance taxes for the operation of the DWC and to prosecute
workers' compensation insurance fraud in Texas, as provided in the Labor Code §403.002
and §403.003. Maintenance tax rates set by the former TWCC were set to
fund operations of that agency through December of each year. The transfer
of the funds to the Department's operating account, however, requires revenues
from the maintenance tax to fund operations of the DWC and the OIEC through
April of each year; this means that the funding period is extended for an
additional four months which contributes to the rate increase. Additionally
the rate set by TWCC in 2004 was set low in order to spend down available
funds. All of these factors together contributed to the 15 percent increase
in the maintenance tax assessment rate to fund the DWC and OIEC operating
expenses. In accordance with the Legislature's appropriations from the Department's
operating account to fund the DWC and the OIEC, the Department proposed maintenance
tax rates to provide funding of $52 million.
For: None.
Against: American Council of Life Insurers, American Insurance Association,
State Farm Insurance Companies, Texas Association of Health Plans, Texas Association
of Life & Health Insurers.
The amendments are adopted under the Insurance Code §§201.001,
251.001, 252.001 - 252.003, 253.001 - 253.003, 254.001 - 254.003, 255.001
- 255.003, 257.001 - 257.003, 258.002 - 258.004, 259.002 - 259.004, 260.001
- 260.003, 271.002 - 271.006 and §36.001; Labor Code §403.002, §403.003, §407.103, §407A.301,
and §407A.302; and the General Appropriations Act, SB 1, 79th Legislature,
Regular Session, Article VIII. Insurance Code §201.001 creates the Texas
Department of Insurance operating account and provides that the Commissioner
shall administer the money in the account and may spend money from the account
in accordance with state law, rules adopted by the Commissioner, and the General
Appropriations Act; it also provides that the money deposited to the credit
of the account may be used for any purpose for which money in the account
is authorized to be used by law. The General Appropriations Act enacted by
the 79th Legislature mandates that the Department's operating account in 2006
be used to pay the expenses for the operation of the Department as well as
the expenses for the operation of the newly created DWC within the Department
and the OIEC, a separate agency. The following statutes require the Department
to set assessment rates to fund the appropriations made by the legislature
from the Department's operating account. Section 251.001 directs the Commissioner
to annually determine the rate of assessment of each maintenance tax imposed
under Insurance Code, Title 3, Subtitle C, Insurance Maintenance Taxes. Sections
252.001 - 252.003 impose a maintenance tax on each authorized insurer based
on the insurer's gross premiums for fire and allied lines coverage, including
inland marine. Sections 253.001 - 253.003 impose a maintenance tax on each
authorized insurer based on the insurer's gross insurance premiums for casualty
insurance and fidelity, guaranty and surety bonds coverage. Sections 254.001
- 254.003 impose a maintenance tax on each authorized insurer based on the
insurer's gross premiums for motor vehicle coverage. Sections 255.001 - 255.003
impose a maintenance tax on each authorized insurer based on the insurer's
gross premiums for workers' compensation coverage. Sections 257.001 - 257.003
impose a maintenance tax on each authorized insurer based on the insurer's
gross premiums collected from Texas residents for life, accident, and health
coverage and the gross considerations collected for annuity and endowment
contracts. Sections 258.002 - 258.004 impose a per capita maintenance tax
on each authorized health maintenance organization based on the correctly
reported gross revenues collected from issuing health maintenance certificates
or contracts in Texas. Sections 259.002 - 259.004 impose a maintenance tax
on each authorized third-party administrator based on each administrator's
correctly reported administrative or service fees. Sections 260.001 - 260.003
impose a maintenance tax on each nonprofit legal services corporation based
on the correctly reported gross revenues received from issuing prepaid legal
services contracts in this state. Sections 271.002 - 271.006 impose a maintenance
fee on each insurer's correctly reported gross premiums for writing title
insurance in this state. Labor Code §403.002 and §403.003 impose
a maintenance tax on each insurer, except for a governmental entity, writing
workers' compensation based on the insurer's correctly reported gross workers'
compensation insurance which will pay the cost of administering the DWC, OIEC
and support the prosecution of workers' compensation insurance fraud in Texas.
Labor Code §407.103 imposes a maintenance tax on each workers' compensation
certified self-insurer. Labor Code §407A.301 imposes a self-insurance
group maintenance tax on each workers' compensation self-insurance group based
on gross premium for the group's retention. This maintenance tax is to pay
for: the administration of the DWC; the prosecution of workers' compensation
insurance fraud in Texas; the research functions of the Department under Labor
Code Chapter 405; and the administration of the OIEC under Labor Code Chapter
404. Labor Code §407A.302 requires each workers' compensation self-insurance
group to pay the maintenance tax imposed under Insurance Code §255.001
based on gross premium for the group's retention; this is to be used for the
administrative costs incurred by the Department in administering Labor Code,
Chapter 407A. Insurance Code §36.001 provides that the Commissioner may
adopt any rules necessary and appropriate to implement the powers and duties
of the Department under the Insurance Code and other laws of this state.
This agency hereby certifies that the adoption has been reviewed
by legal counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of
the Secretary of State on January 13, 2006.
TRD-200600231
Gene C. Jarmon
General Counsel and Chief Clerk
Texas Department of Insurance
Effective date: February 2, 2006
Proposal publication date: November 25, 2005
For further information, please call: (512) 463-6327
Subchapter J. EXAMINATION EXPENSES AND ASSESSMENTS
28 TAC §7.1012
The Commissioner of Insurance adopts amendments to §7.1012,
concerning assessments to cover the expenses of examining domestic and foreign
insurance companies. The amended section is adopted without changes to the
proposed text published in the November 25, 2005, issue of the
Texas Register
(30 TexReg 7806).
The amendments are necessary to adjust the rates of assessment to be levied
against and collected from each domestic and foreign insurance company examined
during the 2006 calendar year.
Section 7.1012 provides the method and rates of assessment for examination
expenses of foreign and domestic insurance companies. Rates of assessment
are levied against and collected from each domestic insurance company based
on admitted assets and gross premium receipts for the 2005 calendar year,
and from each foreign insurance company examined during the calendar year
2006 based on a percentage of the gross salary paid to an examiner for each
month or part of a month during which the examination is made. The department
anticipates that the adopted rate will produce revenue of $9,945,440 to the
state’s general revenue fund. The assessments made under authority of
the adopted section are in addition to, and not in lieu of, any other charge
which may be made under the law, including Insurance Code Article 1.16.
The department did not receive any comments on the proposal.
The amendments are adopted under the Insurance Code Article 1.16
and §36.001. Article 1.16(a) and (b) authorize the Commissioner of Insurance
to make assessments necessary to cover the expenses of all examinations of
domestic insurance companies by the department or under its authority and
to cover all the expenses and disbursements necessary to comply with the provisions
of the Insurance Code Articles 1.16, 1.17, and 1.18, in such amounts as the
Commissioner certifies to be just and reasonable. Article 1.16(f) provides
that expenses incurred in the examination of foreign insurers by department
examiners and other department personnel shall be collected by the Commissioner
by assessment. Section 36.001 provides that the Commissioner may adopt any
rules necessary and appropriate to implement the powers and duties of the
department under the Insurance Code and other laws of this state.
This agency hereby certifies that the adoption has been reviewed
by legal counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of
the Secretary of State on January 13, 2006.
TRD-200600232
Gene C. Jarmon
General Counsel and Chief Clerk
Texas Department of Insurance
Effective date: February 2, 2006
Proposal publication date: November 25, 2005
For further information, please call: (512) 463-6327
Subchapter E. EXAMINATIONS AND ANNUAL REPORTS
Chapter 7.
CORPORATE AND FINANCIAL REGULATION
Chapter 25.
INSURANCE PREMIUM FINANCE