(a) Subject to compliance with Insurance Code Chapter 843 (concerning Health Maintenance Organizations), this chapter, and other applicable insurance laws and regulations of this state, a domestic HMO, which is a member of a holding company system with assets in an aggregate amount in excess of $1 billion and a tangible net worth of at least $100 million and having affiliates licensed in this state may authorize an affiliated corporation that, if other than the ultimate holding company, is solvent with at least $10 million tangible net worth and whose performance and obligations under a written agreement with the HMO are guaranteed by the ultimate holding company to invest, hold, and administer as agent or nominee on behalf of the domestic HMO bonds, notes, or other evidences of indebtedness that are authorized and permissible investments under Insurance Code Chapter 843 and other applicable insurance laws and regulations of this state that apply to HMOs, and which mature within one year of the date of acquisition. The securities must be invested, held, and administered under a written agreement authorized by the board of directors of the HMO or an authorized committee, and submitted to the commissioner for prior approval. Approval must be based on satisfactory evidence that the agreement will facilitate the operations of the domestic HMO and will not unreasonably diminish the service to or protection of the domestic HMO's enrollees within this state.
(b) The agreement must:
  (1) specify in which office location it will maintain records adequate to identify and verify the securities (or proportionate interest therein) belonging to the HMO; and
  (2) allow the commissioner or the commissioner's designee to examine all records relating to those securities held subject to the agreement and must agree to furnish these records at the principal office of the HMO within 10 business days of a request by the commissioner or any of the department's commissioned examiners.
(c) The HMO may authorize the affiliate to:
  (1) hold the securities of the HMO in bulk, in certificates issued in the name of the affiliate or its nominee, and to commingle them with securities owned by other affiliates of the affiliate;
  (2) provide for the securities to be held by a custodian, including the custodian of securities of the affiliate, or in a clearing corporation or the Federal Reserve Book Entry System as provided in this subchapter; and
  (3) purchase, sell, or otherwise dispose of the securities in compliance with instructions received from the HMO.
(d) If required by the commissioner, the HMO must report annually to the department:
  (1) all investments with the affiliate under this section;
  (2) the market value of all securities held by the affiliate on behalf of the HMO as of December 31 of the year next preceding or other date as the commissioner may require; and
  (3) the financial condition of the affiliate including, at the commissioner's discretion, balance sheets, income statements, and supporting schedules with an opinion on those financial statements by an independent certified public accountant for the most recent fiscal year.
(e) All of the investments and transactions between or among affiliates and the HMO must otherwise comply with all other applicable provisions of Insurance Code Chapters 823 (concerning Insurance Holding Systems) and 843, and other applicable insurance laws and regulations of this state.
(f) If the HMO or the affiliate does not comply with Insurance Code Chapters 823 and 843 and other applicable insurance laws and regulations of this state, or does not comply with the written agreement governing the investing, holding, and administering of securities, then the commissioner's approval will be withdrawn after reasonable notice and ample opportunity to cure the noncompliance. If the HMO wishes to continue the arrangement, it must submit a request to the commissioner for approval.
(g) On the withdrawal of approval of the agreement, the HMO must undertake to obtain, and the affiliated corporation must undertake to return, investments or funds resulting from the sale or maturity of those investments in which the affiliated corporation invested, held, and administered on behalf of the HMO and the return must be accomplished within 90 days unless:
  (1) the commissioner determines that the 90-day period creates a hazard to the public, in which case the commissioner may designate that the period may not exceed 30 days from the date of determination; or
  (2) the commissioner extends the period for specific investments on request by the HMO and affiliated corporation, but in no event to exceed one year from the date of the withdrawal of approval.
(h) The affiliate must be organized under the laws of one of the states of the United States of America or of the District of Columbia.

Source Note: The provisions of this §11.806 adopted to be effective August 1, 2017, 42 TexReg 2169