Mr. William A. Harrison            Opinion No. ww-362
Commissioner of Insurance
International Life Building        Re:   "Whether it is necessary to
Austin, Texas                             increase capital stock deposit
                                          under Article 3.15, Texas In-
                                          surance Code, when the actual
                                          capital stock of a company is
                                          increased by charter amend-
Dear Mr. Harrison:                        ment, and related questions."

          We quote from your letter of December 16, 1957, requesting
the opinion of this department on the above stated question as follows:

          "Assume that a company with $100,000 capital exer-
     cises its option under Article 3.15, and voluntarily de-
     posits with the treasurer securities in the amount of
     $100,000, and subsequently the company amends its arti-
     cles~of incorporation to increase its capital stock to
     $250,000. We respectfully request your opinion as to
     whether it is necessary for the company, having once
     exercised its option and made the capital deposits called
     for in Article 3.15, to make additional deposits with the
     State Treasurer under Article 3.15 in an amount to the
     increase of its capital.

          "Assume that a company has a capital of $250,000 and
     voluntarily makes a $250,000 capital deposit with the
     State Treasury in accordance with Article 3.15. Subse-
     quently, the company reduces its capital to $100,000. We
     respectfully request your opinion as to whether the com-
     pany could then withdraw from the State Treasury $150,000
     of its capital deposit, without submitting in lieu there-
     of other securities of a like class, or of an equal amount.
     In other words, could the company then maintain only a
     capital deposit of $100,000 rather than $250,000?

          "In each of our first questions, assume that at the
     time of increase or reduction in capital, the company had
     outstanding liabilities to its policyholders in this state.

          "If your answer to our first question is in the nega-
     tive, we respectfully request your opinion as to whether a
     company which had originally made a voluntary deposit and
fir.Wil~;iamA. Harrison, page 2 (~~-362)



     subsequently increased its deposits at the xquest of thf
     State %ard of Insurance, after it had increased its capi-
     <al stock, could withdraw the subsequent deposits made at
     the request of the Board. In other words, if the Board
     erroneously required the company to increase the capital
     deposits under Article 3.15, after the company had in-
     creased its capital stock, and the company did so without
     protest, may the company withdraw from the deposit the
     ini-reasesrequired tp be made by the Board? Or must the
     compary, having made deposit without protest, maintain t.h-
     deposits so long as there is any liability to policyhold-
     ers in this State?"

              pertinent parts of Article 3.15, Insurance Ccie cf I'--uas,
          'Clue
are +a,ie:i.
           in part as follows:

          "Any 'domestic' company may, at its option, deposit
     with the Treasurer of this State, securities in which its
     capital stock is invested, or securities equal in amount
     to its capital stock, of the class in which the iaw of
     this State permits such insurance companies to invest
     their capital stock, and may, at its option, withdraw the
     same or any part thereof, first having deposited with the
     treasurer, in lieu thereof, other securities of like class
     and equal amount and value to those withdrawn . . B !;he
     deposit herein provided for, when made by any company,
     shall thereafter be maintained so iong as said corxpa:ly
     shall have outstanding any liability to its polic.yhnMers
     in this State . , ."

          The language contained in,the first sente:nceof Article 3~15
is initially permissive in nature, and no insurance company is re~;:;ir*-d
i,o&posit t.hesecurities in which its capital stock is i:?,vestedl or
securities equal in amount to its capital stock with t'heStat? Trrasl~~rer
Althcugh the statute is silent on this point, we thi~nkthat, crict!Ihe
iKslrance company has elected to make an initj.aldeposit ::fSer:kiY’i!icS
with the SLate Treasurer, a second option arises when the ccmpa,jr;:u
                                                                    -:r:-
creases the amount of its capital stock, and under this option ti,-o-!r-
pany inayelect,to deposit with the State Treasurer,'securities i:.-~I~!::"
ii,sincrensed~capital stock is invested or securities equal in arn~~;;;~~t
to its increased capital stock. If the company takes this course of
action, then,,under the terms of this Article, the State Treasu,rerw,c:~~!.d.
e.xe-utea receipt to the company, giving a description of the said s:xrk
or sccuri%ies and stating that the same are held on deposit as the c;~p'.-
tal s;ock investments of such company. However, should the c,om?zany
elect not to deposit securities in which its increased capital stcck
i.sinvested, or securities equal to its increased capital stcck, t,hen
the company would no longer have the right to advertise that the State
Treasurer had on deposit securities as "the capital stock investment
of such company . I .'
or. William A. ~~arrison, page 3   (~-362)




          Therefore, in answer to your Question No. 1, we hold that
it is not necessary for a company having once exercised its option and
made the capital deposits called for in Article3.15, to make addition-
al deposits with the State Treasurer under Article 3:15 in an amount
equal to the increase of its capital stock. Howeyer, if such company
does not exercise this option{ then they can no longer advertise that
the State Treasurer has on deposit securities as the capital stock in-
vestments of such company.

          Although the initial deposit under the terms of this statute
is permissive in nature exercisable at the option of the company, once
this option is exercised, the company can only withdraw its securities
so deposited in accordance with the withdrawal provisions contained
in this Article. The language of Article 3.15 is clear and unambiguous
and provides for only one method of withdrawal of the securities from
the State Treasurer. BY that method. the comoany may "withdraw the
                       ”




same or any part thereof,'first having deposiied'with the treasurer,
in lieu thereof, qt&   securities of like class and equal amount and
value to the@ irithdr&n:" This language clearly indicates that it
was the intentof Wie~Legislature that once a company exercised its
option to deposit securities with the State Treas,urer,that these se-
curities could not be yithdrawn except by substituting in lieu thereof
securities of like class and equal amount. See Attorney'General Opin-
ion No. O-5051 which holds that, "if the life insurance company with-
draws its security, said company must deposit in lieu of the security
withdrawn, other securities equal in value to the security withdrawn."

          Further substituting the conclusion that deposits once made
may not be withdrawn is the language in Article 3.15 that "the deposits
herein provided for, when made by a company, shall thereafter be main-
tained
its policyholders in this'state.! Manifestly, the deposits permitted
to be made by insurance comnanies are intended by the terms of the stat-
ute to be made for the benefit of the policyholders of the insuring
company. To permit the company to withdraw deposits once made, particu-
larly in view of the fact that the statute authorizes the company to
advertise that it has made such a deposit, would be nothing less than
statutory authorization to perpetrate fraud upon policyholders. Fur-
ther, Article 3.18 of the Texas Insurance Code which refers to deposits
permitted under Article 3.16 of securities equal to the ampunt,of the
legal reserve of a life insurance company by'express langusg& permits
such deposits to be withdrawn in the event that these, "deposits exceed
the net value of all policies and annuity bonds which it has in force,
less such liens (not exceeding such net value) as the company may hold
against them, t . ." The absence of such language in Article 3.15 with
reference to the deposits made to the extent of cafiitalinvestments,
we think evidences the legislative intent that'such withdrawal privilege
should not be accorded the companies in Connection with deposits made
under ArtiCle 3.15.
Mr. William A. Harrison, page 4 (w-362)



          Therefore, in answer to your Question No. 2, an insurance
company, once exercising its option under Article 3.15 cannot withdraw
from the State Treasurer part of its capital deposit simply because
it has by charter amendment reduced the amount of its.capital.

          In your third question the facts are such that the-company
originally made a voluntary deposit under the terms of Art~icle3.15
and, subsequently, increased its deposits,at the request of the State
Board of Insurance without protest after it had increased the amount
of its capital stock.' In view of our answer to your first question,    .
the action of the State Board of Insurance in requiring that such a
depcsit be made would be erroneous. However, we do not believe that
under the terms of the statute an answerdifferent from that given in
response to your second question would be appropriate.~,'Thefact that
the company!6 voluntary.action may have been to some measure influenced
by an erroneous act on the part of the Board cannot effect the con,sid-
eration that to now permit the withdrawal of the funds would permit
the perpetration of a fraud upon those policyholders who have become
policyholders in reliance of the provisions of the statute.

          Therefore, in answer to your third question, an insurance
company having exercised its option under Article 3.15 to tike deposits
to the extent of its capital with the Board cannot withdraw such deposits
or part thereof from the State Treasurer simply because such deposit was
made as the result of an erroneous request onthe part of the State Board
of Insurance.

                                SUMMARY

         A life insurance company once having made an initial
         deposit of securities with the State Treasurer in the
         amount of its capital pursuant to Article 3..15of the
         Texas Insurance Code need not increase,such deposit
         each time it increases its capital stock. If the com-
         pany does increase its capital stock and does elect
         not to make additional deposits in the amount of the
         increase of its capital, such company may not continue
         to advertise that it has on deposit with the State
         Treasurer securities as the capital stock investment
         of such company.

         A life insurance company once exercising its option
         to make a deposit under Article 3.15 cannot withdraw
         from the State Treasurer part of its capital deposit
         simply because it has decreased the amount of its
         capital stock.

         A life insurance company increasing the,amount of its
         deposit with the State Treasurer under Article 3.15
Mr. William A. Harrison, page 5 (~~-362)



            on the erroneous request of the State Board of Ir,-
            surance to do so may not withdraw such increased
            deposit.

                                             Very truly yours,

                                             WILL WILSON




                                                Richard A. Wells
                                                Assistant

,RAw: .lm

APPROVE3:

OPINION COMMITTEE:

Gee. P. Blackburn, Chairman

John H. Minton, Jr.
Morgan Nesbitt
Wayland C. Rivers,,Jr.

REVIEWED FOR TFIEATTORNEY GENERAL
BY:
     W. V. Geppert
