By: Ellis S.B. No. 1605
(In the Senate - Filed March 14, 2003; March 20, 2003, read
first time and referred to Committee on Business and Commerce;
April 16, 2003, reported adversely, with favorable Committee
Substitute by the following vote: Yeas 9, Nays 0; April 16, 2003,
sent to printer.)
COMMITTEE SUBSTITUTE FOR S.B. No. 1605 By: Averitt
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.
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