Bill Text: TX SB900 | 2015-2016 | 84th Legislature | Enrolled

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

Sponsorship: Slight Partisan Bill (Republican 4-2)

Status: (Passed) 2015-06-16 - Effective on 9/1/15 [SB900 Detail]

Download: Texas-2015-SB900-Enrolled.html

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S.B. No. 900

AN ACT
relating to the operation of the Texas Windstorm Insurance
Association.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Section 2210.003, Insurance Code, is amended by
amending Subdivision (1) and adding Subdivision (1-a) to read as
follows:
(1) "Administrator" means an entity contractually
retained to manage the association and administer the plan of
operation under Section 2210.062.
(1-a) "Association" means the Texas Windstorm
Insurance Association.
SECTION 2. Section 2210.014, Insurance Code, is amended by
amending Subsection (b) and adding Subsection (c) to read as
follows:
(b) Chapter 542 does not apply to [the processing and
settlement of claims by] the association or to an agent or
representative of the association.
(c) An administrator contracted under Section 2210.062, if
applicable, is an agent of the association for purposes of managing
the association and administering the plan of operation under this
chapter.
SECTION 3. Subchapter A, Chapter 2210, Insurance Code, is
amended by adding Section 2210.015 to read as follows:
Sec. 2210.015. STUDY OF MARKET INCENTIVES; BIENNIAL
REPORTING. (a) Each biennium, the department shall conduct a
study of market incentives to promote participation in the
voluntary windstorm and hail insurance market in the seacoast
territory of this state. The study must address as possible
incentives the mandatory or voluntary issuance of windstorm and
hail insurance in conjunction with the issuance of a homeowners
policy in the seacoast territory.
(b) The department shall include the results of the study
conducted under this section in the report submitted under Section
32.022.
SECTION 4. Subchapter B, Chapter 2210, Insurance Code, is
amended by adding Section 2210.062 to read as follows:
Sec. 2210.062. ADMINISTRATION BY CONTRACTED ADMINISTRATOR
AUTHORIZED. (a) Notwithstanding any other law, if determined by
the commissioner to be in the best interest of the policyholders and
the public, the commissioner may contract with an administrator to
manage the association and administer the plan of operation.
(b) The commissioner shall adopt rules as necessary to
implement this section if the commissioner determines management of
the association and administration of the plan of operation by an
administrator is in the best interest of the policyholders and the
public.
(c) The administrator must hold either a managing general
agent license issued under Chapter 4053 or a third-party
administrator certificate of authority issued under Chapter 4151.
SECTION 5. Subchapter B-1, Chapter 2210, Insurance Code, is
amended by amending Section 2210.071 and adding Section 2210.0715
to read as follows:
Sec. 2210.071. PAYMENT OF EXCESS LOSSES[; PAYMENT FROM
RESERVES AND TRUST FUND]. [(a)] If, in a catastrophe year, an
occurrence or series of occurrences in a catastrophe area results
in insured losses and operating expenses of the association in
excess of premium and other revenue of the association, the excess
losses and operating expenses shall be paid as provided by this
subchapter.
Sec. 2210.0715. PAYMENT FROM RESERVES AND TRUST FUND.
(a) [(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.
(b) Proceeds of Class 1 public securities issued before the
date of any occurrence or series of occurrences that results in
insured losses may not be included in available reserves for
purposes of this section.
[(c) Losses not paid under Subsection (b) shall be paid from
the proceeds from public securities issued in accordance with this
subchapter and Subchapter M and, notwithstanding Subsection (a),
may be paid from the proceeds of public securities issued under
Section 2210.072(a) before an occurrence or series of occurrences
that results in insured losses.]
SECTION 6. Section 2210.072, Insurance Code, is amended to
read as follows:
Sec. 2210.072. PAYMENT FROM CLASS 1 PUBLIC SECURITIES;
FINANCIAL INSTRUMENTS. (a) Losses not paid under Section
2210.0715 [Section 2210.071(b)] shall be paid as provided by this
section from the proceeds from Class 1 public securities
[authorized to be] issued in accordance with Subchapter M before,
on, or after the date of any occurrence or series of occurrences
that results in insured losses. Public securities described by
[issued under] this section must be paid [repaid] within a period
not to exceed 14 years, and may be paid [repaid] sooner if the board
of directors elects to do so and the commissioner approves.
(b) Public securities described by Subsection (a) 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 repaid in the manner
prescribed by Subchapter M [from association premium revenue].
(d) The association may borrow from, or enter into other
financing arrangements with, any market source, under which the
market source makes interest-bearing loans or other financial
instruments to the association to enable the association to pay
losses under this section or to obtain public securities under this
section. For purposes of this subsection, financial instruments
includes commercial paper.
(e) The proceeds of any outstanding public securities
described by Subsection (a) that are issued before an occurrence or
series of occurrences, together with the proceeds of any
outstanding Class 1 public securities issued on or before June 1,
2015, shall be depleted before the proceeds of any securities
issued after an occurrence or series of occurrences may be
used. This subsection does not prohibit the association from
issuing securities after an occurrence or series of occurrences
before the proceeds of outstanding public securities issued during
a previous catastrophe year have been depleted.
(f) If, under Subsection (e), the proceeds of any
outstanding public securities issued during a previous catastrophe
year, together with the proceeds of any outstanding Class 1 public
securities issued on or before June 1, 2015, must be depleted, those
proceeds shall count against the [$1 billion] limit on public
securities described by this section in the catastrophe year in
which the proceeds must be depleted.
SECTION 7. Subchapter B-1, Chapter 2210, Insurance Code, is
amended by adding Section 2210.0725 to read as follows:
Sec. 2210.0725. PAYMENT FROM CLASS 1 ASSESSMENTS.
(a) Losses in a catastrophe year not paid under Sections 2210.0715
and 2210.072 shall be paid as provided by this section from Class 1
member assessments not to exceed $500 million for that catastrophe
year.
(b) The association, with the approval of the commissioner,
shall notify each member of the amount of the member's assessment
under this section. The proportion of the losses allocable to each
insurer under this section shall be determined in the manner used to
determine each insurer's participation in the association for the
year under Section 2210.052.
(c) A member of the association may not recoup an assessment
paid under this section through a premium surcharge or tax credit.
SECTION 8. Section 2210.073, Insurance Code, is amended to
read as follows:
Sec. 2210.073. PAYMENT FROM CLASS 2 PUBLIC SECURITIES.
(a) Losses not paid under Sections 2210.0715, [2210.071 and]
2210.072, and 2210.0725 shall be paid as provided by this section
from the proceeds from Class 2 public securities authorized to be
issued in accordance with Subchapter M on or after the date of any
occurrence or series of occurrences that results in insured losses
[under this subsection]. Public securities issued under this
section must be paid [repaid] within a period not to exceed 10
years[,] and may be paid [repaid] sooner if the board of directors
elects to do so and the commissioner approves.
(b) Public securities described by Subsection (a):
(1) shall [may] be issued as necessary in a principal
amount not to exceed $250 million [$1 billion] per catastrophe
year, in the aggregate, whether for a single occurrence or a series
of occurrences; and
(2) subject to the [$1 billion] maximum described by
Subdivision (1), may be issued, in one or more issuances or
tranches, during the calendar year in which the occurrence or
series of occurrences occurs or, if the public securities cannot
reasonably be issued in that year, during the following calendar
year.
(c) If the losses are paid with public securities described
by this section, the public securities shall be paid [repaid] in the
manner prescribed by Subchapter M.
SECTION 9. Section 2210.074, Insurance Code, is amended to
read as follows:
Sec. 2210.074. PAYMENT THROUGH CLASS 2 ASSESSMENTS [3
PUBLIC SECURITIES]. (a) Losses in a catastrophe year not paid
under Sections 2210.0715, [2210.071,] 2210.072, 2210.0725, and
2210.073 shall be paid as provided by this section from Class 2
member assessments not to exceed $250 million for that catastrophe
year.
(b) The association, with the approval of the commissioner,
shall notify each member of the amount of the member's assessment
under this section. The proportion of the losses allocable to each
insurer under this section shall be determined in the manner used to
determine each insurer's participation in the association for the
year under Section 2210.052.
(c) A member of the association may not recoup an assessment
paid under this section through a premium surcharge or tax credit
[proceeds from public securities authorized to be issued in
accordance with Subchapter M on or after the date of any occurrence
that results in insured losses under this subsection or through
reinsurance as described by Section 2210.075. Public securities
issued under this section must be repaid within a period not to
exceed 10 years, and may be repaid sooner if the board of directors
elects to do so and the commissioner approves.
[(b) Public securities described by Subsection (a):
[(1) may be issued as necessary in a principal amount
not to exceed $500 million per catastrophe year, in the aggregate,
whether for a single occurrence or a series of occurrences; and
[(2) subject to the $500 million maximum described by
Subdivision (1), may be issued, in one or more issuances or
tranches, during the calendar year in which the occurrence or
series of occurrences occurs or, if the public securities cannot
reasonably be issued in that year, during the following calendar
year.
[(c) If the losses are paid with public securities described
by this section, the public securities shall be repaid in the manner
prescribed by Subchapter M through member assessments as provided
by this section. The association shall notify each member of the
association of the amount of the member's assessment under this
section. The proportion of the losses allocable to each insurer
under this section shall be determined in the manner used to
determine each insurer's participation in the association for the
year under Section 2210.052. A member of the association may not
recoup an assessment paid under this subsection through a premium
surcharge or tax credit].
SECTION 10. Subchapter B-1, Chapter 2210, Insurance Code,
is amended by adding Sections 2210.0741 and 2210.0742 to read as
follows:
Sec. 2210.0741. PAYMENT THROUGH CLASS 3 PUBLIC SECURITIES.
(a) Losses not paid under Sections 2210.0715, 2210.072,
2210.0725, 2210.073, and 2210.074 shall be paid as provided by this
section from 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. Public securities issued under this section must be paid
within a period not to exceed 10 years, and may be paid sooner if the
board of directors elects to do so and the commissioner approves.
(b) Public securities described by Subsection (a):
(1) shall be issued as necessary in a principal amount
not to exceed $250 million per catastrophe year, in the aggregate,
whether for a single occurrence or a series of occurrences; and
(2) subject to the maximum described by Subdivision
(1), may be issued, in one or more issuances or tranches, during the
calendar year in which the occurrence or series of occurrences
occurs or, if the public securities cannot reasonably be issued in
that year, during the following calendar year.
(c) If the losses are paid with public securities described
by this section, the public securities shall be paid in the manner
prescribed by Subchapter M.
Sec. 2210.0742. PAYMENT FROM CLASS 3 ASSESSMENTS.
(a) Losses in a catastrophe year not paid under Sections
2210.0715, 2210.072, 2210.0725, 2210.073, 2210.074, and 2210.0741
shall be paid as provided by this section from Class 3 member
assessments not to exceed $250 million for that catastrophe year.
(b) The association, with the approval of the commissioner,
shall notify each member of the amount of the member's assessment
under this section. The proportion of the losses allocable to each
insurer under this section shall be determined in the manner used to
determine each insurer's participation in the association for the
year under Section 2210.052.
(c) A member of the association may not recoup an assessment
paid under this section through a premium surcharge or tax credit.
SECTION 11. Section 2210.075, Insurance Code, is amended to
read as follows:
Sec. 2210.075. REINSURANCE. (a) Before any occurrence or
series of occurrences, an insurer may elect to purchase reinsurance
to cover an assessment for which the insurer would otherwise be
liable under this subchapter [Section 2210.074(c)].
(b) An insurer must notify the board of directors, in the
manner prescribed by the association whether the insurer will be
purchasing reinsurance. If the insurer does not elect to purchase
reinsurance under this section, the insurer remains liable for any
assessment imposed under this subchapter [Section 2210.074(c)].
SECTION 12. Section 2210.102, Insurance Code, is amended by
amending Subsections (b), (c), (d), (e), and (f) and adding
Subsection (c-1) to read as follows:
(b) Three [Four] members must be representatives of the
insurance industry who actively write and renew windstorm and hail
insurance in the first tier coastal counties.
(c) Three [Four] members must, as of the date of the
appointment, reside in the first tier coastal counties. Each of
the following regions must be represented by a member residing in
the region and [At least one of the members] appointed under this
subsection:
(1) the region consisting of Cameron, Kenedy, Kleberg,
and Willacy Counties;
(2) the region consisting of Aransas, Calhoun, Nueces,
Refugio, and San Patricio Counties; and
(3) the region consisting of Brazoria, Chambers,
Galveston, Jefferson, and Matagorda Counties and any part of Harris
County designated as a catastrophe area under Section 2210.005.
(c-1) One of the members appointed under Subsection (c) must
be a property and casualty agent who is licensed under this code and
is not a captive agent.
(d) Three members [One member] must reside in [be a
representative of] an area of this state that is [not] located more
than 100 miles from the Texas coastline [in the seacoast territory
with demonstrated expertise in insurance and actuarial
principles].
(e) All members must have demonstrated experience in
insurance, general business, or actuarial principles and the
member's area of expertise, if any, sufficient to make the success
of the association probable.
(f) Insurers who are members of the association shall
nominate, from among those members, persons to fill any vacancy in
the three [four] board of director seats reserved for
representatives of the insurance industry. The board of directors
shall solicit nominations from the members and submit the
nominations to the commissioner. The nominee slate submitted to
the commissioner under this subsection must include at least three
more names than the number of vacancies. The commissioner may
[shall] appoint replacement insurance industry representatives
from the nominee slate.
SECTION 13. Section 2210.103(c), Insurance Code, is amended
to read as follows:
(c) A member of the board of directors may be removed by the
commissioner with cause stated in writing and posted on the
association's website. The commissioner shall appoint a
replacement in accordance with [the manner provided by] Section
2210.102 for a member who leaves or is removed from the board of
directors.
SECTION 14. Section 2210.258, Insurance Code, is amended by
amending Subsections (a) and (b) and adding Subsection (d) to read
as follows:
(a) Except as provided by Subsections [Subsection] (c) and
(d) and Section 2210.2581 and notwithstanding any other provision
of this chapter, to be eligible for insurance through the
association, all construction, alteration, remodeling,
enlargement, and repair of, or addition to, any structure located
in the catastrophe area that is begun on or after the effective date
of Sections 5 through 49, H.B. No. 4409, Acts of the 81st
Legislature, Regular Session, 2009, must be performed in compliance
with the applicable building code standards, as set forth in the
plan of operation.
(b) Except as provided by Subsections [Subsection] (c) and
(d), the association may not insure a structure described by
Subsection (a) until:
(1) the structure has been inspected for compliance
with the plan of operation in accordance with Section 2210.251(a);
and
(2) a certificate of compliance has been issued for
the structure in accordance with Section 2210.251(g).
(d) The association may insure a structure described by
Subsection (a) for a policy term not to exceed 30 days if an
inspection verification form or other inspection form adopted by
the department has been issued for the structure for purposes of
providing temporary coverage while an applicant seeks to secure a
certificate of compliance for the structure if the structure is
otherwise insurable property.
SECTION 15. Section 2210.2581, Insurance Code, is amended
to read as follows:
Sec. 2210.2581. MANDATORY COMPLIANCE WITH BUILDING
STANDARDS; CERTAIN STRUCTURES. Except as provided by Sections
[Section] 2210.251(d) and (e) and Section 2210.258(d), and
notwithstanding Sections 2210.258(a), (b), and (c) [Section
2210.258] or any other provision of this chapter, on and after
December 31, 2015, the association may not issue or renew insurance
coverage for a structure unless the structure complies with the
applicable building code standards in effect on the date the
construction, alteration, remodeling, enlargement, or repair of,
or addition to, the structure begins, as set forth in the plan of
operation.
SECTION 16. 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 public security obligations [for Class
1 public securities] issued under this chapter, including the
additional amount of any debt service coverage determined by the
association to be required for the issuance of marketable public
securities; and
(5) all other relevant factors, within and outside
this state.
SECTION 17. 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 18. Section 2210.452, Insurance Code, is amended by
amending Subsections (a), (c), and (d) and adding Subsection (f) to
read as follows:
(a) The commissioner shall adopt rules under which the
association makes payments to the catastrophe reserve trust fund.
Except as otherwise specifically provided by this section, the
[The] trust fund may be used only for purposes directly related to
funding the payment of insured losses, including:
(1) funding [to fund] the obligations of the trust
fund under Subchapter B-1; and
(2) purchasing reinsurance or using alternative risk
financing mechanisms under Section 2210.453.
(c) At the end of each calendar year or policy year, the
association shall use the net gain from operations of the
association, including all premium and other revenue of the
association in excess of incurred losses, operating expenses,
public security obligations, and public security administrative
expenses, to make payments to the trust fund, [to] procure
reinsurance, or use alternative risk financing mechanisms, or to
make payments to the trust fund and [to] procure reinsurance or use
alternative risk financing mechanisms.
(d) The commissioner by rule shall establish the procedure
relating to the disbursement of money from the trust fund to
policyholders and for association administrative expenses directly
related to funding the payment of insured losses in the event of an
occurrence or series of occurrences within a catastrophe area that
results in a disbursement under Subchapter B-1.
(f) The commissioner by rule shall establish the procedure
relating to the disbursement of money from the trust fund to pay for
operating expenses, including reinsurance or alternative risk
financing mechanisms under Section 2210.453, if the association
does not have sufficient premium and other revenue.
SECTION 19. Subchapter J, Chapter 2210, Insurance Code, is
amended by adding Section 2210.4521 to read as follows:
Sec. 2210.4521. INVESTMENT OF TRUST FUND BALANCES.
(a) The comptroller shall invest in accordance with the investment
standard described by Section 404.024(j), Government Code, the
portion of the trust fund balance that exceeds the amount of the
sufficient balance determined under Subsection (b). The
comptroller's investment of that portion of the balance is not
subject to any other limitation or other requirement provided by
Section 404.024, Government Code.
(b) At least once each 12-month period, the board of
directors shall determine a balance for the trust fund that the
board considers to be sufficient to meet the cash flow requirements
of the fund in funding the payment of insured losses as provided by
Section 2210.452(a). After determining that sufficient balance,
the board shall provide notice of the sufficient balance to the
comptroller.
(c) Not later than the 30th day after the date the board of
directors provides notice of the sufficient balance determined
under Subsection (b), the comptroller shall adjust the investment
portfolio of trust fund money to ensure that only the portion of the
fund that exceeds the sufficient balance is invested as required by
Subsection (a).
(d) The comptroller shall include the fair market value of
the investment portfolio of the trust fund in calculating the
amount in the fund for purposes of this chapter.
SECTION 20. Section 2210.453, Insurance Code, is amended to
read as follows:
Sec. 2210.453. FUNDING LEVELS; REINSURANCE AND ALTERNATIVE
RISK FINANCING MECHANISMS. (a) The association may[:
[(1) make payments into the trust fund; and
[(2)] purchase reinsurance or use alternative risk
financing mechanisms or both as necessary.
(b) The association shall maintain total available loss
funding in an amount not less than the probable maximum loss for the
association for a catastrophe year with a probability of one in 100.
If necessary, the required funding level shall be achieved through
the [may] purchase of reinsurance or the use of alternative
financing mechanisms, or both, to operate [that operates] in
addition to or in concert with the trust fund, public securities,
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 21. Section 2210.602, Insurance Code, is amended by
amending Subdivision (4) and 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 paying 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 paying Class 2
public securities are deposited.
(4) "Class 3 public securities" means public
securities authorized to be issued on or after the occurrence of a
catastrophic event by Section 2210.0741 [2210.074].
(4-a) "Class 3 public security trust fund" means the
dedicated trust fund established by the board and held by the Texas
Treasury Safekeeping Trust Company into which premium surcharges
collected under Section 2210.6131 for the purpose of paying Class 3
public securities are deposited.
SECTION 22. Section 2210.609, Insurance Code, is amended to
read as follows:
Sec. 2210.609. REPAYMENT OF ASSOCIATION'S PUBLIC SECURITY
OBLIGATIONS. (a) The board and the association shall enter into
an agreement under which the association shall provide for the
payment of all public security obligations from available funds
collected by the association and deposited as required by this
subchapter [into the public security obligation revenue fund]. If
the association determines that it is unable to pay the public
security obligations and public security administrative expenses,
if any, with available funds, the association shall pay those
obligations and expenses in accordance with Sections 2210.612,
2210.613, and 2210.6131 [2210.6135, and 2210.6136] as applicable.
Class 1, Class 2, or Class 3 public securities may be issued on a
parity or subordinate lien basis with other Class 1, Class 2, or
Class 3 public securities, respectively.
(b) If any public securities issued under this chapter are
outstanding, the authority shall notify the association of the
amount of the public security obligations and the estimated amount
of public security administrative expenses, if any, each calendar
year in a period sufficient, as determined by the association, to
permit the association to determine the availability of funds[,
assess members of the association under Sections 2210.613 and
2210.6135,] and assess a premium surcharge if necessary.
(c) The association shall deposit all revenue collected
under Section 2210.612 in the Class 1 public security trust [public
security obligation revenue] fund, all revenue collected under
Section 2210.613 [2210.613(b)] in the Class 2 public security trust
fund [premium surcharge trust fund], and all revenue collected
under Section 2210.6131 [Sections 2210.613(a) and 2210.6135] in the
Class 3 public security [member assessment] trust fund. Money
deposited in a fund may be invested as permitted by general law.
Money in a fund required to be used to pay public security
obligations and public security administrative expenses, if any,
shall be transferred to the appropriate funds in the manner and at
the time specified in the proceedings authorizing the public
securities to ensure timely payment of obligations and expenses.
This may include the board establishing funds and accounts with the
comptroller that the board determines are necessary to administer
and repay the public security obligations. If the association has
not transferred amounts sufficient to pay the public security
obligations to the board's designated interest and sinking fund in
a timely manner, the board may direct the Texas Treasury
Safekeeping Trust Company to transfer from the Class 1 public
security trust [public security obligation revenue] fund, the Class
2 public security [premium surcharge] trust fund, or the Class 3
public security trust fund [member assessment trust fund] to the
appropriate account the amount necessary to pay the public security
obligation.
(d) The association shall provide for the payment of the
public security obligations and the public security administrative
expenses by irrevocably pledging revenues received from premiums,
[member assessments,] premium surcharges, and amounts on deposit in
the Class 1 public security trust [public security obligation
revenue] fund, the Class 2 public security [premium surcharge]
trust fund, and the Class 3 public security trust fund [member
assessment trust fund], together with any public security reserve
fund, as provided in the proceedings authorizing the public
securities and related credit agreements.
(e) An amount owed by the board under a credit agreement
shall be payable from and secured by a pledge of revenues received
by the association [or amounts] from the Class 1 public security
[obligation] trust fund, the Class 2 public security [premium
surcharge] trust fund, and the Class 3 public security trust fund
[member assessment trust fund] to the extent provided in the
proceedings authorizing the credit agreement.
SECTION 23. 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 2210.6131 [and member
assessments under Sections 2210.613 and 2210.6135] may be applied
only as provided by this subchapter.
SECTION 24. 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
2210.6131 [member assessments under Sections 2210.613 and
2210.6135] that exceeds the amount of the public security
obligations and public security administrative expenses payable in
that calendar year and interest earned on the funds [public
security obligation fund] may, in the discretion of the
association, be:
(1) used to pay public security obligations payable in
the subsequent calendar year, offsetting the amount of the premium
surcharge [and member assessments, as applicable,] that would
otherwise be required to be levied for the year under this
subchapter;
(2) used to redeem or purchase outstanding public
securities; or
(3) deposited in the catastrophe reserve trust fund.
SECTION 25. 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 shall
assess, as provided by this section, a premium surcharge to each
policyholder of a policy described by Subsection (c). The premium
surcharge must be set in an amount sufficient to pay, for the
duration of the issued public securities, all debt service not
already covered by available funds and all related expenses on the
public securities.
(c) The premium surcharge under this section shall be
assessed on all policyholders of association policies issued under
this chapter.
(d) A premium surcharge under this section is a separate
charge in addition to the premiums collected and is not subject to
premium tax or commissions. Failure by a policyholder to pay the
surcharge constitutes failure to pay premium for purposes of policy
cancellation.
(e) 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 26. Section 2210.613, Insurance Code, is amended to
read as follows:
Sec. 2210.613. PAYMENT OF CLASS 2 PUBLIC SECURITIES.
(a) The association shall pay Class 2 public securities issued
under Section 2210.073 from:
(1) net premium and other revenue; and
(2) if net premium and other revenue are not
sufficient to pay the securities, a catastrophe area premium
surcharge collected in accordance with this section.
(b) On approval by the commissioner, the association shall
assess, as provided by this section, a premium surcharge to each
policyholder of a policy described by Subsection (c). The premium
surcharge must be set in an amount sufficient to pay, for the
duration of the issued public securities, all debt service not
already covered by available funds and all related expenses on the
public securities [as provided by this section. Thirty percent of
the cost of the public securities shall be paid through member
assessments as provided by this section. The association shall
notify each member of the association of the amount of the member's
assessment under this section. The proportion of the losses
allocable to each insurer under this section shall be determined in
the manner used to determine each insurer's participation in the
association for the year under Section 2210.052. A member of the
association may not recoup an assessment paid under this subsection
through a premium surcharge or tax credit].
[(b) Seventy percent of the cost of the public securities
shall be paid by a premium surcharge collected under this section in
an amount set by the commissioner. On approval by the
commissioner, each insurer, the association, and the Texas FAIR
Plan Association shall assess, as provided by this section, a
premium surcharge to each policyholder of a policy that is in effect
on or after the 180th day after the date the commissioner issues
notice of the approval of the public securities. The premium
surcharge must be set in an amount sufficient to pay, for the
duration of the issued public securities, all debt service not
already covered by available funds or member assessments and all
related expenses on the public securities.]
(c) The premium surcharge under this section [Subsection
(b)] shall be assessed on all policyholders of association policies
issued under this chapter [that cover insured property that is
located in a catastrophe area, including automobiles principally
garaged in a catastrophe area. The premium surcharge shall be
assessed on each Texas windstorm and hail insurance policy and each
property and casualty insurance policy, including an automobile
insurance policy, issued for automobiles and other property located
in the catastrophe area. A premium surcharge under Subsection (b)
applies to:
[(1) all policies written under the following lines of
insurance:
[(A) fire and allied lines;
[(B) farm and ranch owners;
[(C) residential property insurance;
[(D) private passenger automobile liability and
physical damage insurance; and
[(E) commercial automobile liability and
physical damage insurance; and
[(2) the property insurance portion of a commercial
multiple peril insurance policy].
(d) A premium surcharge under this section [Subsection (b)]
is a separate charge in addition to the premiums collected and is
not subject to premium tax or commissions. Failure by a
policyholder to pay the surcharge constitutes failure to pay
premium for purposes of policy cancellation.
SECTION 27. Subchapter M, Chapter 2210, Insurance Code, is
amended by adding Sections 2210.6131 and 2210.6132 to read as
follows:
Sec. 2210.6131. PAYMENT OF CLASS 3 PUBLIC SECURITIES.
(a) The association shall pay Class 3 public securities issued
under Section 2210.0741 from:
(1) net premium and other revenue; and
(2) if net premium and other revenue are not
sufficient to pay the securities, a catastrophe area premium
surcharge collected in accordance with this section.
(b) On approval by the commissioner, the association shall
assess, as provided by this section, a premium surcharge to each
policyholder of a policy described by Subsection (c). The premium
surcharge must be set in an amount sufficient to pay, for the
duration of the issued public securities, all debt service not
already covered by available funds and all related expenses on the
public securities.
(c) The premium surcharge under this section shall be
assessed on all policyholders of association policies issued under
this chapter.
(d) A premium surcharge under this section is a separate
charge in addition to the premiums collected and is not subject to
premium tax or commissions. Failure by a policyholder to pay the
surcharge constitutes failure to pay premium for purposes of policy
cancellation.
Sec. 2210.6132. CONTINGENT SOURCE OF PAYMENT FOR CLASS 2
AND CLASS 3 PUBLIC SECURITIES. (a) The commissioner may
determine, in consultation with the board and the authority, that:
(1) the authority is unable to issue Class 2 or Class 3
public securities to be payable under Section 2210.613 or
2210.6131, as applicable; or
(2) the issuance of Class 2 or Class 3 public
securities to be payable under Section 2210.613 or 2210.6131, as
applicable, is financially unreasonable for the association.
(b) If the commissioner makes a determination under
Subsection (a), the commissioner shall order the Class 2 or Class 3
public securities, as applicable, to be paid by a premium surcharge
assessed by each insurer, the association, and the Texas FAIR Plan
Association on all policyholders of policies that are in effect on
or after the 180th day after the date the commissioner issues the
order. The premium surcharge must be set in an amount sufficient
to pay 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 policy, including
an automobile insurance policy, issued for automobiles and other
property located in the catastrophe area. A premium surcharge
under Subsection (b) applies to:
(1) all policies written under the following lines of
insurance:
(A) fire and allied lines;
(B) farm and ranch owners;
(C) residential property insurance;
(D) private passenger automobile liability and
physical damage insurance; and
(E) commercial automobile liability and physical
damage insurance; and
(2) the property insurance portion of a commercial
multiple peril insurance policy.
SECTION 28. Section 2210.616(a), Insurance Code, is amended
to read as follows:
(a) The state pledges for the benefit and protection of
financing parties, the board, and the association that the state
will not take or permit any action that would:
(1) impair the collection of [member assessments and]
premium surcharges or the deposit of those funds into the
applicable [member assessment trust fund or premium surcharge]
trust fund;
(2) reduce, alter, or impair the [member assessments
or] premium surcharges to be imposed, collected, and remitted to
financing parties until the principal, interest, and premium, and
any other charges incurred and contracts to be performed in
connection with the related public securities, have been paid and
performed in full; or
(3) in any way impair the rights and remedies of the
public security owners until the public securities are fully
discharged.
SECTION 29. 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 30. Chapter 2210, Insurance Code, is amended by
adding Subchapter O to read as follows:
SUBCHAPTER O. DEPOPULATION PROGRAM
Sec. 2210.701. DEPOPULATION PROGRAM. (a) The association
shall administer, subject to commissioner approval, a depopulation
program that encourages the transfer of association policies to
insurers through the voluntary market or assumption reinsurance.
(b) An insurer engaged in the business of property and
casualty insurance in this state may elect to participate in the
depopulation program.
Sec. 2210.702. ASSUMPTION REINSURANCE DEPOPULATION.
(a) The association shall make available to insurers who elect to
participate in the depopulation program association policy
information necessary for the insurers to determine whether to
reinsure a policy ceded to the insurer by the association. The
commissioner shall by rule establish the information that is
necessary to provide to an insurer under this subsection.
(b) If an insurer elects to reinsure a policy under this
section, the reinsurance must be provided as assumption reinsurance
by novation and the insurer is legally and contractually
responsible for the association policy ceded to the insurer on the
effective date of the reinsurance agreement regardless of whether
the association continues to provide some services on the policy.
The association is not liable under the policy on and after the
effective date of the assumption reinsurance agreement. Except as
specifically provided in an agreement between the association and
the insurer, the insurer shall administer the policy and process,
adjust, and pay claims in accordance with the policy.
(c) If an insurer elects to provide reinsurance under this
section, the insurer shall comply with the applicable provisions of
Chapters 202 and 493.
Sec. 2210.703. RENEWAL OF REINSURED POLICIES; COMPARABLE
COVERAGE. (a) An insurer electing to offer a policy under Section
2210.702 shall offer a renewal of that policy to the association
policyholder for each of the next three years subject to the
insurer's rate and underwriting guidelines as filed under this
code.
(b) An insurer may not offer a policy to an association
policyholder under this section unless the policy contains
generally comparable coverage and premiums to the association
policy as determined by commissioner rule. The premiums for a
policy of generally comparable coverage may not exceed 115 percent
of the premiums for the association policy.
(c) Subchapter L-1 does not apply to a policy renewed under
this section.
Sec. 2210.704. CONFIDENTIALITY OF INFORMATION; USE OF
POLICYHOLDER'S AGENT. (a) An insurer may use information
concerning a specific policy or insured provided by the association
under Section 2210.702(a) only for the purposes of this subchapter
and may not use or disclose the information for any other purpose.
(b) If an insurer elects to renew a policy for an
association policyholder identified from information provided to
the insurer under Section 2210.702, the insurer must offer the
policy through the insurance agent of record for the association
policyholder under the prevailing terms, conditions, and
commissions of the agent.
(c) An insurer that offers to renew a policy under Section
2210.703 shall allow the policyholder's agent to enter into a
limited service agreement with the insurer for the agent to
continue to provide services to the policyholder.
Sec. 2210.705. TRANSFER OF POLICIES. The commissioner
shall by rule establish the procedure for the transfer of reinsured
policies. The rule must provide that a reinsurance agreement
include:
(1) an offer commencement date of December 1;
(2) the opportunity for the policyholder to opt out of
the reinsurance agreement on or before May 31;
(3) a transfer of the earned premium on a reinsured
policy to a trust account to be held until the expiration of the
opt-out period described by Subdivision (2) when the earned premium
for the final reinsured policy will be transferred to the
reinsurer;
(4) a period of not less than 60 days for the agent of
record to accept an appointment or other written agreement with the
reinsurer; and
(5) any other requirements as the commissioner
determines necessary for the protection of policyholders and the
policyholders' agents.
SECTION 31. The following provisions of the Insurance Code
are repealed:
(1) Sections 2210.102(g) and (h);
(2) Sections 2210.602(5-a), (6), (6-b), (6-c), and
(10);
(3) Section 2210.605(c); and
(4) Sections 2210.6135 and 2210.6136.
SECTION 32. (a) The board of directors of the Texas
Windstorm Insurance Association established under Section
2210.102, Insurance Code, as that section existed before amendment
by this Act, is abolished effective October 1, 2015.
(b) The commissioner shall appoint the members of the board
of directors of the Texas Windstorm Insurance Association under
Section 2210.102, Insurance Code, as amended by this Act, effective
October 1, 2015. The initial directors shall draw lots to achieve
staggered terms, with three of the directors serving one-year
terms, three of the directors serving two-year terms, and three of
the directors serving three-year terms.
(c) The term of a person who is serving as a member of the
board of directors of the Texas Windstorm Insurance Association
immediately before the abolition of that board under Subsection (a)
of this section expires on October 1, 2015. Such a person is
eligible for appointment by the commissioner to the new board of
directors of the Texas Windstorm Insurance Association under
Section 2210.102, Insurance Code, as amended by this Act.
(d) It is the intent of the legislature that each member of
the legislative oversight board appointed under Section 2210.652,
Insurance Code, and serving on the effective date of this Act
continues to serve after the effective date of this Act until a
successor is appointed under that section.
SECTION 33. Subchapter M, Chapter 2210, Insurance Code, as
it existed before the effective date of this Act, is applicable to
bond obligations incurred under Chapter 2210, Insurance Code,
before the effective date of this Act, and that law is continued in
effect for that purpose.
SECTION 34. As soon as practicable after the effective date
of this Act, the board of directors of the Texas Windstorm Insurance
Association shall propose amendments to the plan of operation of
the association and the commissioner of insurance shall adopt rules
to implement Subchapter O, Chapter 2210, Insurance Code, as added
by this Act.
SECTION 35. 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.
______________________________ ______________________________
President of the Senate Speaker of the House
I hereby certify that S.B. No. 900 passed the Senate on
April 27, 2015, by the following vote: Yeas 22, Nays 8; and that
the Senate concurred in House amendments on May 28, 2015, by the
following vote: Yeas 24, Nays 7.
______________________________
Secretary of the Senate
I hereby certify that S.B. No. 900 passed the House, with
amendments, on May 25, 2015, by the following vote: Yeas 97,
Nays 44, two present not voting.
______________________________
Chief Clerk of the House
Approved:
______________________________
Date
______________________________
Governor