28 TAC §5.4001
The Texas Department of Insurance (department) proposes amendments
to 28 TAC §5.4001, the plan of operation of the Texas Windstorm Insurance
Association (association or TWIA). The purpose of the association is to provide
windstorm and hail insurance coverage to coastal residents who are unable
to obtain such coverage in the voluntary market. In 1993, the Legislature
established the catastrophe reserve trust fund to protect the policyholders
of the association and to reduce the potential for payments by members of
the association that give rise to premium tax credits in the event of a catastrophic
loss. The proposed amendments are necessary to update §5.4001 (referred
to as the plan of operation or the plan) to conform to amendments to Article
21.49 of the Insurance Code enacted by the 76th Texas Legislature in HB 2253.
In HB 2253, the legislature in its declaration of legislative intent stated
that the catastrophe reserve trust fund was formed to shelter the state's
general revenue fund from dissipation through the loss of premium taxes in
the event of catastrophic hurricane losses and as part of the state's planning
and provision for relief from catastrophic hurricane losses. Clearly, the
more funds that are on deposit in the catastrophe reserve trust fund, the
less likely the need for the association to make assessments which result
in a loss of general revenue.
In support of the sound public policy of maintaining and protecting the
catastrophe reserve trust fund to prevent losses to the general revenue fund
and to provide for payment of catastrophic excess losses, the legislature
declared that each year the association is required by Article 21.49 §8(i)(3)
to pay the net equity of the association members into the catastrophe reserve
trust fund or use the net equity to purchase reinsurance approved by the commissioner.
Consistent with the required uses of each year's net equity, the legislature
declared that it was the purpose of HB 2253 to further clarify the permitted
uses of the assets of the association and the distribution of those assets
upon dissolution of the association. HB 2253 amended Article 21.49 §4
to add subsections (c) and (d) which clarify the purposes for which the assets
of the association may be used. Subsection (c) states that no part of the
net earnings of the association may benefit any private shareholder or individual.
Subsection (c) further specifies the purposes for which the assets of the
association may be used and they are as follows: (1) satisfy a claim on a
policy written by the association, (2) make investments as authorized by law,
(3) pay reasonable and necessary administrative expenses including operating
and claims processing expenses, and (4) make remittances under the laws of
this state to be used by the state to pay claims, purchase reinsurance, and
prepare for or mitigate the effects of catastrophic natural events. Subsection
(d) establishes that on dissolution of TWIA, all assets of TWIA revert to
the state. Article 21.49 §8(i) was amended by HB 2253 to replace the
provision authorizing TWIA to enter into a written agreement with the department,
with a new provision which states that under rules promulgated by the commissioner
the member insurers are required, through the TWIA, to relinquish their net
equity by making payments to the trust fund directly. All references to the
written agreement were deleted. Accordingly, the trust fund is no longer maintained
pursuant to the written agreement between TWIA, the department, and the comptroller.
Moreover, these amendments specify that all money deposited in the trust fund
is state money to be held by the comptroller outside of the state treasury
on behalf of, and with legal title in, the department, until disbursements
are made in accordance with §5.9903(c). The amendments to Article 21.49
by HB 2253 are intended to clarify the legislature's original intent, that
monies in the trust fund are state funds.
In accordance with the statement of legislative intent and the amendments
to Article 21.49 enacted by HB 2253, the department proposes the following
amendments to the TWIA plan of operation. It is proposed that subsection (c)(3)
of the plan, concerning distributions to the members, be deleted in its entirety.
As a result of changes to Article 21.49 by HB 2253 there is no authorization
to make distributions of the association's assets to individual member insurers
of TWIA. The uses of the association's assets have been clearly defined with
the addition of new subsections (c) and (d) to Article 21.49 §4 and none
of the specified uses of the association's assets include making distributions
to member insurers.
Subsection (c)(4) entitled "Use of funds" has been renumbered as (c)(3),
and other references changed as necessary. Proposed subsection (c)(3)(A) of
the plan specifies that the assets of the association may be used to pay operating
expenses, claims, and reinsurance premiums and that the net equity of the
association members must be paid into the trust fund annually. Proposed subsection
(c)(3)(B) of the plan specifies that funds are to be disbursed from the trust
fund in accordance with §5.9903(c). The proposed amendments to subsection
(c)(3)(B) of the plan also specify that funds disbursed from the trust fund
may not be distributed to members of the association and that if any funds
remain unspent after payment of losses and loss adjustment expenses those
funds must be remitted to the comptroller for redeposit in the trust fund.
Subsection (c)(3)(B) also proposes to delete the provision concerning reimbursement
of members for their payment of amounts reallocated from insolvent insurers'
inability to pay because HB 2253 does not authorize the disbursement of association
assets to member insurers. Subsections (c)(4)(C), (D), and (G) of the plan
are proposed to be deleted, as the amendments made by HB 2253 do not authorize
disbursements to members. Subsection (c)(4)(E) of the plan contains two separate
provisions: (1) relating to use of association funds for payment of reinsurance
premiums and (2) concerning the payment of net equity into the trust fund.
For better organization of the subsection, the provision concerning the use
of association funds to purchase reinsurance has been proposed as new subsection
(c)(3)(A)(i), and the provision concerning the payment of net equity into
the trust fund has been proposed as new subsection (c)(3)(A)(ii). Subsection
(c)(4)(F) of the plan, concerning the establishment of a reserve fund for
catastrophe losses, is no longer necessary because the catastrophe reserve
trust fund was established in 1993. Therefore, subsection (c)(4)(F) is proposed
to be deleted.
The department will consider the adoption of amendments to §5.4001
in a public hearing under Docket Number 2486, scheduled for 9:30 a.m. on July
17, 2001, in Room 100 of the William P. Hobby, Jr. State Office Building,
333 Guadalupe Street, Austin, Texas.
Marilyn Hamilton, Associate Commissioner, Personal and Commercial Lines
Division, has determined that for each year of the first five years the proposed
amendments are in effect, there will be no fiscal implications for state government
or local government as a result of enforcing or administering the proposed
amendments. Ms. Hamilton has also determined that for each year of the first
five years the proposed amendments will be in effect, there will be no adverse
effect on local employment or the local economy.
Ms. Hamilton has further determined that for each year of the first five
years the proposed amendments are in effect, the public benefit anticipated
as a result of enforcing the section will be to protect and maintain the assets
of the catastrophe reserve trust fund in order to shelter the state's general
revenue fund from dissipation through the loss of premium taxes in the event
of catastrophic hurricane losses. Any economic costs to persons (including
small businesses and micro-businesses) required to comply with this section
are the result of legislative enactment of amendments to Article 21.49 of
the Insurance Code and not as a result of the adoption, enforcement, or administration
of the proposed amendments. The department does not believe it is legal or
feasible to waive the requirements of these rules for any insurers which are
small or micro-businesses because the requirements are mandated by legislative
enactment.
To be considered, written comments on the proposed amendments must be submitted
no later than 5:00 p.m. on July 9, 2001 to Lynda H. Nesenholtz, General Counsel
and Chief Clerk, MC 113-2A, Texas Department of Insurance, P. O. Box 149104,
Austin, Texas, 78714-9104. An additional copy of the comment should be simultaneously
submitted to Marilyn Hamilton, Associate Commissioner, Personal and Commercial
Lines Division, MC 104-PC, Texas Department of Insurance, P. O. Box 149104,
Austin, Texas, 78714-9104.
The amendments are proposed pursuant to the Insurance Code Article
21.49 and §36.001. Article 21.49, §5(c) of the Insurance Code provides
that the Commissioner of Insurance by rule shall adopt the TWIA plan of operation
with the advice of the TWIA board of directors. Section 5(f) of Article 21.49
provides that any interested person may petition the Commissioner to modify
the plan of operation in accordance with the Administrative Procedure Act.
Insurance Code §36.001 authorizes the Commissioner of Insurance to adopt
rules for the conduct and execution of the duties and functions of the Texas
Department of Insurance only as authorized by statute.
The following statute is affected by this proposal: Insurance Code, Article
21.49
§5.4001.Plan of Operation.
(a)-(b)
(No change.)
(c)
Financial Operation of the Association.
(1)
Collection, investment, and allocation of funds.
(A)
(No change.)
(B)
Investment. All funds collected by the association which
are not otherwise required to be expended as provided in paragraph
(3)
[
(4)
] of this subsection may be retained in a checking account
or accounts in any bank or banks doing business in the State of Texas and/or
may be invested only in the following:
(i)-(iv)
(No change.)
(C)
(No change.)
(2)
(No change.)
[
(3)
Distributions to the members.]
[
(A)
The only distributions to members which may
be made on or after May 1, 1985, without the prior approval of the Commissioner
are for the recovery of assessments made on or after May 1, 1985, which are
not recoverable as a tax credit by the members under the Insurance Code, Article
21.49, §19. Any other distribution shall be for the sole purpose of paragraph
(4)(C) or (4)(G) of this subsection and requires the prior approval of the
Commissioner. The Commissioner may not unreasonably refuse to approve a request
to distribute funds. In making any distribution, the board of directors may
offset amounts otherwise due to a member with amounts then due from that member.]
[
(B)
If the association obtains a disbursement of
funds from the catastrophe reserve trust fund maintained by the Department
pursuant to Section 8 (i) of the Act, the funds disbursed to the association
may be spent by the association only to pay losses and loss adjustment expenses
of policyholders in the event of an occurrence or a series of occurrences
within the defined catastrophe area that results in insureds losses and operating
expenses of the association greater than $100 million. Funds disbursed from
the catastrophe reserve trust fund maintained by the Department may not be
distributed to any member of the association for any purpose, and any of these
amounts disbursed to the association from the catastrophe reserve trust fund
that remain unspent after payment of all losses and loss adjustment expenses
arising out of such occurrence or series of occurrences shall be remitted
to the Department or to the Treasurer of the State of Texas for deposit in
the catastrophe reserve trust fund.]
(3)
[
(4)
] Use of funds.
(A)
All monies collected or received by the association
[
on or after May 1, 1985,
] are required to be expended in the following
ways and in the following sequence:
(i)
[
(A)
] first, to pay the expenses
and claims of the association
and to pay premiums for reinsurance under
any reinsurance program approved by the Commissioner;
(ii)
second, to make payment of
the net equity of association members on an annual basis, including all premium
and other revenue of the association in excess of incurred losses and operating
expenses, directly to the comptroller for deposit in the catastrophe reserve
trust fund to be held by the comptroller outside the state treasury on behalf
of, and with legal title in, the Texas Department of Insurance.
(B)
Funds are to be disbursed from
the catastrophe reserve trust fund in accordance with §5.9903(c) of this
title (relating to Operation of the Trust Fund). Funds disbursed from the
catastrophe reserve trust fund may not be distributed to any member of the
association for any purpose, and any funds disbursed to the association from
the catastrophe reserve trust fund that remain unspent after payment of all
losses and loss adjustment expenses arising out of an occurrence or series
of occurrences shall be remitted to the comptroller for redeposit in the catastrophe
reserve trust fund.
[
(B)
second, to reimburse members
for amounts reallocated from insolvent insurers' inability to pay, as provided
in paragraph (2)(E) of this subsection, to the extent such amounts are not
recoverable as a tax credit under the Insurance Code, Article 21.49;]
[
(C)
third, to reimburse members
for assessments made on or after May 1, 1985, which are not recoverable as
a tax credit by the members under the Insurance Code, Article 21.49;]
[
(D)
fourth, to reimburse members
for the time value of money for the period of time between the assessment
date on or after May 1, 1985, and the distribution date;]
[
(E)
fifth, to either pay premiums
for reinsurance under a reinsurance program approved by the Commissioner to
cover some or all of the claims liabilities of the association, or to make
payment of the net equity of a member, including all premium and other revenue
of the association in excess of incurred losses and operating expenses, to
a catastrophe reserve trust fund to be held by the Texas Department of Insurance;]
[
(F)
sixth, to establish a reserve
for catastrophe losses;]
[
(G)
seventh, as distribution to
members of the association after approval by the Commissioner.]
(d)-(e)
(No change.)
This agency hereby certifies that the proposal has been reviewed
by legal counsel and found to be within the agency's legal authority to adopt.
Filed with the Office of
the Secretary of State, on May 23, 2001.
TRD-200102874
Lynda Nesenholtz
General Counsel and Chief Clerk
Texas Department of Insurance
Earliest possible date of adoption: July 8, 2001
For further information, please call: (512) 463-6327