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A BILL TO BE ENTITLED
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AN ACT
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relating to funding of excess losses and operating expenses of the |
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Texas Windstorm Insurance Association; authorizing an assessment; |
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authorizing a surcharge. |
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BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS: |
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ARTICLE 1. FUNDING OF INSURED LOSSES AND OPERATING EXPENSES OF |
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TEXAS WINDSTORM INSURANCE ASSOCIATION |
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SECTION 1.01. (a) In this section, "association" means the |
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Texas Windstorm Insurance Association. |
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(b) The legislature finds that the use of public securities |
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would not be an efficient or viable long-term method to fund losses |
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of the association in order for the association to continue to |
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provide windstorm and hail insurance after a catastrophic event. |
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Subchapter B-2, Chapter 2210, Insurance Code, as added by this Act, |
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is intended to replace Subchapter B-1, Chapter 2210, Insurance |
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Code, to provide for funding of excess losses and operating |
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expenses of the association incurred after December 31, 2025. |
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(c) The legislature finds that: |
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(1) previous experience has shown that the expense to |
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the association of issuing public securities, and the interest |
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rates for those securities, would be significant and can impose |
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significant long-term expense obligations on coastal property and |
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casualty risks that may be avoided if the legislature provides for |
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financing or investment from available state money to the |
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association before or after a catastrophic event; |
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(2) the financing or investment described by |
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Subdivision (1) of this subsection would be a more efficient way to |
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provide funding necessary for the association to pay losses after a |
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catastrophic event; and |
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(3) a financing arrangement or other investment from |
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available state money to the association of not more than $500 |
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million before a catastrophic event and not more than $1 billion |
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after a catastrophic event would: |
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(A) replace the funding levels currently |
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provided by issuing public securities; |
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(B) be consistent with sound insurance solvency |
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standards; |
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(C) provide a more viable method for the |
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association to have money for losses after a catastrophic event |
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than the issuance of public securities; and |
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(D) provide a secured investment for the state |
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that would: |
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(i) yield interest income for the state on |
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state money; and |
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(ii) be adequately secured for repayment |
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through statewide catastrophe surcharges on certain insurance |
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policies in this state. |
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(d) The legislature finds that authorizing catastrophe |
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surcharges is a viable method to assure repayment of financing |
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arrangements or investments of state money after a hurricane and to |
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ensure that the association can continue to provide windstorm and |
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hail insurance in the coastal areas of this state after a |
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catastrophic event to maintain the association's viability for the |
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benefit of the public and in furtherance of a public purpose. |
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SECTION 1.02. Section 2210.003, Insurance Code, is amended |
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by adding Subdivisions (3-c), (3-d), and (3-e) to read as follows: |
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(3-c) "Financing arrangement" means an arrangement |
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entered into by the association for the financing of payments for |
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the uses authorized by Section 2210.634. The term includes an |
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arrangement between the association and this state under Section |
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404.0242, Government Code. |
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(3-d) "Financing arrangement administrative expense" |
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means an expense incurred to administer a financing arrangement |
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issued under this chapter, including: |
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(A) a fee for credit enhancement; |
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(B) a payment to a paying agent, trustee, or |
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attorney; or |
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(C) an expense relating to another professional |
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service necessary to carry out a financing arrangement. |
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(3-e) "Financing arrangement obligation" means the |
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principal of and any premium and interest on a financing |
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arrangement issued under this chapter. |
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SECTION 1.03. The heading to Subchapter B-1, Chapter 2210, |
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Insurance Code, is amended to read as follows: |
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SUBCHAPTER B-1. PAYMENT OF LOSSES INCURRED BEFORE JANUARY 1, 2026 |
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SECTION 1.04. Subchapter B-1, Chapter 2210, Insurance Code, |
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is amended by adding Section 2210.070 to read as follows: |
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Sec. 2210.070. APPLICABILITY OF SUBCHAPTER. (a) This |
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subchapter applies only to the payment of losses and operating |
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expenses of the association for a catastrophe year that occurs |
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before January 1, 2026, and results in excess losses and operating |
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expenses incurred by the association before January 1, 2026. |
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(b) Payment of excess losses and operating expenses of the |
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association incurred after December 31, 2025, shall be paid as |
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provided by Subchapter B-2. |
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SECTION 1.05. Section 2210.071, Insurance Code, is amended |
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to read as follows: |
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Sec. 2210.071. PAYMENT OF EXCESS LOSSES. (a) If, in a |
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catastrophe year before January 1, 2026, an occurrence or series of |
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occurrences in a catastrophe area results in insured losses and |
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operating expenses of the association in excess of premium and |
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other revenue of the association, the excess losses and operating |
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expenses shall be paid as provided by this subchapter. |
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(b) The association may not pay insured losses and operating |
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expenses resulting from an occurrence or series of occurrences in a |
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catastrophe year in excess of premium and other revenue of the |
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association for that catastrophe year with premium and other |
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revenue earned in a subsequent year. |
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SECTION 1.06. Section 2210.0715(b), Insurance Code, is |
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amended to read as follows: |
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(b) Proceeds of public securities issued, a financing |
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arrangement entered into, or assessments made before January 1, |
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2026, or as a result of any occurrence or series of occurrences in a |
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catastrophe year that occurs before January 1, 2026, and results in |
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insured losses before that date may not be included in reserves |
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available for a subsequent catastrophe year for purposes of this |
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section or Section 2210.082 unless approved by the commissioner. |
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SECTION 1.07. The heading to Section 2210.075, Insurance |
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Code, is amended to read as follows: |
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Sec. 2210.075. REINSURANCE BY MEMBERS. |
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SECTION 1.08. Subchapter B-1, Chapter 2210, Insurance Code, |
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is amended by adding Section 2210.076 to read as follows: |
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Sec. 2210.076. PAYMENT FROM STATE-FUNDED FINANCING |
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ARRANGEMENTS. (a) Notwithstanding the provisions of this |
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subchapter to the contrary, the association may pay losses the |
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association would otherwise pay as provided by Section 2210.072, |
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2210.073, or 2210.0741 by entering into financing arrangements with |
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this state as provided by Subchapter M-1 of this code and Section |
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404.0242, Government Code. |
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(b) Subchapter M-2 applies to the financing of losses under |
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this section to the extent necessary to secure and repay a financing |
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arrangement to the state that is entered into under Subchapter M-1. |
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(c) The association may enter into a financing arrangement |
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that includes interest-bearing loans or other financial |
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instruments with any market source to enable the association to pay |
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losses secured by a financing arrangement with this state under |
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Subchapter M-1. |
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SECTION 1.09. Chapter 2210, Insurance Code, is amended by |
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adding Subchapter B-2 to read as follows: |
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SUBCHAPTER B-2. PAYMENT OF EXCESS LOSSES AND OPERATING EXPENSES |
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Sec. 2210.080. APPLICABILITY OF SUBCHAPTER. This |
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subchapter applies only to the payment of losses and operating |
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expenses of the association for a catastrophe year that occurs |
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after December 31, 2025, and results in excess losses and operating |
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expenses incurred by the association after December 31, 2025. |
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Sec. 2210.081. PAYMENT OF EXCESS LOSSES. (a) If, in a |
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catastrophe year, an occurrence or series of occurrences in a |
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catastrophe area results in insured losses and operating expenses |
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of the association in excess of premium and other revenue of the |
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association, the excess losses and operating expenses shall be paid |
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as provided by this subchapter. |
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(b) The association may not pay insured losses and operating |
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expenses resulting from an occurrence or series of occurrences in a |
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catastrophe year in excess of premium and other revenue of the |
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association for that catastrophe year with premium and other |
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revenue earned in a subsequent year. |
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Sec. 2210.082. PAYMENT FROM RESERVES AND TRUST FUND; |
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STATE-FUNDED FINANCING ARRANGEMENTS. (a) The association shall |
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pay insured losses and operating expenses resulting from an |
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occurrence or series of occurrences in a catastrophe year in excess |
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of premium and other revenue of the association for that |
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catastrophe year from reserves of the association available before |
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or accrued during that catastrophe year and amounts in the |
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catastrophe reserve trust fund available before or accrued during |
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that catastrophe year. |
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(b) For insured losses and operating expenses for a |
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catastrophe year not paid under Subsection (a), the association |
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shall arrange for financing of not more than $1 billion through one |
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or more financing arrangements entered into with the state as |
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provided by Subchapter M-1 of this code and Section 404.0242, |
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Government Code. |
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Sec. 2210.083. PAYMENT FROM MEMBER ASSESSMENTS. (a) |
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Insured losses and operating expenses for a catastrophe year not |
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paid under Section 2210.082 shall be paid as provided by this |
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section from member assessments not to exceed $1 billion for that |
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catastrophe year. |
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(b) The board of directors shall notify each association |
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member of the amount of the member's assessment under this section. |
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The proportion of the insured losses and operating expenses |
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allocable to each insurer under this section shall be determined in |
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the manner used to determine each insurer's participation in the |
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association for the year under Section 2210.052. |
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(c) An association member may not recoup an assessment paid |
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under this section through a premium surcharge or tax credit. |
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Sec. 2210.084. REINSURANCE BY MEMBERS FOR MEMBER |
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ASSESSMENTS. (a) Before any occurrence or series of occurrences, |
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an association member may purchase reinsurance to cover an |
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assessment for which the member would otherwise be liable under |
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this subchapter. |
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(b) An association member must notify the board of |
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directors, in the manner prescribed by the association, whether the |
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member will be purchasing reinsurance. If the member does not |
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purchase reinsurance under this section, the member remains liable |
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for any assessment imposed under this subchapter. |
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SECTION 1.10. Section 2210.452(b), Insurance Code, is |
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amended to read as follows: |
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(b) All money, including investment income, deposited in |
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the trust fund constitutes state funds until disbursed as provided |
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by this chapter and commissioner rules. The comptroller shall hold |
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the money outside the state treasury on behalf of, and with legal |
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title in, the department on behalf of the association. The |
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department shall keep and maintain the trust fund in accordance |
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with this chapter and commissioner rules. The comptroller, as |
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custodian of the trust fund, shall administer the trust fund |
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strictly and solely as provided by this chapter and commissioner |
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rules. The association may include the amounts held in the |
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catastrophe reserve trust fund as an admitted asset in the |
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financial statements of the association. |
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SECTION 1.11. Section 2210.4521, Insurance Code, is amended |
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by amending Subsection (a) and adding Subsection (a-1) to read as |
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follows: |
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(a) The comptroller shall invest in accordance with the |
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investment standard described by Section 404.024(j), Government |
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Code, the portion of the trust fund balance that exceeds the amount |
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of the sufficient balance determined under Subsection (b). |
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(a-1) The comptroller's investment of that portion of the |
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balance is not subject to any other limitation or other requirement |
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provided by Section 404.024, Government Code. The comptroller and |
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board of directors may recommend investments to protect the trust |
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fund and create investment income. |
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SECTION 1.12. Sections 2210.453(d) and (e), Insurance Code, |
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are amended to read as follows: |
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(d) The association may obtain reinsurance at any level |
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including excess of loss, quota share, and other forms of |
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reinsurance to protect the solvency and viability of the |
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association. The commissioner may consult with the board of |
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directors regarding methods to protect the solvency and continued |
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viability of the association, including by protecting the minimum |
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balance, acquiring reinsurance, or by other means [The cost of the |
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reinsurance purchased or alternative financing mechanisms used |
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under this section in excess of the minimum funding level required |
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by Subsection (b) shall be paid by assessments as provided by this |
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subsection. The association, with the approval of the |
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commissioner, shall notify each member of the association of the |
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amount of the member's assessment under this subsection. The |
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proportion of the cost to each insurer under this subsection shall |
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be determined in the manner used to determine each insurer's |
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participation in the association for the year under Section |
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2210.052]. |
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(e) The commissioner may adopt a method or approve the |
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association's method of determining the probability of one in 100 |
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for association risks. The commissioner shall provide any adopted |
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or approved method to the association on or before February 1 of |
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each year [A member of the association may not recoup an assessment |
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paid under Subsection (d) through a premium surcharge or tax |
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credit]. |
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SECTION 1.13. Section 2210.601, Insurance Code, is amended |
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to read as follows: |
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Sec. 2210.601. FINDINGS [PURPOSE]. The legislature finds |
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that for losses incurred before January 1, 2026, authorizing the |
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association to enter into financing arrangements with this state as |
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provided by Section 2210.076 [issuance of public securities] to |
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provide a method to raise funds to provide windstorm and hail |
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insurance through the association in certain designated portions of |
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the state is for the benefit of the public and in furtherance of a |
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public purpose. |
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SECTION 1.14. Subchapter M, Chapter 2210, Insurance Code, |
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is amended by adding Section 2210.6015 to read as follows: |
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Sec. 2210.6015. APPLICABILITY OF SUBCHAPTER. To provide |
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for a reasonable transition, the association may issue public |
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securities under this subchapter or enter into financing |
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arrangements with this state as provided by Section 2210.076 if the |
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association needs to provide funds for excess losses and operating |
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expenses incurred by the association before January 1, 2026, for a |
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catastrophe year occurring before January 1, 2026. After December |
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31, 2025, the association may not issue public securities under |
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this subchapter except to fund excess losses and operating expenses |
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incurred before January 1, 2026. |
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SECTION 1.15. Chapter 2210, Insurance Code, is amended by |
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adding Subchapters M-1 and M-2 to read as follows: |
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SUBCHAPTER M-1. STATE-FUNDED FINANCING ARRANGEMENTS |
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Sec. 2210.631. DEFINITION. In this subchapter, |
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"catastrophic event" has the meaning assigned by Section 2210.602. |
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Sec. 2210.6315. STATE-FUNDED FINANCING ARRANGEMENTS. The |
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legislature has determined that providing catastrophe funding to |
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the association by permitting the association to enter into a |
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financing arrangement with this state is an acceptable use of state |
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money and provides an efficient method for the association to pay |
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losses following a catastrophic event. |
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Sec. 2210.632. FINANCING ARRANGEMENT AUTHORIZED; LIMITS. |
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(a) The association may enter into a financing arrangement with |
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this state as provided by Section 404.0242, Government Code, and in |
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accordance with this subchapter: |
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(1) before a catastrophic event, for not more than |
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$500 million; and |
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(2) after a catastrophic event that depletes the |
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catastrophe reserve trust fund, for not more than $1 billion. |
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(b) The amount available under Subsection (a)(2) is reduced |
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by the amount of any outstanding pre-event or post-event financing |
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obtained by the association under this section. |
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Sec. 2210.6325. REQUEST TO ENTER INTO FINANCING |
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ARRANGEMENT. (a) The association may submit a request to the |
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comptroller to enter into a financing arrangement as authorized by |
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Section 404.0242, Government Code. The request must include the |
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association's requested maximum principal amount and maximum term |
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of the arrangement. |
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(b) The association and the comptroller may agree to |
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increase the maximum principal amount stated in a request submitted |
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under Subsection (a) on a showing that a greater principal amount is |
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needed to: |
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(1) pay the costs related to the issuance of the |
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financing arrangement; |
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(2) provide for a debt service reserve fund; or |
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(3) capitalize interest for a period equal to the |
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lesser of: |
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(A) a period determined necessary by the |
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association; or |
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(B) six months. |
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Sec. 2210.633. ADDITIONAL COVENANTS. With respect to a |
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financing arrangement entered into under Section 2210.632, the |
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association may: |
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(1) make additional covenants with respect to the |
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financing arrangement and the designated income and receipts of the |
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association pledged to the payment of the financing arrangement; |
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and |
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(2) provide for the flow of money and the |
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establishment, maintenance, investment, and administration of |
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funds and accounts with respect to the financing arrangement. |
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Sec. 2210.6335. DEPOSIT OF PROCEEDS. The proceeds of a |
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financing arrangement with this state entered into under Section |
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2210.632 before a catastrophic event shall be deposited into a |
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separate account located in the catastrophe reserve trust fund. |
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Sec. 2210.634. USE OF PROCEEDS. (a) The proceeds of a |
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financing arrangement, including investment income, shall be held |
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in trust for the exclusive use and benefit of the association. The |
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association may use the proceeds to: |
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(1) pay incurred claims and operating expenses of the |
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association; |
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(2) pay the costs of issuing a financing arrangement |
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and any financing arrangement administrative expenses; |
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(3) provide for debt service reserve funds; |
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(4) pay capitalized interest and principal on a |
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financing arrangement for a period determined necessary by the |
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association; |
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(5) pay private financial arrangements entered into by |
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the association as temporary sources of payment of losses and |
|
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operating expenses of the association; and |
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(6) reimburse the association for any cost described |
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by this subsection paid to the association before issuance of the |
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financing arrangement. |
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(b) The association may use excess proceeds of a financing |
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arrangement entered into under Section 2210.632 remaining after the |
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purposes for which the financing arrangement was entered into are |
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satisfied to repay any financing arrangement obligations or |
|
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financing arrangement administrative expenses. If all outstanding |
|
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financing arrangement obligations or financing arrangement |
|
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administrative expenses are satisfied, the excess proceeds shall be |
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transferred to the catastrophe reserve trust fund. |
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Sec. 2210.6345. REPAYMENT OF FINANCING ARRANGEMENT |
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OBLIGATION. (a) With respect to a financing arrangement entered |
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into under Section 2210.632, the comptroller and the association |
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shall enter into a separate agreement under which the association |
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shall provide for the payment of all financing arrangement |
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obligations and financing arrangement administrative expenses from |
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money collected by the association and deposited in the manner |
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provided by this subchapter. |
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(b) If a financing arrangement entered into under Section |
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2210.632 is outstanding, the comptroller shall notify the |
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association of the amount of outstanding financing arrangement |
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obligations and estimated financing arrangement administrative |
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expenses each calendar year in a period sufficient, as determined |
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by the association, to permit the association to assess a premium |
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surcharge as necessary to meet the obligations and expenses. |
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Sec. 2210.635. EXCESS REVENUE COLLECTIONS AND INVESTMENT |
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EARNINGS. With respect to a financing arrangement entered into |
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under Section 2210.632, the association may use revenue collected |
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in a calendar year from a premium surcharge, including earned |
|
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interest, that exceeds the amount of the financing arrangement |
|
|
obligations and financing arrangement administrative expenses |
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payable during that calendar year to: |
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(1) pay financing arrangement obligations payable in |
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the subsequent calendar year, offsetting the amount of a premium |
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surcharge that would otherwise be required to be levied for the year |
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under this chapter; |
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(2) pay outstanding financing arrangement |
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obligations; or |
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(3) deposit additional money into the catastrophe |
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reserve trust fund. |
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Sec. 2210.6355. SOURCE OF PAYMENT; STATE DEBT NOT CREATED. |
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(a) A financing arrangement entered into under Section 2210.632 is |
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payable solely from revenue as provided by this subchapter. |
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(b) A financing arrangement entered into under Section |
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2210.632 is not a debt of this state or any state agency or |
|
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political subdivision of this state and does not constitute a |
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pledge of the faith and credit of this state or any state agency or |
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political subdivision of this state. |
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|
(c) Each financing arrangement entered into under Section |
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|
2210.632 must state that: |
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|
(1) except as otherwise provided by this subchapter, |
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|
neither this state nor a state agency, political corporation, or |
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political subdivision of this state is obligated to pay the |
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principal of or interest on the financing arrangement; and |
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(2) neither the faith and credit nor the taxing power |
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|
of this state or a state agency, political corporation, or |
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political subdivision of this state is pledged to the payment of the |
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principal of or interest on the financing arrangement. |
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Sec. 2210.636. STATE NOT TO IMPAIR FINANCING ARRANGEMENT |
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OBLIGATION. The state pledges for the benefit and protection of |
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|
financing parties that the state will not take or permit any action |
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that would: |
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(1) impair the collection of premium surcharges or the |
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|
deposit of that money into the applicable fund; |
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|
(2) reduce, alter, or impair the premium surcharges to |
|
|
be imposed, collected, and remitted to financing parties until the |
|
|
principal, interest, and premium and any other charges incurred and |
|
|
contracts to be performed in connection with the related financing |
|
|
arrangement obligations have been paid and performed in full; or |
|
|
(3) in any way impair the rights and remedies of the |
|
|
parties to a financing arrangement entered into under Section |
|
|
2210.632 before the financing arrangement is fully discharged. |
|
|
Sec. 2210.6365. RIGHTS WITH RESPECT TO FINANCING |
|
|
ARRANGEMENT. If amounts due under a financing arrangement entered |
|
|
into under Section 2210.632 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 authorized under this subchapter, are only |
|
|
contract rights until those revenues are first pledged for the |
|
|
repayment of the association's financing arrangement obligations |
|
|
as provided by this subchapter and Subchapter M-2. |
|
|
Sec. 2210.637. ENFORCEMENT. A writ of mandamus and any |
|
|
other legal and equitable remedies are available to a party at |
|
|
interest to require the association or another party to fulfill an |
|
|
agreement and to perform functions and duties under: |
|
|
(1) this subchapter; |
|
|
(2) the Texas Constitution; or |
|
|
(3) a relevant financing arrangement. |
|
|
Sec. 2210.6375. NO PERSONAL LIABILITY. Notwithstanding any |
|
|
other provision of this subchapter, the members of the association, |
|
|
the members of the association board of directors, association |
|
|
employees, the comptroller and comptroller employees, the |
|
|
commissioner, and department employees are not liable as a result |
|
|
of exercising the rights and responsibilities granted under this |
|
|
subchapter, including by entering into a financing arrangement |
|
|
under Section 2210.632. |
|
|
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 and the |
|
|
comptroller, 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 that is the |
|
|
basis for the surcharge under Subchapter M-1; 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 that is the basis for the surcharge |
|
|
under Subchapter M-1. |
|
|
(b) The commissioner, in consultation with the board of |
|
|
directors and the comptroller, 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 financing arrangement obligation and |
|
|
administrative expenses 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 financing arrangement obligation and |
|
|
administrative expenses 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 an account designated by the |
|
|
comptroller for purposes of repayment of the association's |
|
|
financing arrangement obligation and administrative expenses to |
|
|
the state under the financing arrangement entered into with this |
|
|
state under Subchapter M-1 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 1.16. 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 certain |
|
|
economic stabilization fund balances to provide a financing |
|
|
arrangement for losses of the Texas Windstorm Insurance Association |
|
|
in accordance with this section and Chapter 2210, Insurance Code, |
|
|
provided that, at the time of investment, the economic |
|
|
stabilization fund balances are above the sufficient balance |
|
|
determined under Section 316.092 of this code. For the purpose of |
|
|
investing the assets of the economic stabilization fund under this |
|
|
section, the comptroller may acquire, exchange, sell, supervise, |
|
|
manage, or retain any kind of investment that a prudent investor |
|
|
exercising reasonable care, skill, and caution would acquire, |
|
|
exchange, sell, supervise, manage, or retain in light of the |
|
|
purposes, terms, distribution requirements, and other |
|
|
circumstances then prevailing for the economic stabilization fund, |
|
|
taking into consideration the investment of all the assets of the |
|
|
fund rather than a single investment. |
|
|
(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. For purposes of this chapter and subchapter, the |
|
|
term "financing arrangement" includes all outstanding principal, |
|
|
interest, and related financing and administrative expenses in |
|
|
issuing a financing arrangement. |
|
|
(c) The interest rate charged in connection with a financing |
|
|
arrangement entered into under this section shall be calculated as |
|
|
the sum of: |
|
|
(1) the current market rate of a United States |
|
|
Treasury Security of comparable maturity, as determined by the |
|
|
comptroller; and |
|
|
(2) two percent. |
|
|
(d) A financing arrangement entered into under this section |
|
|
may not exceed 36 months to maturity and may include a contractual |
|
|
coverage amount of at least 1.10 but not greater than 1.25. |
|
|
(e) Notwithstanding any other law, directly or indirectly |
|
|
through a separately managed account or other investment vehicle, |
|
|
the comptroller may invest up to $1 billion of the economic |
|
|
stabilization fund balance per catastrophe year 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 $2 |
|
|
billion. |
|
|
(g) A person may not bring a civil action against this |
|
|
state, the Texas Treasury Safekeeping Trust Company, or an |
|
|
employee, independent contractor, or official of this state, |
|
|
including the comptroller, for any claim, including breach of |
|
|
fiduciary duty or violation of any constitutional, statutory, or |
|
|
regulatory requirement, in connection with any action, inaction, |
|
|
decision, divestment, investment, report, or other determination |
|
|
made or taken in connection with this section. A person who brings |
|
|
an action described by this subsection is liable to the defendant |
|
|
for the defendant's costs and attorney's fees resulting from the |
|
|
action. |
|
|
(h) The comptroller shall manage the investments required |
|
|
by this section as a separate investment portfolio. The comptroller |
|
|
shall provide separate accounting and reporting for the investments |
|
|
in that portfolio. The comptroller shall credit to that portfolio |
|
|
all payments, distributions, interest, and other earnings on the |
|
|
investments in that portfolio. The comptroller has any power |
|
|
necessary to accomplish the purposes of managing and investing the |
|
|
assets of this separate investment portfolio. In managing the |
|
|
assets of that portfolio, through procedures and subject to |
|
|
restrictions the comptroller considers appropriate, the |
|
|
comptroller may acquire, sell, transfer, or otherwise assign the |
|
|
investments as appropriate, taking into consideration the |
|
|
purposes, terms, distribution requirements, and other |
|
|
circumstances of that portfolio then prevailing. |
|
|
SECTION 1.17. Effective September 1, 2027, the following |
|
|
provisions of the Insurance Code are repealed: |
|
|
(1) Subchapter B-1, Chapter 2210; and |
|
|
(2) Subchapter M, Chapter 2210. |
|
|
SECTION 1.18. As soon as practicable after the effective |
|
|
date of this Act and not later than December 1, 2025, the |
|
|
commissioner of insurance shall adopt rules necessary to implement |
|
|
Subchapters B-2, M-1, and M-2, Chapter 2210, Insurance Code, as |
|
|
added by this Act. |
|
|
ARTICLE 2. CONFORMING AMENDMENTS |
|
|
SECTION 2.01. (a) 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, M-1, or M-2 related to a financing arrangement |
|
|
entered into or 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, M-1, or M-2 related to a |
|
|
financing arrangement entered into or the issuance of public |
|
|
securities under this chapter. |
|
|
(b) Effective September 1, 2027, 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-1 or M-2 [M] related to a financing arrangement |
|
|
entered into [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-1 or M-2 [M] related to a |
|
|
financing arrangement entered into [the issuance of public |
|
|
securities] under this chapter. |
|
|
SECTION 2.02. (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, M-1, and M-2, including reinsurance, financing |
|
|
arrangements, 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, 2027, 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, M-1, and M-2 [M], including reinsurance, financing arrangements, |
|
|
[, 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 |
|
|
financial arrangements entered into [public securities issued] |
|
|
under this chapter, revert to this state. |
|
|
SECTION 2.03. (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, 2027, 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 2.04. (a) 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; |
|
|
(4) payment of financing arrangement obligations or |
|
|
public security obligations issued under this chapter, including |
|
|
the additional amount of any debt service coverage included in a |
|
|
financing arrangement or 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. |
|
|
(b) Effective September 1, 2027, 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; |
|
|
(4) payment of financing arrangement [public |
|
|
security] obligations issued under this chapter, including the |
|
|
additional amount of any debt service included in a financing |
|
|
arrangement [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 2.05. (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, M-1, 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, 2027, 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-1 or 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. |
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|
SECTION 2.06. (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, 2027, 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, operating expenses, |
|
|
financing arrangement obligations, and financing arrangement |
|
|
administrative 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 2.07. (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, 2027, 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 3. TRANSITION AND SAVINGS PROVISIONS |
|
|
SECTION 3.01. 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, 2027: |
|
|
(1) the payment of excess losses and operating |
|
|
expenses of the Texas Windstorm Insurance Association incurred |
|
|
before January 1, 2026, 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, 2026, 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 4. EFFECTIVE DATE |
|
|
SECTION 4.01. Except as otherwise provided by this Act, |
|
|
this Act takes effect September 1, 2025. |
|
|
|
|
|
* * * * * |