Texas Insurance Code 3.33, Section 3A¹,   requires the Department of Insurance to report on Texas community investments by life, health and accident companies doing business in the state of Texas. This report, which is prepared after consultation with the Office of Public Insurance Counsel and the industry, is made available to the Texas Legislature and the public in even-numbered years. The methodology used to gather and analyze the investment information as well as more detailed data summaries are included in the sections following the Executive Summary.

Texas life and health insurance companies with Texas premiums of $10 million or more reported Texas investments of almost $38 billion in 2001. The 265 companies required to provide investment data accounted for 98 percent ($23.2 billion) of the total Texas life and annuity premiums collected in calendar year 2001. Because some groups elected to include companies with premium below $10 million, totals include reports from 273 companies. Almost two-thirds of the 49 companies reporting no Texas investments had combined life and annuity premium of less than $20 million in 2001.

Eighty-nine percent of reported investments were in commercial mortgages, political subdivision/public utility bonds and corporate bonds².   The $15.1 billion of commercial mortgages reported by 157 of the companies represented the largest category of investments. Although companies were not required to report Texas corporate bond or stock investments, Texas corporate bonds was the second largest category of reported investments with 59 companies opting to report corporate bond investments of $10.5 billion. Additionally, 41 companies opted to report $1.3 billion of stock in Texas companies³.   Political subdivisions/public utility investments totaled $8 billion for the 141 insurers reporting investments.

Companies linked $14.9 billion of the $38 billion investment total to specific locations. Of this $14.9 billion, $1.1 billion was linked to economically disadvantaged areas. It should be noted that a portion of the $22.9 billion that was not linked to specific geographic locations may have been in economically disadvantaged areas.

As with total investments, the largest volume of investments in economically disadvantaged areas consisted of commercial mortgages of $751.8 million. Investments in political subdivision/public utility bonds followed with investments of $217.6 million in economically disadvantaged areas.

Although over 75 percent of commercial mortgages were linked to locations, it should be noted that pooled investments such as commercial mortgage obligations are usually based on shared investment characteristics rather than geographic area. Consequently, funds going to some Texas commercial mortgages may not have been identifiable and are not included in either the Texas investment totals or investment totals for economically disadvantaged areas. This same caveat would apply to residential mortgage pools such as Fannie Mae.

Life and health insurers with an annual premium of $10 million or more accounted for 98 percent of the 2001 Texas life and health premium in Texas. All foreign and domestic life and health insurers with $10 million or more premium volume were required to report. As Texas statutes limit investment flexibility for certain types of insurers that typically have relatively small premium volume, inclusion of smaller insurers would have significantly increased the reporting burden for smaller companies without significantly affecting the comprehensiveness of the reported investments. Consequently, insurers with less than $10 million were not required to report.

The survey was sent to 265 companies on August 2, 2002. The higher response rate (273 companies) was due to some groups opting to include affiliated companies with less than $10 million in Texas premium in their reports.

While the statute does not require insurers to identify investments targeting economically disadvantaged areas or populations, there is legislative interest in this topic. Consequently, the survey provided insurers the opportunity to identify investments targeting disadvantaged areas or populations when possible. It should be noted that disadvantaged areas are usually identified at the ZIP code level, while investments are frequently identified at a larger geographic-base such as a city or county. For that reason, not all investments can be linked to specific ZIP codes and, consequently, investments identified as benefiting economically disadvantaged areas are not comprehensive. U.S. Census income data at the ZIP code level from the 2000 Census was not available at the time of the data call. Consequently, median income used to identify economically disadvantaged areas was based on income data from the 1990 Census.

The survey consisted of two sections - a mandatory reporting section and optional reporting section. Investments that may be more readily linked to geographic locations -- real estate, residential mortgages, commercial mortgages, and political subdivision/public utility bonds -- were in the mandatory section. Companies also were given the option of reporting other Texas-specific investments. This optional section included corporate stocks and bonds, deposits in financial institutions, Texas investments via U. S. agencies and a general category for other types of investments, including donations to Texas charities or non-profit organizations. Texas investments were defined as:

• Property located in Texas (real estate and mortgages)⁴;
• Bonds for Texas political subdivisions (state and local governments and school districts) and public utility projects in Texas;
• Investments in businesses with a Texas incorporation or Deposits in Texas financial institutions;
• Other investments and contributions to Texas organizations.

An individual insurer’s record-keeping system and/or investment types can limit its ability to link an individual investment to economically disadvantaged areas or populations. Therefore, supplemental reports used to report investments in economically disadvantaged areas included an "unable to identify" check-off box. While this gave insurers the opportunity to report investments in economically disadvantaged areas, limitations on companies’ ability to identify investment areas means the total investments in economically disadvantaged areas should not be considered comprehensive. Criteria used for identifying an area as economically disadvantaged were:

• Any ZIP code with a 1990 median household income of less than 75 percent of the county median income but not more than 75 percent of the state median income or
• Any ZIP code with a median income of less than 50 percent of the state median income.⁵

Other types of investments that qualified as benefiting economically disadvantaged areas were:

• Investments in areas targeted by geo-political entities for development or economic enhancement,⁶ or
• Other investments if specific information provided on how the investment benefited an economically disadvantaged area or population.⁷

Table 1 shows the total reported investments and reported investments in economically disadvantaged areas for the four mandatory investment categories and five optional investment categories. It should be noted that the comprehensiveness of this data varies by investment type.

For the mandatory reporting categories, 82 percent of Texas real estate investments and 75 percent of investments in Texas commercial mortgage investments were linked to geographic locations. Conversely, only 16 percent of investments in Texas political subdivision/utility bond and only 17 percent of investments in residential mortgages were linked to geographic locations. Consequently, it should be assumed that, even for the mandatory reporting categories, the total investments shown for economically disadvantaged areas are not comprehensive. Optional investment amounts also are not comprehensive, as companies were not required to report for these investment categories and even those companies that elected to report at the state level, frequently could not identify specific geographic locations benefiting from the investments.

Sec. 3A. (a) The Texas Department of Insurance shall, after consultation with the insurance industry of this state and the Office of Public Insurance Counsel, develop a report of insurance industry community investments in Texas.

(b) The commissioner may request and insurance companies shall provide information necessary to complete the requirements of Subsection (a).

(c) The report established under Subsection (a) shall be provided to the Texas Legislature no later than December 1 of each even-numbered year.