Texas 2023 - 88th Regular

Texas House Bill HB1588 Compare Versions

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Version 2 (New)

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1	1	By: Oliverson, et al. (Senate Sponsor - Middleton) H.B. No. 1588
2	2	(In the Senate - Received from the House May 3, 2023;
3	3	May 4, 2023, read first time and referred to Committee on Business &
4	4	Commerce; May 18, 2023, reported adversely, with favorable
5	5	Committee Substitute by the following vote: Yeas 9, Nays 0;
6	6	May 18, 2023, sent to printer.)
7	7	Click here to see the committee vote
8	8	COMMITTEE SUBSTITUTE FOR H.B. No. 1588 By: Middleton
9	9
10	10
11	11	A BILL TO BE ENTITLED
12	12	AN ACT
13	13	relating to funding of excess losses and operating expenses of the
14	14	Texas Windstorm Insurance Association; authorizing an assessment;
15	15	authorizing a surcharge.
16	16	BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
17	17	ARTICLE 1. FUNDING OF INSURED LOSSES AND OPERATING EXPENSES OF
18	18	TEXAS WINDSTORM INSURANCE ASSOCIATION
19	19	SECTION 1.01. Section 404.0241, Government Code, is amended
20	20	by amending Subsections (b-2), (b-4), and (b-5) and adding
21	21	Subsections (f), (g), and (h) to read as follows:
22	22	(b-2) A person may not bring a civil action against this
23	23	state, the Texas Treasury Safekeeping Trust Company, or an
24	24	employee, independent contractor, or official of this state,
25	25	including the comptroller, for any claim, including breach of
26	26	fiduciary duty or violation of any constitutional, statutory, or
27	27	regulatory requirement, in connection with any action, inaction,
28	28	decision, divestment, investment, report, or other determination
29	29	made or taken in connection with this section [Subsections (b-1),
30	30	(b-4), and (b-5)].
31	31	(b-4) The comptroller shall manage the investments
32	32	described [required] by Subsections [Subsection] (b-1) and (g) as
33	33	[a] separate investment portfolios [portfolio]. The comptroller
34	34	shall provide separate accounting and reporting for the investments
35	35	in each of those portfolios [that portfolio]. The comptroller
36	36	shall credit to each [that] portfolio all payments, distributions,
37	37	interest, and other earnings on the investments in that portfolio.
38	38	(b-5) The comptroller has any power necessary to accomplish
39	39	the purposes of managing and investing the assets of a [the]
40	40	portfolio described by Subsection (b-4). In managing the assets of
41	41	that portfolio, through procedures and subject to restrictions the
42	42	comptroller considers appropriate, the comptroller may acquire,
43	43	sell, transfer, or otherwise assign the investments as appropriate,
44	44	taking into consideration the purposes, terms, distribution
45	45	requirements, and other circumstances of that portfolio then
46	46	prevailing.
47	47	(f) Notwithstanding any other law, directly or indirectly
48	48	through a separately managed account or other investment vehicle,
49	49	the comptroller may invest an amount not to exceed $1 billion of the
50	50	economic stabilization fund balance in accordance with this section
51	51	and Chapter 2210, Insurance Code.
52	52	(g) For purposes of Subsection (f), the comptroller may
53	53	enter into an investment arrangement with the Texas Windstorm
54	54	Insurance Association to provide the association an amount not to
55	55	exceed $1 billion in funding for each catastrophe year in
56	56	accordance with Subchapter M-1, Chapter 2210, Insurance Code, after
57	57	a catastrophic event to fund the association's losses and
58	58	operational expenses arising from the catastrophic event in excess
59	59	of the association's premium and other revenue, available reserves,
60	60	the catastrophe reserve trust fund, and member assessments
61	61	authorized under Section 2210.083.
62	62	(h) An investment arrangement entered into under Subsection
63	63	(g):
64	64	(1) must be secured and repaid by catastrophe
65	65	surcharges under Subchapter M-2, Chapter 2210, Insurance Code;
66	66	(2) must include interest at a rate equal to the
67	67	three-year United States treasury note rate plus at least four
68	68	percent; and
69	69	(3) may not exceed 36 months to maturity.
70	70	SECTION 1.02. Section 2210.0081, Insurance Code, is amended
71	71	to read as follows:
72	72	Sec. 2210.0081. CERTAIN ACTIONS BROUGHT AGAINST
73	73	ASSOCIATION BY COMMISSIONER. In an action brought by the
74	74	commissioner against the association under Chapter 441:
75	75	(1) the association's inability to satisfy obligations
76	76	under Subchapter M or M-1 related to the issuance of public
77	77	securities under this chapter or an investment arrangement with
78	78	this state, as applicable, constitutes a condition that makes the
79	79	association's continuation in business hazardous to the public or
80	80	to the association's policyholders for the purposes of Section
81	81	441.052;
82	82	(2) the time for the association to comply with the
83	83	requirements of supervision or for the conservator to complete the
84	84	conservator's duties, as applicable, is limited to three years from
85	85	the date the commissioner commences the action against the
86	86	association; and
87	87	(3) unless the commissioner takes further action
88	88	against the association under Chapter 441, as a condition of
89	89	release from supervision, the association must demonstrate to the
90	90	satisfaction of the commissioner that the association is able to
91	91	satisfy obligations under Subchapter M or M-1 related to the
92	92	issuance of public securities under this chapter or an investment
93	93	arrangement with this state, as applicable.
94	94	SECTION 1.03. The heading to Subchapter B-1, Chapter 2210,
95	95	Insurance Code, is amended to read as follows:
96	96	SUBCHAPTER B-1. PAYMENT OF LOSSES INCURRED BEFORE JANUARY 1, 2024
97	97	SECTION 1.04. Subchapter B-1, Chapter 2210, Insurance Code,
98	98	is amended by adding Section 2210.070 to read as follows:
99	99	Sec. 2210.070. APPLICABILITY OF SUBCHAPTER. (a) This
100	100	subchapter applies only to the payment of losses and operating
101	101	expenses of the association for a catastrophe year that occurs
102	102	before January 1, 2024, and results in excess losses and operating
103	103	expenses incurred by the association before January 1, 2024.
104	104	(b) Payment of excess losses and operating expenses of the
105	105	association incurred after December 31, 2023, shall be paid as
106	106	provided by Subchapter B-2.
107	107	SECTION 1.05. Section 2210.071(a), Insurance Code, is
108	108	amended to read as follows:
109	109	(a) If, in a catastrophe year before January 1, 2024, an
110	110	occurrence or series of occurrences in a catastrophe area results
111	111	in insured losses and operating expenses of the association in
112	112	excess of premium and other revenue of the association, the excess
113	113	losses and operating expenses shall be paid as provided by this
114	114	subchapter.
115	115	SECTION 1.06. Section 2210.0715(b), Insurance Code, is
116	116	amended to read as follows:
117	117	(b) Proceeds of public securities issued, an investment
118	118	arrangement entered into, or assessments made before January 1,
119	119	2024, or as a result of any occurrence or series of occurrences in a
120	120	catastrophe year that occurs before January 1, 2024, and results in
121	121	insured losses before that date may not be included in reserves
122	122	available for a subsequent catastrophe year for purposes of this
123	123	section or Section 2210.082 unless approved by the commissioner.
124	124	SECTION 1.07. The heading to Section 2210.075, Insurance
125	125	Code, is amended to read as follows:
126	126	Sec. 2210.075. REINSURANCE BY MEMBERS.
127	127	SECTION 1.08. Subchapter B-1, Chapter 2210, Insurance Code,
128	128	is amended by adding Section 2210.076 to read as follows:
129	129	Sec. 2210.076. PAYMENT FROM STATE INVESTMENT ARRANGEMENTS.
130	130	(a) Notwithstanding the provisions of this subchapter to the
131	131	contrary, the association may pay losses the association would
132	132	otherwise pay as provided by Section 2210.072, 2210.073, or
133	133	2210.0741 by entering into one or more investment arrangements with
134	134	this state as provided by Subchapter M-1 of this chapter and Section
135	135	404.0241, Government Code.
136	136	(b) Subchapter M-2 applies to the financing of losses under
137	137	this section to the extent necessary to secure and repay a debt
138	138	obligation to the state under an investment arrangement entered
139	139	into with this state under this section.
140	140	(c) An investment arrangement described by Subsection (a)
141	141	may also be used for a purpose described by Section 2210.072(d) in
142	142	the same manner as a financing arrangement with a market source.
143	143	SECTION 1.09. Chapter 2210, Insurance Code, is amended by
144	144	adding Subchapter B-2 to read as follows:
145	145	SUBCHAPTER B-2. PAYMENT OF EXCESS LOSSES AND OPERATING EXPENSES
146	146	Sec. 2210.080. APPLICABILITY OF SUBCHAPTER. (a) This
147	147	subchapter applies only to the payment of losses and operating
148	148	expenses of the association for a catastrophe year that occurs
149	149	after December 31, 2023, and results in excess losses and operating
150	150	expenses incurred by the association after December 31, 2023.
151	151	(b) This section expires September 1, 2025.
152	152	Sec. 2210.081. PAYMENT OF EXCESS LOSSES. (a) If, in a
153	153	catastrophe year, an occurrence or series of occurrences in a
154	154	catastrophe area results in insured losses and operating expenses
155	155	of the association in excess of premium and other revenue of the
156	156	association, the excess losses and operating expenses shall be paid
157	157	as provided by this subchapter.
158	158	(b) The association may not pay insured losses and operating
159	159	expenses resulting from an occurrence or series of occurrences in a
160	160	catastrophe year with premium and other revenue earned in a
161	161	subsequent year.
162	162	Sec. 2210.082. PAYMENT FROM RESERVES AND TRUST FUND. (a)
163	163	The association shall pay insured losses and operating expenses
164	164	resulting from an occurrence or series of occurrences in a
165	165	catastrophe year in excess of premium and other revenue of the
166	166	association for that catastrophe year from reserves of the
167	167	association available before or accrued during that catastrophe
168	168	year and amounts in the catastrophe reserve trust fund available
169	169	before or accrued during that catastrophe year.
170	170	(b) Proceeds of public securities issued or assessments
171	171	made before or as a result of any occurrence or series of
172	172	occurrences in a catastrophe year that results in insured losses
173	173	may not be included in reserves available for a subsequent
174	174	catastrophe year for purposes of this section.
175	175	Sec. 2210.083. PAYMENT FROM MEMBER ASSESSMENTS. (a)
176	176	Insured losses and operating expenses for a catastrophe year not
177	177	paid under Section 2210.082 shall be paid as provided by this
178	178	section from member assessments not to exceed $1 billion for that
179	179	catastrophe year.
180	180	(b) The board of directors shall notify each association
181	181	member of the amount of the member's assessment under this section.
182	182	The proportion of the insured losses and operating expenses
183	183	allocable to each insurer under this section shall be determined in
184	184	the manner used to determine each insurer's participation in the
185	185	association for the year under Section 2210.052.
186	186	(c) An association member may not recoup an assessment paid
187	187	under this section through a premium surcharge or tax credit.
188	188	Sec. 2210.084. PAYMENT FROM STATE INVESTMENT ARRANGEMENTS.
189	189	For insured losses and operating expenses for a catastrophe year
190	190	not paid under Section 2210.082 or 2210.083, the association shall
191	191	enter into one or more investment arrangements totaling not more
192	192	than $1 billion with the state as provided by Subchapter M-1 of this
193	193	chapter and Section 404.0241, Government Code.
194	194	Sec. 2210.085. PAYMENT FROM PUBLIC SECURITIES. (a)
195	195	Insured losses and operating expenses for a catastrophe year not
196	196	paid under Section 2210.082, 2210.083, or 2210.084 shall be paid
197	197	from the proceeds from public securities issued in accordance with
198	198	Subchapter M before, on, or after the date of any occurrence or
199	199	series of occurrences that results in insured losses. Public
200	200	securities described by this section must be paid within a period
201	201	not to exceed 14 years and may be paid sooner if the board of
202	202	directors elects to do so and the commissioner approves.
203	203	(b) Public securities described by Subsection (a) that are
204	204	issued before an occurrence or series of occurrences that results
205	205	in incurred losses:
206	206	(1) may be issued on the request of the board of
207	207	directors with the approval of the commissioner; and
208	208	(2) may not, in the aggregate, exceed $1 billion at any
209	209	one time, regardless of the calendar year or years in which the
210	210	outstanding public securities were issued.
211	211	(c) Public securities described by Subsection (a):
212	212	(1) shall be issued as necessary in a principal amount
213	213	not to exceed $1 billion per catastrophe year, in the aggregate, for
214	214	securities issued during that catastrophe year before the
215	215	occurrence or series of occurrences that results in incurred losses
216	216	in that year and securities issued on or after the date of that
217	217	occurrence or series of occurrences, and regardless of whether for
218	218	a single occurrence or a series of occurrences; and
219	219	(2) subject to the maximum described by Subdivision
220	220	(1), may be issued, in one or more issuances or tranches, during the
221	221	calendar year in which the occurrence or series of occurrences
222	222	occurs or, if the public securities cannot reasonably be issued in
223	223	that year, during the following calendar year.
224	224	(d) If public securities are issued as described by this
225	225	section, the public securities shall be repaid in the manner
226	226	prescribed by Subchapter M.
227	227	(e) The association may borrow from, or enter into other
228	228	financing arrangements with, any market source, under which the
229	229	market source makes interest-bearing loans or other financial
230	230	instruments to the association to enable the association to pay
231	231	losses under this section or to obtain public securities under this
232	232	section. For purposes of this subsection, financial instruments
233	233	includes commercial paper.
234	234	(f) The proceeds of any outstanding public securities
235	235	described by Subsection (a) that are issued before an occurrence or
236	236	series of occurrences, together with the proceeds of any
237	237	outstanding public securities issued on or before December 31,
238	238	2023, shall be depleted before the proceeds of any securities
239	239	issued after an occurrence or series of occurrences may be used.
240	240	This subsection does not prohibit the association from issuing
241	241	securities after an occurrence or series of occurrences before the
242	242	proceeds of outstanding public securities issued during a previous
243	243	catastrophe year have been depleted.
244	244	(g) If, under Subsection (f), the proceeds of any
245	245	outstanding public securities issued during a previous catastrophe
246	246	year, together with the proceeds of any outstanding public
247	247	securities issued on or before December 31, 2023, must be depleted,
248	248	those proceeds shall count against the limit on public securities
249	249	described by this section in the catastrophe year in which the
250	250	proceeds must be depleted.
251	251	Sec. 2210.086. REINSURANCE BY MEMBERS FOR MEMBER
252	252	ASSESSMENTS. (a) Before any occurrence or series of occurrences,
253	253	an association member may purchase reinsurance to cover an
254	254	assessment for which the member would otherwise be liable under
255	255	this subchapter.
256	256	(b) An association member must notify the board of
257	257	directors, in the manner prescribed by the association, whether the
258	258	member will be purchasing reinsurance. If the member does not
259	259	purchase reinsurance under this section, the member remains liable
260	260	for any assessment imposed under this subchapter.
261	261	SECTION 1.10. Section 2210.355(b), Insurance Code, is
262	262	amended to read as follows:
263	263	(b) In adopting rates under this chapter, the following must
264	264	be considered:
265	265	(1) the past and prospective loss experience within
266	266	and outside this state of hazards for which insurance is made
267	267	available through the plan of operation, if any;
268	268	(2) expenses of operation, including acquisition
269	269	costs;
270	270	(3) a reasonable margin for profit and contingencies;
271	271	(4) payment of public security obligations issued
272	272	under this chapter, including the additional amount of any debt
273	273	service coverage determined by the association to be required for
274	274	the issuance of marketable public securities; [and]
275	275	(5) payment of obligations related to an investment
276	276	arrangement with this state under Subchapter M-1 of this chapter
277	277	and Section 404.0241, Government Code, including the additional
278	278	amount of any related debt service determined by the association to
279	279	be required for the investment arrangement; and
280	280	(6) all other relevant factors, within and outside
281	281	this state.
282	282	SECTION 1.11. Section 2210.452(b), Insurance Code, is
283	283	amended to read as follows:
284	284	(b) All money, including investment income, deposited in
285	285	the trust fund constitutes state funds until disbursed as provided
286	286	by this chapter and commissioner rules. The comptroller shall hold
287	287	the money outside the state treasury on behalf of, and with legal
288	288	title in, the department on behalf of the association. The
289	289	department shall keep and maintain the trust fund in accordance
290	290	with this chapter and commissioner rules. The comptroller, as
291	291	custodian of the trust fund, shall administer the trust fund
292	292	strictly and solely as provided by this chapter and commissioner
293	293	rules. The association may include the amounts held in the
294	294	catastrophe reserve trust fund as an admitted asset in the
295	295	financial statements of the association.
296	296	SECTION 1.12. Section 2210.4521(a), Insurance Code, is
297	297	amended to read as follows:
298	298	(a) The comptroller shall invest in accordance with the
299	299	investment standard described by Section 404.024(j), Government
300	300	Code, the portion of the trust fund balance that exceeds the amount
301	301	of the sufficient balance determined under Subsection (b). The
302	302	comptroller's investment of that portion of the balance is not
303	303	subject to any other limitation or other requirement provided by
304	304	Section 404.024, Government Code. The Texas Treasury Safekeeping
305	305	Trust Company and board of directors may recommend investments to
306	306	protect the trust fund and create investment income.
307	307	SECTION 1.13. Section 2210.453, Insurance Code, is amended
308	308	by adding Subsection (a-1) to read as follows:
309	309	(a-1) The association may obtain reinsurance at any level
310	310	including excess of loss, quota share, and other forms of
311	311	reinsurance to protect the solvency and viability of the
312	312	association. The commissioner may consult with the board of
313	313	directors regarding methods to protect the solvency and continued
314	314	viability of the association, including by protecting the minimum
315	315	balance, acquiring reinsurance, or by other means.
316	316	SECTION 1.14. Subchapter J, Chapter 2210, Insurance Code,
317	317	is amended by adding Section 2210.4531 to read as follows:
318	318	Sec. 2210.4531. DETERMINATION OF PROBABLE MAXIMUM LOSS.
319	319	(a) The association shall file with the department a proposed
320	320	probable maximum loss, subject to Section 2210.453.
321	321	(b) In determining the probable maximum loss, the
322	322	association:
323	323	(1) shall, to the extent possible, contract with any
324	324	disinterested third parties necessary to execute any catastrophe
325	325	models that were executed in the preceding storm season;
326	326	(2) shall, if the association is unable to contract
327	327	for the execution of a catastrophe model described by Subdivision
328	328	(1), contract with any disinterested third party necessary to
329	329	execute a catastrophe model that is substantially similar to the
330	330	model for which the association is unable to contract under
331	331	Subdivision (1);
332	332	(3) may contract with any disinterested third parties
333	333	to execute catastrophe models in addition to the models required
334	334	under Subdivisions (1) and (2);
335	335	(4) shall provide to a disinterested third party
336	336	executing a catastrophe model any information necessary to comply
337	337	with this subsection;
338	338	(5) may not use a combination of catastrophe models to
339	339	determine the probable maximum loss; and
340	340	(6) may use only the catastrophe model that produces
341	341	the lowest probable maximum loss.
342	342	(c) The association shall make any information produced in
343	343	compliance with Subsection (b) publicly available on the
344	344	association's Internet website.
345	345	(d) The association may only use a probable maximum loss
346	346	that is approved by the commissioner. The commissioner may reject a
347	347	probable maximum loss filed with the department by the association
348	348	and set a probable maximum loss at any amount determined by the
349	349	commissioner.
350	350	SECTION 1.15. Effective January 1, 2024, Section 2210.602,
351	351	Insurance Code, is amended by amending Subdivision (7) and adding
352	352	Subdivision (12) to read as follows:
353	353	(7) "Public security" means a debt instrument or other
354	354	public security authorized to be issued under Section 2210.085 and
355	355	issued by the Texas Public Finance Authority, including a
356	356	commercial paper program authorized before the occurrence of a
357	357	catastrophic event.
358	358	(12) "Public security trust fund" means the dedicated
359	359	trust fund established by the board and held by the Texas Treasury
360	360	Safekeeping Trust Company into which premium surcharges collected
361	361	under Section 2210.612 for the purpose of paying public securities
362	362	are deposited.
363	363	SECTION 1.16. Effective January 1, 2024, Section
364	364	2210.604(a), Insurance Code, is amended to read as follows:
365	365	(a) In accordance with and subject to the limitations
366	366	provided by Section 2210.085, at [At] the request of the
367	367	association and with the approval of the commissioner, the Texas
368	368	Public Finance Authority shall issue [Class 1, Class 2, or Class 3]
369	369	public securities. The association shall submit to the
370	370	commissioner a cost-benefit analysis of various financing methods
371	371	and funding structures when requesting the issuance of public
372	372	securities under this subsection.
373	373	SECTION 1.17. Effective January 1, 2024, Sections
374	374	2210.608(a) and (c), Insurance Code, are amended to read as
375	375	follows:
376	376	(a) Public security proceeds, including investment income,
377	377	shall be held in trust for the exclusive use and benefit of the
378	378	association. The association may use the proceeds to:
379	379	(1) pay incurred claims and operating expenses of the
380	380	association in accordance with Section 2210.085;
381	381	(2) purchase reinsurance for the association;
382	382	(3) pay the costs of issuing the public securities,
383	383	and public security administrative expenses, if any;
384	384	(4) provide a public security reserve;
385	385	(5) pay capitalized interest and principal on the
386	386	public securities for the period determined necessary by the
387	387	association;
388	388	(6) pay private financial agreements entered into by
389	389	the association as temporary sources of payment of losses and
390	390	operating expenses of the association; and
391	391	(7) reimburse the association for any cost described
392	392	by Subdivisions (1)-(6) paid by the association before issuance of
393	393	the public securities.
394	394	(c) Notwithstanding Subsection (a)(2), the proceeds from
395	395	public securities issued under Section 2210.085 [2210.072] before
396	396	an occurrence or series of occurrences that results in incurred
397	397	losses, including investment income, may not be used to purchase
398	398	reinsurance for the association.
399	399	SECTION 1.18. Effective January 1, 2024, Sections
400	400	2210.609(a), (c), (d), and (e), Insurance Code, are amended to read
401	401	as follows:
402	402	(a) The board and the association shall enter into an
403	403	agreement under which the association shall provide for the payment
404	404	of all public security obligations from available funds collected
405	405	by the association and deposited as required by this subchapter. If
406	406	the association determines that it is unable to pay the public
407	407	security obligations and public security administrative expenses,
408	408	if any, with available funds, the association shall pay those
409	409	obligations and expenses in accordance with Section [Sections]
410	410	2210.612[, 2210.613, and 2210.6131 as applicable]. Public [Class
411	411	1, Class 2, or Class 3 public] securities may be issued on a parity
412	412	or subordinate lien basis with other [Class 1, Class 2, or Class 3]
413	413	public securities[, respectively].
414	414	(c) The association shall deposit all revenue collected
415	415	under Section 2210.612 in the [Class 1] public security trust fund
416	416	[, all revenue collected under Section 2210.613 in the Class 2
417	417	public security trust fund, and all revenue collected under Section
418	418	2210.6131 in the Class 3 public security trust fund]. Money
419	419	deposited in the [a] fund may be invested as permitted by general
420	420	law. Money in the [a] fund required to be used to pay public
421	421	security obligations and public security administrative expenses,
422	422	if any, shall be transferred to the appropriate funds in the manner
423	423	and at the time specified in the proceedings authorizing the public
424	424	securities to ensure timely payment of obligations and expenses.
425	425	This may include the board establishing funds and accounts with the
426	426	comptroller that the board determines are necessary to administer
427	427	and repay the public security obligations. If the association has
428	428	not transferred amounts sufficient to pay the public security
429	429	obligations to the board's designated interest and sinking fund in
430	430	a timely manner, the board may direct the Texas Treasury
431	431	Safekeeping Trust Company to transfer from the [Class 1] public
432	432	security trust fund [, the Class 2 public security trust fund, or
433	433	the Class 3 public security trust fund] to the appropriate account
434	434	the amount necessary to pay the public security obligation.
435	435	(d) The association shall provide for the payment of the
436	436	public security obligations and the public security administrative
437	437	expenses by irrevocably pledging revenues received from premiums,
438	438	premium surcharges, and amounts on deposit in the [Class 1] public
439	439	security trust fund, [the Class 2 public security trust fund, and
440	440	the Class 3 public security trust fund,] together with any public
441	441	security reserve fund, as provided in the proceedings authorizing
442	442	the public securities and related credit agreements.
443	443	(e) An amount owed by the board under a credit agreement
444	444	shall be payable from and secured by a pledge of revenues received
445	445	by the association from the [Class 1] public security trust fund [,
446	446	the Class 2 public security trust fund, and the Class 3 public
447	447	security trust fund] to the extent provided in the proceedings
448	448	authorizing the credit agreement.
449	449	SECTION 1.19. Effective January 1, 2024, Section
450	450	2210.610(a), Insurance Code, is amended to read as follows:
451	451	(a) Revenues received from the premium surcharges under
452	452	Section [Sections] 2210.612[, 2210.613, and 2210.6131] may be
453	453	applied only as provided by this subchapter.
454	454	SECTION 1.20. Effective January 1, 2024, Section 2210.611,
455	455	Insurance Code, is amended to read as follows:
456	456	Sec. 2210.611. EXCESS REVENUE COLLECTIONS AND INVESTMENT
457	457	EARNINGS. Revenue collected in any calendar year from a premium
458	458	surcharge under Section [Sections] 2210.612 [, 2210.613, and
459	459	2210.6131] that exceeds the amount of the public security
460	460	obligations and public security administrative expenses payable in
461	461	that calendar year and interest earned on the funds may, in the
462	462	discretion of the association, be:
463	463	(1) used to pay public security obligations payable in
464	464	the subsequent calendar year, offsetting the amount of the premium
465	465	surcharge that would otherwise be required to be levied for the year
466	466	under this subchapter;
467	467	(2) used to redeem or purchase outstanding public
468	468	securities; or
469	469	(3) deposited in the catastrophe reserve trust fund.
470	470	SECTION 1.21. Effective January 1, 2024, the heading to
471	471	Section 2210.612, Insurance Code, is amended to read as follows:
472	472	Sec. 2210.612. PAYMENT OF [CLASS 1] PUBLIC SECURITIES.
473	473	SECTION 1.22. Effective January 1, 2024, Sections
474	474	2210.612(a) and (e), Insurance Code, are amended to read as
475	475	follows:
476	476	(a) The association shall pay [Class 1] public securities
477	477	issued under Section 2210.085 [2210.072] from:
478	478	(1) net premium and other revenue; and
479	479	(2) if net premium and other revenue are not
480	480	sufficient to pay the securities, a catastrophe area premium
481	481	surcharge collected in accordance with this section.
482	482	(e) The association may enter financing arrangements as
483	483	described by Section 2210.085(e) [2210.072(d)] as necessary to
484	484	obtain public securities issued under Section 2210.085 [2210.072].
485	485	Nothing in this subsection shall prevent the authorization and
486	486	creation of one or more programs for the issuance of commercial
487	487	paper before the date of an occurrence or series of occurrences that
488	488	results in insured losses under Section 2210.085(a) [2210.072(a)].
489	489	SECTION 1.23. Effective January 1, 2024, the heading to
490	490	Section 2210.6132, Insurance Code, is amended to read as follows:
491	491	Sec. 2210.6132. CONTINGENT SOURCE OF PAYMENT FOR [CLASS 2
492	492	AND CLASS 3] PUBLIC SECURITIES.
493	493	SECTION 1.24. Effective January 1, 2024, Sections
494	494	2210.6132(a) and (b), Insurance Code, are amended to read as
495	495	follows:
496	496	(a) The commissioner may determine, in consultation with
497	497	the board and the authority, that:
498	498	(1) the authority is unable to issue [Class 2 or Class
499	499	3] public securities to be payable under Section 2210.612 [2210.613
500	500	or 2210.6131, as applicable]; or
501	501	(2) the issuance of [Class 2 or Class 3] public
502	502	securities to be payable under Section 2210.612 [2210.613 or
503	503	2210.6131, as applicable,] is financially unreasonable for the
504	504	association.
505	505	(b) If the commissioner makes a determination under
506	506	Subsection (a), the commissioner shall order the [Class 2 or Class
507	507	3] public securities[, as applicable,] to be paid by a premium
508	508	surcharge assessed by each insurer, the association, and the Texas
509	509	FAIR Plan Association on all policyholders of policies that are in
510	510	effect on or after the 180th day after the date the commissioner
511	511	issues the order. The premium surcharge must be set in an amount
512	512	sufficient to pay all debt service not already covered by available
513	513	funds and all related expenses on the public securities.
514	514	SECTION 1.25. Effective January 1, 2024, Section 2210.614,
515	515	Insurance Code, is amended to read as follows:
516	516	Sec. 2210.614. REFINANCING PUBLIC SECURITIES. The
517	517	association may request the board to refinance any public
518	518	securities issued in accordance with Section 2210.085 [Subchapter
519	519	B-1, whether Class 1, Class 2, or Class 3 public securities,] with
520	520	public securities payable from the same sources as the original
521	521	public securities.
522	522	SECTION 1.26. Chapter 2210, Insurance Code, is amended by
523	523	adding Subchapters M-1 and M-2 to read as follows:
524	524	SUBCHAPTER M-1. STATE CATASTROPHE INVESTMENT ARRANGEMENTS
525	525	Sec. 2210.631. STATE CATASTROPHE INVESTMENT ARRANGEMENTS.
526	526	The legislature has determined that providing catastrophe
527	527	investment arrangements to the association by permitting the
528	528	association to enter into those arrangements with this state is an
529	529	acceptable use of state money and provides an efficient method for
530	530	the association to pay losses following a catastrophic event.
531	531	Sec. 2210.632. CATASTROPHE INVESTMENT ARRANGEMENT
532	532	AUTHORIZED; LIMITS. The association may enter into an investment
533	533	arrangement with this state as provided by Section 404.0241,
534	534	Government Code, for not more than $1 billion after a catastrophic
535	535	event that depletes the catastrophe reserve fund and member
536	536	assessments imposed under Section 2210.083.
537	537	SUBCHAPTER M-2. CATASTROPHE SURCHARGE
538	538	Sec. 2210.641. DEFINITION. In this subchapter,
539	539	"catastrophic event" means an occurrence or a series of occurrences
540	540	that:
541	541	(1) occurs in a catastrophe area during a calendar
542	542	year; and
543	543	(2) results in insured losses and operating expenses
544	544	of the association in excess of premium and other revenue of the
545	545	association.
546	546	Sec. 2210.642. APPLICABILITY OF SUBCHAPTER. (a)
547	547	Notwithstanding Section 2210.006, this subchapter applies to an
548	548	insurer that is:
549	549	(1) an insurer authorized to engage in the business of
550	550	insurance in this state that is required to be a member of the
551	551	association, including a farm mutual insurance company that is a
552	552	fronting insurer as defined by Section 221.001(c);
553	553	(2) a farm mutual insurance company that is not a
554	554	fronting insurer as defined by Section 221.001(c) only for purposes
555	555	of the collection of surcharges authorized by this subchapter;
556	556	(3) an unaffiliated eligible surplus lines insurer
557	557	writing the lines of business subject to a premium surcharge under
558	558	this subchapter;
559	559	(4) the association; and
560	560	(5) the FAIR Plan Association.
561	561	(b) A premium surcharge under this subchapter applies to:
562	562	(1) a policy written under the following lines of
563	563	insurance:
564	564	(A) fire and allied lines;
565	565	(B) farm and ranch owners; and
566	566	(C) residential property insurance; and
567	567	(2) the property insurance portion of a commercial
568	568	multiple peril insurance policy.
569	569	Sec. 2210.6425. CONSTRUCTION OF SUBCHAPTER. (a) This
570	570	subchapter may not be construed to require an insurer to be an
571	571	association member if the insurer is not otherwise required to be a
572	572	member under Section 2210.052.
573	573	(b) A farm mutual insurance company that is not a fronting
574	574	insurer as defined by Section 221.001(c) is not a member of the
575	575	association as a result of the company's collection of surcharges
576	576	authorized by this subchapter or for any other reason.
577	577	Sec. 2210.643. ANNUAL FINANCIAL REPORT BY COMMISSIONER.
578	578	The commissioner shall determine the amount available in the
579	579	catastrophe reserve trust fund as of December 31 of each year and
580	580	provide a written report to the governor, lieutenant governor, and
581	581	speaker of the house of representatives that includes:
582	582	(1) the amount available in the catastrophe reserve
583	583	trust fund; and
584	584	(2) information regarding the current financial
585	585	condition of the association.
586	586	Sec. 2210.6435. CATASTROPHE SURCHARGES. (a) The
587	587	commissioner, in consultation with the board of directors, may
588	588	order a catastrophe surcharge effective on the closing date of an
589	589	investment arrangement with this state and as provided by this
590	590	subchapter only if, after a catastrophic event:
591	591	(1) the commissioner determines that the association
592	592	has depleted its reserves, other money, the catastrophe reserve
593	593	trust fund, and member assessments in the amount of $1 billion
594	594	imposed under Section 2210.083; and
595	595	(2) the association intends to enter into an
596	596	investment arrangement with this state under Subchapter M-1 that is
597	597	the basis for the surcharge.
598	598	(b) The commissioner, in consultation with the board of
599	599	directors, shall set the catastrophe surcharge as a percentage of
600	600	premium to be collected by each insurer to which this subchapter
601	601	applies.
602	602	(c) The total amount authorized to be collected under this
603	603	section for any catastrophe surcharge may not exceed the amount
604	604	needed to satisfy the terms of the investment arrangement entered
605	605	into with this state under Subchapter M-1 that is the basis for the
606	606	surcharge.
607	607	(d) The catastrophe surcharge percentage must be set in an
608	608	amount sufficient, including a reserve amount, to satisfy the terms
609	609	of the investment arrangement entered into with this state under
610	610	Subchapter M-1 that is the basis for the surcharge. The
611	611	commissioner shall review the catastrophe surcharge percentage
612	612	semiannually and adjust the percentage as necessary to ensure
613	613	amounts collected will be sufficient to satisfy the terms of the
614	614	investment arrangement. The association will provide a semiannual
615	615	report to the commissioner and comptroller in the form and manner
616	616	prescribed by the commissioner of the premium assessed and
617	617	collected and its sufficiency to satisfy the terms of the
618	618	investment arrangement. The commissioner may set the surcharge as
619	619	a percentage of premium to collect the needed aggregate amount over
620	620	a period of time not to exceed three years.
621	621	(e) A catastrophe surcharge authorized under this section
622	622	shall be assessed by insurers on all policyholders of policies that
623	623	are subject to this subchapter.
624	624	(f) A catastrophe surcharge under this subchapter is a
625	625	separate charge in addition to the premiums collected and is not
626	626	subject to premium tax or commissions.
627	627	(g) Failure by a policyholder to pay a catastrophe surcharge
628	628	constitutes failure to pay premium for purposes of policy
629	629	cancellation.
630	630	(h) A catastrophe surcharge is not refundable if the policy
631	631	is canceled or terminated.
632	632	Sec. 2210.644. CATASTROPHE SURCHARGE PROCEEDS. The
633	633	proceeds of a catastrophe surcharge authorized under this
634	634	subchapter shall be deposited into the catastrophe reserve trust
635	635	fund or an account designated by the comptroller for purposes of
636	636	satisfying the terms of the investment arrangement that is the
637	637	basis for the surcharge, and the proceeds shall be paid to this
638	638	state under the terms of the investment arrangement until the terms
639	639	are fully satisfied.
640	640	Sec. 2210.6445. DISCLOSURE OF SURCHARGE. Each policy that
641	641	is assessed a surcharge under this subchapter shall contain the
642	642	following prominent disclosure in the documents attached to the
643	643	policy:
644	644	"A CATASTROPHE SURCHARGE HAS BEEN INCLUDED ON YOUR POLICY.
645	645	THIS SURCHARGE WILL BE USED TO REPAY STATE MONEY USED BY THE TEXAS
646	646	WINDSTORM INSURANCE ASSOCIATION TO PAY FOR LOSSES AFTER A
647	647	CATASTROPHIC EVENT, INCLUDING A HURRICANE. THE SURCHARGE IS NOT
648	648	REFUNDABLE IF YOU CANCEL OR TERMINATE THIS POLICY."
649	649	Sec. 2210.645. EXEMPTION FROM TAXATION. A surcharge
650	650	collected under this subchapter is exempt from taxation by this
651	651	state or a municipality or other political subdivision of this
652	652	state.
653	653	Sec. 2210.6455. LIMITATION OF PERSONAL LIABILITY. The
654	654	association members, the insurers required to collect a surcharge
655	655	under this subchapter, members of the board of directors,
656	656	association employees, the commissioner, and department employees
657	657	are not personally liable as a result of exercising the rights and
658	658	responsibilities granted under this subchapter.
659	659	Sec. 2210.646. EXEMPTION FROM SURCHARGE. An insurer may
660	660	not collect a surcharge authorized under this subchapter on any
661	661	policy issued to this state, an agency of this state, or a political
662	662	subdivision of this state.
663	663	SECTION 1.27. (a) Effective January 1, 2024, the following
664	664	provisions of the Insurance Code are repealed:
665	665	(1) Sections 2210.602(2), (2-a), (3), (3-a), (4), and
666	666	(4-a);
667	667	(2) Section 2210.613; and
668	668	(3) Section 2210.6131.
669	669	(b) Effective September 1, 2025, Subchapter B-1, Chapter
670	670	2210, Insurance Code, is repealed.
671	671	SECTION 1.28. As soon as practicable after the effective
672	672	date of this Act and not later than December 1, 2023, the
673	673	commissioner of insurance shall adopt rules necessary to implement
674	674	Subchapter M, Insurance Code, as amended by this Act, and
675	675	Subchapters B-2 and M-2, Insurance Code, as added by this Act.
676	676	ARTICLE 2. CONFORMING AMENDMENTS
677	677	SECTION 2.01. (a) Section 2210.056(b), Insurance Code, is
678	678	amended to read as follows:
679	679	(b) The association's assets may not be used for or diverted
680	680	to any purpose other than to:
681	681	(1) satisfy, in whole or in part, the liability of the
682	682	association on claims made on policies written by the association;
683	683	(2) make investments authorized under applicable law;
684	684	(3) pay reasonable and necessary administrative
685	685	expenses incurred in connection with the operation of the
686	686	association and the processing of claims against the association;
687	687	(4) satisfy, in whole or in part, the obligations of
688	688	the association incurred in connection with Subchapters B-1, B-2,
689	689	J, [and] M, and M-2, including reinsurance, public securities, and
690	690	financial instruments; or
691	691	(5) make remittance under the laws of this state to be
692	692	used by this state to:
693	693	(A) pay claims made on policies written by the
694	694	association;
695	695	(B) purchase reinsurance covering losses under
696	696	those policies; or
697	697	(C) prepare for or mitigate the effects of
698	698	catastrophic natural events.
699	699	(b) Effective September 1, 2025, Section 2210.056(b),
700	700	Insurance Code, is amended to read as follows:
701	701	(b) The association's assets may not be used for or diverted
702	702	to any purpose other than to:
703	703	(1) satisfy, in whole or in part, the liability of the
704	704	association on claims made on policies written by the association;
705	705	(2) make investments authorized under applicable law;
706	706	(3) pay reasonable and necessary administrative
707	707	expenses incurred in connection with the operation of the
708	708	association and the processing of claims against the association;
709	709	(4) satisfy, in whole or in part, the obligations of
710	710	the association incurred in connection with Subchapters B-2 [B-1],
711	711	J, [and] M, and M-2, including reinsurance, public securities, and
712	712	financial instruments; or
713	713	(5) make remittance under the laws of this state to be
714	714	used by this state to:
715	715	(A) pay claims made on policies written by the
716	716	association;
717	717	(B) purchase reinsurance covering losses under
718	718	those policies; or
719	719	(C) prepare for or mitigate the effects of
720	720	catastrophic natural events.
721	721	SECTION 2.02. (a) Section 2210.1052, Insurance Code, is
722	722	amended to read as follows:
723	723	Sec. 2210.1052. EMERGENCY MEETING. If the ultimate loss
724	724	estimate for an occurrence or series of occurrences made by the
725	725	chief financial officer or chief actuary of the association
726	726	indicates member insurers may be subject to an assessment under
727	727	Subchapter B-1 or B-2, the board of directors shall call an
728	728	emergency meeting to notify the member insurers about the
729	729	assessment.
730	730	(b) Effective September 1, 2025, Section 2210.1052,
731	731	Insurance Code, is amended to read as follows:
732	732	Sec. 2210.1052. EMERGENCY MEETING. If the ultimate loss
733	733	estimate for an occurrence or series of occurrences made by the
734	734	chief financial officer or chief actuary of the association
735	735	indicates member insurers may be subject to an assessment under
736	736	Subchapter B-2 [B-1], the board of directors shall call an
737	737	emergency meeting to notify the member insurers about the
738	738	assessment.
739	739	SECTION 2.03. Section 2210.363(a), Insurance Code, is
740	740	amended to read as follows:
741	741	(a) The association may offer a person insured under this
742	742	chapter an actuarially justified premium discount on a policy
743	743	issued by the association, or an actuarially justified credit
744	744	against a surcharge assessed against the person, other than a
745	745	surcharge assessed under Subchapter M or M-2, if:
746	746	(1) the construction, alteration, remodeling,
747	747	enlargement, or repair of, or an addition to, insurable property
748	748	exceeds applicable building code standards set forth in the plan of
749	749	operation; or
750	750	(2) the person elects to purchase a binding
751	751	arbitration endorsement under Section 2210.554.
752	752	SECTION 2.04. (a) Sections 2210.452(a) and (d), Insurance
753	753	Code, are amended to read as follows:
754	754	(a) The commissioner shall adopt rules under which the
755	755	association makes payments to the catastrophe reserve trust fund.
756	756	Except as otherwise specifically provided by this section, the
757	757	trust fund may be used only for purposes directly related to funding
758	758	the payment of insured losses, including:
759	759	(1) funding the obligations of the trust fund under
760	760	Subchapters [Subchapter] B-1 and B-2; and
761	761	(2) purchasing reinsurance or using alternative risk
762	762	financing mechanisms under Section 2210.453.
763	763	(d) The commissioner by rule shall establish the procedure
764	764	relating to the disbursement of money from the trust fund to
765	765	policyholders and for association administrative expenses directly
766	766	related to funding the payment of insured losses in the event of an
767	767	occurrence or series of occurrences within a catastrophe area that
768	768	results in a disbursement under Subchapter B-1 or B-2.
769	769	(b) Effective September 1, 2025, Sections 2210.452(a) and
770	770	(d), Insurance Code, are amended to read as follows:
771	771	(a) The commissioner shall adopt rules under which the
772	772	association makes payments to the catastrophe reserve trust fund.
773	773	Except as otherwise specifically provided by this section, the
774	774	trust fund may be used only for purposes directly related to funding
775	775	the payment of insured losses, including:
776	776	(1) funding the obligations of the trust fund under
777	777	Subchapter B-2 [B-1]; and
778	778	(2) purchasing reinsurance or using alternative risk
779	779	financing mechanisms under Section 2210.453.
780	780	(d) The commissioner by rule shall establish the procedure
781	781	relating to the disbursement of money from the trust fund to
782	782	policyholders and for association administrative expenses directly
783	783	related to funding the payment of insured losses in the event of an
784	784	occurrence or series of occurrences within a catastrophe area that
785	785	results in a disbursement under Subchapter B-2 [B-1].
786	786	SECTION 2.05. (a) Sections 2210.453(b) and (c), Insurance
787	787	Code, are amended to read as follows:
788	788	(b) The association shall maintain total available loss
789	789	funding in an amount not less than the probable maximum loss for the
790	790	association for a catastrophe year with a probability of one in 100.
791	791	If necessary, the required funding level shall be achieved through
792	792	the purchase of reinsurance or the use of alternative financing
793	793	mechanisms, or both, to operate in addition to or in concert with
794	794	the trust fund, public securities, financial instruments,
795	795	investment arrangements, and assessments authorized by this
796	796	chapter.
797	797	(c) The attachment point for reinsurance purchased under
798	798	this section may not be less than the aggregate amount of all
799	799	funding available to the association under Subchapters
800	800	[Subchapter] B-1 and B-2.
801	801	(b) Effective September 1, 2025, Section 2210.453(c),
802	802	Insurance Code, is amended to read as follows:
803	803	(c) The attachment point for reinsurance purchased under
804	804	this section may not be less than the aggregate amount of all
805	805	funding available to the association under Subchapter B-2 [B-1].
806	806	ARTICLE 3. TRANSITION AND SAVINGS PROVISIONS
807	807	SECTION 3.01. Notwithstanding the amendment by this Act of
808	808	Subchapter M, Chapter 2210, Insurance Code, the repeal by this Act
809	809	of Subchapter B-1, Chapter 2210, Insurance Code, and other changes
810	810	in law made by this Act effective September 1, 2025:
811	811	(1) the payment of excess losses and operating
812	812	expenses of the Texas Windstorm Insurance Association incurred
813	813	before January 1, 2024, is governed by the law as it existed on the
814	814	effective date of this Act, and that law is continued in effect for
815	815	that purpose;
816	816	(2) the issuance of public securities to pay excess
817	817	losses and operating expenses of the Texas Windstorm Insurance
818	818	Association incurred before January 1, 2024, the use of the
819	819	proceeds of those securities, the repayment or refinancing of those
820	820	securities, and any other rights, obligations, or limitations with
821	821	respect to those securities and proceeds of those securities are
822	822	governed by the law as it existed on the effective date of this Act,
823	823	and that law is continued in effect for that purpose; and
824	824	(3) proceeds of any assessments made under Subchapter
825	825	B-1, Chapter 2210, Insurance Code, may not be included in reserves
826	826	available for a catastrophe year for purposes of Section 2210.082,
827	827	Insurance Code, as added by this Act, unless approved by the
828	828	commissioner of insurance.
829	829	ARTICLE 4. EFFECTIVE DATE
830	830	SECTION 4.01. Except as otherwise provided by this Act,
831	831	this Act takes effect September 1, 2023.
832	832	* * * * *