79R16204 PB-F
By: Smithee, Escobar H.B. No. 1890
Substitute the following for H.B. No. 1890:
By: Smithee C.S.H.B. No. 1890
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. Section 4(d), Article 21.49, Insurance Code, is
amended to read as follows:
(d) On dissolution of the association, all assets of the
association, including the unexpended and unobligated balance of
the catastrophe reserve trust fund as of the date of the
dissolution, revert to this state.
SECTION 2. Section 5, Article 21.49, Insurance Code, is
amended by amending Subsections (g), (h), (i), (j), and (l) and
adding Subsection (n) to read as follows:
(g) The board of directors of the Association is responsible
and accountable to the governor and the commissioner [Board]. The
board of directors is composed of nine members appointed by the
governor as follows:
(1) three [five representatives of different insurers
who are] members must be residents of first tier coastal counties,
one of whom must be a licensed insurance agent [of the Association
who shall be elected by members as provided in the plan of
operation];
(2) three members must be representatives of insurers
who are members of the Association, who may reside anywhere in this
state [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) three members must be residents of counties other
than first tier coastal counties, at least one of whom must be a
licensed insurance agent [two 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 two-year [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
governor and may be removed by the governor 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 governor shall designate one member of the board of
directors of the Association to serve as presiding officer of the
board of directors. The presiding officer serves at the pleasure of
the governor 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.
(n) The board of directors shall report annually to the
governor, the lieutenant governor, and the speaker of the house of
representatives regarding:
(1) the solvency of the association;
(2) the sufficiency of the association's reserves;
(3) the sufficiency of the rates charged for insurance
coverage through the association, including an analysis of any
difference between rates actually being charged and actuarially
sufficient rates; and
(4) any outstanding risks to the association and the
members of the association.
SECTION 3. Article 21.49, Insurance Code, is amended by
adding Section 5C to read as follows:
Sec. 5C. GENERAL POWERS AND DUTIES OF BOARD OF DIRECTORS.
(a) The board of directors shall:
(1) recommend rates to the department in the manner
provided by Section 8 of this article for insurance coverage
provided by the association; and
(2) determine:
(A) coverage limits;
(B) applicable deductibles; and
(C) any premium surcharges to be assessed for
noncompliance with applicable building codes.
(b) In exercising powers and duties under this article, the
primary goal of the board of directors shall be to make the
association financially sound.
SECTION 4. Section 8(h)(2), Article 21.49, Insurance Code,
is amended to read as follows:
(2) Not later than August 15 of each year, the board of
directors of the Association shall file with the department for
approval by the commissioner a proposed manual rate for all types
and classes of risks written by the Association. Chapter 40 of this
code does not apply to a filing made under this subsection or a
department action with respect to the filing.
SECTION 5. 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 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 6. 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 shall be paid as
provided by this section.
(b) After application of available revenue to losses,
[follows: (1)] $100 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(b)
[5(c)] of this Act.
(c) Any [; (2) any] losses in excess of $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.
(d) If the amount available under Subsection (c) of this
section is insufficient to pay the excess losses, an additional
amount not to exceed $500 million shall be funded through the
issuance of public securities under the revenue bond program
established under Section 20 of this Act.
(e) If the amount available under Subsection (d) of this
section is insufficient to pay the excess losses, reinsurance
proceeds recoverable by the association and available under [and]
any reinsurance program established by the association shall be
used to pay the losses.
(f) For [; (3) for] losses in excess of those paid under
Subsections (b)-(e) [Subdivisions (1) and (2)] of this section
[subsection], an additional $500 [$200] million shall be funded
through the issuance of public securities under the revenue bond
program established under Section 20 of this Act.
(g) Any [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 in excess of those paid under Subsections (b)-(f)
[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(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 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 7. Article 21.49, Insurance Code, is amended by
adding Section 20 to read as follows:
Sec. 20. REVENUE BOND PROGRAM FOR OPERATIONS AND PAYMENT OF
CLAIMS. (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) 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 a total
amount not to exceed $2 billion, to:
(1) fund the association, including funding necessary
to:
(A) establish and maintain reserves to pay
claims; and
(B) pay incurred claims and operating expenses;
(2) pay costs related to the issuance of the public
securities; and
(3) pay other costs related to the public securities
as may be determined by the board.
(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 comptroller. The association may request disbursement of
the funds for the purposes set forth in Subsection (c) of this
section.
(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 the premium
surcharges established under Subsection (j) of this section or from
other 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 shall be paid by premium surcharges applied to each
property and casualty insurance policy written by an insurer in
this state or by the FAIR Plan Association, other than a workers'
compensation insurance policy, an accident and health insurance
policy, or a medical malpractice insurance policy, as follows:
(1) 20 percent of the necessary amount shall be
charged on insurance policies written on property located in first
tier coastal counties, including policies issued through the
association and otherwise; and
(2) 80 percent of the necessary amount shall be
charged on policies written on property located in counties that
are not first tier coastal counties.
(k) As a condition of engaging in the business of insurance
in this state, an insurer that engages in the business of property
insurance in this state agrees that if the insurer leaves the
insurance market in this state the insurer remains obligated to
pay, until the public securities are retired, the insurer's share
of the premium surcharges assessed under Subsection (j) of this
section in an amount proportionate to that insurer's share of the
insurance market 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 written premiums
for insurance for the insurer's last reporting period.
(l) The association shall deposit all premium surcharges
collected under Subsection (j) of this section 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 revenues received from the premium surcharges and amounts
on deposit in the fund, together with any bond reserve fund, as
provided in the proceedings authorizing the bonds and related
credit agreements.
(m) Revenue collected from the premium surcharges assessed
under Subsection (j) of this section in any year that exceeds the
amount of the bond obligations and bond administrative expenses
payable in that year and interest earned on the premium surcharges
may, in the discretion of the association and with the approval of
the commissioner, be used to:
(1) pay bond obligations payable in the subsequent
year, offsetting the amount that would otherwise have to be levied
for the year under this section; or
(2) redeem or purchase outstanding bonds.
(n) 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.
(o) 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.
(p) 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.
(q) 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 8. Section 941.003(b), Insurance Code, is amended
to read as follows:
(b) A Lloyd's plan is subject to:
(1) Section 5, Article 1.10;
(2) Article 1.15A;
(3) Subchapters A, [Q,] T, and U, Chapter 5;
(4) Chapters 251, 252, and 541;
(5) Articles 5.35, 5.38, 5.39, 5.40, 21.49, [and 5.49;
[(5) Articles 21.21] and 21.49-8;
(6) Sections 822.203, 822.205, 822.210, and 822.212;
and
(7) Article 5.13-2, as provided by that article.
SECTION 9. Section 942.003(b), Insurance Code, is amended
to read as follows:
(b) An exchange is subject to:
(1) Section 5, Article 1.10;
(2) Articles 1.15, 1.15A, and 1.16;
(3) Subchapters A, [Q,] T, and U, Chapter 5;
(4) Articles 5.35, 5.37, 5.38, 5.39, and 5.40;
(5) Articles 21.49 [21.21] and 21.49-8;
(6) Chapter 541;
(7) Sections 822.203, 822.205, 822.210, 822.212,
861.254(a)-(f), 861.255, 862.001(b), and 862.003; and
(8) [(7)] Article 5.13-2, as provided by that article.
SECTION 10. (a) The board of directors of the Texas
Windstorm Insurance Association established under Section 5,
Article 21.49, Insurance Code, as that section existed prior to
amendment by this Act, is abolished effective January 1, 2006.
(b) Not later than December 31, 2005, the governor 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.
(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 on January 1, 2006. Such a person is
eligible for appointment by the governor 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 11. (a) Except as provided by Subsection (b) of
this section, this Act takes effect September 1, 2005.
(b) Section 20, Article 21.49, Insurance Code, as added by
this Act, takes effect immediately if this Act 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, Section 20,
Article 21.49, Insurance Code, as added by this Act, takes effect
September 1, 2005.