84R29798 PMO-D
 
  By: Taylor of Galveston, et al. S.B. No. 900
 
  (Bonnen of Galveston)
 
  Substitute the following for S.B. No. 900:  No.
 
 
 
A BILL TO BE ENTITLED
 
AN ACT
  relating to the operation of the Texas Windstorm Insurance
  Association.
         BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
         SECTION 1.  Section 2210.003, Insurance Code, is amended by
  amending Subdivision (1) and adding Subdivision (1-a) to read as
  follows:
               (1)  "Administrator" means an entity contractually
  retained to manage the association and administer the plan of
  operation under Section 2210.062.
               (1-a)  "Association" means the Texas Coastal 
  [Windstorm] Insurance Association.
         SECTION 2.  Section 2210.014, Insurance Code, is amended by
  amending Subsection (b) and adding Subsection (c) to read as
  follows:
         (b)  Chapter 542 does not apply to [the processing and
  settlement of claims by] the association or to an agent or
  representative of the association.
         (c)  An administrator contracted under Section 2210.062, if
  applicable, is an agent of the association for purposes of managing
  the association and administering the plan of operation under this
  chapter.
         SECTION 3.  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 of
  this state. 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 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 4.  Subchapter B, Chapter 2210, Insurance Code, is
  amended by adding Section 2210.062 to read as follows:
         Sec. 2210.062.  ADMINISTRATION BY CONTRACTED ADMINISTRATOR
  AUTHORIZED. (a) Notwithstanding any other law, if determined by
  the commissioner to be in the best interest of the policyholders and
  the public, the commissioner may contract with an administrator to
  manage the association and administer the plan of operation.
         (b)  The commissioner shall adopt rules as necessary to
  implement this section if the commissioner determines management of
  the association and administration of the plan of operation by an
  administrator is in the best interest of the policyholders and the
  public.
         (c)  The administrator must hold either a managing general
  agent license issued under Chapter 4053 or a third-party
  administrator certificate of authority issued under Chapter 4151.
         SECTION 5.  Subchapter B-1, Chapter 2210, Insurance Code, is
  amended by amending Section 2210.071 and adding Section 2210.0715
  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.]
         SECTION 6.  Section 2210.072, Insurance Code, is amended to
  read as follows:
         Sec. 2210.072.  PAYMENT FROM CLASS 1 PUBLIC SECURITIES
  ISSUED BEFORE JUNE 1, 2015[; FINANCIAL INSTRUMENTS].  (a)  Losses
  not paid under Section 2210.0715 [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 on or before June 1, 2015 [before, on, or after the
  date of any occurrence or series of occurrences that results in
  insured losses].  Public securities described by [issued under]
  this section must be repaid 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.
         [(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 $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 $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)  Public [If public] securities [are] issued as described
  by this section[, the public securities] shall be repaid in the
  manner prescribed by Subchapter M from association premium revenue.
         (d)  The association may borrow from, or enter into other
  financing arrangements with, any market source, under which the
  market source makes interest-bearing loans or other financial
  instruments to the association to enable the association to pay
  losses under this section or to obtain public securities under this
  section. For purposes of this subsection, financial instruments
  includes commercial paper.
         [(e)     The proceeds of any outstanding public securities
  described by Subsection (a) that are issued before an occurrence or
  series of occurrences shall be depleted before the proceeds of any
  securities issued after an occurrence or series of occurrences may
  be used.   This subsection does not prohibit the association from
  issuing securities after an occurrence or series of occurrences
  before the proceeds of outstanding public securities issued during
  a previous catastrophe year have been depleted.
         [(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 $1
  billion limit on public securities described by this section in the
  catastrophe year in which the proceeds must be depleted.]
         SECTION 7.  Subchapter B-1, Chapter 2210, Insurance Code, is
  amended by adding Section 2210.0725 to read as follows:
         Sec. 2210.0725.  PAYMENT FROM CLASS 1 ASSESSMENTS. (a)  
  Losses in a catastrophe year not paid under Sections 2210.0715 and
  2210.072 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.
         (c)  A member of the association may not recoup an assessment
  paid under this section through a premium surcharge or tax credit.
         SECTION 8.  Section 2210.073, Insurance Code, is amended to
  read as follows:
         Sec. 2210.073.  PAYMENT FROM CLASS 2 PUBLIC SECURITIES.  (a)  
  Losses not paid under Sections 2210.0715, [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.
         (b)  Public securities described by Subsection (a):
               (1)  shall [may] be issued as necessary in a principal
  amount not to exceed $250 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.
         SECTION 9.  Section 2210.074, Insurance Code, is amended to
  read as follows:
         Sec. 2210.074.  PAYMENT THROUGH CLASS 2 ASSESSMENTS [3
  PUBLIC SECURITIES]. (a) Losses in a catastrophe year not paid
  under Sections 2210.0715, [2210.071,] 2210.072, 2210.0725, and
  2210.073 shall be paid as provided by this section from Class 2
  member assessments not to exceed $250 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.
         (c)  A member of the association may not recoup an assessment
  paid under this section through a premium surcharge or tax credit
  [proceeds from public securities authorized to be issued in
  accordance with Subchapter M on or after the date of any occurrence
  that results in insured losses under this subsection or through
  reinsurance as described by Section 2210.075.     Public securities
  issued under this section must be repaid within a period not to
  exceed 10 years, and may be repaid sooner if the board of directors
  elects to do so and the commissioner approves.
         [(b)  Public securities described by Subsection (a):
               [(1)     may be issued as necessary in a principal amount
  not to exceed $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 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 10.  Subchapter B-1, Chapter 2210, Insurance Code,
  is amended by adding Sections 2210.0741 and 2210.0742 to read as
  follows:
         Sec. 2210.0741.  PAYMENT THROUGH CLASS 3 PUBLIC SECURITIES.
  (a) Losses not paid under Sections 2210.0715, 2210.072, 2210.0725,
  2210.073, and 2210.074 shall be paid as provided by this section
  from proceeds from public securities authorized to be issued in
  accordance with Subchapter M on or after the date of any occurrence
  that results in insured losses under this subsection or through
  reinsurance as described by Section 2210.075. Public securities
  issued under this section must be paid within a period not to exceed
  10 years, and may be paid sooner if the board of directors elects to
  do so and the commissioner approves.
         (b)  Public securities described by Subsection (a):
               (1)  may be issued as necessary in a principal amount
  not to exceed $250 million per catastrophe year, in the aggregate,
  whether for a single occurrence or a series of occurrences; and
               (2)  subject to the 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 in the manner
  prescribed by Subchapter M.
         Sec. 2210.0742.  PAYMENT FROM CLASS 3 ASSESSMENTS.
  (a)  Losses in a catastrophe year not paid under Sections
  2210.0715, 2210.072, 2210.0725, 2210.073, 2210.074, and 2210.0741
  shall be paid as provided by this section from Class 3 member
  assessments not to exceed $250 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.
         (c)  A member of the association may not recoup an assessment
  paid under this section through a premium surcharge or tax credit.
         SECTION 11.  Section 2210.075, Insurance Code, is amended to
  read as follows:
         Sec. 2210.075.  REINSURANCE. (a) Before any occurrence or
  series of occurrences, an insurer may elect to purchase reinsurance
  to cover an assessment for which the insurer would otherwise be
  liable under this subchapter [Section 2210.074(c)].
         (b)  An insurer must notify the board of directors, in the
  manner prescribed by the association whether the insurer will be
  purchasing reinsurance. If the insurer does not elect to purchase
  reinsurance under this section, the insurer remains liable for any
  assessment imposed under this subchapter [Section 2210.074(c)].
         SECTION 12.  Section 2210.102, Insurance Code, is amended to
  read as follows:
         Sec. 2210.102.  COMPOSITION. (a) The board of directors is
  composed of nine members appointed by the 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 first tier coastal counties.
         (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)  Three members [One member] must represent [be a
  representative of] an area of this state that is [not] located more
  than 200 miles from the Texas coastline [in the seacoast territory
  with demonstrated expertise in insurance and actuarial
  principles].
         (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 commissioner.  The nominee slate submitted to
  the commissioner under this subsection must include at least three
  more names than the number of vacancies.  The commissioner may 
  [shall] appoint replacement insurance industry representatives
  from the nominee slate.
         (g)  In addition to the nine members appointed under
  Subsection (a), the [The] commissioner shall appoint three
  individuals [one person] to serve as [a] nonvoting ex officio
  members [member] of the board to advise the board [regarding issues
  relating to the inspection process.   The commissioner may give
  preference in an appointment under this subsection to a person who
  is a qualified inspector under Section 2210.254].  Each [The]
  nonvoting member appointed under this section must:
               (1)  hold an elective office of this state or a
  political subdivision of this state; and
               (2)  reside in and represent one of the following
  areas:
                     (A)  the northern portion of the seacoast
  territory [be an engineer licensed by, and in good standing with,
  the Texas Board of Professional Engineers];
                     (B)  the southern portion of the seacoast
  territory [(2)  reside in a first tier coastal county]; or [and]
                     (C)  an area of this state that is not located in
  the seacoast territory [(3)     be knowledgeable of, and have
  professional expertise in, wind-related design and construction
  practices in coastal areas that are subject to high winds and
  hurricanes].
         (h)  The persons appointed under Subsection (g) [(c)] must
  each reside in a [be from] different area described by Subsection
  (g)(2) and in different counties.
         SECTION 13.  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
  commissioner with cause stated in writing and posted on the
  association's website.  The 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 14.  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 15.  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 Section 2210.453.
         (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,
  public security obligations, and public security administrative
  expenses, to make payments to the trust fund, [to] procure
  reinsurance, or use alternative risk financing mechanisms, or to
  make payments to the trust fund and [to] procure reinsurance or use
  alternative risk financing mechanisms.
         (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 Section 2210.453, if the association
  does not have sufficient premium and other revenue.
         SECTION 16.  Section 2210.453, Insurance Code, is amended to
  read as follows:
         Sec. 2210.453.  REINSURANCE AND ALTERNATIVE RISK FINANCING
  MECHANISMS. (a) The association shall [may:
               [(1)  make payments into the trust fund; and
               [(2)]  purchase reinsurance or use alternative risk
  financing mechanisms in an amount not less than the probable
  maximum loss for the association for a catastrophe year with a
  probability of one in 100.
         (b)  Any [The association may purchase] reinsurance
  purchased or alternative risk financing mechanism used under this
  section operates [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 17.  Section 2210.501, Insurance Code, is amended by
  adding Subsection (d) to read as follows:
         (d)  Notwithstanding Section 2210.502, maximum liability
  limits for coverage described by Subsection (b)(1) or (3) may not
  exceed $1,500,000.
         SECTION 18.  Section 2210.602, Insurance Code, is amended by
  amending Subdivision (4) and adding Subdivisions (3-a) and (4-a) to
  read as follows:
               (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 paying Class 2
  public securities are deposited.
               (4)  "Class 3 public securities" means public
  securities authorized to be issued on or after the occurrence of a
  catastrophic event by Section 2210.0741 [2210.074].
               (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 2210.6131 for the purpose of paying Class 3
  public securities are deposited.
         SECTION 19.  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
  2210.6131 [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 public security obligation revenue
  fund, all revenue collected under Section 2210.613 [2210.613(b)] in
  the Class 2 public security trust fund [premium surcharge trust
  fund], and all revenue collected under Section 2210.6131 [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 public
  security obligation revenue fund, the Class 2 public security 
  [premium surcharge] trust fund, or the Class 3 public security
  trust fund [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 public security obligation revenue fund, the Class 2 public
  security [premium surcharge] trust fund, and the Class 3 public
  security trust fund [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 2 public security [premium surcharge] trust
  fund, and the Class 3 public security trust fund [member assessment
  trust fund] to the extent provided in the proceedings authorizing
  the credit agreement.
         SECTION 20.  Section 2210.610(a), Insurance Code, is amended
  to read as follows:
         (a)  Revenues received from the premium surcharges under
  Sections [Section] 2210.613 and 2210.6131 [and member assessments
  under Sections 2210.613 and 2210.6135] may be applied only as
  provided by this subchapter.
         SECTION 21.  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 [Section] 2210.613 and 2210.6131 [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 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 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 association policies
  issued under this chapter [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.   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.  Subchapter M, Chapter 2210, Insurance Code, is
  amended by adding Section 2210.6131 to read as follows:
         Sec. 2210.6131.  PAYMENT OF CLASS 3 PUBLIC SECURITIES. (a)
  The association shall pay Class 3 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 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 association policies issued under
  this chapter.
         (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.
         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
  applicable [member assessment trust fund or premium surcharge]
  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.  The following provisions of the Insurance Code
  are repealed:
               (1)  Sections 2210.602(5-a), (6), (6-b), and (6-c);
               (2)  Section 2210.605(c); and
               (3)  Sections 2210.6135 and 2210.6136.
         SECTION 27.  (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 October 1, 2015.
         (b)  The commissioner 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
  October 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 October 1, 2015. Such a person is
  eligible for appointment by the commissioner to the new board of
  directors of the Texas Windstorm Insurance Association under
  Section 2210.102, Insurance Code, as amended by this Act.
         (d)  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 28.  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.