Current through Reg. 50, No. 13; March 28, 2025
(a) Purpose. The purpose of implementing a
risk-based capital and surplus provision is to require a minimum level of
capital and surplus to absorb the financial, underwriting, and investment risks
assumed by a carrier.
(b) Scope.
(1) Life companies. This section applies to
any carrier authorized to do business in Texas as an insurance company that
writes or assumes a life insurance or annuity contract or assumes liability on
or indemnifies one person for any risk under an accident and health insurance
policy, or any combination of these policies, in an amount that exceeds $10,000
including: capital stock companies, mutual life companies, limited purpose
subsidiary life insurance companies, and stipulated premium insurance
companies.
(2) Property and
casualty companies. This section applies to all domestic, foreign, and alien
property and casualty companies subject to the provisions of Insurance Code
§
822.210 and §
982.106, including
county mutual insurance companies that do not meet the express criteria
contained in Insurance Code §
912.056(f),
but excluding monoline financial guaranty insurers, monoline mortgage guaranty
insurers, title insurers, and those insurers subject to Insurance Code §
822.205.
(3) Health maintenance organizations and
certain health carriers. This section applies to all domestic and foreign
health maintenance organizations subject to the provisions of Insurance Code
Chapter 843 and carriers that file the NAIC Health Annual Statement with TDI
under TDI filing requirements.
(4)
Fraternal benefit societies. This section applies to all domestic and foreign
fraternal benefit societies.
(c) Definitions. The following words and
terms, when used in this section, have the following meanings, unless the
context clearly indicates otherwise.
(1)
Annual financial statement--The annual statement to be used by carriers under
§
7.68 of this title.
(2) Authorized control level--The result
determined using the sources of information under subsection (d) of this
section, including the RBC formula in accord with the RBC
instructions.
(3) Carrier--An
insurer, health maintenance organization, or fraternal benefit society included
within the scope of subsection (b) of this section.
(4) NAIC--National Association of Insurance
Commissioners.
(5) RBC--Risk-based
capital.
(6) RBC formula--NAIC
risk-based capital formula.
(7) RBC
instructions--NAIC Risk-Based Capital Report Including Overview and
Instructions for Companies.
(8)
Total adjusted capital--A carrier's adjusted statutory capital and surplus as
determined using the sources of information under subsection (d) of this
section, including the RBC formula in accord with the RBC
instructions.
(d)
Sources of information for determining RBC. The commissioner reserves all
authority and discretion to resolve any issues in Texas concerning RBC. The
commissioner and carriers will refer to the sources in paragraphs (1) - (4) of
this subsection in the respective order of priority listed to determine RBC:
(3) commissioner orders; and
(4) except as provided in this section, as
applicable to the carrier:
(A) the NAIC Life
Risk-Based Capital Report Including Overview and Instructions for Companies,
which includes the RBC formula, for the period being reported.
(B) the NAIC Fraternal Risk-Based Capital
Report Including Overview and Instructions for Companies, which includes the
RBC formula, for the period being reported.
(C) the NAIC Property and Casualty Risk-Based
Capital Report Including Overview and Instructions for Companies, which
includes the RBC formula, for the period being reported.
(D) the NAIC Health Risk-Based Capital Report
Including Overview and Instructions for Companies, which includes the RBC
formula, for the period being reported.
(e) Filing requirements. All carriers must
file electronic versions of the RBC reports and any supplemental RBC forms and
reports with the NAIC in accord with and by the due dates specified in sources
of information for determining RBC listed in subsection (d) of this section,
including the RBC instructions.
(f)
Conflicts. In the event of a conflict between the Insurance Code, any TDI rule,
any specific requirement of this section, and the RBC formula or the RBC
instructions, the Insurance Code, rule, or specific requirement of this section
takes precedence and in all respects controls. The requirements of this section
do not repeal, modify, or amend any TDI rule or any Insurance Code
provision.
(g) Actions of
commissioner. The level of risk-based capital is calculated and reported
annually. Depending on the results computed by the risk-based capital formula,
the commissioner of insurance may take a number of remedial actions, as
considered necessary. The ratio result of the total adjusted
capital-to-authorized control level risk-based capital requires the following
actions related to a carrier within the specified ranges:
(1) A carrier reporting total adjusted
capital of 150 percent to 200 percent of authorized control level risk-based
capital triggers a company action level under which the carrier must prepare a
comprehensive financial plan that identifies the conditions that contribute to
the carrier's financial condition. The plan must contain proposals to correct
areas of substantial regulatory concern and projections of the carrier's
financial condition, both with and without the proposed corrections. The plan
must list the key assumptions underlying the projections and identify the
concerns associated with the carrier's business. The RBC plan must be submitted
within 45 days of filing the RBC report with the NAIC. After review, the
commissioner will notify the carrier if the plan is satisfactory or not
satisfactory. If the commissioner notifies the carrier that the plan is not
satisfactory, the carrier must prepare a revised plan and submit it to the
commissioner. Failure to file this comprehensive financial plan triggers the
regulatory action level described in this subsection.
(2) A carrier reporting total adjusted
capital of 100 percent to 150 percent of authorized control level risk-based
capital triggers a regulatory action level initiative. At this action level, a
carrier must file an RBC plan or revised RBC plan within 45 days of filing the
RBC report with the NAIC, and the commissioner must perform any examinations or
analyses to the carrier's business and operations that are deemed necessary.
The commissioner may issue orders specifying corrective actions to be taken or
may require other appropriate action.
(3) A carrier reporting total adjusted
capital of 70 percent to 100 percent of authorized control level risk-based
capital triggers an authorized control level. In addition to the remedies
available at the carrier and regulatory action levels described in this
subsection, the commissioner may take other action deemed necessary, including
initiating a regulatory intervention to place a carrier under regulatory
control.
(4) A carrier reporting
total adjusted capital of less than 70 percent of authorized control level
triggers a mandatory control level that subjects the carrier to one of the
following actions:
(A) being placed in
supervision or conservation;
(B)
being determined to be in hazardous financial condition as provided by
Insurance Code Chapter 404 and §
8.3 of this title regardless of
percentage of assets in excess of liabilities;
(C) being determined to be impaired as
provided by Insurance Code §§
404.051 and
404.052 or 841.206;
or
(D) any other applicable
sanctions under the Insurance Code.
(5) A life company described in subsection
(b)(1) of this section is subject to a trend test described in the RBC formula
and RBC instructions, if its total adjusted capital-to-authorized control level
risk-based capital is between 200 percent and 300 percent. Any life insurer
that trends below 190 percent of total adjusted capital-to-authorized control
level risk-based capital triggers the company action level.
(6) A property and casualty company described
in subsection (b)(2) of this section is subject to a trend test if its total
adjusted capital-to-authorized control level risk-based capital is between 200
percent and 300 percent. If the result of the trend test as determined by the
RBC formula and RBC instructions is "YES," the insurer triggers regulatory
attention at the company action level.
(7) A health maintenance organization or
health carrier described in subsection (b)(3) of this section is subject to a
trend test if its total adjusted capital-to-authorized control level risk-based
capital is between 200 percent and 300 percent and triggers the trend test
determined in accord with the trend test calculation included in the Health RBC
instructions. If the result of the trend test as determined by the RBC formula
and RBC instructions is "YES," the health maintenance organization or certain
health carrier triggers regulatory attention at the company action
level.
(8) A fraternal benefit
society described in subsection (b)(4) of this section is subject to a trend
test described in the RBC formula and RBC instructions, if its total adjusted
capital-to-authorized control level risk-based capital is between 200 percent
and 300 percent. Any fraternal benefit society that trends below 190 percent of
total adjusted capital-to-authorized control level risk-based capital triggers
the company action level.
(h) Prohibition on announcements. Except as
required under this section, a carrier, agent, or other person engaged in the
business of insurance under the Insurance Code is prohibited from making,
publishing, disseminating, circulating, or placing before the public, or
causing, directly or indirectly to be made, published, disseminated,
circulated, or placed before the public, in a newspaper, magazine, or other
publication, or in the form of a notice, circular, pamphlet, letter, poster,
over any radio or television station, or in any other way, an advertisement,
announcement, or statement containing an assertion, representation, or
statement with regard to any component derived in the calculation. Any
violation of this subsection may be considered a violation of Insurance Code
Chapter 541, regulating unfair methods of competition and unfair or deceptive
acts or practices.
(i) Prohibition
on use in ratemaking. The RBC instructions and any related filings are intended
solely for use by the commissioner in monitoring the solvency of carriers and
in taking corrective action with respect to carriers. The RBC instructions and
any related filings may not be:
(1) used by
the commissioner for ratemaking;
(2) considered or introduced as evidence in
any rate proceeding; or
(3) used by
the commissioner to calculate or derive any elements of an appropriate premium
level or rate of return for any line of insurance that a carrier or any
affiliate is authorized to write.
(j) Limitations. The requirements of this
section do not reduce the amount of capital and surplus otherwise required by
the Insurance Code, TDI rules, or by authority of the commissioner as provided
by law.
