By: Eiland H.B. No. 143
A BILL TO BE ENTITLED
AN ACT
relating to the operation of the Texas Windstorm Insurance
Association.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Section 19, Article 21.49, Insurance Code, is
amended to read as follows:
Sec. 19. (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 shall be paid as follows:
(1) for each occurrence, up to 1.5% of the members'
written premiums as reported in the annual statement filed with the
department for the calendar year immediately preceding the year in
which the assessment is made for the following lines: fire, allied,
homeowners, farm owners, and commercial multi-peril [$100 million]
shall be assessed to the members of the association and the Texas
FAIR Plan 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(b)
[5(c)] of this Act;
(2) any losses in excess of the amounts assessed
pursuant to subdivision (1) [$100 million] shall be paid from
proceeds from revenue bonds issued by the association prior to any
catastrophic event that results in insured losses in accordance
with Section 19(a) in accordance with Section 20 of this Article.
Such revenue bonds shall be issued in principal amounts not to
exceed $300 million per calendar year. [the catastrophe reserve
trust fund established under Section 8(i) of this Act and any
reinsurance program established by the association;]
(3) for each occurrence, any losses in excess of the
amounts determined in [those paid under] Subdivisions (1) and (2)
of this subsection shall be paid from[, 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;] the
catastrophe reserve trust fund established under Section 8(i) of
this Act. Provided, however, not more than fifty percent of the
amount in the catastrophe reserve trust fund as of the date of the
occurrence, reduced by anticipated payments from prior
occurrences, may be so used, unless the Commissioner determines a
greater percentage should be applied after not less than ten (10)
days notice and hearing if a hearing is requested by any person
within the ten (10) notice period.
(4) any losses in excess of the amounts determined in
[those paid under] Subdivisions (1), (2), and (3), of this
subsection shall be paid from proceeds from revenue bonds issued by
the association subsequent to any catastrophic event that results
in insured losses in accordance with Section 19(a) in accordance
with Section 20 of this Article. Such revenue bonds shall be issued
in principal amounts not to exceed $200 million per calendar year.
[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 5c of this Act.]
(5) any losses in excess of the amounts determined in
Subdivisions (1), (2), (3), and (4) of this subsection shall be paid
from any reinsurance proceeds recoverable by the association.
(6) any losses in excess of the amounts determined in
Subdivisions (1), (2), (3), (4) and (5) of this 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) of this Act.
(b) An insurer may credit any amount paid in accordance with
Subsection (a)(6) [(a)(4)] of this section in a calendar year
against its premium tax under 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 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 §862.001 [Article 6.12] of this code.
(c) notwithstanding any other provision of this article,
the Commissioner, after not less than ten (10) days notice and
hearing if a hearing is requested by any person within the ten (10)
day notice period, may authorize the association to issue bonds in
excess of the amounts designated in this Section 19 to provide for
the payment of insured losses and operating expenses not otherwise
funded.
(d) In addition to the funding described in Subsections (a)
(b), and (c) of this section, the Association may also borrow from,
or enter into other financing arrangements with, any market sources
at prevailing interest rates.
(e) The Commissioner may adopt rules necessary to implement
this section.
SECTION 2. Article 21.49, Insurance Code, is amended by
adding Section 20 to read as follows:
Sec. 20. Revenue Bond Program.
(a) Purpose. The legislature finds that providing the
authority to issue public securities to provide a method to raise
funds to provide windstorm, hail, and fire insurance through the
Association in certain designated portions of the state is for the
benefit of the public and in furtherance of a public purpose.
(b) Definitions. When used in this section:
(1) "Public security resolution" means the resolution
or order authorizing public securities to be issued under this
section.
(2) "Bond" means any debt instrument or public
security issued by the Texas Public Finance Authority.
(3) "Board" means the board of directors of the Texas
Public Finance Authority.
(4) "Insurer" means all property and casualty insurers
authorized to transact property and casualty insurance in this
State and specifically includes and makes this section applicable
to county mutual companies, Lloyds and reciprocal or interinsurance
exchanges.
(c) Public securities authorized; application of Texas
public finance authority act.
(1) At the request of the Association and upon
approval by the Commissioner, the Texas Public Finance Authority
shall issue public securities to:
(A) fund the Association, including:
(i) to establish and maintain reserves to
pay claims;
(ii) to pay incurred claims and operating
expenses; and
(iii) to purchase reinsurance;
(B) pay costs related to issuance of the public
securities; and
(C) pay other costs related to the public
securities as may be determined by the board.
(2) To the extent not inconsistent with this section,
Chapter 1232, Government Code, applies to public securities issued
under this section. In the event of a conflict, this section
controls.
(d) Applicability of other statutes. The following laws
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) Limits. The Texas Public Finance Authority may issue,
on behalf of the Association, public securities in an amount
sufficient to fund the insured losses and operating expenses of the
Association as determined by the Association and approved by the
Commissioner after not less than ten (10) days notice and hearing if
a hearing is requested by any person within the ten (10) day notice
period.
(f) Conditions. (1) Public securities issued under this
section may be issued at public or private sale.
(2) Public securities may mature not more than 10
years after the date issued.
(3) Public securities must be issued in the name of the
Association.
(g) 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.
(h) Special accounts. (1) A public security resolution may
establish special accounts, including an interest and sinking fund
account, reserve account, and other accounts.
(2) The Association shall administer the accounts in
accordance with this section.
(i) Security. (1) Public securities are payable only from
the service fee established under subsection (j) of this section or
other amounts that the Association is authorized to levy, charge,
and collect.
(2) 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.
(3) 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.
(4) 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) All interest on public securities issued pursuant to
Section 19(a)(2) shall be paid by the Association with the existinq
premiums of the Association. Provided however, if the Association
is unable to pay the interest on such public securities with
existing premiums, the interest on such public securities shall be
paid in accordance with subsection (k) of this Section.
(k) Service fee. (1) A fee to service public securities
issued by the association may be collected from policyholders of:
(A) insurers,
(B) the Association, and
(C) the FAIR Plan Association.
(2) Not less frequently than annually, the service fee
to service public securities issued pursuant to Section 19(a)(2)
and (4) shall be determined by the Association and approved by the
Commissioner, after not less than ten (10) days notice and hearing
if a hearing is requested by any person within the ten (10) day
notice period, in an amount sufficient to pay all debt service and
all related expenses on the public securities. The service fee
shall be collected by each insurer, the Association, and the FAIR
Plan Association from their policyholders who reside or have
operations in or whose insured property is located in the
catastrophe area in the form of a premium surcharge in accordance
with this subsection and remitted to the Association as required by
the Commissioner by rule. The premium surcharge shall apply to all
policies of insurance for all property and casualty lines,
excluding workers' compensation, accident and health, and medical
malpractice. The service fees collected in the form of a policy
surcharge under this section shall be separate charges in addition
to premiums collected, are not subject to the premium tax or
commissions, and failure to pay such surcharge by a policyholder is
equivalent to failure to pay premium for purposes of policy
cancellation.
(3) Not less frequently than annually, the service fee
to service public securities issued pursuant to Section 19(c) shall
be determined by the Association and approved by the Commissioner,
after not less than ten (10) days notice and hearing if a hearing is
requested by any person within the ten (10) day notice period, in an
amount sufficient to pay all debt service and all related expenses
on the public securities. The service fee shall be collected by
each insurer, the Association, and the FAIR Plan Association from
their policyholders who reside or have operations in or whose
insured property is located in this state in the form of a premium
surcharge in accordance with this subsection and remitted to the
Association as required by the Commissioner by rule. The premium
surcharge shall apply to all policies of insurance for all property
and casualty lines, excluding workers' compensation, accident and
health, and medical malpractice. The service fees collected in the
form of a policy surcharge under this section shall be separate
charges in addition to premiums collected, are not subject to the
premium tax or commissions, and failure to pay such surcharge by a
policyholder is equivalent to failure to pay premium for purposes
of policy cancellation.
(l) Tax exempt. The public securities issued under this
section, any interest from those public securities, and all assets
pledqed to secure the payment of the public securities are free from
taxation by the state or a political subdivision of this state.
(m) Authorized investments. 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) State pledge. 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) 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 section,
the Texas Constitution, or a public security resolution.
SECTION 3. Section 941.003, Insurance Code, is amended by
amending Subsection (b)(5) to read as follows:
(b) A Lloyd's plan is subject to:
(5) Articles 21.21, 21.49, and 21.49-8.
SECTION 38. Section 942.003, Insurance Code, is amended by
amending Subsection (b)(5) to read as follows:
(b) An exchange is subject to:
(5) Articles 21.21, 21.49, and 21.49-8.
SECTION 4. EFFECTIVE DATE. This Act takes effect on June 1,
2006.