Bill Text: TX HB1588 | 2023-2024 | 88th Legislature | Comm Sub

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

Spectrum: Bipartisan Bill

Status: (Engrossed - Dead) 2023-05-25 - Senate Amendments Analysis distributed [HB1588 Detail]

Download: Texas-2023-HB1588-Comm_Sub.html

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By: Oliverson, et al. (Senate Sponsor - Middleton) H.B. No. 1588
(In the Senate - Received from the House May 3, 2023;
May 4, 2023, read first time and referred to Committee on Business &
Commerce; May 18, 2023, reported adversely, with favorable
Committee Substitute by the following vote: Yeas 9, Nays 0;
May 18, 2023, sent to printer.)
Click here to see the committee vote
COMMITTEE SUBSTITUTE FOR H.B. No. 1588 By: Middleton

A BILL TO BE ENTITLED
AN ACT
relating to funding of excess losses and operating expenses of the
Texas Windstorm Insurance Association; authorizing an assessment;
authorizing a surcharge.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
ARTICLE 1. FUNDING OF INSURED LOSSES AND OPERATING EXPENSES OF
TEXAS WINDSTORM INSURANCE ASSOCIATION
SECTION 1.01. Section 404.0241, Government Code, is amended
by amending Subsections (b-2), (b-4), and (b-5) and adding
Subsections (f), (g), and (h) to read as follows:
(b-2) A person may not bring a civil action against this
state, the Texas Treasury Safekeeping Trust Company, or an
employee, independent contractor, or official of this state,
including the comptroller, for any claim, including breach of
fiduciary duty or violation of any constitutional, statutory, or
regulatory requirement, in connection with any action, inaction,
decision, divestment, investment, report, or other determination
made or taken in connection with this section [Subsections (b-1),
(b-4), and (b-5)].
(b-4) The comptroller shall manage the investments
described [required] by Subsections [Subsection] (b-1) and (g) as
[a] separate investment portfolios [portfolio]. The comptroller
shall provide separate accounting and reporting for the investments
in each of those portfolios [that portfolio]. The comptroller
shall credit to each [that] portfolio all payments, distributions,
interest, and other earnings on the investments in that portfolio.
(b-5) The comptroller has any power necessary to accomplish
the purposes of managing and investing the assets of a [the]
portfolio described by Subsection (b-4). In managing the assets of
that portfolio, through procedures and subject to restrictions the
comptroller considers appropriate, the comptroller may acquire,
sell, transfer, or otherwise assign the investments as appropriate,
taking into consideration the purposes, terms, distribution
requirements, and other circumstances of that portfolio then
prevailing.
(f) Notwithstanding any other law, directly or indirectly
through a separately managed account or other investment vehicle,
the comptroller may invest an amount not to exceed $1 billion of the
economic stabilization fund balance in accordance with this section
and Chapter 2210, Insurance Code.
(g) For purposes of Subsection (f), the comptroller may
enter into an investment arrangement with the Texas Windstorm
Insurance Association to provide the association an amount not to
exceed $1 billion in funding for each catastrophe year in
accordance with Subchapter M-1, Chapter 2210, Insurance Code, after
a catastrophic event to fund the association's losses and
operational expenses arising from the catastrophic event in excess
of the association's premium and other revenue, available reserves,
the catastrophe reserve trust fund, and member assessments
authorized under Section 2210.083.
(h) An investment arrangement entered into under Subsection
(g):
(1) must be secured and repaid by catastrophe
surcharges under Subchapter M-2, Chapter 2210, Insurance Code;
(2) must include interest at a rate equal to the
three-year United States treasury note rate plus at least four
percent; and
(3) may not exceed 36 months to maturity.
SECTION 1.02. Section 2210.0081, Insurance Code, is amended
to read as follows:
Sec. 2210.0081. CERTAIN ACTIONS BROUGHT AGAINST
ASSOCIATION BY COMMISSIONER. In an action brought by the
commissioner against the association under Chapter 441:
(1) the association's inability to satisfy obligations
under Subchapter M or M-1 related to the issuance of public
securities under this chapter or an investment arrangement with
this state, as applicable, constitutes a condition that makes the
association's continuation in business hazardous to the public or
to the association's policyholders for the purposes of Section
441.052;
(2) the time for the association to comply with the
requirements of supervision or for the conservator to complete the
conservator's duties, as applicable, is limited to three years from
the date the commissioner commences the action against the
association; and
(3) unless the commissioner takes further action
against the association under Chapter 441, as a condition of
release from supervision, the association must demonstrate to the
satisfaction of the commissioner that the association is able to
satisfy obligations under Subchapter M or M-1 related to the
issuance of public securities under this chapter or an investment
arrangement with this state, as applicable.
SECTION 1.03. The heading to Subchapter B-1, Chapter 2210,
Insurance Code, is amended to read as follows:
SUBCHAPTER B-1. PAYMENT OF LOSSES INCURRED BEFORE JANUARY 1, 2024
SECTION 1.04. Subchapter B-1, Chapter 2210, Insurance Code,
is amended by adding Section 2210.070 to read as follows:
Sec. 2210.070. APPLICABILITY OF SUBCHAPTER. (a) This
subchapter applies only to the payment of losses and operating
expenses of the association for a catastrophe year that occurs
before January 1, 2024, and results in excess losses and operating
expenses incurred by the association before January 1, 2024.
(b) Payment of excess losses and operating expenses of the
association incurred after December 31, 2023, shall be paid as
provided by Subchapter B-2.
SECTION 1.05. Section 2210.071(a), Insurance Code, is
amended to read as follows:
(a) If, in a catastrophe year before January 1, 2024, an
occurrence or series of occurrences in a catastrophe area results
in insured losses and operating expenses of the association in
excess of premium and other revenue of the association, the excess
losses and operating expenses shall be paid as provided by this
subchapter.
SECTION 1.06. Section 2210.0715(b), Insurance Code, is
amended to read as follows:
(b) Proceeds of public securities issued, an investment
arrangement entered into, or assessments made before January 1,
2024, or as a result of any occurrence or series of occurrences in a
catastrophe year that occurs before January 1, 2024, and results in
insured losses before that date may not be included in reserves
available for a subsequent catastrophe year for purposes of this
section or Section 2210.082 unless approved by the commissioner.
SECTION 1.07. The heading to Section 2210.075, Insurance
Code, is amended to read as follows:
Sec. 2210.075. REINSURANCE BY MEMBERS.
SECTION 1.08. Subchapter B-1, Chapter 2210, Insurance Code,
is amended by adding Section 2210.076 to read as follows:
Sec. 2210.076. PAYMENT FROM STATE INVESTMENT ARRANGEMENTS.
(a) Notwithstanding the provisions of this subchapter to the
contrary, the association may pay losses the association would
otherwise pay as provided by Section 2210.072, 2210.073, or
2210.0741 by entering into one or more investment arrangements with
this state as provided by Subchapter M-1 of this chapter and Section
404.0241, Government Code.
(b) Subchapter M-2 applies to the financing of losses under
this section to the extent necessary to secure and repay a debt
obligation to the state under an investment arrangement entered
into with this state under this section.
(c) An investment arrangement described by Subsection (a)
may also be used for a purpose described by Section 2210.072(d) in
the same manner as a financing arrangement with a market source.
SECTION 1.09. Chapter 2210, Insurance Code, is amended by
adding Subchapter B-2 to read as follows:
SUBCHAPTER B-2. PAYMENT OF EXCESS LOSSES AND OPERATING EXPENSES
Sec. 2210.080. APPLICABILITY OF SUBCHAPTER. (a) This
subchapter applies only to the payment of losses and operating
expenses of the association for a catastrophe year that occurs
after December 31, 2023, and results in excess losses and operating
expenses incurred by the association after December 31, 2023.
(b) This section expires September 1, 2025.
Sec. 2210.081. PAYMENT OF EXCESS LOSSES. (a) If, in a
catastrophe year, an occurrence or series of occurrences in a
catastrophe area results in insured losses and operating expenses
of the association in excess of premium and other revenue of the
association, the excess losses and operating expenses shall be paid
as provided by this subchapter.
(b) The association may not pay insured losses and operating
expenses resulting from an occurrence or series of occurrences in a
catastrophe year with premium and other revenue earned in a
subsequent year.
Sec. 2210.082. PAYMENT FROM RESERVES AND TRUST FUND. (a)
The association shall pay insured losses and operating expenses
resulting from an occurrence or series of occurrences in a
catastrophe year in excess of premium and other revenue of the
association for that catastrophe year from reserves of the
association available before or accrued during that catastrophe
year and amounts in the catastrophe reserve trust fund available
before or accrued during that catastrophe year.
(b) Proceeds of public securities issued or assessments
made before or as a result of any occurrence or series of
occurrences in a catastrophe year that results in insured losses
may not be included in reserves available for a subsequent
catastrophe year for purposes of this section.
Sec. 2210.083. PAYMENT FROM MEMBER ASSESSMENTS. (a)
Insured losses and operating expenses for a catastrophe year not
paid under Section 2210.082 shall be paid as provided by this
section from member assessments not to exceed $1 billion for that
catastrophe year.
(b) The board of directors shall notify each association
member of the amount of the member's assessment under this section.
The proportion of the insured losses and operating expenses
allocable to each insurer under this section shall be determined in
the manner used to determine each insurer's participation in the
association for the year under Section 2210.052.
(c) An association member may not recoup an assessment paid
under this section through a premium surcharge or tax credit.
Sec. 2210.084. PAYMENT FROM STATE INVESTMENT ARRANGEMENTS.
For insured losses and operating expenses for a catastrophe year
not paid under Section 2210.082 or 2210.083, the association shall
enter into one or more investment arrangements totaling not more
than $1 billion with the state as provided by Subchapter M-1 of this
chapter and Section 404.0241, Government Code.
Sec. 2210.085. PAYMENT FROM PUBLIC SECURITIES. (a)
Insured losses and operating expenses for a catastrophe year not
paid under Section 2210.082, 2210.083, or 2210.084 shall be paid
from the proceeds from public securities 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 this section must be paid within a period
not to exceed 14 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) 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 $1 billion at any
one time, regardless of the calendar year or years in which the
outstanding public securities were issued.
(c) Public securities described by Subsection (a):
(1) shall be issued as necessary in a principal amount
not to exceed $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 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.
(d) If public securities are issued as described by this
section, the public securities shall be repaid in the manner
prescribed by Subchapter M.
(e) 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.
(f) 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 public securities issued on or before December 31,
2023, 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.
(g) If, under Subsection (f), the proceeds of any
outstanding public securities issued during a previous catastrophe
year, together with the proceeds of any outstanding public
securities issued on or before December 31, 2023, must be depleted,
those proceeds shall count against the limit on public securities
described by this section in the catastrophe year in which the
proceeds must be depleted.
Sec. 2210.086. REINSURANCE BY MEMBERS FOR MEMBER
ASSESSMENTS. (a) Before any occurrence or series of occurrences,
an association member may purchase reinsurance to cover an
assessment for which the member would otherwise be liable under
this subchapter.
(b) An association member must notify the board of
directors, in the manner prescribed by the association, whether the
member will be purchasing reinsurance. If the member does not
purchase reinsurance under this section, the member remains liable
for any assessment imposed under this subchapter.
SECTION 1.10. Section 2210.355(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 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) payment of obligations related to an investment
arrangement with this state under Subchapter M-1 of this chapter
and Section 404.0241, Government Code, including the additional
amount of any related debt service determined by the association to
be required for the investment arrangement; and
(6) all other relevant factors, within and outside
this state.
SECTION 1.11. Section 2210.452(b), Insurance Code, is
amended to read as follows:
(b) All money, including investment income, deposited in
the trust fund constitutes state funds until disbursed as provided
by this chapter and commissioner rules. The comptroller shall hold
the money outside the state treasury on behalf of, and with legal
title in, the department on behalf of the association. The
department shall keep and maintain the trust fund in accordance
with this chapter and commissioner rules. The comptroller, as
custodian of the trust fund, shall administer the trust fund
strictly and solely as provided by this chapter and commissioner
rules. The association may include the amounts held in the
catastrophe reserve trust fund as an admitted asset in the
financial statements of the association.
SECTION 1.12. Section 2210.4521(a), Insurance Code, is
amended to read as follows:
(a) The comptroller shall invest in accordance with the
investment standard described by Section 404.024(j), Government
Code, the portion of the trust fund balance that exceeds the amount
of the sufficient balance determined under Subsection (b). The
comptroller's investment of that portion of the balance is not
subject to any other limitation or other requirement provided by
Section 404.024, Government Code. The Texas Treasury Safekeeping
Trust Company and board of directors may recommend investments to
protect the trust fund and create investment income.
SECTION 1.13. Section 2210.453, Insurance Code, is amended
by adding Subsection (a-1) to read as follows:
(a-1) The association may obtain reinsurance at any level
including excess of loss, quota share, and other forms of
reinsurance to protect the solvency and viability of the
association. The commissioner may consult with the board of
directors regarding methods to protect the solvency and continued
viability of the association, including by protecting the minimum
balance, acquiring reinsurance, or by other means.
SECTION 1.14. Subchapter J, Chapter 2210, Insurance Code,
is amended by adding Section 2210.4531 to read as follows:
Sec. 2210.4531. DETERMINATION OF PROBABLE MAXIMUM LOSS.
(a) The association shall file with the department a proposed
probable maximum loss, subject to Section 2210.453.
(b) In determining the probable maximum loss, the
association:
(1) shall, to the extent possible, contract with any
disinterested third parties necessary to execute any catastrophe
models that were executed in the preceding storm season;
(2) shall, if the association is unable to contract
for the execution of a catastrophe model described by Subdivision
(1), contract with any disinterested third party necessary to
execute a catastrophe model that is substantially similar to the
model for which the association is unable to contract under
Subdivision (1);
(3) may contract with any disinterested third parties
to execute catastrophe models in addition to the models required
under Subdivisions (1) and (2);
(4) shall provide to a disinterested third party
executing a catastrophe model any information necessary to comply
with this subsection;
(5) may not use a combination of catastrophe models to
determine the probable maximum loss; and
(6) may use only the catastrophe model that produces
the lowest probable maximum loss.
(c) The association shall make any information produced in
compliance with Subsection (b) publicly available on the
association's Internet website.
(d) The association may only use a probable maximum loss
that is approved by the commissioner. The commissioner may reject a
probable maximum loss filed with the department by the association
and set a probable maximum loss at any amount determined by the
commissioner.
SECTION 1.15. Effective January 1, 2024, Section 2210.602,
Insurance Code, is amended by amending Subdivision (7) and adding
Subdivision (12) to read as follows:
(7) "Public security" means a debt instrument or other
public security authorized to be issued under Section 2210.085 and
issued by the Texas Public Finance Authority, including a
commercial paper program authorized before the occurrence of a
catastrophic event.
(12) "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 public securities
are deposited.
SECTION 1.16. Effective January 1, 2024, Section
2210.604(a), Insurance Code, is amended to read as follows:
(a) In accordance with and subject to the limitations
provided by Section 2210.085, at [At] the request of the
association and with the approval of the commissioner, the Texas
Public Finance Authority shall issue [Class 1, Class 2, or Class 3]
public securities. The association shall submit to the
commissioner a cost-benefit analysis of various financing methods
and funding structures when requesting the issuance of public
securities under this subsection.
SECTION 1.17. Effective January 1, 2024, Sections
2210.608(a) and (c), Insurance Code, are amended to read as
follows:
(a) Public security proceeds, including investment income,
shall be held in trust for the exclusive use and benefit of the
association. The association may use the proceeds to:
(1) pay incurred claims and operating expenses of the
association in accordance with Section 2210.085;
(2) purchase reinsurance for the association;
(3) pay the costs of issuing the public securities,
and public security administrative expenses, if any;
(4) provide a public security reserve;
(5) pay capitalized interest and principal on the
public securities for the period determined necessary by the
association;
(6) pay private financial agreements entered into by
the association as temporary sources of payment of losses and
operating expenses of the association; and
(7) reimburse the association for any cost described
by Subdivisions (1)-(6) paid by the association before issuance of
the public securities.
(c) Notwithstanding Subsection (a)(2), the proceeds from
public securities issued under Section 2210.085 [2210.072] before
an occurrence or series of occurrences that results in incurred
losses, including investment income, may not be used to purchase
reinsurance for the association.
SECTION 1.18. Effective January 1, 2024, Sections
2210.609(a), (c), (d), and (e), Insurance Code, are amended to read
as follows:
(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. 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 Section [Sections]
2210.612[, 2210.613, and 2210.6131 as applicable]. Public [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].
(c) The association shall deposit all revenue collected
under Section 2210.612 in the [Class 1] public security trust fund
[, all revenue collected under Section 2210.613 in the Class 2
public security trust fund, and all revenue collected under Section
2210.6131 in the Class 3 public security trust fund]. Money
deposited in the [a] fund may be invested as permitted by general
law. Money in the [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 fund [, the Class 2 public security trust fund, or
the Class 3 public security 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,
premium surcharges, and amounts on deposit in the [Class 1] public
security trust fund, [the Class 2 public security trust fund, and
the Class 3 public security 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 from the [Class 1] public security trust fund [,
the Class 2 public security trust fund, and the Class 3 public
security trust fund] to the extent provided in the proceedings
authorizing the credit agreement.
SECTION 1.19. Effective January 1, 2024, Section
2210.610(a), Insurance Code, is amended to read as follows:
(a) Revenues received from the premium surcharges under
Section [Sections] 2210.612[, 2210.613, and 2210.6131] may be
applied only as provided by this subchapter.
SECTION 1.20. Effective January 1, 2024, 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 Section [Sections] 2210.612 [, 2210.613, and
2210.6131] 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 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 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 1.21. Effective January 1, 2024, the heading to
Section 2210.612, Insurance Code, is amended to read as follows:
Sec. 2210.612. PAYMENT OF [CLASS 1] PUBLIC SECURITIES.
SECTION 1.22. Effective January 1, 2024, Sections
2210.612(a) and (e), Insurance Code, are amended to read as
follows:
(a) The association shall pay [Class 1] public securities
issued under Section 2210.085 [2210.072] 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.
(e) The association may enter financing arrangements as
described by Section 2210.085(e) [2210.072(d)] as necessary to
obtain public securities issued under Section 2210.085 [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 2210.085(a) [2210.072(a)].
SECTION 1.23. Effective January 1, 2024, the heading to
Section 2210.6132, Insurance Code, is amended to read as follows:
Sec. 2210.6132. CONTINGENT SOURCE OF PAYMENT FOR [CLASS 2
AND CLASS 3] PUBLIC SECURITIES.
SECTION 1.24. Effective January 1, 2024, Sections
2210.6132(a) and (b), Insurance Code, are amended to read as
follows:
(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 2210.612 [2210.613
or 2210.6131, as applicable]; or
(2) the issuance of [Class 2 or Class 3] public
securities to be payable under Section 2210.612 [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.
SECTION 1.25. Effective January 1, 2024, Section 2210.614,
Insurance Code, is amended to read as follows:
Sec. 2210.614. REFINANCING PUBLIC SECURITIES. The
association may request the board to refinance any public
securities issued in accordance with Section 2210.085 [Subchapter
B-1, whether Class 1, Class 2, or Class 3 public securities,] with
public securities payable from the same sources as the original
public securities.
SECTION 1.26. Chapter 2210, Insurance Code, is amended by
adding Subchapters M-1 and M-2 to read as follows:
SUBCHAPTER M-1. STATE CATASTROPHE INVESTMENT ARRANGEMENTS
Sec. 2210.631. STATE CATASTROPHE INVESTMENT ARRANGEMENTS.
The legislature has determined that providing catastrophe
investment arrangements to the association by permitting the
association to enter into those arrangements with this state is an
acceptable use of state money and provides an efficient method for
the association to pay losses following a catastrophic event.
Sec. 2210.632. CATASTROPHE INVESTMENT ARRANGEMENT
AUTHORIZED; LIMITS. The association may enter into an investment
arrangement with this state as provided by Section 404.0241,
Government Code, for not more than $1 billion after a catastrophic
event that depletes the catastrophe reserve fund and member
assessments imposed under Section 2210.083.
SUBCHAPTER M-2. CATASTROPHE SURCHARGE
Sec. 2210.641. DEFINITION. In this subchapter,
"catastrophic event" means an occurrence or a series of occurrences
that:
(1) occurs in a catastrophe area during a calendar
year; and
(2) results in insured losses and operating expenses
of the association in excess of premium and other revenue of the
association.
Sec. 2210.642. APPLICABILITY OF SUBCHAPTER. (a)
Notwithstanding Section 2210.006, this subchapter applies to an
insurer that is:
(1) an insurer authorized to engage in the business of
insurance in this state that is required to be a member of the
association, including a farm mutual insurance company that is a
fronting insurer as defined by Section 221.001(c);
(2) a farm mutual insurance company that is not a
fronting insurer as defined by Section 221.001(c) only for purposes
of the collection of surcharges authorized by this subchapter;
(3) an unaffiliated eligible surplus lines insurer
writing the lines of business subject to a premium surcharge under
this subchapter;
(4) the association; and
(5) the FAIR Plan Association.
(b) A premium surcharge under this subchapter applies to:
(1) a policy written under the following lines of
insurance:
(A) fire and allied lines;
(B) farm and ranch owners; and
(C) residential property insurance; and
(2) the property insurance portion of a commercial
multiple peril insurance policy.
Sec. 2210.6425. CONSTRUCTION OF SUBCHAPTER. (a) This
subchapter may not be construed to require an insurer to be an
association member if the insurer is not otherwise required to be a
member under Section 2210.052.
(b) A farm mutual insurance company that is not a fronting
insurer as defined by Section 221.001(c) is not a member of the
association as a result of the company's collection of surcharges
authorized by this subchapter or for any other reason.
Sec. 2210.643. ANNUAL FINANCIAL REPORT BY COMMISSIONER.
The commissioner shall determine the amount available in the
catastrophe reserve trust fund as of December 31 of each year and
provide a written report to the governor, lieutenant governor, and
speaker of the house of representatives that includes:
(1) the amount available in the catastrophe reserve
trust fund; and
(2) information regarding the current financial
condition of the association.
Sec. 2210.6435. CATASTROPHE SURCHARGES. (a) The
commissioner, in consultation with the board of directors, may
order a catastrophe surcharge effective on the closing date of an
investment arrangement with this state and as provided by this
subchapter only if, after a catastrophic event:
(1) the commissioner determines that the association
has depleted its reserves, other money, the catastrophe reserve
trust fund, and member assessments in the amount of $1 billion
imposed under Section 2210.083; and
(2) the association intends to enter into an
investment arrangement with this state under Subchapter M-1 that is
the basis for the surcharge.
(b) The commissioner, in consultation with the board of
directors, shall set the catastrophe surcharge as a percentage of
premium to be collected by each insurer to which this subchapter
applies.
(c) The total amount authorized to be collected under this
section for any catastrophe surcharge may not exceed the amount
needed to satisfy the terms of the investment arrangement entered
into with this state under Subchapter M-1 that is the basis for the
surcharge.
(d) The catastrophe surcharge percentage must be set in an
amount sufficient, including a reserve amount, to satisfy the terms
of the investment arrangement entered into with this state under
Subchapter M-1 that is the basis for the surcharge. The
commissioner shall review the catastrophe surcharge percentage
semiannually and adjust the percentage as necessary to ensure
amounts collected will be sufficient to satisfy the terms of the
investment arrangement. The association will provide a semiannual
report to the commissioner and comptroller in the form and manner
prescribed by the commissioner of the premium assessed and
collected and its sufficiency to satisfy the terms of the
investment arrangement. The commissioner may set the surcharge as
a percentage of premium to collect the needed aggregate amount over
a period of time not to exceed three years.
(e) A catastrophe surcharge authorized under this section
shall be assessed by insurers on all policyholders of policies that
are subject to this subchapter.
(f) A catastrophe surcharge under this subchapter is a
separate charge in addition to the premiums collected and is not
subject to premium tax or commissions.
(g) Failure by a policyholder to pay a catastrophe surcharge
constitutes failure to pay premium for purposes of policy
cancellation.
(h) A catastrophe surcharge is not refundable if the policy
is canceled or terminated.
Sec. 2210.644. CATASTROPHE SURCHARGE PROCEEDS. The
proceeds of a catastrophe surcharge authorized under this
subchapter shall be deposited into the catastrophe reserve trust
fund or an account designated by the comptroller for purposes of
satisfying the terms of the investment arrangement that is the
basis for the surcharge, and the proceeds shall be paid to this
state under the terms of the investment arrangement until the terms
are fully satisfied.
Sec. 2210.6445. DISCLOSURE OF SURCHARGE. Each policy that
is assessed a surcharge under this subchapter shall contain the
following prominent disclosure in the documents attached to the
policy:
"A CATASTROPHE SURCHARGE HAS BEEN INCLUDED ON YOUR POLICY.
THIS SURCHARGE WILL BE USED TO REPAY STATE MONEY USED BY THE TEXAS
WINDSTORM INSURANCE ASSOCIATION TO PAY FOR LOSSES AFTER A
CATASTROPHIC EVENT, INCLUDING A HURRICANE. THE SURCHARGE IS NOT
REFUNDABLE IF YOU CANCEL OR TERMINATE THIS POLICY."
Sec. 2210.645. EXEMPTION FROM TAXATION. A surcharge
collected under this subchapter is exempt from taxation by this
state or a municipality or other political subdivision of this
state.
Sec. 2210.6455. LIMITATION OF PERSONAL LIABILITY. The
association members, the insurers required to collect a surcharge
under this subchapter, members of the board of directors,
association employees, the commissioner, and department employees
are not personally liable as a result of exercising the rights and
responsibilities granted under this subchapter.
Sec. 2210.646. EXEMPTION FROM SURCHARGE. An insurer may
not collect a surcharge authorized under this subchapter on any
policy issued to this state, an agency of this state, or a political
subdivision of this state.
SECTION 1.27. (a) Effective January 1, 2024, the following
provisions of the Insurance Code are repealed:
(1) Sections 2210.602(2), (2-a), (3), (3-a), (4), and
(4-a);
(2) Section 2210.613; and
(3) Section 2210.6131.
(b) Effective September 1, 2025, Subchapter B-1, Chapter
2210, Insurance Code, is repealed.
SECTION 1.28. As soon as practicable after the effective
date of this Act and not later than December 1, 2023, the
commissioner of insurance shall adopt rules necessary to implement
Subchapter M, Insurance Code, as amended by this Act, and
Subchapters B-2 and M-2, Insurance Code, as added by this Act.
ARTICLE 2. CONFORMING AMENDMENTS
SECTION 2.01. (a) Section 2210.056(b), Insurance Code, is
amended to read as follows:
(b) The association's assets may not be used for or diverted
to any purpose other than to:
(1) satisfy, in whole or in part, the liability of the
association on claims made on policies written by the association;
(2) make investments authorized under applicable law;
(3) pay reasonable and necessary administrative
expenses incurred in connection with the operation of the
association and the processing of claims against the association;
(4) satisfy, in whole or in part, the obligations of
the association incurred in connection with Subchapters B-1, B-2,
J, [and] M, and M-2, including reinsurance, public securities, and
financial instruments; or
(5) make remittance under the laws of this state to be
used by this state to:
(A) pay claims made on policies written by the
association;
(B) purchase reinsurance covering losses under
those policies; or
(C) prepare for or mitigate the effects of
catastrophic natural events.
(b) Effective September 1, 2025, Section 2210.056(b),
Insurance Code, is amended to read as follows:
(b) The association's assets may not be used for or diverted
to any purpose other than to:
(1) satisfy, in whole or in part, the liability of the
association on claims made on policies written by the association;
(2) make investments authorized under applicable law;
(3) pay reasonable and necessary administrative
expenses incurred in connection with the operation of the
association and the processing of claims against the association;
(4) satisfy, in whole or in part, the obligations of
the association incurred in connection with Subchapters B-2 [B-1],
J, [and] M, and M-2, including reinsurance, public securities, and
financial instruments; or
(5) make remittance under the laws of this state to be
used by this state to:
(A) pay claims made on policies written by the
association;
(B) purchase reinsurance covering losses under
those policies; or
(C) prepare for or mitigate the effects of
catastrophic natural events.
SECTION 2.02. (a) Section 2210.1052, Insurance Code, is
amended to read as follows:
Sec. 2210.1052. EMERGENCY MEETING. If the ultimate loss
estimate for an occurrence or series of occurrences made by the
chief financial officer or chief actuary of the association
indicates member insurers may be subject to an assessment under
Subchapter B-1 or B-2, the board of directors shall call an
emergency meeting to notify the member insurers about the
assessment.
(b) Effective September 1, 2025, Section 2210.1052,
Insurance Code, is amended to read as follows:
Sec. 2210.1052. EMERGENCY MEETING. If the ultimate loss
estimate for an occurrence or series of occurrences made by the
chief financial officer or chief actuary of the association
indicates member insurers may be subject to an assessment under
Subchapter B-2 [B-1], the board of directors shall call an
emergency meeting to notify the member insurers about the
assessment.
SECTION 2.03. Section 2210.363(a), Insurance Code, is
amended to read as follows:
(a) The association may offer a person insured under this
chapter an actuarially justified premium discount on a policy
issued by the association, or an actuarially justified credit
against a surcharge assessed against the person, other than a
surcharge assessed under Subchapter M or M-2, if:
(1) the construction, alteration, remodeling,
enlargement, or repair of, or an addition to, insurable property
exceeds applicable building code standards set forth in the plan of
operation; or
(2) the person elects to purchase a binding
arbitration endorsement under Section 2210.554.
SECTION 2.04. (a) Sections 2210.452(a) and (d), Insurance
Code, are amended to read as follows:
(a) The commissioner shall adopt rules under which the
association makes payments to the catastrophe reserve trust fund.
Except as otherwise specifically provided by this section, the
trust fund may be used only for purposes directly related to funding
the payment of insured losses, including:
(1) funding the obligations of the trust fund under
Subchapters [Subchapter] B-1 and B-2; and
(2) purchasing reinsurance or using alternative risk
financing mechanisms under Section 2210.453.
(d) The commissioner by rule shall establish the procedure
relating to the disbursement of money from the trust fund to
policyholders and for association administrative expenses directly
related to funding the payment of insured losses in the event of an
occurrence or series of occurrences within a catastrophe area that
results in a disbursement under Subchapter B-1 or B-2.
(b) Effective September 1, 2025, Sections 2210.452(a) and
(d), Insurance Code, are amended to read as follows:
(a) The commissioner shall adopt rules under which the
association makes payments to the catastrophe reserve trust fund.
Except as otherwise specifically provided by this section, the
trust fund may be used only for purposes directly related to funding
the payment of insured losses, including:
(1) funding the obligations of the trust fund under
Subchapter B-2 [B-1]; and
(2) purchasing reinsurance or using alternative risk
financing mechanisms under Section 2210.453.
(d) The commissioner by rule shall establish the procedure
relating to the disbursement of money from the trust fund to
policyholders and for association administrative expenses directly
related to funding the payment of insured losses in the event of an
occurrence or series of occurrences within a catastrophe area that
results in a disbursement under Subchapter B-2 [B-1].
SECTION 2.05. (a) Sections 2210.453(b) and (c), Insurance
Code, are amended to read as follows:
(b) The association shall maintain total available loss
funding in an amount not less than the probable maximum loss for the
association for a catastrophe year with a probability of one in 100.
If necessary, the required funding level shall be achieved through
the purchase of reinsurance or the use of alternative financing
mechanisms, or both, to operate in addition to or in concert with
the trust fund, public securities, financial instruments,
investment arrangements, and assessments authorized by this
chapter.
(c) The attachment point for reinsurance purchased under
this section may not be less than the aggregate amount of all
funding available to the association under Subchapters
[Subchapter] B-1 and B-2.
(b) Effective September 1, 2025, Section 2210.453(c),
Insurance Code, is amended to read as follows:
(c) The attachment point for reinsurance purchased under
this section may not be less than the aggregate amount of all
funding available to the association under Subchapter B-2 [B-1].
ARTICLE 3. TRANSITION AND SAVINGS PROVISIONS
SECTION 3.01. Notwithstanding the amendment by this Act of
Subchapter M, Chapter 2210, Insurance Code, the repeal by this Act
of Subchapter B-1, Chapter 2210, Insurance Code, and other changes
in law made by this Act effective September 1, 2025:
(1) the payment of excess losses and operating
expenses of the Texas Windstorm Insurance Association incurred
before January 1, 2024, is governed by the law as it existed on the
effective date of this Act, and that law is continued in effect for
that purpose;
(2) the issuance of public securities to pay excess
losses and operating expenses of the Texas Windstorm Insurance
Association incurred before January 1, 2024, the use of the
proceeds of those securities, the repayment or refinancing of those
securities, and any other rights, obligations, or limitations with
respect to those securities and proceeds of those securities are
governed by the law as it existed on the effective date of this Act,
and that law is continued in effect for that purpose; and
(3) proceeds of any assessments made under Subchapter
B-1, Chapter 2210, Insurance Code, may not be included in reserves
available for a catastrophe year for purposes of Section 2210.082,
Insurance Code, as added by this Act, unless approved by the
commissioner of insurance.
ARTICLE 4. EFFECTIVE DATE
SECTION 4.01. Except as otherwise provided by this Act,
this Act takes effect September 1, 2023.
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