Subject to compliance with the provisions of the HMO Act, as amended, nothing in this section shall prevent a domestic HMO, which is a member of an HMO 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, from authorizing an affiliated corporation which, if other than the ultimate parent holding company, is solvent with at least $10 million tangible net worth and its 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 such domestic HMO those bonds, notes, or other evidences of indebtedness and repurchase agreements that are authorized and permissible investments under the HMO Act and rules promulgated thereunder, and which mature within one year of the date of acquisition thereof; provided that such securities are invested, held, and administered pursuant to a written agreement authorized by the board of directors of the HMO or an authorized committee thereof, and which is submitted to the commissioner for prior approval, such approval to be based upon satisfactory evidence that such 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. The agreement must comply with the provisions of paragraphs (1)-(8) of this section.

1. (1) The affiliate shall specify in which office location it shall maintain records adequate to identify and verify the securities (or proportionate interest therein) belonging to the HMO organization.
2. (2) The affiliate shall allow the commissioner or the commissioner's designee to examine all records relating to those securities held subject to the agreement and shall agree to furnish these records at the principal office of the HMO within 10 business days of a request by the commissioner or any one of his or her commissioned examiners.

3. (3) The HMO may authorize the affiliate to:

   1. (A) hold the securities of the HMO in bulk, in certifcates issued in the name of the affiliate or its nominee, and to commingle them with securities owned by other affiliates of the affiliate;
   2. (B) provide for such 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. (C) purchase, sell, or otherwise dispose of the securities in accordance with instructions received from the HMO.

4. (4) The HMO shall report annually, if required by the commissioner, to the department:

   1. (A) all investments with the affiliate pursuant to this section;
   2. (B) 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. (C) the financial condition of the affiliate which may include, at the commissioner's discretion, balance sheets, income statements, and supporting schedules with an opinion as to those financial statements by an independent certified public accountant for the most recent fiscal year.
5. (5) All of such investments and transactions between or among affiliates and the HMO must otherwise comply with all other applicable provisions of the HMO Act, as amended, or applicable rules adopted thereunder by the department.
6. (6) If the HMO or the affiliate does not comply with the HMO Act, as amended, and this chapter promulgated thereunder, or does not comply with the written agreement governing such investing, holding, and administering of securities, then the commissioner's approval will be withdrawn after reasonable notice and ample opportunity to cure the noncompliance, and any further desire to continue such arrangement must be submitted for approval.

7. (7) At the instance of withdrawal of approval of the agreement, the HMO shall undertake to obtain, and the affiliated corporation shall undertake to return, those investments or funds resulting from the sale or maturity of those investments which the affiliated corporation invested, held, and administered on behalf of the HMO and which return shall be accomplished within 90 days unless:

   1. (A) the commissioner determines that such period of time 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. (B) the commissioner extends the period of time with regard to specific investments upon request by the HMO and affiliated corporation, but in no event to exceed one year from the date of the withdrawal of approval.
8. (8) The affiliate or affiliated corporation 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 §11.804 adopted to be effective June 27, 1991, 16 TexReg 3258; amended to be effective November 2, 1998, 23 TexReg 11347.