88R30138 SCL-F
 
  By: Middleton, et al. S.B. No. 1217
 
  (Lozano)
 
  Substitute the following for S.B. No. 1217:  No.
 
 
 
A BILL TO BE ENTITLED
 
AN ACT
  relating to the Texas Windstorm Insurance Association.
         BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
  ARTICLE 1. ADMINISTRATION AND OPERATION OF TEXAS WINDSTORM
  INSURANCE ASSOCIATION
         SECTION 1.01.  Section 2210.014, Insurance Code, is amended
  by adding Subsection (d) to read as follows:
         (d)  The association is not subject to any insurance premium
  tax or insurance maintenance fee or tax.
         SECTION 1.02.  Subchapter A, Chapter 2210, Insurance Code,
  is amended by adding Section 2210.016 to read as follows:
         Sec. 2210.016.  LEGISLATIVE LOBBYING. (a)  The association
  may not use any money under its control to attempt to influence the
  passage or defeat of a legislative measure.
         (b)  An association employee or member of the board of
  directors who violates Subsection (a) is subject to:
               (1)  immediate termination; and
               (2)  a fine of $10,000 to be deposited in the
  catastrophe reserve trust fund.
         (c)  This section does not prohibit an association employee
  or member of the board of directors from using money under the
  association's control to provide public information or to provide
  information responsive to a request for public information.
         SECTION 1.03.  Section 2210.102, Insurance Code, is amended
  by amending Subsections (a), (c), (c-1), (d), and (g) and adding
  Subsection (d-1) to read as follows:
         (a)  The board of directors is composed of eleven [nine]
  members appointed by the commissioner in accordance with this
  section.
         (c)  Five [Three] members must, as of the date of the
  appointment, reside in the first tier coastal counties.  Each of
  the following regions must, to the extent possible, be represented
  by a member residing in the region and 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)  Two [One] of the members appointed under Subsection
  (c) must be [a] property and casualty agents [agent] who are [is]
  licensed under this code and are [is] not [a] captive agents
  [agent].
         (d)  Three members must reside in an area of this state that
  is located outside the first tier coastal counties [more than 100
  miles from the Texas coastline].
         (d-1)  One of the members appointed under Subsection (d) must
  be the public counsel of the office of public insurance counsel or
  the counsel's designee.
         (g)  Members appointed to the board of directors under
  Subsections (c) and (d), other than a [the] member appointed under
  Subsection (c-1), must represent the general public in the regions
  described by those subsections.  A person may not be appointed to
  represent the general public under Subsection (c) or (d) if the
  person or the person's spouse:
               (1)  is employed by or participates in the management
  of a business entity or other organization:
                     (A)  operating in the property and casualty
  insurance industry in this state;
                     (B)  receiving money from the association, other
  than insurance claim payments; or
                     (C)  receiving money from association
  policyholders with respect to the policyholders' claims;
               (2)  owns or controls, directly or indirectly, more
  than a 10 percent interest in a business entity or other
  organization:
                     (A)  operating in the property and casualty
  insurance industry in this state;
                     (B)  receiving money from the association, other
  than insurance claim payments; or
                     (C)  receiving money from association
  policyholders with respect to the policyholders' claims; or
               (3)  uses or receives a substantial amount of tangible
  goods, services, or money from the association, other than:
                     (A)  insurance claim payments; or
                     (B)  compensation or reimbursement authorized by
  law for the board members' membership, attendance, or expenses.
         SECTION 1.04.  Section 2210.103(a), Insurance Code, is
  amended to read as follows:
         (a)  Members of the board of directors serve three-year
  staggered terms, with the terms of three or four members expiring on
  the third Tuesday of March of each year.
         SECTION 1.05.  Section 2210.105(d), Insurance Code, is
  amended to read as follows:
         (d)  Except for an emergency meeting, a meeting of the board
  of directors shall be held at a location in a first tier coastal
  county or a second tier coastal county as determined by the board of
  directors.
         SECTION 1.06.  Subchapter E, Chapter 2210, Insurance Code,
  is amended by adding Section 2210.211 to read as follows:
         Sec. 2210.211.  LIMITATIONS ON CERTAIN ADJUSTMENTS. (a) The
  association may not automatically adjust the amount of coverage to
  be purchased by a policyholder.
         (b)  The association may not adjust premiums, fees, or any
  other costs to policyholders for inflation without a vote by the
  board of directors.
         SECTION 1.07.  Section 2210.352(a), Insurance Code, is
  amended to read as follows:
         (a)  Not later than September [August] 15 of each year, the
  association shall file with the department a proposed manual rate
  for all types and classes of risks written by the association.
         SECTION 1.08.  Subchapter J, Chapter 2210, Insurance Code,
  is amended by adding Section 2210.4531 to read as follows:
         Sec. 2210.4531.  DETERMINATION OF PROBABLE MAXIMUM LOSS.
  (a) The association shall file with the department a proposed
  probable maximum loss, subject to Section 2210.453.
         (b)  In determining the probable maximum loss, the
  association:
               (1)  may not consider the cost of providing loss
  adjustments;
               (2)  shall, to the extent possible, contract with any
  disinterested third parties necessary to execute any catastrophe
  models that were executed in the preceding storm season;
               (3)  shall, if the association is unable to contract
  for the execution of a catastrophe model described by Subdivision
  (2), contract with any disinterested third party necessary to
  execute a catastrophe model that is substantially similar to the
  model for which the association is unable to contract under
  Subdivision (2);
               (4)  may contract with any disinterested third parties
  to execute catastrophe models in addition to the models required
  under Subdivisions (2) and (3);
               (5)  shall provide to a disinterested third party
  executing a catastrophe model any information necessary to comply
  with this subsection;
               (6)  may not use a combination of catastrophe models to
  determine the probable maximum loss; and
               (7)  may use only the catastrophe model that produces
  the lowest probable maximum loss.
         (c)  The association shall make any information produced in
  compliance with Subsection (b) publicly available on the
  association's Internet website.
         (d)  The association may only use a probable maximum loss
  that is approved by the commissioner. The commissioner may reject a
  probable maximum loss filed with the department by the association
  and set a probable maximum loss at any amount determined by the
  commissioner.
         (e)  The amount of loss adjustment expense, as adopted by the
  board of directors for a catastrophe year and used for the
  association's rate indication for purposes of filing a rate under
  this chapter, must be considered above the probable maximum loss.
         SECTION 1.09.  Section 542A.002(b), Insurance Code, is
  amended to read as follows:
         (b)  This chapter does not apply to an action against the
  Texas Windstorm Insurance Association [or to an action relating to
  or arising from a policy ceded to an insurer by the Texas Windstorm
  Insurance Association under Subchapter O, Chapter 2210. This
  chapter applies to an action that relates to or arises from a policy
  renewed under Section 2210.703].
         SECTION 1.10.  The following provisions of the Insurance
  Code are repealed:
               (1)  Section 2210.102(f); and
               (2)  Subchapter O, Chapter 2210.
         SECTION 1.11.  (a) The commissioner of insurance shall
  appoint two additional members to the board of directors of the
  Texas Windstorm Insurance Association as necessary under Sections
  2210.102(c) and (c-1), Insurance Code, as amended by this article,
  not later than December 1, 2023.
         (b)  Notwithstanding Section 2210.103, Insurance Code, as
  amended by this article, the initial term of one of the board
  members appointed under Subsection (a) of this section expires on
  the third Tuesday of March 2026, and the initial term of one of the
  board members appointed under Subsection (a) of this section
  expires on the third Tuesday of March 2027.
         (c)  Notwithstanding Section 2210.102(d-1), Insurance Code,
  as added by this article, a member of the board of directors serving
  under Section 2210.102(d), Insurance Code, is not required to be
  the public insurance counsel or the public insurance counsel's
  designee until the first vacancy under Section 2210.102(d) that
  occurs on or after the effective date of this article.
         SECTION 1.12.  This article takes effect immediately if this
  Act 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 article takes effect September 1, 2023.
  ARTICLE 2. FUNDING OF INSURED LOSSES AND OPERATING EXPENSES OF
  TEXAS WINDSTORM INSURANCE ASSOCIATION
         SECTION 2.01.  (a) In this section, "association" means the
  Texas Windstorm Insurance Association.
         (b)  The legislature finds that the use of public securities
  would not be an efficient or viable long-term method to fund losses
  of the association in order for the association to continue to
  provide windstorm and hail insurance after a catastrophic event.
  Subchapter B-2, Chapter 2210, Insurance Code, as added by this Act,
  is intended to replace Subchapter B-1, Chapter 2210, Insurance
  Code, to provide for funding of excess losses and operating
  expenses of the association incurred after December 31, 2023.
         (c)  The legislature finds that:
               (1)  previous experience has shown that the expense to
  the association of issuing public securities, and the interest
  rates for those securities, would be significant and can impose
  significant long-term expense obligations on coastal property and
  casualty risks that may be avoided if the legislature provides for
  financing or investment from available state money to the
  association before or after a catastrophic event;
               (2)  the financing or investment described by
  Subdivision (1) of this subsection would be a more efficient way to
  provide funding necessary for the association to pay losses after a
  catastrophic event; and
               (3)  a loan or other investment from available state
  money to the association of not more than $500 million before a
  catastrophic event and not more than $1 billion after a
  catastrophic event would:
                     (A)  replace the funding levels currently
  provided by issuing public securities;
                     (B)  be consistent with sound insurance solvency
  standards;
                     (C)  provide a more viable method for the
  association to have money for losses after a catastrophic event
  than the issuance of public securities; and
                     (D)  provide a secured investment for the state
  that would:
                           (i)  yield interest income for the state on
  state money; and
                           (ii)  be adequately secured for repayment
  through statewide catastrophe surcharges on certain insurance
  policies in this state.
         (d)  The legislature finds that authorizing catastrophe
  surcharges is a viable method to assure repayment of loans or
  investments of state money after a hurricane and to ensure that the
  association can continue to provide windstorm and hail insurance in
  the coastal areas of this state after a catastrophic event to
  maintain the association's viability for the benefit of the public
  and in furtherance of a public purpose.
         SECTION 2.02.  The heading to Subchapter B-1, Chapter 2210,
  Insurance Code, is amended to read as follows:
  SUBCHAPTER B-1. PAYMENT OF LOSSES INCURRED BEFORE JANUARY 1, 2024
         SECTION 2.03.  Subchapter B-1, Chapter 2210, Insurance Code,
  is amended by adding Section 2210.070 to read as follows:
         Sec. 2210.070.  APPLICABILITY OF SUBCHAPTER. (a) This
  subchapter applies only to the payment of losses and operating
  expenses of the association for a catastrophe year that occurs
  before January 1, 2024, and results in excess losses and operating
  expenses incurred by the association before January 1, 2024.
         (b)  Payment of excess losses and operating expenses of the
  association incurred after December 31, 2023, shall be paid as
  provided by Subchapter B-2.
         SECTION 2.04.  Section 2210.071(a), Insurance Code, is
  amended to read as follows:
         (a)  If, in a catastrophe year before January 1, 2024, 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.
         SECTION 2.05.  Section 2210.0715(b), Insurance Code, is
  amended to read as follows:
         (b)  Proceeds of public securities issued, a financing
  arrangement entered into, or assessments made before January 1,
  2024, or as a result of any occurrence or series of occurrences in a
  catastrophe year that occurs before January 1, 2024, and results in
  insured losses before that date may not be included in reserves
  available for a subsequent catastrophe year for purposes of this
  section or Section 2210.082 unless approved by the commissioner.
         SECTION 2.06.  The heading to Section 2210.075, Insurance
  Code, is amended to read as follows:
         Sec. 2210.075.  REINSURANCE BY MEMBERS.
         SECTION 2.07.  Subchapter B-1, Chapter 2210, Insurance Code,
  is amended by adding Section 2210.076 to read as follows:
         Sec. 2210.076.  PAYMENT FROM STATE-FUNDED FINANCING
  ARRANGEMENTS.  (a)  Notwithstanding the provisions of this
  subchapter to the contrary, the association may pay losses the
  association would otherwise pay as provided by Section 2210.072,
  2210.073, or 2210.0741 by borrowing from, or entering into other
  financing arrangements with, this state as provided by Subchapter
  M-1 and Section 404.0242, Government Code.
         (b)  Subchapter M-2 applies to the financing of losses under
  this section to the extent necessary to secure and repay a debt
  obligation to the state under a financing arrangement entered into
  with this state under this section.
         (c)  A financing arrangement described by Subsection (a) may
  also be used for a purpose described by Section 2210.072(d) in the
  same manner as a financing arrangement with a market source.
         SECTION 2.08.  Chapter 2210, Insurance Code, is amended by
  adding Subchapter B-2 to read as follows:
  SUBCHAPTER B-2. PAYMENT OF EXCESS LOSSES AND OPERATING EXPENSES
         Sec. 2210.080.  APPLICABILITY OF SUBCHAPTER. (a)  This
  subchapter applies only to the payment of losses and operating
  expenses of the association for a catastrophe year that occurs
  after December 31, 2023, and results in excess losses and operating
  expenses incurred by the association after December 31, 2023.
         (b)  This section expires September 1, 2025.
         Sec. 2210.081.  PAYMENT OF EXCESS LOSSES. (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.
         (b)  The association may not pay insured losses and operating
  expenses resulting from an occurrence or series of occurrences in a
  catastrophe year with premium and other revenue earned in a
  subsequent year.
         Sec. 2210.082.  PAYMENT FROM RESERVES AND TRUST FUND;
  STATE-FUNDED FINANCING ARRANGEMENTS. (a) The association shall
  pay insured losses and operating expenses resulting from an
  occurrence or series of occurrences in a catastrophe year in excess
  of premium and other revenue of the association for that
  catastrophe year from reserves of the association available before
  or accrued during that catastrophe year and amounts in the
  catastrophe reserve trust fund available before or accrued during
  that catastrophe year.
         (b)  For insured losses and operating expenses for a
  catastrophe year not paid under Subsection (a), the association
  shall arrange for financing of not more than $1 billion through one
  or more financing arrangements entered into with the state as
  provided by Subchapter M-1 and Section 404.0242, Government Code.
         Sec. 2210.083.  PAYMENT FROM MEMBER ASSESSMENTS. (a)
  Insured losses and operating expenses for a catastrophe year not
  paid under Section 2210.082 shall be paid as provided by this
  section from member assessments not to exceed $1 billion for that
  catastrophe year.
         (b)  The board of directors shall notify each association
  member of the amount of the member's assessment under this section.
  The proportion of the insured losses and operating expenses
  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)  An association member may not recoup an assessment paid
  under this section through a premium surcharge or tax credit.
         Sec. 2210.084.  REINSURANCE BY MEMBERS FOR MEMBER
  ASSESSMENTS. (a) Before any occurrence or series of occurrences,
  an association member may purchase reinsurance to cover an
  assessment for which the member would otherwise be liable under
  this subchapter.
         (b)  An association member must notify the board of
  directors, in the manner prescribed by the association, whether the
  member will be purchasing reinsurance. If the member does not
  purchase reinsurance under this section, the member remains liable
  for any assessment imposed under this subchapter.
         SECTION 2.09.  Section 2210.452(b), Insurance Code, is
  amended to read as follows:
         (b)  All money, including investment income, deposited in
  the trust fund constitutes state funds until disbursed as provided
  by this chapter and commissioner rules. The comptroller shall hold
  the money outside the state treasury on behalf of, and with legal
  title in, the department on behalf of the association. The
  department shall keep and maintain the trust fund in accordance
  with this chapter and commissioner rules. The comptroller, as
  custodian of the trust fund, shall administer the trust fund
  strictly and solely as provided by this chapter and commissioner
  rules. The association may include the amounts held in the
  catastrophe reserve trust fund as an admitted asset in the
  financial statements of the association.
         SECTION 2.10.  Section 2210.4521(a), Insurance Code, is
  amended to read as follows:
         (a)  The comptroller shall invest in accordance with the
  investment standard described by Section 404.024(j), Government
  Code, the portion of the trust fund balance that exceeds the amount
  of the sufficient balance determined under Subsection (b). The
  comptroller's investment of that portion of the balance is not
  subject to any other limitation or other requirement provided by
  Section 404.024, Government Code. The Texas Treasury Safekeeping
  Trust Company and board of directors may recommend investments to
  protect the trust fund and create investment income.
         SECTION 2.11.  Sections 2210.453(d) and (e), Insurance Code,
  are amended to read as follows:
         (d)  The association may obtain reinsurance at any level
  including excess of loss, quota share, and other forms of
  reinsurance to protect the solvency and viability of the
  association. The commissioner may consult with the board of
  directors regarding methods to protect the solvency and continued
  viability of the association, including by protecting the minimum
  balance, acquiring reinsurance, or by other means [The cost of the
  reinsurance purchased or alternative financing mechanisms used
  under this section in excess of the minimum funding level required
  by Subsection (b) shall be paid by assessments as provided by this
  subsection. The association, with the approval of the
  commissioner, shall notify each member of the association of the
  amount of the member's assessment under this subsection. The
  proportion of the cost to each insurer under this subsection shall
  be determined in the manner used to determine each insurer's
  participation in the association for the year under Section
  2210.052].
         (e)  The commissioner may adopt a method or approve the
  association's method of determining the probability of one in 100
  for association risks. The commissioner shall provide any adopted
  or approved method to the association on or before February 1 of
  each year [A member of the association may not recoup an assessment
  paid under Subsection (d) through a premium surcharge or tax
  credit].
         SECTION 2.12.  Section 2210.601, Insurance Code, is amended
  to read as follows:
         Sec. 2210.601.  FINDINGS [PURPOSE]. The legislature finds
  that for losses incurred before January 1, 2024, authorizing the
  association to enter into financing arrangements with this state as
  provided by Section 2210.076 [issuance of public securities] to
  provide a method to raise funds to provide windstorm and hail
  insurance through the association in certain designated portions of
  the state is for the benefit of the public and in furtherance of a
  public purpose.
         SECTION 2.13.  Subchapter M, Chapter 2210, Insurance Code,
  is amended by adding Section 2210.6015 to read as follows:
         Sec. 2210.6015.  APPLICABILITY OF SUBCHAPTER. To provide
  for a reasonable transition, the association may issue public
  securities under this subchapter or enter into financing
  arrangements with this state as provided by Section 2210.076 if the
  association needs to provide funds for excess losses and operating
  expenses incurred by the association before January 1, 2024, for a
  catastrophe year occurring before January 1, 2024. After December
  31, 2023, the association may not issue public securities under
  this subchapter except to fund excess losses and operating expenses
  incurred before January 1, 2024.
         SECTION 2.14.  Chapter 2210, Insurance Code, is amended by
  adding Subchapters M-1 and M-2 to read as follows:
  SUBCHAPTER M-1. STATE-FUNDED CATASTROPHE FINANCING ARRANGEMENTS
         Sec. 2210.631.  STATE-FUNDED CATASTROPHE FINANCING
  ARRANGEMENTS. The legislature has determined that providing
  catastrophe funding to the association by permitting the
  association to enter into a financing arrangement with this state
  is an acceptable use of state money and provides an efficient method
  for the association to pay losses following a catastrophic event.
         Sec. 2210.632.  PROCEEDS OF CATASTROPHE FINANCING
  ARRANGEMENT.  The proceeds of a catastrophe financing arrangement
  with this state entered into under this subchapter before a
  catastrophic event shall be deposited in the catastrophe reserve
  trust fund.
         Sec. 2210.633.  CATASTROPHE FINANCING ARRANGEMENT
  AUTHORIZED; LIMITS.  (a)  The association may enter into a financing
  arrangement with this state as provided by Section 404.0242,
  Government Code:
               (1)  before a catastrophic event, for not more than
  $500 million; and
               (2)  after a catastrophic event that depletes the
  catastrophe reserve fund, for not more than $1 billion.
         (b)  The amount available under Subsection (a)(2) is reduced
  by the amount of any outstanding pre-event or post-event financing
  obtained by the association under this section.
  SUBCHAPTER M-2. CATASTROPHE SURCHARGE
         Sec. 2210.641.  DEFINITION. In this subchapter,
  "catastrophic event" means an occurrence or a series of occurrences
  that:
               (1)  occurs in a catastrophe area during a calendar
  year; and
               (2)  results in insured losses and operating expenses
  of the association in excess of premium and other revenue of the
  association.
         Sec. 2210.642.  APPLICABILITY OF SUBCHAPTER. (a)
  Notwithstanding Section 2210.006, this subchapter applies to an
  insurer that is:
               (1)  an insurer authorized to engage in the business of
  insurance in this state that is required to be a member of the
  association, including a farm mutual insurance company that is a
  fronting insurer as defined by Section 221.001(c);
               (2)  a farm mutual insurance company that is not a
  fronting insurer as defined by Section 221.001(c) only for purposes
  of the collection of surcharges authorized by this subchapter;
               (3)  an unaffiliated eligible surplus lines insurer
  writing the lines of business subject to a premium surcharge under
  this subchapter;
               (4)  the association; and
               (5)  the FAIR Plan Association.
         (b)  A premium surcharge under this subchapter applies to:
               (1)  a policy written under the following lines of
  insurance:
                     (A)  fire and allied lines;
                     (B)  farm and ranch owners; and
                     (C)  residential property insurance; and
               (2)  the property insurance portion of a commercial
  multiple peril insurance policy.
         Sec. 2210.6425.  CONSTRUCTION OF SUBCHAPTER. (a) This
  subchapter may not be construed to require an insurer to be an
  association member if the insurer is not otherwise required to be a
  member under Section 2210.052.
         (b)  A farm mutual insurance company that is not a fronting
  insurer as defined by Section 221.001(c) is not a member of the
  association as a result of the company's collection of surcharges
  authorized by this subchapter or for any other reason.
         Sec. 2210.643.  ANNUAL FINANCIAL REPORT BY COMMISSIONER.
  The commissioner shall determine the amount available in the
  catastrophe reserve trust fund as of December 31 of each year and
  provide a written report to the governor, lieutenant governor, and
  speaker of the house of representatives that includes:
               (1)  the amount available in the catastrophe reserve
  trust fund; and
               (2)  information regarding the current financial
  condition of the association.
         Sec. 2210.6435.  CATASTROPHE SURCHARGES. (a) The
  commissioner, in consultation with the board of directors, may
  order a catastrophe surcharge as provided by this subchapter only
  if:
               (1)  before a catastrophic event, the association
  enters into a financing arrangement with this state under
  Subchapter M-1 that is the basis for the surcharge; or
               (2)  after a catastrophic event:
                     (A)  the commissioner determines that the
  association has depleted its reserves, other money, and the
  catastrophe reserve trust fund; and
                     (B)  the association enters into a financing
  arrangement with this state under Subchapter M-1 that is the basis
  for the surcharge.
         (b)  The commissioner, in consultation with the board of
  directors, shall set the catastrophe surcharge as a percentage of
  premium to be collected by each insurer to which this subchapter
  applies.
         (c)  The total amount authorized to be collected under this
  section for any catastrophe surcharge may not exceed the amount
  needed to repay the debt obligation to the state under the financing
  arrangement entered into with this state under Subchapter M-1 that
  is the basis for the surcharge.
         (d)  The catastrophe surcharge percentage must be set in an
  amount sufficient to repay the debt obligation to the state under
  the financing arrangement entered into with this state under
  Subchapter M-1 that is the basis for the surcharge.  The
  commissioner may set the surcharge as a percentage of premium to
  collect the needed aggregate amount over a period of time not to
  exceed three years.
         (e)  A catastrophe surcharge authorized under this section
  shall be assessed by insurers on all policyholders of policies that
  are subject to this subchapter.
         (f)  A catastrophe surcharge under this subchapter is a
  separate charge in addition to the premiums collected and is not
  subject to premium tax or commissions.
         (g)  Failure by a policyholder to pay a catastrophe surcharge
  constitutes failure to pay premium for purposes of policy
  cancellation.
         (h)  A catastrophe surcharge is not refundable if the policy
  is canceled or terminated.
         Sec. 2210.644.  CATASTROPHE SURCHARGE PROCEEDS. The
  proceeds of a catastrophe surcharge authorized under this
  subchapter shall be deposited into the catastrophe reserve trust
  fund or an account designated by the comptroller for purposes of
  repayment of the association's debt obligation to the state under
  the financing arrangement that is the basis for the surcharge.
         Sec. 2210.6445.  DISCLOSURE OF SURCHARGE. Each policy that
  is assessed a surcharge under this subchapter shall contain the
  following prominent disclosure in the documents attached to the
  policy:
         "A CATASTROPHE SURCHARGE HAS BEEN INCLUDED ON YOUR POLICY.
  THIS SURCHARGE WILL BE USED TO REPAY STATE MONEY USED BY THE TEXAS
  WINDSTORM INSURANCE ASSOCIATION TO PAY FOR LOSSES AFTER A
  CATASTROPHIC EVENT, INCLUDING A HURRICANE. THE SURCHARGE IS NOT
  REFUNDABLE IF YOU CANCEL OR TERMINATE THIS POLICY."
         Sec. 2210.645.  EXEMPTION FROM TAXATION. A surcharge
  collected under this subchapter is exempt from taxation by this
  state or a municipality or other political subdivision of this
  state.
         Sec. 2210.6455.  LIMITATION OF PERSONAL LIABILITY. The
  association members, the insurers required to collect a surcharge
  under this subchapter, members of the board of directors,
  association employees, the commissioner, and department employees
  are not personally liable as a result of exercising the rights and
  responsibilities granted under this subchapter.
         Sec. 2210.646.  EXEMPTION FROM SURCHARGE. An insurer may
  not collect a surcharge authorized under this subchapter on any
  policy issued to this state, an agency of this state, or a political
  subdivision of this state.
         SECTION 2.15.  Subchapter C, Chapter 404, Government Code,
  is amended by adding Section 404.0242 to read as follows:
         Sec. 404.0242.  INVESTMENT IN WINDSTORM CATASTROPHE
  FINANCING ARRANGEMENTS. (a) The comptroller shall invest state
  money to provide financing for losses of the Texas Windstorm
  Insurance Association in accordance with this section and Chapter
  2210, Insurance Code.
         (b)  For purposes of this section, the comptroller may enter
  into an appropriate financing arrangement with the Texas Windstorm
  Insurance Association to provide the association up to $500 million
  in funding before a catastrophic event and up to $1 billion in
  funding after a catastrophic event to fund the losses of the
  association arising from the catastrophic event. Financing
  provided under this section must be secured and repaid by
  catastrophe surcharges under Subchapter M-2, Chapter 2210,
  Insurance Code.
         (c)  If the terms of a financing arrangement entered into
  under this section include interest, the interest rate may not
  exceed the sum of:
               (1)  the lesser of:
                     (A)  the rate set by the Federal Housing Finance
  Agency; or
                     (B)  the federal funds rate as specified by
  Section 4A.506(b), Business & Commerce Code; and
               (2)  2 percent.
         (d)  A debt obligation entered into under this section may
  not exceed 36 months to maturity.
         (e)  Notwithstanding any other law, directly or indirectly
  through a separately managed account or other investment vehicle,
  the comptroller may use up to $1 billion of the economic
  stabilization fund balance to provide financing under this section.
         (f)  The aggregate amount of outstanding pre-event and
  post-event financing provided under this section may not exceed $1
  billion.
         SECTION 2.16.  Effective September 1, 2025, the following
  provisions of the Insurance Code are repealed:
               (1)  Subchapter B-1, Chapter 2210; and
               (2)  Subchapter M, Chapter 2210.
         SECTION 2.17.  As soon as practicable after the effective
  date of this Act and not later than December 1, 2023, the
  commissioner of insurance shall adopt rules necessary to implement
  Subchapters B-2 and M-2, Insurance Code, as added by this Act.
  ARTICLE 3. CONFORMING AMENDMENTS FOR ARTICLE 2
         SECTION 3.01.  Effective September 1, 2025, Section
  2210.0081, Insurance Code, is amended to read as follows:
         Sec. 2210.0081.  CERTAIN ACTIONS BROUGHT AGAINST
  ASSOCIATION BY COMMISSIONER. In an action brought by the
  commissioner against the association under Chapter 441,[:
               [(1)  the association's inability to satisfy
  obligations under Subchapter M related to the issuance of public
  securities under this chapter constitutes a condition that makes
  the association's continuation in business hazardous to the public
  or to the association's policyholders for the purposes of Section
  441.052;
               [(2)]  the time for the association to comply with the
  requirements of supervision or for the conservator to complete the
  conservator's duties, as applicable, is limited to three years from
  the date the commissioner commences the action against the
  association[; and
               [(3)  unless the commissioner takes further action
  against the association under Chapter 441, as a condition of
  release from supervision, the association must demonstrate to the
  satisfaction of the commissioner that the association is able to
  satisfy obligations under Subchapter M related to the issuance of
  public securities under this chapter].
         SECTION 3.02.  (a) Section 2210.056(b), Insurance Code, is
  amended to read as follows:
         (b)  The association's assets may not be used for or diverted
  to any purpose other than to:
               (1)  satisfy, in whole or in part, the liability of the
  association on claims made on policies written by the association;
               (2)  make investments authorized under applicable law;
               (3)  pay reasonable and necessary administrative
  expenses incurred in connection with the operation of the
  association and the processing of claims against the association;
               (4)  satisfy, in whole or in part, the obligations of
  the association incurred in connection with Subchapters B-1, B-2,
  J, [and] M, and M-2, including reinsurance, public securities, and
  financial instruments; or
               (5)  make remittance under the laws of this state to be
  used by this state to:
                     (A)  pay claims made on policies written by the
  association;
                     (B)  purchase reinsurance covering losses under
  those policies; or
                     (C)  prepare for or mitigate the effects of
  catastrophic natural events.
         (b)  Effective September 1, 2025, Sections 2210.056(b) and
  (c), Insurance Code, are amended to read as follows:
         (b)  The association's assets may not be used for or diverted
  to any purpose other than to:
               (1)  satisfy, in whole or in part, the liability of the
  association on claims made on policies written by the association;
               (2)  make investments authorized under applicable law;
               (3)  pay reasonable and necessary administrative
  expenses incurred in connection with the operation of the
  association and the processing of claims against the association;
               (4)  satisfy, in whole or in part, the obligations of
  the association incurred in connection with Subchapters B-2 [B-1],
  J, and M-2 [M], including reinsurance[, public securities,] and
  financial instruments; or
               (5)  make remittance under the laws of this state to be
  used by this state to:
                     (A)  pay claims made on policies written by the
  association;
                     (B)  purchase reinsurance covering losses under
  those policies; or
                     (C)  prepare for or mitigate the effects of
  catastrophic natural events.
         (c)  On dissolution of the association, all assets of the
  association[, other than assets pledged for the repayment of public
  securities issued under this chapter,] revert to this state.
         SECTION 3.03.  (a) Section 2210.1052, Insurance Code, is
  amended to read as follows:
         Sec. 2210.1052.  EMERGENCY MEETING. If the ultimate loss
  estimate for an occurrence or series of occurrences made by the
  chief financial officer or chief actuary of the association
  indicates member insurers may be subject to an assessment under
  Subchapter B-1 or B-2, the board of directors shall call an
  emergency meeting to notify the member insurers about the
  assessment.
         (b)  Effective September 1, 2025, Section 2210.1052,
  Insurance Code, is amended to read as follows:
         Sec. 2210.1052.  EMERGENCY MEETING. If the ultimate loss
  estimate for an occurrence or series of occurrences made by the
  chief financial officer or chief actuary of the association
  indicates member insurers may be subject to an assessment under
  Subchapter B-2 [B-1], the board of directors shall call an
  emergency meeting to notify the member insurers about the
  assessment.
         SECTION 3.04.  Effective September 1, 2025, Section
  2210.355(b), Insurance Code, is amended to read as follows:
         (b)  In adopting rates under this chapter, the following must
  be considered:
               (1)  the past and prospective loss experience within
  and outside this state of hazards for which insurance is made
  available through the plan of operation, if any;
               (2)  expenses of operation, including acquisition
  costs;
               (3)  a reasonable margin for profit and contingencies;
  and
               (4)  [payment of public security obligations issued
  under this chapter, including the additional amount of any debt
  service coverage determined by the association to be required for
  the issuance of marketable public securities; and
               [(5)]  all other relevant factors, within and outside
  this state.
         SECTION 3.05.  (a) Section 2210.363(a), Insurance Code, is
  amended to read as follows:
         (a)  The association may offer a person insured under this
  chapter an actuarially justified premium discount on a policy
  issued by the association, or an actuarially justified credit
  against a surcharge assessed against the person, other than a
  surcharge assessed under Subchapter M or M-2, if:
               (1)  the construction, alteration, remodeling,
  enlargement, or repair of, or an addition to, insurable property
  exceeds applicable building code standards set forth in the plan of
  operation; or
               (2)  the person elects to purchase a binding
  arbitration endorsement under Section 2210.554.
         (b)  Effective September 1, 2025, Section 2210.363(a),
  Insurance Code, is amended to read as follows:
         (a)  The association may offer a person insured under this
  chapter an actuarially justified premium discount on a policy
  issued by the association, or an actuarially justified credit
  against a surcharge assessed against the person, other than a
  surcharge assessed under Subchapter M-2 [M], if:
               (1)  the construction, alteration, remodeling,
  enlargement, or repair of, or an addition to, insurable property
  exceeds applicable building code standards set forth in the plan of
  operation; or
               (2)  the person elects to purchase a binding
  arbitration endorsement under Section 2210.554.
         SECTION 3.06.  (a) Sections 2210.452(a) and (d), Insurance
  Code, are amended to read as follows:
         (a)  The commissioner shall adopt rules under which the
  association makes payments to the catastrophe reserve trust fund.
  Except as otherwise specifically provided by this section, the
  trust fund may be used only for purposes directly related to funding
  the payment of insured losses, including:
               (1)  funding the obligations of the trust fund under
  Subchapters [Subchapter] B-1 and B-2; and
               (2)  purchasing reinsurance or using alternative risk
  financing mechanisms under Section 2210.453.
         (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 or B-2.
         (b)  Effective September 1, 2025, Sections 2210.452(a), (c),
  and (d), Insurance Code, are amended to read as follows:
         (a)  The commissioner shall adopt rules under which the
  association makes payments to the catastrophe reserve trust fund.
  Except as otherwise specifically provided by this section, the
  trust fund may be used only for purposes directly related to funding
  the payment of insured losses, including:
               (1)  funding the obligations of the trust fund under
  Subchapter B-2 [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 and[,] operating expenses,
  [public security obligations, and public security administrative
  expenses,] to make payments to the trust fund, procure reinsurance,
  or use alternative risk financing mechanisms, or to make payments
  to the trust fund and 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-2 [B-1].
         SECTION 3.07.  (a) Sections 2210.453(b) and (c), Insurance
  Code, are amended to read as follows:
         (b)  The association shall maintain total available loss
  funding in an amount not less than the probable maximum loss for the
  association for a catastrophe year with a probability of one in 100.
  If necessary, the required funding level shall be achieved through
  the purchase of reinsurance or the use of alternative financing
  mechanisms, or both, to operate in addition to or in concert with
  the trust fund, public securities, financial instruments,
  financing arrangements, 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 Subchapters
  [Subchapter] B-1 and B-2.
         (b)  Effective September 1, 2025, Sections 2210.453(b) and
  (c), Insurance Code, are amended to read as follows:
         (b)  The association shall maintain total available loss
  funding in an amount not less than the probable maximum loss for the
  association for a catastrophe year with a probability of one in 100.
  If necessary, the required funding level shall be achieved through
  the purchase of reinsurance or the use of alternative financing
  mechanisms, or both, to operate in addition to or in concert with
  the trust fund, [public securities,] financial instruments,
  financing arrangements, 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-2 [B-1].
  ARTICLE 4. TRANSITION AND SAVING PROVISIONS FOR ARTICLES 2 AND 3
         SECTION 4.01.  Notwithstanding the repeal by this Act of
  Subchapters B-1 and M, Chapter 2210, Insurance Code, and other
  changes in law made by this Act effective September 1, 2025:
               (1)  the payment of excess losses and operating
  expenses of the Texas Windstorm Insurance Association incurred
  before January 1, 2024, is governed by the law as it existed on the
  effective date of this Act, and that law is continued in effect for
  that purpose;
               (2)  the issuance of public securities to pay excess
  losses and operating expenses of the Texas Windstorm Insurance
  Association incurred before January 1, 2024, the use of the
  proceeds of those securities, the repayment or refinancing of those
  securities, and any other rights, obligations, or limitations with
  respect to those securities and proceeds of those securities are
  governed by the law as it existed on the effective date of this Act,
  and that law is continued in effect for that purpose; and
               (3)  proceeds of any assessments made under Subchapter
  B-1, Chapter 2210, Insurance Code, may not be included in reserves
  available for a catastrophe year for purposes of Section 2210.082,
  Insurance Code, as added by this Act, unless approved by the
  commissioner of insurance.
  ARTICLE 5. EFFECTIVE DATE
         SECTION 5.01.  Except as otherwise provided by this Act,
  this Act takes effect September 1, 2023.