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 of Insurance (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, have the following meanings, unless the context clearly indicates otherwise.

(1) Affiliate--As defined in Insurance Code §823.003.

(2) Domestic insurance company--As defined in Insurance Code §803.001.

(3) Eligible insurer--A domestic insurance company that is:

(A) an affiliate of an insurance holding company system; or

(B) a health maintenance organization that is an affiliate of another health maintenance organization or health care provider.

(4) Health care provider--Is the same as the term "provider" in Insurance Code §843.002.

(5) Insurance holding company system--As defined in Insurance Code §823.006.

(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 effect on the location being abandoned;

(14) a description of the effect 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 related 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 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, 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) & (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.

Source Note: The provisions of this §7.25 adopted to be effective July 11, 2000, 25 TexReg 6517; amended to be effective April 26, 2021, 46 TexReg 2823