By: Middleton, Creighton, Hinojosa of Nueces S.B. No. 2571
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.
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. 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 1.02. 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 1.03. 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 1.04. Section 2210.0715(b), Insurance Code, is
amended to read as follows:
(b) Proceeds of public securities issued 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 1.05. 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 January 1, 2026.
Sec. 2210.081. PAYMENT OF EXCESS LOSSES. (a) If, in a
catastrophe year, an occurrence or series of occurrences in a
catastrophe area results in insured losses and operating expenses
of the association in excess of premium and other revenue of the
association, the excess losses and operating expenses shall be paid
as provided by this subchapter.
(b) The association may not pay insured losses and operating
expenses resulting from an occurrence or series of occurrences in a
catastrophe year with premium and other revenue earned in a
subsequent year.
Sec. 2210.082. PAYMENT FROM RESERVES AND TRUST FUND. (a)
The association shall pay insured losses and operating expenses
resulting from an occurrence or series of occurrences in a
catastrophe year in excess of premium and other revenue of the
association for that catastrophe year from reserves of the
association available before or accrued during that catastrophe
year and amounts in the catastrophe reserve trust fund available
before or accrued during that catastrophe year.
(b) Proceeds of public securities issued or assessments
made before or as a result of any occurrence or series of
occurrences in a catastrophe year that results in insured losses
may not be included in reserves available for a subsequent
catastrophe year for purposes of this section.
Sec. 2210.083. PAYMENT FROM MEMBER ASSESSMENTS. (a)
Insured losses and operating expenses for a catastrophe year not
paid under Section 2210.082 shall be paid as provided by this
section from member assessments not to exceed 33 percent of the
probable maximum loss for the association for that catastrophe
year.
(b) The association shall notify each association member of
the amount of the member's assessment under this section. The
proportion of the insured losses and operating expenses allocable
to each insurer under this section shall be determined in the manner
used to determine each insurer's participation in the association
for the year under Section 2210.052.
(c) An association member may not recoup an assessment paid
under this section through a premium surcharge or tax credit.
Sec. 2210.084. PAYMENT FROM CLASS 1 PUBLIC SECURITIES;
FINANCIAL INSTRUMENTS. (a) Losses not paid under Section 2210.083
shall be paid as provided by this section from the proceeds from
public securities issued in accordance with Subchapter M before,
on, or after the date of any occurrence or series of occurrences
that results in insured losses. Public securities described by
this section must be paid within a period not to exceed 14 years,
and shall be paid sooner if the board of directors determines the
association has the ability 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 33 percent of the
probable maximum loss for the association 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 33 percent of the probable maximum loss for the
association per catastrophe year, in the aggregate, for securities
issued during that catastrophe year before the occurrence or series
of occurrences that results in incurred losses in that year and
securities issued on or after the date of that occurrence or series
of occurrences, and regardless of whether for a single occurrence
or a series of occurrences; and
(2) subject to the maximum described by Subdivision
(1), may be issued, in one or more issuances or tranches, during the
calendar year in which the occurrence or series of occurrences
occurs or, if the public securities cannot reasonably be issued in
that year, during the following calendar year.
(c) If public securities are issued as described by this
section, the public securities shall be repaid in the manner
prescribed by Subchapter M.
(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, together with the proceeds of any
outstanding public securities issued on or before June 1, 2025,
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, together with the proceeds of any outstanding public
securities issued on or before June 1, 2025, must be depleted, those
proceeds shall count against the limit on public securities
described by this section in the catastrophe year in which the
proceeds must be depleted.
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 1.06. Effective September 1, 2026, Subchapter B-1,
Chapter 2210, Insurance Code, is repealed.
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
Subchapter B-2, Insurance Code, as added by this Act.
ARTICLE 2. CONFORMING CHANGES
SECTION 2.01. (a) Section 2210.056(b), Insurance Code, is
amended to read as follows:
(b) The association's assets may not be used for or diverted
to any purpose other than to:
(1) satisfy, in whole or in part, the liability of the
association on claims made on policies written by the association;
(2) make investments authorized under applicable law;
(3) pay reasonable and necessary administrative
expenses incurred in connection with the operation of the
association and the processing of claims against the association;
(4) satisfy, in whole or in part, the obligations of
the association incurred in connection with Subchapters B-1, B-2,
J, and M, 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, 2026, Sections 2210.056(b),
Insurance Code, is amended to read as follows:
(b) The association's assets may not be used for or diverted
to any purpose other than to:
(1) satisfy, in whole or in part, the liability of the
association on claims made on policies written by the association;
(2) make investments authorized under applicable law;
(3) pay reasonable and necessary administrative
expenses incurred in connection with the operation of the
association and the processing of claims against the association;
(4) satisfy, in whole or in part, the obligations of
the association incurred in connection with Subchapters B-2 [B-1],
J, and M, including reinsurance, public securities, and financial
instruments; or
(5) make remittance under the laws of this state to be
used by this state to:
(A) pay claims made on policies written by the
association;
(B) purchase reinsurance covering losses under
those policies; or
(C) prepare for or mitigate the effects of
catastrophic natural events.
SECTION 2.02. (a) Section 2210.1052, Insurance Code, is
amended to read as follows:
Sec. 2210.1052. EMERGENCY MEETING. If the ultimate loss
estimate for an occurrence or series of occurrences made by the
chief financial officer or chief actuary of the association
indicates member insurers may be subject to an assessment under
Subchapter B-1 or B-2, the board of directors shall call an
emergency meeting to notify the member insurers about the
assessment.
(b) Effective September 1, 2026, Section 2210.1052,
Insurance Code, is amended to read as follows:
Sec. 2210.1052. EMERGENCY MEETING. If the ultimate loss
estimate for an occurrence or series of occurrences made by the
chief financial officer or chief actuary of the association
indicates member insurers may be subject to an assessment under
Subchapter B-2 [B-1], the board of directors shall call an
emergency meeting to notify the member insurers about the
assessment.
SECTION 2.03. (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, 2026, Sections 2210.452(a) and
(d), Insurance Code, are amended to read as follows:
(a) The commissioner shall adopt rules under which the
association makes payments to the catastrophe reserve trust fund.
Except as otherwise specifically provided by this section, the
trust fund may be used only for purposes directly related to funding
the payment of insured losses, including:
(1) funding the obligations of the trust fund under
Subchapter B-2 [B-1]; and
(2) purchasing reinsurance or using alternative risk
financing mechanisms under Section 2210.453.
(d) The commissioner by rule shall establish the procedure
relating to the disbursement of money from the trust fund to
policyholders and for association administrative expenses directly
related to funding the payment of insured losses in the event of an
occurrence or series of occurrences within a catastrophe area that
results in a disbursement under Subchapter B-2 [B-1].
SECTION 2.04. (a) Section 2210.453(c), Insurance Code, is
amended to read as follows:
(c) The attachment point for reinsurance purchased under
this section may not be less than the aggregate amount of all
funding available to the association under Subchapters
[Subchapter] B-1 and B-2.
(b) Effective September 1, 2026, Section 2210.453(c),
Insurance Code, is amended to read as follows:
(c) The attachment point for reinsurance purchased under
this section may not be less than the aggregate amount of all
funding available to the association under Subchapter B-2 [B-1].
SECTION 2.05. Effective January 1, 2026, Section 2210.602,
Insurance Code, is repealed and replaced with the following:
Sec. 2210.602. DEFINITIONS. In this subchapter:
(1) "Authority" means the Texas Public Finance
Authority.
(1-a) "Board" means the board of directors of the Texas
Public Finance Authority.
(1-b) "Catastrophic event" means an occurrence or a series
of occurrences that occurs in a catastrophe area during a calendar
year and that results in insured losses and operating expenses of
the association in excess of premium and other revenue of the
association.
(2) "Class 1 public securities" means public
securities authorized to be issued by Section 2210.084, including a
commercial paper program authorized before the occurrence of a
catastrophic event.
(2-a) "Class 1 public security trust fund" means the
dedicated trust fund established by the board and held by the Texas
Treasury Safekeeping Trust Company into which premium surcharges
collected under Section 2210.612 for the purpose of paying Class 1
public securities are deposited.
(3) "Credit agreement" has the meaning assigned by
Chapter 1371, Government Code.
(4) "Public security" means a debt instrument or other
public security issued by the Texas Public Finance Authority.
(5) "Public security administrative expenses" means
expenses incurred to administer public securities issued under this
subchapter, including fees for credit enhancement, paying agents,
trustees, and attorneys, and for other professional services.
(6) "Public security obligations" means the principal
of a public security and any premium and interest on a public
security issued under this subchapter, together with any amount
owed under a related credit agreement.
(7) "Public security resolution" means the resolution
or order authorizing public securities to be issued under this
subchapter.
SECTION 2.06. Effective January 1, 2026, Section
2210.604(a), Insurance Code, is amended to read as follows:
(a) At the request of the association and with the approval
of the commissioner, the Texas Public Finance Authority shall issue
Class 1[, Class 2, or Class 3] public securities. The association
shall submit to the commissioner a cost-benefit analysis of various
financing methods and funding structures when requesting the
issuance of public securities under this subsection.
SECTION 2.07. Effective January 1, 2026, Section
2210.608(c), Insurance Code, is amended to read as follows:
(c) Notwithstanding Subsection (a)(2), the proceeds from
public securities issued under Section 2210.084 [Section 2210.072]
before an occurrence or series of occurrences that results in
incurred losses, including investment income, may not be used to
purchase reinsurance for the association.
SECTION 2.08. Effective January 1, 2026, 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 as required by this subchapter. If
the association determines that it is unable to pay the public
security obligations and public security administrative expenses,
if any, with available funds, the association shall pay those
obligations and expenses in accordance with Section 2210.612
[Sections 2210.612, 2210.613, and 2210.6131] 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 and
assess a premium surcharge if necessary.
(c) The association shall deposit all revenue collected
under Section 2210.612 in the Class 1 public security trust fund[,
all revenue collected under Section 2210.613 in the Class 2 public
security trust fund, and all revenue collected under Section
2210.6131 in the Class 3 public security trust fund]. Money
deposited in 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 Class 1 public
security trust fund[, the Class 2 public security trust fund, or the
Class 3 public security trust fund] to the appropriate account the
amount necessary to pay the public security obligation.
(d) The association shall provide for the payment of the
public security obligations and the public security administrative
expenses by irrevocably pledging revenues received from premiums,
premium surcharges, and amounts on deposit in the Class 1 public
security trust fund[, the Class 2 public security trust fund, and
the Class 3 public security trust fund,] together with any public
security reserve fund, as provided in the proceedings authorizing
the public securities and related credit agreements.
(e) An amount owed by the board under a credit agreement
shall be payable from and secured by a pledge of revenues received
by the association from the Class 1 public security trust fund[, the
Class 2 public security trust fund, and the Class 3 public security
trust fund] to the extent provided in the proceedings authorizing
the credit agreement.
SECTION 2.09. Effective January 1, 2026, Section
2210.610(a), Insurance Code, is amended to read as follows:
(a) Revenues received from the premium surcharges under
Section 2210.612 [Sections 2210.612, 2210.613, and 2210.6131] may
be applied only as provided by this subchapter.
SECTION 2.10. Effective January 1, 2026, 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 2210.612 [Sections 2210.612, 2210.613, and
2210.6131] that exceeds the amount of the public security
obligations and public security administrative expenses payable in
that calendar year and interest earned on the funds may, in the
discretion of the association, be:
(1) used to pay public security obligations payable in
the subsequent calendar year, offsetting the amount of the premium
surcharge that would otherwise be required to be levied for the year
under this subchapter;
(2) used to redeem or purchase outstanding public
securities; or
(3) deposited in the catastrophe reserve trust fund.
SECTION 2.11. Effective January 1, 2026, Sections
2210.612(a) and (e), Insurance Code, are amended to read as
follows:
(a) The association shall pay Class 1 public securities
issued under Section 2210.084 [Section 2210.072] from:
(1) net premium and other revenue; and
(2) if net premium and other revenue are not
sufficient to pay the securities, a catastrophe area premium
surcharge collected in accordance with this section.
(e) The association may enter financing arrangements as
described by Section 2210.084(d) [Section 2210.072(d)] as
necessary to obtain public securities issued under Section 2210.084
[Section 2210.072]. Nothing in this subsection shall prevent the
authorization and creation of one or more programs for the issuance
of commercial paper before the date of an occurrence or series of
occurrences that results in insured losses under Section
2210.084(a) [Section 2210.072(a)].
SECTION 2.12. Effective January 1, 2026, Section 2210.6132,
Insurance Code, is amended to read as follows:
Sec. 2210.6132. CONTINGENT SOURCE OF PAYMENT FOR CLASS 1
[CLASS 2 AND CLASS 3] PUBLIC SECURITIES. (a) The commissioner may
determine, in consultation with the board and the authority, that:
(1) the authority is unable to issue Class 1 [Class 2
or Class 3] public securities to be payable under Section 2210.612
[Section 2210.613 or 2210.6131], as applicable; or
(2) the issuance of Class 1 [Class 2 or Class 3] public
securities to be payable under Section 2210.612 [Section 2210.613
or 2210.6131], as applicable, is financially unreasonable for the
association.
(b) If the commissioner makes a determination under
Subsection (a), the commissioner shall order the Class 1 [Class 2 or
Class 3] public securities, as applicable, to be paid by a premium
surcharge assessed by each insurer, the association, and the Texas
FAIR Plan Association on all policyholders of policies that are in
effect on or after the 180th day after the date the commissioner
issues the order. The premium surcharge must be set in an amount
sufficient to pay all debt service not already covered by available
funds and all related expenses on the public securities.
(c) The premium surcharge under this section shall be
assessed on all policyholders of policies that cover insured
property that is located in a catastrophe area, including
automobiles principally garaged in a catastrophe area. The premium
surcharge shall be assessed on each Texas windstorm and hail
insurance policy and each property and casualty policy, including
an automobile insurance policy, issued for automobiles and other
property located in the catastrophe area. A premium surcharge
under Subsection (b) applies to:
(1) all policies written under the following lines of
insurance:
(A) fire and allied lines;
(B) farm and ranch owners;
(C) residential property insurance;
(D) private passenger automobile liability and
physical damage insurance; and
(E) commercial automobile liability and physical
damage insurance; and
(2) the property insurance portion of a commercial
multiple peril insurance policy.
SECTION 2.13. (a) Effective January 1, 2026, Section
2210.614, Insurance Code, is amended to read as follows:
Sec. 2210.614. REFINANCING PUBLIC SECURITIES. The
association may request the board to refinance any public
securities issued in accordance with Subchapters B-1 and B-2
[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.
(b) Effective September 1, 2026, Section 2210.614,
Insurance Code, is amended to read as follows:
Sec. 2210.614. REFINANCING PUBLIC SECURITIES. The
association may request the board to refinance any public
securities issued in accordance with Subchapter B-2 [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 2.14. Effective January 1, 2026, Sections 2210.613
and 2210.6131 are repealed.
ARTICLE 3. TRANSITION AND SAVINGS PROVISIONS
SECTION 3.01. Notwithstanding the repeal by this Act of
Subchapter B-1, Chapter 2210, Insurance Code, and other changes in
law made by this Act effective September 1, 2026:
(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.