By: Smithee H.B. No. 3605

A BILL TO BE ENTITLED

AN ACT

relating to the payment of losses by the Texas Windstorm Insurance Association

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

SECTION 1. Section 2210.003, Insurance Code, is amended to read as follows:

Sec. 2210.003. GENERAL DEFINITIONS. In this chapter, unless the context clearly indicates otherwise:

(1) "Accident year" means the year in which a windstorm or hail event or events occur that results in insured losses, regardless of when the insured losses are ultimately paid.

(1)(2) "Association" means the Texas Windstorm Insurance Association.

(2)(3) "Board of directors" means the board of directors of the association.

(3)(4) "Catastrophe area" means a municipality, a part of a municipality, a county, or a part of a county designated by the commissioner under Section 2210.005.

(3-a)(5) "Catastrophe reserve trust fund" means the trust fund established under Subchapter J.

(6) "Exposure to loss" means a measurement for determining exposure to windstorm losses. Exposure to loss can include, but is not limited to, net direct premiums and amounts for which properties are insured.

(4)(7) "First tier coastal county" means:

(A) Aransas County;

(B) Brazoria County;

(C) Calhoun County;

(D) Cameron County;

(E) Chambers County;

(F) Galveston County;

(G) Jefferson County;

(H) Kenedy County;

(I) Kleberg County;

(J) Matagorda County;

(K) Nueces County;

(L) Refugio County;

(M) San Patricio County; or

(N) Willacy County.

(5) Repealed by Acts 2009, 81st Leg., R.S., Ch. 1408, Sec. 44(1), eff. June 19, 2009.

(6)(8) "Insurance" means Texas windstorm and hail insurance.

(7)(9) "Net direct premium" means gross direct written premium less return premium on each canceled contract, regardless of assumed or ceded reinsurance, that is written on property in this state, as defined by the board of directors.

(8)(10) "New building code" means a building standard, specification, or guideline adopted by the commissioner after May 1, 1997, that must be satisfied before new residential construction qualifies for a certificate of compliance that constitutes evidence of insurability of the structure by the association.

(9)(11) "Plan of operation" means the plan adopted under this chapter for the operation of the association.

(10)(12) "Seacoast territory" means the territory of this state composed of the first tier coastal counties and the second tier coastal counties.

(11)(13) "Second tier coastal county" means:

(A) Bee County;

(B) Brooks County;

(C) Fort Bend County;

(D) Goliad County;

(E) Hardin County;

(F) Harris County;

(G) Hidalgo County;

(H) Jackson County;

(I) Jim Wells County;

(J) Liberty County;

(K) Live Oak County;

(L) Orange County;

(M) Victoria County; or

(N) Wharton County.

(12) Repealed by Acts 2009, 81st Leg., R.S., Ch. 1408, Sec. 44(1), eff. June 19, 2009.

(13)(14) "Texas windstorm and hail insurance" means deductible 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; and

(B) indirect losses resulting from the direct loss.

SECTION 2. Section 2210.052, Insurance Code, is amended to read as follows:

Sec. 2210.052. MEMBER PARTICIPATION IN ASSOCIATION. (a) Each member of the association shall participate in accident year insured losses and operating expenses of the association, in excess of premium and other revenue of the association, in the proportion that the net direct premiums exposure to loss of that member during the preceding calendar year bears to the aggregate net direct premiums exposure to loss by all members of the association, as determined using the information provided under Subsection (b).

(b) The department shall review annual statements, other reports, and other statistics that the department considers necessary to obtain the information required under Subsection (a) and shall provide that information to the association. The department is entitled to obtain the annual statements, other reports, and other statistics from any member of the association.

(c) Each member's participation in the association shall be determined annually in the manner provided by the plan of operation. For purposes of determining participation in the association, two or more members that are subject to common ownership or that operate in this state under common management or control shall be treated as a single member. The determination shall also include the net direct premiums exposure to loss of an affiliate that is under that common management or control, including an affiliate that is not authorized to engage in the business of property insurance in this state.

(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 designated by the commissioner. The member's participation in the accident year insured losses and operating expenses of the association in excess of premium and other revenue 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.

SECTION 3. Section 2210.071, Insurance Code, is amended to read as follows:

Sec. 2210.071. PAYMENT OF EXCESS LOSSES; PAYMENT FROM RESERVES AND TRUST FUND. (a) If an occurrence or series of occurrences in an accident year 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 subchapter.

(b) The association shall pay losses in excess of premium and other revenue of the association from available reserves of the association and available amounts in the catastrophe reserve trust fund.

SECTION 4. Section 2210.072, Insurance Code, is amended to read as follows:

Sec. 2210.072. PAYMENT FROM CLASS 1 PUBLIC SECURITIES; FINANCIAL INSTRUMENTS. (a) Losses not paid under Section 2210.071 shall be paid as provided by this section from the proceeds from Class 1 public securities authorized to be issued in accordance with Subchapter M on or after the date of any occurrence or series of occurrences that results in insured losses. Public securities issued under this section must be repaid within a period not to exceed 10 years, and may be repaid sooner if the board of directors elects to do so and the commissioner approves.

(b) Public securities described by Subsection (a) shall be issued as necessary in a principal amount not to exceed $1 billion per accident year.

(c) If the losses are paid with public securities described by this section, the public securities shall be repaid in the manner prescribed by Subchapter M from association premium revenue.

(d) The association may borrow from, or enter into other financing arrangements with, any market source, under which the market source makes interest-bearing loans or other financial instruments to the association to enable the association to pay losses under this section or to obtain public securities under this section. For purposes of this subsection, financial instruments includes commercial paper.

SECTION 5. Section 2210.073, Insurance Code, is amended to read as follows:

Sec. 2210.073. PAYMENT FROM CLASS 2 PUBLIC SECURITIES. (a) Losses not paid under Sections 2210.071 and 2210.072 shall be paid as provided by this section from proceeds from Class 2 public securities authorized to be issued in accordance with Subchapter M on or after the date of any occurrence that results in insured losses under this subsection. Public securities issued under this section must be repaid within a period not to exceed 10 years, and may be repaid sooner if the board of directors elects to do so and the commissioner approves.

(b) Public securities described by Subsection (a) may be issued as necessary in a principal amount not to exceed $1 billion per accident year. If the losses are paid with public securities described by this section, the public securities shall be repaid in the manner prescribed by Subchapter M.

SECTION 6. Section 2210.074, Insurance Code, is amended to read as follows:

Sec. 2210.074. PAYMENT THROUGH CLASS 3 PUBLIC SECURITIES. (a) Losses not paid under Sections 2210.071, 2210.072, and 2210.073 shall be paid as provided by this section from proceeds from public securities authorized to be issued in accordance with Subchapter M on or after the date of any occurrence that results in insured losses under this subsection or through reinsurance as described by Section 2210.075. Public securities issued under this section must be repaid within a period not to exceed 10 years, and may be repaid sooner if the board of directors elects to do so and the commissioner approves.

(b) Public securities described by Subsection (a) may be issued as necessary in a principal amount not to exceed $500 million per accident year. If the losses are paid with public securities described by this section, the public securities shall be repaid in the manner prescribed by Subchapter M through member assessments as provided by this section. The association shall notify each member of the association of the amount of the member's assessment under this section. The proportion of the losses allocable to each insurer under this section shall be determined in the manner used to determine each insurer's participation in the association for the year under Section 2210.052. A member of the association may not recoup an assessment paid under this subsection through a premium surcharge or tax credit.

SECTION 7. 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 January 1, 2012.