SB2571 - Relating to funding of excess losses and operating expenses of the Texas Windstorm Insurance Association; authorizing an assessment.

      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 a [Text truncated for display. 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