84R2797 PMO-D
 
  By: Hunter H.B. No. 696
 
 
 
A BILL TO BE ENTITLED
 
AN ACT
  relating to the operation of the Texas Windstorm Insurance
  Association; affecting surcharges.
         BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
         SECTION 1.  Subchapter A, Chapter 2210, Insurance Code, is
  amended by adding Section 2210.015 to read as follows:
         Sec. 2210.015.  STUDY OF MARKET INCENTIVES; BIENNIAL
  REPORTING.  (a)  Each biennium, 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 the mandatory or
  voluntary issuance of windstorm and hail insurance in conjunction
  with the issuance of a homeowners policy or other residential
  property insurance policy in the seacoast territory.
         (b)  The department shall include the results of the study
  conducted under this section in the report submitted under Section
  32.022.
         SECTION 2.  Subchapter B-1, Chapter 2210, Insurance Code, is
  amended by amending Section 2210.071 and adding Sections 2210.0715
  and 2210.0716 to read as follows:
         Sec. 2210.071.  PAYMENT OF EXCESS LOSSES[; PAYMENT FROM
  RESERVES AND TRUST FUND].  [(a)]  If, in a catastrophe year, an
  occurrence or series of occurrences in a catastrophe area results
  in insured losses and operating expenses of the association in
  excess of premium and other revenue of the association, the excess
  losses and operating expenses shall be paid as provided by this
  subchapter.
         Sec. 2210.0715.  PAYMENT FROM RESERVES AND TRUST FUND. [(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 from public securities issued in accordance with this
  subchapter and Subchapter M and, notwithstanding Subsection (a),
  may be paid from the proceeds of public securities issued under
  Section 2210.072(a) before an occurrence or series of occurrences
  that results in insured losses.]
         Sec. 2210.0716.  PAYMENT FROM CLASS 1 ASSESSMENTS. (a)  
  Losses in a catastrophe year not paid under Section 2210.0715 shall
  be paid as provided by this section from Class 1 member assessments
  not to exceed $500 million for that catastrophe year.
         (b)  The association, with the approval of the commissioner,
  shall notify each member 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.
         SECTION 3.  Sections 2210.072(a), (b), (b-1), (c), and (f),
  Insurance Code, are amended to read as follows:
         (a)  Losses not paid under Sections 2210.0715 and 2210.0716
  [Section 2210.071(b)] 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 before, 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 paid 
  [repaid] within a period not to exceed 10 [14] years[,] and may be
  paid [repaid] sooner if the board of directors elects to do so and
  the commissioner approves, except that early payment may not result
  in an increase to any assessment or premium surcharge imposed under
  this chapter.
         (b)  Public securities described by Subsection (a) that are
  issued before an occurrence or series of occurrences that results
  in incurred losses:
               (1)  may be issued on the request of the board of
  directors with the approval of the commissioner; and
               (2)  may not, in the aggregate, exceed $500 million [$1
  billion] at any one time, regardless of the calendar year or years
  in which the outstanding public securities were issued.
         (b-1)  Public securities described by Subsection (a):
               (1)  shall be issued as necessary in a principal amount
  not to exceed $500 million [$1 billion] per catastrophe year, in the
  aggregate, for securities issued during that catastrophe year
  before the occurrence or series of occurrences that results in
  incurred losses in that year and securities issued on or after the
  date of that occurrence or series of occurrences, and regardless of
  whether for a single occurrence or a series of occurrences; and
               (2)  subject to the [$1 billion] maximum described by
  Subdivision (1), may be issued, in one or more issuances or
  tranches, during the calendar year in which the occurrence or
  series of occurrences occurs or, if the public securities cannot
  reasonably be issued in that year, during the following calendar
  year.
         (c)  If public securities are issued as described by this
  section, the public securities shall be paid [repaid] in the manner
  prescribed by Subchapter M [from association premium revenue].
         (f)  If, under Subsection (e), the proceeds of any
  outstanding public securities issued during a previous catastrophe
  year must be depleted, those proceeds shall count against the $500
  million [$1 billion] limit on public securities described by this
  section in the catastrophe year in which the proceeds must be
  depleted.
         SECTION 4.  Subchapter B-1, Chapter 2210, Insurance Code, is
  amended by adding Section 2210.0725 to read as follows:
         Sec. 2210.0725.  PAYMENT FROM CLASS 2 ASSESSMENTS. (a)  
  Losses in a catastrophe year not paid under Sections 2210.0715,
  2210.0716, and 2210.072 shall be paid as provided by this section
  from Class 2 member assessments not to exceed $500 million for that
  catastrophe year.
         (b)  The association, with the approval of the commissioner,
  shall notify each member 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.
         SECTION 5.  Sections 2210.073 and 2210.074, Insurance Code,
  are amended to read as follows:
         Sec. 2210.073.  PAYMENT FROM CLASS 2 PUBLIC SECURITIES.  (a)  
  Losses not paid under Sections 2210.0715, 2210.0716, [2210.071 and]
  2210.072, and 2210.0725 shall be paid as provided by this section
  from the proceeds from Class 2 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
  [under this subsection].  Public securities issued under this
  section must be paid [repaid] within a period not to exceed 10
  years[,] and may be paid [repaid] sooner if the board of directors
  elects to do so and the commissioner approves, except that early
  payment may not result in an increase to any assessment or premium
  surcharge imposed under this chapter.
         (b)  Public securities described by Subsection (a):
               (1)  shall [may] be issued as necessary in a principal
  amount not to exceed $500 million [$1 billion] per catastrophe
  year, in the aggregate, whether for a single occurrence or a series
  of occurrences; and
               (2)  subject to the [$1 billion] maximum described by
  Subdivision (1), may be issued, in one or more issuances or
  tranches, during the calendar year in which the occurrence or
  series of occurrences occurs or, if the public securities cannot
  reasonably be issued in that year, during the following calendar
  year.
         (c)  If the losses are paid with public securities described
  by this section, the public securities shall be paid [repaid] in the
  manner prescribed by Subchapter M.
         Sec. 2210.074.  PAYMENT FROM [THROUGH] CLASS 3 PUBLIC
  SECURITIES. (a) Losses not paid under Sections 2210.0715,
  2210.0716, [2210.071,] 2210.072, 2210.0725, and 2210.073 shall be
  paid as provided by this section from the proceeds from Class 3 
  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 [under this subsection
  or through reinsurance as described by Section 2210.075]. Public
  securities issued under this section must be paid [repaid] within a
  period not to exceed 10 years[,] and may be paid [repaid] sooner if
  the board of directors elects to do so and the commissioner
  approves, except that early payment may not result in an increase to
  any assessment or premium surcharge imposed under this chapter.
         (b)  Public securities described by Subsection (a):
               (1)  shall [may] be issued as necessary in a principal
  amount not to exceed $1 billion [$500 million] per catastrophe
  year, in the aggregate, whether for a single occurrence or a series
  of occurrences; and
               (2)  subject to the [$500 million] maximum described by
  Subdivision (1), may be issued, in one or more issuances or
  tranches, during the calendar year in which the occurrence or
  series of occurrences occurs or, if the public securities cannot
  reasonably be issued in that year, during the following calendar
  year.
         (c)  If the losses are paid with public securities described
  by this section, the public securities shall be paid [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 6.  Section 2210.102, Insurance Code, is amended by
  amending Subsections (a), (b), (c), (d), (e), and (f) and adding
  Subsections (c-1), (d-1), and (d-2) to read as follows:
         (a)  The board of directors is composed of nine members
  appointed by the governor [commissioner] in accordance with this
  section.
         (b)  Three [Four] members must be representatives of the
  insurance industry who actively write and renew windstorm and hail
  insurance in the seacoast territory.
         (c)  Three [Four] members must, as of the date of the
  appointment, reside in the first tier coastal counties.  Each of
  the following regions must be represented by a member residing in
  the region and [At least one of the members] appointed under this
  subsection:
               (1)  the region consisting of Cameron, Kenedy, Kleberg,
  and Willacy Counties;
               (2)  the region consisting of Aransas, Calhoun, Nueces,
  Refugio, and San Patricio Counties; and
               (3)  the region consisting of Brazoria, Chambers,
  Galveston, Jefferson, and Matagorda Counties and any part of Harris
  County designated as a catastrophe area under Section 2210.005.
         (c-1)  One of the members appointed under Subsection (c) must
  be a property and casualty agent who is licensed under this code and
  is not a captive agent.
         (d)  One member must be a representative of an area of this
  state that is not located in the seacoast territory [with
  demonstrated expertise in insurance and actuarial principles].
         (d-1)  One member must be an engineer who:
               (1)  is knowledgeable of, and has professional
  expertise in, wind-related design and construction practices in
  coastal areas that are subject to high winds and hurricanes; and
               (2)  resides in a second tier coastal county.
         (d-2)  One member must be a representative of the financial
  industry who resides in a second tier coastal county.
         (e)  All members must have demonstrated experience in
  insurance, general business, or actuarial principles and the
  member's area of expertise, if any, sufficient to make the success
  of the association probable.
         (f)  Insurers who are members of the association shall
  nominate, from among those members, persons to fill any vacancy in
  the three [four] board of director seats reserved for
  representatives of the insurance industry.  The board of directors
  shall solicit nominations from the members and submit the
  nominations to the governor [commissioner].  The nominee slate
  submitted to the governor [commissioner] under this subsection must
  include at least three more names than the number of vacancies.  The
  governor may [commissioner shall] appoint replacement insurance
  industry representatives from the nominee slate.
         SECTION 7.  Section 2210.103(c), Insurance Code, is amended
  to read as follows:
         (c)  A member of the board of directors may be removed by the
  governor [commissioner] with cause stated in writing and posted on
  the association's website.  The governor [commissioner] shall
  appoint a replacement in accordance with [the manner provided by]
  Section 2210.102 for a member who leaves or is removed from the
  board of directors.
         SECTION 8.  Subchapter E, Chapter 2210, Insurance Code, is
  amended by adding Sections 2210.2022, 2210.211, and 2210.212 to
  read as follows:
         Sec. 2210.2022.  INFORMATION REQUIRED FOR CERTAIN
  APPLICATIONS. (a) An applicant for new or renewal association
  coverage to take effect on or after January 1, 2016, must include in
  the application the information described by Subsection (b) if the
  applicant has coverage against loss incurred to real or tangible
  personal property at the fixed location for which association
  coverage is sought that is provided under a residential property
  insurance policy, including a residential fire and allied lines
  insurance policy, a farm and ranch owners insurance policy, a
  condominium owners policy, or a tenants policy.
         (b)  The applicant must include in the application the
  following information for each policy providing coverage described
  by Subsection (a):
               (1)  the total premium for the policy, including a
  policy number for coverage issued by the FAIR Plan Association
  under Chapter 2211, if applicable, and:
                     (A)  the amount of insurance under the policy on
  the dwelling and contents; or
                     (B)  if the policy is a tenants policy or
  condominium owners policy, the insured amount for the contents
  coverage; and
               (2)  the deductibles applicable for the policy.
         Sec. 2210.211.  EXPOSURE REDUCTION PLAN. (a)  The
  association shall reduce the association's total insured exposure
  determined as of January 1, 2015, according to the following
  schedule:
               (1)  not later than January 1, 2018, the amount of the
  association's total insured exposure must reflect a 20 percent
  reduction from the association's total insured exposure as of
  January 1, 2015;
               (2)  not later than January 1, 2020, the amount of the
  association's total insured exposure must reflect a 35 percent
  reduction from the association's total insured exposure as of
  January 1, 2015;
               (3)  not later than January 1, 2022, the amount of the
  association's total insured exposure must reflect a 45 percent
  reduction from the association's total insured exposure as of
  January 1, 2015;
               (4)  not later than January 1, 2024, the amount of the
  association's total insured exposure must reflect a 55 percent
  reduction from the association's total insured exposure as of
  January 1, 2015; and
               (5)  not later than January 1, 2026, the amount of the
  association's total insured exposure must reflect a 60 percent
  reduction from the association's total insured exposure as of
  January 1, 2015.
         (b)  As soon as practicable after January 1, 2018, January 1,
  2020, January 1, 2022, and January 1, 2026, respectively, the board
  of directors shall determine whether the reductions in the
  association's total insured exposure required under Subsection (a)
  have been achieved.
         (c)  If on January 1, 2018, the association did not achieve
  the reduction in the total insured exposure required by Subsection
  (a)(1), the board of directors shall establish a plan to reduce the
  association's total insured exposure, which must include imposing
  an assessment as described by Subsection (f).
         (d)  If on January 1, 2020, January 1, 2022, and January 1,
  2026, respectively, the association did not achieve the reduction
  in the total insured exposure required for that date, the board of
  directors shall establish a plan to reduce the association's total
  insured exposure, which must include imposing an assessment as
  described by Subsection (f).
         (e)  An exposure reduction plan under Subsection (c) or (d)
  must be implemented not later than March 31 in the year in which the
  board of directors determines that the required reduction was not
  achieved and must result in the achievement of the required
  reduction by not later than December 31 of that year.
         (f)  An assessment imposed under this section must be paid
  into the exposure reduction plan fund and is assessed against each
  member of the association that, as determined by the board of
  directors, has not met the member's proportionate responsibility
  for reduction of the association's total insured exposure. The
  total aggregate amount of an assessment under this section, if
  assessed against all members of the association, is $200 million.
         (g)  The amount of a member's assessment paid under
  Subsection (f) must be equal to the portion of $200 million that is
  consistent with the member's proportionate participation in the
  association as determined under Section 2210.052.
         (h)  A member of the association may not recoup an assessment
  paid under this section through a premium surcharge or tax credit or
  through a rate increase.
         (i)  At the request of the commissioner, but not less
  frequently than twice each year, the association shall submit a
  report to the commissioner detailing the amount of the
  association's total insured exposure and any statistical
  information or experience data requested by the commissioner
  concerning the characteristics of that exposure.
         (j)  Not later than May 15 and November 15 of each year, the
  commissioner shall submit a report to the windstorm insurance
  legislative oversight board established under Subchapter N
  summarizing the contents of the report submitted to the
  commissioner under Subsection (i).
         (k)  In determining whether the association has met the goal
  established under Subsection (a), the commissioner shall make
  adjustments to book value of the total insured exposure as of
  January 1, 2015, to reflect any change in the BOECKH Index. If the
  BOECKH Index ceases to exist, the commissioner shall make
  adjustments in the same manner based on another index that the board
  of directors determines accurately reflects changes in the cost of
  construction or residential values in the catastrophe area.
         (l)  Not later than January 1 of each year, the department
  shall notify each member of the association of the member's
  proportionate share of the association's total insured exposure
  required to be reduced under this section and of the member's
  potential liability for an assessment under this section.
         (m)  The commissioner shall adopt rules necessary to
  implement and enforce this section.
         Sec. 2210.212.  CONFIDENTIAL INFORMATION.  (a)  Except as
  provided by Subsection (b), all information, data, and databases
  collected and used under Sections 2210.2022 and 2210.211 are
  confidential information not subject to disclosure under Chapter
  552, Government Code.
         (b)  Information described by Subsection (a) may be used for
  the purposes and in the manner described by this chapter.
         SECTION 9.  The heading to Subchapter J, Chapter 2210,
  Insurance Code, is amended to read as follows:
  SUBCHAPTER J. CATASTROPHE RESERVE TRUST FUND; [AND] REINSURANCE AND
  ALTERNATIVE RISK FINANCING [PROGRAM]
         SECTION 10.  Section 2210.451, Insurance Code, is amended to
  read as follows:
         Sec. 2210.451.  DEFINITION. Except to the extent that
  context clearly requires otherwise, in [In] this subchapter, "trust
  fund" means the catastrophe reserve trust fund.
         SECTION 11.  Section 2210.452, Insurance Code, is amended by
  amending Subsections (a), (c), and (d) and adding Subsection (f) to
  read as follows:
         (a)  The commissioner shall adopt rules under which the
  association makes payments to the catastrophe reserve trust fund.
  Except as otherwise specifically provided by this section, the
  [The] trust fund may be used only for purposes directly related to
  funding the payment of insured losses, including:
               (1)  funding [to fund] the obligations of the trust
  fund under Subchapter B-1; and
               (2)  purchasing reinsurance or using alternative risk
  financing mechanisms under Sections 2210.453 and 2210.4531.
         (c)  At the end of each calendar year or policy year, the
  association shall use the net gain from operations of the
  association, including all premium and other revenue of the
  association in excess of incurred losses, operating expenses,
  deposits to the fund established under Section 2210.4521, public
  security obligations, and public security administrative expenses,
  to make payments to the trust fund, to procure reinsurance, or to
  make 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 and for association administrative expenses directly
  related to funding the payment of insured losses in the event of an
  occurrence or series of occurrences within a catastrophe area that
  results in a disbursement under Subchapter B-1.
         (f)  The commissioner by rule shall establish the procedure
  relating to the disbursement of money from the trust fund to pay for
  operating expenses, including reinsurance or alternative risk
  financing mechanisms under Sections 2210.453 and 2210.4531, if the
  association does not have sufficient premium and other revenue.
         SECTION 12.  Subchapter J, Chapter 2210, Insurance Code, is
  amended by adding Section 2210.4521 to read as follows:
         Sec. 2210.4521.  DEDICATED DISTRIBUTIONS TO CATASTROPHE
  RESERVE TRUST FUND. (a)  Notwithstanding any other provision in
  this chapter, as provided for in the plan of operation, the
  association shall deposit monthly in a fund, separate from the
  catastrophe reserve trust fund established under Section 2210.452,
  an amount sufficient to accumulate on an annual calendar year basis
  an amount equal to 30 percent of the association's earned premium
  for the preceding calendar year.
         (b)  The fund described by Subsection (a) is a trust fund
  with the Texas Treasury Safekeeping Trust Company to be held
  outside the state treasury.
         (c)  Not later than February 1 of each year the association
  shall direct the Texas Treasury Safekeeping Trust Company to
  deposit all amounts deposited in the fund described by Subsection
  (a) during the preceding calendar year, and interest earned on
  those amounts, into the catastrophe reserve trust fund.
         (d)  Money deposited in the fund described by Subsection (a)
  is irrevocably pledged to be distributed to the catastrophe reserve
  trust fund as provided in this section and is exempt from any other
  claim or attachment under law.
         (e)  Money deposited under this section may be invested by
  the Texas Treasury Safekeeping Trust Company as permitted by
  general law.
         SECTION 13.  Section 2210.453, Insurance Code, is amended to
  read as follows:
         Sec. 2210.453.  REINSURANCE AND ALTERNATIVE RISK FINANCING.
  (a) The association may[:
               [(1)  make payments into the trust fund; and
               [(2)]  purchase reinsurance or use alternative risk
  financing mechanisms in an aggregate amount not greater than $1
  billion.
         (b)  The [association may purchase] reinsurance purchased or
  alternative risk financing mechanisms used under this section
  operate [that operates] in addition to [or in concert with the trust
  fund,] public securities, other approved financial instruments,
  and assessments authorized by this chapter.
         (c)  The attachment point for reinsurance purchased under
  this section may not be less than the aggregate amount of all
  funding available to the association under Subchapter B-1.  [If the
  association does not purchase reinsurance as authorized by this
  section, the board, not later than June 1 of each year, shall submit
  to the commissioner, the legislative oversight board established
  under Subchapter N, the governor, the lieutenant governor, and the
  speaker of the house of representatives a report containing an
  actuarial plan for paying losses in the event of a catastrophe with
  estimated damages of $2.5 billion or more. The report required by
  this subsection must:
               [(1)     document and denominate the association's
  resources available to pay claims, including cash or other highly
  liquid assets, assessments that the association is projected to
  impose, pre-event and post-event bonding capacity, and
  private-sector recognized risk-transfer mechanisms, including
  catastrophe bonds and reinsurance;
               [(2)     include an independent, third-party appraisal of
  the likelihood of an assessment, the maximum potential size of the
  assessment, and an estimate of the probability that the assessment
  would not be adequate to meet the association's needs; and
               [(3)     include an analysis of financing alternatives to
  assessments that includes the costs of borrowing and the
  consequences that additional purchase of reinsurance, catastrophe
  bonds, or other private-sector recognized risk-transfer
  instruments would have in reducing the size or potential of
  assessments.
         [(d)     A person who prepares a report required by Subsection
  (c) may not contract to provide any other service to the
  association, except for the preparation of similar reports, before
  the third anniversary of the date the last report prepared by the
  person under that subsection is submitted.
         [(e)     The report submitted under this section is for
  informational purposes only and does not bind the association to a
  particular course of action.]
         SECTION 14.  Subchapter J, Chapter 2210, Insurance Code, is
  amended by adding Section 2210.4531 to read as follows:
         Sec. 2210.4531.  ADDITIONAL REINSURANCE. (a)  The
  association may purchase, in addition to any reinsurance purchased
  or alternative risk financing mechanism used under Section
  2210.453, reinsurance in an amount not greater than the lesser of:
               (1)  $800 million; or
               (2)  an amount such that the association's total loss
  funding is sufficient to fund its probable maximum loss for a
  catastrophe year with a probability of one in 100.
         (b)  The attachment point for reinsurance purchased under
  this section may not be less than the aggregate amount of all
  funding available to the association under Subchapter B-1 and
  Section 2210.453.
         (c)  The association shall assess member insurers the cost of
  reinsurance purchased under this section. The proportion of the
  reinsurance cost 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.
         SECTION 15.  Section 2210.455(b), Insurance Code, is amended
  to read as follows:
         (b)  The catastrophe plan must:
               (1)  describe the manner in which the association will,
  during the period covered by the plan, evaluate losses and process
  claims after the following windstorms affecting an area of maximum
  exposure to the association:
                     (A)  a windstorm with a four percent chance of
  occurring during the period covered by the plan;
                     (B)  a windstorm with a two percent chance of
  occurring during the period covered by the plan; and
                     (C)  a windstorm with a one percent chance of
  occurring during the period covered by the plan; and
               (2)  include, if the association does not purchase
  reinsurance or use an alternative risk financing mechanism under
  this subchapter [Section 2210.453] for the period covered by the
  plan, an actuarial plan for paying losses in the event of a
  catastrophe with estimated damages equal to or greater than the
  total amount of potential funding available through assessments and
  public securities under Subchapter B-1 [of $2.5 billion or more].
         SECTION 16.  Subchapter L-1, Chapter 2210, Insurance Code,
  is amended by adding Section 2210.5725 to read as follows:
         Sec. 2210.5725.  ADJUSTMENT OF CLAIMS BY PRIMARY INSURER.
  An insurer that has primary coverage on property for loss by fire
  must adjust all claims made on an association policy covering the
  same property.
         SECTION 17.  Section 2210.602, Insurance Code, is amended by
  adding Subdivisions (2-a), (3-a), and (4-a) to read as follows:
               (2-a)  "Class 1 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 2210.612 for the purpose of repaying Class
  1 public securities are deposited.
               (3-a)  "Class 2 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 2210.613 for the purpose of repaying Class
  2 public securities are deposited.
               (4-a)  "Class 3 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 2210.6135 for the purpose of repaying Class
  3 public securities are deposited.
         SECTION 18.  Section 2210.609, Insurance Code, is amended to
  read as follows:
         Sec. 2210.609.  REPAYMENT OF ASSOCIATION'S PUBLIC SECURITY
  OBLIGATIONS.  (a)  The board and the association shall enter into an
  agreement under which the association shall provide for the payment
  of all public security obligations from available funds collected
  by the association and deposited as required by this subchapter 
  [into the public security obligation revenue fund].  If the
  association determines that it is unable to pay the public security
  obligations and public security administrative expenses, if any,
  with available funds, the association shall pay those obligations
  and expenses in accordance with Sections 2210.612, 2210.613, and 
  2210.6135, [and 2210.6136] as applicable.  Class 1, Class 2, or
  Class 3 public securities may be issued on a parity or subordinate
  lien basis with other Class 1, Class 2, or Class 3 public
  securities, respectively.
         (b)  If any public securities issued under this chapter 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[,
  assess members of the association under Sections 2210.613 and
  2210.6135,] and assess a premium surcharge if necessary.
         (c)  The association shall deposit all revenue collected
  under Section 2210.612 in the Class 1 public security trust fund
  [public security obligation revenue fund], all revenue collected
  under Section 2210.613 [2210.613(b)] in the Class 2 public security
  [premium surcharge] trust fund, and all revenue collected under
  Section [Sections 2210.613(a) and] 2210.6135 in the Class 3 public
  security [member assessment] trust fund.  Money deposited in a fund
  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 to ensure timely
  payment of obligations and expenses.  This may include the board
  establishing 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 Class 1 public security [public security
  obligation revenue fund, the premium surcharge] trust fund, [or]
  the Class 2 public security trust fund, or the Class 3 public
  security [member assessment] trust fund to the appropriate account
  the amount necessary to pay the public security obligation.
         (d)  The association shall provide for the payment of the
  public security obligations and the public security administrative
  expenses by irrevocably pledging revenues received from premiums,
  [member assessments,] premium surcharges, and amounts on deposit in
  the Class 1 public security [public security obligation revenue
  fund, the premium surcharge] trust fund, [and] the Class 2 public
  security trust fund, and the Class 3 public security [member
  assessment] trust fund, together with any public security reserve
  fund, as provided in the proceedings authorizing the public
  securities and related credit agreements.
         (e)  An amount owed by the board under a credit agreement
  shall be payable from and secured by a pledge of revenues received
  by the association [or amounts from the public security obligation
  trust fund], the Class 1 public security [premium surcharge] trust
  fund, [and] the Class 2 public security [member assessment] trust
  fund, and the Class 3 public security trust fund, to the extent
  provided in the proceedings authorizing the credit agreement.
         SECTION 19.  Section 2210.610(a), Insurance Code, is amended
  to read as follows:
         (a)  Revenues received from the premium surcharges under
  Sections 2210.612, [Section] 2210.613, and [member assessments
  under Sections 2210.613 and] 2210.6135 may be applied only as
  provided by this subchapter.
         SECTION 20.  Section 2210.611, Insurance Code, is amended to
  read as follows:
         Sec. 2210.611.  EXCESS REVENUE COLLECTIONS AND INVESTMENT
  EARNINGS.  Revenue collected in any calendar year from a premium
  surcharge under Sections 2210.612, [Section] 2210.613, and [member
  assessments under Sections 2210.613 and] 2210.6135 that exceeds the
  amount of the public security obligations and public security
  administrative expenses payable in that calendar year and interest
  earned on the funds [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 [and member assessments, as applicable,] that would
  otherwise be required to be levied for the year under this
  subchapter;
               (2)  used to redeem or purchase outstanding public
  securities; or
               (3)  deposited in the catastrophe reserve trust fund.
         SECTION 21.  Section 2210.612, Insurance Code, is amended to
  read as follows:
         Sec. 2210.612.  PAYMENT OF CLASS 1 PUBLIC SECURITIES.
  (a)  The association shall pay Class 1 public securities issued
  under Section 2210.072 from:
               (1)  [its] net premium and other revenue; and
               (2)  if net premium and other revenue are not
  sufficient to pay the securities, a catastrophe area premium
  surcharge collected in accordance with this section.
         (b)  On approval by the commissioner, the association and
  each insurer that provides insurance in a catastrophe area shall
  assess, as provided by this section, a premium surcharge to each
  policyholder of a policy described by Subsection (c).  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 all policyholders of policies that cover insured
  property that is located in a catastrophe area, including
  automobiles principally garaged in a catastrophe area.  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 automobiles
  and other property located in the catastrophe area. 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.
         (e) [(b)]  The association may enter financing arrangements
  as described by Section 2210.072(d) as necessary to obtain public
  securities issued under Section 2210.072.  Nothing in this
  subsection shall prevent the authorization and creation of one or
  more programs for the issuance of commercial paper before the date
  of an occurrence or series of occurrences that results in insured
  losses under Section 2210.072(a).
         SECTION 22.  Section 2210.613, Insurance Code, is amended to
  read as follows:
         Sec. 2210.613.  PAYMENT OF CLASS 2 PUBLIC SECURITIES. (a)
  The association shall pay Class 2 public securities issued under
  Section 2210.073 from:
               (1)  net premium and other revenue; and
               (2)  if net premium and other revenue are not
  sufficient to pay the securities, a catastrophe area premium
  surcharge collected in accordance with this section.
         (b)  On approval by the commissioner, the association and
  each insurer that provides insurance in a catastrophe area shall
  assess, as provided by this section, a premium surcharge to each
  policyholder of a policy described by Subsection (c).  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 [as provided by this section.     Thirty percent of
  the cost of the public securities shall be paid 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].
         [(b)     Seventy percent of the cost of the public securities
  shall be paid by a premium surcharge collected under this section in
  an amount set by the commissioner.     On approval by the
  commissioner, each insurer, the association, and the Texas FAIR
  Plan Association shall assess, as provided by this section, a
  premium surcharge to each policyholder of a policy 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 or member assessments and all
  related expenses on the public securities.]
         (c)  The premium surcharge under this section [Subsection
  (b)] shall be assessed on all policyholders of policies that cover
  insured property that is located in a catastrophe area, including
  automobiles principally garaged in a catastrophe area.  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
  automobiles and other property located in the catastrophe area.  
  The [A] premium surcharge [under Subsection (b)] 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 [Subsection (b)]
  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.
         SECTION 23.  Section 2210.6135, Insurance Code, is amended
  to read as follows:
         Sec. 2210.6135.  PAYMENT OF CLASS 3 PUBLIC SECURITIES. (a)
  The association shall pay Class 3 public securities issued under
  Section 2210.074 from:
               (1)  net premium and other revenue; and
               (2)  if net premium and other revenue are not
  sufficient to pay the securities, a statewide premium surcharge
  collected in accordance with this section.
         (b)  On approval of 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 (d). Except as provided by
  Subsection (c), 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 amount of the surcharge assessed under Subsection
  (b) may not exceed one percent of the premium charged for the
  policyholder's policy described by Subsection (d).
         (d)  The premium surcharge under this section shall be
  assessed on all policyholders of policies that cover insured
  property located in this state, including automobiles principally
  garaged in this state, written under the following lines of
  insurance:
               (1)  fire and allied lines;
               (2)  farm and ranch owners;
               (3)  residential property insurance; and
               (4)  private passenger automobile liability and
  physical damage insurance.
         (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 [as provided by this section through member
  assessments].  [The association, for the payment of the losses,
  shall assess the members of the association a principal amount not
  to exceed $500 million per catastrophe year.   The association shall
  notify each member of the association of the amount of the member's
  assessment under this section.
         [(b)     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.
         [(c)     A member of the association may not recoup an
  assessment paid under this section through a premium surcharge or
  tax credit.]
         SECTION 24.  Section 2210.616(a), Insurance Code, is amended
  to read as follows:
         (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 [member assessments and]
  premium surcharges or the deposit of those funds into the Class 1
  public security [member assessment] trust fund, Class 2 public
  security [or premium surcharge] trust fund, or Class 3 public
  security trust fund;
               (2)  reduce, alter, or impair the [member assessments
  or] 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.
         SECTION 25.  Section 2210.6165, Insurance Code, is amended
  to read as follows:
         Sec. 2210.6165.  PROPERTY RIGHTS.  If public securities
  issued under this subchapter are outstanding, the rights and
  interests of the association, a successor to the association, any
  member of the association, or any member of the Texas FAIR Plan
  Association, including the right to impose, collect, and receive a
  premium surcharge [or a member assessment] authorized under this
  subchapter, are only contract rights until those revenues are first
  pledged for the repayment of the association's public security
  obligations as provided by Section 2210.609.
         SECTION 26.  Section 2210.653(a), Insurance Code, is amended
  to read as follows:
         (a)  The board shall:
               (1)  receive information about rules proposed by the
  department relating to windstorm insurance and may submit comments
  to the commissioner on the proposed rules;
               (2)  review the reports required by Section
  2210.211(i);
               (3)  monitor windstorm insurance in this state,
  including:
                     (A)  the adequacy of rates;
                     (B)  the operation of the association; and
                     (C)  the availability of coverage; [and]
               (4)  monitor the activities of the association under
  Section 2210.211, including:
                     (A)  the performance of the association's
  operations;
                     (B)  the association's progress toward meeting
  the requirements of Section 2210.211; and
                     (C)  the extent of voluntary market participation
  in coastal and historically underserved areas in this state; and
               (5) [(3)]  review recommendations for legislation
  proposed by the department or the association.
         SECTION 27.  The following provisions of Chapter 2210,
  Insurance Code, are repealed:
               (1)  Section 2210.075;
               (2)  Sections 2210.102(g) and (h);
               (3)  Sections 2210.602(5-a), (6-b), (6-c), and (10);
               (4)  Section 2210.605(c); and
               (5)  Section 2210.6136.
         SECTION 28.  (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 November 1, 2015.
         (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, effective
  November 1, 2015.  The initial directors shall draw lots to achieve
  staggered terms, with three of the directors serving one-year
  terms, three of the directors serving two-year terms, and three of
  the directors serving three-year terms.
         (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 November 1, 2015. 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.
         (d)  Notwithstanding Section 2210.4521, Insurance Code, as
  added by this Act, or Subsection (e) of this section, beginning on
  the effective date of this Act and continuing until December 31,
  2015, the Texas Windstorm Insurance Association shall deposit 30
  percent of its earned premium into the trust fund described by that
  section.  Not later than February 1, 2016, the association shall
  direct the Texas Treasury Safekeeping Trust Company to deposit all
  amounts deposited in the trust fund during the 2015 calendar year,
  and interest earned on those funds, into the catastrophe reserve
  trust fund as described by that section.
         (e)  Section 2210.4521, Insurance Code, as added by this Act,
  applies to all Texas Windstorm Insurance Association premium earned
  on and after January 1, 2016.
         (f)  Notwithstanding Subsection (d) of this section and
  Section 2210.0715, Insurance Code, as added by this Act, amounts
  collected under Section 2210.4521, Insurance Code, as added by this
  Act, may not be used to pay for a covered insured association loss
  incurred before June 1, 2015.
         (g)  Section 2210.5725, Insurance Code, as added by this Act,
  applies only to adjustment of a claim made on or after the effective
  date of this Act.
         (h)  It is the intent of the legislature that each member of
  the legislative oversight board appointed under Section 2210.652,
  Insurance Code, and serving on the effective date of this Act
  continues to serve after the effective date of this Act until a
  successor is appointed under that section.
         SECTION 29.  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, 2015.