By: Smithee, Escobar (Senate Sponsor - Jackson) H.B. No. 1890
(In the Senate - Received from the House May 16, 2005;
May 17, 2005, read first time and referred to Committee on Business
and Commerce; May 20, 2005, reported adversely, with favorable
Committee Substitute by the following vote: Yeas 7, Nays 0;
May 20, 2005, sent to printer.)
COMMITTEE SUBSTITUTE FOR H.B. No. 1890 By: Estes
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 Subsections (n) and (o) 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, one of
whom is a resident of a first tier coastal county and one of whom is
a resident of a county other than a first tier coastal county
[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 insurance [local recording] agents licensed
under this Code, one with a [demonstrated experience in the
Association, and whose] principal office [offices], as of the date
of the appointment, [are] located in a first tier coastal county and
one with a principal office located in a county other than a first
tier coastal county [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.
(n) As an exception to Chapter 551, Government Code, and
other law, members of the board of directors may meet by telephone
conference call, videoconference, or other similar
telecommunication method. The board of directors may use telephone
conferences or other similar telecommunication methods for
purposes of establishing a quorum, for purposes of voting, and for
any other meeting purpose in accordance with this subsection and
Subsection (o). This subsection applies without regard to the
subject matters discussed or considered by the members of the board
of directors at the meeting.
(o) A meeting held by use of telephone conference call,
videoconference, or other similar telecommunication method:
(1) is subject to the notice requirements applicable
to other meetings;
(2) must specify in the notice of the meeting the
location of the meeting;
(3) must be audible to the public at the location
specified in the notice of the meeting as the location of the
meeting; and
(4) must provide two-way audio communication between
all members of the board of directors attending the meeting during
the entire meeting, and if the two-way audio communication link
with members attending the meeting is disrupted at any time so that
a quorum of the board of directors is no longer participating in the
meeting, the meeting may not continue until the two-way audio
communication link is reestablished.
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 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, per catastrophic event, 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. A member of the
association may not directly or indirectly recover the amount of
any assessment made under this subsection from additional premium
charges on any insurance policy written on property that is not
located within the first tier coastal counties.[;]
(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 that exceed the amounts available under
Subsections (b) and (c) of this section, not to exceed an additional
$300 million per calendar year, shall be funded through additional
assessments to the members of the association, with the proportion
of the total loss allocable to each insurer determined in the same
manner as the insurer's participation in the association has been
determined for the year under Section 5(b) of this Act. An insurer
that has been assessed and has paid the assessments under this
subsection may charge the insurer's policyholders a premium
surcharge for reimbursement of the assessment. The premium
surcharge, which must be a separate charge in addition to premiums
collected, applies to every insurance policy insuring real property
located in the catastrophe area, including policies issued by the
association, 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 collected by the members of the
association from policyholders under this subsection 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 the surcharges by the insurer shall be equal
to, and not exceed, the amount of the assessment of the insurer. The
amount of any assessment paid and recoverable under this section
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. The association shall collect a
premium surcharge, which must be a separate charge in addition to
premiums collected, from the association's policyholders in an
amount approved by the commissioner.
(e) If the amount available under Subsections (b)-(d) of
this section is 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 after at least 10
days' notice and a hearing if a hearing is requested by any person
within the 10-day notice period, from any or a combination of the
following sources:
(1) any reinsurance proceeds recoverable by the
association; and
(2) any revenue bond proceeds, in an amount not to
exceed $2 billion per year, received by the association in
accordance with Section 20 of this Act.
(f) Any [;
[(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
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.
(g) [(b)] An insurer may credit any amount paid in
accordance with Subsection (f) [(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.
(h) The commissioner may adopt rules as necessary to
implement this section.
SECTION 4. 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 in accordance with Subsection (d) of
this section.
(d) After an occurrence or series of occurrences within the
defined catastrophe area has occurred, the board shall issue public
securities in an amount not to exceed the amount specified under
Section 19(d) of this Act as necessary to fund the payment of excess
losses under that subsection.
(e) 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.
(f) 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.
(g) 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.
(h) 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 this section.
(i) 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.
(j) Public securities are payable only from the premium
surcharges established under Subsection (k) 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.
(k) The public securities and all debt service on the public
securities issued in accordance with Subsection (d) of this section
shall be paid by premium surcharges in amounts approved by the
commissioner and applied to each property and casualty insurance
policy written by an insurer in this state or by the FAIR Plan
Association. The premium surcharges applicable under this
subsection to insurance policies written on property located in the
catastrophe area, including policies issued through the
association must be equal to two times the premium surcharges
applicable to insurance policies written on property located in
counties that are not in the catastrophe area. A premium surcharge
under this subsection may not be applied to a workers' compensation
insurance policy, an accident and health insurance policy, or a
medical malpractice insurance policy.
(l) 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 (k) 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.
(m) The association shall deposit all premium surcharges
collected under Subsection (k) 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.
(n) Revenue collected from the premium surcharges assessed
under Subsection (k) 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.
(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.
SECTION 5. (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 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.
(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 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 6. This Act takes effect January 1, 2006.
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