1-1 By: Eiland (Senate Sponsor - Jackson) H.B. No. 2253
1-2 (In the Senate - Received from the House May 10, 1999;
1-3 May 10, 1999, read first time and referred to Committee on Economic
1-4 Development; May 14, 1999, reported favorably by the following
1-5 vote: Yeas 7, Nays 0; May 14, 1999, sent to printer.)
1-6 A BILL TO BE ENTITLED
1-7 AN ACT
1-8 relating to the operation of the catastrophe reserve trust fund.
1-9 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-10 ARTICLE 1. DECLARATION OF LEGISLATIVE INTENT
1-11 SECTION 1.01. The legislature finds that:
1-12 (1) the catastrophe reserve trust fund was formed
1-13 under Sections 8(h)(13) and 8(i), Article 21.49, Insurance Code, to
1-14 shelter the state's general revenue from dissipation in the event
1-15 of certain catastrophic losses from hurricane disasters and as part
1-16 of the state's planning and provision for relief from those losses;
1-17 (2) under Section 19(a)(2), Article 21.49, Insurance
1-18 Code, the catastrophe reserve trust fund has responsibility for
1-19 certain catastrophic losses;
1-20 (3) under Section 19(b), Article 21.49, Insurance
1-21 Code, the state returns funds or waives collection of funds from
1-22 insurers by authorizing the insurers to credit certain catastrophic
1-23 losses against premium taxes paid into the general revenue fund;
1-24 (4) the state's interest in protecting the general
1-25 revenue of the state and in planning and providing for catastrophic
1-26 losses is benefited to the extent the catastrophe reserve trust
1-27 fund is funded;
1-28 (5) the legislature's original intent was to establish
1-29 the catastrophe reserve trust fund as a state fund exempt from
1-30 federal and state income taxation;
1-31 (6) the Internal Revenue Service has suggested, based
1-32 on its interpretation of Sections 8(h)(13), 8(i), and 19(b),
1-33 Article 21.49, Insurance Code, that the catastrophe reserve trust
1-34 fund is subject to federal income taxation; and
1-35 (7) Sections 8(h)(13) and 8(i), Article 21.49,
1-36 Insurance Code, should be clarified by removing ambiguities that
1-37 might exist and should otherwise be amended consistent with the
1-38 legislature's original purpose and intent.
1-39 SECTION 1.02. (a) The Texas Windstorm Association exists
1-40 as a state-mandated association to foster the well-being of the
1-41 state's coastal residents and businesses by ensuring the
1-42 availability of windstorm and hail insurance coverage in designated
1-43 areas along the coast of this state.
1-44 (b) Each year, the association is required by Article 21.49,
1-45 Insurance Code, to pay the net equity of the association to the
1-46 catastrophe reserve trust fund or use that net equity to purchase
1-47 reinsurance approved by the commissioner of insurance.
1-48 (c) Consistent with the required use of each year's net
1-49 equity, the legislature declares that it is the purpose of this Act
1-50 to further clarify the permitted uses of the assets of the
1-51 association and the disposition of those assets if the association
1-52 is dissolved.
1-53 ARTICLE 2. CONFORMING AMENDMENTS TO ARTICLE 21.49
1-54 SECTION 2.01. Section 4, Article 21.49, Insurance Code, is
1-55 amended by adding Subsections (c) and (d) to read as follows:
1-56 (c) No part of the net earnings of the association may inure
1-57 to the benefit of any private shareholder or individual. The
1-58 assets of the association may not be used for or diverted to any
1-59 purpose other than to:
1-60 (1) satisfy, in whole or in part, the liability of the
1-61 association regarding a claim made on a policy written by the
1-62 association;
1-63 (2) make investments authorized under applicable law;
1-64 (3) pay reasonable and necessary administrative
2-1 expenses incurred in connection with the establishment and
2-2 operation of the association and the processing of claims against
2-3 the association; or
2-4 (4) make remittances under the laws of this state to
2-5 be used by this state to:
2-6 (A) pay claims on policies written by the
2-7 association;
2-8 (B) purchase reinsurance covering losses under
2-9 those policies; or
2-10 (C) prepare for or mitigate the effects of
2-11 catastrophic natural events.
2-12 (d) On dissolution of the association, all assets of the
2-13 association revert to this state.
2-14 SECTION 2.02. Section 8(h)(13), Article 21.49, Insurance
2-15 Code, is amended to read as follows:
2-16 (13) The association shall either establish a
2-17 reinsurance program approved by the Texas Department of Insurance
2-18 or make payments into the catastrophe reserve trust fund
2-19 established under [enter into a contract as provided in] Subsection
2-20 (i) of this section. With the approval of the Texas Department of
2-21 Insurance, the association may establish a reinsurance program that
2-22 operates in addition to or in concert with the catastrophe reserve
2-23 trust fund established [a contract entered into] under Subsection
2-24 (i) of this section.
2-25 SECTION 2.03. Section 8(i), Article 21.49, Insurance Code,
2-26 is amended to read as follows:
2-27 (i)(1) The commissioner shall adopt rules [association may
2-28 enter into a written agreement with the Texas Department of
2-29 Insurance] under which the association members relinquish their net
2-30 equity [pursuant to the written agreement] on an annual basis as
2-31 provided by those rules by making payments to a fund known as the
2-32 catastrophe reserve trust fund to fund the obligations of that fund
2-33 under Section 19(a) of this Act [be held by the Texas Department of
2-34 Insurance outside the state treasury to protect policyholders of
2-35 the association] and to fund the mitigation and preparedness plan
2-36 established under this subsection to reduce the potential for
2-37 payments by members of the association giving rise to tax credits
2-38 in the event of loss or losses. Until disbursements are made as
2-39 provided by this Act and rules adopted by the commissioner, all
2-40 money, including investment income, deposited in the catastrophe
2-41 reserve trust fund are state funds to be held by the comptroller
2-42 outside the state treasury on behalf of, and with legal title in,
2-43 the department. The fund may be terminated only by law. On
2-44 termination of the fund, all assets of the fund revert to the state
2-45 to be used to provide funding for the annual loss mitigation and
2-46 preparedness plan developed and implemented by the commissioner
2-47 under Subdivision (5) of this subsection.
2-48 (2) The catastrophe reserve trust fund shall be kept
2-49 and maintained by the Texas Department of Insurance pursuant to
2-50 this Act and rules adopted by the commissioner [the written
2-51 agreement between the association, the Texas Department of
2-52 Insurance, and the comptroller]. [Legal title to money and
2-53 investments in the fund is in the Texas Department of Insurance
2-54 unless or until paid out as provided by the written agreement.]
2-55 The comptroller, as custodian, shall administer the funds strictly
2-56 and solely as provided by [the agreement and the state may not take
2-57 any action with respect to the fund other than as specified by]
2-58 this Act and the commissioner's rules [act and the agreement].
2-59 (3) At [On the effective date of an agreement, all
2-60 funds held on behalf of or paid to the association under one or
2-61 more reinsurance plans or programs may be immediately paid to the
2-62 catastrophe reserve trust fund. Thereafter, at] the end of either
2-63 each calendar year or policy year, the association shall [may] pay
2-64 the net equity of a member, including all premium and other revenue
2-65 of the association in excess of incurred losses and operating
2-66 expenses to the catastrophe reserve trust fund or a reinsurance
2-67 program approved by the commissioner [Commissioner of Insurance].
2-68 (4) The commissioner's rules [written agreement] shall
2-69 establish the procedure relating to the disbursement of money
3-1 [funds] from the catastrophe reserve trust fund to policyholders in
3-2 the event of an occurrence or series of occurrences within the
3-3 defined catastrophe area that results in a disbursement under
3-4 Section 19(a) of this Act [insured losses and operating expenses
3-5 of the association greater than $100 million].
3-6 (5) Each state fiscal year, beginning with fiscal year
3-7 2002, the department may use from the investment income of the fund
3-8 an amount equal to not less than $1 million and not more than 10
3-9 percent of the investment income of the prior fiscal year to
3-10 provide funding for an annual mitigation and preparedness plan to
3-11 be developed and implemented each year by the commissioner. From
3-12 that amount and as part of that plan, the department may use in
3-13 each fiscal year $1 million for the windstorm inspection program
3-14 established under Section 6A of this Act. The mitigation and
3-15 preparedness plan shall provide for steps to be taken in the
3-16 seacoast territory by the commissioner or by a local government,
3-17 state agency, educational institution, or nonprofit organization
3-18 designated by the commissioner in the plan, to implement programs
3-19 intended to improve preparedness for windstorm and hail
3-20 catastrophes, reduce potential losses in the event of such a
3-21 catastrophe, provide research into the means to reduce those
3-22 losses, educate or inform the public in determining the
3-23 appropriateness of particular upgrades to structures, or protect
3-24 infrastructure from potential damage from those catastrophes. Money
3-25 in excess of $1 million is not available for use under this
3-26 subsection if the commissioner determines that an expenditure of
3-27 investment income from the fund would jeopardize the actuarial
3-28 soundness of the fund or materially impair the ability of the fund
3-29 to serve the state purposes for which it was established.
3-30 ARTICLE 3. EFFECTIVE DATE; EMERGENCY
3-31 SECTION 3.01. This Act takes effect September 1, 1999.
3-32 SECTION 3.02. The importance of this legislation and the
3-33 crowded condition of the calendars in both houses create an
3-34 emergency and an imperative public necessity that the
3-35 constitutional rule requiring bills to be read on three several
3-36 days in each house be suspended, and this rule is hereby suspended.
3-37 * * * * *