89R6234 RDS-F     By: Hunter H.B. No. 3689       A BILL TO BE ENTITLED   AN ACT   relating to funding of excess losses and operating expenses of the   Texas Windstorm Insurance Association; authorizing an assessment;   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 loan 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 loans 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.  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 1.03.  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 1.04.  Section 2210.071(a), Insurance Code, is   amended to read as follows:          (a)  If, in a catastrophe year before January 1, 2026, an   occurrence or series of occurrences in a catastrophe area results   in insured losses and operating expenses of the association in   excess of premium and other revenue of the association, the excess   losses and operating expenses shall be paid as provided by this   subchapter.          SECTION 1.05.  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 1.06.  The heading to Section 2210.075, Insurance   Code, is amended to read as follows:          Sec. 2210.075.  REINSURANCE BY MEMBERS.          SECTION 1.07.  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 borrowing from, or entering into other   financing arrangements with, this state as provided by Subchapter   M-1 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 debt   obligation to the state under a financing arrangement entered into   with this state under this section.          (c)  A financing arrangement described by Subsection (a) may   also be used for a purpose described by Section 2210.072(d) in the   same manner as a financing arrangement with a market source.          SECTION 1.08.  Chapter 2210, Insurance Code, is amended by   adding Subchapter B-2 to read as follows:   SUBCHAPTER B-2. PAYMENT OF EXCESS LOSSES AND OPERATING EXPENSES          Sec. 2210.080.  APPLICABILITY OF SUBCHAPTER. (a)  This   subchapter applies only to the payment of losses and operating   expenses of the association for a catastrophe year that occurs   after December 31, 2025, and results in excess losses and operating   expenses incurred by the association after December 31, 2025.          (b)  This section expires September 1, 2027.          Sec. 2210.081.  PAYMENT OF EXCESS LOSSES. (a) If, in a   catastrophe year, an occurrence or series of occurrences in a   catastrophe area results in insured losses and operating expenses   of the association in excess of premium and other revenue of the   association, the excess losses and operating expenses shall be paid   as provided by this subchapter.          (b)  The association may not pay insured losses and operating   expenses resulting from an occurrence or series of occurrences in a   catastrophe year with premium and other revenue earned in a   subsequent year.          Sec. 2210.082.  PAYMENT FROM RESERVES AND TRUST FUND;   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 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 1.09.  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 1.10.  Section 2210.4521(a), Insurance Code, is   amended 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). 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 Texas Treasury Safekeeping   Trust Company and board of directors may recommend investments to   protect the trust fund and create investment income.          SECTION 1.11.  Sections 2210.453(d) and (e), Insurance Code,   are amended to read as follows:          (d)  The association may obtain reinsurance at any level   including excess of loss, quota share, and other forms of   reinsurance to protect the solvency and viability of the   association. The commissioner may consult with the board of   directors regarding methods to protect the solvency and continued   viability of the association, including by protecting the minimum   balance, acquiring reinsurance, or by other means [The cost of the   reinsurance purchased or alternative financing mechanisms used   under this section in excess of the minimum funding level required   by Subsection (b) shall be paid by assessments as provided by this   subsection. The association, with the approval of the   commissioner, shall notify each member of the association of the   amount of the member's assessment under this subsection. The   proportion of the cost to each insurer under this subsection shall   be determined in the manner used to determine each insurer's   participation in the association for the year under Section   2210.052].          (e)  The commissioner may adopt a method or approve the   association's method of determining the probability of one in 100   for association risks. The commissioner shall provide any adopted   or approved method to the association on or before February 1 of   each year [A member of the association may not recoup an assessment   paid under Subsection (d) through a premium surcharge or tax   credit].          SECTION 1.12.  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 1.13.  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 1.14.  Chapter 2210, Insurance Code, is amended by   adding Subchapters M-1 and M-2 to read as follows:   SUBCHAPTER M-1. STATE-FUNDED CATASTROPHE FINANCING ARRANGEMENTS          Sec. 2210.631.  STATE-FUNDED CATASTROPHE 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.  PROCEEDS OF CATASTROPHE FINANCING   ARRANGEMENT.  The proceeds of a catastrophe financing arrangement   with this state entered into under this subchapter before a   catastrophic event shall be deposited in the catastrophe reserve   trust fund.          Sec. 2210.633.  CATASTROPHE FINANCING ARRANGEMENT   AUTHORIZED; LIMITS.  (a)  The association may enter into a financing   arrangement with this state as provided by Section 404.0242,   Government Code:                (1)  before a catastrophic event, for not more than   $500 million; and                (2)  after a catastrophic event that depletes the   catastrophe reserve 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.   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, 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, 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 debt obligation 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 debt obligation 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 the catastrophe reserve trust   fund or an account designated by the comptroller for purposes of   repayment of the association's debt obligation to the state under   the financing arrangement 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 1.15.  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 state   money to provide financing for losses of the Texas Windstorm   Insurance Association in accordance with this section and Chapter   2210, Insurance Code.           (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.          (c)  If the terms of a financing arrangement entered into   under this section include interest, the interest rate may not   exceed the sum of:                (1)  the lesser of:                      (A)  the rate set by the Federal Home Loan Bank   Board; or                       (B)  the federal funds rate as specified by   Section 4A.506(b), Business & Commerce Code; and                (2)  2 percent.          (d)  A debt obligation entered into under this section may   not exceed 36 months to maturity.          (e)  Notwithstanding any other law, directly or indirectly   through a separately managed account or other investment vehicle,   the comptroller may use up to $1 billion of the economic   stabilization fund balance 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 $1   billion.          SECTION 1.16.  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 1.17.  As soon as practicable after the effective   date of this Act and not later than December 1, 2025, the   commissioner of insurance shall adopt rules necessary to implement   Subchapters B-2 and M-2, Insurance Code, as added by this Act.   ARTICLE 2. CONFORMING AMENDMENTS          SECTION 2.01.  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 related to 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 related to 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, and M-2, including reinsurance, public securities, and   financial instruments; or                (5)  make remittance under the laws of this state to be   used by this state to:                      (A)  pay claims made on policies written by the   association;                      (B)  purchase reinsurance covering losses under   those policies; or                      (C)  prepare for or mitigate the effects of   catastrophic natural events.          (b)  Effective September 1, 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, and M-2 [M], including reinsurance[, public securities,] and   financial instruments; or                (5)  make remittance under the laws of this state to be   used by this state to:                      (A)  pay claims made on policies written by the   association;                      (B)  purchase reinsurance covering losses under   those policies; or                      (C)  prepare for or mitigate the effects of   catastrophic natural events.          (c)  On dissolution of the association, all assets of the   association[, other than assets pledged for the repayment of 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.  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;   and                (4)  [payment of public security obligations issued   under this chapter, including the additional amount of any debt   service 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 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-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 and[,] operating 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 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 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.