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.