Texas Administrative Code › Title 28 - INSURANCE › Part 1 - TEXAS DEPARTMENT OF INSURANCE › Chapter 8 - EARLY WARNING SYSTEM FOR INSURERS IN HAZARDOUS CONDITION › Subchapter A - HAZARDOUS CONDITION › Section 8.3 - Hazardous Conditions and Remedy of Hazardous Conditions

Current through Reg. 49, No. 28; July 12, 2024
(a) An insurer may be found to be in
				  hazardous condition when one or more of the following conditions are found to
				  exist by the commissioner:
(1) an insurer
				  does not file a financial statement within the time required by the Insurance
				  Code, or as requested by the agency;
(2) an insurer files financial information
				  which is false or misleading; releases false or misleading financial
				  information to lending institutions or the general public; or makes a false or
				  misleading entry or omits an entry of material amount in the insurer's
				  books;
(3) an insurer fails to
				  respond to inquiries related to the condition of the insurer or furnishes false
				  and misleading information concerning an inquiry;
(4) an insurer does not amend its financial
				  statement when requested by the agency;
(5) an insurer overstates its surplus by 25
				  percent or more;
(6) an insurer's
				  unassigned surplus has a deficit which is in excess of 20 percent of
				  surplus;
(7) an insurer's financial
				  ratios are outside the acceptable ranges as established by the National
				  Association of Insurance Commissioners or the insurer's financial condition is
				  otherwise hazardous as identified in the financial analysis tools and reports
				  of the National Association of Insurance Commissioners;
(8) adverse findings are reported in
				  financial condition and market conduct examination reports, audit reports, and
				  actuarial opinions, reports, or summaries of an insurer;
(9) the net reduction (excluding net income
				  and change in paid-in capital and change in paid-in or contributed surplus) to
				  the insurer's surplus is greater than 25 percent of beginning surplus on the
				  insurer's annual financial statements;
(10) an insurer's operating loss in the last
				  12-month period or any shorter period of time, including net capital gain or
				  loss, change in non-admitted assets and cash dividends paid to shareholders, is
				  greater than 50 percent of the insurer's remaining surplus in excess of the
				  minimum required;
(11) an insurer's
				  operating loss in the last 12-month period or any shorter period of time,
				  excluding net capital gains, is greater than 20 percent of the insurer's
				  remaining surplus in excess of the minimum required;
(12) a projection by the agency of an
				  insurer's current financial condition indicates that the sum of its paid-in
				  capital, paid-in surplus, and contributed surplus will be reduced within the
				  next 12 months;
(13) an insurer has
				  grown so rapidly and to such an extent that it lacks adequate financial and
				  administrative capacity to meet its obligations in a timely manner;
(14) an insurer has experienced, or will
				  experience in the foreseeable future, cash flow or liquidity
				  problems;
(15) an insurer's
				  aggregate net retained risk, direct or assumed, under any one insurance policy
				  or certificate of insurance under a group policy, is more than 10 percent of
				  the insurer's surplus, except where otherwise permitted by law;
(16) contingent liabilities, pledges, or
				  guaranties which, either individually or collectively, involve a total amount
				  which, in the opinion of the commissioner, may affect the solvency of the
				  insurer;
(17) an insurer has not
				  made adequate provision, according to presently accepted actuarial standards of
				  practice, for the anticipated cash flows required by the contractual
				  obligations and related expenses of the insurer, when considered in light of
				  the assets held by the insurer with respect to the reserves and related
				  actuarial items, including, but not limited to, the investment earnings on such
				  assets, and the considerations anticipated to be received and retained under
				  such policies and contracts;
(18)
				  management establishes reserves that do not comply with minimum standards
				  established by state insurance laws, regulations, statutory accounting
				  standards, sound actuarial principles and standards of practice, or
				  persistently engages in material under-reserving that results in adverse
				  development;
(19) an insurer's
				  reserves for losses and loss adjustment expenses are discounted more than 10
				  percent of surplus without the commissioner's prior written approval;
(20) an insurer has reinsurance reserve
				  credits, recoverables, or receivables which are disputed by the reinsurer, or
				  are due and payable and remain unpaid, and such reinsurance credits,
				  recoverables, and receivables are more than 10 percent of an insurer's surplus;
				  or a reinsurer does not have the ability to perform and the insurer's
				  reinsurance program does not provide sufficient protection for the insurer's
				  remaining surplus, after taking into account the insurer's cash flow, the
				  classes of business written, and the financial condition of the reinsurer; or
				  the reinsurer is insolvent or threatened with insolvency or delinquent in
				  payment of its monetary or other obligations and which, in the opinion of the
				  commissioner, may affect the solvency of the insurer;
(21) in the opinion of the commissioner, the
				  age and collectability of the insurer's receivables may affect the solvency of
				  the insurer;
(22) any entity within
				  the insurer's insurance holding company system is unable to pay its obligations
				  as they become due and payable, is insolvent, threatened with insolvency, or
				  delinquent in payment of its monetary or other obligations and which, in the
				  opinion of the commissioner, may affect the solvency of the insurer;
(23) an entity conducting business with the
				  insurer is delinquent in the transmitting or payment of net premiums to the
				  insurer;
(24) a life, accident, and
				  health insurer has premium writings which result in surplus being less than 5
				  percent of the aggregate general account reserves for the life insurance in
				  force plus 25 percent of the net annualized accident and health premium
				  writings;
(25) a property and
				  casualty insurer has net premium writings which, if annualized, would be an
				  amount more than 300 percent of surplus;
(26) an insurer consistently issues
				  subordinate premium or surplus debentures to finance its operations;
(27) an insurer does not maintain books and
				  records sufficient to permit examiners to determine the financial condition of
				  the insurer, examples of which include, but are not limited to:
(A) books and records of a domestic insurer
				  maintained outside the state of Texas in violation of the Insurance Code
				  Chapter 803;
(B) person(s)
				  responsible for generating or maintaining books of original entry for a
				  domestic insurer are officed outside the state of Texas; or
(C) an insurer moves, or maintains, the
				  location of the books and records necessary to conduct an examination without
				  notifying the agency of such location;
(28) an insurer has reinsurance agreements
				  affecting 20 percent or more of the insurer's gross written premiums, direct or
				  assumed, and the assuming insurers are not licensed to do insurance business in
				  the state of Texas;
(29) an insurer
				  has reinsurance credits taken or assets claimed on which there is not complete
				  evidence of reinsurance agreements with insurers, signed by the reinsurer, and
				  which are more than 10 percent of surplus;
(30) an insurer has transactions among
				  affiliates, subsidiaries, or controlling persons for which the insurer receives
				  assets or capital gains that do not provide sufficient value, liquidity, or
				  diversity to assure the insurer's ability to meet its outstanding obligations
				  as they mature, or which require all surplus funds which are in excess of an
				  insurer's statutory minimum capital and surplus, or equivalent, to be
				  distributed;
(31) an insurer's
				  management, including officers, directors, or any other person who directly or
				  indirectly controls the operation of an insurer, does not have the experience,
				  competence, fitness, reputation, or trustworthiness to operate the insurer in a
				  safe and sound manner;
(32) an
				  insurer's management engages in unlawful transactions, including, but not
				  limited to, failing to meet financial and holding company filing requirements,
				  in the absence of a reason satisfactory to the commissioner;
(33) an insurer or an affiliate does not
				  comply with the terms of an agreement entered into between the insurer and
				  affiliate;
(34) the administration
				  of an insurer's business is delegated to a person who, directly or indirectly,
				  produces more than 25 percent of the insurer's gross written premiums, or an
				  insurer delegates an insurance function necessary to the insurer's survival
				  without adequate controls or which creates a conflict of interest;
(35) one person, other than a full time,
				  salaried employee, controls production of more than 10 percent of the gross
				  written premiums of an insurer;
(36) an insurer has a pattern of not settling
				  valid claims within a reasonable time after due proofs of loss have been
				  received;
(37) an insurer does not
				  follow a policy on rating and underwriting standards appropriate to the
				  risk;
(38) an insurer violates the
				  Insurance Code Chapters 422 and 423;
(39) a final administrative or judicial
				  order, initiated by an insurance regulatory agency of another state, is issued
				  against an insurer;
(40) an insurer
				  is in any condition that the commissioner of insurance finds to present a
				  hazard to policyholders, creditors, or the general public.