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79S20012 PB-F
By: Eiland H.B. No. 36
A BILL TO BE ENTITLED
AN ACT
relating to the operation and funding of the Texas Windstorm
Insurance Association, including funding of coverage for certain
catastrophic events through the establishment of a revenue bond
program.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Sections 5(g), (h), (i), (j), and (l), Article
21.49, Insurance Code, are amended to read as follows:
(g) The board of directors of the Association is responsible
and accountable to the commissioner [Board]. The board of
directors is composed of nine members appointed by the commissioner
as follows:
(1) five representatives of different insurers who are
members of the Association [who shall be elected by members as
provided in the plan of operation];
(2) two representatives of the general public[,
nominated by the office of public insurance counsel, who, as of the
date of the appointment, reside in a catastrophe area and who are
policyholders, as of the date of the appointment, of the
Association]; and
(3) two general lines property and casualty insurance
[local recording] agents licensed under this Code with demonstrated
experience in the Association, and whose principal offices, as of
the date of the appointment, are located in a catastrophe area.
(h) Members of the board of directors of the Association
serve three-year staggered terms, with the terms of three members
expiring on the third Tuesday of March of each year. A member of the
board of directors serves at the pleasure of the commissioner and
may be removed by the commissioner before the expiration of the
member's term. [A person may hold a seat on the board of directors
for not more than three consecutive full terms, not to exceed nine
years.]
(i) The persons appointed as provided by Subsection (g)
[Subsections (g)(2) and (g)(3)] of this section must have
demonstrated business, insurance, or financial experience to be
eligible for appointment [be from different counties].
(j) The board of directors of the Association shall select
one member of the board of directors to serve as presiding officer
of the board of directors. The presiding officer serves at the
pleasure of the board of directors and is entitled to vote on all
matters before the board of directors. The board of directors [of
the Association] shall elect other officers of the board of
directors [an executive committee consisting of a chairman,
vice-chairman, and secretary-treasurer] from its membership. [At
least one of those officers must be a member appointed under
Subsection (g)(2) or Subsection (g)(3) of this section.]
(l) If an occurrence or series of occurrences within the
defined catastrophe area results in insured losses that result in
payment of losses under Section 19 of this article [tax credits
under Section 19(4) of this article in a single calendar year], the
Association shall immediately notify the commissioner [Board] of
that fact. The commissioner [Board] on receiving notice shall
immediately notify the Governor and appropriate committees of each
house of the Legislature of the amount of insured losses eligible
for payment under Section 19 [tax credits under Section 19(4)] of
this article.
SECTION 2. Section 8(i)(1), Article 21.49, Insurance Code,
is amended to read as follows:
(1) The commissioner shall adopt rules under which the
association relinquishes its [members relinquish their] net equity
on an annual basis as provided by those rules by making payments to
a fund known as the catastrophe reserve trust fund to fund the
obligations of that fund under Section 19 [19(a)] of this Act and to
fund the mitigation and preparedness plan established under this
subsection [to reduce the potential for payments by members of the
association giving rise to tax credits in the event of loss or
losses]. Until disbursements are made as provided by this Act and
rules adopted by the commissioner, all money, including investment
income, deposited in the catastrophe reserve trust fund are state
funds to be held by the comptroller outside the state treasury on
behalf of, and with legal title in, the department. The fund may be
terminated only by law. On termination of the fund, all assets of
the fund revert to the state to be used to provide funding for the
annual loss mitigation and preparedness plan developed and
implemented by the commissioner under Subdivision (5) of this
subsection.
SECTION 3. Section 8(i)(3), Article 21.49, Insurance Code,
is amended to read as follows:
(3) At the end of either each calendar year or policy
year, the association shall pay the net equity of a member,
including all premium and other revenue of the association in
excess of incurred losses and operating expenses to the catastrophe
reserve trust fund [or a reinsurance program approved by the
commissioner].
SECTION 4. Section 19, Article 21.49, Insurance Code, is
amended to read as follows:
Sec. 19. PAYMENT OF LOSSES; PREMIUM TAX CREDIT. (a) If, in
any calendar year, an occurrence or series of occurrences within
the defined catastrophe area results in insured losses and
operating expenses of the association in excess of premium and
other revenue of the association, any excess losses and operating
expenses shall be paid as provided by this section.
(b) [follows:
[(1)] $100 million, per occurrence, shall be assessed
to the members of the association with the proportion of the losses
[loss] allocable to each insurer determined in the same manner as
its participation in the association has been determined for the
year under Section 5(b) [5(c)] of this Act.[;]
(c) Any [(2) any] losses in excess of the amounts
authorized under Subsection (b) of this section [$100 million]
shall be paid from the catastrophe reserve trust fund established
under Section 8(i) of this Act, not to exceed an amount equal to 50
percent of the balance of that fund as of the date of the
occurrence, reduced by anticipated payments from prior
occurrences.
(d) Any losses and operating expenses that exceed the
amounts available under Subsections (b) and (c) of this section,
but not to exceed an additional $200 million per calendar year,
shall be funded through additional assessments to the members of
the association, based on the proportion of the member's net direct
premiums for fire, allied lines, farm owners multiple peril,
homeowners multiple peril, and commercial multiple peril
(nonliability portion) written during the calendar year
immediately preceding the year in which the assessment is made to
the total of those premiums reported by all members of the
association. An insurer that has been assessed and has paid the
assessments under this subsection is eligible to charge its
policyholders a premium surcharge for reimbursement of the
assessment. A premium surcharge may not be applied to a workers'
compensation insurance policy, an accident and health insurance
policy, or a medical malpractice insurance policy. Any premium
surcharge, which must be a separate charge in addition to premiums,
collected by the members of the association from their
policyholders shall be computed on the basis of a uniform
percentage of the premium on those policies, not to exceed 20
percent per year of the amount of the insurer's assessment, such
that over the period of five years the aggregate of all such
surcharges by the insurer shall be equal to the amount of the
assessment of the insurer. If an insurer collects surcharges in an
amount that is more than the insurer has paid in assessments, the
insurer shall deposit in the catastrophe reserve trust fund any
amount collected in excess of the assessment paid. The amount of
any assessment paid but not yet recovered under this subsection may
be carried by the insurer as an admitted asset of the insurer for
all purposes, including exhibition in annual statements under
Section 862.001 of this code, but not beyond the five-year recovery
period specified by this subsection.
(e) If the amounts available under Subsections (b)-(d) of
this section are insufficient to pay the excess losses, the excess
losses shall be paid in accordance with a plan developed by the
association and approved by the commissioner. The plan shall
provide for payment from either or a combination of the following
sources:
(1) any reinsurance proceeds recoverable by the
association; and
(2) any revenue bond proceeds received by the
association in accordance with Section 20 of this Act.
(f) Any premium surcharges established under this section
are not subject to premium tax or commissions.
(g) Any [and any reinsurance program established by the
association;
[(3) for losses in excess of those paid under
Subdivisions (1) and (2) of this subsection, an additional $200
million shall be assessed to the members of the association with the
proportion of the loss allocable to each insurer determined in the
same manner as its participation in the association has been
determined for the year under Section 5(c) of this Act;
[(4) any] losses and operating expenses in excess of
those paid under Subsections (b)-(e) [Subdivisions (1), (2), and
(3)] of this section [subsection] shall be assessed against members
of the association, with the proportion of the total loss allocable
to each insurer determined in the same manner as its participation
in the association has been determined for the year under Section
5(b) [5(c)] of this Act.
(h) [(b)] An insurer may credit any amount paid in
accordance with Subsection (g) [(a)(4)] of this section in a
calendar year against its premium tax under Section 221.002
[Article 4.10] of this code. The tax credit herein authorized shall
be allowed at a rate not to exceed 20 percent per year for five or
more successive years following the year of payment of the
assessment [claims]. The balance of payments paid by the insurer
and not claimed as such tax credit may be reflected in the books and
records of the insurer as an admitted asset of the insurer for all
purposes, including exhibition in annual statements pursuant to
Section 862.001 [Article 6.12] of this code.
(i) The commissioner may adopt rules as necessary to
implement this section.
SECTION 5. Article 21.49, Insurance Code, is amended by
adding Section 20 to read as follows:
Sec. 20. REVENUE BOND PROGRAM. (a) In this section:
(1) "Board" means the board of directors of the Texas
Public Finance Authority.
(2) "Bond" means any debt instrument or public
security issued by the Texas Public Finance Authority.
(3) "Public security resolution" means the resolution
or order authorizing public securities to be issued under this
section.
(b) The legislature finds that the issuance of public
securities to provide a method to raise funds to provide windstorm,
hail, and fire insurance through the Texas Windstorm Insurance
Association in certain designated portions of the state is for the
benefit of the public and in furtherance of a public purpose.
(c) Before any occurrence in a calendar year within the
defined catastrophe area, at the request of the association and
with the approval of the commissioner, the Texas Public Finance
Authority shall issue, on behalf of the association, public
securities in accordance with Section 19(e) of this article.
(d) To the extent consistent with this section, Chapter
1232, Government Code, applies to public securities issued under
this section. In the event of a conflict, this section controls.
The following laws also apply to public securities issued under
this section to the extent consistent with this section:
(1) Chapters 1201, 1202, 1204, 1205, 1231, and 1371,
Government Code; and
(2) Subchapter A, Chapter 1206, Government Code.
(e) Public securities issued under this section:
(1) may be issued at public or private sale; and
(2) must:
(A) be issued in the name of the association; and
(B) mature not more than 10 years after the date
issued.
(f) In a public security resolution, the board may:
(1) make additional covenants with respect to the
public securities and the designated income and receipts of the
association pledged to the payment of the public securities; and
(2) provide for the flow of funds and the
establishment, maintenance, and investment of funds and accounts
with respect to the public securities.
(g) Funds generated through the issuance of public
securities shall be held outside the state treasury in the custody
of the association.
(h) A public security resolution may establish special
accounts, including an interest and sinking fund account, reserve
account, and other accounts. The association shall administer the
accounts in accordance with this section.
(i) Public securities are payable only from amounts that the
association is authorized to levy, charge, and collect. Public
securities are obligations solely of the association and do not
create a pledging, giving, or lending of the faith, credit, or
taxing authority of this state. Each public security must include a
statement that this 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. Each
public security issued under this section 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.
(j) The public securities and all debt service on the public
securities issued in accordance with Subsection (c) of this section
shall be paid from any amounts that the association is authorized to
levy, charge, and collect.
(k) The association shall deposit amounts necessary to pay
the bond obligations and bond administrative expenses in a fund to
be held outside the state treasury in the custody of the
comptroller. Money deposited in the fund may be invested as
permitted by general law. Money in the fund required to be used to
pay bond obligations and bond administrative expenses shall be
transferred to the Texas Public Finance Authority or used by the
comptroller in the manner and at the time specified in the
resolution adopted in connection with the bond issue to ensure
timely payment of obligations and expenses, or as otherwise
provided by the bond documents. For bonds issued by the Texas
Public Finance Authority for the association, the association shall
provide for the payment of the bond obligations and the bond
administrative expenses by irrevocably pledging amounts that the
association is authorized to levy, charge, and collect and revenues
on amounts on deposit in the fund, together with any bond reserve
fund, as provided in the proceedings authorizing the bonds and
related credit agreements.
(l) The public securities issued under this section, any
interest from those public securities, and all assets pledged to
secure the payment of the public securities are free from taxation
by this state or a political subdivision of this state.
(m) The public securities issued under this section
constitute authorized investments under Articles 2.10 and 3.33 and
Subpart A, Part I, Article 3.39, of this code.
(n) The state pledges to and agrees with the owners of any
public securities issued in accordance with this section 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.
(o) A party at interest may use mandamus and all other legal
and equitable remedies to require the association and any other
party to carry out agreements and to perform functions and duties
established under this section, the Texas Constitution, or a public
security resolution.
SECTION 6. Sections 8(h)(12) and (17), Article 21.49,
Insurance Code, are repealed.
SECTION 7. (a) The board of directors of the Texas
Windstorm Insurance Association established under Section 5,
Article 21.49, Insurance Code, as that section existed before
amendment by this Act, is abolished December 1, 2005.
(b) Notwithstanding Section 5A, Article 21.49, Insurance
Code, and not later than December 1, 2005, the commissioner of
insurance shall appoint the members of the board of directors of the
Texas Windstorm Insurance Association under Section 5, Article
21.49, Insurance Code, as amended by this Act, without the
necessity of a hearing.
(c) The term of a person who is serving as a member of the
board of directors of the Texas Windstorm Insurance Association
immediately before the abolition of that board under Subsection (a)
of this section expires December 1, 2005. Such a person is eligible
for appointment by the commissioner of insurance to the new board of
directors of the Texas Windstorm Insurance Association under
Section 5, Article 21.49, Insurance Code, as amended by this Act.
SECTION 8. Except as otherwise provided by this Act, 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 December
1, 2005.