Hunter Windstorm Bill Bars Lawsuits Over Rainy Day Fund Investments

The text as introduced · 5,359 words

89R6234 RDS-F

By: Hunter
H.B. No. 3689

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.