HB3689 - Relating to funding of excess losses and operating expenses of the Texas Windstorm Insurance Association; authorizing an assessment; authorizing a surcharge.

      H.B. No. 3689         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 financing arrangement 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 financing   arrangements 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.  Section 2210.003, Insurance Code, is amended   by adding Subdivisions (3-c), (3-d), and (3-e) to read as follows:                 (3-c)     "Financing arrangement" means an arrangement   entered into by the association for the financing of payments for   the uses authorized by Section 2210.634. The term includes an   arrangement between the association and this state under Section   404.0242, Government Code.                 (3-d)     "Financing arrangement administrative expense"   means an expense incurred to administer a financing arrangement   issued under this chapter, including:                       (A)  a fee for credit enhancement;                       (B)     a payment to a paying agent, trustee, or   attorney; or                       (C)     an expense relating to another professional   service necessary to carry out a financing arrangement.                 (3-e)     "Financing arrangement obligation" means the   principal of and any premium and interest on a financing   arrangement issued under this chapter.          SECTION 1.03.  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 1.04.  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 1.05.  Section 2210.071, Insurance Code, is amended   to read as follows:          Sec. 2210.071.  PAYMENT OF EXCESS LOSSES.  (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.          (b)  The association may not 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 with premium and other   revenue earned in a subsequent year.          SECTION 1.06.  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 1.07.  The heading to Section 2210.075, Insurance   Code, is amended to read as follows:          Sec. 2210.075.  REINSURANCE BY MEMBERS .          SECTION 1.08.  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 entering into financing arrangements with   this state as provided by Subchapter M-1 of this code 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 financing   arrangement to the state that is entered into under Subchapter M-1.           (c)     The association may enter into a financing arrangement   that includes interest-bearing loans or other financial   instruments with any market source to enable the association to pay   losses secured by a financing arrangement with this state under   Subchapter M-1.          SECTION 1.09.  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. 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.           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 in excess of premium and other revenue of the   association for that 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 of this code 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 li [Text truncated for display. Full text available on Congress.gov.]