80R10307 PB-F

By: Jackson, Mike S.B. No. 1473

A BILL TO BE ENTITLED

AN ACT

relating to the operation and funding of the Texas Windstorm Insurance Association.

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

SECTION 1. Section 2210.002, Insurance Code, is amended to read as follows:

Sec. 2210.002. SHORT TITLE; SUNSET PROVISION. (a) This chapter may be cited as the Texas Windstorm Insurance Association Act.

(b) The association is subject to review under Chapter 325, Government Code (Texas Sunset Act), but is not abolished under that chapter. The association shall be reviewed during the period in which state agencies abolished in 2009 are reviewed. This subsection expires September 1, 2009.

SECTION 2. Subchapter B, Chapter 2210, Insurance Code, is amended by adding Section 2210.0511 to read as follows:

Sec. 2210.0511. REQUIRED PERCENTAGE; SURCHARGE. (a) As a condition of the insurer's authority to engage in the business of property and casualty insurance in this state, each insurer subject to Section 2210.051(a) must write the same percentage of property and casualty insurance policies in the seacoast territory that the insurer writes in this state as a whole.

(b) If the commissioner determines that an insurer subject to Subsection (a) is not in compliance with that subsection, the commissioner shall assess the insurer a surcharge in an amount equal to five percent of the insurer's total premiums earned in the preceding calendar year from property and casualty insurance policies delivered, issued for delivery, or renewed in this state.

(c) Amounts collected as surcharges under Subsection (b) shall be remitted to the department for deposit in the catastrophe reserve trust fund.

(d) An insurer that becomes authorized to write and is engaged in writing insurance that requires the insurer to be a member of the association shall comply with Subsection (a) not later than January 1 of the year after the year in which the insurer becomes a member of the association.

SECTION 3. Section 2210.058, Insurance Code, is amended to read as follows:

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

(b) For each occurrence, not more than 50 percent of the amount as of the date of the occurrence in the catastrophe reserve trust fund established under Subchapter J, reduced by anticipated payments for 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.

(c) For each occurrence, for [follows:

[(1) $100 million shall be assessed against the members of the association as provided by Subsection (b);

[(2)] losses in excess of those paid under Subsection (b), an amount shall be assessed against the members of the association in the manner provided by Subsection (i). The amount may not exceed 2.5 percent of the members' written premiums, 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 and allied lines insurance, homeowners insurance, farm and ranch owners insurance, and commercial multiperil insurance. The association may not assess member insurers under this subsection more than twice in any calendar year.

(d) For each occurrence, losses [$100 million shall be paid from the catastrophe reserve trust fund established under Subchapter J and any reinsurance program established by the association;

[(3)for losses] in excess of those paid under Subsections (b) and (c) [Subdivisions (1) and (2), an additional $200 million] shall be paid from the proceeds of public securities issued by the association in accordance with Subchapter M before any catastrophic event that results in insured losses described under this section. Any proceeds from public securities that are received under this subsection must be used before any proceeds received by the association from public securities that are issued after any catastrophic event. The association may accelerate the repayment of public securities received under this subsection if funds are available for that accelerated repayment.

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

[(4)] losses in excess of those paid under Subsections (b)-(d), an amount [Subdivisions (1), (2), and (3)] shall be assessed against members of the association in the manner [, as] provided by Subsection (i) [(b)]. The amount may not exceed 2.5 percent of the insurers' written premiums, 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 and allied lines insurance, homeowners insurance, farm and ranch owners insurance, and commercial multiperil insurance. The association may not assess member insurers under this subsection more than twice in any calendar year.

(f) Losses in excess of those paid under Subsections (b)-(e) shall be paid by the proceeds from public securities issued by the association in accordance with Subchapter M after any catastrophic event that results in insured losses described by this section.

(g) Losses in excess of those paid under Subsections (b)-(f) shall be assessed against members of the association in the manner provided by Subsection (i).

(h) Notwithstanding Subsections (b)-(g), losses described by this section may also be paid from any reinsurance proceeds recoverable by the association.

(i) [(b)] The proportion of the losses allocable to each insurer under Subsections (c), (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.

(j) [(c)] An insurer may credit an amount paid in accordance with Subsection (g) [(a)(4)] in a calendar year against the insurer's premium tax under Chapter 221. The tax credit authorized under this subsection shall be allowed without limit for insurers who write coverage in the first tier coastal counties, and at a rate not to exceed 20 percent per year for five or more successive years following the year of payment of the claims for other insurers. The balance of payments made by the insurer and not claimed as a premium tax credit may be reflected in the books and records of the insurer as an admitted asset of the insurer for all purposes, including exhibition in an annual statement under Section 862.001.

SECTION 4. 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(j) [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(j) [2210.058(c)].

SECTION 5. Section 2210.101, Insurance Code, is amended to read as follows:

Sec. 2210.101. ACCOUNTABLE TO GOVERNOR [COMMISSIONER]. The board of directors is responsible and accountable to the governor [commissioner].

SECTION 6. Section 2210.102(a), Insurance Code, is amended to read as follows:

(a) The board of directors is composed of the following nine members appointed by the governor:

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

(2) three [two] public representatives, at least one of whom [who are nominated by the office of public insurance counsel and who], as of the date of the appointment:

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

(B) is a policyholder [are policyholders] of the association; and

(3) two general property and casualty agents:

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

(B) at least one of whom [whose principal offices], as of the date of the appointment, maintains the agent's principal office [are located] in a catastrophe area.

SECTION 7. Section 2210.103, Insurance Code, is amended to read as follows:

Sec. 2210.103. TERMS. (a) Members of the board of directors serve two-year [three-year staggered] terms[, with the terms of three members expiring on the third Tuesday of March of each year].

(b) A person may serve on the board of directors for not more than three consecutive full terms[, not to exceed nine years].

(c) The governor shall appoint a replacement for a member who leaves or is removed from the board of directors in the manner provided by Section 2210.102.

SECTION 8. Subchapter F, Chapter 2210, Insurance Code, is amended by adding Section 2210.258 to read as follows:

Sec. 2210.258. SURCHARGE FOR CERTAIN NONCOMPLIANT CONSTRUCTION. (a) For purposes of this section, property is not in compliance with mandatory building codes if:

(1) the property has not been approved or inspected by the department for compliance with the plan of operation in accordance with Section 2210.251(a); or

(2) a certificate of compliance has not been issued by the department in accordance with Section 2210.251(f).

(b) A policyholder of the association whose property is determined to not be in compliance as provided by Subsection (a) is subject to a premium surcharge for insurance coverage obtained through the association. The surcharge shall be an amount not less than an amount equal to 25 percent of the premium, as determined by the commissioner after notice and a hearing.

SECTION 9. Section 2210.452, Insurance Code, is amended by amending Subsections (a) and (d) and by adding Subsection (f) to read as follows:

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

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

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

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

(f) The association may use money from the trust fund only as prescribed by rule by the commissioner.

SECTION 10. Chapter 2210, Insurance Code, is amended by adding Subchapter M to read as follows: SUBCHAPTER M. PUBLIC SECURITIES PROGRAM

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

Sec. 2210.602. DEFINITIONS. In this subchapter:

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

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

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

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

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

(b) The following laws also apply to public securities issued under this subchapter to the extent consistent with this section:

(1) Chapters 1201, 1202, 1204, 1205, 1231, and 1371, Government Code; and

(2) Subchapter A, Chapter 1206, Government Code.

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

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

(A) establish and maintain reserves to pay claims;

(B) pay incurred claims;

(C) pay operating expenses; and

(D) purchase reinsurance;

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

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

(b) The Texas Public Finance Authority may issue, on behalf of the association, public securities in an amount sufficient to fund the insured losses and operating expenses of the association as determined by the association and approved by the commissioner after at least 10 days' notice and a hearing if a hearing is requested by any person within the 10-day notice period.

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

(b) Public securities must:

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

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

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

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

(2) make additional covenants with respect to the public securities and the designated income and receipts of the association pledged to the payment of the public securities.

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

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

(1) the service fees established under Section 2210.609 or 2210.610, as applicable; or

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

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

(c) Each public security must:

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

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

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

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

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

(b) If the association is unable to pay the interest on a public security described by Subsection (a) with existing premiums, the interest on the public securities shall be paid from the service fees collected in accordance with Sections 2210.609 and 2210.610.

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

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

(c) On approval by the commissioner after at least 10 days' notice and a hearing, if a hearing is requested by any person within the 10-day notice period, each insurer, the association, and the FAIR Plan Association shall charge the service fee to its policyholders. The service fee must be set in an amount sufficient to pay all debt service and all related expenses on the public securities. The service fee shall be collected in the form of a premium surcharge in an amount not to exceed six percent of premium, and shall be remitted to the association as required by the commissioner by rule.

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

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

Sec. 2210.610. POST-EVENT SERVICE FEE; PREMIUM SURCHARGE. (a) A fee to service public securities issued by the association after a catastrophic event may be collected by each insurer, the association, and the FAIR Plan Association from policyholders who reside or have operations in, or whose insured property is located in, this state.

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

(c) On approval by the commissioner after at least 10 days' notice and a hearing, if a hearing is requested by any person within the 10-day notice period, each insurer, the association, and the FAIR Plan Association shall charge the service fee to its policyholders. The service fee must be set in an amount sufficient to pay all debt service and all related expenses on the public securities. The service fee shall be collected in the form of a premium surcharge in an amount not to exceed 0.5 percent of premium, and shall be remitted to the association as required by the commissioner by rule.

(d) The commissioner may, after notice and a hearing, increase the premium surcharge limit under Subsection (c) on a finding that an occurrence or series of occurrences resulting in losses in the catastrophe area justify a need to:

(1) limit assessments made in accordance with Section 2210.058(g); or

(2) limit premium tax credits resulting from assessments in accordance with Section 2210.058(j).

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

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

Sec. 2210.611. EXEMPTION FROM TAXATION. Public securities issued under this subchapter, any interest from those public securities, and all assets pledged to secure the payment of the public securities are free from taxation by the state or a political subdivision of this state.

Sec. 2210.612. AUTHORIZED INVESTMENTS. Public securities issued under this subchapter are authorized investments under Subchapter B, Chapter 424, and Subchapters C and D, Chapter 425.

Sec. 2210.613. STATE PLEDGE REGARDING PUBLIC SECURITY OWNER RIGHTS AND REMEDIES. (a) The state pledges to and agrees with the owners of public securities issued in accordance with this subchapter that the state will not limit or alter the rights vested in the association to fulfill the terms of agreements made with the owners or in any way impair the rights and remedies of those owners until the following obligations are fully discharged:

(1) the public securities;

(2) any bond premium;

(3) interest; and

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

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

Sec. 2210.614. PAYMENT ENFORCEABLE BY MANDAMUS. A writ of mandamus and any other legal or equitable remedy are available to a party in interest to require the association or another party to fulfill an agreement or perform a function or duty under:

(1) this subchapter;

(2) the Texas Constitution; or

(3) a public security resolution.

SECTION 11. 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 12. 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 13. Subchapter A, Chapter 981, Insurance Code, is amended by adding Section 981.0041 to read as follows:

Sec. 981.0041. LIMITATIONS ON UNAFFILIATED SURPLUS LINES INSURERS. (a) In this section:

(1) "Affiliate" means a person or entity described by Section 823.003(a).

(2) "Windstorm insurance" means insurance against:

(A) direct loss to insurable property incurred as a result of windstorm or hail, as those terms are defined and limited in policies and forms approved by the department under Chapter 2210; and

(B) indirect losses resulting from the direct loss.

(b) Notwithstanding any other provision of this code or other law, a surplus lines insurer that is not an affiliate of an insurer that holds a certificate of authority issued by the department to engage in the business of property and casualty insurance in this state may only write surplus lines insurance for property located in this state if the surplus lines insurer also writes windstorm insurance in this state.

SECTION 14. (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 effective December 31, 2007.

(b) The governor 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, for terms beginning on January 1, 2008.

(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 December 31, 2007. Such a person is eligible for appointment by the governor to the new board of directors of the Texas Windstorm Insurance Association under Section 2210.102, Insurance Code, as amended by this Act.

SECTION 15. 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.