Texas Life & Health Insurance Guaranty Association

Covered Contracts

§463.202. (a) Except as limited by this chapter, the coverage provided by this chapter to a person specified by Section 463.201, subject to Sections 463.201(b) and (c), applies with respect to the following policies and contracts issued by a member insurer: (1) a direct, nongroup life, health, accident, annuity, or supplemental policy or contract, including a health maintenance organization contract or certificate; (2) a certificate under a direct group policy or contract; (3) a group hospital service contract; and (4) an unallocated annuity contract. (b) The coverage provided by this chapter also applies with respect to all other insurance coverage written by the following entities authorized to engage in business in this state: (1) a mutual assessment company; (2) a local mutual aid association; (3) a statewide mutual assessment company; and (4) a stipulated premium company. (c) For the purposes of this section, an annuity contract or a certificate under a group annuity contract includes: (1) a guaranteed investment contract; (2) a deposit administration contract; (3) an allocated or unallocated funding agreement; (4) a structured settlement annuity; (5) an annuity issued to or in connection with a government lottery; and (6) an immediate or deferred annuity contract.

Non-Covered Contracts

§463.203(b) (b) This chapter does not provide coverage for: (1) any part of a policy or contract not guaranteed by the insurer or under which the risk is borne by the policy or contract owner; (2) a policy or contract of reinsurance, unless an assumption certificate has been issued; (3) any part of a policy or contract to the extent that the rate of interest on which that part is based: (A) as averaged over the period of four years before the date the member insurer becomes impaired or insolvent under this chapter, whichever is earlier, exceeds a rate of interest determined by subtracting two percentage points from Moody’s Corporate Bond Yield Average averaged for the same four-year period or for a lesser period if the policy or contract was issued less than four years before the date the member insurer becomes impaired or insolvent under this chapter, whichever is earlier; and (B) on and after the date the member insurer becomes impaired or insolvent under this chapter, whichever is earlier, exceeds the rate of interest determined by subtracting three percentage points from Moody’s Corporate Bond Yield Average as most recently available; (4) a portion of a policy or contract issued to a plan or program of an employer, association, similar entity, or other person to provide life, health, or annuity benefits to the entity’s employees, members, or others, to the extent that the plan or program is self-funded or uninsured, including benefits payable by an employer, association, or similar entity under: (A) a multiple employer welfare arrangement as defined by Section 3, Employee Retirement Income Security Act of 1974 (29 U.S.C. Section 1002); (B) a minimum premium group insurance plan; (C) a stop-loss group insurance plan; or (D) an administrative services-only contract; (5) any part of a policy or contract to the extent that the part provides dividends, experience rating credits, or voting rights, or provides that fees or allowances be paid to any person, including the policy or contract owner, in connection with the service to or administration of the policy or contract; (6) a policy or contract issued in this state by a member insurer at a time the insurer was not authorized to issue the policy or contract in this state; (7) an unallocated annuity contract issued to or in connection with a benefit plan protected under the federal Pension Benefit Guaranty Corporation, regardless of whether the Pension Benefit Guaranty Corporation has not yet become liable to make any payments with respect to the benefit plan; (8) any part of an unallocated annuity contract that is not issued to or in connection with a specific employee, a benefit plan for a union or association of individuals, or a governmental lottery; (9) any part of a financial guarantee, funding agreement, or guaranteed investment contract that: (A) does not contain a mortality guarantee; and (B) is not issued to or in connection with a specific employee, a benefit plan, or a governmental lottery; (10) a part of a policy or contract to the extent that the assessments required by Subchapter D with respect to the policy or contract are preempted by federal or state law; (11) a contractual agreement that established the member insurer’s obligations to provide a book value accounting guaranty for defined contribution benefit plan participants by reference to a portfolio of assets that is owned by the benefit plan or the plan’s trustee in a case in which neither the benefit plan sponsor nor its trustee is an affiliate of the member insurer; (12) a part of a policy or contract to the extent the policy or contract provides for interest or other changes in value that are to be determined by the use of an index or external reference stated in the policy or contract, but that have not been credited to the policy or contract, or as to which the policy or contract owner’s rights are subject to forfeiture, as of the date the member insurer becomes an impaired or insolvent insurer under this chapter, whichever date is earlier, subject to Subsection (c); (13) a policy or contract providing a hospital, medical, prescription drug, or other health care benefit under 42 U.S.C. Sections 1395w-21 et seq. and 1395w-101 et seq. (Medicare Parts C and D), 42 U.S.C. Sections 1396-1396w-5 (Medicaid), or 42 U.S.C. Sections 1397aa-1397mm (State Children’s Health Insurance Program) or a regulation adopted under those federal statutes; or (14) structured settlement annuity benefits to which a payee or beneficiary has transferred the payee’s or beneficiary’s rights in a structured settlement factoring transaction as defined by Section 5891(c)(3)(A), Internal Revenue Code of 1986 (26 U.S.C. Section 5891(c)(3)(A)), regardless of whether the factoring transaction occurred before, on, or after the date that section became effective.

Non-Resident Coverage

§463.201(a)(2)(B) Yes. Covers a person who is not a resident, but only if: (i) the member insurers that issued the policies or contracts are domiciled in this state; (ii) the state in which the person resides has an association similar to the association; and (iii) the person is not eligible for coverage by an association in any other state because the insurer or health maintenance organization was not licensed in the state at the time specified in that state’s guaranty association law;

§463.204. A contractual obligation does not include: (1) death benefits in an amount in excess of $300,000 or a net cash surrender or net cash withdrawal value in an amount in excess of $100,000 under one or more life insurance policies on a single life; (2) an amount in excess of: (A) $250,000 in the present value under one or more annuity contracts issued with respect to a single life under individual annuity policies or group annuity policies; or (B) $5 million in unallocated annuity contract benefits with respect to a single contract owner regardless of the number of those contracts; (3) an amount in excess of the following amounts, including any net cash surrender or cash withdrawal values, under one or more accident, health, accident and health, or long-term care insurance policies on a single life: (A) $500,000 for health benefit plans; (B) $300,000 for disability income and long-term care insurance, as those terms are defined by this code or rules adopted by the commissioner; or (C) $200,000 for coverages that are not defined as health benefit plans, disability income, or long-term care insurance; (4) an amount in excess of $250,000 in present value annuity benefits, in the aggregate, including any net cash surrender and net cash withdrawal values, with respect to each individual participating in a governmental retirement benefit plan established under Section 401, 403(b), or 457, Internal Revenue Code of 1986 (26 U.S.C. Sections 401, 403(b), and 457), covered by an unallocated annuity contract or the beneficiary or beneficiaries of the individual if the individual is deceased; (5) an amount in excess of $250,000 in present value annuity benefits, in the aggregate, including any net cash surrender and net cash withdrawal values, with respect to each payee of a structured settlement annuity or the beneficiary or beneficiaries of the payee if the payee is deceased; (6) aggregate benefits in an amount in excess of $300,000 with respect to a single life, except with respect to: (A) benefits paid under health benefit plans, described by Subdivision (3)(A), in which case the aggregate benefits are $500,000; and (B) benefits paid to one owner of multiple nongroup policies of life insurance, whether the policy owner is an individual, firm, corporation, or other person, and whether the persons insured are officers, managers, employees, or other persons, in which case the maximum benefits are $5 million regardless of the number of policies and contracts held by the owner; (7) an amount in excess of $5 million in benefits, with respect to either one plan sponsor whose plans own directly or in trust one or more unallocated annuity contracts not included in Subdivision (4) irrespective of the number of contracts with respect to the contract owner or plan sponsor or one contract owner provided coverage under Section 463.201(a)(3)(B), except that, if one or more unallocated annuity contracts are covered contracts under this chapter and are owned by a trust or other entity for the benefit of two or more plan sponsors, coverage shall be afforded by the association if the largest interest in the trust or entity owning the contract or contracts is held by a plan sponsor whose principal place of business is in this state, and in no event shall the association be obligated to cover more than $5 million in benefits with respect to all these unallocated contracts;

Discretionary Triggers

§463.251. When a member insurer is an impaired domestic insurer.

Mandatory Triggers

§463.252, 463.253. When a member insurer is impaired, not paying claims timely, and (1) if domestic, has been placed under an order of rehabilitation by a court of competent jurisdiction; or (2) if foreign, has been prohibited from soliciting or accepting new business in this state, the insurer's certificate of authority has been suspended or revoked in this state and a petition for rehabilitation has been filed in a court of competent jurisdiction in the insurer's domestic state. If a member insurer is insolvent. Codified effective 9/1/07.

Foreign Triggers

See Mandatory Triggers.

"Impaired Insurer"

§463.003(5). A member insurer that is designated an “impaired insurer” by the commissioner and is: (A) placed by a court in this state or another state under an order of supervision, liquidation, rehabilitation, or conservation; (B) placed under an order of liquidation or rehabilitation under the provisions of Articles 21.28 of the Texas Insurance Code; or (C) placed under an order of supervision or conservation by the commissioner under the provisions of Articles 21.28-A of the Texas Insurance Code. Amended effective 9/1/05. Codified effective 9/1/07.

"Insolvent Insurer"

§463.003(6). A member insurer that has been placed under an order of liquidation with a finding of insolvency by a court in this state or another state. Amended effective 9/1/05. Codified effective 9/1/07.

"Member Insurer"

§ 463.003(7) "Member insurer" means an insurer that is required to participate in the association under Section 463.052. §463.052 Required Participation in Association …(a) As a condition of engaging in the business of insurance in this state, an insurer, including a mutual assessment company, a local mutual aid association, a statewide mutual assessment company, a stipulated premium company, and a health maintenance organization authorized to engage in business in this state, shall participate as a member of the association if the insurer holds a certificate of authority to engage in a kind of insurance business in this state with respect to which this chapter provides coverage as determined under Subchapter E. The requirement to participate applies regardless of whether the insurer’s certificate of authority in this state is suspended, revoked, not renewed, or voluntarily withdrawn. (b) The following do not participate as member insurers: (1) a fraternal benefit society; (2) a mandatory state pooling plan; (3) a reciprocal or interinsurance exchange; (4) an organization which has a certificate of authority or license limited to the issuance of charitable gift annuities, as defined by this code or rules adopted by the commissioner; and (5) an entity similar to an entity described by Subdivision (1), (2), (3), or (4).

§463.105. For the purposes of administration and assessment, the association shall maintain: (1) an accident, health, and hospital services insurance account; (2) a life insurance account; (3) an annuity account; and (4) an administrative account.

Assessment Limits

§463.153(c) The total amount of assessments on a member insurer for each account under Section 463.105 may not in one calendar year exceed two percent of the insurer’s average annual premiums on the policies covered by the account during the three calendar years preceding the year in which the impaired or insolvent member insurer became an impaired or insolvent insurer. If two or more assessments are authorized in a calendar year with respect to member insurers that become impaired or insolvent in different calendar years, the average annual premiums for purposes of the aggregate assessment percentage limitation described by this subsection shall be equal to the higher of the three-year average annual premiums for the applicable subaccount or account as computed in accordance with this section. If the maximum assessment and the other assets of the association do not provide in a year an amount sufficient to carry out the association’s responsibilities, the association shall make necessary additional assessments as soon as this chapter permits.

Assessment Classes

§463.152. (a) Assessments are classified as Class A or Class B assessments. (b) Class A assessments are authorized and called to pay: (1) the association’s administrative costs; (2) administrative expenses that: (A) are properly incurred under this chapter; and (B) relate to an unauthorized insurer or to an entity that is not a member insurer; and (3) other general expenses not related to a particular impaired or insolvent insurer. (c) Class B assessments are authorized and called to the extent necessary for the association to carry out the association’s powers and duties under Sections 463.101, 463.103, 463.109, and 463.111(c) and Subchapter F with regard to an impaired or insolvent insurer.

§463.203(b)(3). Guaranty Association excludes from coverage: any part of a policy or contract to the extent that the rate of interest on which that part is based: (A) as averaged over the period of four years before the date the member insurer becomes impaired or insolvent under this chapter, whichever is earlier, exceeds a rate of interest determined by subtracting two percentage points from Moody’s Corporate Bond Yield Average averaged for the same four-year period or for a lesser period if the policy or contract was issued less than four years before the date the member insurer becomes impaired or insolvent under this chapter, whichever is earlier; and (B) on and after the date the member insurer becomes impaired or insolvent under this chapter, whichever is earlier, exceeds the rate of interest determined by subtracting three percentage points from Moody’s Corporate Bond Yield Average as most recently available;

§463.161. Yes. Member insurers may offset up to 100% of assessments paid for an insurer that becomes an impaired or insolvent insurer on or after September 1, 2005 (20% per year for a period of 5 years beginning in the year following the issuance of the certificate of contribution). Member insurers may offset up to 100% of assessments paid for an insurer that becomes an impaired or insolvent insurer prior to September 1, 2005 (10% per year for a period of 10 years beginning in the year following the issuance of the certificate of contribution). Covers all Class B assessments. Amended effective 9/1/05. Codified effective 9/1/07.

§ 463.003 (9) “Premium” means an amount received on a covered policy, less any premium, consideration, or deposit returned on the policy, and any dividend or experience credit on the policy. The term does not include: (A) an amount received for a policy or contract or part of a policy or contract for which coverage is not provided under Section 463.202, except that assessable premiums may not be reduced because of: (i) an interest limitation provided by Section 463.203(b)(3); or (ii) a limitation provided by Section 463.204 with respect to a single individual, participant, annuitant, or policy or contract owner; (B) premiums in excess of $5 million on an unallocated annuity contract not issued under a governmental benefit plan established under Section 401, 403(b), or 457, Internal Revenue Code of 1986; (C) premiums received from the state treasury or the United States treasury for insurance for which this state or the United States contracts to: (i) provide welfare benefits to designated welfare recipients; or (ii) implement: (a) Title 2, Health and Safety Code; (b) Title 2, Human Resources Code; or (c) the Social Security Act (42 U.S.C. Section 301 et seq.); or (D) premiums in excess of $5 million with respect to multiple nongroup policies of life insurance owned by one owner, regardless of whether the policy owner is an individual, firm, corporation, or other person and regardless of whether the persons insured are officers, managers, employees, or other persons, regardless of the number of policies or contracts held by the owner.

§463.451. Prohibited Use of Protection Provided by Chapter. (a) A person may not make, publish, disseminate, circulate, or place before the public, or directly or indirectly cause to be made, published, disseminated, circulated, or placed before the public, a written or oral advertisement, announcement, or statement that uses the existence of the association to sell, solicit, or induce the purchase of a kind of insurance with respect to which this chapter provides coverage. (b) This section applies to an advertisement, announcement, or statement made, published, disseminated, circulated, or placed before the public: (1) in a newspaper, magazine, or other publication; (2) in a notice, circular, pamphlet, letter, or poster; (3) over a radio or television station; or (4) in any other manner. (c) Except as provided by Section 463.114, the use by a person of the protection provided by this chapter in the sale of insurance is unfair competition and an unfair practice under Chapter 541. (d) This section does not apply to the association or any other entity that does not sell or solicit insurance.