bill rewriting how the windstorm association pays excess losses

The text as introduced · 4,277 words

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.