TITLE 28. INSURANCE

PART 1. TEXAS DEPARTMENT OF INSURANCE

CHAPTER 7. CORPORATE AND FINANCIAL REGULATION

SUBCHAPTER A. EXAMINATION AND FINANCIAL ANALYSIS

28 TAC §7.83, §7.84

INTRODUCTION. The Texas Department of Insurance adopts amendments to 28 Texas Administrative Code §7.83 and §7.84, relating to the appeal of examination reports and examination frequency. The amendments are adopted without changes to the proposed text published in the October 19, 2018, issue of the Texas Register (43 TexReg 6928).

The public comment period closed on November 19, 2018, and the department did not receive any written comments.

Under Government Code §2001.033(a)(1), the department's reasoned justification for these amendments is set out in this order, which includes the preamble and rules.

REASONED JUSTIFICATION. The amendments to §7.83 are necessary under Insurance Code §401.056 to clarify examination appeal procedures and allow each entity that the department examines to appeal those findings to the department when there is not another examination appeals process in the Insurance Code that applies to that entity. The department must conduct a financial examination of carriers at least once every five years. At the end of the financial examination, the examiner prepares an examination report. Section 7.83 provides an appeal process to preserve company rights and determine if there is any error or bias in an examination report. This rule describes the department's practice for filing, and who may file, an appeal of an examination report.

The amendments to §7.84 are necessary to implement Senate Bill 1253, 80th Legislature, Regular Session (2007), Insurance Code §401.052, to explain how often a company organized in Texas for less than five years should be examined. The amendments will add an exception for captive insurance companies organized in Texas and captive insurance companies that move to Texas.

SB 734, 83rd Legislature, Regular Session (2013), Insurance Code Chapter 964, regarding captive insurance companies, was enacted after the examination frequency statute and rule. A captive insurance company insures the operational risks of its affiliates or certain unaffiliated business. There is no need to examine a captive insurance company within the first five years it is organized in or redomesticated to Texas because of the limited risk to the public, unless it becomes necessary to examine a captive insurance company based on solvency or other concerns.

The department amends §7.83 to update old Insurance Code citations to reflect that Insurance Code Article 1.15 was re-codified in 2005 as Insurance Code Chapter 401. The department also amends §7.83 to replace references to specific department management titles with the term "designee."

The department amends §7.83 to replace references to the associate commissioner and deputy commissioner for quality of care examinations reports in the HMO/URA division, and associate commissioner life, health, managed care in the regulation and safety program, because those examination functions are now performed under the chief examiner and deputy commissioner of the Financial Regulation Division.

The department amends §7.83(a) to clarify that the section applies to examinations of any entity conducted under the Insurance Code, except for entities that are subject to another examination appeals process under the Insurance Code.

The department amends §7.83(b)(2) to add a definition for the term "Appeal." "Appeal" is the process by which a company requests that the department review a final examination report for error or bias before adoption of the final examination report. The remaining paragraphs in the subsection are renumbered as appropriate.

The department amends §7.83(d) to clarify that at the end of an examination the examiner-in-charge will provide company management the opportunity to participate in an exit conference, instead of requiring company management to participate.

The department amends §7.83(f)(1)(C) and (f)(3)(C) to clarify that a request for a hearing must be in writing.

The department amends §7.83(f)(4) to add the words "second level" to the heading to clarify that the appeal before the deputy commissioner is a second level appeal.

The department amends §7.84(e)(1) to add a reference to new subsection (h) to provide that captive insurance companies are not subject to department examination of Texas domestic carriers incorporated or organized for less than five years in the carrier's first, third, and fifth years. The paragraph adds the words "After the fifth year," to clarify that after five years, Insurance Code §401.052(a) applies to examination frequency.

The department amends §7.84(e)(2) to delete text that is repeated in (e)(2)(A).

The department adds new §7.84(h) to clarify that the section does not apply to captive insurance companies under Insurance Code Chapter 964 unless the department determines that an examination is necessary. The remaining subsections are redesignated as appropriate.

In addition, the amendments to both sections include nonsubstantive editorial and formatting changes to conform to the department's current style and to improve the rule's clarity.

SUMMARY OF COMMENTS AND AGENCY RESPONSE. The department did not receive any comments on the proposed amendments.

STATUTORY AUTHORITY. The Commissioner adopts the amendments under Insurance Code §§401.051(a) and (b), 401.052(a) and (b), 401.056, 401.151(a), 401.152(a), 964.002(a)(3), and 36.001.

Insurance Code §401.051(a) states that the department or an examiner appointed by the department will visit each carrier organized under the laws of Texas and each carrier authorized to engage in business in Texas at the carrier's principal office. Section 401.051(b) provides that the department or an examiner appointed by the department may visit the carrier to investigate the carrier's affairs and condition. The department or an examiner appointed by the department will examine the carrier's financial condition and ability to meet the carrier's liabilities and compliance with the laws of Texas that affect the conduct of the carrier's business.

Insurance Code §401.052(a) provides that under §401.052(b), and except as provided by the rules adopted under §401.052(b), the department will visit and examine a carrier as frequently as the department considers necessary and, at a minimum, the department will examine a carrier at least once every five years. Section 401.052(b) states that the Commissioner will adopt rules governing the frequency of examinations of carriers that have been organized or incorporated for less than five years.

Insurance Code §401.056 states that the Commissioner by rule will adopt procedures governing the filing and adoption of an examination report; procedures governing a hearing to be held under Chapter 401, Subchapter B; and guidelines governing an order issued under Chapter 401, Subchapter B.

Insurance Code §401.151(a) provides that a domestic insurer examined on behalf of Texas by the department or under the department's authority must pay the expenses of the examination in an amount the Commissioner certifies as just and reasonable.

Insurance Code §401.152(a) provides that an insurer not organized under the laws of Texas must reimburse the department for the salary and expenses of each examiner participating in an examination of the insurer and for other department expenses that are properly allocable to the department's participation in the examination.

Insurance Code §964.002(a)(3) states that except as otherwise provided by Chapter 964, the Insurance Code does not apply to a captive insurance company except under Chapter 401.

Insurance Code §36.001 provides that the Commissioner 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 Texas.

The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on January 18, 2019.

TRD-201900163

Norma Garcia

General Counsel

Texas Department of Insurance

Effective date: February 7, 2019

Proposal publication date: October 19, 2018

For further information, please call: (512) 676-6584