HBA-NLM, ATS H.B. 2253 76(R)BILL ANALYSIS


Office of House Bill AnalysisH.B. 2253
By: Eiland
Insurance
6/7/1999
Enrolled



BACKGROUND AND PURPOSE 

The Texas Windstorm Insurance Association (TWIA), was created by the Texas
Legislature in 1971. Known then as the Texas Catastrophe Property Insurance
Association, TWIA provides insurance for property owners in designated
areas of the state of Texas where risk of hurricanes, windstorms, and hail
is great.   TWIA's membership consists of all property insurers authorized
to transact property insurance in Texas, except as provided in the
Insurance Code.  In 1993, the legislature established the catastrophe
reserve trust fund (trust fund) as part of the state's plan to address
catastrophic losses in conjunction with major storms.  Funding for the
trust fund comes from the member insurers of TWIA.  Prior to the 76th
Legislature, members relinquished their net equity pursuant to a written
agreement with the Texas Department of Insurance (department).  The trust
fund was held by the department outside the state treasury.  Legal title to
money and investments in the fund remains in the department, and the
comptroller of public accounts (comptroller) acts as custodian to
administer the funds. 

The Internal Revenue Service had suggested that the trust fund was subject
to federal taxation.  H.B. 2253 clarifies that the trust fund is a state
fund and, therefore, not subject to federal taxation.  This bill
substitutes the provision authorizing TWIA to enter into a written
agreement with the Texas Department of Insurance under which TWIA members
relinquish their net equity pursuant to the written agreement on an annual
basis by making payments to the trust fund with the alternative that the
member insurers of TWIA are required to relinquish their net equity by
making payments to the trust fund directly.  All references to the written
agreement are deleted.  Accordingly, the trust fund is no longer kept and
maintained pursuant to the written agreement between TWIA, the department,
and the comptroller.  Moreover, this bill specifies that all money
deposited in the fund is state money to be held by the comptroller outside
the state treasury on behalf of, and with legal title in, the department,
until disbursements are made as provided by this Act and rules adopted by
the commissioner.   

In addition, H.B. 2253 expands the purpose of the trust fund to include
funding a mitigation and preparedness plan established by this bill, in
addition to the trust fund's purpose to pay its obligations.  The plan is
required to provide for steps to be taken in the seacoast territory by the
commissioner of insurance (commissioner) or by a local government, state
agency, educational institution, or nonprofit organization designated by
the commissioner in the plan to: implement programs intended to improve
preparedness for windstorm and hail catastrophes; reduce potential losses
in the event of such a catastrophe; provide research into the means to
reduce those losses; educate or inform the public in determining the
appropriateness of particular upgrades to structures; or protect
infrastructure from potential damage from those catastrophes.  To fund the
plan, the department is authorized, each fiscal year, to use from the
investment income of the trust fund an amount equal to not less than $1
million and not more than 10 percent of the investment income of the prior
fiscal year.  Moreover, if the trust fund is terminated by law, all assets
of the fund revert to the state to be used to provide funding for this
plan. 

RULEMAKING AUTHORITY

It is the opinion of the Office of House Bill Analysis that rulemaking
authority is expressly delegated to the commissioner of insurance in
SECTION 2.03 (Section 8(i), Article 21.49, Insurance Code) of this bill. 
 
 
SECTION BY SECTION ANALYSIS

ARTICLE 1.  DECLARATION OF LEGISLATIVE INTENT

SECTION 1.01.  Sets forth the findings of the legislature.

SECTION 1.02.  Specifies that the Texas Windstorm Insurance Association
(TWIA) exists as a statemandated association and sets forth the declaration
of the legislature relating to the purpose of this Act. 

ARTICLE 2.  CONFORMING AMENDMENTS TO ARTICLE 21.49

SECTION 2.01.  Amends Section 4, Article 21.49, Insurance Code, by adding
Subsections (c) and (d), as follows: 

(c) Provides that no part of the net earnings of TWIA may inure to the
benefit of any private shareholder or individual.  Prohibits the assets of
TWIA from being used for or diverted to any purpose, other than those
specified by this subsection. 

(d) Establishes that on dissolution of TWIA, all assets of TWIA revert to
this state. 

SECTION 2.02. Amends Section 8(h)(13), Article 21.49, Insurance Code, to
include making payments into the catastrophe reserve trust fund (trust
fund) established under, rather than entering into a contract as provided
in, Subsection (i) of this section (Rates, Rating Plans and Rate Rules
Applicable), as an alternative to the establishment of a reinsurance
program by TWIA.  Makes a conforming change. 

SECTION 2.03.  Amends Section 8(i), Article 21.49, Insurance Code, as
follows: 

(i)(1) Requires the commissioner of  insurance (commissioner) to adopt
rules, rather than authorizes TWIA to enter into a written agreement with
the Texas Department of Insurance (department), under which TWIA members
relinquish their equity to pay the obligations of the trust fund under
Section 19(a) (Payment of Losses; Premium Tax Credit) of this article,
rather than to protect policyholders of TWIA, and to fund the mitigation
and preparedness plan (plan) established under this subsection.  Provides
that all money deposited in the trust fund is state money to be held by the
comptroller of public accounts (comptroller), rather than the department,
outside the state treasury on behalf of, and with legal title in, the
department, until disbursements are made as provided by this article and
rules adopted by the commissioner.  Provides that, if the trust fund is
terminated by law, all assets of the fund revert to the state to be used to
provide funding for the annual loss mitigation and preparedness plan
developed and implemented by the commissioner under Subdivision (5) of this
subsection.  Makes conforming changes. 

(2) Requires the fund to be kept and maintained by the department under
this article and rules adopted by the commissioner, rather than under the
written agreement between TWIA, the department, and the comptroller.
Requires the comptroller to administer the funds solely as provided by this
article and the commissioner's rules, rather than the agreement.  Deletes
the prohibition against the state taking any action with respect to the
trust fund other than as specified by this article and the agreement.
Makes a conforming change. 

(3) Requires, rather than authorizes, TWIA to pay the net equity of  a
member at the end of either calendar year or policy year.  Deletes the
provision authorizing all funds held on behalf of or paid to TWIA under one
or more reinsurance plans or programs to be immediately paid to the
catastrophe reserve trust fund.  Makes a nonsubstantive change. 

(4) Requires the commissioner's rules, rather than the written agreement,
to establish the procedure relating to the disbursement of money, rather
than funds, from the trust fund to policyholders in the event of an
occurrence or series of occurrences within the defined  catastrophe area
that results in a disbursement under Section 19(a) of this article, rather
than in insured losses and operating expenses of the association greater
than $100 million. 

(5) Authorizes the department, each state fiscal year beginning with fiscal
year 2002, to use from the investment income of the trust fund an amount
equal to not less than $1 million and not more than 10 percent of the
investment income of the prior fiscal year to provide funding for an annual
plan to be developed and implemented each year by the commissioner.
Authorizes the department to use in each fiscal year $1 million for the
windstorm inspection program established under Section 6A (Inspections for
Windstorm and Hail Insurance) of this article. Requires the plan to provide
for steps to be taken in the seacoast territory by the commissioner or by a
local government, state agency, educational institution, or nonprofit
organization designated by the commissioner in the plan to: implement
programs intended to improve preparedness for windstorm and hail
catastrophes; reduce potential losses in the event of such a catastrophe;
provide research into the means to reduce those losses; educate or inform
the public in determining the appropriateness of particular upgrades to
structures; or protect infrastructure from potential damage from those
catastrophes. Sets forth that money in excess of $1 million is not
available for use under this subsection if the commissioner determines that
an expenditure of investment income from the fund would jeopardize the
actuarial soundness of the fund or materially impair the ability of the
fund to serve the state purposes for which it was established. 

ARTICLE 3.  EFFECTIVE DATE; EMERGENCY

SECTION 3.01.  Effective date: September 1, 1999.

SECTION 3.02.  Emergency clause.