Current through Reg. 50, No. 13; March 28, 2025
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.
(4) Valuation and Amortization. Except where
elsewhere specifically provided, assets must be valued and amortized in
compliance with §
11.801 of this title (relating to
Accounting Guidance) as it applies to entities not required to maintain an
asset valuation reserve. If no such standard applies, then the valuation must
be at fair value.
(5) Evidence of
ownership. A domestic HMO may demonstrate ownership of its securities by
complying with §
7.86 of this title (relating to
Custodied Securities).
(6) Sale of
investment. Section
7.4 of this title (relating to
Admissible Assets) applies to investments not specifically allowed under this
subchapter. The commissioner may require any investment to be sold that would
otherwise be authorized under the provisions of this section if the
commissioner finds that the investment would cause the investing HMO to operate
in a condition that is hazardous to its enrollees, creditors, or the general
public.