Bill Text: TX HB696 | 2015-2016 | 84th Legislature | Introduced

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Bill Title: Relating to the operation of the Texas Windstorm Insurance Association; affecting surcharges.

Sponsorship: Bipartisan Bill

Status: (Introduced - Dead) 2015-04-22 - Left pending in committee [HB696 Detail]

Download: Texas-2015-HB696-Introduced.html

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84R2797 PMO-D
By: Hunter H.B. No. 696

A BILL TO BE ENTITLED
AN ACT
relating to the operation of the Texas Windstorm Insurance
Association; affecting surcharges.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Subchapter A, Chapter 2210, Insurance Code, is
amended by adding Section 2210.015 to read as follows:
Sec. 2210.015. STUDY OF MARKET INCENTIVES; BIENNIAL
REPORTING. (a) Each biennium, the department shall conduct a study
of market incentives to promote participation in the voluntary
windstorm and hail insurance market in the seacoast territory. The
study must address as possible incentives the mandatory or
voluntary issuance of windstorm and hail insurance in conjunction
with the issuance of a homeowners policy or other residential
property insurance policy in the seacoast territory.
(b) The department shall include the results of the study
conducted under this section in the report submitted under Section
32.022.
SECTION 2. Subchapter B-1, Chapter 2210, Insurance Code, is
amended by amending Section 2210.071 and adding Sections 2210.0715
and 2210.0716 to read as follows:
Sec. 2210.071. PAYMENT OF EXCESS LOSSES[; PAYMENT FROM
RESERVES AND TRUST FUND]. [(a)] If, in a catastrophe year, an
occurrence or series of occurrences in a catastrophe area results
in insured losses and operating expenses of the association in
excess of premium and other revenue of the association, the excess
losses and operating expenses shall be paid as provided by this
subchapter.
Sec. 2210.0715. PAYMENT FROM RESERVES AND TRUST FUND. [(b)]
The association shall pay losses in excess of premium and other
revenue of the association from available reserves of the
association and available amounts in the catastrophe reserve trust
fund.
[(c) Losses not paid under Subsection (b) shall be paid from
the proceeds from public securities issued in accordance with this
subchapter and Subchapter M and, notwithstanding Subsection (a),
may be paid from the proceeds of public securities issued under
Section 2210.072(a) before an occurrence or series of occurrences
that results in insured losses.]
Sec. 2210.0716. PAYMENT FROM CLASS 1 ASSESSMENTS. (a)
Losses in a catastrophe year not paid under Section 2210.0715 shall
be paid as provided by this section from Class 1 member assessments
not to exceed $500 million for that catastrophe year.
(b) The association, with the approval of the commissioner,
shall notify each member of the amount of the member's assessment
under this section. The proportion of the losses allocable to each
insurer under this section shall be determined in the manner used to
determine each insurer's participation in the association for the
year under Section 2210.052.
SECTION 3. Sections 2210.072(a), (b), (b-1), (c), and (f),
Insurance Code, are amended to read as follows:
(a) Losses not paid under Sections 2210.0715 and 2210.0716
[Section 2210.071(b)] shall be paid as provided by this section
from the proceeds from Class 1 public securities authorized to be
issued in accordance with Subchapter M before, on, or after the date
of any occurrence or series of occurrences that results in insured
losses. Public securities issued under this section must be paid
[repaid] within a period not to exceed 10 [14] years[,] and may be
paid [repaid] sooner if the board of directors elects to do so and
the commissioner approves, except that early payment may not result
in an increase to any assessment or premium surcharge imposed under
this chapter.
(b) Public securities described by Subsection (a) that are
issued before an occurrence or series of occurrences that results
in incurred losses:
(1) may be issued on the request of the board of
directors with the approval of the commissioner; and
(2) may not, in the aggregate, exceed $500 million [$1
billion] at any one time, regardless of the calendar year or years
in which the outstanding public securities were issued.
(b-1) Public securities described by Subsection (a):
(1) shall be issued as necessary in a principal amount
not to exceed $500 million [$1 billion] per catastrophe year, in the
aggregate, for securities issued during that catastrophe year
before the occurrence or series of occurrences that results in
incurred losses in that year and securities issued on or after the
date of that occurrence or series of occurrences, and regardless of
whether for a single occurrence or a series of occurrences; and
(2) subject to the [$1 billion] maximum described by
Subdivision (1), may be issued, in one or more issuances or
tranches, during the calendar year in which the occurrence or
series of occurrences occurs or, if the public securities cannot
reasonably be issued in that year, during the following calendar
year.
(c) If public securities are issued as described by this
section, the public securities shall be paid [repaid] in the manner
prescribed by Subchapter M [from association premium revenue].
(f) If, under Subsection (e), the proceeds of any
outstanding public securities issued during a previous catastrophe
year must be depleted, those proceeds shall count against the $500
million [$1 billion] limit on public securities described by this
section in the catastrophe year in which the proceeds must be
depleted.
SECTION 4. Subchapter B-1, Chapter 2210, Insurance Code, is
amended by adding Section 2210.0725 to read as follows:
Sec. 2210.0725. PAYMENT FROM CLASS 2 ASSESSMENTS. (a)
Losses in a catastrophe year not paid under Sections 2210.0715,
2210.0716, and 2210.072 shall be paid as provided by this section
from Class 2 member assessments not to exceed $500 million for that
catastrophe year.
(b) The association, with the approval of the commissioner,
shall notify each member of the amount of the member's assessment
under this section. The proportion of the losses allocable to each
insurer under this section shall be determined in the manner used to
determine each insurer's participation in the association for the
year under Section 2210.052.
SECTION 5. Sections 2210.073 and 2210.074, Insurance Code,
are amended to read as follows:
Sec. 2210.073. PAYMENT FROM CLASS 2 PUBLIC SECURITIES. (a)
Losses not paid under Sections 2210.0715, 2210.0716, [2210.071 and]
2210.072, and 2210.0725 shall be paid as provided by this section
from the proceeds from Class 2 public securities authorized to be
issued in accordance with Subchapter M on or after the date of any
occurrence or series of occurrences that results in insured losses
[under this subsection]. Public securities issued under this
section must be paid [repaid] within a period not to exceed 10
years[,] and may be paid [repaid] sooner if the board of directors
elects to do so and the commissioner approves, except that early
payment may not result in an increase to any assessment or premium
surcharge imposed under this chapter.
(b) Public securities described by Subsection (a):
(1) shall [may] be issued as necessary in a principal
amount not to exceed $500 million [$1 billion] per catastrophe
year, in the aggregate, whether for a single occurrence or a series
of occurrences; and
(2) subject to the [$1 billion] maximum described by
Subdivision (1), may be issued, in one or more issuances or
tranches, during the calendar year in which the occurrence or
series of occurrences occurs or, if the public securities cannot
reasonably be issued in that year, during the following calendar
year.
(c) If the losses are paid with public securities described
by this section, the public securities shall be paid [repaid] in the
manner prescribed by Subchapter M.
Sec. 2210.074. PAYMENT FROM [THROUGH] CLASS 3 PUBLIC
SECURITIES. (a) Losses not paid under Sections 2210.0715,
2210.0716, [2210.071,] 2210.072, 2210.0725, and 2210.073 shall be
paid as provided by this section from the proceeds from Class 3
public securities authorized to be issued in accordance with
Subchapter M on or after the date of any occurrence or series of
occurrences that results in insured losses [under this subsection
or through reinsurance as described by Section 2210.075]. Public
securities issued under this section must be paid [repaid] within a
period not to exceed 10 years[,] and may be paid [repaid] sooner if
the board of directors elects to do so and the commissioner
approves, except that early payment may not result in an increase to
any assessment or premium surcharge imposed under this chapter.
(b) Public securities described by Subsection (a):
(1) shall [may] be issued as necessary in a principal
amount not to exceed $1 billion [$500 million] per catastrophe
year, in the aggregate, whether for a single occurrence or a series
of occurrences; and
(2) subject to the [$500 million] maximum described by
Subdivision (1), may be issued, in one or more issuances or
tranches, during the calendar year in which the occurrence or
series of occurrences occurs or, if the public securities cannot
reasonably be issued in that year, during the following calendar
year.
(c) If the losses are paid with public securities described
by this section, the public securities shall be paid [repaid] in the
manner prescribed by Subchapter M [through member assessments as
provided by this section. The association shall notify each member
of the association of the amount of the member's assessment under
this section. The proportion of the losses allocable to each
insurer under this section shall be determined in the manner used to
determine each insurer's participation in the association for the
year under Section 2210.052. A member of the association may not
recoup an assessment paid under this subsection through a premium
surcharge or tax credit].
SECTION 6. Section 2210.102, Insurance Code, is amended by
amending Subsections (a), (b), (c), (d), (e), and (f) and adding
Subsections (c-1), (d-1), and (d-2) to read as follows:
(a) The board of directors is composed of nine members
appointed by the governor [commissioner] in accordance with this
section.
(b) Three [Four] members must be representatives of the
insurance industry who actively write and renew windstorm and hail
insurance in the seacoast territory.
(c) Three [Four] members must, as of the date of the
appointment, reside in the first tier coastal counties. Each of
the following regions must be represented by a member residing in
the region and [At least one of the members] appointed under this
subsection:
(1) the region consisting of Cameron, Kenedy, Kleberg,
and Willacy Counties;
(2) the region consisting of Aransas, Calhoun, Nueces,
Refugio, and San Patricio Counties; and
(3) the region consisting of Brazoria, Chambers,
Galveston, Jefferson, and Matagorda Counties and any part of Harris
County designated as a catastrophe area under Section 2210.005.
(c-1) One of the members appointed under Subsection (c) must
be a property and casualty agent who is licensed under this code and
is not a captive agent.
(d) One member must be a representative of an area of this
state that is not located in the seacoast territory [with
demonstrated expertise in insurance and actuarial principles].
(d-1) One member must be an engineer who:
(1) is knowledgeable of, and has professional
expertise in, wind-related design and construction practices in
coastal areas that are subject to high winds and hurricanes; and
(2) resides in a second tier coastal county.
(d-2) One member must be a representative of the financial
industry who resides in a second tier coastal county.
(e) All members must have demonstrated experience in
insurance, general business, or actuarial principles and the
member's area of expertise, if any, sufficient to make the success
of the association probable.
(f) Insurers who are members of the association shall
nominate, from among those members, persons to fill any vacancy in
the three [four] board of director seats reserved for
representatives of the insurance industry. The board of directors
shall solicit nominations from the members and submit the
nominations to the governor [commissioner]. The nominee slate
submitted to the governor [commissioner] under this subsection must
include at least three more names than the number of vacancies. The
governor may [commissioner shall] appoint replacement insurance
industry representatives from the nominee slate.
SECTION 7. Section 2210.103(c), Insurance Code, is amended
to read as follows:
(c) A member of the board of directors may be removed by the
governor [commissioner] with cause stated in writing and posted on
the association's website. The governor [commissioner] shall
appoint a replacement in accordance with [the manner provided by]
Section 2210.102 for a member who leaves or is removed from the
board of directors.
SECTION 8. Subchapter E, Chapter 2210, Insurance Code, is
amended by adding Sections 2210.2022, 2210.211, and 2210.212 to
read as follows:
Sec. 2210.2022. INFORMATION REQUIRED FOR CERTAIN
APPLICATIONS. (a) An applicant for new or renewal association
coverage to take effect on or after January 1, 2016, must include in
the application the information described by Subsection (b) if the
applicant has coverage against loss incurred to real or tangible
personal property at the fixed location for which association
coverage is sought that is provided under a residential property
insurance policy, including a residential fire and allied lines
insurance policy, a farm and ranch owners insurance policy, a
condominium owners policy, or a tenants policy.
(b) The applicant must include in the application the
following information for each policy providing coverage described
by Subsection (a):
(1) the total premium for the policy, including a
policy number for coverage issued by the FAIR Plan Association
under Chapter 2211, if applicable, and:
(A) the amount of insurance under the policy on
the dwelling and contents; or
(B) if the policy is a tenants policy or
condominium owners policy, the insured amount for the contents
coverage; and
(2) the deductibles applicable for the policy.
Sec. 2210.211. EXPOSURE REDUCTION PLAN. (a) The
association shall reduce the association's total insured exposure
determined as of January 1, 2015, according to the following
schedule:
(1) not later than January 1, 2018, the amount of the
association's total insured exposure must reflect a 20 percent
reduction from the association's total insured exposure as of
January 1, 2015;
(2) not later than January 1, 2020, the amount of the
association's total insured exposure must reflect a 35 percent
reduction from the association's total insured exposure as of
January 1, 2015;
(3) not later than January 1, 2022, the amount of the
association's total insured exposure must reflect a 45 percent
reduction from the association's total insured exposure as of
January 1, 2015;
(4) not later than January 1, 2024, the amount of the
association's total insured exposure must reflect a 55 percent
reduction from the association's total insured exposure as of
January 1, 2015; and
(5) not later than January 1, 2026, the amount of the
association's total insured exposure must reflect a 60 percent
reduction from the association's total insured exposure as of
January 1, 2015.
(b) As soon as practicable after January 1, 2018, January 1,
2020, January 1, 2022, and January 1, 2026, respectively, the board
of directors shall determine whether the reductions in the
association's total insured exposure required under Subsection (a)
have been achieved.
(c) If on January 1, 2018, the association did not achieve
the reduction in the total insured exposure required by Subsection
(a)(1), the board of directors shall establish a plan to reduce the
association's total insured exposure, which must include imposing
an assessment as described by Subsection (f).
(d) If on January 1, 2020, January 1, 2022, and January 1,
2026, respectively, the association did not achieve the reduction
in the total insured exposure required for that date, the board of
directors shall establish a plan to reduce the association's total
insured exposure, which must include imposing an assessment as
described by Subsection (f).
(e) An exposure reduction plan under Subsection (c) or (d)
must be implemented not later than March 31 in the year in which the
board of directors determines that the required reduction was not
achieved and must result in the achievement of the required
reduction by not later than December 31 of that year.
(f) An assessment imposed under this section must be paid
into the exposure reduction plan fund and is assessed against each
member of the association that, as determined by the board of
directors, has not met the member's proportionate responsibility
for reduction of the association's total insured exposure. The
total aggregate amount of an assessment under this section, if
assessed against all members of the association, is $200 million.
(g) The amount of a member's assessment paid under
Subsection (f) must be equal to the portion of $200 million that is
consistent with the member's proportionate participation in the
association as determined under Section 2210.052.
(h) A member of the association may not recoup an assessment
paid under this section through a premium surcharge or tax credit or
through a rate increase.
(i) At the request of the commissioner, but not less
frequently than twice each year, the association shall submit a
report to the commissioner detailing the amount of the
association's total insured exposure and any statistical
information or experience data requested by the commissioner
concerning the characteristics of that exposure.
(j) Not later than May 15 and November 15 of each year, the
commissioner shall submit a report to the windstorm insurance
legislative oversight board established under Subchapter N
summarizing the contents of the report submitted to the
commissioner under Subsection (i).
(k) In determining whether the association has met the goal
established under Subsection (a), the commissioner shall make
adjustments to book value of the total insured exposure as of
January 1, 2015, to reflect any change in the BOECKH Index. If the
BOECKH Index ceases to exist, the commissioner shall make
adjustments in the same manner based on another index that the board
of directors determines accurately reflects changes in the cost of
construction or residential values in the catastrophe area.
(l) Not later than January 1 of each year, the department
shall notify each member of the association of the member's
proportionate share of the association's total insured exposure
required to be reduced under this section and of the member's
potential liability for an assessment under this section.
(m) The commissioner shall adopt rules necessary to
implement and enforce this section.
Sec. 2210.212. CONFIDENTIAL INFORMATION. (a) Except as
provided by Subsection (b), all information, data, and databases
collected and used under Sections 2210.2022 and 2210.211 are
confidential information not subject to disclosure under Chapter
552, Government Code.
(b) Information described by Subsection (a) may be used for
the purposes and in the manner described by this chapter.
SECTION 9. The heading to Subchapter J, Chapter 2210,
Insurance Code, is amended to read as follows:
SUBCHAPTER J. CATASTROPHE RESERVE TRUST FUND; [AND] REINSURANCE AND
ALTERNATIVE RISK FINANCING [PROGRAM]
SECTION 10. Section 2210.451, Insurance Code, is amended to
read as follows:
Sec. 2210.451. DEFINITION. Except to the extent that
context clearly requires otherwise, in [In] this subchapter, "trust
fund" means the catastrophe reserve trust fund.
SECTION 11. Section 2210.452, Insurance Code, is amended by
amending Subsections (a), (c), and (d) and adding Subsection (f) to
read as follows:
(a) The commissioner shall adopt rules under which the
association makes payments to the catastrophe reserve trust fund.
Except as otherwise specifically provided by this section, the
[The] trust fund may be used only for purposes directly related to
funding the payment of insured losses, including:
(1) funding [to fund] the obligations of the trust
fund under Subchapter B-1; and
(2) purchasing reinsurance or using alternative risk
financing mechanisms under Sections 2210.453 and 2210.4531.
(c) At the end of each calendar year or policy year, the
association shall use the net gain from operations of the
association, including all premium and other revenue of the
association in excess of incurred losses, operating expenses,
deposits to the fund established under Section 2210.4521, public
security obligations, and public security administrative expenses,
to make payments to the trust fund, to procure reinsurance, or to
make payments to the trust fund and [to] procure reinsurance.
(d) The commissioner by rule shall establish the procedure
relating to the disbursement of money from the trust fund to
policyholders and for association administrative expenses directly
related to funding the payment of insured losses in the event of an
occurrence or series of occurrences within a catastrophe area that
results in a disbursement under Subchapter B-1.
(f) The commissioner by rule shall establish the procedure
relating to the disbursement of money from the trust fund to pay for
operating expenses, including reinsurance or alternative risk
financing mechanisms under Sections 2210.453 and 2210.4531, if the
association does not have sufficient premium and other revenue.
SECTION 12. Subchapter J, Chapter 2210, Insurance Code, is
amended by adding Section 2210.4521 to read as follows:
Sec. 2210.4521. DEDICATED DISTRIBUTIONS TO CATASTROPHE
RESERVE TRUST FUND. (a) Notwithstanding any other provision in
this chapter, as provided for in the plan of operation, the
association shall deposit monthly in a fund, separate from the
catastrophe reserve trust fund established under Section 2210.452,
an amount sufficient to accumulate on an annual calendar year basis
an amount equal to 30 percent of the association's earned premium
for the preceding calendar year.
(b) The fund described by Subsection (a) is a trust fund
with the Texas Treasury Safekeeping Trust Company to be held
outside the state treasury.
(c) Not later than February 1 of each year the association
shall direct the Texas Treasury Safekeeping Trust Company to
deposit all amounts deposited in the fund described by Subsection
(a) during the preceding calendar year, and interest earned on
those amounts, into the catastrophe reserve trust fund.
(d) Money deposited in the fund described by Subsection (a)
is irrevocably pledged to be distributed to the catastrophe reserve
trust fund as provided in this section and is exempt from any other
claim or attachment under law.
(e) Money deposited under this section may be invested by
the Texas Treasury Safekeeping Trust Company as permitted by
general law.
SECTION 13. Section 2210.453, Insurance Code, is amended to
read as follows:
Sec. 2210.453. REINSURANCE AND ALTERNATIVE RISK FINANCING.
(a) The association may[:
[(1) make payments into the trust fund; and
[(2)] purchase reinsurance or use alternative risk
financing mechanisms in an aggregate amount not greater than $1
billion.
(b) The [association may purchase] reinsurance purchased or
alternative risk financing mechanisms used under this section
operate [that operates] in addition to [or in concert with the trust
fund,] public securities, other approved financial instruments,
and assessments authorized by this chapter.
(c) The attachment point for reinsurance purchased under
this section may not be less than the aggregate amount of all
funding available to the association under Subchapter B-1. [If the
association does not purchase reinsurance as authorized by this
section, the board, not later than June 1 of each year, shall submit
to the commissioner, the legislative oversight board established
under Subchapter N, the governor, the lieutenant governor, and the
speaker of the house of representatives a report containing an
actuarial plan for paying losses in the event of a catastrophe with
estimated damages of $2.5 billion or more. The report required by
this subsection must:
[(1) document and denominate the association's
resources available to pay claims, including cash or other highly
liquid assets, assessments that the association is projected to
impose, pre-event and post-event bonding capacity, and
private-sector recognized risk-transfer mechanisms, including
catastrophe bonds and reinsurance;
[(2) include an independent, third-party appraisal of
the likelihood of an assessment, the maximum potential size of the
assessment, and an estimate of the probability that the assessment
would not be adequate to meet the association's needs; and
[(3) include an analysis of financing alternatives to
assessments that includes the costs of borrowing and the
consequences that additional purchase of reinsurance, catastrophe
bonds, or other private-sector recognized risk-transfer
instruments would have in reducing the size or potential of
assessments.
[(d) A person who prepares a report required by Subsection
(c) may not contract to provide any other service to the
association, except for the preparation of similar reports, before
the third anniversary of the date the last report prepared by the
person under that subsection is submitted.
[(e) The report submitted under this section is for
informational purposes only and does not bind the association to a
particular course of action.]
SECTION 14. Subchapter J, Chapter 2210, Insurance Code, is
amended by adding Section 2210.4531 to read as follows:
Sec. 2210.4531. ADDITIONAL REINSURANCE. (a) The
association may purchase, in addition to any reinsurance purchased
or alternative risk financing mechanism used under Section
2210.453, reinsurance in an amount not greater than the lesser of:
(1) $800 million; or
(2) an amount such that the association's total loss
funding is sufficient to fund its probable maximum loss for a
catastrophe year with a probability of one in 100.
(b) The attachment point for reinsurance purchased under
this section may not be less than the aggregate amount of all
funding available to the association under Subchapter B-1 and
Section 2210.453.
(c) The association shall assess member insurers the cost of
reinsurance purchased under this section. The proportion of the
reinsurance cost allocable to each insurer under this section shall
be determined in the manner used to determine each insurer's
participation in the association for the year under Section
2210.052.
SECTION 15. Section 2210.455(b), Insurance Code, is amended
to read as follows:
(b) The catastrophe plan must:
(1) describe the manner in which the association will,
during the period covered by the plan, evaluate losses and process
claims after the following windstorms affecting an area of maximum
exposure to the association:
(A) a windstorm with a four percent chance of
occurring during the period covered by the plan;
(B) a windstorm with a two percent chance of
occurring during the period covered by the plan; and
(C) a windstorm with a one percent chance of
occurring during the period covered by the plan; and
(2) include, if the association does not purchase
reinsurance or use an alternative risk financing mechanism under
this subchapter [Section 2210.453] for the period covered by the
plan, an actuarial plan for paying losses in the event of a
catastrophe with estimated damages equal to or greater than the
total amount of potential funding available through assessments and
public securities under Subchapter B-1 [of $2.5 billion or more].
SECTION 16. Subchapter L-1, Chapter 2210, Insurance Code,
is amended by adding Section 2210.5725 to read as follows:
Sec. 2210.5725. ADJUSTMENT OF CLAIMS BY PRIMARY INSURER.
An insurer that has primary coverage on property for loss by fire
must adjust all claims made on an association policy covering the
same property.
SECTION 17. Section 2210.602, Insurance Code, is amended by
adding Subdivisions (2-a), (3-a), and (4-a) to read as follows:
(2-a) "Class 1 public security trust fund" means the
dedicated trust fund established by the board and held by the Texas
Treasury Safekeeping Trust Company into which premium surcharges
collected under Section 2210.612 for the purpose of repaying Class
1 public securities are deposited.
(3-a) "Class 2 public security trust fund" means the
dedicated trust fund established by the board and held by the Texas
Treasury Safekeeping Trust Company into which premium surcharges
collected under Section 2210.613 for the purpose of repaying Class
2 public securities are deposited.
(4-a) "Class 3 public security trust fund" means the
dedicated trust fund established by the board and held by the Texas
Treasury Safekeeping Trust Company into which premium surcharges
collected under Section 2210.6135 for the purpose of repaying Class
3 public securities are deposited.
SECTION 18. Section 2210.609, Insurance Code, is amended to
read as follows:
Sec. 2210.609. REPAYMENT OF ASSOCIATION'S PUBLIC SECURITY
OBLIGATIONS. (a) The board and the association shall enter into an
agreement under which the association shall provide for the payment
of all public security obligations from available funds collected
by the association and deposited as required by this subchapter
[into the public security obligation revenue fund]. If the
association determines that it is unable to pay the public security
obligations and public security administrative expenses, if any,
with available funds, the association shall pay those obligations
and expenses in accordance with Sections 2210.612, 2210.613, and
2210.6135, [and 2210.6136] as applicable. Class 1, Class 2, or
Class 3 public securities may be issued on a parity or subordinate
lien basis with other Class 1, Class 2, or Class 3 public
securities, respectively.
(b) If any public securities issued under this chapter are
outstanding, the authority shall notify the association of the
amount of the public security obligations and the estimated amount
of public security administrative expenses, if any, each calendar
year in a period sufficient, as determined by the association, to
permit the association to determine the availability of funds[,
assess members of the association under Sections 2210.613 and
2210.6135,] and assess a premium surcharge if necessary.
(c) The association shall deposit all revenue collected
under Section 2210.612 in the Class 1 public security trust fund
[public security obligation revenue fund], all revenue collected
under Section 2210.613 [2210.613(b)] in the Class 2 public security
[premium surcharge] trust fund, and all revenue collected under
Section [Sections 2210.613(a) and] 2210.6135 in the Class 3 public
security [member assessment] trust fund. Money deposited in a fund
may be invested as permitted by general law. Money in a fund
required to be used to pay public security obligations and public
security administrative expenses, if any, shall be transferred to
the appropriate funds in the manner and at the time specified in the
proceedings authorizing the public securities to ensure timely
payment of obligations and expenses. This may include the board
establishing funds and accounts with the comptroller that the board
determines are necessary to administer and repay the public
security obligations. If the association has not transferred
amounts sufficient to pay the public security obligations to the
board's designated interest and sinking fund in a timely manner,
the board may direct the Texas Treasury Safekeeping Trust Company
to transfer from the Class 1 public security [public security
obligation revenue fund, the premium surcharge] trust fund, [or]
the Class 2 public security trust fund, or the Class 3 public
security [member assessment] trust fund to the appropriate account
the amount necessary to pay the public security obligation.
(d) The association shall provide for the payment of the
public security obligations and the public security administrative
expenses by irrevocably pledging revenues received from premiums,
[member assessments,] premium surcharges, and amounts on deposit in
the Class 1 public security [public security obligation revenue
fund, the premium surcharge] trust fund, [and] the Class 2 public
security trust fund, and the Class 3 public security [member
assessment] trust fund, together with any public security reserve
fund, as provided in the proceedings authorizing the public
securities and related credit agreements.
(e) An amount owed by the board under a credit agreement
shall be payable from and secured by a pledge of revenues received
by the association [or amounts from the public security obligation
trust fund], the Class 1 public security [premium surcharge] trust
fund, [and] the Class 2 public security [member assessment] trust
fund, and the Class 3 public security trust fund, to the extent
provided in the proceedings authorizing the credit agreement.
SECTION 19. Section 2210.610(a), Insurance Code, is amended
to read as follows:
(a) Revenues received from the premium surcharges under
Sections 2210.612, [Section] 2210.613, and [member assessments
under Sections 2210.613 and] 2210.6135 may be applied only as
provided by this subchapter.
SECTION 20. Section 2210.611, Insurance Code, is amended to
read as follows:
Sec. 2210.611. EXCESS REVENUE COLLECTIONS AND INVESTMENT
EARNINGS. Revenue collected in any calendar year from a premium
surcharge under Sections 2210.612, [Section] 2210.613, and [member
assessments under Sections 2210.613 and] 2210.6135 that exceeds the
amount of the public security obligations and public security
administrative expenses payable in that calendar year and interest
earned on the funds [public security obligation fund] may, in the
discretion of the association, be:
(1) used to pay public security obligations payable in
the subsequent calendar year, offsetting the amount of the premium
surcharge [and member assessments, as applicable,] that would
otherwise be required to be levied for the year under this
subchapter;
(2) used to redeem or purchase outstanding public
securities; or
(3) deposited in the catastrophe reserve trust fund.
SECTION 21. Section 2210.612, Insurance Code, is amended to
read as follows:
Sec. 2210.612. PAYMENT OF CLASS 1 PUBLIC SECURITIES.
(a) The association shall pay Class 1 public securities issued
under Section 2210.072 from:
(1) [its] net premium and other revenue; and
(2) if net premium and other revenue are not
sufficient to pay the securities, a catastrophe area premium
surcharge collected in accordance with this section.
(b) On approval by the commissioner, the association and
each insurer that provides insurance in a catastrophe area shall
assess, as provided by this section, a premium surcharge to each
policyholder of a policy described by Subsection (c). The premium
surcharge must be set in an amount sufficient to pay, for the
duration of the issued public securities, all debt service not
already covered by available funds and all related expenses on the
public securities.
(c) The premium surcharge under this section shall be
assessed on all policyholders of policies that cover insured
property that is located in a catastrophe area, including
automobiles principally garaged in a catastrophe area. The premium
surcharge shall be assessed on each Texas windstorm and hail
insurance policy and each property and casualty insurance policy,
including an automobile insurance policy, issued for automobiles
and other property located in the catastrophe area. The premium
surcharge applies to:
(1) all policies written under the following lines of
insurance:
(A) fire and allied lines;
(B) farm and ranch owners;
(C) residential property insurance;
(D) private passenger automobile liability and
physical damage insurance; and
(E) commercial automobile liability and physical
damage insurance; and
(2) the property insurance portion of a commercial
multiple peril insurance policy.
(d) A premium surcharge under this section is a separate
charge in addition to the premiums collected and is not subject to
premium tax or commissions. Failure by a policyholder to pay the
surcharge constitutes failure to pay premium for purposes of policy
cancellation.
(e) [(b)] The association may enter financing arrangements
as described by Section 2210.072(d) as necessary to obtain public
securities issued under Section 2210.072. Nothing in this
subsection shall prevent the authorization and creation of one or
more programs for the issuance of commercial paper before the date
of an occurrence or series of occurrences that results in insured
losses under Section 2210.072(a).
SECTION 22. Section 2210.613, Insurance Code, is amended to
read as follows:
Sec. 2210.613. PAYMENT OF CLASS 2 PUBLIC SECURITIES. (a)
The association shall pay Class 2 public securities issued under
Section 2210.073 from:
(1) net premium and other revenue; and
(2) if net premium and other revenue are not
sufficient to pay the securities, a catastrophe area premium
surcharge collected in accordance with this section.
(b) On approval by the commissioner, the association and
each insurer that provides insurance in a catastrophe area shall
assess, as provided by this section, a premium surcharge to each
policyholder of a policy described by Subsection (c). The premium
surcharge must be set in an amount sufficient to pay, for the
duration of the issued public securities, all debt service not
already covered by available funds and all related expenses on the
public securities [as provided by this section. Thirty percent of
the cost of the public securities shall be paid through member
assessments as provided by this section. The association shall
notify each member of the association of the amount of the member's
assessment under this section. The proportion of the losses
allocable to each insurer under this section shall be determined in
the manner used to determine each insurer's participation in the
association for the year under Section 2210.052. A member of the
association may not recoup an assessment paid under this subsection
through a premium surcharge or tax credit].
[(b) Seventy percent of the cost of the public securities
shall be paid by a premium surcharge collected under this section in
an amount set by the commissioner. On approval by the
commissioner, each insurer, the association, and the Texas FAIR
Plan Association shall assess, as provided by this section, a
premium surcharge to each policyholder of a policy that is in effect
on or after the 180th day after the date the commissioner issues
notice of the approval of the public securities. The premium
surcharge must be set in an amount sufficient to pay, for the
duration of the issued public securities, all debt service not
already covered by available funds or member assessments and all
related expenses on the public securities.]
(c) The premium surcharge under this section [Subsection
(b)] shall be assessed on all policyholders of policies that cover
insured property that is located in a catastrophe area, including
automobiles principally garaged in a catastrophe area. The
premium surcharge shall be assessed on each Texas windstorm and
hail insurance policy and each property and casualty insurance
policy, including an automobile insurance policy, issued for
automobiles and other property located in the catastrophe area.
The [A] premium surcharge [under Subsection (b)] applies to:
(1) all policies written under the following lines of
insurance:
(A) fire and allied lines;
(B) farm and ranch owners;
(C) residential property insurance;
(D) private passenger automobile liability and
physical damage insurance; and
(E) commercial automobile liability and physical
damage insurance; and
(2) the property insurance portion of a commercial
multiple peril insurance policy.
(d) A premium surcharge under this section [Subsection (b)]
is a separate charge in addition to the premiums collected and is
not subject to premium tax or commissions. Failure by a
policyholder to pay the surcharge constitutes failure to pay
premium for purposes of policy cancellation.
SECTION 23. Section 2210.6135, Insurance Code, is amended
to read as follows:
Sec. 2210.6135. PAYMENT OF CLASS 3 PUBLIC SECURITIES. (a)
The association shall pay Class 3 public securities issued under
Section 2210.074 from:
(1) net premium and other revenue; and
(2) if net premium and other revenue are not
sufficient to pay the securities, a statewide premium surcharge
collected in accordance with this section.
(b) On approval of the commissioner, the association and
each insurer that provides insurance in this state shall assess, as
provided by this section, a premium surcharge to each policyholder
of a policy described by Subsection (d). Except as provided by
Subsection (c), the premium surcharge must be set in an amount
sufficient to pay, for the duration of the issued public
securities, all debt service not already covered by available funds
and all related expenses on the public securities.
(c) The amount of the surcharge assessed under Subsection
(b) may not exceed one percent of the premium charged for the
policyholder's policy described by Subsection (d).
(d) The premium surcharge under this section shall be
assessed on all policyholders of policies that cover insured
property located in this state, including automobiles principally
garaged in this state, written under the following lines of
insurance:
(1) fire and allied lines;
(2) farm and ranch owners;
(3) residential property insurance; and
(4) private passenger automobile liability and
physical damage insurance.
(e) A premium surcharge under this section is a separate
charge in addition to the premiums collected and is not subject to
premium tax or commissions. Failure by a policyholder to pay the
surcharge constitutes failure to pay premium for purposes of policy
cancellation [as provided by this section through member
assessments]. [The association, for the payment of the losses,
shall assess the members of the association a principal amount not
to exceed $500 million per catastrophe year. The association shall
notify each member of the association of the amount of the member's
assessment under this section.
[(b) The proportion of the losses allocable to each insurer
under this section shall be determined in the manner used to
determine each insurer's participation in the association for the
year under Section 2210.052.
[(c) A member of the association may not recoup an
assessment paid under this section through a premium surcharge or
tax credit.]
SECTION 24. Section 2210.616(a), Insurance Code, is amended
to read as follows:
(a) The state pledges for the benefit and protection of
financing parties, the board, and the association that the state
will not take or permit any action that would:
(1) impair the collection of [member assessments and]
premium surcharges or the deposit of those funds into the Class 1
public security [member assessment] trust fund, Class 2 public
security [or premium surcharge] trust fund, or Class 3 public
security trust fund;
(2) reduce, alter, or impair the [member assessments
or] premium surcharges to be imposed, collected, and remitted to
financing parties until the principal, interest, and premium, and
any other charges incurred and contracts to be performed in
connection with the related public securities, have been paid and
performed in full; or
(3) in any way impair the rights and remedies of the
public security owners until the public securities are fully
discharged.
SECTION 25. Section 2210.6165, Insurance Code, is amended
to read as follows:
Sec. 2210.6165. PROPERTY RIGHTS. If public securities
issued under this subchapter are outstanding, the rights and
interests of the association, a successor to the association, any
member of the association, or any member of the Texas FAIR Plan
Association, including the right to impose, collect, and receive a
premium surcharge [or a member assessment] authorized under this
subchapter, are only contract rights until those revenues are first
pledged for the repayment of the association's public security
obligations as provided by Section 2210.609.
SECTION 26. Section 2210.653(a), Insurance Code, is amended
to read as follows:
(a) The board shall:
(1) receive information about rules proposed by the
department relating to windstorm insurance and may submit comments
to the commissioner on the proposed rules;
(2) review the reports required by Section
2210.211(i);
(3) monitor windstorm insurance in this state,
including:
(A) the adequacy of rates;
(B) the operation of the association; and
(C) the availability of coverage; [and]
(4) monitor the activities of the association under
Section 2210.211, including:
(A) the performance of the association's
operations;
(B) the association's progress toward meeting
the requirements of Section 2210.211; and
(C) the extent of voluntary market participation
in coastal and historically underserved areas in this state; and
(5) [(3)] review recommendations for legislation
proposed by the department or the association.
SECTION 27. The following provisions of Chapter 2210,
Insurance Code, are repealed:
(1) Section 2210.075;
(2) Sections 2210.102(g) and (h);
(3) Sections 2210.602(5-a), (6-b), (6-c), and (10);
(4) Section 2210.605(c); and
(5) Section 2210.6136.
SECTION 28. (a) The board of directors of the Texas
Windstorm Insurance Association established under Section
2210.102, Insurance Code, as that section existed before amendment
by this Act, is abolished effective November 1, 2015.
(b) The governor shall appoint the members of the board of
directors of the Texas Windstorm Insurance Association under
Section 2210.102, Insurance Code, as amended by this Act, effective
November 1, 2015. The initial directors shall draw lots to achieve
staggered terms, with three of the directors serving one-year
terms, three of the directors serving two-year terms, and three of
the directors serving three-year terms.
(c) The term of a person who is serving as a member of the
board of directors of the Texas Windstorm Insurance Association
immediately before the abolition of that board under Subsection (a)
of this section expires on November 1, 2015. Such a person is
eligible for appointment by the governor to the new board of
directors of the Texas Windstorm Insurance Association under
Section 2210.102, Insurance Code, as amended by this Act.
(d) Notwithstanding Section 2210.4521, Insurance Code, as
added by this Act, or Subsection (e) of this section, beginning on
the effective date of this Act and continuing until December 31,
2015, the Texas Windstorm Insurance Association shall deposit 30
percent of its earned premium into the trust fund described by that
section. Not later than February 1, 2016, the association shall
direct the Texas Treasury Safekeeping Trust Company to deposit all
amounts deposited in the trust fund during the 2015 calendar year,
and interest earned on those funds, into the catastrophe reserve
trust fund as described by that section.
(e) Section 2210.4521, Insurance Code, as added by this Act,
applies to all Texas Windstorm Insurance Association premium earned
on and after January 1, 2016.
(f) Notwithstanding Subsection (d) of this section and
Section 2210.0715, Insurance Code, as added by this Act, amounts
collected under Section 2210.4521, Insurance Code, as added by this
Act, may not be used to pay for a covered insured association loss
incurred before June 1, 2015.
(g) Section 2210.5725, Insurance Code, as added by this Act,
applies only to adjustment of a claim made on or after the effective
date of this Act.
(h) It is the intent of the legislature that each member of
the legislative oversight board appointed under Section 2210.652,
Insurance Code, and serving on the effective date of this Act
continues to serve after the effective date of this Act until a
successor is appointed under that section.
SECTION 29. This Act takes effect immediately if it
receives a vote of two-thirds of all the members elected to each
house, as provided by Section 39, Article III, Texas Constitution.
If this Act does not receive the vote necessary for immediate
effect, this Act takes effect September 1, 2015.