80R10154 PB-F

By: Fraser S.B. No. 1155

A BILL TO BE ENTITLED

AN ACT

relating to operation of the Texas Windstorm Insurance Association and the Texas FAIR Plan 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 2210.003, Insurance Code, is amended by adding Subdivision (3-a) to read as follows:

(3-a) "Fair share company" means a member of the association if, for any applicable calendar year, the ratio of that member's net direct premium written in the catastrophe area to all members' net direct premium written in the catastrophe area equals or exceeds the ratio of that member's net direct premium written statewide to all members' net direct premium written statewide for fire and allied lines insurance, homeowners insurance, farm and ranch owners insurance, and commercial multiperil insurance.

SECTION 2. Section 2210.005, Insurance Code, is amended by adding Subsections (e) through (h) to read as follows:

(e) After at least 10 days' notice and a hearing, the commissioner may determine, unless such a determination creates an adverse impact to the exposure of the association, that windstorm and hail insurance or fire and explosion insurance is not reasonably available to a group that is located in a specified area of the state and that has similar risk characteristics. On such a determination by the commissioner, that group of risks shall be considered the same as a risk that is located in a catastrophe area or an inadequate fire insurance area for all purposes under this chapter.

(f) The commissioner shall revoke a determination made under Subsection (e) if the commissioner determines, after at least 10 days' notice and a hearing, that the applicable insurance coverage is no longer reasonably unavailable to a group determined to be eligible under Subsection (e).

(g) If the association determines that windstorm and hail insurance or fire and explosion insurance, as applicable, is no longer reasonably unavailable to a group determined to be eligible under Subsection (e), the association may request in writing that the commissioner revoke the determination. After at least 10 days' notice and a hearing, but not later than the 30th day after the date of the hearing, the commissioner shall:

(1) approve the request and revoke the determination; or

(2) reject the request.

(h) The commissioner may adopt reasonable and necessary rules in the manner prescribed by Subchapter A, Chapter 36, to implement this section.

SECTION 3. Section 2210.008, Insurance Code, is amended to read as follows:

Sec. 2210.008. DEPARTMENT ORDERS; RULEMAKING AUTHORITY. (a) The [After notice and hearing as provided by Subsection (b), the] commissioner may issue any orders that the commissioner considers necessary to implement this chapter [, including orders regarding maximum rates, competitive rates, and policy forms].

(b) The commissioner may adopt rules in the manner prescribed by Subchapter A, Chapter 36, as reasonable and necessary to implement this chapter. [Before the commissioner adopts an order, the department shall post notice of the hearing on the order at the secretary of state's office in Austin and shall hold a hearing to consider the proposed order. Any person may appear at the hearing and testify for or against the adoption of the order.]

SECTION 4. Section 2210.052, Insurance Code, is amended by amending Subsections (a) and (d) and adding Subsection (e) to read as follows:

(a) Each member of the association shall participate in insured losses and operating expenses of the association, in excess of premium and other revenue [the writings, expenses, profits, and losses] of the association, in the proportion that the net direct premiums of that member during the preceding calendar year bears to the aggregate net direct premiums by all members of the association, as determined using the information provided under Subsection (b).

(d) Notwithstanding Subsection (a), a member, in accordance with the plan of operation, is entitled to receive credit for similar insurance voluntarily written in areas [an area] designated by the commissioner. The member's participation in the insured losses and operating expenses of the association in excess of premium and other revenue [writings] of the association shall be reduced in accordance with the plan of operation.

(e) Notwithstanding Subsections (a)-(d), an insurer that becomes a member of the association and that has not previously been a member of the association is not subject to participation in any insured losses and operating expenses of the association in excess of premium and other revenue of the association until the second anniversary of the date on which the insurer first becomes a member of the association. The commissioner may adopt procedures in the plan of operation for reduced assessments for such an insurer for an additional period, not to exceed three years, beyond the initial exemption under this subsection.

SECTION 5. 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 and operating expenses shall be paid as provided by this section.

(b) For each occurrence, an amount equal to a maximum of 2.5 percent of all the direct premiums written by all the members of the association and the Texas FAIR Plan Association, as reported in the annual statement filed with the department for the calendar year immediately preceding the year in which the assessment is made for fire insurance and allied lines insurance, homeowners insurance, farm and ranch insurance, and commercial multiperil insurance, shall be computed and [follows:

[(1)$100 million shall be] assessed against the members of the association and the Texas FAIR Plan Association as provided by Subsection (h). The association may not assess members of the association and the Texas FAIR Plan Association under this subsection more than twice in any calendar year. [(b) ;]

(c) Losses [(2)losses] in excess of those paid under Subsection (b) [$100 million] shall be paid as provided by this subsection from the catastrophe reserve trust fund established under Subchapter J. For each occurrence, 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 unless the commissioner determines that a greater percentage should be applied after at least 10 days' notice and a hearing, if a hearing is requested by any person within the 10-day notice period. If the trust fund is reduced by more than 50 percent in any calendar year, the association may, with the approval of the commissioner, require each member of the association and the Texas FAIR Plan Association to collect a premium surcharge for one year from their respective policyholders who reside or have operations in, or whose insured property is located in, the catastrophe area. The premium surcharge may not exceed two percent of premium, and applies to all policies of insurance for all property and casualty lines, other than workers' compensation insurance, accident and health insurance, and medical malpractice insurance. The premium surcharge collected under this subsection shall be deposited in the catastrophe reserve trust fund.

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

[(3)for] losses in excess of those paid under Subsections (b) and (c) [those paid under Subdivisions (1) and (2), an additional $200 million] shall be paid with 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), as provided by Subsection (j).

(e) For [assessed against the members of the association, as provided by Subsection (b); and

[(4)] losses in excess of those paid under Subsections (a), (b), and (c), an amount equal to a maximum of four percent of all the direct premiums written by all the members of the association and the Texas FAIR Plan Association, as reported in the annual statement filed with the department for the calendar year immediately preceding the year in which the assessment is made for fire insurance and allied lines insurance, homeowners insurance, farm and ranch insurance, and commercial multiperil insurance, [Subdivisions (1), (2), and (3)] shall be computed and assessed against the members of the association and the Texas FAIR Plan Association, as provided by Subsection (h) [(b)]. The association may not assess members of the association and the Texas FAIR Plan Association under this subsection more than twice in any calendar year.

(f) Any losses in excess of those paid under Subsections (b)-(e) 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), as provided by Subsection (k).

(g) Any losses in excess of those paid under Subsections (b)-(f) shall be assessed against members of the association and the Texas FAIR Plan Association, as provided by Subsection (h).

(h) [(b)] The proportion of the losses allocable to each insurer and the Texas FAIR Plan Association under Subsections (b), (e), 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, and as to the Texas FAIR Plan Association, as provided by the plan of operation.

(i) [(c)] An insurer and the Texas FAIR Plan Association may credit an amount paid in accordance with Subsection (g) [(a)(4)] in a calendar year against the insurer's and Texas FAIR Plan Association'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 assessment [claims]. The balance of payments made by the insurer and the Texas FAIR Plan Association and not claimed as a premium tax credit may be reflected in the books and records of the insurer and the Texas FAIR Plan Association as an admitted asset of the insurer and the Texas FAIR Plan Association for all purposes, including exhibition in an annual statement under Section 862.001.

(j) Public securities described by Subsection (d) may be issued in principal amounts not to exceed $1.2 billion. Any public securities proceeds received under Subsection (d) must be used before the proceeds of any public securities that the association authorizes to be issued under Subsection (f) on or after any catastrophic event, and may not be used to fund losses of any catastrophic event occurring before the date on which public securities described by Subsection (d) are authorized to be issued.

(k) Public securities described by Subsection (f) may be issued in principal amounts not to exceed $5 billion.

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

(m) The commissioner may adopt rules in the manner provided by Subchapter A, Chapter 36, as necessary to implement this section.

SECTION 6. 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 7. Section 2210.060(c), Insurance Code, is amended to read as follows:

(c) Subsection (a) does not authorize the association to indemnify a member of the association for participating in the assessments made by [writings, expenses, profits, and losses of] the association in the manner provided by this chapter.

SECTION 8. Section 2210.102, Insurance Code, is amended to read as follows:

Sec. 2210.102. COMPOSITION. (a) The board of directors is composed of the following 11 [nine] members appointed by the commissioner:

(1) five members who represent the interests of [representatives of different] insurers [who are members of the association, elected by the members as provided by the plan of operation];

(2) four members who represent the interests of the [two] public:

(A) two of whom [representatives who are nominated by the office of public insurance counsel and who], as of the date of the appointment:

(i) [(A)] reside in a catastrophe area; and

(ii) [(B)] are policyholders of the association; and

(B) two of whom, as of the date of the appointment:

(i) reside outside a catastrophe area; and

(ii) are not policyholders of the association; and

(3) two members who are general property and casualty agents licensed under this code:

(A) who are not captive agents;

(B) who have demonstrated experience in the association; and

(C) [(B)] whose principal offices, as of the date of the appointment, are located in a catastrophe area.

(b) To be eligible to serve on the board of directors as a representative of insurers, a person must be a full-time employee of an authorized insurer that is a member of the association.

(c) A member of the board of directors serves at the pleasure of the commissioner. The commissioner shall appoint a replacement for a member who leaves or is removed from the board of directors in the manner provided by Subsection (a). [The persons appointed under Subsections (a)(2) and (3) must be from different counties.]

SECTION 9. Section 2210.152(a), Insurance Code, is amended to read as follows:

(a) The plan of operation must:

(1) provide for the efficient, economical, fair, and nondiscriminatory administration of the association; and

(2) include:

(A) a plan for the equitable assessment of the members of the association to defray losses and expenses;

(B) underwriting standards;

(C) procedures for accepting and ceding reinsurance;

(D) procedures for determining the amount of insurance to be provided to specific risks;

(E) time limits and procedures for processing applications for insurance; [and]

(F) a plan for the assessment of the Texas FAIR Plan Association; and

(G) other provisions as considered necessary by the department to implement the purposes of this chapter.

SECTION 10. Section 2210.251, Insurance Code, is amended by adding Subsections (i), (j), and (k) to read as follows:

(i) The department may charge a reasonable fee for each inspection in an amount set by commissioner rule. All fees collected under this section shall be deposited to the credit of the Texas Department of Insurance operating account.

(j) In the event of an occurrence or series of occurrences within a defined catastrophe area that results in widespread destruction of property, the association may:

(1) transfer to the department assets as considered appropriate and necessary by the association to fund inspections, including the funding of expenses for:

(A) independent contractors hired by the department to serve as temporary qualified inspectors; and

(B) other persons designated by the department to assist with inspections or related responsibilities as necessary to facilitate recovery, rebuilding, and repair in the affected catastrophe area; or

(2) hire independent contractors and other persons as described by Subdivision (1) as necessary to facilitate recovery, rebuilding, and repair in the affected catastrophe area.

(k) The commissioner may adopt rules in the manner prescribed by Subchapter A, Chapter 36, as necessary to implement this section.

SECTION 11. Subchapter F, Chapter 2210, Insurance Code, is amended by adding Section 2210.2521 to read as follows:

Sec. 2210.2521. MANDATORY COMPLIANCE WITH CERTAIN BUILDING CODES. Notwithstanding any other provision of this chapter, all construction of, and repairs and additions to, property located in the catastrophe area begun on or after January 1, 2008, must be in compliance with the applicable building code standards set forth in the plan of operation.

SECTION 12. Section 2210.351, Insurance Code, is amended by amending Subsection (c) and adding Subsection (f) to read as follows:

(c) Except as provided by Section 2210.352(a-1), as [As] soon as reasonably possible after the filing has been made, the commissioner in writing shall approve, modify, or disapprove the filing. A filing is considered approved unless modified or disapproved on or before the 30th day after the date of the filing.

(f) The association's rates must include a premium surcharge in the amount of 10 percent of premium for nonhomestead residential properties.

SECTION 13. Section 2210.352, Insurance Code, is amended by amending Subsection (a) and adding Subsection (a-1) to read as follows:

(a) Not later than August 15 of each year, the association shall file with the department [for approval by the commissioner] a proposed manual rate for all types and classes of risks written by the association. Chapter 40 does not apply to:

(1) a filing made under this subsection; or

(2) a department action with respect to the filing.

(a-1) The association may use a rate filed by the association without prior commissioner approval if:

(1) the filing is made not later than the 60th day before the date of any use or delivery for use of the rate;

(2) the filed rate does not exceed 105 percent of the rate used by the association during the preceding 12-month period;

(3) the filed rate does not reflect a rate change for an individual rating class that is five percent higher than any rate used by the association for that rating class during the preceding 12-month period; and

(4) the commissioner has not provided written notice to the association that the filing will be disapproved or modified under the procedure established under Subsections (b)-(g).

SECTION 14. Section 2210.354(a), Insurance Code, is amended to read as follows:

(a) In conjunction with the review of a filing under Section 2210.352 or 2210.353:

(1) the commissioner may request the association to provide additional supporting information relating to the filing; and

(2) in the case of a filing in which the filed rate exceeds 105 percent of the rate used by the association during the preceding 12-month period, any interested person may file a written request with the commissioner for additional supporting information relating to the filing.

SECTION 15. Section 2210.355, Insurance Code, is amended by adding Subsections (h), (i), and (j) to read as follows:

(h) The effect of the use of hurricane models in determining the catastrophe element of the association's rates may not increase the association's rates by more than five percent within any calendar year. This subsection does not apply to the reinsurance cost element of the association's rates.

(i) The commissioner may limit any increase in the reinsurance cost element of the association's rates after consideration of the effect of the use of hurricane models in determining the catastrophe element of the association's rates.

(j) The association may establish rating territories and may vary rates among the territories.

SECTION 16. Section 2210.452, Insurance Code, is amended by amending Subsections (a) and (c) and adding Subsection (f) to read as follows:

(a) The commissioner shall adopt rules under which the association makes [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 and the Texas FAIR Plan Association that give rise to tax credits in the event of loss.

(c) At the end of each calendar year or policy year, the association shall pay the net gain from operations [equity] of the association [a member], including all premium and other revenue of the association in excess of incurred losses and operating expenses, to the trust fund or a reinsurance program approved by the commissioner. For the purposes of this subsection, "operating expenses" includes the cost of any reinsurance.

(f) For each calendar year in which an insurer that is a member of the association does not qualify as a fair share company, the insurer must pay an amount equal to 0.5 percent of the insurer's net direct premium for fire insurance, allied lines insurance, homeowners insurance, farm and ranch owners insurance, and commercial multiperil insurance to the association in the manner provided by the plan of operation. The association shall deposit all amounts paid under this subsection in the trust fund.

SECTION 17. Section 2210.453, Insurance Code, is amended to read as follows:

Sec. 2210.453. REINSURANCE PROGRAM. (a) The association may [shall]:

(1) make payments into the trust fund; and [or]

(2) purchase [establish a] reinsurance as part of the association's annual operating expenses to the extent [program] approved by the commissioner [department].

(b) With the approval of the commissioner [department], the association may purchase [establish a] reinsurance [program] that operates in addition to or in concert with the trust fund and with assessments authorized by this chapter.

SECTION 18. 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 authorizing the issuance of public securities to provide a method to raise funds to provide windstorm, hail, and fire insurance through the association in certain designated portions of the state is for the benefit of the public and in furtherance of a public purpose.

Sec. 2210.602. DEFINITIONS. In this subchapter:

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

(2) "Credit agreement" means:

(A) a loan agreement;

(B) a revolving credit agreement, an agreement establishing a line of credit, or a letter of credit;

(C) an interest rate swap agreement, an interest rate lock agreement, a currency swap agreement, or a forward payment conversion agreement;

(D) an agreement to provide payments based on levels of or changes in interest rates or currency exchange rates;

(E) an agreement to exchange cash flows or a series of payments;

(F) an option, put, or call to hedge payment, currency, interest rate, or other exposure; or

(G) another agreement that enhances the marketability, security, or creditworthiness of a public security issued under this subchapter.

(3) "Insurer" means each property and casualty insurer authorized to engage in the business of property and casualty insurance in this state and an affiliate of such an insurer, as described by Section 823.003, including an affiliate that is not 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.

(4) "Post-event public securities" means public securities authorized to be issued on or after the occurrence of a catastrophic event.

(5) "Pre-event public securities" means public securities authorized to be issued before the occurrence of a catastrophic event.

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

(7) "Public security administrative expenses" means expenses incurred to administer public securities issued under this subchapter, including fees for paying agents, trustees, and attorneys, and for other professional services necessary to ensure compliance with applicable state or federal law.

(8) "Public security obligations" means the principal of a public security and any premium and interest on a public security issued under this subchapter, together with any amount owed under a related credit agreement.

(9) "Public security obligation revenue fund" means the dedicated trust fund established by the association outside the state treasury under this subchapter.

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

Sec. 2210.603. APPLICABILITY OF OTHER LAWS. The board shall issue the public securities as described by Section 2210.604 in accordance with and subject to the requirements of Chapter 1232, Government Code, and other provisions of Title 9, Government Code, that apply to issuance of a public security by a state agency. In the event of a conflict, this subchapter controls.

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 pre-event or post-event public securities.

(b) The association shall specify in the association's request to the board the maximum principal amount of the public securities, not to exceed $500 million for any separate issue, and the maximum term of the public securities, not to exceed 10 years.

(c) The principal amount determined by the association under Subsection (b) may be increased to include an amount sufficient to:

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

(2) provide a public security reserve fund; and

(3) capitalize interest for the period determined necessary by the association, not to exceed two years.

Sec. 2210.605. TERMS OF ISSUANCE. (a) The board shall determine the method of sale, type and form of public security, maximum interest rates, and other terms of the public securities that, in the board's judgment, best achieve the goals of the association and effect the borrowing at the lowest practicable cost. The board may enter into a credit agreement in connection with the public securities.

(b) Public securities must be issued in the name of the association.

Sec. 2210.606. ADDITIONAL COVENANTS. The board may make additional covenants with respect to the public securities and the designated income and receipts of the association pledged to their payment, provide for the flow of funds and the establishment, maintenance, and investment of funds and accounts with respect to the public securities, and the administration of those funds and accounts, as provided in the proceedings authorizing the public securities.

Sec. 2210.607. PUBLIC SECURITY PROCEEDS. The proceeds of public securities issued by the board under this subchapter may be deposited with a trustee selected by the association in consultation with the commissioner or held by the comptroller in a dedicated trust fund outside the state treasury in the custody of the comptroller.

Sec. 2210.608. USE OF PUBLIC SECURITY PROCEEDS. (a) Public security proceeds, including investment income, shall be held in trust for the exclusive use and benefit of the association. The association may use the proceeds to:

(1) pay incurred claims and operating expenses of the association;

(2) purchase reinsurance for the association;

(3) pay the costs of issuing the public securities, and public security administrative expenses, if any;

(4) provide a public security reserve; and

(5) pay capitalized interest and principal on the public securities for the period determined necessary by the association, not to exceed two years.

(b) Any excess public security proceeds remaining after the purposes for which the public securities were issued are satisfied may be used to purchase or redeem outstanding public securities. If there are no outstanding public security obligations or public security administrative expenses, the excess proceeds shall be transferred to the catastrophe reserve trust fund.

Sec. 2210.609. REPAYMENT OF ASSOCIATION'S PUBLIC SECURITY OBLIGATIONS. (a) The association shall pay all public security obligations from available funds collected by the association from and deposited into the public security obligation revenue fund. If the association determines that it is unable to pay the public security obligations and public security administrative expenses, if any, with available funds, the association shall pay those obligations and expenses in accordance with Sections 2210.612 and 2210.613.

(b) The board shall notify the association of the amount of the public security obligations and the estimated amount of public security administrative expenses, if any, each year in a period sufficient, as determined by the association, to permit the association to determine the availability of funds and assess a premium surcharge if necessary.

(c) The association shall deposit all revenue collected under Sections 2210.612 and 2210.613 in the public security obligation revenue fund. Money deposited in the fund may be invested as permitted by general law. Money in the fund required to be used to pay public security obligations and public security administrative expenses, if any, shall be transferred to the appropriate funds in the manner and at the time specified in the proceedings authorizing the public securities to ensure timely payment of obligations and expenses.

(d) The association shall provide for the payment of the public security obligations and the public security administrative expenses by irrevocably pledging revenues received from premiums, premium surcharges, and amounts on deposit in the public security obligation revenue fund, together with any public security reserve fund, as provided in the proceedings authorizing the public securities and related credit agreements.

(e) An amount owed by the board under a credit agreement shall be payable from and secured by a pledge of revenues received by the association or amounts from the obligation trust fund to the extent provided in the proceedings authorizing the credit agreement.

Sec. 2210.610. PUBLIC SECURITY PAYMENTS. (a) Revenues received from the premium surcharges under Section 2210.612 or 2210.613 may be applied only as provided by this subchapter.

(b) The association may pay public security obligations with other legally available funds.

(c) Public security obligations are payable only from sources provided for payment in this subchapter.

Sec. 2210.611. EXCESS REVENUE COLLECTIONS AND INVESTMENT EARNINGS. Revenue collected in any year from a premium surcharge under Section 2210.612 or 2210.613 that exceeds the amount of the public security obligations and public security administrative expenses payable in that year and interest earned on the public security obligation fund may, in the discretion of the association, be:

(1) used to pay public security obligations payable in the subsequent year, offsetting the amount of the premium surcharge that would otherwise be required to be levied for the year under this subchapter;

(2) used to redeem or purchase outstanding public securities; or

(3) deposited in the catastrophe reserve trust fund.

Sec. 2210.612. PRE-EVENT PREMIUM SURCHARGE. (a) Each insurer, the association, and the Texas FAIR Plan Association may collect from their policyholders a surcharge in addition to any premiums to pay public security obligations and public security administrative expenses, if any, on pre-event public securities.

(b) The association shall determine the premium surcharge at least annually.

(c) On approval by the commissioner, each insurer, the association, and the Texas FAIR Plan Association shall assess a premium surcharge to its policyholders as provided by this section. The premium surcharge must be set in an amount sufficient to pay all debt service not already covered by available funds and all related expenses on the public securities. The premium surcharge assessed under this section may not exceed six percent of premium, and may not cumulatively exceed 10 percent of premium over the course of a 12-month period beginning with the first assessment of the surcharge.

(d) The association shall collect the premium surcharge from its policyholders. Each insurer and the Texas FAIR Plan Association shall collect the premium surcharge from their policyholders who have a property or casualty policy that provides coverage for premises, locations, operations, or property located in the catastrophe area and shall remit the premium surcharge to the association as required by commissioner rule.

(e) A premium surcharge under this section shall apply to all policies that provide coverage on any premises, locations, operations, or property located in the catastrophe area for all property and casualty lines of insurance, other than workers' compensation insurance, accident and health insurance, and medical malpractice insurance. The premium surcharge does not apply to premiums charged for any premises, locations, operations, or property located outside the catastrophe area, except for premiums charged by the association for property insured by the association.

(f) A premium surcharge under this section is a separate charge in addition to the premiums collected and is not subject to premium tax or commissions. Failure to pay the surcharge by a policyholder constitutes failure to pay premium for purposes of policy cancellation.

Sec. 2210.613. POST-EVENT PREMIUM SURCHARGE. (a) Each insurer, the association, and the Texas FAIR Plan Association shall collect from their policyholders a premium surcharge to pay public security obligations and public security administrative expenses, if any, on post-event public securities.

(b) The association shall determine the premium surcharge at least annually.

(c) On approval by the commissioner, each insurer, the association, and the Texas FAIR Plan Association shall assess a premium surcharge to its policyholders as provided by this section. The premium surcharge must be set in an amount sufficient to pay all debt service and all related expenses on the public securities. The premium surcharge assessed under this section may not exceed 3.2 percent of premium.

(d) Each insurer, the association, and the Texas FAIR Plan Association shall collect the premium surcharge under this section from their policyholders who have a property or casualty policy that provides coverage for premises, locations, operations, or property located in this state, and shall remit the premium surcharge to the association as required by commissioner rule.

(e) A premium surcharge under this section shall apply to all policies that provide coverage on any premises, locations, operations, or property located in this state for all property and casualty lines of insurance, other than workers' compensation insurance, accident and health insurance, and medical malpractice insurance. The premium surcharge does not apply to premiums charged for any premises, locations, operations, or property located outside this state.

(f) A premium surcharge under this section is a separate charge in addition to the premiums collected and is not subject to premium tax or commissions. Failure to pay the surcharge by a policyholder constitutes failure to pay premium for purposes of policy cancellation.

Sec. 2210.614. SOURCE OF PAYMENT; STATE DEBT NOT CREATED. (a) A public security or credit agreement is payable solely from revenue as provided by this subchapter.

(b) A public security issued under this subchapter, and any related credit agreement, is not a debt of this state or any state agency or political subdivision of this state, and does not constitute a pledge of the faith and credit of this state or any state agency or political subdivision of this state.

(c) Each public security, and any related credit agreement, issued under this chapter must state on the security's face that:

(1) neither the state nor a state agency, political corporation, or political subdivision of the state is obligated to pay the principal of or interest on the public security except as provided by this subchapter; and

(2) neither the faith and credit nor the taxing power of the state or any state agency, political corporation, or political subdivision of the state is pledged to the payment of the principal of or interest on the public security.

Sec. 2210.615. STATE NOT TO IMPAIR PUBLIC SECURITY OBLIGATIONS. If public securities under this subchapter are outstanding, the state may not:

(1) take action to limit or restrict the rights of the association to fulfill its responsibility to pay public security obligations; or

(2) in any way impair the rights and remedies of the public security owners until the public securities are fully discharged.

Sec. 2210.616. ENFORCEMENT BY MANDAMUS. A writ of mandamus and any other legal and equitable remedies are available to a party at interest to require the association or another party to fulfill an agreement and to perform functions and duties under:

(1) this subchapter;

(2) the Texas Constitution; or

(3) a relevant public security resolution.

Sec. 2210.617. EXEMPTION FROM TAXATION. A public security issued under this subchapter, any transaction relating to the public security, and profits made from the sale of the public security are exempt from taxation by this state or by a municipality or other political subdivision of this state.

Sec. 2210.618. NO PERSONAL LIABILITY. The members of the association, association employees, the board, the employees of the Texas Public Finance Authority, the commissioner, and department employees are not personally liable as a result of exercising the rights and responsibilities granted under this subchapter.

Sec. 2210.619. AUTHORIZED INVESTMENTS. Public securities issued under this subchapter are authorized investments under:

(1) Subchapter B, Chapter 424;

(2) Subchapter C, Chapter 425; and

(3) Sections 425.203-425.213.

SECTION 19. Section 2211.104, Insurance Code, is amended to read as follows:

Sec. 2211.104. ADDITIONAL ASSESSMENT IN EVENT OF DEFICIT; PREMIUM SURCHARGE AUTHORIZED. (a) Except as provided by Subsection (f), if [If] the association incurs a deficit, the association, at the commissioner's direction, shall:

(1) request the issuance of public securities as authorized by Subchapter E; or

(2) assess participating insurers in accordance with this section.

(b) Except as provided by Subsection (f), as [As] reimbursement for assessments paid under this section or service fees paid under Section 2211.209, each insurer may charge a premium surcharge on every property insurance policy insuring property in this state that the insurer issues, the effective date of which is within the three-year period beginning on the 90th day after the date of the assessment or the 90th day after the date the service fee under Section 2211.209 is paid, as applicable.

(c) Except as provided by Subsection (f), insurers [The insurer] shall compute the amount of the surcharge under Subsection (b) as a uniform percentage of the premium on each policy described by Subsection (b). The percentage must be equal to one-third of the ratio of the amount of the participating insurer's assessment or service fee payment to the amount of the insurer's direct earned premiums, as reported to the department in the insurer's financial statement for the calendar year preceding the year in which the assessment or service fee payment is made so that, over the three-year period, the aggregate of all surcharges by the insurer under this section is at least equal to the amount of the assessment or service fee payment.

(d) The amount of any assessment paid and surcharged 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, until collected.

(e) The commissioner shall adopt rules and procedures as necessary to implement this section.

(f) In the event of an occurrence or series of occurrences resulting in deficits for the association and the Texas Windstorm Insurance Association, the commissioner may adopt rules in the manner provided by Subchapter A, Chapter 36, to provide for the coordinated recoupment of those deficits. The rules may not provide for a recoupment of assessments through premium tax credits.

SECTION 20. 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 21. 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 22. The following laws are repealed:

(1) Section 2210.103, Insurance Code; and

(2) Section 2210.356, Insurance Code.

SECTION 23. (a) The board of directors of the Texas Windstorm Insurance Association established under Section 2210.102, Insurance Code, as that section existed before amendment by this Act, is abolished on the 30th day after the effective date of this Act.

(b) The commissioner of insurance shall appoint the members of the board of directors of the Texas Windstorm Insurance Association under Section 2210.102, Insurance Code, as amended by this Act, not later than the 31st day after the effective date of 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 the 30th day after the effective date of this Act. 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 2210.102, Insurance Code, as amended by this Act.

SECTION 24. (a) In accordance with Section 311.031(c), Government Code, which gives effect to a substantive amendment enacted by the same legislature that codifies the amended statute, the text of Section 2211.104, Insurance Code, as set out in Section 19 of this Act, gives effect to changes made by Chapter 1082, Acts of the 79th Legislature, Regular Session, 2005.

(b) To the extent of any conflict, this Act prevails over another Act of the 80th Legislature, Regular Session, 2007, relating to nonsubstantive additions and corrections in enacted codes.

SECTION 25. 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.