By:  Ellis                                                        S.B. No. 1605

A BILL TO BE ENTITLED
AN ACT
relating to a revenue bond program for, and to the operation of, the Fair Plan Association. BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS: SECTION 1. Subchapter E, Chapter 21, Insurance Code, is amended by adding Article 21.49A-1 to read as follows: Art. 21.49A-1. REVENUE BOND PROGRAM FOR FAIR PLAN ASSOCIATION Sec. 1. PURPOSE. The legislature finds that the issuance of public securities to provide a method to raise funds to provide residential property insurance through the FAIR Plan Association in this state is for the benefit of the public and in furtherance of a public purpose. Sec. 2. DEFINITIONS. In this article: (1) "Association" means the FAIR Plan Association established under Article 21.49A of this code. (2) "Public security resolution" means the resolution or order authorizing public securities to be issued under this article. (3) "Bond" means any debt instrument or public security issued by the Texas Public Finance Authority. (4) "Board" means the board of directors of the Texas Public Finance Authority. (5) "Insurer" means any insurer required to participate in the association under Section 5, Article 21.49A, of this code, including a Lloyd's plan or a reciprocal or interinsurance exchange. Sec. 3. PUBLIC SECURITIES AUTHORIZED; APPLICATION OF TEXAS PUBLIC FINANCE AUTHORITY ACT. (a) At the request of the association, the Texas Public Finance Authority shall issue public securities to: (1) fund the association, including: (A) to establish and maintain reserves to pay claims; (B) to pay operating expenses; and (C) to purchase reinsurance; (2) pay costs related to issuance of the public securities; and (3) pay other costs related to the public securities as may be determined by the board. (b) To the extent not inconsistent with this article, Chapter 1232, Government Code, applies to public securities issued under this article. In the event of a conflict, this article controls. Sec. 4. APPLICABILITY OF OTHER STATUTES. The following laws apply to public securities issued under this article to the extent consistent with this article: (1) Chapters 1201, 1202, 1204, 1205, 1231, and 1371, Government Code; and (2) Subchapter A, Chapter 1206, Government Code. Sec. 5. LIMITS. The Texas Public Finance Authority may issue, on behalf of the association, public securities in a total amount not to exceed $75 million. Sec. 6. CONDITIONS. (a) Public securities issued under this article may be issued at public or private sale. (b) Public securities may mature not more than 10 years after the date issued. (c) Public securities must be issued in the name of the association. Sec. 7. ADDITIONAL COVENANTS. In a public security resolution, the board may make additional covenants with respect to the public securities and the designated income and receipts of the association pledged to their payment, and may provide for the flow of funds and the establishment, maintenance, and investment of funds and accounts with respect to the public securities. Sec. 8. SPECIAL ACCOUNTS. (a) A public security resolution may establish special accounts, including an interest and sinking fund account, reserve account, and other accounts. (b) The association shall administer the accounts in accordance with Article 21.49A of this code. Sec. 9. SECURITY. (a) Public securities are payable only from the service fee established under Section 10 of this article or other amounts that the association is authorized to levy, charge, and collect. (b) Public securities are obligations solely of the association. Public securities do not create a pledging, giving, or lending of the faith, credit, or taxing authority of this state. (c) Each public security must include a statement that the state is not obligated to pay any amount on the public security and that the faith, credit, and taxing authority of this state are not pledged, given, or lent to those payments. (d) Each public security issued under this article must state on its face that the public security is payable solely from the revenues pledged for that purpose and that the public security does not and may not constitute a legal or moral obligation of the state. Sec. 10. SERVICE FEE. (a) A service fee may be assessed against: (1) each insurer; and (2) the association. (b) The service fee shall be set by the commissioner in an amount sufficient to pay all debt service on the public securities. The service fee shall be paid by each insurer and the association as required by the commissioner by rule. (c) The comptroller shall collect the service fee and the department shall reimburse the comptroller in the manner described by Article 4.19 of this code. (d) The commissioner, in consultation with the comptroller, may coordinate payment and collection of the service fee with other payments made by insurers and collected by the comptroller. (e) As a condition of engaging in the business of insurance in this state, an insurer agrees that if the company leaves the property insurance market in this state the insurer remains obligated to pay, until the public securities are retired, the insurer's share of the service fee assessed under this section in an amount proportionate to that insurer's share of the property insurance market, including residential property insurance, in this state as of the last complete reporting period before the date on which the insurer ceases to engage in that insurance business in this state. The proportion assessed against the insurer shall be based on the insurer's gross premiums for property insurance, including residential property insurance, for the insurer's last reporting period. Sec. 11. TAX EXEMPT. The public securities issued under this article, any interest from those public securities, and all assets pledged to secure the payment of the public securities are free from taxation by the state or a political subdivision of this state. Sec. 12. AUTHORIZED INVESTMENTS. The public securities issued under this article constitute authorized investments under Articles 2.10 and 3.33 and Subpart A, Part I, Article 3.39, of this code. Sec. 13. STATE PLEDGE. The state pledges to and agrees with the owners of any public securities issued in accordance with this article that the state will not limit or alter the rights vested in the association to fulfill the terms of any agreements made with the owners of the public securities or in any way impair the rights and remedies of those owners until the public securities, bond premium, if any, or interest, and all costs and expenses in connection with any action or proceeding by or on behalf of those owners, are fully met and discharged. The association may include this pledge and agreement of the state in any agreement with the owners of the public securities. Sec. 14. ENFORCEMENT BY MANDAMUS. A writ of mandamus and all other legal and equitable remedies are available to any party at interest to require the association and any other party to carry out agreements and to perform functions and duties under this article, the Texas Constitution, or a public security resolution. SECTION 2. Subsection (e), Section 3, Article 21.49A, Insurance Code, is amended to read as follows: (e) The plan of operation shall provide: (1) for establishment of a FAIR Plan Association for the issuing of residential property insurance pursuant to this Act and the distribution of the losses and the expenses in the writing of such insurance in this state; (2) that all insurers licensed to write property insurance and writing residential property insurance shall participate in the writings, expenses, [profits,] and losses of the association, in the proportion that the net direct premiums, of each participating insurer, written in this state during the preceding calendar year, bear to the aggregate net direct premium written in this state by all participating insurers; such information shall be determined in accordance with the residential property statistical plan adopted by the commissioner; (3) that a participating insurer is entitled to receive credit for similar insurance voluntarily written in a designated underserved area and its participation in the writings in the association shall be reduced in accordance with the provisions of the plan of operation; (4) for the immediate binding of eligible risks; for the use of premium installment payment plans, adequate marketing, and service facilities; and for the establishment of reasonable service standards; (5) procedures for efficient, economical, fair, and nondiscriminatory administration of the FAIR Plan Association; (6) procedures for determining the net level of participation required for each insurer in the FAIR Plan Association; (7) for the use of deductibles and other underwriting devices and for assessment of all members in amounts sufficient to operate the association; and establish maximum limits of liability to be placed through the program; and commissions to be paid to the licensed agents submitting applications; (8) that the association issue policies in its own name; (9) reasonable underwriting standards for determining insurability of the risk; (10) procedures for the assumption and ceding of reinsurance by the association; and (11) any other procedures or operational matters deemed necessary by the governing committee or the commissioner. SECTION 3. Subsection (d), Section 5, Article 21.49A, Insurance Code, is amended to read as follows: (d) Each insurer must participate in the writings, expenses, [profits,] and losses of the association in the proportion that its net direct premiums written bear to the aggregate net direct premiums written by all insurers. SECTION 4. Section 11, Article 21.49A, Insurance Code, is amended to read as follows: Sec. 11. ASSESSMENTS AND PREMIUM SURCHARGES. Should a deficit occur in the association, the association, at the direction of the commissioner, shall either request the issuance of public securities as authorized by Article 21.49A-1 of this code or assess participating insurers in accordance with this section. Each [and each] insurer may charge a premium surcharge on every property insurance policy issued by it insuring property in this state, the effective date of which policy is within the three-year period commencing 90 days after the date of assessment by the association under this section. The amount of the surcharge shall be calculated on the basis of a uniform percentage of the premium on such policies equal to one-third of the ratio of the amount of an insurer's assessment to the amount of its direct earned premiums as reported in its financial statement to the department for the calendar year immediately preceding the year in which the assessment is made, such that over the period of three years the aggregate of all such surcharges by an insurer shall be equal to the amount of the assessment of such insurer. The minimum surcharges on a policy may be $1; all surcharges may be rounded to the nearest dollar. SECTION 5. Article 21.49A, Insurance Code, is amended by adding Section 15 to read as follows: Sec. 15. RETENTION OF PROFITS. The association shall retain any profits of the association to be used for the purposes of the association. The profits of the association may not be distributed to insurers. SECTION 6. The changes in law made by this Act to Article 21.49A, Insurance Code, apply only to the profits earned by the FAIR Plan Association in accordance with that article on or after the effective date of this Act. SECTION 7. This Act takes effect immediately if it receives a vote of two-thirds of all the members elected to each house, as provided by Section 39, Article III, Texas Constitution. If this Act does not receive the vote necessary for immediate effect, this Act takes effect September 1, 2003.