By: Bonnen of Brazoria H.B. No. 3622
A BILL TO BE ENTITLED
AN ACT
relating to the operation of the Texas Windstorm Insurance
Association and the FAIR Plan Association.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. SECTION 1. Section 2210.001, Insurance Code, is
amended to read as follows:
The primary purpose of the Texas Insurance Plan [Texas
Windstorm Insurance Association] is the provision of an adequate
market for windstorm and hail insurance in the seacoast territory
of this state. The legislature finds the provision of adequate
windstorm and hail insurance 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 insurance
may be obtained in certain designated portions of the seacoast
territory of this state. The association is intended to serve as a
residual insurer of last resort for windstorm and hail insurance in
the seacoast territory. The association shall:
(1) Function in such a manner as to not be a direct
competitor in the private market; and
(2) provide windstorm and hail insurance coverage to those
who are unable to obtain that coverage in the private market.
SECTION 2. Section 2210.003, Insurance Code, is amended by
amending Subdivision (1) and adding Subdivision (1-a) to read as
follows:
(1) "Association" means the Texas Insurance Plan [Texas
Windstorm Insurance Association].
(1-a) "Administrator" means the person contractually
retained to administer the association and the plan of operation
under Sections 2210.062 and 2211.0522.
SECTION 3. Section 2210.014, Insurance Code, is amended by
amending Subsection (b) and adding Subsection (c) to read as
follows:
(b) Chapter 542 does not apply to the processing and
settlement of claims by the association or to an agent or
representative of the association.
(c) Under this section, insurers acting to administer
association claims, and the administrator contracted under
Sections 2210.062 and 2211.0522, are agents of the association.
SECTION 4. Subchapter B, Chapter 2210, Insurance Code, is
amended by adding Sections 2210.062, 2210.063, 2210.064, 2210.065,
2210.066, and 2210.067 to read as follows:
Sec. 2210.062. ADMINISTRATION BY CONTRACTED ADMINISTRATOR.
(a) Notwithstanding any other law, the commissioner shall contract
with an administrator to manage the association and administer the
plan of operation not later than January 1, 2014.
(b) the administrator must hold either, or both, a managing
general agent license or a third party administrator certificate
of authority issued under this code.
(c) The term of the administrator contract may not exceed
five years. The contract may be renewed for additional terms, of
not more than five years for each term.
Sec. 2210.063. COMPENSATION OF ADMINISTRATOR. (a) The
contract between the commissioner and the administrator must
specify the administrator's compensation. The compensation must be
based in part on reasonable projections of the cost to administer
the association.
(b) The administrator's compensation will be paid by the
association.
Sec. 2210.064. PROPRIETARY INFORMATION. Any information,
analyses, programs, or data acquired or created by the
administrator under a contract under this subchapter are property
of the association.
Sec. 2210.065. OFFICE; RECORDS. (a) The administrator
shall maintain an office in Austin, Texas.
Sec. 2210.066. AUDIT. The administrator is subject to
audit by the commissioner and shall pay the costs incurred by the
commissioner in performing an audit under this section.
Sec. 2210.067. ANNUAL REPORT TO COMMISSIONER. Not later
than March 1 of each year, the administrator shall submit a report
to the commissioner regarding the operation of the association.
The report must be made in accordance with the terms of the
administrator's contract with the department.
SECTION 5. Section 2210.071, Insurance Code, is amended to
read as follows:
[(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 shall pay losses in excess of premium
and other revenue of the association from available reserves of the
association and available amounts in the catastrophe reserve trust
fund.
[(c) Losses not paid under Subsection (b) shall be paid from
the proceeds from public securities issued in accordance with this
subchapter and Subchapter M and, notwithstanding Subsection (a),
may be paid from the proceeds of public securities issued under
Section 2210.072(a) before an occurrence or series of occurrences
that results in insured losses].
SECTION 6. Section 2210.072, Insurance Code, is amended to
read as follows:
Sec. 2210.072. PAYMENT FROM CLASS 1 FUNDS [PUBLIC
SECURITIES; FINANCIAL INSTRUMENTS]. (a) The association shall pay
losses in excess of premium and other revenue of the association
from available amounts in the catastrophe reserve trust fund and
member assessments as provided by this section.
(b) The catastrophe reserve trust fund shall fund losses
under this section in an amount not to exceed $1 billion.
(c) Following the use of the catastrophe reserve trust fund,
the association may assess its members in an amount not to exceed
the lesser of:
(1) $800 million; or
(2) $1 billion less the amount of catastrophe reserve
trust funds used under Subsection (b).
(d) The total combined amount of catastrophe reserve trust
funds and member assessments used to pay claims under this section
may not exceed $1 billion.
(e) The association shall notify each member of the
association of the amount of the member's assessment under this
section. The proportion of the losses allocable to each insurer
under this section shall be determined in the manner used to
determine each insurer's participation in the association for the
year under Section 2210.052.
[Losses not paid under Section 2210.071(b) shall be paid as
provided by this section from the proceeds from Class 1 public
securities authorized to be issued in accordance with Subchapter M
before, on, or after the date of any occurrence or series of
occurrences that results in insured losses. Public securities
issued under this section must be repaid within a period not to
exceed 14 years, and may be repaid sooner if the board of directors
elects to do so and the commissioner approves.
[(b) Public securities described by Subsection (a) 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.
[(b-1) 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 $1 billion maximum described by
Subdivision (1), may be issued, in one or more issuances or
tranches, during the calendar year in which the occurrence or
series of occurrences occurs or, if the public securities cannot
reasonably be issued in that year, during the following calendar
year.
[(c) If public securities are issued as described by this
section, the public securities shall be repaid in the manner
prescribed by Subchapter M from association premium revenue.
[(d) The association may borrow from, or enter into other
financing arrangements with, any market source, under which the
market source makes interest-bearing loans or other financial
instruments to the association to enable the association to pay
losses under this section or to obtain public securities under this
section. For purposes of this subsection, financial instruments
includes commercial paper.
[(e) The proceeds of any outstanding public securities
described by Subsection (a) that are issued before an occurrence or
series of occurrences shall be depleted before the proceeds of any
securities issued after an occurrence or series of occurrences may
be used. This subsection does not prohibit the association from
issuing securities after an occurrence or series of occurrences
before the proceeds of outstanding public securities issued during
a previous catastrophe year have been depleted.
[(f) If, under Subsection (e), the proceeds of any
outstanding public securities issued during a previous catastrophe
year must be depleted, those proceeds shall count against the $1
billion limit on public securities described by this section in the
catastrophe year in which the proceeds must be depleted.
SECTION 7. Section 2210.074, Insurance Code, is amended to
read as follows:
Section 2210.074. PAYMENT THROUGH CLASS 3 FUNDS [PUBLIC
SECURITIES]. (a) Losses not paid under Sections 2210.071,
2210.072, and 2210.073 shall be paid as provided by this section
from proceeds of member assessments as provided by this section.
(b) The amount of member assessments that may be made under
this section may not exceed $800 million less the amount of
assessments made under Section 2210.072(c). [from public
securities authorized to be issued in accordance with Subchapter M
on or after the date of any occurrence that results in insured
losses under this subsection or through reinsurance as described by
Section 2210.075. Public securities issued under this section
must be repaid within a period not to exceed 10 years, and may be
repaid sooner if the board of directors elects to do so and the
commissioner approves.
[(b) Public securities described by Subsection (a):
[(1) may be issued as necessary in a principal amount
not to exceed $500 million per catastrophe year, in the aggregate,
whether for a single occurrence or a series of occurrences; and
[(2) subject to the $500 million maximum described by
Subdivision (1), may be issued, in one or more issuances or
tranches, during the calendar year in which the occurrence or
series of occurrences occurs or, if the public securities cannot
reasonably be issued in that year, during the following calendar
year.
(c) [If the losses are paid with public securities described
by this section, the public securities shall be repaid in the manner
prescribed by Subchapter M through member assessments as provided
by this section.] The association shall notify each member of the
association of the amount of the member's assessment under this
section. The proportion of the losses allocable to each insurer
under this section shall be determined in the manner used to
determine each insurer's participation in the association for the
year under Section 2210.052.
SECTION 8. Subchapter B-1, Chapter 2210, Insurance Code, is
amended by adding Section 2210.076 to read as follows:
Sec. 2210.076. PREMIUM TAX CREDIT. (a) The first $300
million assessed to association members insurers under this
Subchapter during a catastrophe year shall be entitled to a premium
tax credit as provided in subsection (b).
(b) An insurer may credit an amount paid in accordance with
subsection (a) in a catastrophe 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 following the year of payment
of the claims. 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 9. Section 2210.452, Insurance Code, is amended by
amending Subsections (a), (c), and (d) and adding Subsection (e) to
read as follows:
(a) The commissioner shall adopt rules under which the
association makes payments to the catastrophe reserve trust
fund. The trust fund may be used only to fund the obligations of
the trust fund under Subchapter B-1, Section 2210.4522, and
purchase reinsurance under Section 2210.453.
(c) At the end of each calendar year or policy year, the
association shall use the net gain from operations of the
association, including all premium and other revenue of the
association in excess of incurred losses, operating expenses,
deposits to the trust fund under Section 2210.4521, and public
security obligations, and public security administrative expenses,
to make payments to the trust fund, to procure reinsurance, or to
make payments to the trust fund and to procure reinsurance.
(d) The commissioner by rule shall establish the procedure
relating to the disbursement of money from the trust fund to
policyholders and association administrative expenses in the event
of an occurrence or series of occurrences within a catastrophe area
that results in a disbursement under Subchapter B-1.
(e) The commissioner by rule shall establish the procedure
relating to the disbursement of money from the trust fund to pay for
operating expenses, including reinsurance, under Section 2210.453
if the association does not have sufficient premium and other
revenue.
SECTION 10. Subchapter J, Chapter 2210, Insurance Code, is
amended by adding Sections 2210.4521 and 2210.4522 to read as
follows:
Sec. 2210.4521. CATASTROPHE RESERVE TRUST FUND DEDICATION.
(a) Notwithstanding any other provision in this chapter, as
provided for in the plan of operation the association shall deposit
monthly in a trust fund an amount to accumulate on an annual
calendar year basis the greater of:
(1) $200 million; or
(2) one half of the association's earned premium for
the current calendar year.
(b) The association shall deposit money collected under
this section with the Texas Treasury Safekeeping Trust Company to
be held outside the state treasury.
(c) Not later than February 1 of each year the association
shall direct the Texas Treasury Safekeeping Trust Company to
deposit all amounts deposited in the trust fund during the
preceding calendar year, and interest earned on those funds, into
the catastrophe reserve trust fund.
(d) Money deposited in the trust fund under this section is
irrevocably pledged to be distributed to the catastrophe reserve
trust fund as provided in this section and is exempt from any other
claim or attachment under law.
(e) Money deposited under this section may be invested by
the Texas Treasury Safekeeping Trust Company as permitted by
general law.
Sec. 2210.4522. CLASS 2 PUBLIC SECURITY ALLOCATION. (a) If
class 2 public securities are outstanding and payable, the
commissioner may authorize the transfer of any portion of the
amount of catastrophe reserve trust funds in excess of $1 billion to
the premium surcharge trust fund established for the payment of
Class 2 public securities and public security administrative
expenses under Section 2210.613.
(b) The commissioner shall consider the transfer under this
section when determining the premium surcharge under Section
2210.613.
SECTION 11. Section 2210.453, Insurance Code, is amended by
amending Subsection (b) and adding subsection (b-1) to read as
follows:
(b) The association may purchase reinsurance that operates
in addition to [or in concert with the trust fund, public
securities, financial instruments, and] assessments authorized by
Section 2210.074 [this chapter].
(b-1) The association may not purchase reinsurance that has
an attachment point preceding the member insurer's assessment
liabilities under Section 2210.074.
SECTION 12. Subchapter L-1, Chapter 2210, Insurance Code,
is amended by adding Section 2210.5725 to read as follows:
Sec. 2210.5725. ASSOCIATION CLAIMS PROCESSING. (a) An
insurer that has primary coverage on property for loss by fire must
adjust all claims made on or after June 1, 2013, on an association
policy covering the same property.
(b) An insurer acting under this section is an agent of the
association for purposes of Sections 2210.014 and 2210.572 and
shall process claims as prescribed by this chapter and the plan of
operation.
(c) An insurer acting under this section is not liable for
any amount payable under the terms of the association policy.
SECTION 13. Section 2210.602, Insurance Code, is amended by
amending Subdivisions (2), (3), (4), (5), (5-a), (6), (6-b), and
(6-c) to read as follows:
(2) ["Class 1 public securities" means public
securities authorized to be issued by Section 2210.072, including a
commercial paper program authorized before the occurrence of a
catastrophic event.]
[(3)] "Class 2 public securities" means public
securities authorized to be issued on or after the occurrence of a
catastrophic event by Section 2210.073.
[(4) "Class 3 public securities" means public
securities authorized to be issued on or after the occurrence of a
catastrophic event by Section 2210.074.]
(3) [(5)] "Credit agreement" has the meaning assigned
by Chapter 1371, Government Code.
[(5-a) "Gross premium" means association premium, less
premium returned to policyholders for canceled or reduced
policies.]
(4)[(6)] "Insurer" means each property and casualty
insurer authorized to engage in the business of property and
casualty insurance in this state and an affiliate of such an
insurer, as described by Section 823.003, including an affiliate
that is not 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.
(5)[(6-b)] "Member assessment trust fund" means the
dedicated trust fund established by the board and held by the Texas
Treasury Safekeeping Trust Company into which member assessments
collected under Sections 2210.613 and 2210.6135 are deposited.
(6)[(6-c)] "Premium surcharge trust fund" means the
dedicated trust fund established by the board and held by the Texas
Treasury Safekeeping Trust Company into which premium surcharges
collected under Section 2210.613 are deposited.
SECTION 14. Section 2210.609, Insurance Code, is amended to
read as follows:
Sec. 2210.609. REPAYMENT OF ASSOCIATION'S PUBLIC SECURITY
OBLIGATIONS. (a) The board and the association shall enter into
an agreement under which the association shall provide for the
payment of all public security obligations from available funds
collected by the association and deposited into the public security
obligation revenue fund. If the association determines that it is
unable to pay the public security obligations and public security
administrative expenses, if any, with available funds, the
association shall pay those obligations and expenses in accordance
with Section [Sections 2210.612,] 2210.613 [, 2210.6135, and
2210.6136 as applicable]. [Class 1,] Class 2[, or Class 3] public
securities may be issued on a parity or subordinate lien basis with
other [Class 1,] Class 2[, or Class 3] public securities [,
respectively].
(b) If any public securities issued under this chapter are
outstanding, the authority shall notify the association of the
amount of the public security obligations and the estimated amount
of public security administrative expenses, if any, each calendar
year in a period sufficient, as determined by the association, to
permit the association to determine the availability of funds,
assess members of the association under Section [Sections] 2210.613
[and 2210.6135], and assess a premium surcharge if necessary.
(c) The association shall deposit all revenue collected
under [Section 2210.612 in the public security obligation revenue
fund, all revenue collected under] Section 2210.613(b) in the
premium surcharge trust fund, and all revenue collected under
Section [Sections] 2210.613(a) [and 2210.6135] in the member
assessment trust fund. Money deposited in a fund may be invested
as permitted by general law. Money in a fund required to be used to
pay public security obligations and public security administrative
expenses, if any, shall be transferred to the appropriate funds in
the manner and at the time specified in the proceedings authorizing
the public securities to ensure timely payment of obligations and
expenses. This may include the board establishing funds and
accounts with the comptroller that the board determines are
necessary to administer and repay the public security
obligations. If the association has not transferred amounts
sufficient to pay the public security obligations to the board's
designated interest and sinking fund in a timely manner, the board
may direct the Texas Treasury Safekeeping Trust Company to transfer
from the public security obligation revenue fund, the premium
surcharge trust fund, or the member assessment trust fund to the
appropriate account the amount necessary to pay the public security
obligation.
(d) The association shall provide for the payment of the
public security obligations and the public security administrative
expenses by irrevocably pledging revenues received from
[premiums,] member assessments, premium surcharges, and amounts on
deposit in the public security obligation revenue fund, the premium
surcharge trust fund, and the member assessment trust fund,
together with any public security reserve fund, as provided in the
proceedings authorizing the public securities and related credit
agreements.
(e) An amount owed by the board under a credit agreement
shall be payable from and secured by a pledge of revenues received
by the association or amounts from the public security obligation
trust fund, the premium surcharge trust fund, and the member
assessment trust fund to the extent provided in the proceedings
authorizing the credit agreement.
SECTION 15. Section 2210.610(a), Insurance Code, is amended
to read as follows:
(a) Revenues received from the premium surcharges under
Section 2210.613 and member assessments under Section [Sections]
2210.613 [and 2210.6135] may be applied only as provided by this
subchapter.
SECTION 16. 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 2210.613 and member assessments under
Section [Sections] 2210.613 [and 2210.6135] that exceeds the amount
of the public security obligations and public security
administrative expenses payable in that calendar year and interest
earned on the public security obligation fund may, in the
discretion of the association, be:
(1) used to pay public security obligations payable in
the subsequent calendar year, offsetting the amount of the premium
surcharge and member assessments, as applicable, that would
otherwise be required to be levied for the year under this
subchapter;
(2) used to redeem or purchase outstanding public
securities; or
(3) deposited in the catastrophe reserve trust fund.
SECTION 17. 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 Class 2 public
securities issued in accordance with 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 18. Subchapter B, Chapter 2211, Insurance Code, is
amended by adding Section 2211.0522 to read as follows:
Sec. 2211.0522. ADMINISTRATION BY CONTRACTED
ADMINISTRATOR. (a) Notwithstanding any other law, the
commissioner shall contract with an administrator, as described
under Sections 2210.003, 2210.014, 2210.063, 2210.064,
2210.065,2210.066, and 2210.067, to manage the association and
administer the plan of operation not later than January 1, 2014.
(b) the administrator must hold either, or both, a managing
general agent license or a third party administrator certificate
of authority issued under this code.
(c) The term of the administrator contract may not exceed
five years. The contract may be renewed for additional terms, of
not more than five years for each term.
SECTION 19. Sections 2210.605(c), 2210.608(c), 2210.612,
2210.6135, and 2210.6136, Insurance Code, are repealed.
SECTION 20. Notwithstanding Section 2210.4521 as added by
this Act, beginning on the effective date of this Act and continuing
until December 31, 2013, the association shall deposit one-half of
its earned premium into the trust described by that section. Money
collected in calendar year 2013 shall be deposited in the
catastrophe reserve trust fund as described by that section.
Section 2210.4521 shall apply to all association premium earned on
and after January 1, 2014.
SECTION 21. Notwithstanding Section 2210.072 as amended by
this Act, amounts collected under Section 2210.4521 and SECTION 20
of this Act, may not be used to pay for a covered insured
association loss occurring prior to the effective date of this Act.
SECTION 22. (a) Effective January 1, 2014, the name of the Texas
Windstorm Insurance Association is changed to Texas Insurance Plan
and all powers, duties, rights, and obligations of the Texas
Windstorm Insurance Association are the powers, duties, rights, and
obligations of the Texas Insurance Plan.
(b) Effective January 1, 2014, a reference in law to the
Texas Windstorm Insurance Association is a reference to the Texas
Insurance Plan.
(c) The Texas Windstorm Insurance Association shall adopt a
timetable for phasing in the change of the association's name so as
to minimize the fiscal impact of the name change. Until January 1,
2014, to allow for phasing in the change of the association's name
and in accordance with the timetable established as required by
this section, the association may perform any act authorized by law
for the Texas Windstorm Insurance Association as the Texas
Insurance Plan. Any act of the Texas Windstorm Insurance
Association acting as the Texas Insurance Plan after the effective
date of this Act and before January 1, 2014, is an act of the Texas
Windstorm Insurance Association.
SECTION 23. The commissioner may, by order, require the
administrator retained to administer the Texas Insurance Plan under
Section 2210.062 to assume responsibility for administering the
Texas Insurance Plan and the plan of operation as described in
Section 2210.062 of this Act prior to January 1, 2014.
SECTION 24. 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 on the 91st day after the last day of
the legislative session.