1-1 AN ACT
1-2 relating to the operation of the catastrophe reserve trust fund.
1-3 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-4 ARTICLE 1. DECLARATION OF LEGISLATIVE INTENT
1-5 SECTION 1.01. The legislature finds that:
1-6 (1) the catastrophe reserve trust fund was formed
1-7 under Sections 8(h)(13) and 8(i), Article 21.49, Insurance Code, to
1-8 shelter the state's general revenue from dissipation in the event
1-9 of certain catastrophic losses from hurricane disasters and as part
1-10 of the state's planning and provision for relief from those losses;
1-11 (2) under Section 19(a)(2), Article 21.49, Insurance
1-12 Code, the catastrophe reserve trust fund has responsibility for
1-13 certain catastrophic losses;
1-14 (3) under Section 19(b), Article 21.49, Insurance
1-15 Code, the state returns funds or waives collection of funds from
1-16 insurers by authorizing the insurers to credit certain catastrophic
1-17 losses against premium taxes paid into the general revenue fund;
1-18 (4) the state's interest in protecting the general
1-19 revenue of the state and in planning and providing for catastrophic
1-20 losses is benefited to the extent the catastrophe reserve trust
1-21 fund is funded;
1-22 (5) the legislature's original intent was to establish
1-23 the catastrophe reserve trust fund as a state fund exempt from
1-24 federal and state income taxation;
2-1 (6) the Internal Revenue Service has suggested, based
2-2 on its interpretation of Sections 8(h)(13), 8(i), and 19(b),
2-3 Article 21.49, Insurance Code, that the catastrophe reserve trust
2-4 fund is subject to federal income taxation; and
2-5 (7) Sections 8(h)(13) and 8(i), Article 21.49,
2-6 Insurance Code, should be clarified by removing ambiguities that
2-7 might exist and should otherwise be amended consistent with the
2-8 legislature's original purpose and intent.
2-9 SECTION 1.02. (a) The Texas Windstorm Association exists
2-10 as a state-mandated association to foster the well-being of the
2-11 state's coastal residents and businesses by ensuring the
2-12 availability of windstorm and hail insurance coverage in designated
2-13 areas along the coast of this state.
2-14 (b) Each year, the association is required by Article 21.49,
2-15 Insurance Code, to pay the net equity of the association to the
2-16 catastrophe reserve trust fund or use that net equity to purchase
2-17 reinsurance approved by the commissioner of insurance.
2-18 (c) Consistent with the required use of each year's net
2-19 equity, the legislature declares that it is the purpose of this Act
2-20 to further clarify the permitted uses of the assets of the
2-21 association and the disposition of those assets if the association
2-22 is dissolved.
2-23 ARTICLE 2. CONFORMING AMENDMENTS TO ARTICLE 21.49
2-24 SECTION 2.01. Section 4, Article 21.49, Insurance Code, is
2-25 amended by adding Subsections (c) and (d) to read as follows:
2-26 (c) No part of the net earnings of the association may inure
2-27 to the benefit of any private shareholder or individual. The
3-1 assets of the association may not be used for or diverted to any
3-2 purpose other than to:
3-3 (1) satisfy, in whole or in part, the liability of the
3-4 association regarding a claim made on a policy written by the
3-5 association;
3-6 (2) make investments authorized under applicable law;
3-7 (3) pay reasonable and necessary administrative
3-8 expenses incurred in connection with the establishment and
3-9 operation of the association and the processing of claims against
3-10 the association; or
3-11 (4) make remittances under the laws of this state to
3-12 be used by this state to:
3-13 (A) pay claims on policies written by the
3-14 association;
3-15 (B) purchase reinsurance covering losses under
3-16 those policies; or
3-17 (C) prepare for or mitigate the effects of
3-18 catastrophic natural events.
3-19 (d) On dissolution of the association, all assets of the
3-20 association revert to this state.
3-21 SECTION 2.02. Section 8(h)(13), Article 21.49, Insurance
3-22 Code, is amended to read as follows:
3-23 (13) The association shall either establish a
3-24 reinsurance program approved by the Texas Department of Insurance
3-25 or make payments into the catastrophe reserve trust fund
3-26 established under [enter into a contract as provided in] Subsection
3-27 (i) of this section. With the approval of the Texas Department of
4-1 Insurance, the association may establish a reinsurance program that
4-2 operates in addition to or in concert with the catastrophe reserve
4-3 trust fund established [a contract entered into] under Subsection
4-4 (i) of this section.
4-5 SECTION 2.03. Section 8(i), Article 21.49, Insurance Code,
4-6 is amended to read as follows:
4-7 (i)(1) The commissioner shall adopt rules [association may
4-8 enter into a written agreement with the Texas Department of
4-9 Insurance] under which the association members relinquish their net
4-10 equity [pursuant to the written agreement] on an annual basis as
4-11 provided by those rules by making payments to a fund known as the
4-12 catastrophe reserve trust fund to fund the obligations of that fund
4-13 under Section 19(a) of this Act [be held by the Texas Department of
4-14 Insurance outside the state treasury to protect policyholders of
4-15 the association] and to fund the mitigation and preparedness plan
4-16 established under this subsection to reduce the potential for
4-17 payments by members of the association giving rise to tax credits
4-18 in the event of loss or losses. Until disbursements are made as
4-19 provided by this Act and rules adopted by the commissioner, all
4-20 money, including investment income, deposited in the catastrophe
4-21 reserve trust fund are state funds to be held by the comptroller
4-22 outside the state treasury on behalf of, and with legal title in,
4-23 the department. The fund may be terminated only by law. On
4-24 termination of the fund, all assets of the fund revert to the state
4-25 to be used to provide funding for the annual loss mitigation and
4-26 preparedness plan developed and implemented by the commissioner
4-27 under Subdivision (5) of this subsection.
5-1 (2) The catastrophe reserve trust fund shall be kept
5-2 and maintained by the Texas Department of Insurance pursuant to
5-3 this Act and rules adopted by the commissioner [the written
5-4 agreement between the association, the Texas Department of
5-5 Insurance, and the comptroller]. [Legal title to money and
5-6 investments in the fund is in the Texas Department of Insurance
5-7 unless or until paid out as provided by the written agreement.]
5-8 The comptroller, as custodian, shall administer the funds strictly
5-9 and solely as provided by [the agreement and the state may not take
5-10 any action with respect to the fund other than as specified by]
5-11 this Act and the commissioner's rules [act and the agreement].
5-12 (3) At [On the effective date of an agreement, all
5-13 funds held on behalf of or paid to the association under one or
5-14 more reinsurance plans or programs may be immediately paid to the
5-15 catastrophe reserve trust fund. Thereafter, at] the end of either
5-16 each calendar year or policy year, the association shall [may] pay
5-17 the net equity of a member, including all premium and other revenue
5-18 of the association in excess of incurred losses and operating
5-19 expenses to the catastrophe reserve trust fund or a reinsurance
5-20 program approved by the commissioner [Commissioner of Insurance].
5-21 (4) The commissioner's rules [written agreement] shall
5-22 establish the procedure relating to the disbursement of money
5-23 [funds] from the catastrophe reserve trust fund to policyholders in
5-24 the event of an occurrence or series of occurrences within the
5-25 defined catastrophe area that results in a disbursement under
5-26 Section 19(a) of this Act [insured losses and operating expenses
5-27 of the association greater than $100 million].
6-1 (5) Each state fiscal year, beginning with fiscal year
6-2 2002, the department may use from the investment income of the fund
6-3 an amount equal to not less than $1 million and not more than 10
6-4 percent of the investment income of the prior fiscal year to
6-5 provide funding for an annual mitigation and preparedness plan to
6-6 be developed and implemented each year by the commissioner. From
6-7 that amount and as part of that plan, the department may use in
6-8 each fiscal year $1 million for the windstorm inspection program
6-9 established under Section 6A of this Act. The mitigation and
6-10 preparedness plan shall provide for steps to be taken in the
6-11 seacoast territory by the commissioner or by a local government,
6-12 state agency, educational institution, or nonprofit organization
6-13 designated by the commissioner in the plan, to implement programs
6-14 intended to improve preparedness for windstorm and hail
6-15 catastrophes, reduce potential losses in the event of such a
6-16 catastrophe, provide research into the means to reduce those
6-17 losses, educate or inform the public in determining the
6-18 appropriateness of particular upgrades to structures, or protect
6-19 infrastructure from potential damage from those catastrophes. Money
6-20 in excess of $1 million is not available for use under this
6-21 subsection if the commissioner determines that an expenditure of
6-22 investment income from the fund would jeopardize the actuarial
6-23 soundness of the fund or materially impair the ability of the fund
6-24 to serve the state purposes for which it was established.
6-25 ARTICLE 3. EFFECTIVE DATE; EMERGENCY
6-26 SECTION 3.01. This Act takes effect September 1, 1999.
6-27 SECTION 3.02. The importance of this legislation and the
7-1 crowded condition of the calendars in both houses create an
7-2 emergency and an imperative public necessity that the
7-3 constitutional rule requiring bills to be read on three several
7-4 days in each house be suspended, and this rule is hereby suspended.
_______________________________ _______________________________
President of the Senate Speaker of the House
I certify that H.B. No. 2253 was passed by the House on May
8, 1999, by a non-record vote.
_______________________________
Chief Clerk of the House
I certify that H.B. No. 2253 was passed by the Senate on May
26, 1999, by the following vote: Yeas 30, Nays 0.
_______________________________
Secretary of the Senate
APPROVED: _____________________
Date
_____________________
Governor