SECTION 7.202. Definitions

(a) The following words and terms, when used in this subchapter, have the following meanings, unless the context clearly indicates otherwise.

(1) Act--The Insurance Code, Chapter 823.

(2) Affiliate--An affiliate of, or person affiliated with, a specific person is a person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the person specified. If the controlling person includes a member of the immediate family of a person, any other person that is an affiliate of the family member is deemed to be an affiliate of the controlling person.

(3) Commercially domiciled insurer--A foreign or alien insurer authorized to do business in this state, that during its three preceding fiscal years taken together, or any lesser period if it has been licensed to transact business in this state only for that lesser period, has written an average of more gross premiums in this state than it has written in its state of domicile during the same period, and such gross premiums constitute 30 percent or more of its total gross premiums everywhere in the United States for that three-year or lesser period, as reported in its three most recent annual statements. To determine if an insurer is a commercially domiciled insurer, the annual average ratio for premium receipts addressed in subparagraphs (A) and (B) of this paragraph must be calculated, as follows:

(A) total Texas premium for the preceding three fiscal years (or any lesser period if licensed in Texas less than three years) divided by total premium countrywide for the preceding three years; and

(B) total premium in the state of domicile for the preceding three years divided by total premium countrywide for the preceding three years.

(4) Commissioner--The commissioner of insurance of the State of Texas, the commissioner's associates or deputies, or their designees, as appropriate.

(5) Control--The term "control," including the terms "controlling," "controlled by," and "under common control with," means the power, direct or indirect, to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract other than a commercial contract for goods or nonmanagement services, or otherwise, unless the power is the result of an official position with or corporate office held by the person. Control is presumed to exist if any person, directly or indirectly, or with members of the person's immediate family, owns, controls, or holds the power to vote, or if any person other than a corporate officer or director of a person holds proxies representing 10 percent or more of the voting securities or authority of any other person, or if any person by contract or agreement is designated as an attorney-in-fact for a Lloyd's plan insurer under Insurance Code Chapter 941, or for a reciprocal or interinsurance exchange under Insurance Code Chapter 942. This presumption may be rebutted by a showing made in the manner provided by Insurance Code §823.005, that control does not exist in fact. The commissioner may determine, after furnishing all persons in interest with notice and opportunity to be heard and making specific findings of fact to support the determination, that control exists in fact, notwithstanding the absence of a presumption to that effect, where a person exercises, directly or indirectly, either alone or under an agreement with one or more other persons such a controlling influence over the management or policies of an authorized insurer as to make it necessary or appropriate in the public interest or for the protection of the policyholders of the insurer that the person be deemed to control the insurer.

(6) Controlled insurer--An insurer controlled directly or indirectly by a holding company (as a holding company is defined in this section).

(7) Controlled person--Any person, other than a controlled insurer, who is controlled directly or indirectly by a holding company (as a holding company is defined in this section).

(8) Controlling producer--An insurance broker or brokers or any person, firm, association, or corporation domiciled, licensed, or operating in a state other than Texas, when, for any compensation, commission, or other thing of value, the person, firm, association, or corporation acts or aids in any manner in soliciting, negotiating, or procuring the making of any insurance contract on behalf of an insured other than the person, firm, association, or corporation, and who, directly or indirectly:

(A) controls or seeks to control a property and casualty insurer as the term control is defined in paragraph (5) of this subsection; and

(B) writes or places, in any calendar year, an aggregate amount of gross written premiums with the controlled property and casualty insurer which is equal to or greater than 5.0 percent of the admitted assets of the insurer as reported in the insurer's quarterly statement filed as of September 30 of the prior year. The term "producer" or "controlling producer" as used in these sections is not intended to include an agent or any independent agent acting on behalf of the controlled insurer, licensed under Insurance Code Chapter 4001, Subchapter A, and any subagent or representative of the agent, who acts in the solicitation of, negotiation for, or procurement or making of an insurance contract, if the agent is not also acting on behalf of an insured as set forth in this paragraph, in the transaction in question. The term "producer" or "controlling producer" as used in these sections is not intended to include an attorney-in-fact acting on behalf of a licensed Lloyd's or licensed reciprocal or interinsurance exchange.

(9) Director--A person elected or appointed as a member of a board of directors responsible for the management of an insurer. The term must also include an attorney-in-fact of a Lloyds or reciprocal or interinsurance exchange who is charged with responsibility for the management of an insurer.

(10) Divesting person--A person who has control of a domestic insurer and who intends to divest control of the domestic insurer.

(11) Divestiture--An abandonment of control of a domestic insurer by a divesting person that does not result in the transfer of control to another person.

(12) Enterprise risk--Any activity, circumstance, event, or series of events involving one or more affiliates of an insurer that, if not remedied promptly, is likely to have a material adverse effect on the financial condition or liquidity of the insurer or its insurance holding company system as a whole, including anything:

(A) that would cause the insurer's risk-based capital to fall into company action level; or

(B) that would cause the insurer to be in hazardous financial condition.

(13) Executive officer--The chairman of the board of directors, the president, any vice-president of an applicant in charge of a principal business unit, division, or function (such as sales, administration, finance, or underwriting), any other officer who performs a policy-making function, or any other person who performs similar policy-making functions for an applicant. Executive officers of subsidiaries may be deemed executive officers of an applicant if they perform policy-making functions for an applicant.

(14) Foreign insurer--Includes an alien insurer.

(15) Holding company--Any person who directly or indirectly controls any insurer, but not including any agency, authority, or instrumentality of the United States, its possessions and territories, the Commonwealth of Puerto Rico, the District of Columbia, or a state or political subdivision of a state or any corporation which is wholly owned, directly or indirectly, by any of them.

(16) Immediate family--A person's spouse, father, mother, children, brothers, sisters, and grandchildren, the father, mother, brothers, and sisters of the person's spouse, and the spouse of the person's child, brother, sister, mother, father, or grandparent.

(17) Insurance holding company system--Two or more affiliated persons, one or more of which is an insurer.

(18) Insurer--Includes all insurance companies organized or chartered under the laws of this state, commercially domiciled insurers, or insurers licensed to do business in this state, including capital stock companies, mutual companies, farm mutual insurance companies, title insurance companies, fraternal benefit societies, local mutual aid associations, local mutual burial associations, statewide mutual assessment companies, county mutual insurance companies, Lloyds' plan companies, reciprocal or interinsurance exchanges, stipulated premium insurance companies, group hospital service companies and health maintenance organizations, and any other entity which is subject to Insurance Code Chapter 823 by applicable law, but does not include agencies, authorities, or instrumentalities of the United States, its possessions and territories, the Commonwealth of Puerto Rico, the District of Columbia, or a state or political subdivision of a state.

(19) Person--An individual, corporation, partnership, association, joint stock company, trust, unincorporated organization, or similar entity or combination of them acting in concert, but not a securities broker performing only the usual and customary broker's function.

(20) Security holder of a specified person--One who owns any security of the person, including common stock, preferred stock, debt obligations, and any other security convertible into or evidencing the right to acquire any of the foregoing. The term "debt obligation" does not include trade, commercial, or open accounts, matured claims, or agents' commissions.

(21) Subsidiary of a specified person--An affiliate controlled by the person directly or indirectly through one or more intermediaries.

(22) Ultimate controlling person--That person which is not controlled by another person (as defined in this subsection).

(23) Voting security--Any security or other instrument giving or granting to the holder the power to vote at a meeting of shareholders, for or against the election of directors, or any other matter involving the direction of the management and policies of the person, or any other security or instrument the department deems to be of similar nature including, but not limited to, those described in the rules and regulations the department may prescribe in the public interest as a voting security.

(b) Exemption--Commercially Domiciled Insurer.

(1) The commissioner may exempt from the provisions of Insurance Code Chapter 823 and these sections, except the registration requirement, any commercially domiciled insurer if the commissioner determines the insurer has assets physically located in this state or an asset to liability ratio sufficient to justify the conclusion that there is no reasonable danger that the operations or conduct of the business of the insurer could present a danger of loss to the policyholders of this state. The exemption granted under this subsection must set forth the specific criteria under which it is granted and will be subject to annual review. The commissioner may, after notice and opportunity for hearing, rescind an exemption granted to a commercially domiciled insurer under the provisions of Insurance Code Chapter 823 and these sections. A rescission of an exemption must set forth the rationale for the rescission. Requests for an exemption under this subsection must be filed with Financial Analysis, Mail Code 303-1A, Texas Department of Insurance, P.O. Box 149104, 333 Guadalupe, Austin, Texas 78714-9104. The request must contain a signed and notarized affidavit of an executive officer of the insurer that, should the exemption be granted, the insurer will notify Financial Analysis within 10 days after it no longer meets the criteria set out in this section on which the exemption is based. In determining that a commercially domiciled insurer has sufficient assets to justify the conclusion that there is no reasonable danger that the operations or conduct of the business of the insurer could present a danger of loss to policyholders of this state, the commissioner must give consideration to the matters contacted in subparagraphs (A) - (D) of this paragraph in connection with an exemption requested under Insurance Code §823.015, and these sections.

(A) Assets in Texas, which are either:

(i) permanent, free, and unencumbered and physically located in Texas in an amount equal to the total unpaid losses attributable to Texas risks; or

(ii) qualifying authorized investments under the Insurance Code comprising 20 percent of the insurer's admitted assets and physically located in Texas.

(B) Adequacy of policyholder surplus, based upon:

(i) an asset-to-liability ratio of two to one, if the insurer is a property and casualty insurer;

(ii) an asset-to-liability ratio of one and one-half to one, if the insurer is a life, accident and health insurer;

(iii) the insurer having capital and surplus equal to 250 percent of the minimum risk-based capital described in §7.402 of this title (relating to Risk-Based Capital and Surplus Requirements for Insurers and HMOs); or

(iv) the insurer having total capital and surplus of at least $50 million.

(C) Consideration may be given to financial conditions specified in §8.3 of this title (relating to Hazardous Conditions) to justify the conclusion that there is no reasonable danger that the operations or conduct of the business of the insurer could present a danger of loss to the policyholders of this state.

(D) Consideration may be given to other positive factors with regard to an insurer's operations or conduct.

(2) The provisions of this subchapter do not apply to a foreign or alien insurer if the commissioner has approved a total withdrawal plan from writing all lines of insurance for the insurer under Insurance Code Chapter 827.

Source Note: The provisions of §7.202 adopted to be effective January 1, 1976; amended to be effective November 30, 1984, 9 TexReg 5926; amended to be effective April 29, 1988, 13 TexReg 1761; amended to be effective April 13, 1992, 17 TexReg 2273; amended to be effective December 24, 1993, 18 TexReg 9310; amended to be effective July 14, 1994, 19 TexReg 5098; amended to be effective May 15, 1996, 21 TexReg 3798; amended to be effective May 5, 2002, 27 TexReg 3559; amended to be effective October 26, 2009, 34 TexReg 7309; amended to be effective May 26, 2013, 38 TexReg 3033