Texas Administrative Code › Title 28 - INSURANCE › Part 1 - TEXAS DEPARTMENT OF INSURANCE › Chapter 11 - HEALTH MAINTENANCE ORGANIZATIONS › Subchapter I - FINANCIAL REQUIREMENTS › Section 11.804 - Invested Assets

Current through Reg. 49, No. 28; July 12, 2024
The admitted assets of domestic and foreign HMOs must at
					 all times comply with the provisions of this section.
(1) Investment of minimum net worth. An HMO
				  must have a minimum net worth as required by §
										11.802 of this
				  title (relating to Minimum Net Worth).
(2) Investment of assets supporting uncovered
				  medical expenses. An HMO must maintain statutory deposits supporting uncovered
				  medical expenses as required by §
										11.803
				  of this title (relating to Statutory Deposit Requirements).
(3) Investments of assets in excess of
				  minimum net worth and uncovered medical expenses. An HMO may invest its funds
				  in excess of minimum net worth and uncovered medical expenses only in the
				  following:
(A) any investments allowed in
				  paragraphs (1) or (2) of this section;
(B) direct general obligations of any state
				  of the United States of America for the payment of money, or obligations for
				  the payment of money, to the extent guaranteed or insured as to the payment of
				  principal and interest by any state of the United States of America, provided
				  that:
(i) the state has the power to levy
				  taxes for the prompt payment of the principal and interest of the obligations;
				  and
(ii) the state is not in
				  default in the payment of principal or interest on any of its direct,
				  guaranteed, or insured general obligations at the date of the
				  investment;
(C) bonds,
				  interest-bearing warrants, or other obligations issued by authority of law by
				  any county, city, town, school district, or other municipality or political
				  subdivision that is now or hereafter may be construed or organized under the
				  laws of any state in the United States of America and that is authorized to
				  issue the bonds, warrants, or other obligations under the constitution and laws
				  of the state in which it is situated, provided:
(i) legal provision has been made by a tax to
				  meet the obligations or a special revenue or income to meet the principal and
				  interest payments as they accrue on the obligations has been appropriated,
				  pledged, or otherwise provided; and
(ii) the county, city, town, school district,
				  or other municipality or political subdivision is not in default in the payment
				  of principal or interest on any of its obligations at the date of the
				  investment;
(D) bonds,
				  interest-bearing warrants, or other obligations issued by authority of law by
				  any educational institution that is now or hereafter may be construed or
				  organized under the laws of any state of the United States of America, and that
				  is authorized to issue the bonds and warrants under the constitution and laws
				  of the state in which it is situated, provided:
(i) legal provision has been made by a tax to
				  meet the obligations or a special revenue or income to meet the principal and
				  interest payments as they accrue on the obligations has been appropriated,
				  pledged, or otherwise provided; and
(ii) the educational institution is not in
				  default in the payment of principal or interest on any of its obligations at
				  the date of the investment;
(E) investments issued by insurers or HMOs
				  subject to the following conditions:
(i) an
				  HMO may not make an investment under this subparagraph in any other HMO or
				  insurer unless the other HMO or insurer is duly licensed to do business in its
				  domestic state and at the time of the investment is in compliance with the
				  minimum capital and surplus requirements then applicable under the provisions
				  of that state's statutes and regulations; however, an HMO may make an
				  investment under this paragraph in another HMO that has not yet received its
				  certificate of authority to conduct the business of an HMO in its domestic
				  state or that does not yet possess the minimum capital and surplus required by
				  its domestic state if the investment will be sufficient to give the investing
				  HMO at least 50 percent control in the other HMO;
(ii) an HMO may not invest, except as
				  provided in subparagraphs (F) and (G) of this paragraph, in any other HMO or
				  insurer unless the investments will result, within 180 days of the first
				  investment, in the investing HMO having control in the other HMO or
				  insurer;
(iii) an HMO may not
				  invest more than 50 percent of its net worth in excess of minimum net worth in
				  any other HMO or insurer;
(iv) the
				  total investments made by an HMO in all other HMOs or insurers under this
				  subparagraph may not exceed 75 percent of the investing HMO's net worth in
				  excess of minimum net worth; and
(v) the restrictions of clauses (iii) and
				  (iv) of this subparagraph do not apply if the HMO is purchasing 100 percent of
				  the stock of another HMO for the purpose of a merger anticipated to take place
				  no later than three months from the purchase date, unless the period is
				  extended by the commissioner, and the resulting assets of the surviving HMO
				  meet the requirements set forth in this subchapter within three months after
				  the merger, unless the period is extended by the commissioner;
(F) bonds, debentures, bills of
				  exchange, commercial notes, or any other bills and obligations of any
				  corporation, incorporated under the laws of any state of the United States of
				  America or of the United States of America, that, at the time of investment, is
				  designated highest quality (NAIC designation 1) or high quality (NAIC
				  designation 2) in compliance with the guidance provided by the NAIC Valuation
				  of Securities Manual;
(G) equity
				  interests, including common stocks issued by any business entity created under
				  the laws of the United States of America or of any state of the United States,
				  provided that:
(i) the business entity is
				  solvent, with a net worth of at least $1 million;
(ii) if the business entity is a dividend
				  paying business entity, no cumulative dividends are in arrears;
(iii) an HMO may not invest in a partnership,
				  as a general partner, except through a wholly owned subsidiary; and
(iv) the restrictions of clauses (i) and (ii)
				  of this subparagraph do not apply if the business entity of which the HMO
				  wishes to purchase the equity interest is, or is to be, a contracted provider
				  of services;
(H) shares
				  of mutual funds doing business under the Investment Company Act of 1940
				  (15 United States Code §
												80a-1,
et seq.
) and shares
				  in real estate investment trusts as defined in Internal Revenue Code of 1986
				  (26 United States Code
				  §
												856), provided that the mutual funds
				  and real estate investment trusts be solvent with at least $1 million of net
				  assets as of the date of its latest annual, or more recent, certified audited
				  financial statement;
(I) mortgage
				  loans by an HMO that are secured by valid first liens on improved real estate,
				  provided that:
(i) there is a title insurance
				  policy or attorney's opinion showing that the borrower owns the real
				  estate;
(ii) there is an appraisal
				  of the real estate and its improvements and the loan does not exceed 75 percent
				  of the appraised value;
(iii) there
				  is an executed note evidencing the loan;
(iv) there is a recorded deed of
				  trust;
(v) the value of the
				  improvements is adequately insured by a company authorized to do business in
				  Texas or in the state in which the real estate is located, and the insurance
				  policy is made payable to the HMO in an amount equal to at least 50 percent of
				  the value of the building, but the insurance coverage need not exceed the
				  outstanding balance owed to the HMO when the outstanding balance falls below 50
				  percent of the value of the building; and
(vi) the commissioner has the right to obtain
				  an independent appraisal, at the HMO's expense, of real estate securing any
				  loan;
(J) loans secured
				  by collateral, of a nature specified in Insurance Code §
											843.403
				  (concerning Minimum Net Worth) and §
											11.802 of this
				  title (relating to Minimum Net Worth), although the amount loaned may not
				  exceed the value of the securities held as collateral;
(K) loans, whether secured or unsecured and
				  that are not in default, to medical and other health care providers under
				  contract with the HMO for the provision of health care services; however, the
				  admitted value of any loan made under this subparagraph may not exceed the
				  maker's ability to repay the loan, which is calculated by only considering
				  assets that an HMO may hold toward determining any excess of assets over all
				  liabilities of the maker;
(L) real
				  estate acquired in satisfaction of debt; all real property not qualifying under
				  any other provisions of this section must be sold and disposed of within five
				  years after the HMO has acquired title unless the time for disposal is extended
				  by the commissioner;
(M)
				  investments in improved, income-producing real estate;
(N) additional investments that are not
				  otherwise specified by this section, provided that:
(i) the amount of any one investment may not
				  exceed 10 percent of the net worth in excess of the HMO's minimum net worth
				  plus uncovered medical expenses at the time of investment; and
(ii) the total amount of investments
				  authorized by this paragraph may not exceed the HMO's net worth in excess of
				  its minimum net worth plus uncovered medical expenses at the time of
				  investment.