Bill Text: TX HB3689 | 2025-2026 | 89th Legislature | Enrolled

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Bill Title: Relating to funding of excess losses and operating expenses of the Texas Windstorm Insurance Association; authorizing an assessment; authorizing a surcharge.

Sponsorship: Slight Partisan Bill (Republican 17-9)

Status: (Passed) 2025-06-20 - See remarks for effective date [HB3689 Detail]

Download: Texas-2025-HB3689-Enrolled.html

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H.B. No. 3689

AN ACT
relating to funding of excess losses and operating expenses of the
Texas Windstorm Insurance Association; authorizing an assessment;
authorizing a surcharge.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
ARTICLE 1. FUNDING OF INSURED LOSSES AND OPERATING EXPENSES OF
TEXAS WINDSTORM INSURANCE ASSOCIATION
SECTION 1.01. (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, 2025.
(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 financing arrangement 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 financing
arrangements 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 1.02. Section 2210.003, Insurance Code, is amended
by adding Subdivisions (3-c), (3-d), and (3-e) to read as follows:
(3-c) "Financing arrangement" means an arrangement
entered into by the association for the financing of payments for
the uses authorized by Section 2210.634. The term includes an
arrangement between the association and this state under Section
404.0242, Government Code.
(3-d) "Financing arrangement administrative expense"
means an expense incurred to administer a financing arrangement
issued under this chapter, including:
(A) a fee for credit enhancement;
(B) a payment to a paying agent, trustee, or
attorney; or
(C) an expense relating to another professional
service necessary to carry out a financing arrangement.
(3-e) "Financing arrangement obligation" means the
principal of and any premium and interest on a financing
arrangement issued under this chapter.
SECTION 1.03. 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, 2026
SECTION 1.04. 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, 2026, and results in excess losses and operating
expenses incurred by the association before January 1, 2026.
(b) Payment of excess losses and operating expenses of the
association incurred after December 31, 2025, shall be paid as
provided by Subchapter B-2.
SECTION 1.05. Section 2210.071, Insurance Code, is amended
to read as follows:
Sec. 2210.071. PAYMENT OF EXCESS LOSSES. (a) If, in a
catastrophe year before January 1, 2026, 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 in excess of premium and other revenue of the
association for that catastrophe year with premium and other
revenue earned in a subsequent year.
SECTION 1.06. 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,
2026, or as a result of any occurrence or series of occurrences in a
catastrophe year that occurs before January 1, 2026, 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 1.07. The heading to Section 2210.075, Insurance
Code, is amended to read as follows:
Sec. 2210.075. REINSURANCE BY MEMBERS.
SECTION 1.08. 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 entering into financing arrangements with
this state as provided by Subchapter M-1 of this code 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 financing
arrangement to the state that is entered into under Subchapter M-1.
(c) The association may enter into a financing arrangement
that includes interest-bearing loans or other financial
instruments with any market source to enable the association to pay
losses secured by a financing arrangement with this state under
Subchapter M-1.
SECTION 1.09. 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. This
subchapter applies only to the payment of losses and operating
expenses of the association for a catastrophe year that occurs
after December 31, 2025, and results in excess losses and operating
expenses incurred by the association after December 31, 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 in excess of premium and other revenue of the
association for that 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 of this code 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 1.10. 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 1.11. Section 2210.4521, Insurance Code, is amended
by amending Subsection (a) and adding Subsection (a-1) 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).
(a-1) 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 comptroller and
board of directors may recommend investments to protect the trust
fund and create investment income.
SECTION 1.12. Section 2210.453, Insurance Code, is amended
by amending Subsection (b) and adding Subsection (d-1) 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 50
[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, and assessments authorized by this chapter.
(d-1) The commissioner may adopt a method or approve the
association's method of determining the probability of one in 50
for association risks. The commissioner shall provide any adopted
or approved method to the association on or before February 1 of
each year.
SECTION 1.13. 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, 2026, 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 1.14. 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, 2026, for a
catastrophe year occurring before January 1, 2026. After December
31, 2025, the association may not issue public securities under
this subchapter except to fund excess losses and operating expenses
incurred before January 1, 2026.
SECTION 1.15. Chapter 2210, Insurance Code, is amended by
adding Subchapters M-1 and M-2 to read as follows:
SUBCHAPTER M-1. STATE-FUNDED FINANCING ARRANGEMENTS
Sec. 2210.631. DEFINITION. In this subchapter,
"catastrophic event" has the meaning assigned by Section 2210.602.
Sec. 2210.6315. STATE-FUNDED 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. FINANCING ARRANGEMENT AUTHORIZED; LIMITS.
(a) The association may enter into a financing arrangement with
this state as provided by Section 404.0242, Government Code, and in
accordance with this subchapter:
(1) before a catastrophic event, for not more than
$500 million; and
(2) after a catastrophic event that depletes the
catastrophe reserve trust 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.
Sec. 2210.6325. REQUEST TO ENTER INTO FINANCING
ARRANGEMENT. (a) The association may submit a request to the
comptroller to enter into a financing arrangement as authorized by
Section 404.0242, Government Code. The request must include the
association's requested maximum principal amount and maximum term
of the arrangement.
(b) The association and the comptroller may agree to
increase the maximum principal amount stated in a request submitted
under Subsection (a) on a showing that a greater principal amount is
needed to:
(1) pay the costs related to the issuance of the
financing arrangement;
(2) provide for a debt service reserve fund; or
(3) capitalize interest for a period equal to the
lesser of:
(A) a period determined necessary by the
association; or
(B) six months.
Sec. 2210.633. ADDITIONAL COVENANTS. With respect to a
financing arrangement entered into under Section 2210.632, the
association may:
(1) make additional covenants with respect to the
financing arrangement and the designated income and receipts of the
association pledged to the payment of the financing arrangement;
and
(2) provide for the flow of money and the
establishment, maintenance, investment, and administration of
funds and accounts with respect to the financing arrangement.
Sec. 2210.6335. DEPOSIT OF PROCEEDS. The proceeds of a
financing arrangement with this state entered into under Section
2210.632 before a catastrophic event shall be deposited into a
separate account located in the catastrophe reserve trust fund.
Sec. 2210.634. USE OF PROCEEDS. (a) The proceeds of a
financing arrangement, including investment income, shall be held
in trust for the exclusive use and benefit of the association. The
association may use the proceeds to:
(1) pay incurred claims and operating expenses of the
association;
(2) pay the costs of issuing a financing arrangement
and any financing arrangement administrative expenses;
(3) provide for debt service reserve funds;
(4) pay capitalized interest and principal on a
financing arrangement for a period determined necessary by the
association;
(5) pay private financial arrangements entered into by
the association as temporary sources of payment of losses and
operating expenses of the association; and
(6) reimburse the association for any cost described
by this subsection paid to the association before issuance of the
financing arrangement.
(b) The association may use excess proceeds of a financing
arrangement entered into under Section 2210.632 remaining after the
purposes for which the financing arrangement was entered into are
satisfied to repay any financing arrangement obligations or
financing arrangement administrative expenses. If all outstanding
financing arrangement obligations or financing arrangement
administrative expenses are satisfied, the excess proceeds shall be
transferred to the catastrophe reserve trust fund.
Sec. 2210.6345. REPAYMENT OF FINANCING ARRANGEMENT
OBLIGATION. (a) With respect to a financing arrangement entered
into under Section 2210.632, the comptroller and the association
shall enter into a separate agreement under which the association
shall provide for the payment of all financing arrangement
obligations and financing arrangement administrative expenses from
money collected by the association and deposited in the manner
provided by this subchapter.
(b) If a financing arrangement entered into under Section
2210.632 is outstanding, the comptroller shall notify the
association of the amount of outstanding financing arrangement
obligations and estimated financing arrangement administrative
expenses each calendar year in a period sufficient, as determined
by the association, to permit the association to assess a premium
surcharge as necessary to meet the obligations and expenses.
Sec. 2210.635. EXCESS REVENUE COLLECTIONS AND INVESTMENT
EARNINGS. With respect to a financing arrangement entered into
under Section 2210.632, the association may use revenue collected
in a calendar year from a premium surcharge, including earned
interest, that exceeds the amount of the financing arrangement
obligations and financing arrangement administrative expenses
payable during that calendar year to:
(1) pay financing arrangement obligations payable in
the subsequent calendar year, offsetting the amount of a premium
surcharge that would otherwise be required to be levied for the year
under this chapter;
(2) pay outstanding financing arrangement
obligations; or
(3) deposit additional money into the catastrophe
reserve trust fund.
Sec. 2210.6355. SOURCE OF PAYMENT; STATE DEBT NOT CREATED.
(a) A financing arrangement entered into under Section 2210.632 is
payable solely from revenue as provided by this subchapter.
(b) A financing arrangement entered into under Section
2210.632 is not a debt of this state or any state agency or
political subdivision of this state and does not constitute a
pledge of the faith and credit of this state or any state agency or
political subdivision of this state.
(c) Each financing arrangement entered into under Section
2210.632 must state that:
(1) except as otherwise provided by this subchapter,
neither this state nor a state agency, political corporation, or
political subdivision of this state is obligated to pay the
principal of or interest on the financing arrangement; and
(2) neither the faith and credit nor the taxing power
of this state or a state agency, political corporation, or
political subdivision of this state is pledged to the payment of the
principal of or interest on the financing arrangement.
Sec. 2210.636. STATE NOT TO IMPAIR FINANCING ARRANGEMENT
OBLIGATION. The state pledges for the benefit and protection of
financing parties that the state will not take or permit any action
that would:
(1) impair the collection of premium surcharges or the
deposit of that money into the applicable fund;
(2) reduce, alter, or impair the premium surcharges to
be imposed, collected, and remitted to financing parties until the
principal, interest, and premium and any other charges incurred and
contracts to be performed in connection with the related 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.
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 50
[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 50
[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.
______________________________ ______________________________
President of the Senate Speaker of the House
I certify that H.B. No. 3689 was passed by the House on May 1,
2025, by the following vote: Yeas 131, Nays 12, 1 present, not
voting; and that the House concurred in Senate amendments to H.B.
No. 3689 on May 28, 2025, by the following vote: Yeas 114, Nays 20,
1 present, not voting.
______________________________
Chief Clerk of the House
I certify that H.B. No. 3689 was passed by the Senate, with
amendments, on May 26, 2025, by the following vote: Yeas 29, Nays
2.
______________________________
Secretary of the Senate
APPROVED: __________________
Date
__________________
Governor