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
Cont'd...