79R7059 PB-D
By: Smithee 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 and for reinsurance through the establishment
of revenue bond programs.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Section 5, Article 21.49, Insurance Code, is
amended by amending Subsections (g), (h), (j), and (l) 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) 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 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 six-year [three-year] staggered terms, with the terms of
three members expiring on the third Tuesday of March of each year.
[A person may hold a seat on the board of directors for not more than
three consecutive full terms, not to exceed nine years.]
(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
assessments, payments from the catastrophe reserve trust fund
established under Section 8(i) of this article, claims under a
reinsurance contract under this article, or issuance of revenue
bonds under Section 20 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 payments
using assessment funds, reinsurance proceeds, or bond proceeds [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 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[(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 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, as
defined by the plan of operation, 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) An amount not to exceed [follows:
[(1)] $100 million for each occurrence 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. Except as otherwise
provided by this subsection, for each occurrence, any losses in
excess of $100 million shall be paid from the catastrophe reserve
trust fund established under Section 8(i) of this Act. Unless the
commissioner determines a greater percentage should be applied, not
more than 50 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 used for the purposes
described by this subsection.
(c) Any [; (2) any] losses in excess of the amounts
determined under Subsection (b) of this section [$100 million]
shall be paid in accordance with a plan developed by the association
and approved by the commissioner from one or more of the following
sources until those sources are exhausted:
(1) additional assessments to the members of the
association that:
(A) do not exceed $300 million per calendar year;
and
(B) are based on the proportion that the member's
gross written premiums for property insurance, as reported in the
member's annual statement filed with the department for the
calendar year preceding the year in which the assessment is made
bears to the total reported gross written premiums for property
insurance in this state;
(2) any reinsurance proceeds recoverable by the
association; or
(3) any revenue bond proceeds received by the
association in accordance with Section 20 of this Act.
(d) Any losses of the association that are not paid by the
assessments and catastrophe reserve trust fund as provided by
Subsection (b) of this section or that are not paid under the plan
approved by the commissioner in accordance with Subsection (c) of
this section shall be assessed to all property and casualty
insurers authorized to write property and casualty insurance in
this state, including the FAIR Plan Association. The amount of the
assessment under this subsection shall be based on the
proportionate amount of the insurer's or FAIR Plan Association's
share of the property and casualty insurance market in this state.
The proportion assessed against the insurer or FAIR Plan
Association shall be based on the amount of the insurer's or FAIR
Plan Association's gross written premiums for all property and
casualty lines, as reported in the insurer's or FAIR Plan
Association's annual statement filed with the department for the
calendar year preceding the year in which the assessment is made
[from the catastrophe reserve trust fund established under Section
8(i) of this Act 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 in excess of those paid under
Subdivisions (1), (2), and (3) 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(c) of this Act].
(e) [(b)] An insurer, including the FAIR Plan Association,
that has been assessed and has paid the assessment under Subsection
(c) or (d) of this section may charge a premium surcharge for
reimbursement of the assessment. The premium surcharge applies to
each property and casualty insurance policy that is issued by the
insurer or the FAIR Plan Association in this state, the effective
date of which is within the five-year period beginning on the 90th
day after the date of the assessment. The amount of the surcharge
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 assessment, such that over the five-year period the
aggregate of all surcharges by the insurer or the FAIR Plan
Association equals but does not exceed the amount of the
assessment. The amount of any assessment paid and recoverable
under this subsection may be carried by the insurer or the FAIR Plan
Association [may credit any amount paid in accordance with
Subsection (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 under Section
862.001 [pursuant to Article 6.12] of this code.
(f) An assessment made under Subsection (b) of this section
is not reimbursable under Subsection (e) of this section. The
assessments under Subsection (c) and (d) of this section are
reimbursable in accordance with Subsection (e) of this section.
(g) When losses are paid by procedures described under
Subsection (c) or (d) of this section, the association shall submit
to the department for approval by the commissioner a plan for
collection of a premium surcharge from policyholders of the
association. The association shall establish the premium surcharge
in an amount that is twice the amount of the average per policy
surcharge percentage established under Subsection (e) of this
section on any policy issued or renewed by the association. The
period for collection of the premium surcharge under this
subsection may not exceed five years. Each surcharge collected
under this subsection shall be deposited in the catastrophe reserve
trust fund.
(h) In addition to the funding described by Subsections
(a)-(g) of this section, the association may also borrow from, or
enter into other financing arrangements with, any market sources at
prevailing interest rates.
(i) For purposes of Subsections (d) and (e) of this section,
"property and casualty insurance" does not include workers'
compensation insurance, accident and health insurance, or medical
malpractice insurance.
(j) The commissioner may adopt rules as necessary to
implement this section.
SECTION 4. Article 21.49, Insurance Code, is amended by
adding Sections 20-23 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) "Insurer" means each property and casualty insurer
authorized to engage in the business of property and casualty
insurance in this state. The term includes a county mutual
insurance company, a Lloyd's plan, and a reciprocal or
interinsurance exchange.
(4) "Property and casualty insurance" does not include
workers' compensation insurance, accident and health insurance, or
medical malpractice insurance.
(5) "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 service fee
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) A service fee may be assessed against insurers, the
association, and the FAIR Plan Association. The commissioner shall
set the service fee annually in an amount sufficient to pay all debt
service on the public securities. Each insurer, the association,
and the FAIR Plan Association shall pay the service fee as required
by the commissioner by rule. The amount of the insurer's service
fee shall be based on the amount of the insurer's gross written
premiums for all property and casualty insurance lines, as reported
in the annual statement filed with the department for the calendar
year preceding the year in which the assessment is made. The
association shall collect the service fee and report collection of
the service fee to the department. The department may audit payment
and collection of the service fee.
(k) As a condition of engaging in the business of insurance
in this state, an insurer agrees that if the insurer leaves the
property and casualty 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 Subsection
(j) of this section in an amount proportionate to that insurer's
share of the property and casualty 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 property and casualty
insurance for the insurer's last reporting period.
(l) The association shall deposit all service fees
collected from insurers, the FAIR Plan Association, and the
association 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 service fee 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 service fee in any year that
exceeds the amount of the bond obligations and bond administrative
expenses payable in that year and interest earned on the service fee
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 of the service fee that would otherwise
have to be levied for the year under this section; or
(2) redeem or purchase outstanding bonds.
(n) The insurers in this state, including the FAIR Plan
Association, that have paid a service fee under this section may
charge a premium surcharge on each property and casualty insurance
policy issued by that insurer, the effective date of which is within
the one-year period beginning on the 90th day after the date the
service fee is paid. The amount of the premium surcharge shall be
computed on the basis of a uniform percentage of the premium on
those policies, such that the aggregate of all those surcharges by
the insurer is equal to and does not exceed the amount of the
service fee paid by the insurer. The association shall submit to
the department for approval by the commissioner a plan for
collection of a premium surcharge from policyholders of the
association.
(o) 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.
(p) 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.
(q) 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.
(r) 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.
Sec. 21. WINDSTORM REINSURANCE FACILITY. (a) In this
section:
(1) "Reinsurance facility" means the windstorm
reinsurance facility.
(2) "Residential property insurance" means insurance
coverage against loss to residential real property at a fixed
location, or tangible personal property, that is provided in a
homeowners policy, including a tenants policy, a condominium owners
policy, or a residential fire and allied lines policy.
(3) "Retention" means the amount of losses below which
an insurer is not entitled to reimbursement from the reinsurance
facility.
(b) The windstorm reinsurance facility is established to
provide a stable and ongoing source of reinsurance to insurers, the
association, and the FAIR Plan Association for a portion of the
losses incurred by those entities caused by hurricane damage. The
goal of the reinsurance facility is to create additional insurance
capacity sufficient to protect the state's economy, public health,
safety, and welfare. The reinsurance facility shall be structured
to operate:
(1) exclusively to protect and advance the state's
interest in maintaining insurance capacity in this state; and
(2) in a manner that makes the reinsurance facility's
revenues exempt from federal taxation.
(c) The association shall establish the reinsurance
facility. The reinsurance facility shall assume reinsurance from
association members, the association, and the FAIR Plan
Association, and shall purchase reinsurance as set forth in a plan
of operation. Reinsurance under this article may only be provided
for policies of residential property insurance for property located
in the catastrophe area, unless the commissioner designates a more
specific area within the catastrophe area. As a condition of
engaging in the business of insurance in this state, each member of
the association shall participate in the reinsurance facility by
purchasing reinsurance in the manner established by the association
in the plan of operation adopted under Subsection (d) of this
section.
(d) The association shall administer the windstorm
reinsurance facility under a plan of operation developed by the
association and adopted by the commissioner by rule. The plan of
operation must provide for the efficient, economical, fair, and
nondiscriminatory administration of the reinsurance facility. The
plan of operation must contain general provisions to provide
reasonable flexibility to accommodate member insurers in
situations of an unusual nature or in which undue hardship may
result, including providing for the exemption of certain member
insurers. Provisions adopted under this subsection may not in any
way impair, override, supersede, or constrain the public purpose of
the association and must be consistent with sound insurance
practices. The plan of operation shall provide for various levels
of reinsurance participation; however, reinsurance ceded to the
reinsurance facility may not be less than 45 percent, and may not
exceed 90 percent, of the losses from each covered event in excess
of each participating insurer's retention. The association may, on
its own initiative or at the request of the commissioner, amend the
plan of operation. Any amendments to the plan of operation must be
adopted by the commissioner by rule.
(e) The reinsurance facility shall enter into a contract
with each insurer writing residential property insurance policies
in this state, as set forth in the plan of operation, to provide
reimbursement to the insurer in the manner provided by the
reinsurance contract for covered events in exchange for the
reinsurance premium paid to the reinsurance facility as specified
by the plan of operation. The reinsurance facility may enter into
reinsurance contracts with the FAIR Plan Association. Each
reinsurance contract must contain:
(1) a promise to pay the participating insurer for the
insurer's losses from each covered event in excess of the insurer's
retention;
(2) a provision that amounts due may not be reduced by
reinsurance paid or payable to the participating insurer from other
sources;
(3) a provision that all contracts covering a
particular contract year may not exceed the actual claims paying
capacity of the reinsurance facility, up to a limit as defined in
the plan of operation;
(4) a requirement of interim quarterly reporting from
each participating insurer of losses from each covered event; and
(5) a provision that, in the event of the insolvency of
the insurer, the reinsurance facility shall pay the net amount owed
to the insurer directly to the conservator, receiver, or other
statutory successor for the benefit of the insurer's policyholders
in this state.
(f) The association may enter into reinsurance contracts
with the reinsurance facility. A reinsurance contract entered into
under this subsection must contain the provisions required for a
contract with a member insurer under Subsection (e) of this
section.
(g) In lieu of purchasing reinsurance from the commercial
insurance market, the association may cede or transfer risk to the
reinsurance facility in exchange for payment of a reinsurance
premium.
(h) A premium paid to the reinsurance facility under a
reinsurance contract shall be treated as a premium for approved
reinsurance for all accounting and regulatory purposes.
(i) An insurer that ceases to be a member of the association
remains liable for any unpaid premiums or other contractual
obligations on reinsurance contracts entered into by the insurer
during the insurer's membership in the association to the same
extent and effect as if the insurer's membership had not
terminated.
(j) The reinsurance facility shall relinquish its net
equity on an annual basis as provided by rules adopted by the
commissioner by making payments to the windstorm reinsurance trust
fund to fund the obligations of that fund under Section 22 of this
article.
(k) Moneys of the reinsurance facility may not be spent,
loaned, or appropriated except to pay:
(1) obligations of the reinsurance facility arising
out of reinsurance contracts entered into under this section;
(2) debt service on revenue bonds issued under Section
23 of this article;
(3) costs of procuring reinsurance; and
(4) costs of administration of the reinsurance
facility.
Sec. 22. WINDSTORM REINSURANCE TRUST FUND. (a) In this
section, "reinsurance trust fund" means the windstorm reinsurance
trust fund established under this section.
(b) The windstorm reinsurance trust fund is established to
increase insurance capacity for catastrophic hurricane losses, and
protect the state's economy, public health, safety, and welfare.
It is the intent of the legislature that the reinsurance trust fund
be operated:
(1) exclusively to protect and advance the state's
interest in maintaining insurance capacity in this state; and
(2) in a manner that makes the reinsurance trust fund
exempt from federal taxation.
(c) Until disbursements are made as provided by this article
and rules adopted by the commissioner, all money, including
investment income, deposited in the reinsurance 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.
(d) The reinsurance trust fund may be terminated only by
law. On termination of the reinsurance trust fund, all assets of
the reinsurance trust fund revert to the catastrophe reserve trust
fund under Section 8(i) of this article.
(e) The reinsurance trust fund shall be kept and maintained
by the department under this article and rules adopted by the
commissioner. The comptroller, as custodian, shall administer the
reinsurance trust fund strictly and solely as provided by this
article and the commissioner's rules.
(f) The commissioner by rule shall establish the procedures
relating to the disbursement of money from the reinsurance trust
fund to the reinsurance facility in the event of an occurrence or
series of occurrences within the defined catastrophe area that
results in a reimbursement under Section 21 of this article.
Sec. 23. WINDSTORM REINSURANCE 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) "Insurer" means each property and casualty insurer
authorized to engage in the business of property and casualty
insurance in this state. The term includes a county mutual
insurance company, a Lloyd's plan, and a reciprocal or
interinsurance exchange.
(4) "Property and casualty insurance" does not include
workers' compensation insurance, accident and health insurance, or
medical malpractice insurance.
(5) "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 payment for
reimbursable losses to the extent that funds collected as
reinsurance premiums and investment income on those funds are
insufficient to meet the windstorm reinsurance facility's
obligations for reinsurance for losses reinsured through the
windstorm reinsurance facility 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 $7 billion, to:
(1) fund the reinsurance facility, including funding
necessary to:
(A) pay member insurers and the association as
provided by reinsurance contracts;
(B) pay operating expenses; and
(C) purchase reinsurance;
(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 service fee
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) A service fee may be assessed against insurers, the
association, and the FAIR Plan Association. The commissioner shall
set the service fee annually in an amount sufficient to pay all debt
service on the public securities. Each insurer, the association,
and the FAIR Plan Association shall pay the service fee as required
by the commissioner by rule. The amount of the insurer's service
fee shall be based on the amount of the insurer's gross written
premiums for all property and casualty insurance lines, as reported
in the annual statement filed with the department for the calendar
year preceding the year in which the assessment is made. The
association shall collect the service fee and report collection of
the service fee to the department. The department may audit payment
and collection of the service fee.
(k) As a condition of engaging in the business of insurance
in this state, an insurer agrees that if the insurer leaves the
property and casualty 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 Subsection
(j) of this section in an amount proportionate to that insurer's
share of the property and casualty 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 property and casualty
insurance for the insurer's last reporting period.
(l) The association shall deposit all service fees
collected from insurers, the FAIR Plan Association, and the
association in the reinsurance trust fund established under Section
22 of this article. Money deposited in the reinsurance trust fund
may be invested as permitted by general law. Money in the
reinsurance trust 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 service fee and amounts on
deposit in the reinsurance trust fund, together with any bond
reserve fund, as provided in the proceedings authorizing the bonds
and related credit agreements.
(m) Revenue collected from the service fee in any year that
exceeds the amount of the bond obligations and bond administrative
expenses payable in that year and interest earned on the service fee
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 of the service fee that would otherwise
have to be levied for the year under this section; or
(2) redeem or purchase outstanding bonds.
(n) The insurers in this state, including the FAIR Plan
Association, that have paid a service fee under this section may
charge a premium surcharge on each property and casualty insurance
policy issued by that insurer, the effective date of which is within
the one-year period beginning on the 90th day after the date the
service fee is paid. Except as provided by Subsection (o) of this
section, the amount of the premium surcharge shall be computed on
the basis of a uniform percentage of the premium on those policies,
such that the aggregate of all those surcharges by the insurer is
equal to and does not exceed the amount of the service fee paid by
the insurer.
(o) For policies written on property eligible to be
reinsured by the reinsurance facility, the insurer shall charge a
premium surcharge equal to twice the uniform percentage described
by Subsection (n) of this section.
(p) The association shall submit to the department for
approval by the commissioner a plan for collection of a premium
surcharge from policyholders of the association. The association
shall establish the premium surcharge in an amount equal to twice
the amount of the average per policy surcharge percentage
established under Subsection (n) or (o) of this section on any
policy issued or renewed by the association. The period for
collection of the premium surcharge under this subsection may not
exceed one year. The premium surcharges collected under this
subsection shall be applied to the association's service fee. Any
amounts collected in excess of the service fee shall be paid into
the reinsurance trust fund.
(q) 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.
(r) 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.
(s) 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.
(t) 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 5. 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 6. 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 7. Section 5(i), Article 21.49, Insurance Code, is
repealed.
SECTION 8. (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 9. (a) Except as provided by Subsection (b) of this
section, this Act takes effect September 1, 2005.
(b) Sections 20-23, Article 21.49, Insurance Code, as added
by this Act, take effect January 1, 2006.