83R5666 TJS/PMO/AJA-D

By: Hunter H.B. No. 2352

A BILL TO BE ENTITLED

AN ACT

relating to the operation of the Texas Windstorm Insurance Association and to catastrophe preparedness in the seacoast territories of this state; authorizing assessments, surcharges, and fees.

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

ARTICLE 1. PAYMENT OF INSURED LOSSES OF THE TEXAS WINDSTORM

INSURANCE ASSOCIATION; FUNDING THE CATASTROPHE RESERVE TRUST FUND

SECTION 1.01. (a) Subchapter B-1, Chapter 2210, Insurance Code, is amended by adding Section 2210.076 to read as follows:

Sec. 2210.076. TERMINATION OF PUBLIC SECURITIES PROGRAM; EXPIRATION OF SUBCHAPTER. (a) Notwithstanding any other law, public securities described by this subchapter may not be issued on or after September 1, 2013.

(b) This subchapter expires September 1, 2027.

(b) Notwithstanding Section 2210.076, Insurance Code, as added by this section, Subchapter B-1, Chapter 2210, Insurance Code, is continued in effect on and after September 1, 2027, only to the extent necessary to avoid the impairment of a public security obligation under Chapter 2210, Insurance Code, if any, that exists on or after that date.

SECTION 1.02. (a) Subchapter M, Chapter 2210, Insurance Code, is amended by adding Section 2210.621 to read as follows:

Sec. 2210.621. TERMINATION OF PUBLIC SECURITIES PROGRAM; EXPIRATION OF SUBCHAPTER. (a) Notwithstanding any other law, public securities described by this subchapter may not be issued on or after September 1, 2013.

(b) This subchapter expires September 1, 2027.

(b) Notwithstanding Section 2210.621, Insurance Code, as added by this section, Subchapter M, Chapter 2210, Insurance Code, is continued in effect on and after September 1, 2027, only to the extent necessary to avoid the impairment of a public security obligation under Chapter 2210, Insurance Code, if any, that exists on or after that date.

SECTION 1.03. Chapter 2210, Insurance Code, is amended by adding Subchapter B-2 to read as follows:

SUBCHAPTER B-2. PAYMENT OF LOSSES

Sec. 2210.081. DEFINITION. In this subchapter, "insurer" means a 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 includes a county mutual insurance company, a Lloyd's plan, and a reciprocal or interinsurance exchange but does not include an entity described by Section 2210.006(b).

Sec. 2210.082. PAYMENT OF EXCESS LOSSES; PAYMENT FROM RESERVES AND TRUST FUND. (a) If, on or after September 1, 2013, 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 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.

(c) Losses not paid under Subsection (b) shall be paid from the proceeds of public securities issued in accordance with this subchapter and Subchapter M-1 and insurer assessments assessed in accordance with this subchapter after the occurrence or series of occurrences that results in the losses.

Sec. 2210.083. PAYMENT FROM CLASS A PUBLIC SECURITIES AND INSURER ASSESSMENT. (a) On or after the date of an occurrence or series of occurrences that results in insured losses, any losses the association determines cannot be paid from available reserves or available amounts in the catastrophe reserve trust fund as provided by Section 2210.082(b) shall be paid as provided by this section from:

(1) the proceeds of Class A public securities authorized to be issued in accordance with Subchapter M-1; and

(2) an assessment against all insurers that provide property insurance in this state in accordance with this section.

(b) Public securities issued as described by this section:

(1) shall be issued as necessary in a principal amount not to exceed $1 billion, whether for a single occurrence or a series of occurrences, and outstanding public securities may not exceed a principal amount of $1 billion at any one time, regardless of the calendar year or years in which outstanding public securities were issued;

(2) subject to the $1 billion maximum described by Subdivision (1), may be issued, in one or more issuances or tranches; and

(3) must be repaid in the manner and from the sources prescribed by Subchapter M-1 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.

(c) If public securities are issued as described by this section, the department shall assess each insurer that provides property insurance in this state in accordance with this section.

(d) The total amount of an assessment under this section must equal one-half of the principal amount of the public securities issued under this section, and each insurer's share of the assessment must be based on the insurer's proportionate share of the total extended coverage and other allied lines premium received by all insurers for property insurance in this state in the calendar year preceding the year in which the assessment is made.

(e) The proceeds of an assessment under this section shall be deposited in the catastrophe reserve trust fund.

(f) The commissioner shall adopt rules to implement the assessment of insurers under this section.

Sec. 2210.084. PAYMENT FROM CLASS B PUBLIC SECURITIES AND INSURER ASSESSMENT. (a) On or after the date of an occurrence or series of occurrences that results in insured losses, any losses the association determines cannot be paid in the manner provided by Sections 2210.082 and 2210.083 shall be paid as provided by this section from:

(1) the proceeds of Class B public securities authorized to be issued in accordance with Subchapter M-1; and

(2) an assessment against all insurers that provide property insurance in this state in accordance with this section.

(b) Public securities described by Subsection (a):

(1) shall be issued as necessary in a principal amount not to exceed $900 million, whether for a single occurrence or a series of occurrences, and outstanding public securities may not exceed a principal amount of $900 million at any one time, regardless of the calendar year or years in which outstanding public securities were issued;

(2) subject to the $900 million maximum described by Subdivision (1), may be issued, in one or more issuances or tranches; and

(3) must be repaid in the manner and from the sources prescribed by Subchapter M-1 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.

(c) If public securities are issued as described by this section, the department shall assess each insurer that provides property insurance in this state in accordance with this section.

(d) The total amount of an assessment under this section must be equal to the principal amount of the public securities issued under this section, and each insurer's share of the assessment must be based on the insurer's proportionate share of the total extended coverage and other allied lines premium received by all insurers for property insurance in this state in the calendar year preceding the year in which the assessment is made.

(e) The proceeds of an assessment under this section shall be deposited in the catastrophe reserve trust fund.

(f) The commissioner shall adopt rules to implement the assessment of insurers under this section.

Sec. 2210.085. PAYMENT FROM CLASS C PUBLIC SECURITIES. (a) On or after the date of an occurrence or series of occurrences that results in insured losses, any losses the association determines cannot be paid in the manner provided by Sections 2210.082, 2210.083, and 2210.084 shall be paid as provided by this section from the proceeds of Class C public securities authorized to be issued in accordance with Subchapter M-1.

(b) Public securities described by Subsection (a):

(1) shall be issued as necessary in a principal amount not to exceed $2.75 billion, whether for a single occurrence or a series of occurrences, and outstanding public securities may not exceed a principal amount of $2.75 billion at any one time, regardless of the calendar year or years in which outstanding public securities were issued;

(2) subject to the $2.75 billion maximum described by Subdivision (1), may be issued, in one or more issuances or tranches; and

(3) must be repaid in the manner and from the sources prescribed by Subchapter M-1 within a period not to exceed 14 years, and may be repaid sooner if the board of directors elects to do so and the commissioner approves.

Sec. 2210.086. PAYMENT FROM CLASS D PUBLIC SECURITIES. (a) On or after the date of an occurrence or series of occurrences that results in insured losses, any losses the association determines cannot be paid in the manner provided by Sections 2210.082, 2210.083, 2210.084, and 2210.085 shall be paid as provided by this section from the proceeds of Class D public securities authorized to be issued in accordance with Subchapter M-1.

(b) Public securities described by Subsection (a):

(1) shall be issued as necessary in a principal amount and with terms and maturities necessary to pay insured losses described by Subsection (a) as determined under Section 2210.629; and

(2) must be repaid in the manner and from the sources prescribed by Subchapter M-1.

Sec. 2210.087. AUTHORIZATION TO ENTER INTO FINANCING ARRANGEMENTS. 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 available to the association to enable the association to pay losses under this subchapter or to obtain public securities under this subchapter. For purposes of this section, "financial instruments" includes commercial paper.

Sec. 2210.088. REINSURANCE. (a) Before an occurrence or series of occurrences described by this subchapter, an insurer may purchase reinsurance to cover an assessment for which the insurer would otherwise be liable under this subchapter.

(b) An insurer that elects to purchase reinsurance must notify the board of directors of the election in the form and manner prescribed by the association. If an insurer does not elect to purchase reinsurance under this section, the insurer remains liable for any assessment imposed under this subchapter.

SECTION 1.04. Section 2210.451, Insurance Code, is amended to read as follows:

Sec. 2210.451. DEFINITIONS [DEFINITION]. In this subchapter:

(1) "Insurer" means a 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 includes a county mutual insurance company, a Lloyd's plan, and a reciprocal or interinsurance exchange but does not include an entity described by Section 2210.006(b).

(2) "Trust [, "trust] fund" means the catastrophe reserve trust fund.

SECTION 1.05. Sections 2210.452(a), (c), and (d), Insurance Code, are amended to read as follows:

(a) The commissioner shall adopt rules under which the association makes payments to the catastrophe reserve trust fund. The trust fund may be used only to fund the obligations of the trust fund under Subchapters [Subchapter] B-1 and B-2.

(c) Following [At the end of] each calendar year [or policy year], the association shall pay [use] the total net gain from operations of the association in that year, including all premium and other revenue of the association in excess of incurred losses, operating expenses, public security obligations, and public security administrative expenses, to [make payments to] the trust fund except as provided by this subsection. If at the end of the calendar year the available balance in the trust fund is greater than or equal to 1.5 percent of the association's direct exposure, as determined under Section 2210.456, the association for that year shall pay to the trust fund an amount equal to at least three-tenths of one percent of the association's total exposure, as determined under Section 2210.456, and may use any net gain remaining after that payment[,] to procure reinsurance[,] or to make additional payments to the trust fund [and to procure reinsurance].

(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 Subchapters [Subchapter] B-1 and B-2.

SECTION 1.06. Subchapter J, Chapter 2210, Insurance Code, is amended by adding Section 2210.456 to read as follows:

Sec. 2210.456. CONTINGENT ADDITIONAL FUNDING; PREMIUM SURCHARGE AND INSURER ASSESSMENT. (a) Not later than January 31 of each year, the association shall submit to the commissioner in a form and manner, and using a method or formula determined by the commissioner by rule, a statement that reports:

(1) the association's total exposure for the previous calendar year;

(2) the association's direct exposure for the previous calendar year; and

(3) the current balance in the trust fund available to pay any losses under Subchapter B-2.

(b) In a calendar year in which the commissioner determines based on information reported in the statement required by Subsection (a) that the available balance in the trust fund is less than 1.5 percent of the association's total exposure for the previous calendar year, or in which any class of public security issued under Subchapter M-1 remains outstanding in any amount, the department, in accordance with this section, shall:

(1) assess each insurer that provides property insurance in this state; and

(2) assess a premium surcharge on each policyholder of a policy that covers insured property in a first tier coastal county.

(c) The total amount of the insurer assessment under Subsection (b) in a calendar year must equal 0.15 percent of the association's direct exposure for the previous calendar year, as reported in the statement required by Subsection (a), and each insurer's assessment must be based on the insurer's proportionate share of the total extended coverage and other allied lines premium received by all insurers for property insurance in this state in the previous calendar year. An insurer may not recoup an assessment paid under this section through a premium surcharge or tax credit.

(d) The premium surcharge described by Subsection (b) must equal 3.9 percent of premium and shall be assessed on each policyholder of a policy that covers insured property that is located in a first tier coastal county, including an automobile principally garaged in a first tier coastal county. The premium surcharge shall be assessed on each Texas windstorm and hail insurance policy and each property and casualty insurance policy, including an automobile insurance policy, issued for an automobile or other property located in the first tier coastal county. The premium surcharge applies to:

(1) all policies written under the following lines of insurance:

(A) fire and allied lines;

(B) farm and ranch owners;

(C) residential property insurance;

(D) private passenger automobile liability and physical damage insurance; and

(E) commercial automobile liability and physical damage insurance; and

(2) the property insurance portion of a commercial multiple peril insurance policy.

(e) 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 by a policyholder to pay the surcharge constitutes failure to pay premium for purposes of policy cancellation.

(f) The proceeds of an insurer assessment or premium surcharge under this section shall be deposited in the catastrophe reserve trust fund.

(g) The commissioner shall adopt rules to implement the assessment of insurers and policyholders under this section.

SECTION 1.07. Chapter 2210, Insurance Code, is amended by adding Subchapter M-1 to read as follows:

SUBCHAPTER M-1. PUBLIC SECURITIES PROGRAM

Sec. 2210.625. FINDINGS AND PURPOSE. (a) The legislature finds that authorizing the issuance of public securities to raise funds to provide windstorm and hail insurance through the association is for the benefit of the public and in furtherance of a public purpose.

(b) The legislature finds that a catastrophic event of a magnitude and severity that necessitates the issuance of Class D public securities under this chapter constitutes a public calamity within the meaning of Section 51, Article III, Texas Constitution.

Sec. 2210.626. DEFINITIONS. In this subchapter:

(1) "Authority" means the Texas Public Finance Authority.

(2) "Board" means the board of directors of the authority.

(3) "Class A public securities" means public securities authorized to be issued as described by Section 2210.083.

(4) "Class B public securities" means public securities authorized to be issued as described by Section 2210.084.

(5) "Class B public security trust fund" means the dedicated trust fund established by the board and held by the Texas Treasury Safekeeping Trust Company into which premium surcharges collected under Section 2210.637 for the purpose of repaying Class B public securities are deposited.

(6) "Class C public securities" means public securities authorized to be issued as described by Section 2210.085.

(7) "Class C public security trust fund" means the dedicated trust fund established by the board and held by the Texas Treasury Safekeeping Trust Company into which premium surcharges collected under Section 2210.638 for the purpose of repaying Class C public securities are deposited.

(8) "Class D public securities" means public securities authorized to be issued as described by Section 2210.086.

(9) "Class D public security trust fund" means the dedicated trust fund established by the board and held by the Texas Treasury Safekeeping Trust Company into which money received from any source for the purpose of repaying Class D public securities is deposited.

(10) "Credit agreement" has the meaning assigned by Chapter 1371, Government Code.

(11) "Insurer" means a 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 includes a county mutual insurance company, a Lloyd's plan, and a reciprocal or interinsurance exchange but does not include an entity described by Section 2210.006(b).

(12) "Public security" means a debt instrument or other public security issued by the authority.

(13) "Public security administrative expenses" means expenses incurred to administer public securities issued under this subchapter, including fees for credit enhancement, paying agents, trustees, and attorneys, and for other professional services.

(14) "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.

(15) "Public security obligation revenue fund" means the dedicated trust fund established by the association and held by the Texas Treasury Safekeeping Trust Company outside the state treasury under this subchapter.

Sec. 2210.627. APPLICABILITY OF OTHER LAWS. (a) The board shall issue the public securities described by Section 2210.628 in accordance with and subject to the requirements of Chapter 1232, Government Code, other than Section 1232.108 of that chapter, and in accordance with and subject to 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.

(b) A purpose for which public securities are issued under this chapter constitutes an eligible project for purposes of Chapter 1371, Government Code.

Sec. 2210.628. ISSUANCE OF PUBLIC SECURITIES AUTHORIZED. (a) At the request of the association and with the approval of the commissioner, the authority shall issue Class A, Class B, Class C, or Class D public securities. The association shall submit to the commissioner a cost-benefit analysis of various financing methods and funding structures when requesting the issuance of public securities under this subsection.

(b) The association shall specify in the association's request to the board the maximum principal amount of the public securities and the maximum term of the public securities.

(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;

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

(4) provide the amount of debt service coverage for public securities determined by the association, in consultation with the authority, to be required for the issuance of marketable public securities.

(d) An increase in the principal amount made under Subsection (c) is not included for purposes of determining the total amount of an assessment under Section 2210.083 or 2210.084.

Sec. 2210.629. 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 by the board on behalf of the association.

Sec. 2210.630. 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, and 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. 2210.631. PUBLIC SECURITY PROCEEDS. The proceeds of public securities issued by the board under this subchapter may be deposited with the Texas Treasury Safekeeping Trust Company in accordance with procedures established by the comptroller. The comptroller shall account to the association for the deposited money separately from all other money.

Sec. 2210.632. 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;

(5) pay capitalized interest and principal on the public securities for the period determined necessary by the association under Section 2210.628;

(6) pay private financial agreements entered into by the association as temporary sources of payment of losses and operating expenses of the association; and

(7) reimburse the association for any cost described by Subdivisions (1)-(6) paid by the association before issuance of the public securities.

(b) Any excess public security proceeds that remain after the purpose for which the public securities were issued is satisfied may be used to purchase or redeem outstanding public securities or pay public security administrative expenses. Any excess public security proceeds that remain after all outstanding public securities are purchased or redeemed and all public security administrative expenses are paid shall be transferred to the catastrophe reserve trust fund.

Sec. 2210.633. REPAYMENT OF ASSOCIATION'S PUBLIC SECURITY OBLIGATIONS. (a) The association shall provide for the payment of all public security obligations from available funds collected by the association 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 2210.636, 2210.637, 2210.638, and 2210.639, as applicable.

(b) If any public securities issued under this subchapter are outstanding, the authority shall notify the association of the amount of the public security obligations and the estimated amount of public security administrative expenses, if any, each calendar year in a period sufficient, as determined by the association, to permit the association to determine the availability of funds and, if necessary, assess a premium surcharge under Section 2210.637 or 2210.638, as applicable.

(c) The association shall deposit:

(1) all revenue collected under Section 2210.636 in the public security obligation revenue fund;

(2) all money collected from a premium surcharge assessed under Section 2210.637 in the Class B public security trust fund;

(3) all money collected from a premium surcharge assessed under Section 2210.638 in the Class C public security trust fund; and

(4) all money received from any source for the purpose of repaying Class D public securities under Section 2210.639 in the Class D public security trust fund.

(d) Money deposited in a fund under this section may be invested as permitted by general law. Money in a 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 in order to ensure timely payment of obligations and expenses. The board may establish funds and accounts with the comptroller that the board determines are necessary to administer and repay the public security obligations. If the association has not transferred amounts sufficient to pay the public security obligations to the board's designated interest and sinking fund in a timely manner, the board may direct the Texas Treasury Safekeeping Trust Company to transfer from the public security obligation revenue fund, or the Class B, Class C, or Class D public security trust fund, to the appropriate account the amount necessary to pay the public security obligation.

(e) 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, assessments, premium surcharges, and amounts on deposit in the public security obligation revenue fund, and the Class B, Class C, and Class D public security trust fund, together with any public security reserve fund, as provided in the proceedings authorizing the public securities and related credit agreements.

(f) 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 public security obligation trust fund or the Class B, Class C, or Class D public security trust fund to the extent provided in the proceedings authorizing the credit agreement.

Sec. 2210.634. PUBLIC SECURITY PAYMENTS. (a) Revenue received from a premium surcharge under Section 2210.637 or 2210.638 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. 2210.635. EXCESS REVENUE COLLECTIONS AND INVESTMENT EARNINGS. Revenue collected in any calendar year from a premium surcharge under Section 2210.637 or 2210.638 that exceeds the amount of the public security obligations and public security administrative expenses payable in that calendar 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 calendar year, offsetting the amount of the premium surcharge that would otherwise be required to be levied for that year under this subchapter;

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

(3) deposited in the catastrophe reserve trust fund.

Sec. 2210.636. PAYMENT OF CLASS A PUBLIC SECURITIES. The association shall pay Class A public securities issued as described by Section 2210.083 from net premium and other revenue.

Sec. 2210.637. PAYMENT OF CLASS B PUBLIC SECURITIES. (a) The association shall pay Class B public securities issued as described by Section 2210.084 from:

(1) net premium and other revenue; and

(2) a first tier coastal county premium surcharge collected in accordance with this section.

(b) On approval by the commissioner, the association and each insurer that provides insurance in a first tier coastal county shall assess, as provided by this section, a premium surcharge to each policyholder of a policy described by Subsection (c) that is in effect on or after the 180th day after the date the commissioner issues notice of the approval of the public securities. The premium surcharge must be set in an amount sufficient to pay, for the duration of the issued public securities, all debt service not already covered by available funds and all related expenses on the public securities.

(c) The premium surcharge under this section shall be assessed on each policyholder of a policy that covers insured property that is located in a first tier coastal county, including an automobile principally garaged in a first tier coastal county. The premium surcharge shall be assessed on each Texas windstorm and hail insurance policy and each property and casualty insurance policy, including an automobile insurance policy, issued for an automobile or other property located in the first tier coastal county. The premium surcharge applies to:

(1) all policies written under the following lines of insurance:

(A) fire and allied lines;

(B) farm and ranch owners;

(C) residential property insurance;

(D) private passenger automobile liability and physical damage insurance; and

(E) commercial automobile liability and physical damage insurance; and

(2) the property insurance portion of a commercial multiple peril insurance policy.

(d) 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 by a policyholder to pay the surcharge constitutes failure to pay premium for purposes of policy cancellation.

Sec. 2210.638. PAYMENT OF CLASS C PUBLIC SECURITIES. (a) The association shall pay Class C public securities issued as described by Section 2210.085 from:

(1) net premium and other revenue; and

(2) a statewide premium surcharge collected in accordance with this section.

(b) On approval by the commissioner, the association and each insurer that provides insurance in this state shall assess, as provided by this section, a premium surcharge to each policyholder of a policy described by Subsection (c) that is in effect on or after the 180th day after the date the commissioner issues notice of the approval of the public securities. The premium surcharge must be set in an amount sufficient to pay, for the duration of the issued public securities, all debt service not already covered by available funds and all related expenses on the public securities.

(c) The premium surcharge under this section shall be assessed on each policyholder of a policy that covers insured property that is located in this state, including an automobile registered in this state. The premium surcharge shall be assessed on each Texas windstorm and hail insurance policy and each property and casualty insurance policy, including an automobile insurance policy, issued for an automobile or other property located in this state. The premium surcharge applies to:

(1) all policies written under the following lines of insurance:

(A) fire and allied lines;

(B) farm and ranch owners;

(C) residential property insurance;

(D) private passenger automobile liability and physical damage insurance; and

(E) commercial automobile liability and physical damage insurance; and

(2) the property insurance portion of a commercial multiple peril insurance policy.

(d) 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 by a policyholder to pay the surcharge constitutes failure to pay premium for purposes of policy cancellation.

Sec. 2210.639. PAYMENT OF CLASS D PUBLIC SECURITIES. (a) The association shall pay Class D public securities issued as described by Section 2210.086 from:

(1) net premium and other revenue; and

(2) money received from any source, including money appropriated under Subsection (c), for the purpose of repaying Class D public securities.

(b) The association may accept for the use and benefit of the Class D public security trust fund any donation, contribution, gift, grant, or bequest of money or securities from any source.

(c) If, before any state fiscal biennium, the association determines that it is unable to pay public security obligations and public security administrative expenses incurred from issuance of Class D public securities during that biennium with funds available from the Class D public security trust fund, the comptroller shall request an appropriation in the comptroller's legislative appropriations request in an amount sufficient to pay, for the biennium, all debt service not already covered by available funds and all related expenses on the public securities.

Sec. 2210.640. AUTHORIZATION TO ENTER INTO FINANCING ARRANGEMENTS. The association may enter into financing arrangements as described by Section 2210.087 as necessary to obtain public securities issued under this subchapter.

Sec. 2210.641. REFINANCING PUBLIC SECURITIES. The association may request the board to refinance any public securities issued under this subchapter, whether Class A, Class B, Class C, or Class D public securities, with public securities payable from the same sources as the original public securities. Class A, Class B, Class C, or Class D public securities may be issued on a parity or subordinate lien basis with other Class A, Class B, Class C, or Class D public securities, respectively.

Sec. 2210.642. 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 subchapter 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. 2210.643. STATE NOT TO IMPAIR PUBLIC SECURITY OBLIGATIONS. (a) The state pledges for the benefit and protection of financing parties, the board, and the association that the state will not take or permit any action that would:

(1) impair the collection of premium surcharges or the deposit of those funds into the Class B or Class C public security trust fund;

(2) reduce, alter, or impair the premium surcharges to be imposed, collected, and remitted to financing parties until the principal, interest, and premium, and any other charges incurred and contracts to be performed in connection with the related public securities, have been paid and performed in full; or

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

(b) A party issuing public securities under this subchapter may include the pledge described by Subsection (a) in any documentation relating to those securities.

Sec. 2210.644. ENFORCEMENT BY MANDAMUS. A writ of mandamus and any other legal and equitable remedies are available to a party in 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 public security resolution or order authorizing public securities to be issued under this subchapter.

Sec. 2210.645. 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. 2210.646. NO PERSONAL LIABILITY. The members of the association, members of the association board of directors, association employees, the board, the employees of the authority, the commissioner, and department employees are not personally liable as a result of exercising the rights and responsibilities granted under this subchapter.

Sec. 2210.647. 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.

ARTICLE 2. ASSOCIATION OPERATIONS

SECTION 2.01. Section 2210.0081, Insurance Code, is amended to read as follows:

Sec. 2210.0081. CERTAIN ACTIONS BROUGHT AGAINST ASSOCIATION BY COMMISSIONER. (a) In an action brought by the commissioner against the association under Chapter 441:

(1) the association's inability to satisfy obligations under Subchapters [Subchapter] M and M-1 related to the issuance of public securities under this chapter constitutes a condition that makes the association's continuation in business hazardous to the public or to the association's policyholders for the purposes of Section 441.052;

(2) a conservator shall complete the conservator's duties as required by Chapter 441 not later than six months after the date of the appointment [the time for the association to comply with the requirements of supervision or for the conservator to complete the conservator's duties, as applicable, is limited to three years from the date the commissioner commences the action against the association]; and

(3) unless the commissioner takes further action against the association under Chapter 441, as a condition of release from supervision, the association must demonstrate to the satisfaction of the commissioner that the association:

(A) is able to satisfy obligations under Subchapters [Subchapter] M and M-1 related to the issuance of public securities under this chapter; and

(B) has met the criteria established under Subsection (b).

(b) The commissioner by rule shall establish specific criteria for the release of the association from conservatorship.

(c) The conservator shall provide a written report that states the release status of the association and explains in detail all efforts undertaken to meet the criteria established under Subsection (b) to:

(1) the association on a monthly basis; and

(2) the legislature on a quarterly basis.

(d) After notice and hearing, the commissioner may extend the conservatorship for one additional period not to exceed six months.

SECTION 2.02. Section 2210.202, Insurance Code, is amended by adding Subsection (c) to read as follows:

(c) The association shall develop and implement an automated initial application and renewal process that allows for the acceptance of an application for initial or renewal coverage, and payment of premiums, from a property and casualty agent or a person insured under this chapter.

SECTION 2.03. Subchapter E, Chapter 2210, Insurance Code, is amended by adding Section 2210.2031 to read as follows:

Sec. 2210.2031. PREMIUM SURCHARGE TO REINSTATE PREVIOUS COVERAGE. An insured who without cause cancels or allows to lapse insurance coverage issued by the association may subsequently obtain coverage from the association for the previously insured property only by paying a premium surcharge of 20 percent.

SECTION 2.04. Section 2210.363(a), Insurance Code, is amended to read as follows:

(a) The association shall [may] offer a person insured under this chapter an actuarially justified premium discount on a policy issued by the association, or an actuarially justified credit against a surcharge assessed against the person, other than a surcharge assessed under Subchapters [Subchapter] M and M-1, if:

(1) the construction, alteration, remodeling, enlargement, or repair of, or an addition to, insurable property:

(A) exceeds applicable building code standards set forth in the plan of operation; or

(B) includes:

(i) roof strapping designed and manufactured to withstand a wind load as required by the plan of operation;

(ii) window and door coverings designed and manufactured to withstand a wind load as required by the plan of operation;

(iii) a roof designed and constructed to withstand a wind load as required by the plan of operation; or

(iv) a secondary roof seal; or

(2) the person elects to purchase a binding arbitration endorsement under Section 2210.554.

SECTION 2.05. Section 2210.0081, Insurance Code, as amended by this article, applies to an action by the commissioner against the association under Chapter 441, Insurance Code, brought before, on, or after the effective date of this Act. For a conservatorship pending on the effective date of this Act, the conservator shall complete the conservator's duties as required by Chapter 441, Insurance Code, not later than six months after the effective date of this Act.

SECTION 2.06. Section 2210.2031, Insurance Code, as added by this article, applies only to a reinstatement of an insurance policy that is canceled or lapses on or after the effective date of this Act. A reinstatement of a policy that is canceled or lapses before the effective date of this Act is governed by the law as it existed immediately before the effective date of this Act, and that law is continued in effect for that purpose.

SECTION 2.07. The change in law made by this article to Section 2210.363(a), Insurance Code, applies only to an insurance policy that is delivered, issued for delivery, or renewed on or after January 1, 2014. A policy delivered, issued for delivery, or renewed before January 1, 2014, is governed by the law as it existed immediately before the effective date of this Act, and that law is continued in effect for that purpose.

ARTICLE 3. MARKET INCENTIVES

SECTION 3.01. Chapter 2210, Insurance Code, is amended by adding Subchapter J-1 to read as follows:

SUBCHAPTER J-1. MARKET INCENTIVES

Sec. 2210.477. ASSUMED REINSURANCE PROGRAM. (a) The association may establish a reinsurance program under which the association, on a quota share or excess of loss basis or otherwise, assumes reinsurance ceded by insurers included on the list maintained under Section 2210.476 for a portion of the losses incurred by the ceding insurers by writing windstorm and hail insurance coverage for property in the seacoast territory.

(b) A program established under this section:

(1) must:

(A) be administered under the plan of operation and operate in a manner consistent with sound insurance practices;

(B) provide for efficient, economical, fair, and nondiscriminatory administration of the program; and

(C) allow reasonable flexibility to accommodate insurers in situations of an unusual nature or in which undue hardship may result; and

(2) may not in any way impair, override, supersede, or constrain the public purpose of the association.

(c) The plan of operation may provide for various levels of assumption of risk and retention in a program established under this section.

(d) A program established under this section must provide reimbursement to the insurer in the manner provided by the reinsurance contract for covered events in exchange for the reinsurance premium paid to the association as specified by the plan of operation. Each reinsurance contract must contain:

(1) a promise to pay the ceding insurer for the insurer's losses from each covered event in excess of the insurer's retention, if any, required by the plan of operation;

(2) a requirement that amounts due to the insurer not be reduced by reinsurance paid or payable to the insurer from other sources;

(3) a requirement that all contracts covering a particular contract year may not exceed the association's actual capacity to pay claims, up to a limit defined in the plan of operation;

(4) a requirement of interim quarterly reporting to the association from each insurer of losses from each covered event; and

(5) a requirement that, if the insurer becomes insolvent, the association shall pay the net amount owed to the insurer directly to the conservator, receiver, or other statutory successor for the benefit of the insurer's policyholders in this state.

(e) A premium paid by an insurer to the association under a reinsurance contract shall be treated as a premium paid by the insurer for approved reinsurance for all accounting and regulatory purposes.

Sec. 2210.478. INFORMATION SHARING. (a) The association shall:

(1) maintain an electronic database composed of information designed to assist an insurer in participating in or entering the voluntary windstorm and hail insurance market in the seacoast territory; and

(2) provide access to the database to insurers that engage in the business of property insurance in this state.

(b) The database may include information on the association's business that may be disclosed under Chapter 552, Government Code, or other information as determined by the board, that relates to:

(1) underwriting;

(2) the issuance of policies;

(3) loss control services;

(4) the investigation or reporting of actual or potential fraud, misrepresentation, or criminal activity;

(5) ratemaking;

(6) reinsurance or excess loss insurance;

(7) the administration of consumer disputes and inquiries; and

(8) claims administration, adjustment, and management.

(c) The database must be designed to protect:

(1) private information about the association's policyholders or from which a policyholder is identifiable;

(2) information considered to be confidential by constitutional or statutory law or by judicial decision; and

(3) information relating to litigation of a civil or criminal nature to which the association is or may be a party or to which an officer or employee of the association, as a consequence of the person's office or employment, is or may be a party.

Sec. 2210.479. STUDY OF MARKET INCENTIVES; REPORTING. (a) The department shall conduct a study of market incentives to promote participation in the voluntary windstorm and hail insurance market in the seacoast territory. The study must address as possible incentives:

(1) the mandatory or voluntary issuance of windstorm and hail insurance in conjunction with the issuance of a homeowners policy in the seacoast territory; and

(2) the establishment of an assigned risk pool.

(b) The department shall deliver to the legislature a biennial report on the results of the study.

Sec. 2210.480. WINDSTORM AND HAIL INSURANCE ISSUED BY PRIVATE MARKET: CLAIMS SETTLEMENT AND DISPUTE RESOLUTION. (a) Except as otherwise provided by this section, windstorm and hail insurance coverage voluntarily issued by an insurer that is comparable to Texas windstorm and hail insurance issued by the association as determined by the commissioner by rule and that is issued for a structure located in the seacoast territory or corporeal movable property contained in the structure is subject to the claims settlement and dispute resolution provisions of Subchapter L-1 as if the insurer were the association and the windstorm and hail insurance coverage issued by the insurer were an association policy.

(b) The claims settlement and dispute resolution provisions applicable under this section apply only with respect to a claim that is a request for payment under the windstorm and hail insurance coverage issued by the insurer.

(c) Sections 2210.572(a) and (b) apply to an insurer that issues windstorm and hail insurance coverage to which this section applies only with respect to a claim described by Subsection (b). Section 2210.572(c) limits the insurer's liability for damages under Chapter 17, Business & Commerce Code, or any other provision of law providing for additional damages, punitive damages, or a penalty only to the extent the damages arise in connection with windstorm and hail insurance coverage to which this section applies.

(d) An insurer shall use the guidelines published under Section 2210.578 to settle claims under windstorm and hail insurance coverage to which this section applies.

(e) This section does not affect the terms for the submission, settlement, payment, or dispute resolution of any claim made under any other type of coverage provided in the same policy as the windstorm and hail insurance coverage.

Sec. 2210.481. WINDSTORM AND HAIL INSURANCE ISSUED BY PRIVATE MARKET: REQUIRED POLICY PROVISIONS. (a) A policy issued by an insurer that includes windstorm and hail insurance coverage described by Section 2210.480(a) must include provisions that comply with the requirements of Section 2210.205 with respect to that coverage. The time period for bringing a claim under the policy provision required by Section 2210.205(a)(1) is subject to extension by the commissioner in accordance with Section 2210.205(b).

(b) To the extent the claims settlement and dispute resolution procedures prescribed by Subchapter L-1 are dependent on terms included in an association policy, a policy that provides windstorm and hail insurance coverage that is subject to this section must include comparable provisions applicable to the coverage as prescribed by the commissioner by rule.

Sec. 2210.482. WINDSTORM AND HAIL INSURANCE ISSUED BY PRIVATE MARKET: ACCESSIBILITY OF OMBUDSMAN PROGRAM. (a) A person insured under windstorm and hail insurance coverage described by Section 2210.480(a) is entitled to assistance and information from the ombudsman program established under Section 2210.582 to the same extent as a person insured by the association under this chapter.

(b) An insurer that issues windstorm and hail insurance coverage described by Section 2210.480(a) shall notify the insured, in the manner prescribed by the commissioner by rule, concerning the operation of the ombudsman program.

SECTION 3.02. Section 2210.009, Insurance Code, is transferred to Subchapter J-1, Chapter 2210, Insurance Code, as added by this article, redesignated as Section 2210.476, Insurance Code, and amended to read as follows:

Sec. 2210.476 [2210.009]. LIST OF PRIVATE INSURERS; INCENTIVE PLAN. (a) The department shall maintain a list of all insurers that engage in the business of property and casualty insurance in the voluntary market in the seacoast territory.

(b) The department shall develop incentive programs that include the market incentives described by this subchapter [in the manner described by Section 2210.053(b)] to encourage authorized insurers to write windstorm and hail insurance on a voluntary basis to cover property located in the seacoast territory and to minimize the use of the association as a means to obtain that insurance.

SECTION 3.03. Section 2210.053(b), Insurance Code, is amended to read as follows:

(b) The department may develop programs to improve the efficient operation of the association, including a program for approving policy forms under Section 2301.010 [and a program designed to create incentives for insurers to write windstorm and hail insurance voluntarily to cover property located in a catastrophe area, especially property located on the barrier islands of this state].

SECTION 3.04. Sections 2210.480, 2210.481, and 2210.482, Insurance Code, as added by this article, apply only to windstorm and hail insurance coverage under an insurance policy delivered, issued for delivery, or renewed on or after January 1, 2014. Coverage under a policy delivered, issued for delivery, or renewed before that date is governed by the law as it existed immediately before the effective date of this Act, and that law is continued in effect for that purpose.

ARTICLE 4. BUILDING STANDARDS

SECTION 4.01. Chapter 233, Local Government Code, is amended by adding Subchapter G to read as follows:

SUBCHAPTER G. RESIDENTIAL BUILDING CODE STANDARDS APPLICABLE TO

UNINCORPORATED AREAS OF COASTAL COUNTIES

Sec. 233.201. DEFINITIONS. In this subchapter:

(1) "First tier coastal county" has the meaning assigned by Section 2210.003, Insurance Code.

(2) "Residential" means a single-family house or a duplex.

(3) "Windstorm certificate" means the certificate of compliance for eligibility for windstorm insurance coverage issued by the Texas Department of Insurance under Chapter 2210, Insurance Code.

Sec. 233.202. APPLICABILITY. This subchapter applies only to a first tier coastal county.

Sec. 233.203. WINDSTORM BUILDING CODE STANDARDS APPLICABLE. (a) Residential construction, including an alteration, remodel, enlargement, or repair involving one or more structural building components, in the unincorporated area of a county shall conform to the residential building code standards required to obtain a windstorm certificate.

(b) Standards required under this subchapter apply only to residential construction in the unincorporated area of a county that begins after September 1, 2013.

(c) If a municipality located in a county to which this subchapter applies has adopted a residential building code that conforms to the standards required to obtain a windstorm certificate and that applies in the municipality's extraterritorial jurisdiction, the requirements of this subchapter have no effect in the municipality's extraterritorial jurisdiction.

(d) This subchapter may not be construed to:

(1) require prior approval by the county before the beginning of residential construction; or

(2) authorize the commissioners court of a county to adopt or enforce zoning regulations.

(e) To the extent of a conflict between this subchapter and Subchapter F, this subchapter controls.

Sec. 233.204. CERTIFICATE OF OCCUPANCY. A county shall issue a certificate of occupancy for a residential structure located in the unincorporated area of the county if the owner of the structure presents a copy of a windstorm certificate for the structure with the application for the certificate of occupancy.

Sec. 233.205. RULES; FORMS; FEES. (a) The commissioners court of a county shall by order adopt the rules and forms necessary to implement this section.

(b) The commissioners court may by order adopt a reasonable fee for the issuance of a certificate of occupancy under this section.

Sec. 233.206. UTILITY CONNECTION. (a) An entity described by Subsection (b) may not serve or connect a residential structure located in the unincorporated area of a county and for which construction began after September 1, 2013, with water, sewer, electricity, gas, or other utility service unless the county has issued the structure a certificate of occupancy under this subchapter.

(b) This section applies to any entity that provides water, sewer, electricity, gas, or other utility service, including:

(1) a municipality or county;

(2) a municipally owned or operated utility;

(3) a public utility;

(4) a water supply or sewer service corporation operating under Chapter 67, Water Code; or

(5) a special district or authority created under state law.

SECTION 4.02. Chapter 250, Local Government Code, is amended by adding Section 250.007 to read as follows:

Sec. 250.007. MANDATORY INSPECTION OF RESIDENTIAL CONSTRUCTION IN SEACOAST TERRITORY. (a) In this section, "seacoast territory" has the meaning assigned by Section 2210.003, Insurance Code.

(b) This section applies to any residential construction, including an alteration, remodel, enlargement, or repair, involving one or more structural building components and located in the seacoast territory. This section applies without regard to whether an application for insurance for the property under Chapter 2210, Insurance Code, has been or will be made.

(c) A municipality or county may not issue a certificate of occupancy or completion for residential construction unless:

(1) the roof of the construction has been designed for compliance with uniform static wind pressure requirements of 140 miles per hour, for construction seaward of the intercoastal waterway, or 130 miles per hour, for construction inland of the intercoastal waterway; and

(2) the construction has been inspected and certified by the Texas Department of Insurance under Subchapter F, Chapter 32, Insurance Code.

SECTION 4.03. Chapter 32, Insurance Code, is amended by adding Subchapter F to read as follows:

SUBCHAPTER F. RESIDENTIAL CONSTRUCTION INSPECTIONS

Sec. 32.201. DEFINITION. In this subchapter, "seacoast territory" has the meaning assigned by Section 2210.003.

Sec. 32.202. APPLICABILITY. This subchapter applies to any residential construction to which Section 250.007, Local Government Code, applies.

Sec. 32.203. MANDATORY WIND RESISTANT STANDARDS. (a) The department shall conduct inspections for compliance with the standards established under Section 250.007, Local Government Code.

(b) The department shall issue a certificate of compliance if the construction meets the standards established under Section 250.007, Local Government Code.

Sec. 32.204. WINDSTORM INSURANCE APPLICATION NOT REQUIRED. The department shall inspect property for compliance with standards established under Chapter 2210 without regard to whether an application has been or will be made under that chapter for insurance for the property.

SECTION 4.04. Section 250.007, Local Government Code, and Subchapter F, Chapter 32, Insurance Code, as added by this article, apply only with respect to residential construction commenced on or after the effective date of this Act. Residential construction commenced before the effective date of this Act is governed by the law applicable to the construction immediately before the effective date of this Act. For the purposes of this section, construction commenced before the effective date of this Act if the application for a building permit under which the construction commences was submitted before the effective date of this Act.

ARTICLE 5. EFFECTIVE DATE

SECTION 5.01. This Act takes effect September 1, 2013.