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Hon. 0. P. Lockhart Opinion No. O-4054
Chairman Re: Eligibility of bonds of the
Board of Insurance United States for investment and
Commissioners deposit ,by insurance companies.
Kustin, Texas
Dear Sir:
Your request for an opinion of this department reads:
“We understand that United States Defense
Bonds, Series F and G, provide in their face as
to both classes that they shall be ‘non-transfer-
able’ ; Series F providing that they may be cashed
by the holder after 90 days from purchase date,
and Series G providing that they may be cashed by
the holder after one year from purchase date.
“Please give us your opinion upon the question
whether such bonds of either or both series may law-
fully be approved by the Board of Insurance Commis-
sioners as securities in the followiqg circumstances.
“As capital stock deposits of old line legal
reserve life, health, and accident companies under
the provisions of Article 4739.
‘IAs reserve deposits of such companies under
Article 4740, 4725, and other pertinent statutory
provisions.
“iis ‘Securities of the United States’ under
the provisions of Article 4759.
“As reserve securities for the four types of
companies or associations affected by, and required
to accumulate and maintain reserve of securities by
the terms of, S.B. 1 5, (Acts, 1939, 46th Leg.,
Page 401, Article 5028-1, Sections l-31) as amended
by H.B. 1065 effective June 2 1941, and as amended
by S.B. 93, {Acts, 1941) eff.ec;ive October 3, 1941.”
The question before us is whether or not the particu-
lar type of United States bonds described in paragraph one of
your inquiry, by reason of the limitations contained therein,
are eligible for investment and deposit under the hereinafter
Hon. 0. P. Lockhart, page 2 (O-4054)
discussed statutes. For convenience we will dispose of the
questions before us by discussing the statutes in the order
appearing in your inquiry.
&ticle 4739, Revised Civil Statutes, reads:
‘#Any life insurance company, accident insur-
ance company, life and accident, health and acci-
dent, or life, health and accident insurance
company, organized under the laws of this State,
may at its option, deposit with the State Treas-
urer securities equal to the amount of its capital
stock, and may, at its option, withdraw the same
or any part thereof, first having deposited in
the treasury in lieu thereof other securities
equal in value to those withdrawn. Any such se-
curities, before being so originally deposited or
substituted, shall be approved by the Commissioner.
When any such deposit is made, the Treasurer shall
execute to the company making the deposit a re-
ceipt therefor, giving such description to such
securities as will identify the same; and such
company shall have the right to advertise such
fact, or print a copy of the treasurer’s receipt
on the policies it may issue; and the proper offi-
cer or agents of each insurance company making such
deposit shall be permitted, at all reasonable times,
to examine such securities and to detach coupons
therefrom and to collect interest thereon, under
such reasonable rules and regulations as may be
prescribed by the Treasurer, and the Commissioner.
Such deposit when made by any company shall there-
after be maintained as long as said company shall
have outstanding any liability to its policy holders.
For the purpose of State, county, and municipal taxa-
tion, the situs of all personal property belonging
to such companies shall be at the home office of such
company.”
It is apparent that it was the legislative intention
in the passage of such law that those companies desiring to
avail themselves of the advantages afforded thereby should keep
such deposit with the State Treasurer until all obligations of
the company had been discharged to its policy holders. NO pro-
vision is made, however, for subjecting the deposit, or ;ayt;rt
thereof, to the payment of the company’s indebtedness.
absence of a statute permitting the garnishment of such funds
we do not believe the same could be subjected to the payment of
debts until and unless the company having such deposits was
.
. -
Hon. 0. P. Lockhart, page 3 (O-4054)
placed in liquidat ion. There appears no necessity that the
bonds deposited thereunder be readily convertible into cash.
We cannot say as a matter of law that such bonds cannot be
used for the purposes of the statute. We desire to point out,
however, that the Insurance Commissioner is’ given the power
and authority to approve the securities to, be deposited. You
fould in the exercise, of the discretion granted refuse to ac-
cept such bonds if you ,determlned that three months, twelve
months or any other period of time before such bonds are sub-
ject to being cashed, would render the account insufficiently
liquid to adequately protect the policyholders for whose bene-
fit the deposit is being made.
We do not believe that the “non-transferable” ~provi-
sion of the bonds have any effect on the question here for the
reason that creditors could not get possession of the bonds for
the purpose of liquidating their indebtedness but must look
onPi to the liquidated value thereon.
Article 4740, Revised Civil Statutes, reads:
“‘iny life insurance ~company now or which’may
hereafter be incorporated under the laws of this
State~may deposit with the Commissioner for the
common benefit of all the holders of its policies
and annuity bonds, securities of the kinds in
which, by the laws of’ this State, it is permitted
t.o invest or loan its funds, equal to the legal
reserve on all its outstanding policies in force,
which securit~ies shall be held by said Commission-
er in trust for the purpose and objects herein
specified. Any such company may deposit lawful
money of the United States in lieu of the securities
above referred to, or any portion thereof, and may
also, for the purposes cf such deposit, convey to
said Commissioner in trust the real estate in which
any portion of its said reserve may be lawfully
invested. In such. case, said Commissioner shall
hold the title thereto in trust until other securi-
ties in lieu ,thereof shall be deposited with him,
whereupon he shall reconvey the same to such com-
pany. Said Commissioner may cause any such securi-
ties or real estate to be appraised and valued prior
to their being deposited with, or conveyed to, him
in trust as aforesaid, the reasonable expense of
~suce appraisement or valuation to beg paid by the
company. ‘I
It ,is our opinion that the bonds in question may be
deposited hereunder within the discretion of the Life Insurance
- .
Hon. 0. P. Lockhart, page 4 to-4054)
Commissioner for the reasons appearing hereinabove in the dia-
cusaion of &ticle 4739, supra.
Article b725, Revised Civil Statutes, consists of
four paragraphs, too lengthy to here set out. It specifikally
provides the kinds and character of securities and the manner
in which Texas life insurance companies may invest their funds.
It provides that they may invest their funds in “the bonds of
the United States,v Bo restrictions are plaoed upon suoh pro-
vision as to the character of bonds.
It 1s~ our opinion that investments may be made in such
bonds under this statute sub jact to the right of Insurance Com-
missioner to limit the amount th’ereof to the extent necessary
to assure the ability of the companies to pay off their obliga-
tions as they mature.
Article 4759, Revised Civil Statutes, reads:
“NO foreign life inaaranco company or accident
insurance company, or life and accident, health and
accident, or life, health and aocident insurance
company, incorporated by or organized under the laws
of any foreign government, shall transact business
in this State, unless it shall first deposit and
keep deposited with the Treasurer of this State, for
the benefit of the policy holders of auch.company,
citizens or residents of the United States bonds or
securities of the United States or the State or Texas
to the amount of one hundred thousand dollars.”
Artiole 4760, Revised Civil Statutes, provides:
“The deposit required by the preceding article
shall be held liable to pay the judgments of policy
holders in such company, and may be so decreed by
the court adjudicating the 8ame.e
It appears from the two preceding articles that it was
the legislative intent that the companies embraced therein should
at all times have on drpoait with the State Treasurer assets
readily convertible into cash, which the court rendering judgment
against such depositing company might decree subject to the pay-
ment thereof. we do not believe that the bonds in question, by
reason of their non-transferable and withdrawal maturity Seatures
are sufficiently liquid within suoh reasonable time for the pay-
ment of judgments as was anticipated by the Legislaturs. We hold
that the bonds in question cannot be deposited under this statute.
Hon. 0. P. Lockhart, page 5 (O-4054)
Senate Bill 1 5 Acts of the Forty-sixth Legislature
codified as Article 5063-1, and since amended with certain re-’
spects with which we are not here concerned, is a comprehensive
regulatory bill embracing the whole field of mutual Insurance.
Section 12 thereof provides for the creation of at least two
separate funds, one of which being the mortuary or relief fund,
and the other the expense fund. At least sixty per cent of the
assessments or premiums received is required to be deposited in
the mortuary fund and held as a reserve to be used for the pay-
ment of claims. It is further provided that the mortuary fund
may be invested only in such securities as are a legal invest-
ment for the reserve funds of a stock life insurance company.
Section 13 of the Article provides in part:
“It Is the primary purpose of this Act to secure
to the members of the associations end their benefi-
ciaries the full and prompt payment of all claims ac-
cording to the maximumbenefit provided in their certi-
ficates. It is therefore required of all associations
that all claims under certificates be paid In full
within sixty (60) days after receipt of due proof of
claims. I8
Having already held herein that stock life insurance
companies may invest their funds in the bonds in question with
certain limitations, it is our opinion that the companies sub-
ject to regulation by Senate Bill 135 may do likewise. This
right, of course, is limited by the above quoted Section 13 and
the Commissioner can require liquid assets to the extent neces-
sary to carry out the legislative mandate to pay the claims
promptly.
Yours very truly
APPROVED OCT 30, 1941 ATTORNEY
GENERAL
OF TEXAS
/s/ Grover Sellers
FIRST ASS1STANT By /s/ Lloyd Armstrong
ATTORNEY GENERAL Lloyd Armstrong, Assistant
APPROVED:OPINION COMMITTEE
BY: BWB, CHAIRMAN
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