89R6234 RDS-F
By: Hunter, Oliverson, Paul, Bonnen, H.B. No. 3689
Villalobos
A BILL TO BE ENTITLED
AN ACT
relating to funding of excess losses and operating expenses of the
Texas Windstorm Insurance Association; authorizing an assessment;
authorizing a surcharge.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
ARTICLE 1. FUNDING OF INSURED LOSSES AND OPERATING EXPENSES OF
TEXAS WINDSTORM INSURANCE ASSOCIATION
SECTION 1.01. (a) In this section, "association" means the
Texas Windstorm Insurance Association.
(b) The legislature finds that the use of public securities
would not be an efficient or viable long-term method to fund losses
of the association in order for the association to continue to
provide windstorm and hail insurance after a catastrophic event.
Subchapter B-2, Chapter 2210, Insurance Code, as added by this Act,
is intended to replace Subchapter B-1, Chapter 2210, Insurance
Code, to provide for funding of excess losses and operating
expenses of the association incurred after December 31, 2025.
(c) The legislature finds that:
(1) previous experience has shown that the expense to
the association of issuing public securities, and the interest
rates for those securities, would be significant and can impose
significant long-term expense obligations on coastal property and
casualty risks that may be avoided if the legislature provides for
financing or investment from available state money to the
association before or after a catastrophic event;
(2) the financing or investment described by
Subdivision (1) of this subsection would be a more efficient way to
provide funding necessary for the association to pay losses after a
catastrophic event; and
(3) a loan or other investment from available state
money to the association of not more than $500 million before a
catastrophic event and not more than $1 billion after a
catastrophic event would:
(A) replace the funding levels currently
provided by issuing public securities;
(B) be consistent with sound insurance solvency
standards;
(C) provide a more viable method for the
association to have money for losses after a catastrophic event
than the issuance of public securities; and
(D) provide a secured investment for the state
that would:
(i) yield interest income for the state on
state money; and
(ii) be adequately secured for repayment
through statewide catastrophe surcharges on certain insurance
policies in this state.
(d) The legislature finds that authorizing catastrophe
surcharges is a viable method to assure repayment of loans or
investments of state money after a hurricane and to ensure that the
association can continue to provide windstorm and hail insurance in
the coastal areas of this state after a catastrophic event to
maintain the association's viability for the benefit of the public
and in furtherance of a public purpose.
SECTION 1.02. The heading to Subchapter B-1, Chapter 2210,
Insurance Code, is amended to read as follows:
SUBCHAPTER B-1. PAYMENT OF LOSSES INCURRED BEFORE JANUARY 1, 2026
SECTION 1.03. Subchapter B-1, Chapter 2210, Insurance Code,
is amended by adding Section 2210.070 to read as follows:
Sec. 2210.070. APPLICABILITY OF SUBCHAPTER. (a) This
subchapter applies only to the payment of losses and operating
expenses of the association for a catastrophe year that occurs
before January 1, 2026, and results in excess losses and operating
expenses incurred by the association before January 1, 2026.
(b) Payment of excess losses and operating expenses of the
association incurred after December 31, 2025, shall be paid as
provided by Subchapter B-2.
SECTION 1.04. Section 2210.071(a), Insurance Code, is
amended to read as follows:
(a) If, in a catastrophe year before January 1, 2026, an
occurrence or series of occurrences in a catastrophe area results
in insured losses and operating expenses of the association in
excess of premium and other revenue of the association, the excess
losses and operating expenses shall be paid as provided by this
subchapter.
SECTION 1.05. Section 2210.0715(b), Insurance Code, is
amended to read as follows:
(b) Proceeds of public securities issued, a financing
arrangement entered into, or assessments made before January 1,
2026, or as a result of any occurrence or series of occurrences in a
catastrophe year that occurs before January 1, 2026, and results in
insured losses before that date may not be included in reserves
available for a subsequent catastrophe year for purposes of this
section or Section 2210.082 unless approved by the commissioner.
SECTION 1.06. The heading to Section 2210.075, Insurance
Code, is amended to read as follows:
Sec. 2210.075. REINSURANCE BY MEMBERS.
SECTION 1.07. Subchapter B-1, Chapter 2210, Insurance Code,
is amended by adding Section 2210.076 to read as follows:
Sec. 2210.076. PAYMENT FROM STATE-FUNDED FINANCING
ARRANGEMENTS. (a) Notwithstanding the provisions of this
subchapter to the contrary, the association may pay losses the
association would otherwise pay as provided by Section 2210.072,
2210.073, or 2210.0741 by borrowing from, or entering into other
financing arrangements with, this state as provided by Subchapter
M-1 and Section 404.0242, Government Code.
(b) Subchapter M-2 applies to the financing of losses under
this section to the extent necessary to secure and repay a debt
obligation to the state under a financing arrangement entered into
with this state under this section.
(c) A financing arrangement described by Subsection (a) may
also be used for a purpose described by Section 2210.072(d) in the
same manner as a financing arrangement with a market source.
SECTION 1.08. Chapter 2210, Insurance Code, is amended by
adding Subchapter B-2 to read as follows:
SUBCHAPTER B-2. PAYMENT OF EXCESS LOSSES AND OPERATING EXPENSES
Sec. 2210.080. APPLICABILITY OF SUBCHAPTER. (a) This
subchapter applies only to the payment of losses and operating
expenses of the association for a catastrophe year that occurs
after December 31, 2025, and results in excess losses and operating
expenses incurred by the association after December 31, 2025.
(b) This section expires September 1, 2027.
Sec. 2210.081. PAYMENT OF EXCESS LOSSES. (a) If, in a
catastrophe year, an occurrence or series of occurrences in a
catastrophe area results in insured losses and operating expenses
of the association in excess of premium and other revenue of the
association, the excess losses and operating expenses shall be paid
as provided by this subchapter.
(b) The association may not pay insured losses and operating
expenses resulting from an occurrence or series of occurrences in a
catastrophe year with premium and other revenue earned in a
subsequent year.
Sec. 2210.082. PAYMENT FROM RESERVES AND TRUST FUND;
STATE-FUNDED FINANCING ARRANGEMENTS. (a) The association shall
pay insured losses and operating expenses resulting from an
occurrence or series of occurrences in a catastrophe year in excess
of premium and other revenue of the association for that
catastrophe year from reserves of the association available before
or accrued during that catastrophe year and amounts in the
catastrophe reserve trust fund available before or accrued during
that catastrophe year.
(b) For insured losses and operating expenses for a
catastrophe year not paid under Subsection (a), the association
shall arrange for financing of not more than $1 billion through one
or more financing arrangements entered into with the state as
provided by Subchapter M-1 and Section 404.0242, Government Code.
Sec. 2210.083. PAYMENT FROM MEMBER ASSESSMENTS. (a)
Insured losses and operating expenses for a catastrophe year not
paid under Section 2210.082 shall be paid as provided by this
section from member assessments not to exceed $1 billion for that
catastrophe year.
(b) The board of directors shall notify each association
member of the amount of the member's assessment under this section.
The proportion of the insured losses and operating expenses
allocable to each insurer under this section shall be determined in
the manner used to determine each insurer's participation in the
association for the year under Section 2210.052.
(c) An association member may not recoup an assessment paid
under this section through a premium surcharge or tax credit.
Sec. 2210.084. REINSURANCE BY MEMBERS FOR MEMBER
ASSESSMENTS. (a) Before any occurrence or series of occurrences,
an association member may purchase reinsurance to cover an
assessment for which the member would otherwise be liable under
this subchapter.
(b) An association member must notify the board of
directors, in the manner prescribed by the association, whether the
member will be purchasing reinsurance. If the member does not
purchase reinsurance under this section, the member remains liable
for any assessment imposed under this subchapter.
SECTION 1.09. Section 2210.452(b), Insurance Code, is
amended to read as follows:
(b) All money, including investment income, deposited in
the trust fund constitutes state funds until disbursed as provided
by this chapter and commissioner rules. The comptroller shall hold
the money outside the state treasury on behalf of, and with legal
title in, the department on behalf of the association. The
department shall keep and maintain the trust fund in accordance
with this chapter and commissioner rules. The comptroller, as
custodian of the trust fund, shall administer the trust fund
strictly and solely as provided by this chapter and commissioner
rules. The association may include the amounts held in the
catastrophe reserve trust fund as an admitted asset in the
financial statements of the association.
SECTION 1.10. Section 2210.4521(a), Insurance Code, is
amended to read as follows:
(a) The comptroller shall invest in accordance with the
investment standard described by Section 404.024(j), Government
Code, the portion of the trust fund balance that exceeds the amount
of the sufficient balance determined under Subsection (b). The
comptroller's investment of that portion of the balance is not
subject to any other limitation or other requirement provided by
Section 404.024, Government Code. The Texas Treasury Safekeeping
Trust Company and board of directors may recommend investments to
protect the trust fund and create investment income.
SECTION 1.11. Sections 2210.453(d) and (e), Insurance Code,
are amended to read as follows:
(d) The association may obtain reinsurance at any level
including excess of loss, quota share, and other forms of
reinsurance to protect the solvency and viability of the
association. The commissioner may consult with the board of
directors regarding methods to protect the solvency and continued
viability of the association, including by protecting the minimum
balance, acquiring reinsurance, or by other means [The cost of the
reinsurance purchased or alternative financing mechanisms used
under this section in excess of the minimum funding level required
by Subsection (b) shall be paid by assessments as provided by this
subsection. The association, with the approval of the
commissioner, shall notify each member of the association of the
amount of the member's assessment under this subsection. The
proportion of the cost to each insurer under this subsection shall
be determined in the manner used to determine each insurer's
participation in the association for the year under Section
2210.052].
(e) The commissioner may adopt a method or approve the
association's method of determining the probability of one in 100
for association risks. The commissioner shall provide any adopted
or approved method to the association on or before February 1 of
each year [A member of the association may not recoup an assessment
paid under Subsection (d) through a premium surcharge or tax
credit].
SECTION 1.12. Section 2210.601, Insurance Code, is amended
to read as follows:
Sec. 2210.601. FINDINGS [PURPOSE]. The legislature finds
that for losses incurred before January 1, 2026, authorizing the
association to enter into financing arrangements with this state as
provided by Section 2210.076 [issuance of public securities] to
provide a method to raise funds to provide windstorm and hail
insurance through the association in certain designated portions of
the state is for the benefit of the public and in furtherance of a
public purpose.
SECTION 1.13. Subchapter M, Chapter 2210, Insurance Code,
is amended by adding Section 2210.6015 to read as follows:
Sec. 2210.6015. APPLICABILITY OF SUBCHAPTER. To provide
for a reasonable transition, the association may issue public
securities under this subchapter or enter into financing
arrangements with this state as provided by Section 2210.076 if the
association needs to provide funds for excess losses and operating
expenses incurred by the association before January 1, 2026, for a
catastrophe year occurring before January 1, 2026. After December
31, 2025, the association may not issue public securities under
this subchapter except to fund excess losses and operating expenses
incurred before January 1, 2026.
SECTION 1.14. Chapter 2210, Insurance Code, is amended by
adding Subchapters M-1 and M-2 to read as follows:
SUBCHAPTER M-1. STATE-FUNDED CATASTROPHE FINANCING ARRANGEMENTS
Sec. 2210.631. STATE-FUNDED CATASTROPHE FINANCING
ARRANGEMENTS. The legislature has determined that providing
catastrophe funding to the association by permitting the
association to enter into a financing arrangement with this state
is an acceptable use of state money and provides an efficient method
for the association to pay losses following a catastrophic event.
Sec. 2210.632. PROCEEDS OF CATASTROPHE FINANCING
ARRANGEMENT. The proceeds of a catastrophe financing arrangement
with this state entered into under this subchapter before a
catastrophic event shall be deposited in the catastrophe reserve
trust fund.
Sec. 2210.633. CATASTROPHE FINANCING ARRANGEMENT
AUTHORIZED; LIMITS. (a) The association may enter into a financing
arrangement with this state as provided by Section 404.0242,
Government Code:
(1) before a catastrophic event, for not more than
$500 million; and
(2) after a catastrophic event that depletes the
catastrophe reserve fund, for not more than $1 billion.
(b) The amount available under Subsection (a)(2) is reduced
by the amount of any outstanding pre-event or post-event financing
obtained by the association under this section.
SUBCHAPTER M-2. CATASTROPHE SURCHARGE
Sec. 2210.641. DEFINITION. In this subchapter,
"catastrophic event" means an occurrence or a series of occurrences
that:
(1) occurs in a catastrophe area during a calendar
year; and
(2) results in insured losses and operating expenses
of the association in excess of premium and other revenue of the
association.
Sec. 2210.642. APPLICABILITY OF SUBCHAPTER. (a)
Notwithstanding Section 2210.006, this subchapter applies to an
insurer that is:
(1) an insurer authorized to engage in the business of
insurance in this state that is required to be a member of the
association, including a farm mutual insurance company that is a
fronting insurer as defined by Section 221.001(c);
(2) a farm mutual insurance company that is not a
fronting insurer as defined by Section 221.001(c) only for purposes
of the collection of surcharges authorized by this subchapter;
(3) an unaffiliated eligible surplus lines insurer
writing the lines of business subject to a premium surcharge under
this subchapter;
(4) the association; and
(5) the FAIR Plan Association.
(b) A premium surcharge under this subchapter applies to:
(1) a policy written under the following lines of
insurance:
(A) fire and allied lines;
(B) farm and ranch owners; and
(C) residential property insurance; and
(2) the property insurance portion of a commercial
multiple peril insurance policy.
Sec. 2210.6425. CONSTRUCTION OF SUBCHAPTER. (a) This
subchapter may not be construed to require an insurer to be an
association member if the insurer is not otherwise required to be a
member under Section 2210.052.
(b) A farm mutual insurance company that is not a fronting
insurer as defined by Section 221.001(c) is not a member of the
association as a result of the company's collection of surcharges
authorized by this subchapter or for any other reason.
Sec. 2210.643. ANNUAL FINANCIAL REPORT BY COMMISSIONER.
The commissioner shall determine the amount available in the
catastrophe reserve trust fund as of December 31 of each year and
provide a written report to the governor, lieutenant governor, and
speaker of the house of representatives that includes:
(1) the amount available in the catastrophe reserve
trust fund; and
(2) information regarding the current financial
condition of the association.
Sec. 2210.6435. CATASTROPHE SURCHARGES. (a) The
commissioner, in consultation with the board of directors, may
order a catastrophe surcharge as provided by this subchapter only
if:
(1) before a catastrophic event, the association
enters into a financing arrangement with this state that is the
basis for the surcharge under Subchapter M-1; or
(2) after a catastrophic event:
(A) the commissioner determines that the
association has depleted its reserves, other money, and the
catastrophe reserve trust fund; and
(B) the association enters into a financing
arrangement with this state that is the basis for the surcharge
under Subchapter M-1.
(b) The commissioner, in consultation with the board of
directors, shall set the catastrophe surcharge as a percentage of
premium to be collected by each insurer to which this subchapter
applies.
(c) The total amount authorized to be collected under this
section for any catastrophe surcharge may not exceed the amount
needed to repay the debt obligation to the state under the financing
arrangement entered into with this state under Subchapter M-1 that
is the basis for the surcharge.
(d) The catastrophe surcharge percentage must be set in an
amount sufficient to repay the debt obligation to the state under
the financing arrangement entered into with this state under
Subchapter M-1 that is the basis for the surcharge. The
commissioner may set the surcharge as a percentage of premium to
collect the needed aggregate amount over a period of time not to
exceed three years.
(e) A catastrophe surcharge authorized under this section
shall be assessed by insurers on all policyholders of policies that
are subject to this subchapter.
(f) A catastrophe surcharge under this subchapter is a
separate charge in addition to the premiums collected and is not
subject to premium tax or commissions.
(g) Failure by a policyholder to pay a catastrophe surcharge
constitutes failure to pay premium for purposes of policy
cancellation.
(h) A catastrophe surcharge is not refundable if the policy
is canceled or terminated.
Sec. 2210.644. CATASTROPHE SURCHARGE PROCEEDS. The
proceeds of a catastrophe surcharge authorized under this
subchapter shall be deposited into the catastrophe reserve trust
fund or an account designated by the comptroller for purposes of
repayment of the association's debt obligation to the state under
the financing arrangement that is the basis for the surcharge.
Sec. 2210.6445. DISCLOSURE OF SURCHARGE. Each policy that
is assessed a surcharge under this subchapter shall contain the
following prominent disclosure in the documents attached to the
policy:
"A CATASTROPHE SURCHARGE HAS BEEN INCLUDED ON YOUR POLICY.
THIS SURCHARGE WILL BE USED TO REPAY STATE MONEY USED BY THE TEXAS
WINDSTORM INSURANCE ASSOCIATION TO PAY FOR LOSSES AFTER A
CATASTROPHIC EVENT, INCLUDING A HURRICANE. THE SURCHARGE IS NOT
REFUNDABLE IF YOU CANCEL OR TERMINATE THIS POLICY."
Sec. 2210.645. EXEMPTION FROM TAXATION. A surcharge
collected under this subchapter is exempt from taxation by this
state or a municipality or other political subdivision of this
state.
Sec. 2210.6455. LIMITATION OF PERSONAL LIABILITY. The
association members, the insurers required to collect a surcharge
under this subchapter, members of the board of directors,
association employees, the commissioner, and department employees
are not personally liable as a result of exercising the rights and
responsibilities granted under this subchapter.
Sec. 2210.646. EXEMPTION FROM SURCHARGE. An insurer may
not collect a surcharge authorized under this subchapter on any
policy issued to this state, an agency of this state, or a political
subdivision of this state.
SECTION 1.15. Subchapter C, Chapter 404, Government Code,
is amended by adding Section 404.0242 to read as follows:
Sec. 404.0242. INVESTMENT IN WINDSTORM CATASTROPHE
FINANCING ARRANGEMENTS. (a) The comptroller shall invest state
money to provide financing for losses of the Texas Windstorm
Insurance Association in accordance with this section and Chapter
2210, Insurance Code.
(b) For purposes of this section, the comptroller may enter
into an appropriate financing arrangement with the Texas Windstorm
Insurance Association to provide the association up to $500 million
in funding before a catastrophic event and up to $1 billion in
funding after a catastrophic event to fund the losses of the
association arising from the catastrophic event. Financing
provided under this section must be secured and repaid by
catastrophe surcharges under Subchapter M-2, Chapter 2210,
Insurance Code.
(c) If the terms of a financing arrangement entered into
under this section include interest, the interest rate may not
exceed the sum of:
(1) the lesser of:
(A) the rate set by the Federal Home Loan Bank
Board; or
(B) the federal funds rate as specified by
Section 4A.506(b), Business & Commerce Code; and
(2) 2 percent.
(d) A debt obligation entered into under this section may
not exceed 36 months to maturity.
(e) Notwithstanding any other law, directly or indirectly
through a separately managed account or other investment vehicle,
the comptroller may use up to $1 billion of the economic
stabilization fund balance to provide financing under this section.
(f) The aggregate amount of outstanding pre-event and
post-event financing provided under this section may not exceed $1
billion.
SECTION 1.16. Effective September 1, 2027, the following
provisions of the Insurance Code are repealed:
(1) Subchapter B-1, Chapter 2210; and
(2) Subchapter M, Chapter 2210.
SECTION 1.17. As soon as practicable after the effective
date of this Act and not later than December 1, 2025, the
commissioner of insurance shall adopt rules necessary to implement
Subchapters B-2 and M-2, Insurance Code, as added by this Act.
ARTICLE 2. CONFORMING AMENDMENTS
SECTION 2.01. Effective September 1, 2027, Section
2210.0081, Insurance Code, is amended to read as follows:
Sec. 2210.0081. CERTAIN ACTIONS BROUGHT AGAINST
ASSOCIATION BY COMMISSIONER. In an action brought by the
commissioner against the association under Chapter 441,[:
[(1) the association's inability to satisfy
obligations under Subchapter M related to the issuance of public
securities under this chapter constitutes a condition that makes
the association's continuation in business hazardous to the public
or to the association's policyholders for the purposes of Section
441.052;
[(2)] the time for the association to comply with the
requirements of supervision or for the conservator to complete the
conservator's duties, as applicable, is limited to three years from
the date the commissioner commences the action against the
association[; and
[(3) unless the commissioner takes further action
against the association under Chapter 441, as a condition of
release from supervision, the association must demonstrate to the
satisfaction of the commissioner that the association is able to
satisfy obligations under Subchapter M related to the issuance of
public securities under this chapter].
SECTION 2.02. (a) Section 2210.056(b), Insurance Code, is
amended to read as follows:
(b) The association's assets may not be used for or diverted
to any purpose other than to:
(1) satisfy, in whole or in part, the liability of the
association on claims made on policies written by the association;
(2) make investments authorized under applicable law;
(3) pay reasonable and necessary administrative
expenses incurred in connection with the operation of the
association and the processing of claims against the association;
(4) satisfy, in whole or in part, the obligations of
the association incurred in connection with Subchapters B-1, B-2,
J, [and] M, and M-2, including reinsurance, public securities, and
financial instruments; or
(5) make remittance under the laws of this state to be
used by this state to:
(A) pay claims made on policies written by the
association;
(B) purchase reinsurance covering losses under
those policies; or
(C) prepare for or mitigate the effects of
catastrophic natural events.
(b) Effective September 1, 2027, Sections 2210.056(b) and
(c), Insurance Code, are amended to read as follows:
(b) The association's assets may not be used for or diverted
to any purpose other than to:
(1) satisfy, in whole or in part, the liability of the
association on claims made on policies written by the association;
(2) make investments authorized under applicable law;
(3) pay reasonable and necessary administrative
expenses incurred in connection with the operation of the
association and the processing of claims against the association;
(4) satisfy, in whole or in part, the obligations of
the association incurred in connection with Subchapters B-2 [B-1],
J, and M-2 [M], including reinsurance[, public securities,] and
financial instruments; or
(5) make remittance under the laws of this state to be
used by this state to:
(A) pay claims made on policies written by the
association;
(B) purchase reinsurance covering losses under
those policies; or
(C) prepare for or mitigate the effects of
catastrophic natural events.
(c) On dissolution of the association, all assets of the
association[, other than assets pledged for the repayment of public
securities issued under this chapter,] revert to this state.
SECTION 2.03. (a) Section 2210.1052, Insurance Code, is
amended to read as follows:
Sec. 2210.1052. EMERGENCY MEETING. If the ultimate loss
estimate for an occurrence or series of occurrences made by the
chief financial officer or chief actuary of the association
indicates member insurers may be subject to an assessment under
Subchapter B-1 or B-2, the board of directors shall call an
emergency meeting to notify the member insurers about the
assessment.
(b) Effective September 1, 2027, Section 2210.1052,
Insurance Code, is amended to read as follows:
Sec. 2210.1052. EMERGENCY MEETING. If the ultimate loss
estimate for an occurrence or series of occurrences made by the
chief financial officer or chief actuary of the association
indicates member insurers may be subject to an assessment under
Subchapter B-2 [B-1], the board of directors shall call an
emergency meeting to notify the member insurers about the
assessment.
SECTION 2.04. Effective September 1, 2027, Section
2210.355(b), Insurance Code, is amended to read as follows:
(b) In adopting rates under this chapter, the following must
be considered:
(1) the past and prospective loss experience within
and outside this state of hazards for which insurance is made
available through the plan of operation, if any;
(2) expenses of operation, including acquisition
costs;
(3) a reasonable margin for profit and contingencies;
and
(4) [payment of public security obligations issued
under this chapter, including the additional amount of any debt
service coverage determined by the association to be required for
the issuance of marketable public securities; and
[(5)] all other relevant factors, within and outside
this state.
SECTION 2.05. (a) Section 2210.363(a), Insurance Code, is
amended to read as follows:
(a) The association may offer a person insured under this
chapter an actuarially justified premium discount on a policy
issued by the association, or an actuarially justified credit
against a surcharge assessed against the person, other than a
surcharge assessed under Subchapter M or M-2, if:
(1) the construction, alteration, remodeling,
enlargement, or repair of, or an addition to, insurable property
exceeds applicable building code standards set forth in the plan of
operation; or
(2) the person elects to purchase a binding
arbitration endorsement under Section 2210.554.
(b) Effective September 1, 2027, Section 2210.363(a),
Insurance Code, is amended to read as follows:
(a) The association may offer a person insured under this
chapter an actuarially justified premium discount on a policy
issued by the association, or an actuarially justified credit
against a surcharge assessed against the person, other than a
surcharge assessed under Subchapter M-2 [M], if:
(1) the construction, alteration, remodeling,
enlargement, or repair of, or an addition to, insurable property
exceeds applicable building code standards set forth in the plan of
operation; or
(2) the person elects to purchase a binding
arbitration endorsement under Section 2210.554.
SECTION 2.06. (a) Sections 2210.452(a) and (d), Insurance
Code, are amended to read as follows:
(a) The commissioner shall adopt rules under which the
association makes payments to the catastrophe reserve trust fund.
Except as otherwise specifically provided by this section, the
trust fund may be used only for purposes directly related to funding
the payment of insured losses, including:
(1) funding the obligations of the trust fund under
Subchapters [Subchapter] B-1 and B-2; and
(2) purchasing reinsurance or using alternative risk
financing mechanisms under Section 2210.453.
(d) The commissioner by rule shall establish the procedure
relating to the disbursement of money from the trust fund to
policyholders and for association administrative expenses directly
related to funding the payment of insured losses in the event of an
occurrence or series of occurrences within a catastrophe area that
results in a disbursement under Subchapter B-1 or B-2.
(b) Effective September 1, 2027, 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 payments to the catastrophe reserve trust fund.
Except as otherwise specifically provided by this section, the
trust fund may be used only for purposes directly related to funding
the payment of insured losses, including:
(1) funding the obligations of the trust fund under
Subchapter B-2 [B-1]; and
(2) purchasing reinsurance or using alternative risk
financing mechanisms under Section 2210.453.
(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 and[,] operating expenses,
[public security obligations, and public security administrative
expenses,] to make payments to the trust fund, procure reinsurance,
or use alternative risk financing mechanisms, or to make payments
to the trust fund and procure reinsurance or use alternative risk
financing mechanisms.
(d) The commissioner by rule shall establish the procedure
relating to the disbursement of money from the trust fund to
policyholders and for association administrative expenses directly
related to funding the payment of insured losses in the event of an
occurrence or series of occurrences within a catastrophe area that
results in a disbursement under Subchapter B-2 [B-1].
SECTION 2.07. (a) Sections 2210.453(b) and (c), Insurance
Code, are amended to read as follows:
(b) The association shall maintain total available loss
funding in an amount not less than the probable maximum loss for the
association for a catastrophe year with a probability of one in 100.
If necessary, the required funding level shall be achieved through
the purchase of reinsurance or the use of alternative financing
mechanisms, or both, to operate in addition to or in concert with
the trust fund, public securities, financial instruments,
financing arrangements, and assessments authorized by this
chapter.
(c) The attachment point for reinsurance purchased under
this section may not be less than the aggregate amount of all
funding available to the association under Subchapters
[Subchapter] B-1 and B-2.
(b) Effective September 1, 2027, Sections 2210.453(b) and
(c), Insurance Code, are amended to read as follows:
(b) The association shall maintain total available loss
funding in an amount not less than the probable maximum loss for the
association for a catastrophe year with a probability of one in 100.
If necessary, the required funding level shall be achieved through
the purchase of reinsurance or the use of alternative financing
mechanisms, or both, to operate in addition to or in concert with
the trust fund, [public securities,] financial instruments,
financing arrangements, and assessments authorized by this
chapter.
(c) The attachment point for reinsurance purchased under
this section may not be less than the aggregate amount of all
funding available to the association under Subchapter B-2 [B-1].
ARTICLE 3. TRANSITION AND SAVINGS PROVISIONS
SECTION 3.01. Notwithstanding the repeal by this Act of
Subchapters B-1 and M, Chapter 2210, Insurance Code, and other
changes in law made by this Act effective September 1, 2027:
(1) the payment of excess losses and operating
expenses of the Texas Windstorm Insurance Association incurred
before January 1, 2026, is governed by the law as it existed on the
effective date of this Act, and that law is continued in effect for
that purpose;
(2) the issuance of public securities to pay excess
losses and operating expenses of the Texas Windstorm Insurance
Association incurred before January 1, 2026, the use of the
proceeds of those securities, the repayment or refinancing of those
securities, and any other rights, obligations, or limitations with
respect to those securities and proceeds of those securities are
governed by the law as it existed on the effective date of this Act,
and that law is continued in effect for that purpose; and
(3) proceeds of any assessments made under Subchapter
B-1, Chapter 2210, Insurance Code, may not be included in reserves
available for a catastrophe year for purposes of Section 2210.082,
Insurance Code, as added by this Act, unless approved by the
commissioner of insurance.
ARTICLE 4. EFFECTIVE DATE
SECTION 4.01. Except as otherwise provided by this Act,
this Act takes effect September 1, 2025.