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You are here: Home . rules . 2006 . 1003c-059

SUBCHAPTER B. INSURANCE HOLDING COMPANY SYSTEM REGULATORY ACT

28 TAC §7.209

1. INTRODUCTION. The Commissioner of Insurance adopts an amendment to §7.209(d), concerning the fingerprint requirement for insurance company individuals and officers in connection with Form A filings. Form A is a statement regarding the acquisition or change of control of a domestic insurer. The amendment is adopted without changes to the proposed text published in the August 4, 2006 issue of the Texas Register (31 TexReg 6176 ).

2. REASONED JUSTIFICATION. The adopted amendment is necessary to conform the existing fingerprint requirement for individuals regulated under §7.209(d), including individual applicants or persons who are the chairman of the board, chief executive officer, president, chief financial officer, treasurer, and controller of the applicant if the applicant is not an individual, with a new fingerprint submission requirement that the Department is adopting in amended §1.501 and new §§1.503 - 1.509. Additionally, adopted amendments to §1.501 clarify that individuals regulated under §7.209(d) are subject to existing §1.502 of this title (relating to Licensing Persons with Criminal Backgrounds). The adopted amendments to §1.501 and adopted new §§1.503 - 1.509 are also published in this edition of the Texas Register. The adopted amendment to §7.209(d) also changes the initial letters of the titles specified in paragraph (2) to lower case; this nonsubstantive revision is necessary for purposes of grammatical consistency.

In the proposal, the Department solicited comments as to whether having the amendment become effective no earlier than 90 days following the date the amendment is adopted by the Commissioner was a viable effective date. The Department received no comments concerning the effective date and thus considers that the 90 day time period for implementation is adequate. The Department also considers a date certain to be the most effective means for determining when individuals will be required to comply with the new fingerprint requirements, and therefore, the Department has determined that this amendment shall be effective January 1, 2007, the same date on which the new fingerprint requirements adopted in amended §1.501 and new §§1.503 - 1.509 become effective.

3. HOW THE SECTION WILL FUNCTION. The adopted amendment requires individuals regulated under §7.209(d), including individual applicants or persons who are the chairman of the board, chief executive officer, president, chief financial officer, treasurer, and controller of the applicant if the applicant is not an individual, to comply with the new fingerprint submission requirement that the Department is adopting in amended §1.501 and new §§1.503 - 1.509, which are also published in this edition of the Texas Register.

4. SUMMARY OF COMMENTS. The Department did not receive any comments on the proposed amendment.

5. STATUTORY AUTHORITY. The amendment is adopted under the Occupations Code Chapter 53; Government Code Chapter 411; and Insurance Code Chapters 801, 823, and 36. Occupations Code Chapter 53 states the general procedure a licensing authority must employ when considering the consequences of a criminal record on granting or continuing a person's license, registration or authorization. Occupations Code §53.025 authorizes a licensing authority to issue guidelines relating to its practice under Chapter 53. Government Code §411.106 authorizes the Department to receive criminal history information from the DPS regarding insurance company principals and officers and applicants for any license, permit, or other authorization issued by the Department to engage in a regulated activity under the Insurance Code. Government Code §§411.083 and 411.087 authorize the Department to obtain, through the DPS, criminal history information from the FBI on those individuals described in Government Code §411.106. Insurance Code §801.056 authorizes the Department to request a complete set of fingerprints from an insurance carrier applicant, or the applicant insurance company's corporate officers. Insurance Code §823.157 authorizes the Commissioner to deny the acquisition or change of control of an insurer if the Commissioner determines that due to a lack of trustworthiness or integrity of the persons who would control the operations of the domestic insurer, the acquisition or change of control would not be in the interest of the insurer' policyholders and the public. Insurance Code §36.001 provides that the Commissioner of Insurance may adopt any rules necessary and appropriate to implement the powers and duties of the Texas Department of Insurance under the Insurance Code and other laws of this state.

6. TEXT.

§7.209. Form A.

(a) Statement regarding the acquisition or change of control of a domestic insurer.

Figure: 28 TAC §7.209(a):

____________________ name of domestic insurer by ____________________ name of acquiring person (applicant). Filed with the Texas Department of Insurance, date: ________________, 20__.

Name, title, address, and telephone number of individual to whom notices and correspondence concerning this statement should be addressed:

__________________________

__________________________

__________________________.

(b) Insurers and method of acquisition. State the name and address of the domestic insurer to which this application relates and a brief description of how control is to be acquired.

(c) Identity and background of the applicant.

(1) State the name and address of the applicant seeking to acquire control over the insurer.

(2) If the applicant is not an individual, state the nature of its business operations for the past five years or for such lesser period as such person and any predecessors thereof shall have been in existence and fully describe any business which such person and any of its affiliates intend to commence.

(3) Furnish a chart or listing clearly identifying the interrelationships between the applicant and all affiliates of the applicant. Indicate in such chart or listing the percentage of voting securities of each such person which is controlled by the applicant or by any other such person. If control of any person is maintained other than by the ownership or control of voting securities, indicate the basis of such control. As to each person specified in such chart or listing indicate the type of organization (e.g., corporation, trust, partnership) and the state or other jurisdiction of domicile. If court proceedings looking toward a reorganization or liquidation are pending with respect to any such person, indicate which person, and set forth the title of the court, nature of proceedings, and the date when commenced.

(d) Identity and background of individuals associated with the applicant.

(1) Furnish biographical data for the applicant if such person is an individual, or for all persons who are directors, executive officers, or owners of 10% or more of the voting securities of the applicant if the applicant is not an individual, with such biographical data in the form of the biographical affidavit form adopted by reference under §7.201(a)(1) of this title (relating to Forms Filings). Copies of this form are available from Financial Analysis and Examinations, Mail Code 303-1A, Texas Department of Insurance, P.O. Box 149099, 333 Guadalupe, Austin, Texas 78714-9099.

(2) The applicant if such person is an individual, or for persons who are the chairman of the board, chief executive officer, president, chief financial officer, treasurer, and controller of the applicant if the applicant is not an individual, shall comply with the requirements of Chapter 1, Subchapter D of this title (relating to Effect of Criminal Conduct).

(e) Nature, source, and amount of funds or other consideration.

(1) State the name and address of the applicant seeking to acquire control over the insurer.

(2) If the source of the consideration is provided by a commercial lender in the ordinary course of business and if the applicant wishes the identity to remain confidential, he must specifically request that the identity be kept confidential. When confidentiality is requested such identity shall be provided by a separate instrument filed with, but not forming a part of, the acquisition statement.

(3) If the consideration is to consist in whole or in part of the insurance business and assets of the insurer or of a person controlled by the insurer, state the value thereof and how such value was arrived at.

(f) Future plans for insurer.

(1) Provide a business plan which describes any plans or proposals which the applicant may have or may contemplate making to cause the insurer to pay dividends or make other distributions, to liquidate such insurer, to sell any of its assets, to merge or consolidate it with any person or persons, to make any other material change in its business operations or corporate structure or management, or to cause the insurer to enter into material agreements, arrangements, or transactions of any kind with any party, and describe any financial or employment guarantees given to present and contemplated management.

(2) Describe applicant's operational plans for the domestic insurer covering the succeeding 24 months, including, but not limited to, change of location, change of name, increase in capital and/or surplus, reinsurance activity, type business to be written, and anticipated premium volume.

(3) Provide:

(A) an affirmative statement of applicant's and the domestic insurer's compliance with Chapter 22 of this title (relating to Privacy); and,

(B) if applicant proposes revisions to the domestic insurer's current privacy policy, the proposed revised privacy policy along with any revised notices required pursuant to §22.12 of the title (relating to Revised Privacy Notices) and any other notices or authorization requests and forms that applicant will be required to provide to maintain compliance with Chapter 22 of this title.

(4) For the domestic insurer, provide the full name of each individual proposed to be an executive officer or director of the domestic insurer and the full name of each individual who will be responsible for major areas of operations of the domestic insurer, including but not limited to, supervision of agents, underwriting, advertising, production of business through agents and through reinsurance, policyholder services, premium accounting, claims processing and litigation, reinsurance cessions, investments, and financial accounting and reporting. For each such position, evidence of such individual's ability and experience to perform same by providing biographical data in the form of the biographical affidavit form adopted by reference under §7.201(a)(1) of this title.

(5) Describe any other arrangement or agreement oral or written, entered into by any acquiring party or any of its affiliates and the domestic insurer during the immediately preceding 12 months.

(g) Voting securities to be acquired. State the number of shares of the insurer's voting securities and the amount or number of shares convertible into voting securities which the applicant, its affiliates, and any person listed in subsection (d) of this section plan to acquire, and the terms of the offer, request, invitation, agreement, or acquisition.

(h) Ownership of voting securities. State the amount of each class of any voting security of the insurer which is legally, directly, indirectly, or beneficially owned or of which the acquiring party or any of its affiliates or any person listed in subsection (d) of this section has a right to acquire legal, direct, indirect, or beneficial ownership.

(i) Contracts, arrangements, or understandings with respect to voting securities of the insurer. Provide a copy of any written, or a confirmed description of any oral, agreements, arrangements, or understandings with respect to any voting security of the insurer in which the applicant, any of its affiliates, or any persons listed in subsection (d) of this section is involved, including without limitation any such agreement, arrangement, or understanding relating to the transfer of any of the voting securities, joint ventures, loan or option agreements, puts or calls, guarantees of loans, guarantees against loss, guarantees of profits, division of losses or profits, or the giving or withholding of proxies.

(j) Recent purchases of voting securities. Describe any purchases of any voting securities of the insurer by the applicant, any of its affiliates, or any person listed in subsection (d) of this section during the 12 calendar months preceding the filing of this statement. Include in such description the dates of purchase, the names of the purchasers, and the consideration paid or agreed to be paid therefor. State whether any such shares so purchased are hypothecated.

(k) Recent recommendations to purchase. Provide a copy of any written, or a confirmed description of any oral, recommendations to purchase any voting security of the insurer made by the applicant, any of its affiliates, or any person listed in subsection (d) of this section, or by anyone based upon interviews with or at the suggestion of the applicant, any of its affiliates, or any person listed in subsection (d) of this section during the 12 calendar months preceding the filing of this statement.

(l) Agreements with broker-dealers. Provide a copy of any written, or a confirmed description of any oral, agreement, arrangement, or understanding made with any broker-dealer as to the solicitation of voting securities of the insurer for tender, and the amount of any fees, commissions, or other compensation to be paid to broker-dealers with regard thereto.

(m) Financial statements and exhibits.

(1) Financial statements and exhibits shall be attached to this statement as an appendix, but list under this subsection the financial statements and exhibits so attached.

(2) The financial statements shall include the annual financial statements of the persons identified in subsection (c)(3) of this section for the preceding three fiscal years (or for such lesser period as such applicant and its affiliates and any predecessors thereof shall have been in existence), and similar unaudited financial information as of a date not earlier than 120 days prior to the filing of the statement, accompanied by affidavit or certification of the chief financial officer of the applicant that such unaudited financial statement is true and correct, as of its date, and that there has been no material change in financial condition, as defined by the Act, §3, from the date of the financial statement to the date of the affidavit or certification. Such statements may be prepared on either an individual basis, or, unless the commissioner otherwise requires, on a consolidated basis if such consolidated statements are prepared in the usual course of business. Unless exempted by the commissioner, the annual financial statements of the applicant shall be made in accordance with generally accepted auditing standards and accompanied by the certificate of an independent certified public accountant to the effect that such statements present fairly the financial position of the applicant and the results of its operations for the year then ended, in conformity with generally accepted accounting principles or with requirements of insurance or other accounting principles prescribed or permitted under law. If such certificate is not available, then such financial statement shall be sworn to by the applicant as correctly reflecting its financial condition, and in such case, the commissioner of insurance at the commissioner's discretion may require such financial statement to be certified by an independent public accountant. If the applicant is an insurer which is actively engaged in the business of insurance and licensed to do business in this state, it may provide financial statements which conform to the annual statements of the insurer filed with the insurance department of the insurer's domiciliary state and which are in accordance with the requirements of insurance or other accounting principles prescribed or permitted under the law and regulations of the domiciliary state. If the applicant is an individual person, such person shall provide a reviewed financial statement accompanied by the certificate of an independent public accountant that he is not aware of any material modifications that should be made to the accompanying financial statement in order for it to be in conformity with generally accepted accounting principles and shall provide a balance sheet as of a date not earlier than 120 days prior to the filing of the statement and balance sheets for the second and third fiscal years preceding the filing of the statement accompanied by affidavit or certification that each balance sheet is true and correct as of its date.

(3) File as exhibits copies of all tender offers for, requests or invitations for, tenders of, exchange offers for, and agreements to acquire or exchange any voting securities of the insurer and (if distributed) of additional soliciting material relating thereto; and proposed employment, consultation, advisory, or management contracts concerning the insurer; budget projections of the domestic insurer and the applicant for a period equal to the greater of three years or the succeeding length of time of debt service required by applicant in its acquisition of control; and any additional document or papers required by regulation.

(4) In addition to the other material required to be filed by this section, a person as described in §7.205(a) of this title (relating to Acquisition Statements-Filing Requirements) shall file, as an exhibit, annual reports to the stockholders of the insurer and the applicant for the last two fiscal years; these reports are for review of the Texas Department of Insurance, and are not a part of the material required to be submitted under the Act, §5(b)(12). However, the materials shall be open for public inspection at the offices of the Texas Department of Insurance during the pendency of the application.

(n) Signature and certification. Signature and certification of the following form:

Figure: 28 TAC §7.209(n):

SIGNATURE

Pursuant to the requirements of Section 5 of Article 21.49-1, Texas Insurance Code,

______________________________ has caused this application to be duly signed

Name of Applicant

on its behalf in the City of ___________________ and State of __________, on ____________________, 20__ .

______________________________

Name of Applicant

(Seal)

By: ____________________________

(Name)(Title)

Attest:

________________________________

(Signature of Officer)

________________________________

(Title)

CERTIFICATION

THE STATE OF _______________________

COUNTY OF __________________________

Before me, the undersigned authority, on this day personally appeared

_____________________________________________ known to me to be the

__________________________ of _________________________,

(Title) (Name of Applicant)

who, after being placed on his oath, stated that he has read the preceding application and that the answers, exhibits and attachments forming it are true and correct as to any factual statements contained therein.

______________________________

(Signature)

Sworn to and subscribed before me on ____________________, 20__, to certify which witness my hand and seal of office.

___________________________________

Notary Public in and for

(Seal)

_________________, County, ___________



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