80R2045 PB-D

By: Eiland H.B. No. 635

A BILL TO BE ENTITLED

AN ACT

relating to funding of the Texas Windstorm Insurance Association, including funding of coverage for certain catastrophic events through the issuance of public securities.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:

SECTION 1. Section 2210.058, Insurance Code, is amended to read as follows:

Sec. 2210.058. PAYMENT OF EXCESS LOSSES; PREMIUM TAX CREDIT. (a) If[, in any calendar year,] an occurrence or series of occurrences in a catastrophe area results in insured losses and operating expenses of the association in excess of premium and other revenue of the association, the excess losses shall be paid as provided by this section.

(b) For each occurrence, an amount not to exceed 1.5 percent of the members' written premiums for fire, allied lines, homeowners, farm owners, and commercial multiperil insurance, as reported in the annual statement filed with the department for the calendar year immediately preceding the year in which the assessment is made, [follows:

[(1)$100 million] shall be assessed against the members of the association and the FAIR Plan Association as provided by Subsection (h).

(c) For each occurrence, any [(b);

[(2)] losses in excess of the amounts assessed under Subsection (b) [$100 million] shall be paid from proceeds from public securities issued by the association in accordance with Subchapter M before the date of any occurrence that results in insured losses under Subsection (a). Public securities described by this subsection may be issued in principal amounts not to exceed $300 million in a calendar year.

(d) For each occurrence, any losses in excess of the amounts available under Subsections (b) and (c) shall be paid from the catastrophe reserve trust fund established under Subchapter J as provided by this subsection. Unless 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, determines that 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.

(e) Any [and any reinsurance program established by the association;

[(3)for] losses in excess of the amounts available under Subsections (b), (c), and (d) shall be paid from proceeds from public securities issued by the association in accordance with Subchapter M on or after the date of any occurrence that results in insured losses under Subsection (a). Public securities described by this subsection may be issued in principal amounts not to exceed $200 million in a calendar year.

(f) Any losses in excess of the amounts available under Subsections (b), (c), (d), and (e) shall be paid from any reinsurance proceeds recoverable by the association.

(g) Any [those paid under Subdivisions (1) and (2), an additional $200 million shall be assessed against the members of the association, as provided by Subsection (b); and

[(4)] losses in excess of the amounts determined under Subsections (b), (c), (d), (e), and (f) [those paid under Subdivisions (1), (2), and (3)] shall be assessed against members of the association, as provided by Subsection (h) [(b)].

(h) [(b)] The proportion of the losses allocable to each insurer under Subsections (b) and (g) [(a)(1), (3), and (4)] shall be determined in the manner used to determine each insurer's participation in the association for the year under Section 2210.052.

(i) [(c)] An insurer may credit an amount paid in accordance with Subsection (b) or (g) [(a)(4)] in a calendar year against the insurer's premium tax under Chapter 221. The tax credit authorized under this subsection 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 made by the insurer and not claimed as a premium 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 an annual statement under Section 862.001.

(j) Notwithstanding any other provision of this chapter, 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, may authorize the association to issue public securities in excess of the amounts designated in Subsection (c) to provide for the payment of insured losses and operating expenses not otherwise funded.

(k) In addition to the funding described by Subsections (b)-(j), the association may also borrow from, or enter into other financing arrangements with, any market sources at prevailing interest rates.

(l) The commissioner may adopt rules as necessary to implement this section.

SECTION 2. Section 2210.059, Insurance Code, is amended to read as follows:

Sec. 2210.059. NOTIFICATION REGARDING TAX CREDITS. (a) The association shall immediately notify the department if an occurrence or series of occurrences in a catastrophe area results in insured losses that result in a tax credit under Section 2210.058(i) [2210.058(c)] in a calendar year.

(b) On receipt of notice under Subsection (a), the department shall immediately notify the governor and the appropriate committees of each house of the legislature of the amount of insured losses eligible for tax credits under Section 2210.058(i) [2210.058(c)].

SECTION 3. Sections 2210.452(a) and (d), Insurance Code, are amended to read as follows:

(a) The commissioner shall adopt rules under which association members relinquish their net equity on an annual basis as provided by those rules by making payments to the catastrophe reserve trust fund. The trust fund may be used only to fund:

(1) the obligations of the trust fund under Section 2210.058 [2210.058(a)]; and

(2) the mitigation and preparedness plan established under Section 2210.454 to reduce the potential for payments by association members that give rise to tax credits in the event of loss.

(d) The commissioner by rule shall establish the procedure relating to the disbursement of money from the trust fund to policyholders in the event of an occurrence or series of occurrences within a catastrophe area that results in a disbursement under Section 2210.058 [Section 2210.058(a)].

SECTION 4. Chapter 2210, Insurance Code, is amended by adding Subchapter M to read as follows: SUBCHAPTER M. PUBLIC SECURITIES PROGRAM

Sec. 2210.601. PURPOSE. The legislature finds that issuing public securities to provide a method to raise funds to provide windstorm, hail, and fire insurance through the association in certain designated areas of the state is to benefit the public and to further a public purpose.

Sec. 2210.602. DEFINITIONS. In this subchapter:

(1) "Board" means the board of directors of the Texas Public Finance Authority.

(2) "Insurer" means each property and casualty insurer authorized to engage in the business of property and casualty insurance in this state. The term specifically includes a county mutual insurance company, a Lloyd's plan, and a reciprocal or interinsurance exchange.

(3) "Public security" means a debt instrument or other public security issued by the Texas Public Finance Authority.

(4) "Public security resolution" means the resolution or order authorizing public securities to be issued under this subchapter.

Sec. 2210.603. APPLICABILITY OF OTHER LAWS. (a) To the extent consistent with this subchapter, Chapter 1232, Government Code, applies to public securities issued under this subchapter. In the event of a conflict, this subchapter controls.

(b) The following laws also apply to public securities issued under this subchapter 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.

Sec. 2210.604. ISSUANCE OF PUBLIC SECURITIES AUTHORIZED. (a) At the request of the association and with the approval of the commissioner, the Texas Public Finance Authority shall issue public securities to:

(1) fund the association, including funding necessary to:

(A) establish and maintain reserves to pay claims;

(B) pay incurred claims;

(C) pay operating expenses; and

(D) purchase reinsurance;

(2) pay costs related to issuance of the public securities; and

(3) pay other costs related to the public securities as may be determined by the board.

(b) 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 at least 10 days' notice and a hearing if a hearing is requested by any person within the 10-day notice period.

Sec. 2210.605. TERMS OF ISSUANCE. (a) Public securities issued under this subchapter may be issued at a public or private sale.

(b) Public securities must:

(1) be issued in the name of the association; and

(2) mature not more than 10 years after the date issued.

Sec. 2210.606. CONTENTS OF PUBLIC SECURITY RESOLUTION; ADMINISTRATION OF ACCOUNTS. (a) In a public security resolution, the board may:

(1) provide for the flow of funds and the establishment, maintenance, and investment of funds and special accounts with regard to the public securities, including an interest and sinking fund account, a reserve account, and other accounts; and

(2) 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.

(b) The association shall administer the accounts in accordance with this subchapter.

Sec. 2210.607. SOURCE OF PAYMENT. (a) Public securities issued under this subchapter are payable only from:

(1) the service fees established under Section 2210.609, as applicable; or

(2) other amounts that the association is authorized to levy, charge, and collect.

(b) The public securities are obligations solely of the association and do not create a pledge, gift, or loan of the faith, credit, or taxing authority of this state.

(c) Each public security must:

(1) include a statement that the state is not obligated to pay any amount on the security and that the faith, credit, or taxing authority of this state are not pledged, given, or lent to those payments; and

(2) state on the security's face that the security:

(A) is payable solely from the revenue pledged for that purpose; and

(B) is not and may not constitute a legal or moral obligation of the state.

Sec. 2210.608. PAYMENT OF INTEREST. (a) Except as provided by Subsection (b), all interest on a public security issued as described by Section 2210.058(c) shall be paid by the association from the existing premiums of the association.

(b) If the association is unable to pay the interest on a public security described by Subsection (a) with existing premiums, the interest on the public securities shall be paid from the service fees collected in accordance with Section 2210.609.

Sec. 2210.609. SERVICE FEES; PREMIUM SURCHARGE. (a) A fee to service public securities issued by the association prior or subsequent to a catastrophic event may be collected by each insurer, the association, and the FAIR Plan Association from policyholders who reside or have operations in, or whose insured property is located in, the catastrophe area.

(b) A fee to service public securities issued by the association as described by Section 2210.058(j) may be collected by each insurer, the association, and the FAIR Plan Association from policyholders who reside or have operations in, or whose insured property is located in, this state.

(c) The association shall determine the amount of a service fee imposed under Subsection (a) or (b) at least annually.

(d) On approval 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, each insurer, the association, and the FAIR Plan Association shall charge the service fee to its policyholders. The service fee must be set in an amount sufficient to pay all debt service and all related expenses on the public securities. The service fee shall be collected in the form of a premium surcharge and shall be remitted to the association as required by the commissioner by rule.

(e) The premium surcharge shall apply to all insurance policies for all property and casualty lines other than workers' compensation, accident and health, and medical malpractice. The service fees collected in the form of a policy surcharge under this section are separate charges in addition to premiums collected and are not subject to premium taxes or commissions.

(f) For purposes of policy cancellation, failure by a policyholder to pay a premium surcharge imposed under this section is equivalent to failure to pay premium.

Sec. 2210.610. EXEMPTION FROM TAXATION. Public securities issued under this subchapter, any interest from those public securities, and all assets pledged to secure the payment of the public securities are free from taxation by the state or a political subdivision of this state.

Sec. 2210.611. AUTHORIZED INVESTMENTS. Public securities issued under this subchapter are authorized investments under Subchapter B, Chapter 424, and Subchapters C and D, Chapter 425.

Sec. 2210.612. STATE PLEDGE REGARDING PUBLIC SECURITY OWNER RIGHTS AND REMEDIES. (a) The state pledges to and agrees with the owners of public securities issued in accordance with this subchapter that the state will not limit or alter the rights vested in the association to fulfill the terms of agreements made with the owners or in any way impair the rights and remedies of those owners until the following obligations are fully discharged:

(1) the public securities;

(2) any bond premium;

(3) interest; and

(4) all costs and expenses related to an action or proceeding by or on behalf of the owners.

(b) The association may include the state's pledge and agreement under Subsection (a) in an agreement with the owners of the public securities.

Sec. 2210.613. PAYMENT ENFORCEABLE BY MANDAMUS. A writ of mandamus and any other legal or equitable remedy are available to a party in interest to require the association or another party to fulfill an agreement or perform a function or duty under:

(1) this subchapter;

(2) the Texas Constitution; or

(3) a public security resolution.

SECTION 5. Section 941.003, Insurance Code, is amended by adding Subsection (e) to read as follows:

(e) A Lloyd's plan is subject to Chapter 2210, as provided by that chapter.

SECTION 6. Section 942.003, Insurance Code, is amended by adding Subsection (f) to read as follows:

(f) An exchange is subject to Chapter 2210, as provided by that chapter.

SECTION 7. This Act takes effect June 1, 2007, if it receives a vote of two-thirds of all the members elected to each house, as provided by Section 39, Article III, Texas Constitution. If this Act does not receive that vote, this Act takes effect September 1, 2007.