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