80R9593 PB-D
 
  By: Eiland H.B. No. 3272
 
 
 
   
 
 
A BILL TO BE ENTITLED
AN ACT
relating to the establishment, funding, and operation of the
natural disaster catastrophe fund.
       BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
       SECTION 1.  Subtitle A, Title 10, Insurance Code, is amended
by adding Chapter 1809 to read as follows:
CHAPTER 1809. NATURAL DISASTER CATASTROPHE FUND
SUBCHAPTER A. GENERAL PROVISIONS
       Sec. 1809.001.  SHORT TITLE. This chapter may be cited as
the Texas Natural Disaster Catastrophe Fund Act.
       Sec. 1809.002.  FINDINGS; PURPOSE. (a) The legislature
finds that there is a compelling state interest in maintaining a
viable and orderly private sector market for property insurance in
this state. To the extent that the private sector is unable to
maintain such a market in this state, state actions to maintain such
a market are valid and necessary exercises of the police power.
       (b)  The legislature finds that, as a result of unprecedented
levels of insured losses from natural disasters in recent years,
and especially as a result of Hurricane Andrew and the Northridge
earthquake, numerous insurers have determined that in order to
protect their solvency, it is necessary for those insurers to
reduce their exposure to losses from natural disasters. The
instability of the world reinsurance market, also caused in part by
these events, has also increased the pressure on insurers to reduce
their catastrophic exposures.
       (c)  The legislature finds that mortgages require reliable
property insurance, and the unavailability of reliable property
insurance would make most real estate transactions impossible. In
addition, the public health, safety, and welfare demand that
structures damaged or destroyed in a catastrophe be repaired or
reconstructed as soon as possible. Therefore, the inability of the
private sector insurance and reinsurance markets to maintain
sufficient capacity to enable residents of this state to obtain
property insurance coverage in the private sector endangers the
economy of this state and endangers the public health, safety, and
welfare. Accordingly, state action to correct for this inability of
the private sector constitutes a valid and necessary public and
governmental purpose.
       (d)  The legislature finds that the insolvencies and
financial impairments resulting from Hurricane Andrew and the
Northridge earthquake demonstrate that many property insurers are
unable or unwilling to maintain reserves, surplus, and reinsurance
sufficient to enable the insurers to pay all claims in full in the
event of a major natural disaster. State action is therefore
necessary to protect the public from an insurer's unwillingness or
inability to maintain sufficient reserves, surplus, and
reinsurance.
       (e)  The legislature finds that a state program to provide
reimbursement to insurers for a portion of their catastrophic
losses will create additional insurance capacity sufficient to
ameliorate the current dangers to this state's economy and to the
public health, safety, and welfare.
       (f)  It is essential to the efficient functioning of a state
program to increase insurance capacity that revenues received be
exempt from federal taxation. It is therefore the intent of the
legislature that the program under this chapter be structured as a
state trust fund under the control of the department and operate
exclusively for the purpose of protecting and advancing the state's
interest in maintaining insurance capacity in this state.
       Sec. 1809.003.  DEFINITIONS. In this chapter:
             (1)  "Actuarially indicated" means, with respect to
premiums paid by insurers for reimbursement provided by the fund,
an amount determined according to principles of actuarial science
to be adequate, but not excessive, in the aggregate, to pay current
and future obligations and expenses of the fund, including
additional amounts if needed to retire public securities issued
under Subchapter H, and determined according to principles of
actuarial science to reflect each insurer's relative exposure to
losses from covered events.
             (2)  "Covered event" means a hurricane, tornado, or
other type of natural disaster, as specified by rule by the
commissioner, that results in insured losses in this state and is
covered by the fund.
             (3)  "Covered policy" means a residential property
insurance policy, or any other policy covering a residential
structure or the contents of such a structure that is issued by an
insurer authorized to engage in the business of residential
property insurance in this state. The term does not include a
reinsurance agreement or any policy that excludes coverage for a
peril described by Subsection (2).
             (4)  "Fund" means the natural disaster catastrophe
fund.
             (5)  "Insurer" means an insurance company, reciprocal
or interinsurance exchange, mutual insurance company, capital
stock company, county mutual insurance company, farm mutual
insurance company, Lloyd's plan, or other legal entity authorized
to write residential property insurance in this state. The term
includes an affiliate, as described by Section 823.003(a), if that
affiliate is authorized to write and is writing residential
property insurance in this state. The term also includes:
                   (A)  an eligible surplus lines insurer regulated
under Chapter 981;
                   (B)  the Texas Windstorm Insurance Association
under Chapter 2210; or
                   (C)  the FAIR Plan Association under Chapter 2211.
             (6)  "Losses" means direct incurred losses under
covered policies, other than losses attributable to additional
living expenses coverages and loss adjustment expenses.
             (7)  "Retention" means the amount of losses below which
an insurer is not entitled to reimbursement from the fund.
[Sections 1809.004-1809.050 reserved for expansion]
SUBCHAPTER B. POWERS AND DUTIES OF DEPARTMENT
AND COMMISSIONER
       Sec. 1809.051.  RULEMAKING. (a) The commissioner shall
adopt rules in the manner prescribed by Subchapter A, Chapter 36,
as reasonable and necessary to implement this chapter.
       (b)  Rules adopted under Subsection (a) must:
             (1)  conform to the legislature's specific intent in
establishing the fund, as provided by Section 1809.001; and
             (2)  enhance the fund's potential ability to respond to
claims for covered events.
       (c)  Rules adopted under Subsection (a) must contain general
provisions to allow the rules to be applied with enough reasonable
flexibility to accommodate insurers in situations of an unusual
nature or if undue hardship may result. The flexibility authorized
under this subsection may not in any way impair, override,
supersede, or constrain the public purpose of the fund, and must be
consistent with sound insurance practices.
       Sec. 1809.052.  ALTERNATE REPORTING METHODS AUTHORIZED. The
department may allow insurers to use alternative methods of
reporting to comply with reporting requirements adopted under this
chapter if the commissioner determines that:
             (1)  use of those alternate methods does not adversely
affect proper administration of the fund; and
             (2)  the alternate methods produce data that is
consistent for the purposes of this chapter.
       Sec. 1809.053.  REPROCESSING FEE. To ensure the equitable
operation of the fund, the department may impose a reasonable fee on
an insurer to recover any costs incurred by the department in
reprocessing inaccurate, incomplete, or untimely exposure data
submitted by the insurer.
       Sec. 1809.054.  ADVISORY COUNCIL. (a) To provide the
department with information and advice in connection with the
department's duties under this chapter, the commissioner shall
appoint a nine-member advisory council composed as follows:
             (1)  an actuary;
             (2)  a meteorologist;
             (3)  an engineer;
             (4)  a representative of insurers;
             (5)  a representative of insurance agents;
             (6)  a representative of reinsurers; and
             (7)  three consumers who also serve as representatives
of other affected professions and industries.
       (b)  Members of the advisory council serve at the pleasure of
the commissioner.
       (c)  A member of the advisory council is not entitled to
compensation, but is entitled to reimbursement for traveling
expenses incurred in performing duties as a member of the advisory
council up to the limit provided by the General Appropriations Act.
       Sec. 1809.055.  EFFECT OF CREATION OF FEDERAL OR MULTISTATE
PROGRAM. On the creation of a federal or multistate catastrophic
insurance or reinsurance program intended to serve purposes similar
to the purposes of the fund established under this chapter, the
department shall promptly make recommendations to the legislature
regarding:
             (1)  coordination with the federal or multistate
program;
             (2)  termination of the fund; or
             (3)  other actions as the commissioner determines to be
appropriate.
[Sections 1809.056-1809.100 reserved for expansion]
SUBCHAPTER C. FUND
       Sec. 1809.101.  ESTABLISHMENT OF FUND. (a) The Texas
natural disaster catastrophe fund is a trust fund outside the state
treasury in the custody of the comptroller. The department shall
administer the fund.
       (b)  Money in the fund may not be spent, loaned, or
appropriated except to pay:
             (1)  obligations of the fund that arise out of
reimbursement contracts entered into under Subchapter E;
             (2)  debts, including obligations arising out of public
securities issued under Subchapter H;
             (3)  costs of the mitigation program under Section
1809.103;
             (4)  costs of procuring reinsurance; and
             (5)  costs of administration of the fund.
       (c)  The comptroller shall invest the money in the fund in
the manner provided by law for investment of state funds. Except as
otherwise provided by this chapter, earnings from all investments
shall be retained in the fund.
       (d)  The department may employ staff or contract with
professionals as the commissioner considers necessary for the
administration of the fund.
       Sec. 1809.102.  BORROWING AUTHORIZED. In addition to using
public securities under Subchapter H, the department may also
borrow from any market sources at prevailing interest rates.
       Sec. 1809.103.  MITIGATION PROGRAM; USE OF FUND INVESTMENT
INCOME. (a) As directed by legislative appropriation, an amount
not to exceed 35 percent of the investment income of the fund for
the prior fiscal year may be used annually to provide funding for
local governments, state agencies, public and private educational
institutions, and nonprofit organizations to support programs
intended to:
             (1)  improve natural disaster preparedness;
             (2)  reduce potential losses from covered events;
             (3)  provide research into means to reduce those
losses;
             (4)  educate or inform the public as to means to reduce
losses from covered events;
             (5)  assist the public in determining the
appropriateness of particular upgrades to structures or in the
financing of those upgrades; or
             (6)  protect local infrastructure from potential
damage from a covered event.
       (b)  Notwithstanding Subsection (a), money is not available
for appropriation under this section if the comptroller determines
that an appropriation of investment income from the fund would
jeopardize the actuarial soundness of the fund.
       Sec. 1809.104.  BIANNUAL STATEMENT. In May and October of
each year, the comptroller shall publish in the Texas Register a
statement of the fund's anticipated borrowing capacity and the
balance of the fund as of the date of the statement.
       Sec. 1809.105.  REINSURANCE. The department may procure
reinsurance from reinsurers authorized under Subtitle F, Title 4
for the purpose of maximizing the capacity of the fund.
       Sec. 1809.106.  REVERSION OF FUND ASSETS ON TERMINATION.
The fund and the duties of the comptroller and the department under
this chapter may be terminated only by law. On termination of the
fund, all assets of the fund shall revert to the general revenue
fund.
       Sec. 1809.107.  ADVANCE PREMIUM PAYMENT. (a) To provide
startup money for the administration of the fund, each insurer
shall pay to the fund an advance premium payment of $1,000. The
department shall collect the advance premium payments required by
this section for deposit in the fund. The insurer shall receive a
credit against future premiums for the advance payment.
       (b)  This section expires September 1, 2009.
[Sections 1809.108-1809.150 reserved for expansion]
SUBCHAPTER D. COMPUTATION OF INSURER'S RETENTION
       Sec. 1809.151.  COMPUTATION OF INSURER'S RETENTION. For
purposes of this chapter, an insurer's retention shall be computed
as provided by this subchapter.
       Sec. 1809.152.  RETENTION MULTIPLES. (a) The department
shall compute and report to each insurer the retention multiples
for each year.
       (b)  For the contract year beginning in 2007, the retention
multiple is equal to $2 billion, divided by the total estimated
reimbursement premium for the contract year. For subsequent years,
the retention multiple is equal to $2 billion, adjusted to reflect
the percentage growth in premium for covered policies since the
date of the initial contracts entered into under this chapter,
divided by the total estimated reimbursement premium for the
contract year.
       Sec. 1809.153.  INSURER ELECTION; PROVISIONAL AND ACTUAL
RETENTION. (a) The retention multiple determined under Section
1809.152(b) shall be adjusted to reflect the coverage level elected
by the insurer under Section 1809.202. For insurers electing:
             (1)  the 90-percent coverage level, the adjusted
retention multiple is 100 percent of the amount determined under
Section 1809.152(b);
             (2)  the 75-percent coverage level, the retention
multiple is 120 percent of the amount determined under Section
1809.152(b); and
             (3)  the 45-percent coverage level, the adjusted
retention multiple is 200 percent of the amount determined under
Section 1809.152(b).
       (b)  An insurer shall determine the insurer's:
             (1)  provisional retention by multiplying the insurer's
provisional reimbursement premium by the applicable adjusted
retention multiple; and
             (2)  actual retention by multiplying the insurer's
actual reimbursement premium by the applicable adjusted retention
multiple.
[Sections 1809.154-1809.200 reserved for expansion]
SUBCHAPTER E. REIMBURSEMENT CONTRACTS
       Sec. 1809.201.  REIMBURSEMENT CONTRACT REQUIRED. As a
condition of engaging in the business of insurance in this state,
each insurer that writes covered policies shall enter into a
contract with the department under which the department shall
provide to the insurer the reimbursement described by Section
1809.202 in exchange for the reimbursement premium paid to the fund
by the insurer under Subchapter G.
       Sec. 1809.202.  REIMBURSEMENT PERCENTAGES. (a) A
reimbursement contract must contain a promise by the department to
reimburse the insurer, as provided by Subsection (b), for a
percentage equal to 45 percent, 75 percent, or 90 percent of the
insurer's losses from each covered event in excess of the insurer's
retention, plus five percent of the reimbursed losses to cover loss
adjustment expenses.
       (b)  The insurer must elect one of the payment percentages
specified under Subsection (a). On renewal of a reimbursement
contract, the insurer may elect:
             (1)  a lower payment percentage, if no public
securities under Subchapter H issued under after a covered event
are outstanding; or
             (2)  a higher payment percentage, if the insurer pays
to the fund an actuarially appropriate equalization charge as
determined by the department.
       (c)  All members of an insurer group must elect the same
payment percentage.
       (d)  A joint underwriting association or assigned risk plan
established under this code must elect the 90 percent payment
percentage.
       Sec. 1809.203.  EFFECT OF REINSURANCE; OTHER RECOVERIES.
(a) A reimbursement contract must provide that reimbursement
amounts may not be reduced by reinsurance paid or payable to the
insurer from other sources.
       (b)  Recoveries from another source, together with
reimbursements under the contract, may not exceed 100 percent of
the insurer's losses from covered events. If those recoveries and
reimbursements exceed 100 percent of the insurer's losses from
covered events, and if an agreement between the insurer and the
reinsurer to the contrary does not exist, any amount in excess of
100 percent of the insurer's losses must be deposited in the fund.
       Sec. 1809.204.  DEPARTMENT OBLIGATION. A reimbursement
contract must provide that the obligation of the department with
respect to all contracts covering a particular year may not exceed
the current balance of the fund, together with the maximum amount
that the department is able to raise through the issuance of public
securities under Subchapter H.
       Sec. 1809.205.  ANNUAL NOTIFICATION TO INSURERS. (a) A
reimbursement contract must require the department to notify each
insurer annually of:
             (1)  the fund's anticipated borrowing capacity for the
subsequent year;
             (2)  the balance of the fund as of the date of the
notification; and
             (3)  the insurer's estimated share of total
reimbursement to be paid to the fund.
       (b)  For all regulatory and reinsurance purposes, an insurer
may compute the insurer's projected payout from the fund as the
insurer's share of the total fund premium multiplied by the sum of
the fund balance and bonding capacity as reported under this
section.
       Sec. 1809.206.  INSURER QUARTERLY REPORTS; PAYMENT OF
REIMBURSEMENT BY DEPARTMENT. (a) The reimbursement contract shall
require each insurer to report to the department on December 31 of
each year and quarterly thereafter the insurer's losses from
covered events for the year and the quarter.
       (b)  The department shall determine and pay, as soon as
practicable after receiving a report under Subsection (a), the
initial amount of reimbursement due and adjustments to that amount
based on later loss information. Adjustments to reimbursement
amounts shall require the department to pay, or the insurer to
return, amounts reflecting the most recent computation of losses.
       Sec. 1809.207.  LOANS TO MAINTAIN INSURER SOLVENCY. (a)
Each reimbursement contract must provide that the department shall
loan to an insurer, at market interest rates, the amounts necessary
to maintain the solvency of the insurer if the insurer demonstrates
to the satisfaction of the department that:
             (1)  the insurer is likely to qualify for reimbursement
under the contract; and
             (2)  the immediate receipt of money is likely to
prevent the insurer from becoming insolvent.
       (b)  A loan under Subsection (a) may not exceed an amount
equal to 50 percent of the department's estimate of the
reimbursement due the insurer. The insurer's reimbursement shall
be reduced by an amount equal to the amount of the loan and interest
on the loan.
       Sec. 1809.208.  EFFECT OF INSURER INSOLVENCY. (a) In this
section, the "net amount of all reimbursement moneys" means the
amount remaining after reimbursement for preliminary or duplicate
payments owed to private reinsurers, or other inuring reinsurance
payments to private reinsurers, that satisfy statutory or
contractual obligations to those reinsurers of the insolvent
insurer attributable to covered events. Notwithstanding any law to
the contrary, a private reinsurer described by this subsection
shall be reimbursed or otherwise paid before any payment to the
Texas Property and Casualty Insurance Guaranty Association under
Subsection (b).
       (b)  Each reimbursement contract must provide that in the
event of the insolvency of an insurer, the fund shall pay the net
amount of reimbursement all moneys owed to the insurer directly to
the Texas Property and Casualty Insurance Guaranty Association for
the benefit of the insurer's policyholders in this state. The
guaranty association shall pay all claims up to the maximum amount
permitted by Chapter 462. Any remaining moneys shall be paid pro
rata to claims not fully satisfied.
[Sections 1809.209-1809.250 reserved for expansion]
SUBCHAPTER F. REIMBURSEMENT IF FUNDS INSUFFICIENT
       Sec. 1809.251.  REIMBURSEMENT IF FUNDS INSUFFICIENT. If the
department determines that the current balance of the fund,
together with the amount that the department determines possible to
raise through public securities issued under Subchapter H, is
insufficient to reimburse all insurers at the level promised under
the reimbursement contracts, the department shall reimburse
insurers as provided by this subchapter.
       Sec. 1809.252.  FIRST REIMBURSEMENT. (a) The department
shall first reimburse each insurer writing covered policies that is
determined by the department to:
             (1)  be in full compliance with this chapter;
             (2)  have surplus as to policyholders not exceeding $20
million; and
             (3)  write at least 25 percent of the insurer's
countrywide property insurance premium in this state.
       (b)  The amount of reimbursement made to an insurer under
Subsection (a) must be the lesser of:
             (1)  $10 million; or
             (2)  an amount equal to 10 times the insurer's
reimbursement premium for the current year.
       (c)  The amount of reimbursement paid under this section may
not exceed the full amount of reimbursement promised by the
reimbursement contract.
       (d)  This section does not apply to any contract year in
which the year-end projected cash balance of the fund, exclusive of
any bonding capacity of the fund, exceeds an amount set by the
commissioner in consultation with the comptroller and the Texas
Public Finance Authority.
       Sec. 1809.253.  SECOND REIMBURSEMENT. After reimbursements
under Section 1809.252, the department shall pay to each insurer
the amount of reimbursement owed to that insurer, up to an amount
equal to the projected payout determined under Section 1809.254.
       Sec. 1809.254.  PRORATED REIMBURSEMENT. After
reimbursements under Section 1809.252, the department shall
establish the prorated reimbursement level at the highest level for
which any remaining fund balance or public security proceeds are
sufficient.
[Sections 1809.255-1809.300 reserved for expansion]
SUBCHAPTER G. REIMBURSEMENT PREMIUMS
       Sec. 1809.301.  PREMIUM PAYMENT. Each reimbursement
contract shall require the insurer to pay to the fund annually an
actuarially indicated premium for the promised reimbursement. In
establishing the premium, the department shall consider the
coverage level elected by the insurer under Section 1809.202 and
any factors that tend to enhance the actuarial sophistication of
ratemaking for the fund, including deductibles, type of
construction, type of coverage provided, relative concentration of
risks, and other factors considered appropriate by the
commissioner.
       Sec. 1809.302.  FORMULA FOR PAYMENT OF PREMIUM. (a) The
department shall select an independent consultant to develop a
formula for determining the actuarially indicated premium to be
paid to the fund. The formula must specify, for each zip code or
other limited geographical area, the amount to be paid by an insurer
for each $1,000 of insured value under covered policies in that zip
code or other area.
       (b)  The department may, at any time, revise the formula in
the manner provided by this section.
       Sec. 1809.303.  INSURER NOTICE; PAYMENT. (a) Not later than
September 1 of each year, each insurer shall notify the department
of the insurer's insured values under covered policies by zip code,
as of June 30 of that year.
       (b)  Based on the reports received under Subsection (a), the
department shall compute the premium due from each insurer, based
on the formula adopted under Section 1809.302. The insurer shall
pay the required annual premium under a periodic payment plan as
specified in the reimbursement contract. The department shall
provide for:
             (1)  payment of reimbursement premium in periodic
installments; and
             (2)  the adjustment of provisional premium
installments collected before submission of the exposure report to
reflect data in the exposure report.
       (c)  All premiums paid to the fund under reimbursement
contracts shall be treated as premium for approved reinsurance for
all accounting and regulatory purposes.
       Sec. 1809.304.  EMERGENCY ASSESSMENT. (a) If the Texas
Public Finance Authority determines that the amount of revenue
produced under this subchapter through reimbursement premiums is
insufficient to fund any public securities issued under Subchapter
H as necessary to pay reimbursement at the levels promised in the
reimbursement contracts, the authority shall direct the department
to levy an emergency assessment on each insurer writing property
and casualty insurance in this state.
       (b)  Except as otherwise provided by this subsection, each
affected insurer shall pay to the fund, by July 1 of each year, an
amount equal to two percent of the insurer's gross direct written
premium for the prior year from all property and casualty insurance
written in this state. If the governor has declared a state of
emergency under Chapter 418, Government Code, because of the
occurrence of a covered event, the amount of the emergency
assessment under this subsection may be increased to an amount not
exceeding four percent of that premium.
       (c)  The annual assessments under this section continue
until the public securities issued with respect to which the
assessment was imposed are retired.
       (d)  An insurer may not be subject to more than one
assessment under this section.
       (e)  Any rate filing or portion of a rate filing reflecting a
rate change attributable entirely to the assessment levied under
this section shall be deemed approved when made, subject to the
authority of the commissioner to require actuarial justification as
to the adequacy of any rate at any time. If the rate filing reflects
only a rate change attributable to the assessment under this
section, the filing may consist of a certification so stating.
[Sections 1809.305-1809.350 reserved for expansion]
SUBCHAPTER H. PUBLIC SECURITIES PROGRAM
       Sec. 1809.351.  PURPOSE. The legislature finds that the
issuance of public securities to fund a state program to provide
reimbursement to insurers for a portion of their losses incurred as
a result of certain natural disasters will create additional
insurance capacity to benefit this state's economy and the public
health, safety, and welfare.
       Sec. 1809.352.  DEFINITIONS. In this subchapter:
             (1)  "Board" means the board of directors of the Texas
Public Finance Authority.
             (2)  "Public security" means a debt instrument or other
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
subchapter.
       Sec. 1809.353.  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. 1809.354.  ISSUANCE OF PUBLIC SECURITIES AUTHORIZED.  
(a) On the occurrence of a covered event and a determination by the
comptroller that the amount in the fund will be insufficient to pay
reimbursement at the levels promised under reimbursement contracts
under this chapter, the commissioner shall request the Texas Public
Finance Authority to issue public securities for the benefit of the
fund.
       (b)  The Texas Public Finance Authority may issue, on behalf
of the department, public securities in an amount sufficient to
fund the obligations of the department under reimbursement
contracts entered into under this chapter as determined by the
department 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. 1809.355.  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 department; and
             (2)  mature not more than 15 years after the date
issued.
       Sec. 1809.356.  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. 1809.357.  SOURCE OF PAYMENT. (a) Public securities
issued under this subchapter are payable only from:
             (1)  the reimbursement premiums collected under
Subchapter G; or
             (2)  any other amounts that the department is
authorized to levy, charge, and collect on behalf of the fund.
       (b)  The public securities are obligations solely of the
department 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. 1809.358.  PAYMENT OF INTEREST. Interest on the public
securities issued under this subchapter shall be paid from the
reimbursement premiums collected under Subchapter G.
       Sec. 1809.359.  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. 1809.360.  AUTHORIZED INVESTMENTS. Public securities
issued under this subchapter are authorized investments under
Subchapter B, Chapter 424, and Subchapters C and D, Chapter 425.
       Sec. 1809.361.  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 department 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 department may include the state's pledge and
agreement under Subsection (a) in an agreement with the owners of
the public securities.
       Sec. 1809.362.  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 department 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.
[Sections 1809.363-1809.400 reserved for expansion]
SUBCHAPTER I. ENFORCEMENT
       Sec. 1809.401.  SANCTIONS. An insurer that violates this
chapter or a rule adopted under this chapter is subject to sanctions
under Chapter 82.
       SECTION 2.  The commissioner of insurance shall appoint the
advisory council established under Section 1809.054, Insurance
Code, as added by this Act, not later than the 30th day after the
effective date of this Act.
       SECTION 3.  The commissioner of insurance shall adopt the
initial contract forms required under Chapter 1809, Insurance Code,
as added by this Act, not later than the 30th day after the
effective date of this Act, and shall adopt the initial premium
formula not later than the 60th day after the effective date of this
Act.
       SECTION 4.  The Texas Department of Insurance shall enter
into reimbursement contracts with insurers under Chapter 1809,
Insurance Code, as added by this Act, not later than the 90th day
after the effective date of this Act.
       SECTION 5.  (a) Except as provided by Subsection (b), an
insurer is not required to comply with Chapter 1809, Insurance
Code, until the 90th day after the effective date of this Act.
       (b)  An insurer shall pay the advance premium payment
required under Section 1809.107, Insurance Code, as added by this
Act, not later than the 60th day after the effective date of this
Act.
       SECTION 6.  This Act takes effect immediately 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 the vote necessary for immediate effect, this
Act takes effect September 1, 2007.