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

89(R) HB 3689 - Enrolled version - Bill Text

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 liable

for any assessment imposed under this subchapter.

SECTION 1.10. 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 1.11. Section 2210.4521, Insurance Code, is amended

by amending Subsection (a) and adding Subsection (a-1) 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).

(a-1)
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 comptroller and

board of directors may recommend investments to protect the trust

fund and create investment income.

SECTION 1.12. Section 2210.453, Insurance Code, is amended

by amending Subsection (b) and adding Subsection (d-1) 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
50

[
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, and assessments authorized by this chapter.

(d-1)

The commissioner may adopt a method or approve the

association's method of determining the probability of one in 50

for association risks. The commissioner shall provide any adopted

or approved method to the association on or before February 1 of

each year.

SECTION 1.13. 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 1.14. 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 1.15. Chapter 2210, Insurance Code, is amended by

adding Subchapters M-1 and M-2 to read as follows:

SUBCHAPTER M-1. STATE-FUNDED FINANCING ARRANGEMENTS

Sec.

2210.631.

DEFINITION. In this subchapter,

"catastrophic event" has the meaning assigned by Section 2210.602.

Sec.

2210.6315.

STATE-FUNDED 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.

FINANCING ARRANGEMENT AUTHORIZED; LIMITS.

(a)

The association may enter into a financing arrangement with

this state as provided by Section 404.0242, Government Code, and in

accordance with this subchapter:

(1)

before a catastrophic event, for not more than

$500 million; and

(2)

after a catastrophic event that depletes the

catastrophe reserve trust 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.

Sec.

2210.6325.

REQUEST TO ENTER INTO FINANCING

ARRANGEMENT. (a) The association may submit a request to the

comptroller to enter into a financing arrangement as authorized by

Section 404.0242, Government Code. The request must include the

association's requested maximum principal amount and maximum term

of the arrangement.

(b)

The association and the comptroller may agree to

increase the maximum principal amount stated in a request submitted

under Subsection (a) on a showing that a greater principal amount is

needed to:

(1)

pay the costs related to the issuance of the

financing arrangement;

(2) provide for a debt service reserve fund; or

(3)

capitalize interest for a period equal to the

lesser of:

(A)

a period determined necessary by the

association; or

(B) six months.

Sec.

2210.633.

ADDITIONAL COVENANTS.

With respect to a

financing arrangement entered into under Section 2210.632, the

association may:

(1)

make additional covenants with respect to the

financing arrangement and the designated income and receipts of the

association pledged to the payment of the financing arrangement;

and

(2)

provide for the flow of money and the

establishment, maintenance, investment, and administration of

funds and accounts with respect to the financing arrangement.

Sec.

2210.6335.

DEPOSIT OF PROCEEDS.

The proceeds of a

financing arrangement with this state entered into under Section

2210.632 before a catastrophic event shall be deposited into a

separate account located in the catastrophe reserve trust fund.

Sec.

2210.634.

USE OF PROCEEDS. (a) The proceeds of a

financing arrangement, including investment income, shall be held

in trust for the exclusive use and benefit of the association. The

association may use the proceeds to:

(1)

pay incurred claims and operating expenses of the

association;

(2)

pay the costs of issuing a financing arrangement

and any financing arrangement administrative expenses;

(3) provide for debt service reserve funds;

(4)

pay capitalized interest and principal on a

financing arrangement for a period determined necessary by the

association;

(5)

pay private financial arrangements entered into by

the association as temporary sources of payment of losses and

operating expenses of the association; and

(6)

reimburse the association for any cost described

by this subsection paid to the association before issuance of the

financing arrangement.

(b)

The association may use excess proceeds of a financing

arrangement entered into under Section 2210.632 remaining after the

purposes for which the financing arrangement was entered into are

satisfied to repay any financing arrangement obligations or

financing arrangement administrative expenses. If all outstanding

financing arrangement obligations or financing arrangement

administrative expenses are satisfied, the excess proceeds shall be

transferred to the catastrophe reserve trust fund.

Sec.

2210.6345.

REPAYMENT OF FINANCING ARRANGEMENT

OBLIGATION. (a)

With respect to a financing arrangement entered

into under Section 2210.632, the comptroller and the association

shall enter into a separate agreement under which the association

shall provide for the payment of all financing arrangement

obligations and financing arrangement administrative expenses from

money collected by the association and deposited in the manner

provided by this subchapter.

(b)

If a financing arrangement entered into under Section

2210.632 is outstanding, the comptroller shall notify the

association of the amount of outstanding financing arrangement

obligations and estimated financing arrangement administrative

expenses each calendar year in a period sufficient, as determined

by the association, to permit the association to assess a premium

surcharge as necessary to meet the obligations and expenses.

Sec.

2210.635.

EXCESS REVENUE COLLECTIONS AND INVESTMENT

EARNINGS. With respect to a financing arrangement entered into

under Section 2210.632, the association may use revenue collected

in a calendar year from a premium surcharge, including earned

interest, that exceeds the amount of the financing arrangement

obligations and financing arrangement administrative expenses

payable during that calendar year to:

(1)

pay financing arrangement obligations payable in

the subsequent calendar year, offsetting the amount of a premium

surcharge that would otherwise be required to be levied for the year

under this chapter;

(2)

pay outstanding financing arrangement

obligations; or

(3)

deposit additional money into the catastrophe

reserve trust fund.

Sec.

2210.6355.

SOURCE OF PAYMENT; STATE DEBT NOT CREATED.

(a) A financing arrangement entered into under Section 2210.632 is

payable solely from revenue as provided by this subchapter.

(b)

A financing arrangement entered into under Section

2210.632 is not a debt of this state or any state agency or

political subdivision of this state and does not constitute a

pledge of the faith and credit of this state or any state agency or

political subdivision of this state.

(c)

Each financing arrangement entered into under Section

2210.632 must state that:

(1)

except as otherwise provided by this subchapter,

neither this state nor a state agency, political corporation, or

political subdivision of this state is obligated to pay the

principal of or interest on the financing arrangement; and

(2)

neither the faith and credit nor the taxing power

of this state or a state agency, political corporation, or

political subdivision of this state is pledged to the payment of the

principal of or interest on the financing arrangement.

Sec.

2210.636.

STATE NOT TO IMPAIR FINANCING ARRANGEMENT

OBLIGATION. The state pledges for the benefit and protection of

financing parties that the state will not take or permit any action

that would:

(1)

impair the collection of premium surcharges or the

deposit of that money into the applicable fund;

(2)

reduce, alter, or impair the premium surcharges to

be imposed, collected, and remitted to financing parties until the

principal, interest, and premium and any other charges incurred and

contracts to be performed in connection with the related financing

arrangement obligations have been paid and performed in full; or

(3)

in any way impair the rights and remedies of the

parties to a financing arrangement entered into under Section

2210.632 before the financing arrangement is fully discharged.

Sec.

2210.6365.

RIGHTS WITH RESPECT TO FINANCING

ARRANGEMENT. If amounts due under a financing arrangement entered

into under Section 2210.632 are outstanding, the rights and

interests of the association, a successor to the association, any

member of the association, or any member of the Texas FAIR Plan

Association, including the right to impose, collect, and receive a

premium surcharge authorized under this subchapter, are only

contract rights until those revenues are first pledged for the

repayment of the association's financing arrangement obligations

as provided by this subchapter and Subchapter M-2.

Sec.

2210.637.

ENFORCEMENT. A writ of mandamus and any

other legal and equitable remedies are available to a party at

interest to require the association or another party to fulfill an

agreement and to perform functions and duties under:

(1) this subchapter;

(2) the Texas Constitution; or

(3) a relevant financing arrangement.

Sec.

2210.6375.

NO PERSONAL LIABILITY. Notwithstanding any

other provision of this subchapter, the members of the association,

the members of the association board of directors, association

employees, the comptroller and comptroller employees, the

commissioner, and department employees are not liable as a result

of exercising the rights and responsibilities granted under this

subchapter, including by entering into a financing arrangement

under Section 2210.632.

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 and the

comptroller, 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 and the comptroller, 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 financing arrangement obligation and

administrative expenses 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 financing arrangement obligation and

administrative expenses 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 an account designated by the

comptroller for purposes of repayment of the association's

financing arrangement obligation and administrative expenses to

the state under the financing arrangement entered into with this

state under Subchapter M-1 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 1.16. 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 certain

economic stabilization fund balances to provide a financing

arrangement for losses of the Texas Windstorm Insurance Association

in accordance with this section and Chapter 2210, Insurance Code,

provided that, at the time of investment, the economic

stabilization fund balances are above the sufficient balance

determined under Section 316.092 of this code. For the purpose of

investing the assets of the economic stabilization fund under this

section, the comptroller may acquire, exchange, sell, supervise,

manage, or retain any kind of investment that a prudent investor

exercising reasonable care, skill, and caution would acquire,

exchange, sell, supervise, manage, or retain in light of the

purposes, terms, distribution requirements, and other

circumstances then prevailing for the economic stabilization fund,

taking into consideration the investment of all the assets of the

fund rather than a single investment.

(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. For purposes of this chapter and subchapter, the

term "financing arrangement" includes all outstanding principal,

interest, and related financing and administrative expenses in

issuing a financing arrangement.

(c)

The interest rate charged in connection with a financing

arrangement entered into under this section shall be calculated as

the sum of:

(1)

the current market rate of a United States

Treasury Security of comparable maturity, as determined by the

comptroller; and

(2) two percent.

(d)

A financing arrangement entered into under this section

may not exceed 36 months to maturity and may include a contractual

coverage amount of at least 1.10 but not greater than 1.25.

(e)

Notwithstanding any other law, directly or indirectly

through a separately managed account or other investment vehicle,

the comptroller may invest up to $1 billion of the economic

stabilization fund balance per catastrophe year 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 $2

billion.

(g)

A person may not bring a civil action against this

state, the Texas Treasury Safekeeping Trust Company, or an

employee, independent contractor, or official of this state,

including the comptroller, for any claim, including breach of

fiduciary duty or violation of any constitutional, statutory, or

regulatory requirement, in connection with any action, inaction,

decision, divestment, investment, report, or other determination

made or taken in connection with this section. A person who brings

an action described by this subsection is liable to the defendant

for the defendant's costs and attorney's fees resulting from the

action.

(h)

The comptroller shall manage the investments required

by this section as a separate investment portfolio. The comptroller

shall provide separate accounting and reporting for the investments

in that portfolio. The comptroller shall credit to that portfolio

all payments, distributions, interest, and other earnings on the

investments in that portfolio. The comptroller has any power

necessary to accomplish the purposes of managing and investing the

assets of this separate investment portfolio. In managing the

assets of that portfolio, through procedures and subject to

restrictions the comptroller considers appropriate, the

comptroller may acquire, sell, transfer, or otherwise assign the

investments as appropriate, taking into consideration the

purposes, terms, distribution requirements, and other

circumstances of that portfolio then prevailing.

SECTION 1.17. 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 1.18. 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, M-1, and M-2, Chapter 2210, Insurance Code, as

added by this Act.

ARTICLE 2. CONFORMING AMENDMENTS

SECTION 2.01. (a) 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
, M-1, or M-2
related to
a financing arrangement

entered into or
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
, M-1, or M-2
related to
a

financing arrangement entered into or
the issuance of public

securities under this chapter.

(b) 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-1 or M-2
[
M
] related to
a financing arrangement

entered into
[
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-1 or M-2
[
M
] related to
a

financing arrangement entered into
[
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,
M-1, and M-2,
including reinsurance,
financing

arrangements,
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,
M-1,
and
M-2
[
M
], including reinsurance
, financing arrangements,

[
, 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

financial arrangements entered into
[
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. (a) 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;

(4) payment of
financing arrangement obligations or

public security obligations issued under this chapter, including

the additional amount of any debt service coverage
included in a

financing arrangement or
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.

(b) 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;

(4) payment of
financing arrangement
[
public

security
] obligations issued under this chapter, including the

additional amount of any debt service
included in a financing

arrangement
[
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
, M-1, 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-1 or 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, operating expenses,

financing arrangement obligations, and financing arrangement

administrative 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
50

[
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
50

[
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.

______________________________

______________________________

President of the Senate

Speaker of the House

I certify that H.B. No. 3689 was passed by the House on May 1,

2025, by the following vote: Yeas 131, Nays 12, 1 present, not

voting; and that the House concurred in Senate amendments to H.B.

No. 3689 on May 28, 2025, by the following vote: Yeas 114, Nays 20,

1 present, not voting.

______________________________

Chief Clerk of the House

I certify that H.B. No. 3689 was passed by the Senate, with

amendments, on May 26, 2025, by the following vote: Yeas 29, Nays

2.

______________________________

Secretary of the Senate

APPROVED: __________________

Date

__________________

Governor