81R5032 PB-D
By: Smithee H.B. No. 4733
A BILL TO BE ENTITLED
AN ACT
relating to the operation and funding of the Texas Windstorm
Insurance Association, including funding of coverage for certain
catastrophic events through the issuance of public securities.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Section 2210.001, Insurance Code, is amended to
read as follows:
Sec. 2210.001. PURPOSE. (a) An adequate market for
windstorm and[,] hail[, and fire] insurance in the seacoast
territory is necessary to the economic welfare of this state, and
without that insurance, the orderly growth and development of this
state would be severely impeded. This chapter provides a method by
which adequate windstorm and[,] hail[, and fire] insurance may be
obtained in certain designated portions of the seacoast territory
of this state.
(b) The purpose of the Texas Windstorm Insurance
Association is to serve as a residual insurer of last resort for
windstorm and hail insurance in the seacoast territory. The
association shall function in such a manner as to not be a direct
competitor in the private market and shall provide insurance
coverage to persons who are unable to obtain insurance coverage in
the private market.
SECTION 2. Section 2210.003(6), Insurance Code, is amended
to read as follows:
(6) "Insurance" means Texas [fire and explosion
insurance and Texas] windstorm and hail insurance.
SECTION 3. Sections 2210.004(a) and (g), Insurance Code,
are amended to read as follows:
(a) Except as provided by Subsection (h), for purposes of
this chapter and subject to this section, "insurable property"
means immovable property at a fixed location in a catastrophe area
or corporeal movable property located in that immovable property,
as designated in the plan of operation, that is determined by the
association according to the criteria specified in the plan of
operation to be in an insurable condition against windstorm and
hail [or fire and explosion, as appropriate], as determined by
normal underwriting standards. The term includes property
described by Section 2210.209.
(g) For purposes of this chapter, a residential structure is
insurable property if:
(1) the residential structure is not:
(A) a condominium, apartment, duplex, or other
multifamily residence; or
(B) a hotel or resort facility; and
(2) the residential structure is located within an
area designated as a unit under the Coastal Barrier Resources Act
(Pub. L. No. 97-348)[; and
[(3) a building permit or plat for the residential
structure was filed with the municipality, the county, or the
United States Army Corps of Engineers before June 11, 2003].
SECTION 4. Section 2210.005, Insurance Code, is amended to
read as follows:
Sec. 2210.005. DESIGNATION AS CATASTROPHE AREA [OR
INADEQUATE FIRE INSURANCE AREA]; REVOCATION OF DESIGNATION. (a)
After at least 10 days' notice and a hearing, the commissioner may
designate an area of the seacoast area of this state as a
catastrophe area if the commissioner determines that windstorm and
hail insurance is not reasonably available to a substantial number
of the owners of insurable property located in that territory
because the territory is subject to unusually frequent and severe
damage resulting from windstorms or hailstorms.
(b) [After at least 10 days' notice and a hearing, the
commissioner may designate an area of this state as an inadequate
fire insurance area if the commissioner determines that fire and
explosion insurance is not reasonably available to a substantial
number of owners of insurable property located in that area.
[(c)] The commissioner shall revoke a designation made under
Subsection (a) [or (b)] if the commissioner determines, after at
least 10 days' notice and a hearing, that the applicable insurance
coverage is no longer reasonably unavailable to a substantial
number of owners of insurable property within the designated
territory.
(c) [(d)] If the association determines that windstorm and
hail insurance [or fire and explosion insurance] is no longer
reasonably unavailable to a substantial number of owners of
insurable property in a territory designated as a catastrophe area
[or inadequate fire insurance area, as applicable], the association
may request in writing that the commissioner revoke the
designation. After at least 10 days' notice and a hearing, but not
later than the 30th day after the date of the hearing, the
commissioner shall:
(1) approve the request and revoke the designation; or
(2) reject the request.
SECTION 5. Subchapter A, Chapter 2210, Insurance Code, is
amended by adding Section 2210.009 to read as follows:
Sec. 2210.009. LIST OF PRIVATE INSURERS; INCENTIVE PLAN.
(a) The department shall maintain a list of all insurers that
engage in the business of property and casualty insurance in the
voluntary market in the seacoast territory.
(b) The department shall develop incentive programs in the
manner described by Section 2210.053(b) to encourage authorized
insurers to write insurance on a voluntary basis and to minimize the
use of the association as a means to obtain insurance.
SECTION 6. Sections 2210.052(a), (c), and (d), Insurance
Code, are amended to read as follows:
(a) Each member of the association shall participate in
insured losses and operating expenses of the association, in excess
of premium and other revenue [the writings, expenses, profits, and
losses] of the association, in the proportion that the net direct
premiums of that member during the preceding calendar year bears to
the aggregate net direct premiums by all members of the
association, as determined using the information provided under
Subsection (b).
(c) Each member's participation in the association shall be
determined annually in the manner provided by the plan of
operation. For purposes of determining participation in the
association, two or more members that are subject to common
ownership or that operate in this state under common management or
control shall be treated as a single member. [The determination
shall also include the net direct premiums of an affiliate that is
under that common management or control, including an affiliate
that is not authorized to engage in the business of property
insurance in this state.]
(d) Notwithstanding Subsection (a), a member, in accordance
with the plan of operation, is entitled to receive credit for
similar insurance voluntarily written in an area designated by the
commissioner. The member's participation in the insured losses and
operating expenses of the association in excess of premium and
other revenue [writings] of the association shall be reduced in
accordance with the plan of operation. Incentives adopted under
the plan of operation must include a minimum level of participation
for an insurer voluntarily writing coverage in a catastrophe area,
and may not include a maximum level to cap a member's actual
statewide writings compared with other members.
SECTION 7. Section 2210.058, Insurance Code, is amended to
read as follows:
Sec. 2210.058. PAYMENT OF EXCESS LOSSES[; PREMIUM TAX
CREDIT]. (a) If, in any calendar 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 shall be paid as
provided by this section.
(b) The association shall pay excess losses from available
reserves of the association and available amounts in [follows:
[(1) $100 million shall be assessed against the
members of the association as provided by Subsection (b);
[(2) losses in excess of $100 million shall be paid
from] the catastrophe reserve trust fund established under
Subchapter J.
(c) For [and any reinsurance program established by the
association;
[(3) for] losses in excess of those paid under
Subsection (b), catastrophe area public securities may be issued in
the manner prescribed by Subchapter M. Catastrophe area public
securities issued under this subsection may be issued before or on
or after the occurrence of a catastrophic event in amounts
necessary to fund not more than 45 percent of the required solvency
level determined under Subchapter N. All catastrophe area public
securities obligations shall be paid in the manner prescribed by
Section 2210.609, if applicable, and Section 2210.611.
(d) For [Subdivisions (1) and (2), an additional $200
million shall be assessed against the members of the association,
as provided by Subsection (b); and
[(4)] losses in excess of those paid under Subsections
(b) and (c), Class 1 public securities may be issued before or on or
after the occurrence of a catastrophic event in the manner
prescribed by Subchapter M. Class 1 post-event public securities
may be issued only on or after a named storm has caused damage in the
seacoast territory and the board of directors has determined that
the combination of association reserves, amounts available in the
catastrophe reserve trust fund, catastrophe area public
securities, and Class 1 pre-event public securities, if any, are
insufficient to pay the losses. The board of directors may request
the commissioner to authorize Class 1 public securities in an
amount sufficient to pay projected losses up to an amount not to
exceed 50 percent of the required solvency level determined under
Subchapter N. All Class 1 public securities obligations shall be
paid in the manner prescribed by Section 2210.609, if applicable,
and Section 2210.612.
(e) For losses in excess of those paid under Subsections
(b)-(d), the board of directors of the association may request the
commissioner to authorize member company public securities, in an
amount not to exceed $500 million, to be issued after a catastrophic
event in the manner prescribed by Subchapter M. Member company
public securities obligations shall be paid in the manner
prescribed by Section 2210.613.
(f) For losses in excess of those paid under Subsections
(b)-(e), the board of directors may request the commissioner to
authorize Class 2 post-event public securities to be issued under
this subsection on or after a catastrophic event in the manner
prescribed by Subchapter M. The commissioner may authorize Class 2
post-event public securities under this subsection to pay losses
above the required solvency level determined under Subchapter N, in
an amount sufficient to pay losses but not to exceed $3 billion.
All Class 2 post-event public securities obligations shall be paid
in the manner prescribed by Section 2210.614.
(g) Notwithstanding any other provision of this section,
the association may pay losses in excess of premium and other
revenue of the association with reinsurance proceeds from
reinsurance purchased by the association. [Subdivisions (1), (2),
and (3) shall be assessed against members of the association, as
provided by Subsection (b).
[(b) The proportion of the losses allocable to each insurer
under Subsections (a)(1), (3), and (4) 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 insurer may credit an amount paid in accordance with
Subsection (a)(4) in a calendar year against the insurer's premium
tax under Chapter 221. The tax credit authorized under this
subsection shall be allowed at a rate not to exceed 20 percent per
year for five or more successive years beginning the calendar year
that the assessments under this section are paid. The balance of
payments made by the insurer and not claimed as a premium tax credit
may be reflected in the books and records of the insurer as an
admitted asset of the insurer for all purposes, including
exhibition in an annual statement under Section 862.001.]
SECTION 8. Section 2210.060(c), Insurance Code, is amended
to read as follows:
(c) Subsection (a) does not authorize the association to
indemnify a member of the association for participating in the
assessments made by [writings, expenses, profits, and losses of]
the association in the manner provided by this chapter.
SECTION 9. Subchapter B, Chapter 2210, Insurance Code, is
amended by adding Section 2210.061 to read as follows:
Sec. 2210.061. ELIGIBLE SURPLUS LINES INSURERS. (a) An
eligible surplus lines insurer may not be a member of the
association and is not subject to assessment as a member of the
association.
(b) Each surplus lines agent placing property insurance
through an eligible surplus lines insurer shall collect from the
policyholder and shall remit to the association a surplus lines
policy fee on all premiums collected after January 1, 2010, for all
insurance written by the surplus lines agent for a policy from an
eligible surplus lines insurer for all risks on real property and
contents in first tier coastal counties. By procuring or selling
insurance on property in this state through an eligible surplus
lines insurer, each surplus lines agent described by this
subsection agrees to be subject to the provisions of this chapter,
and to collect and remit the surplus lines policy fee described by
this section.
(c) The surplus lines policy fee shall be five percent of
the total policy premium, but the fee may not be considered premium
and is not subject to premium taxes or commissions. Failure to pay
the surplus lines policy fee shall be treated as a failure to pay
premium. For purposes of this subsection, "total policy premium"
includes taxes and commissions.
(d) Not later than the 20th day after the last day of each
calendar quarter, each surplus lines agent placing insurance
through an eligible surplus lines insurer shall remit directly to
the association all surplus lines policy fees collected in the
preceding quarter.
SECTION 10. The heading to Subchapter C, Chapter 2210,
Insurance Code, is amended to read as follows:
SUBCHAPTER C. ASSOCIATION BOARD OF DIRECTORS; GENERAL POWERS AND
DUTIES OF BOARD OF DIRECTORS
SECTION 11. Section 2210.101, Insurance Code, is amended to
read as follows:
Sec. 2210.101. ACCOUNTABLE TO GOVERNOR AND COMMISSIONER.
The board of directors is responsible and accountable to the
governor and the commissioner.
SECTION 12. Section 2210.102, Insurance Code, is amended to
read as follows:
Sec. 2210.102. COMPOSITION. (a) The board of directors is
composed of seven [the following nine] members appointed by the
governor in accordance with this section.
(b) Three members must be employed by or affiliated with,
other than as agents, [:
[(1) five representatives of different] insurers who
are members of the association.
(c) Two members must be [, elected by the members as
provided by the plan of operation;
[(2) two] public representatives, one of whom [who are
nominated by the office of public insurance counsel and who], as of
the date of the appointment, resides [:
[(A) reside] in or owns property in the seacoast
territory, and one of whom, as of the date of the appointment, does
not reside in or own property in the seacoast territory.
(d) At least two members must be, but not more than two
members may be, general [a catastrophe area; and
[(B) are policyholders of the association; and
[(3) two] property and casualty agents or personal
lines property and casualty agents licensed under this code, one of
whom, as of the date of the appointment, maintains the agent's
principal office in the seacoast territory, and one of whom, as of
the date of the appointment, does not maintain the agent's
principal office in the seacoast territory.
(e) All members must [, each of whom must:
[(A)] have demonstrated experience in insurance,
general business, or actuarial principles sufficient to make the
success of the association probable [;
[(B) maintain the agent's principal office, as of
the date of the appointment, in a catastrophe area; and
[(C) hold a license under Chapter 4051 as a
general property and casualty agent or a personal lines property
and casualty agent.
[(b) The persons appointed under Subsections (a)(2) and (3)
must be from different counties].
SECTION 13. Section 2210.103, Insurance Code, is amended to
read as follows:
Sec. 2210.103. TERMS. (a) Members of the board of
directors serve two-year [three-year staggered] terms[, with the
terms of three members expiring on the third Tuesday of March of
each year].
(b) A person may serve on the board of directors for not more
than three consecutive full terms[, not to exceed nine years].
(c) The governor shall appoint a replacement in the manner
provided by Section 2210.102 for a member who leaves or is removed
from the board of directors.
SECTION 14. Section 2210.104, Insurance Code, is amended to
read as follows:
Sec. 2210.104. OFFICERS. The board of directors shall
elect from the board's membership an executive committee consisting
of a presiding officer, assistant presiding officer, and
secretary-treasurer. [At least one of the officers must be a member
appointed under Section 2210.102(a)(2) or (3).]
SECTION 15. Subchapter C, Chapter 2210, Insurance Code, is
amended by adding Section 2210.1051 to read as follows:
Sec. 2210.1051. MEETINGS THROUGH TELECOMMUNICATION
METHODS. (a) Notwithstanding Chapter 551, Government Code, or any
other law, members of the board of directors may meet by telephone
conference call, videoconference, or other similar
telecommunication method. The board may use telephone conference
call, videoconference, or other similar telecommunication method
for purposes of establishing a quorum or voting or for any other
meeting purpose in accordance with this subsection and Subsection
(b). This subsection applies without regard to the subject matter
discussed or considered by the members of the board at the meeting.
(b) A meeting held by telephone conference call,
videoconference, or other similar telecommunication method:
(1) is subject to the notice requirements applicable
to other meetings of the board of directors;
(2) may not be held unless notice of the meeting
specifies the location of the meeting;
(3) must be audible to the public at the location
specified in the notice under Subdivision (2); and
(4) must provide two-way audio communication between
all members of the board attending the meeting during the entire
meeting, and if the two-way audio communication link with members
attending the meeting is disrupted so that a quorum of the board is
no longer participating in the meeting, the meeting may not
continue until the two-way audio communication link is
reestablished.
SECTION 16. Subchapter C, Chapter 2210, Insurance Code, is
amended by adding Section 2210.107 to read as follows:
Sec. 2210.107. PRIMARY BOARD OBJECTIVES. The primary
objectives of the board of directors are to ensure that the
association:
(1) operates in accordance with this chapter and
commissioner rules;
(2) complies with sound insurance principles; and
(3) meets the solvency standards imposed under this
chapter.
SECTION 17. Section 2210.151, Insurance Code, is amended to
read as follows:
Sec. 2210.151. ADOPTION OF PLAN OF OPERATION. With the
advice of the board of directors, the commissioner by rule shall
adopt the plan of operation to provide[:
[(1)] Texas windstorm and hail insurance in a
catastrophe area[; and
[(2) Texas fire and explosion insurance in an
inadequate fire insurance area].
SECTION 18. Section 2210.202(a), Insurance Code, is amended
to read as follows:
(a) A person who has an insurable interest in insurable
property may apply to the association for insurance coverage
provided under the plan of operation and an inspection of the
property, subject to any rules [, including any inspection fee,]
established by the board of directors and approved by the
commissioner. In order to be eligible for insurance through the
association, an applicant must demonstrate, in the manner
established in the plan of operation, inability to obtain insurance
coverage from insurers authorized to engage in the business of
property and casualty insurance in this state.
SECTION 19. Section 2210.203, Insurance Code, is amended by
adding Subsection (a-1) to read as follows:
(a-1) Notwithstanding Subsection (a), if all or any part of
the property for which an application for new or renewal insurance
coverage is made is located in Zone V or another similar zone with
an additional hazard associated with storm waves, as defined by the
National Flood Insurance Program, and if flood insurance under that
federal program is available, the association may not issue a new or
renewal insurance policy unless evidence that the property is
covered by a flood insurance policy is submitted to the
association. If that flood insurance is unavailable in any portion
of the seacoast territory, an association policy insuring a
residential structure described by Section 2210.004(g) is subject
to a premium surcharge for the insurance coverage obtained through
the association in an amount equal to not less than 10 percent of
the premium, as set by the commissioner after notice and a hearing.
SECTION 20. Subchapter E, Chapter 2210, Insurance Code, is
amended by adding Section 2210.210 to read as follows:
Sec. 2210.210. NOTICE TO APPLICANTS FOR INSURANCE AND
POLICYHOLDERS; CONSUMER INFORMATION. (a) Each application for
insurance and each policy issued by the association must include a
notice as provided by this section. The commissioner by rule may
prescribe specific requirements for the notice. The notice must be
substantially as follows:
IMPORTANT NOTICE TO TEXAS WINDSTORM INSURANCE
ASSOCIATION POLICYHOLDERS
Insurance policies issued by the Texas Windstorm Insurance
Association are not guaranteed by the state or federal government.
In the event of a major catastrophe, the association may not have
sufficient funding resources to pay all losses to all policyholders
suffering damage. In such an event, you may be paid less than the
full amount of damages that you suffer. You may obtain additional
information as to the association's potential exposure and its
available funding resources at www.tdi.state.tx.us.
(b) The department shall establish a link on the
department's Internet website through which applicants for
insurance coverage through the association and association
policyholders may obtain information in a format easily understood
about the association's exposure and available resources.
SECTION 21. Sections 2210.251(a) through (f), Insurance
Code, are amended to read as follows:
(a) Except as provided by this section, to be considered
insurable property eligible for windstorm and hail insurance
coverage from the association, a structure that is constructed or
repaired or to which additions are made on or after January 1, 1988,
must be inspected [or approved] by the association [department] for
compliance with the plan of operation.
(b) After January 1, 2004, for geographic areas specified by
the commissioner, the board of directors [commissioner by rule]
shall recognize for the purposes of this chapter [adopt] the 2003
International Residential Code for one- and two-family dwellings
published by the International Code Council. For those geographic
areas, the board of directors [commissioner by rule] may recognize
[adopt] a subsequent edition of that code and [may adopt] any
supplements published by the International Code Council and
amendments to that code.
(c) After January 1, 2004, a person must submit a notice of a
windstorm inspection to the association [unit responsible for
certification of windstorm inspections at the department] before
beginning to construct, alter, remodel, enlarge, or repair a
structure.
(d) A structure constructed or repaired or to which
additions were made before January 1, 1988, that is located in an
area that was governed at the time of the construction, repair, or
addition by a building code recognized by the association is
insurable property eligible for windstorm and hail insurance
coverage from the association without compliance with the
inspection [or approval] requirements of this section or the plan
of operation.
(e) A structure constructed or repaired or to which
additions were made before January 1, 1988, that is located in an
area not governed by a building code recognized by the association
is insurable property eligible for windstorm and hail insurance
coverage from the association without compliance with the
inspection [or approval] requirements of this section or the plan
of operation if the structure was previously insured by an insurer
authorized to engage in the business of insurance in this state and
the structure is in essentially the same condition as when
previously insured, except for normal wear and tear, and is without
any structural change other than a change made according to code.
For purposes of this subsection, evidence of previous insurance
coverage includes:
(1) a copy of a previous insurance policy;
(2) copies of canceled checks or agent's records that
show payments for previous policies; and
(3) a copy of the title to the structure or mortgage
company records that show previous policies.
(f) The association [department] shall issue a certificate
of compliance for each structure that qualifies for coverage. The
certificate is evidence of insurability of the structure by the
association.
SECTION 22. Section 2210.252, Insurance Code, is amended to
read as follows:
Sec. 2210.252. INTERNATIONAL RESIDENTIAL CODE BUILDING
SPECIFICATIONS. (a) After January 1, 2004, for geographic areas
specified by the commissioner, the association [commissioner by
rule] may supplement the plan of operation building specifications
with the structural provisions of the International Residential
Code for one- and two-family dwellings, as published by the
International Code Council or an analogous entity recognized by the
board of directors [department].
(b) For a geographic area specified under Subsection (a),
the board of directors [commissioner by rule] may recognize [adopt]
a subsequent edition of the International Residential Code for
one- and two-family dwellings and [may adopt] a supplement
published by the International Code Council or an amendment to that
code.
SECTION 23. Sections 2210.254(a) and (b), Insurance Code,
are amended to read as follows:
(a) For purposes of this chapter, a "qualified inspector"
includes:
(1) a person determined by the board of directors
[department] to be qualified because of training or experience to
perform building inspections;
(2) a licensed professional engineer who meets the
requirements specified by the board of directors [commissioner
rule] for appointment to conduct windstorm inspections; and
(3) an inspector who:
(A) is certified by the International Code
Council, the Building Officials and Code Administrators
International, Inc., the International Conference of Building
Officials, or the Southern Building Code Congress International,
Inc.;
(B) has certifications as a buildings inspector
and coastal construction inspector; and
(C) complies with other requirements specified
by the board of directors [commissioner rule].
(b) A windstorm inspection may be performed only by a
qualified inspector who is employed by or under contract with the
association.
SECTION 24. Section 2210.255, Insurance Code, is amended to
read as follows:
Sec. 2210.255. APPOINTMENT OF LICENSED ENGINEER AS
INSPECTOR. (a) On request of an engineer licensed by the Texas
Board of Professional Engineers, the association may [commissioner
shall] appoint the engineer as an inspector under this subchapter
on receipt of information satisfactory to the board of directors
[not later than the 10th day after the date the engineer delivers to
the commissioner information demonstrating] that the engineer is
qualified to perform windstorm inspections under this subchapter.
(b) The board of directors shall consult with the
commissioner regarding [shall adopt rules establishing] the
information to be considered in appointing engineers under this
section.
SECTION 25. Subchapter F, Chapter 2210, Insurance Code, is
amended by adding Section 2210.258 to read as follows:
Sec. 2210.258. SURCHARGE FOR CERTAIN NONCOMPLIANT
CONSTRUCTION. (a) For purposes of this section, property is not in
compliance with mandatory building codes if:
(1) the property has not been inspected for compliance
with the plan of operation in accordance with Section 2210.251(a);
or
(2) a certificate of compliance has not been issued in
accordance with Section 2210.251(f).
(b) An applicant for coverage from the association or a
policyholder of the association whose property is determined to not
be in compliance as provided by Subsection (a) is subject to a
premium surcharge for insurance coverage obtained through the
association. The surcharge shall be an amount not less than an
amount equal to 10 percent of the premium, as determined by the
commissioner after notice and a hearing.
SECTION 26. Sections 2210.351(a), (c), and (d), Insurance
Code, are amended to read as follows:
(a) The association shall [must] file with the department in
the manner prescribed by Section 2251.101 each manual of
classifications, rules, rates, including condition charges, and
each rating plan, and each modification of those items that the
association proposes to use.
(c) After the filing has been made, the association may use
a filed rate, and a filed rate is subject to disapproval by the
commissioner in the manner prescribed by Subchapter C, Chapter
2251. [As soon as reasonably possible after the filing has been
made, the commissioner in writing shall approve, modify, or
disapprove the filing. A filing is considered approved unless
modified or disapproved on or before the 30th day after the date of
the filing.]
(d) If at any time the commissioner determines that a filing
in effect [approved] under Subsection (c) no longer meets the
requirements of this chapter, the commissioner may disapprove [,
after a hearing held on at least 20 days' notice to the association
that specifies the matters to be considered at the hearing, issue an
order withdrawing approval of] the filing in the manner prescribed
by Section 2251.104 for disapproval of a rate. [The order must
specify in what respects the commissioner determines that the
filing no longer meets the requirements of this chapter. An order
issued under this subsection may not take effect before the 30th day
after the date of issuance of the order.]
SECTION 27. Sections 2210.355(b) and (g), Insurance Code,
are amended to read as follows:
(b) In adopting rates under this chapter, the association
shall:
(1) comply with the rate standards adopted under
Section 2251.052, to the extent that those standards are determined
by the commissioner to be applicable to the purposes of the
association;
(2) ensure that the rates are actuarially sound; and
(3) include rating factors as necessary to:
(A) fund the catastrophe reserve trust fund;
(B) pay any public security obligations in
accordance with Subchapter M; and
(C) pay all losses and expenses of the
association, regardless of the ultimate source of funding for those
losses and expenses [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;
and
[(4) all other relevant factors, within and outside
this state].
(g) A commission paid to an agent for a windstorm and hail
insurance policy from the association must be reasonable, adequate,
not unfairly discriminatory, and nonconfiscatory. The commission
may not exceed 10 percent of the premium amount for the policy, with
a refund required for any unearned portion of the premium.
SECTION 28. Section 2210.356, Insurance Code, is amended by
amending Subsection (b) and adding Subsection (b-1) to read as
follows:
(b) The catastrophe element used to develop rates under this
subchapter [applicable to risks written by the association must be
uniform throughout the seacoast territory. The catastrophe element
of the rates] must be developed using industry data, association
data, and catastrophe models approved by the department for use in
association filings[:
[(1) 90 percent of both the monoline extended coverage
loss experience and related premium income for all insurers, other
than the association, for covered property located in the seacoast
territory, using not less than the most recent 30 years of
experience available; and
[(2) 100 percent of both the loss experience and
related premium income for the association for covered property,
using not less than the most recent 30 years of experience
available].
(b-1) The commissioner shall adopt rules establishing:
(1) the procedure for approval by the department of
catastrophe models used by the association in the development of
its rates; and
(2) the methodology of use for those models.
SECTION 29. Subchapter H, Chapter 2210, Insurance Code, is
amended by adding Section 2210.364 to read as follows:
Sec. 2210.364. REVIEW OF RATES. A person who is aggrieved
by a rate under this subchapter may proceed as provided by Chapter
2251.
SECTION 30. Sections 2210.452(a), (c), and (d), Insurance
Code, are amended to read as follows:
(a) The commissioner shall adopt rules under which the
association makes [members relinquish their net equity on an annual
basis as provided by those rules by making] payments to the
catastrophe reserve trust fund. The trust fund may be used only to
fund[:
[(1)] the obligations of the trust fund under Section
2210.058 [2210.058(a); and
[(2) the mitigation and preparedness plan established
under Section 2210.454 to reduce the potential for payments by
association members that give rise to tax credits in the event of
loss].
(c) At the end of each calendar year or policy year, the
association shall pay the net gain from operations [equity] of the
association [a member], including all premium and other revenue of
the association in excess of incurred losses and operating
expenses, to the trust fund or a reinsurance program approved by the
commissioner.
(d) The commissioner by rule shall establish the procedure
relating to the disbursement of money from the trust fund to
policyholders in the event of an occurrence or series of
occurrences within a catastrophe area that results in a
disbursement under Section 2210.058 [2210.058(a)].
SECTION 31. Section 2210.453, Insurance Code, is amended to
read as follows:
Sec. 2210.453. REINSURANCE PROGRAM. (a) The association may
[shall]:
(1) make payments into the trust fund; and [or]
(2) purchase [establish a] reinsurance as part of the
association's annual operating expenses to the extent [program]
approved by the commissioner [department].
(b) With the approval of the commissioner [department], the
association may purchase [establish a] reinsurance [program] that
operates in addition to or in concert with the trust fund and with
public securities and assessments authorized by this chapter.
SECTION 32. Section 2210.454(b), Insurance Code, is amended
to read as follows:
(b) Each state fiscal year, the department may fund the
mitigation and preparedness plan using available funds [the
investment income of the trust fund in an amount not less than $1
million and not more than 10 percent of the investment income of the
prior fiscal year. From that amount and as part of that plan, the
department may use in each fiscal year $1 million for the windstorm
inspection program established under Section 2210.251].
SECTION 33. Section 2210.504(b), Insurance Code, is amended
to read as follows:
(b) Notwithstanding Subsection (a) and Sections
2210.501(c), 2210.502(a) and (b) [2210.502(a)-(c)], and 2210.503,
the commissioner may not approve adjustments of maximum liability
limits to amounts lower than the amounts prescribed under Section
2210.501(b).
SECTION 34. Section 2210.551, Insurance Code, is amended by
adding Subsection (a-1) and amending Subsections (c) and (d) to
read as follows:
(a-1) This section does not apply to a matter subject to
Section 2210.364.
(c) If the association or any interested party is aggrieved
by the action of the commissioner with respect to a ruling, order,
or determination of the commissioner, the association or interested
party may, not later than the 30th day after the date of the action,
make a written request to the commissioner for a hearing on the
action.
(d) On 10 days' written notice of the time and place of the
hearing, the commissioner shall conduct a hearing on the
[association's] request of the association or interested party or
the appeal from an act, ruling, or decision of the association, not
later than the 30th day after the date of receipt of the request or
appeal.
SECTION 35. Chapter 2210, Insurance Code, is amended by
adding Subchapters M and N to read as follows:
SUBCHAPTER M. PUBLIC SECURITIES PROGRAM
Sec. 2210.601. PURPOSE. The legislature finds that issuing
public securities to provide a method to raise funds to provide
windstorm and hail insurance through the association in certain
designated areas of the state is to benefit the public and to
further a public purpose.
Sec. 2210.602. DEFINITIONS. In this subchapter:
(1) "Board" means the board of directors of the Texas
Public Finance Authority.
(2) "Catastrophe area public security" means public
securities authorized to be issued before or on or after the
occurrence of a catastrophic event by Section 2210.058(c).
(3) "Class 1 public securities" means public
securities authorized to be issued before or on or after the
occurrence of a catastrophic event by Section 2210.058(d).
(4) "Class 2 public securities" means public
securities authorized to be issued on or after the occurrence of a
catastrophic event by Section 2210.058(f).
(5) "Credit agreement" has the meaning assigned by
Chapter 1371, Government Code.
(6) "Credit agreement obligation" means any premium,
periodic payment, termination payment, or similar obligation under
a credit agreement.
(7) "Insurer" means each property and casualty insurer
authorized to engage in the business of property and casualty
insurance in this state. The term specifically includes a county
mutual insurance company, a Lloyd's plan, and a reciprocal or
interinsurance exchange.
(8) "Member company public security" means public
securities authorized to be issued after the occurrence of a
catastrophic event by Section 2210.058(e).
(9) "Public security" means a debt instrument or other
public security obligation issued by the Texas Public Finance
Authority for the purposes described by this subchapter and any
credit agreement.
(10) "Public security administrative expenses" means
expenses incurred in issuing and administering public securities
issued under this subchapter, including insurance costs and fees
for paying agents, trustees, and attorneys, and for other
professional services necessary to ensure compliance with
applicable state or federal law.
(11) "Public security obligations" means the
principal, any premium, and interest on a public security, periodic
payments or termination payments, or similar obligations with
respect to a public security.
(12) "Public security obligation revenue fund" means
the dedicated trust fund established by the association outside the
state treasury under this subchapter.
(13) "Public security resolution" means the
resolution or order authorizing public securities to be issued
under this subchapter.
Sec. 2210.603. APPLICABILITY OF OTHER LAWS. The board
shall issue public securities under this subchapter in accordance
with and subject to the requirements of Chapter 1232, Government
Code, and other provisions of Title 9, Government Code, that apply
to issuance of a public security by a state agency. In the event of
a conflict, this subchapter controls.
Sec. 2210.604. ISSUANCE OF PUBLIC SECURITIES AUTHORIZED.
(a) At the request of the board of directors of the association and
with the approval of the commissioner, the board shall issue public
securities to:
(1) fund the association, including funding necessary
to:
(A) establish and maintain reserves to pay
claims;
(B) pay incurred claims;
(C) pay operating expenses; and
(D) purchase reinsurance;
(2) provide a reserve fund for the public securities;
(3) capitalize interest for the period determined by
the association, not to exceed two years;
(4) pay public security administrative expenses; and
(5) pay other costs related to the public securities
as may be determined by the board.
(b) The board may issue, on behalf of the association,
public securities in an amount sufficient to fund the insured
losses and operating expenses of the association as determined by
the association and approved by the commissioner after at least 10
days' notice and a hearing if a hearing is requested by any person
within the 10-day notice period.
Sec. 2210.605. TERMS OF ISSUANCE. (a) The board shall
determine the method of sale, type and form of public security,
maximum interest rates, and other terms of the public securities
that, in the board's judgment, best achieve the goals of the
association and effect the borrowing at the lowest practicable
cost. The board may enter into a credit agreement in connection
with the public securities.
(b) Public securities must include the name of the
association.
Sec. 2210.606. CONTENTS OF PUBLIC SECURITY RESOLUTION;
ADMINISTRATION OF ACCOUNTS. (a) In a public security resolution,
the board may:
(1) provide for the flow of funds and the
establishment, maintenance, and investment of funds and special
accounts with regard to the public securities; and
(2) make additional covenants with respect to the
public securities and the designated income and receipts of the
association pledged to the payment of the public securities.
(b) The association shall administer the accounts in
accordance with this subchapter.
Sec. 2210.607. PUBLIC SECURITY PROCEEDS. (a) The proceeds
of public securities may be deposited with a trustee selected by the
association in consultation with the commissioner or if no trustee
is selected, held by the comptroller in a dedicated trust fund
outside the state treasury in the custody of the comptroller.
(b) Any excess public security proceeds remaining after the
purposes for which the public securities were issued are satisfied
may be used to pay public security obligations or administrative
expenses or pay, purchase, defease, or redeem outstanding public
securities. If there are no outstanding public security obligations
or public security administrative expenses, the excess proceeds
shall be transferred to the catastrophe reserve trust fund.
Sec. 2210.608. SOURCE OF PAYMENT; REVENUE FUND. (a) Public
security obligations are payable only from the public security
obligation revenue fund, into which the following are deposited:
(1) the service fees on assessments established under
Section 2210.611, 2210.612, 2210.613, or 2210.614, as applicable;
or
(2) other amounts that the association is authorized
to levy, charge, and collect.
(b) The board shall notify the association of the estimated
amount of public security administrative expenses and the amount of
the public security obligations each year in a period sufficient,
as determined by the association, to permit the association to
determine the availability of funds and assess a premium surcharge
or other assessment if necessary.
(c) The association shall deposit all revenue collected
under Sections 2210.611 through 2210.614 in the public security
obligation revenue fund. Money deposited in the fund may be
invested as permitted by general law. Money in the fund required to
be used to pay public security administrative expenses and public
security obligations shall be transferred to the appropriate funds
in the manner and at the time specified in the public security
resolution to ensure timely payment of obligations and expenses.
(d) The association shall provide for the payment of the
public security administrative expenses and the public security
obligations by irrevocably pledging revenues received from
assessments, premiums, premium surcharges, and amounts on deposit
in the public security obligation revenue fund, together with any
reserve fund, as provided in the public security resolution and
amounts realized under related credit agreements.
(e) Revenue deposited into the public security obligation
revenue fund that exceeds the amount of the public security
obligations payable in that year and interest earned on the public
security obligation fund may, in the discretion of the association,
be:
(1) used to pay public security obligations payable in
the subsequent year, offsetting the amount of the premium surcharge
or assessment that would otherwise be required to be levied for the
year under this subchapter;
(2) used to redeem, purchase, or defease outstanding
public securities; or
(3) deposited in the catastrophe reserve trust fund.
(f) The public securities are obligations solely of the
association and do not create a pledge, gift, or loan of the faith,
credit, or taxing authority of this state.
(g) Each public security must:
(1) include a statement that the state is not
obligated to pay any amount on the security and that the faith,
credit, and taxing authority of this state are not pledged, given,
or lent to those payments; and
(2) state on the security's face that the security:
(A) is payable solely from the revenue pledged
for that purpose; and
(B) is not and may not constitute a legal or moral
obligation of the state.
Sec. 2210.609. PAYMENT OF INTEREST; PAYMENT OF PRE-EVENT
PUBLIC SECURITY OBLIGATIONS. (a) Except as provided by
Subsection (b), the association shall pay all interest, and may pay
principal, on any pre-event public security issued as described by
Section 2210.058(c) or (d) from the existing premiums of the
association.
(b) If the association is unable to pay the public security
obligations described by Subsection (a) with existing premiums,
those public security obligations shall be paid from the service
fees collected in accordance with Sections 2210.611 and 2210.612.
Sec. 2210.610. REFINANCING PUBLIC SECURITIES. The
association may request the board to refinance any public
securities issued in accordance with Section 2210.058, whether
pre-event or post-event public securities, with the refinanced
public securities payable from the same sources as the original
public securities.
Sec. 2210.611. CATASTROPHE AREA PUBLIC SECURITY SERVICE
FEE; PREMIUM SURCHARGE AND ASSESSMENT. (a) The catastrophe area
public security obligations and administrative expenses shall be
serviced as provided by this section.
(b) For public securities, the proceeds of which are used to
fund excess losses under Section 2210.058(c), the public security
obligations and administrative expenses shall be collected from
association policyholders each year until all outstanding public
security obligations and administrative expenses have been
satisfied and paid.
(c) The service fee imposed on association policyholders
under this section shall be determined and collected as provided by
this subsection. The association shall determine the amount of a
service fee imposed under this section at least annually. On
approval by the commissioner of the amount of a service fee after at
least 10 days' notice and a hearing, if a hearing is requested by
any person within the 10-day notice period, the association shall
charge the service fee to its policyholders. The service fee must
be set in an amount sufficient to pay all public security
obligations and administrative expenses. The service fee shall be
collected in the form of a premium surcharge and shall be remitted
to the association as required by the commissioner by rule. The
service fees collected under this subsection are separate charges
in addition to premiums collected and are not subject to premium
taxes or commissions. For purposes of policy cancellation, failure
by a policyholder to pay a premium surcharge imposed under this
subsection is equivalent to failure to pay premium.
Sec. 2210.612. SERVICE FEE: CLASS 1 PUBLIC SECURITIES;
PREMIUM SURCHARGE. (a) A fee to service Class 1 public securities
issued by the association in accordance with Section 2210.058(d)
shall be collected by each insurer, the association, and the FAIR
Plan Association from policyholders who reside or have operations
in, or whose insured property is located in, a catastrophe area.
(b) The association shall determine the amount of a service
fee imposed under Subsection (a) at least annually.
(c) On approval by the commissioner after at least 10 days'
notice and a hearing, if a hearing is requested by any person within
the 10-day notice period, each insurer, the association, and the
FAIR Plan Association shall charge the service fee to the
policyholders described by Subsection (a). The service fee must be
set in an amount sufficient to pay all public security obligations
and administrative expenses. The service fee shall be collected in
the form of a premium surcharge and shall be remitted to the
association as required by the commissioner by rule.
(d) The premium surcharge shall apply to all insurance
policies for all property and casualty lines other than workers'
compensation, accident and health, and medical malpractice. The
service fees collected in the form of a premium surcharge under this
section are separate charges in addition to premiums collected and
are not subject to premium taxes or commissions.
(e) For purposes of policy cancellation, failure by a
policyholder to pay a premium surcharge imposed under this section
is equivalent to failure to pay premium.
Sec. 2210.613. POST-EVENT ASSESSMENT: MEMBER COMPANY
PUBLIC SECURITIES. (a) An assessment to service member company
public security obligations and administrative expenses issued by
the association after a catastrophic event shall be assessed to and
collected from each member company.
(b) The association shall determine the amount of each
member company assessment at least annually. The assessment must be
set in an amount sufficient to pay all public security obligations
and administrative expenses.
(c) Each member company shall be assessed with the
proportion of the loss allocable to each member company determined
in the same manner as its participation in the association has been
determined for the year under Section 2210.052.
Sec. 2210.614. POST-EVENT SERVICE FEE: CLASS 2 PUBLIC
SECURITIES; PREMIUM SURCHARGE. (a) A fee to service Class 2 public
securities issued by the association after a catastrophic event
shall be collected by each insurer, the association, and the FAIR
Plan Association from policyholders who reside or have operations
in, or whose insured property is located in, this state.
(b) The association shall determine the amount of a service
fee imposed under Subsection (a) at least annually.
(c) On approval by the commissioner after at least 10 days'
notice and a hearing, if a hearing is requested by any person within
the 10-day notice period, each insurer, the association, and the
FAIR Plan Association shall charge the service fee to the
policyholders described by Subsection (a). The service fee must be
set in an amount sufficient to pay all public security obligations
and administrative expenses. The service fee shall be collected in
the form of a premium surcharge and shall be remitted to the
association as required by the commissioner by rule.
(d) The premium surcharge shall apply to all insurance
policies for all property and casualty lines other than workers'
compensation, accident and health, and medical malpractice. The
service fees collected in the form of a premium surcharge under this
section are separate charges in addition to premiums collected and
are not subject to premium taxes or commissions.
(e) For purposes of policy cancellation, failure by a
policyholder to pay a premium surcharge imposed under this section
is equivalent to failure to pay premium.
Sec. 2210.615. EXEMPTION FROM TAXATION. Public securities
issued under this subchapter, any interest from those public
securities, and all assets pledged to secure the payment of the
public securities are free from taxation by the state or a political
subdivision of this state.
Sec. 2210.616. AUTHORIZED INVESTMENTS. Public securities
issued under this subchapter are authorized investments under
Subchapter B, Chapter 424, and Subchapters C and D, Chapter 425.
Sec. 2210.617. STATE PLEDGE REGARDING PUBLIC SECURITY OWNER
RIGHTS AND REMEDIES. (a) The state pledges to and agrees with the
owners of public securities issued in accordance with this
subchapter that the state will not limit or alter the rights vested
in the association to fulfill the terms of agreements made with the
owners or in any way impair the rights and remedies of those owners
until the public security obligations are fully discharged.
(b) The board may include the state's pledge and agreement
under Subsection (a) in a public security resolution.
Sec. 2210.618. PAYMENT ENFORCEABLE BY MANDAMUS. A writ of
mandamus from any Travis County district court and any other legal
or equitable remedy are available to a party in interest to require
the association or another party to fulfill an agreement or perform
a function or duty under:
(1) this subchapter;
(2) the Texas Constitution; or
(3) a public security resolution.
Sec. 2210.619. NO PERSONAL LIABILITY. The members of the
association, association employees, the board, the employees of the
Texas Public Finance Authority, the commissioner, and department
employees are not personally liable as a result of exercising the
rights and responsibilities granted under this subchapter.
SUBCHAPTER N. ASSOCIATION SOLVENCY REQUIREMENTS
Sec. 2210.651. SOLVENCY DUTIES. The board of directors
shall maintain the required solvency level of the association.
Sec. 2210.652. REQUIRED SOLVENCY LEVEL; FUNDING SOURCES.
(a) For purposes of this chapter, the "required solvency level" is
the level of available internal association funding necessary to
pay 100 percent of losses for which the association is liable and
that result from a probable maximum loss determined by the board of
directors under Section 2210.654.
(b) The board of directors shall maintain the funding of the
association at a level sufficient to achieve the required solvency
level.
(c) The association shall derive the funding to maintain the
required solvency level from a combination of:
(1) association reserves;
(2) available funds in the catastrophe reserve trust
fund;
(3) reinsurance purchased at any level;
(4) catastrophe area public securities under
Subchapter M; and
(5) Class 1 pre-event and post-event public securities
under Subchapter M, to be issued only as required in accordance with
Section 2210.058(d).
(d) As prescribed by Section 2210.058(d), Class 1 pre-event
and post-event public securities may not be used to achieve more
than 50 percent of the required solvency level.
Sec. 2210.653. CERTIFICATION; ANNUAL SOLVENCY REPORT. (a)
The board of directors shall certify to the governor, the
lieutenant governor, the speaker of the house of representatives,
and the commissioner, not later than April 15 of each calendar year,
that the required solvency level of the association is satisfied
for that calendar year.
(b) The board of directors shall make the certification in
the manner prescribed by commissioner rule.
(c) After calendar year 2010, in any calendar year, the
association may not issue any new coverage after April 15 if the
board of directors has not certified the required solvency level in
the annual solvency report. This subsection does not apply to
renewal of a policy issued through the association.
Sec. 2210.654. DETERMINATION OF PROBABLE MAXIMUM LOSS. (a)
Not later than April 1 of each calendar year, to establish the
required solvency level under Section 2210.652, the board of
directors shall determine the association's current probable
maximum loss, based on an average of at least two recognized
catastrophe models, as follows:
(1) for calendar years 2009 and 2010, at not less than
a one in 50 year occurrence;
(2) for calendar year 2011, at not less than a one in
75 year occurrence; and
(3) for each calendar year after calendar year 2011,
at not less than a one in 100 year occurrence.
(b) The board of directors must ensure the ability of the
association to generate funding sufficient to cover the probable
maximum loss without reliance on any member company public
securities or Class 2 post-event public securities under Subchapter
M.
SECTION 36. Section 2251.003, Insurance Code, is amended by
adding Subsection (a-1) to read as follows:
(a-1) Except as otherwise provided by Chapter 2210,
Subchapters B and C apply to the Texas Windstorm Insurance
Association.
SECTION 37. The following laws are repealed:
(1) Sections 2210.003(5) and (12), Insurance Code;
(2) Section 2210.059, Insurance Code;
(3) Section 2210.351(b), Insurance Code;
(4) Sections 2210.352, 2210.353, and 2210.354,
Insurance Code;
(5) Sections 2210.355(c), (d), and (e), Insurance
Code;
(6) Sections 2210.356(a), (c), and (d), Insurance
Code;
(7) Section 2210.359, Insurance Code;
(8) Section 2210.360, Insurance Code; and
(9) Section 2210.502(c), Insurance Code.
SECTION 38. (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 December 31, 2009.
(b) The governor shall appoint the members of the board of
directors of the Texas Windstorm Insurance Association under
Section 2210.102, Insurance Code, as amended by this Act, for terms
beginning on January 1, 2010.
(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 December 31, 2009. Such a person is
eligible for appointment by the governor to the new board of
directors of the Texas Windstorm Insurance Association under
Section 2210.102, Insurance Code, as amended by this Act.
SECTION 39. The commissioner of insurance shall adopt rules
as required by Section 2210.356(b-1), Insurance Code, as added by
this Act, not later than the 180th day after the effective date of
this Act.
SECTION 40. An assessment may not be made before the end of
the 2009-2010 state fiscal biennium under Chapter 2210, Insurance
Code, as amended by this Act, against any member of the Texas
Windstorm Insurance Association until the comptroller has
certified that any tax credits allowable to that member under
Chapter 2210, Insurance Code, as that chapter existed immediately
before amendment by this Act, may be taken within available revenue
that has been certified by the comptroller.
SECTION 41. (a) Except as provided by Subsection (b) of
this section, 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, 2009.
(b) The change in law made by this Act to Sections 2210.251,
2210.252, 2210.254, and 2210.255, Insurance Code, takes effect
September 1, 2010.