TITLE insurance

Part I. Texas Department of Insurance

Chapter 1. General Administration

Subchapter C. Maintenance Taxes and Fees

The Texas Department of Insurance proposes an amendment to §1.415 concerning the maintenance tax surcharge authorized under Texas Insurance Code, Article 5.76-5, for the Texas Workers' Compensation Fund. The funds collected by the surcharge are used to service the bonded indebtedness of the Texas Workers' Compensation Insurance Fund (Fund). The proposed amendment will reduce the previously adopted 1999 rate of assessment against the gross workers' compensation premium written in Texas to zero. The elimination of the 1999 assessment for the Fund's bonded indebtedness is necessary to reflect the Fund's decision to defease $63.2 million of its outstanding bonded indebtedness. The prepayment will be made from the Fund's accumulated earnings; therefore, this year, the Fund does not need the funds collected from the maintenance tax surcharge to service its bonded indebtedness. Since insurers writing workers' compensation insurance in Texas have already been assessed at the rate previously adopted on January 7, 1999, the elimination of the assessment for 1999 will be implemented by refunding the funds collected pursuant to the 1999 workers' compensation maintenance tax surcharge.

Karen A. Phillips, Chief Financial Officer, has determined that for the first five-year period the proposed amendment is in effect, there will be no fiscal implications for state or local government as a result of enforcing or administering the section. The Comptroller of Public Accounts will refund the estimated $10,708,389 generated from the workers' compensation maintenance tax surcharge assessed earlier this year. The surcharge is assessed for the purpose of providing funds that will meet the debt service requirements of the bonded indebtedness of the Texas Workers' Compensation Insurance Fund. There will be no effect on local employment or the local economy.

Ms. Phillips also has determined that for each year of the first five years the amended section is in effect, the public benefit anticipated as a result of the elimination of the 1999 workers' compensation maintenance tax surcharge will be the elimination of one of the elements of the cost of workers' compensation insurance for policyholders Generally, insurers pass the surcharge through to their insureds pursuant to Insurance Code, Article 5.76-5, §10(d). Since there will be no surcharge in 1999, there will be no cost to pass through to workers' compensation insurance policyholders. This will benefit policyholders with policies issued from June 1, 1999, to May 31, 2000. On January 7, 1999, the commissioner adopted an assessment rate of .350% of an insurer's correctly reported gross workers' compensation insurance premiums for the calendar year 1998. As a result of the Texas Workers' Compensation Fund's subsequent decision to prepay a portion of the indebtedness, the rate of assessment is proposed to be reduced to 0.0%. If the amendment is adopted, the Comptroller of Public Accounts will refund an estimated $10,708,389 of insurer payments for the 1999 workers' compensation insurance maintenance tax surcharge. Since the outstanding bonded indebtedness will have been defeased, this will eliminate the assessment on the insurance industry, providing an additional public benefit.

Comments on the proposal must be submitted in writing within 30 days after publication of the proposed section in the Texas Register to Lynda H. Nesenholtz, General Counsel and Chief Clerk, Mail Code #113-2A, Texas Department of Insurance, P.O. Box 149104, Austin, Texas, 78714-9104. An additional copy of the comments should be submitted to Karen A. Phillips, Chief Financial Officer, Mail Code #108-1A, Texas Department of Insurance, P.O. Box 149104, Austin, Texas, 78714-9104.

The amendment is proposed under the Insurance Code, Articles 5.76-3, 5.76-5, 5.68 and 1.03A and the Texas Labor Code, §403.002. The Insurance Code, Article 5.76-3 establishes the Texas Workers' Compensation Insurance Fund. Article 5.76-5 establishes the maintenance tax surcharge. Article 5.68 establishes the maintenance tax based on premiums for workers' compensation coverage. Article 1.03A authorizes the commissioner of insurance to adopt rules and regulations for the conduct and execution of the duties and functions of the department as authorized by statute. The Texas Labor Code, §403.002 establishes the maintenance tax for workers' compensation insurance companies.

The following Texas statutes are affected by this rule: Insurance Code, Articles 5.12, 5.55C, 5.68, 5.76-3, 5.76-5, 21.46, and 21.54 and Texas Labor Code, §§403.002, 403.003 and 404.003.

§1.415.Maintenance Tax Surcharge for the Texas Workers' Compensation Insurance Fund, 1999.

(a)

The maintenance tax surcharge is levied against each insurance carrier writing workers' compensation insurance in this state, at the rate of 0.0% [ ~~.350%~~ ] of the correctly reported gross workers' compensation insurance premiums for the calendar year 1998 to cover debt service for bonds issued on behalf of the Texas Workers' Compensation Insurance Fund.

(b)

The maintenance tax surcharge shall be payable and due to the Comptroller of Public Accounts, Austin, Texas 78774-0100 on March 1, 1999.

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 March 15, 1999.

TRD-9901603

Lynda H. Nesenholtz

General Counsel and Chief Clerk

Texas Department of Insurance

Earliest possible date of adoption: April 25, 1999

For further information, please call: (512) 463-6327

Chapter 5. Property and Casualty Insurance

Subchapter E. Texas Windstorm Insurance Association

Division 3. [~~Texas Standard~~] Policy[-]Forms [~~Windstorm and Hail~~]

28 TAC §5.4101

The effective date stated in the proposed amendments is June 1, 1999; however, that date may change depending on the date on which any amendments are adopted.

The department will consider the adoption of amendments to §5.4101 in a public hearing under Docket Number 2403, scheduled for 9:00 a.m. on April 29, 1999, in Room 100 of the William P. Hobby, Jr. State Office Building, 333 Guadalupe Street, Austin, Texas.

David Durden, deputy commissioner for the automobile and homeowners division, has determined that for each year of the first five years that the proposed amendments will be in effect, there will be no fiscal implications for state or local government as a result of enforcing or administering the section. Mr. Durden has also determined that there will be no adverse effect on local employment or the local economy.

Mr. Durden has also determined that for each year of the first five years the amended section is in effect, the public benefit anticipated as a result of adopting this amended section will be the availability of windstorm and hail insurance coverage from the Association in the form of a policy to specifically address coverage needs for dwelling risks and a policy to specifically address coverage needs for commercial risks. The proposed amendments also provide consumers with consistent coverage by making each of the proposed policies consistent with companion policies issued in the voluntary market. That consistency allows for compatibility of policy forms and policy conditions and eliminates the potential for gaps in coverage through new coverage provisions in the proposed policies which are not currently contained under the Association's policy. Consumers also benefit with policy forms that are in simplified language and are reorganized and reformatted for ease of reading and understanding. There are costs for persons required to comply with the proposed rule. The Association will incur costs for printing the new policies; however, the Association has agreed to bear such costs by filing the petition. The Association will also have increased costs for payment of losses for additional coverages mandated by law and/or not previously provided under the Association's windstorm and hail insurance policy. The amount of increased costs for payable losses by the Association under the new policy forms is dependent on the types of losses and severity of losses that may be caused by windstorms (hurricanes) or hail storms; however, the Association has agreed to bear such increased costs due to increased coverages by filing the petition. These increased costs for payable losses may over time be reflected in the premium rate for consumers, again being dependent on the types of losses and severity of losses that may be caused by windstorms (hurricanes) or hail storms. It is therefore difficult to predict any amount of increase as it is difficult to predict hurricanes and hail storms, and it is important to note that the possibility of an increase based on payment of losses over time is outweighed by the overall benefit, required by law, of providing available insurance in areas to consumers who are unable to obtain such coverage in the voluntary market. The same analysis applies to potential increases in deductibles for commercial risks over the current $100 deductible in use by the Association. Additionally, the Association will provide the consumer a rate credit as set forth in the proposed manual rules and regulations for the Association, which are proposed for adoption in 28 TAC §5.4501, which is published separately in this edition of the Texas Register . Government Code §2006.011 defines "small business" in pertinent part as a legal entity, including a corporation, partnership, or sole proprietorship that is formed for the purpose of making a profit. Since the Association was not formed for the purpose of making a profit, it does not meet the definition of "small business", and thus it is not necessary to include a small business analysis in this proposal. Further, since the Association is the entity affected by this proposal, the impact on the Association has been discussed.

Comments on the proposed amendments to be considered by the department must be submitted within 30 days after publication of the proposed section in the Texas Register 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 submitted to David Durden, Deputy Commissioner, Automobile and Homeowners Division, MC 104-5A, Texas Department of Insurance, P.O. Box 149104, Austin, Texas 78714-9104. Article 21.49, §5A of the Insurance Code requires a hearing to be held before any orders may be issued pursuant to Article 21.49 and provides that any person may appear and testify for or against the adoption of the proposed order.

The amendments are proposed pursuant to the Insurance Code, Articles 21.49 and 1.03A, and in accordance with the Government Code, §§2001.004-2001.038. Pursuant to Article 21.49, §8, the Commissioner is authorized to promulgate policy forms for use by the Association in providing windstorm and hail insurance coverage without regard to other forms filed with, approved by, or promulgated by the Commissioner for use in this state. Article 21.49, §5A provides that the Commissioner may, after notice and hearing, issue any orders which the Commissioner considers necessary to carry out the purposes of Article 21.49, including, but not limited to, maximum rates, competitive rates, and policy forms. Article 21.49, §8A(a) provides that a policy of windstorm and hail insurance issued by the Association may include replacement cost coverage for one and two-family dwellings, including outbuildings, as provided under the dwelling extension coverage in the policy, subject to any applicable deductibles and the limits for coverage purchased by the insured. Article 21.49, §8D(a) provides that the maximum limits of liability approved by the Commissioner for any one insurable property shall be for (i) a dwelling, including an individually owned townhouse unit, and the corporeal movable property located in or about the dwelling, and as an extension of coverage, away from those premises, as provided under the policy; (ii) for a building and the corporeal movable property located in the building that is owned by, and at least 75 percent of which is occupied by, a governmental entity, or that is not owned by, but is wholly and exclusively occupied by, a governmental entity; (iii) for individually owned corporeal movable property located in an apartment unit, residential condominium unit, or townhouse unit that is occupied by the owner of that property, and as an extension of coverage, away from those premises, as provided under the policy; and (iv) for a structure other than a dwelling or a public building and the corporeal movable property located in that structure and, as an extension of coverage, away from those premises, as provided under the policy. The Texas Legislature in House Bill 1632 (Acts 1997, 75th Legislature, chapter 438, §1, eff. September 1, 1997) amended Article 21.49 to change the name of the Texas Catastrophe Property Insurance Association to the Texas Windstorm Insurance Association. Article 1.03A authorizes the Commissioner of Insurance to adopt rules and regulations, which must be for general and uniform application, for the conduct and execution of the duties and functions of the Texas Department of Insurance only as authorized by a statute. The Government Code, §§2001.004-2001.038 (Administrative Procedure Act), authorize and require each state agency to adopt rules of practice stating the nature and requirements of available formal and informal procedures and prescribe the procedures for adoption of rules by a state agency.

The following statute is affected by this proposal: Insurance Code, Article 21.49.

§5.4101. Association Dwelling and Commercial [~~Texas Catastrophe Property Insurance~~] Policy Forms [~~for Windstorm and Hail~~]

The Texas Department [ ~~State Board~~ ] of Insurance adopts by reference the Texas Windstorm Insurance Association Dwelling Policy and the Texas Windstorm Insurance Association Commercial Policy effective June 1, 1999 [ ~~catastrophe property insurance policy for windstorm and hail as amended January 1, 1994~~ ]. These documents are [ ~~This document is~~ ] published by and available from the Texas Windstorm [ ~~Catastrophe Property~~ ] Insurance Association, P.O. Box 2930, Austin, Texas 78768-2930 [ ~~78769~~ ]. They [ It ] may also be obtained by contacting the Automobile and Homeowners [ ~~Property and Casualty~~ ] Division, Mail Code 104-5A [ ~~103-1A~~ ], Texas Department of Insurance, 333 Guadalupe Street, P.O. Box 149104, Austin, Texas 78714-9104.

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 March 12, 1999.

TRD-9901521

Lynda H. Nesenholtz

General Counsel and Chief Clerk

Texas Department of Insurance

Earliest possible date of adoption: April 25, 1999

For further information, please call: (512) 463-6327

Division 4. Endorsements [~~Standard Policy Forms--Windstorm and Hail~~]

28 TAC §5.4201

The Texas Department of Insurance proposes amendments to §5.4201 concerning endorsements for use with policy forms issued by the Texas Windstorm Insurance Association ("Association" or "TWIA"). Created in 1971 by the Texas Legislature as the Texas Catastrophe Property Insurance Association, the Association is composed of all insurers authorized to transact property insurance in Texas and operates pursuant to Article 21.49 of the Insurance Code. The Texas Legislature in House Bill 1632 (Acts 1997, 75th Legislature, chapter 438, §1, effective September 1, 1997) changed the name of the Texas Catastrophe Property Insurance Association to the Texas Windstorm Insurance Association. The purpose of the Association is to provide windstorm and hail insurance coverage to residents in designated catastrophe areas who are unable to obtain such coverage in the voluntary market. Since its inception, the Association has provided this coverage to residents of 14 coastal counties: Aransas, Brazoria, Calhoun, Cameron, Chambers, Galveston, Jefferson, Kenedy, Kleberg, Matagorda, Nueces, Refugio, San Patricio and Willacy. The Association also provides coverage to certain designated catastrophe areas in Harris County: (i) since March 1, 1996, the area located east of a boundary line of State Highway 146 and inside the city limits of the City of Seabrook and the area located east of the boundary line of State Highway 146 and inside the city limits of the City of La Porte (Commissioner's Order Number 95-1200, November 14, 1995); (ii) since June 1, 1996, the City of Morgan's Point (Commissioner's Order Number 96-0380, April 5, 1996); and (iii) since April 1, 1997, the areas located east of State Highway 146 and inside the city limits of the City of Shoreacres and the City of Pasadena (Commissioner's Order Number 97-0225, March 11, 1997). Pursuant to Commissioner's Order Number 97-0626 (June 30, 1997), the Commissioner adopted by reference in §5.4008 of this title the Building Code for Windstorm Resistant Construction (Building Code) to specify building standards for structures located in certain designated catastrophe areas which were constructed, repaired, or to which additions were made on and after June 1, 1998, to qualify for coverage from the Association. Pursuant to Commissioner's Order Number 98-0803 (July 8, 1998), the Commissioner adopted a change in the effective date of these building standards from June 1, 1998, to September 1, 1998. The Commissioner adopted on an emergency basis amendments to §5.4008 under Commissioner's Order Number 98-1025, effective September 3, 1998. These amendments were adopted on a permanent basis under Commissioner's Order Number 98-1376, effective December 31, 1998. The adoption of new endorsement forms and revised endorsement forms along with the repeal of certain current endorsement forms has been requested by the Association in a petition filed with the department on October 24, 1997 (Ref. No. P-1197-34). The Association's petition also requests the adoption of two new policy forms, and the proposal regarding these policy forms is set forth for adoption in 28 TAC §5.4101, which is published separately in this edition of the Texas Register . The adoption of a new endorsement form providing for the addition of an extension of coverage to pay for the increased cost in construction resulting from the requirement to repair or rebuild to the new building code has been requested by the Association in a petition filed with the department on November 12, 1998 (Ref. No. P-1198-29). Copies of the petitions are available for review in the Office of the Chief Clerk, Texas Department of Insurance, 333 Guadalupe Street, Austin, Texas, 78714-9104. To request a copy of the petitions, please contact Angela Arizpe at 512/322-4147. The department staff supports the proposed new and revised endorsement forms and the repeal of certain current endorsement forms as filed by the Association with proposed modifications agreed upon by both department staff and the Association, except that the actual cash value endorsement as published in this proposal represents the one as modified by department staff. The proposal includes (i) adoption of new endorsement forms for use with the proposed new TWIA dwelling policy and TWIA commercial policy, the TWIA farm and ranch dwelling policy and the TWIA mobile home policy; (ii) repeal of certain existing TWIA endorsement forms which are no longer necessary or applicable for use with the new proposed TWIA policy forms; (iii) amendment of certain existing TWIA endorsement forms to be used with the new proposed TWIA policy forms; (iv) withdrawal of certain Texas Standard endorsement forms as forms that can be used with the TWIA policies; and (v) categorization of endorsement forms for use with the TWIA mobile home policy. These changes are necessary because of the need to (i) provide certain types of coverage by endorsement for the residential windstorm market and the commercial windstorm market; (ii) provide simplified language; (iii) eliminate those endorsements whose terms, conditions, or coverage have been incorporated into the proposed new policy forms; and (iv) implement legislation enacted by the 75th Texas Legislature. The proposed new TWIA policy forms are proposed for adoption in a separate proposal published in this edition of the Texas Register . When the proposed new TWIA policy forms are mentioned in this proposal, a reference should be noted to the proposal for adoption of those forms in 28 TAC §5.4101 in this edition of the Texas Register . Additionally, there are proposed revisions to the manual rules and regulations for the Association, which are proposed for adoption under amendments to 28 TAC §5.4501, which are published in a separate rule proposal in this edition of the Texas Register . The proposed new and revised endorsement forms, the current endorsement forms proposed for repeal or withdrawal, and the endorsement forms for use with the mobile home policy are as follows:

I. New Forms. The proposed new endorsement forms for use with the proposed new TWIA Dwelling Policy and TWIA Commercial Policy, the TWIA Farm and Ranch Dwelling Policy, and the TWIA mobile home policy are as follows:

A. Endorsements used in conjunction with a TWIA Dwelling Policy.

Form No. TWIA-410, Conversion to Farm and Ranch Dwelling Policy. This proposed endorsement amends the property covered section and the property not covered section of the TWIA Dwelling Policy to convert coverage from a standard dwelling structure to a farm and ranch dwelling structure. In addition, the form converts the name of the TWIA Dwelling Policy to the TWIA Farm and Ranch Dwelling Policy. This conversion endorsement is necessary because the regulation of farm and ranch insurance was changed by Senate Bill 1499, enacted by the 75th Legislature, to transfer the regulation from residential insurance to commercial insurance. This change requires the regulation of farm and ranch insurance as provided by the TWIA to also be amended to reflect that farm and ranch insurance is subject to a commercial insurance policy. The TWIA Dwelling Policy required converting to a TWIA Farm and Ranch Dwelling Policy to provide a method of insuring a farm and ranch dwelling as a commercial risk. The proposed Form No. TWIA-410 is intended to accomplish the conversion.

B. Endorsements used in conjunction with the TWIA Dwelling Policy and the TWIA Farm and Ranch Dwelling Policy.

1. Form No. TWIA-400, Actual Cash Value - Roofs (One or Two Family Dwellings). This proposed form implements Senate Bill 1387, enacted by the 75th Legislature, which provides the commissioner with the authority to adopt rules to authorize the Association to provide actual cash value coverage on residential roofs in lieu of replacement cost coverage when insuring a residential structure under an Association windstorm and hail insurance policy. This proposed endorsement form will provide such coverage.

2. Form No. TWIA-420, Exclusion of Cosmetic Damage to Roof Coverings Caused by Hail. This proposed form allows for the exclusion of cosmetic damage to a roof covering when a roof premium credit is provided for the installation of an impact resistant roof covering.

C. Endorsements used in conjunction with a TWIA Commercial Policy.

1. Form No. TWIA-18, Builders Risk-Stated Value Form. This proposed endorsement replaces the Texas standard endorsement Form No. 18, Builders Risk Form, which is currently used by the Association on a windstorm and hail insurance policy. The proposed new form contains simplified language and is patterned after the country-wide ISO builders risk form, with no substantive changes to the coverage provided by the form. The section for scheduling information for each property was removed from the form since this information will be shown on the declarations page of the policy.

2. Form No. TWIA-21, Builders Risk-Actual Completed Value Form. This proposed endorsement replaces the Texas standard endorsement Form No. 21, Builders Risk-Actual Completed Value Form, which is currently used by the Association on a windstorm and hail insurance policy. The proposed new form contains simplified language and is patterned after the country-wide ISO builders risk form, with no substantive changes to the coverage provided by the form. The section for scheduling information for each property was removed from the form since this information will be shown on the declarations page of the policy.

3. Form No. TWIA-26, Church Form. This proposed form replaces the Texas standard Form No. 26, Church Form, which is currently used by the Association on a windstorm and hail insurance policy. The proposed new form contains simplified language and is patterned after the country-wide ISO church form with no substantive changes to the coverage provided by the form. The reference to "contents" in the form is amended to "business personal property" to be consistent with the language of the proposed new windstorm and hail insurance policy. The section for scheduling information for each property was removed from the form since this information will be shown on the declarations page of the policy.

4. Form No. TWIA-65, Large Deductible Endorsement. This proposed form replaces the Texas standard Form No. 65, Large Deductible Endorsement, which is currently used by the Association on a windstorm and hail insurance policy. The proposed new form contains simplified language with no substantive changes to the coverage provided by the form. The proposed new form eliminates reference to time element coverage under the form because such coverage is not provided on commercial property insured by the Association.

5. Form No. TWIA-115, Lumber Form-Specific--Retail Yard. This proposed form replaces the Texas standard Form No. 115, Lumber Form Specific-Retail--Yard, which is currently used by the Association on a windstorm and hail insurance policy. The amount of insurance and description of property blocks in the form were removed since this information will be shown on the declarations page of the proposed new windstorm and hail insurance policy.

6. Form No. TWIA-164, Replacement Cost Endorsement. This proposed form replaces the Texas standard Forms No. 164, Replacement Cost Endorsement and No. 165, Replacement Cost Endorsement, which are currently used by the Association on a windstorm and hail insurance policy. The proposed new form contains simplified language with no substantive changes to the coverage provided by the form. Paragraph 2 regarding coinsurance contained in the current forms has been removed from the proposed new form since that condition is contained in the proposed new windstorm and hail insurance policy coverage forms. There is no change in the coverage provided by the proposed new form from that provided by the current forms.

7. Form No. TWIA-176, School Form. This proposed form replaces the Texas standard Form No. 176, School Form, which is currently used by the Association on a windstorm and hail insurance policy. The proposed new form contains simplified language and is patterned after the country-wide ISO school form with no substantive changes to the coverage provided by the form. The reference to "contents" in the form is amended to "business personal property" to be consistent with the language of the proposed new windstorm and hail insurance policy. The section for scheduling information for each property was removed since this information will be shown on the declarations page of the policy.

8. Form No. TWIA-280, Condominium Property Form-Additional Policy Provisions. This proposed form replaces the current Texas Catastrophe Property Insurance Association form TCPIA Form 280. The proposed new form incorporates the provisions of the Uniform Condominium Act. The language of the proposed new form has been simplified, and the form has been reformatted, and the name has been changed to TWIA.

D. Endorsements used in conjunction with the proposed new TWIA Dwelling Policy and TWIA Commercial Policy and the TWIA Farm and Ranch Dwelling Policy.

1. Form No. TWIA-1, Blank Schedule Form. This proposed new form replaces the Texas standard Blank Schedule Form and designates the proposed new form as Form No. TWIA-1, since the current form does not have a form number.

2. Form No. TWIA-430, Extension of Coverage-Increased Cost in Construction. This proposed form provides for the addition of an extension of coverage to pay for the increased cost of reconstructing or repairing damage to existing structures to meet the Association's wind resistant building codes. An insured structure that is damaged or destroyed must be repaired or rebuilt in accordance with the Association's wind resistant building code. The increased cost in construction resulting from the requirement to repair or rebuild to the new building code is not currently a covered loss under the Association's windstorm and hail insurance policy. The proposed endorsement provides an insured the option of purchasing coverage to pay for increased cost of construction due to the requirement to repair or rebuild a structure to the new building code. An insured may select a limit of liability of 5% of the Coverage A limit of liability, 10% of the Coverage A limit of liability or 15% of the Coverage A limit of liability. The coverage is additional insurance and does not reduce the limit of liability applicable to the dwelling subject to the maximum limit of liability permitted by law. An appropriate premium is charged for the proposed new endorsement.

E. Endorsements used in conjunction with the proposed new TWIA Dwelling Policy and TWIA Commercial Policy, the TWIA Farm and Ranch Dwelling Policy and the TWIA mobile home policy.

1. Form No. TWIA-12, Assignment of Interest or Change in Mortgagee or Trustee. This proposed new form replaces the Texas standard Form No. 12, Assignment of Interest or Change in Mortgagee or Trustee with no proposed changes made to the form other than to renumber as a TWIA form.

2. Form No. TWIA-23, Cancellation Report. This proposed new form replaces the current Texas standard Form No. 23, Cancellation Report. The proposed new form eliminates all reference to a short rate cancellation since the provision for short rate cancellation is removed from the proposed new TWIA policies. The text of the proposed new form differs from the current form because of the removal of references to perils other than windstorm and hail. Since the Association only insures against the perils of windstorm and hail, reference to other perils is not necessary.

3. Form No. TWIA-77, General Change Endorsement. This proposed new form replaces the current Texas standard Form No. 77, General Change Endorsement used on a windstorm and hail insurance policy. The proposed new form removes the grid describing changes to the policy because such a grid is not necessary for the windstorm and hail policy. The proposed new endorsement allows the Association to describe technical changes to the policy in narrative format. This form will be used to change the name of an insured or mortgagee, add or delete a location, and make similar changes related to servicing or correcting the policy.

4. Form No. TWIA-112, Loss Payable Clause. This proposed new form replaces the current Texas standard Form No. 112, Loss Payable Clause. No substantive changes are proposed to the new form except to simplify the language and renumber as a TWIA form.

5. Form No. TWIA-113, Lost Policy Voucher. This proposed new form replaces the current Texas standard Form No. 113, Lost Policy Voucher used on a windstorm and hail insurance policy. The proposed new form is in a simplified format and the grid describing the perils and premiums for cancellation has been removed from the proposed new form. The grid contained references to perils other than windstorm and hail which are not necessary under a policy providing coverage for the perils of windstorm and hail. In addition, reference to short rate cancellation has been removed from the proposed new form since short rate cancellation will not apply to the proposed new windstorm and hail insurance policy.

6. Form No. TWIA-130, Mortgage Clause (Without Contribution). This proposed new form replaces the current Texas standard Form No. 130, Mortgage Clause (Without Contribution). No changes are proposed to the new form except to simplify the language and renumber as a TWIA form.

7. Form No. TWIA-151A, Premium Assignment Clause. This proposed new form replaces the current Texas standard Form No. 151A, Premium Assignment Clause. The proposed new form contains simplified language with no substantive changes to the language in the form.

8. Form No. TWIA-175, Sale Contract Clause. This proposed new form replaces the current Texas standard Form No. 175, Sale Contract Clause. The proposed new form contains simplified language with no substantive changes to the provisions in the form.

9. Form No. TWIA-195, Sworn Statement in Proof of Loss. This proposed form replaces the current Texas standard Accord Property Loss Form that is being withdrawn.

II. Revised Forms. The proposed revised forms for use with the TWIA Dwelling Policy and the TWIA Commercial Policy are as follows:

A. Revised endorsements used in conjunction with the TWIA Dwelling Policy.

1. Form No. TWIA-310, Extensions of Coverage. This proposed revised form may be attached to a TWIA Dwelling Policy if a companion homeowners policy (Form HO-A or its equivalent) has been issued that excludes the coverage provided by this proposed revised form. The revised form has been reformatted and simplified without substantive changes to the coverage. Because the use of new residential property forms is allowed in Texas and the policy issued as a companion policy to the TWIA Dwelling Policy may be other than a standard Texas Homeowners Policy, the sole reference to the Texas Homeowners Policy Form HO-A in the current endorsement is incorrect. The proposed revised form adds new language indicating the companion policy may be a Form HO-A or its equivalent, which will allow this form to be used when the companion policy is other than a Texas Homeowners Form HO-A policy. In addition, the proposed revised form amends the term "household goods" to "personal property" to be consistent with the proposed new TWIA Dwelling Policy.

2. Form No. TWIA-315, Extensions of Coverage. This proposed revised form may be attached to a TWIA Dwelling Policy if a companion homeowners policy (Form HO-B or its equivalent) has been issued that excludes the coverage provided by this proposed revised form. The revised form has been reformatted and simplified without substantive changes to the coverage. Because the use of new residential property forms is allowed in Texas and the policy issued as a companion policy to the TWIA Dwelling Policy may be other than a standard Texas Homeowners Policy, the sole reference to the Texas Homeowners Policy Form HO-B in the current endorsement is incorrect. The proposed revised form adds new language indicating the companion policy may be a Form HO-B or its equivalent, which will allow this form to be used when the companion policy is other than a Texas Homeowners Form HO-B policy. In addition, the proposed revised form amends the term "household goods" to "personal property" to be consistent with the proposed new TWIA Dwelling Policy.

3. Form No. TWIA-320, Extensions of Coverage. This proposed revised form may be attached to a TWIA Dwelling Policy if a companion homeowners policy (Form HO-C or its equivalent) has been issued that excludes the coverage provided by this proposed revised form. The revised form has been reformatted and simplified without substantive changes to the coverage. Because the use of new residential property forms is allowed in Texas and the policy issued as a companion policy to the TWIA Dwelling Policy may be other than a standard Texas Homeowners Policy, the sole reference to the Texas Homeowners Policy Form HO-C in the current endorsement is incorrect. The proposed revised form adds new language indicating the companion policy may be a Form HO-C or its equivalent, which will allow this form to be used when the companion policy is other than a Texas Homeowners Form HO-C policy. In addition, the proposed revised form amends the term "household goods" to "personal property" to be consistent with the proposed new TWIA Dwelling Policy.

4. Form No. TWIA-325, Extensions of Coverage. This proposed revised form may be attached to a TWIA Dwelling Policy if a companion homeowners policy (Form HO-BT or HO-CT or its equivalent) has been issued that excludes the coverage provided by this proposed revised form. The revised form has been reformatted and simplified without substantive changes to the coverage. Because the use of new residential property forms is allowed in Texas and the policy issued as a companion policy to the TWIA Dwelling Policy may be other than a standard Texas Homeowners Policy, the sole reference to the Texas Homeowners Policy Form HO-BT or HO-CT in the current endorsement is incorrect. The proposed revised form adds new language indicating the companion policy may be a Form HO-BT or Form HO-CT or its equivalent, which will allow this form to be used when the companion policy is other than a Texas Homeowners Form HO-BT or Form HO-CT policy. In addition, the proposed revised form amends the term "household goods" to "personal property" to be consistent with the proposed new TWIA Dwelling Policy.

5. Form No. TWIA-326, Extensions of Coverage. This proposed revised form may be attached to a TWIA Dwelling Policy if a companion homeowners policy (Form HO-CON-B or its equivalent) has been issued that excludes the coverage provided by this proposed revised form. The revised form has been reformatted and simplified without substantive changes to the coverage. Because the use of new residential property forms is allowed in Texas and the policy issued as a companion policy to the TWIA Dwelling Policy may be other than a standard Texas Homeowners Policy, the sole reference to the Texas Homeowners Policy Form HO-CON-B in the current endorsement is incorrect. The proposed revised form adds new language indicating the companion policy may be a Form HO-CON-B or its equivalent, which will allow this form to be used when the companion policy is other than a Texas Homeowners Form HO-CON-B policy. In addition, the proposed revised form amends the term "household goods" to "personal property" to be consistent with the proposed new TWIA Dwelling Policy.

6. Form No. TWIA-328, Extensions of Coverage. This proposed revised form may be attached to a TWIA Dwelling Policy if a companion homeowners policy (Form HO-CON-C or its equivalent) has been issued that excludes the coverage provided by this proposed revised form. The revised form has been reformatted and simplified without substantive changes to the coverage. Because the use of new residential property forms is allowed in Texas and the policy issued as a companion policy to the TWIA Dwelling Policy may be other than a standard Texas Homeowners Policy, the sole reference to the Texas Homeowners Policy Form HO-CON-C in the current endorsement is incorrect. The proposed revised form adds new language indicating the companion policy may be a Form HO-CON-C or its equivalent, which will allow this form to be used when the companion policy is other than a Texas Homeowners Form HO-CON-C policy. In addition, the proposed revised form amends the term "household goods" to "personal property" to be consistent with the proposed new TWIA Dwelling Policy.

B. Revised endorsements for use with the TWIA Dwelling Policy and the TWIA Farm and Ranch Dwelling Policy.

1. Form No. TWIA-330, Extensions of Coverage. This proposed revised form may be attached to a TWIA Dwelling Policy if a companion dwelling policy (Form TDP-1 or Form TDP-2 or its equivalent) or a companion farm and ranch policy (Form TFR-1 or Form TFR-2 or its equivalent) has been issued that excludes the coverage provided by this proposed revised form. The revised form has been reformatted and simplified without substantive changes to the coverage. Because the use of new residential property forms is allowed in Texas and the policy issued as a companion policy to the TWIA Dwelling Policy may be other than a standard Texas Dwelling Policy, the sole reference to the Texas Dwelling Policy Form TDP-1 or Form TDP-2 in the current endorsement is incorrect. Because farm and ranch dwellings may now be insured under a commercial policy and the policy issued as a companion policy to the TWIA Farm and Ranch Dwelling Policy may be other than a standard Texas policy for farm and ranch properties, the sole reference to the current Farm and Ranch Policy Form TFR-1 or Form TFR-2 in the current endorsement is incorrect. The proposed revised form adds new language indicating the companion policy may be a Form TDP-1 or Form TDP-2 or its equivalent, or a Form TFR-1 or Form TFR-2 or its equivalent, which will allow this form to be used when the companion policy is other than a standard Texas dwelling policy with Form TDP-1 or Form TDP-2 attached or other than a standard farm and ranch policy with Form TFR-1 or TFR-2 attached. In addition, the proposed revised form amends the term "contents" to "personal property" to be consistent with the proposed new TWIA Dwelling Policy and the TWIA Farm and Ranch Dwelling Policy.

2. Form No. TWIA-335, Extensions of Coverage. This proposed revised form may be attached to a TWIA Dwelling Policy if a companion dwelling policy (Form TDP-3 or its equivalent) or a companion farm and ranch policy (Form TFR-3 its equivalent) has been issued that excludes the coverage provided by this proposed revised form. The revised form has been reformatted and simplified without substantive changes to the coverage. Because the use of new residential property forms is allowed in Texas and the policy issued as a companion policy to the TWIA Dwelling Policy may be other than a standard Texas Dwelling Policy, the sole reference to the Texas Dwelling Policy Form TDP-3 in the current endorsement is incorrect. Because farm and ranch dwellings may now be insured under a commercial policy and the policy issued as a companion policy to the TWIA Farm and Ranch Dwelling Policy may be other than a standard Texas policy for farm and ranch properties, the sole reference to the current Farm and Ranch Policy Form TFR-3 in the current endorsement is incorrect. The proposed revised form adds new language indicating the companion policy may be a Form TDP-3 or its equivalent, or a Form TFR-3 or its equivalent, which will allow this form to be used when the companion policy is other than a standard Texas dwelling policy with Form TDP-3 attached or other than a standard farm and ranch policy with Form TFR-3 attached. In addition, the proposed revised form amends the term "household goods" to "personal property" to be consistent with the proposed new TWIA Dwelling Policy and the TWIA Farm and Ranch Dwelling Policy.

3. Form No. TWIA-340, Extensions of Coverage. This proposed revised form may be attached to a TWIA Farm and Ranch Dwelling Policy when a companion farm and ranch owners policy (Form FRO-A or its equivalent) has been issued that excludes the coverage provided by this proposed revised form. The revised form has been reformatted and simplified without substantive changes to the coverage. Because farm and ranch dwellings may now be insured under a commercial policy and the policy issued as a companion policy to the TWIA Farm and Ranch Dwelling Policy may be other than a standard Texas policy for farm and ranch properties, the sole reference to the current Farm and Ranch Owners Policy Form FRO-A in the current endorsement is incorrect. The proposed revised form adds new language indicating the companion policy may be a Form FRO-A or its equivalent, which will allow this form to be used when the companion policy is other than a standard farm and ranch owners policy with Form FRO-A attached. In addition, the proposed revised form amends the term "household goods" to "personal property" to be consistent with the proposed new TWIA Farm and Ranch Dwelling Policy.

4. Form No. TWIA-345, Extensions of Coverage. This proposed revised form may be attached to a TWIA Farm and Ranch Dwelling Policy when a companion farm and ranch owners policy (Form FRO-B or its equivalent) has been issued that excludes the coverage provided by this proposed revised form. The revised form has been reformatted and simplified without substantive changes to the coverage. Because farm and ranch dwellings may now be insured under a commercial policy and the policy issued as a companion policy to the TWIA Farm and Ranch Dwelling Policy may be other than a standard Texas policy for farm and ranch properties, the sole reference to the current Farm and Ranch Owners Policy Form FRO-B in the current endorsement is incorrect. The proposed revised form adds new language indicating the companion policy may be a Form FRO-B or its equivalent, which will allow this form to be used when the companion policy is other than a standard farm and ranch owners policy with Form FRO-B attached. In addition, the proposed revised form amends the term "contents" to "personal property" to be consistent with the proposed new TWIA Farm and Ranch Dwelling Policy.

5. Form No. TWIA-350, Extensions of Coverage. This proposed revised form may be attached to a TWIA Farm and Ranch Dwelling Policy when a companion farm and ranch owners policy (Form FRO-B with Form 480 attached or its equivalent) has been issued that excludes the coverage provided by this proposed revised form. The revised form has been reformatted and simplified without substantive changes to the coverage. Because farm and ranch dwellings may now be insured under a commercial policy and the policy issued as a companion policy to the TWIA Farm and Ranch Dwelling Policy may be other than a standard Texas policy for farm and ranch properties, the sole reference to the current Farm and Ranch Owners Policy Form FRO-B with Form 480 attached in the current endorsement is incorrect. The proposed revised form adds new language indicating the companion policy may be a Form FRO-B with Form 480 attached or its equivalent, which will allow this form to be used when the companion policy is other than a standard farm and ranch owners policy with Form FRO-B with Form 480 attached. In addition, the proposed revised form amends the term "household goods" to "personal property" to be consistent with the proposed new TWIA Farm and Ranch Dwelling Policy. The percentage of additional living expense coverage provided in the form has been increased from 10% to 20% to be consistent with the percentage of additional living expense coverage provided by a companion policy.

6. Form No. TWIA-365, Replacement Cost Endorsement - Personal Property. This revised form has been reformatted and simplified without substantive changes to the coverage. The term "household goods" has been changed to the term "personal property" to be consistent with the language used in the proposed new TWIA Dwelling Policy and TWIA Farm and Ranch Policy.

C. Revised endorsements used in conjunction with the TWIA Commercial Policy.

Form No. TWIA-282, Condominium Property Form-Additional Policy Provisions. The language of this proposed revised form has been simplified, the title has been revised, and the name has been changed to TWIA.

III. Withdrawn and Repealed Forms. The following Texas standard forms, which have been available for use by the Association, are proposed to be withdrawn for use by the Association as they are not now used by the Association in writing windstorm and hail insurance:

A. Texas standard forms that are not used by the Association:

1. Accord Property Loss Form.

2. Certified Mail Cancellation Notices.

3. Form No. 30, Commodity Form.

4. Form No. 37, Cotton Gin Form.

5. Form No. 38, Cotton Gin Stocks.

6. Form No. 39, Baled Cotton Specific Form.

7. Form No. 44, Cotton Compress-Building and Machinery Form.

8. Form No. 46, Choice A-Value Cotton Endorsement-For use with Non-Reporting Policies.

9. Form No. 50A, Special Cotton Endorsement.

10. Form No. 51, Cotton Seed Oil Mill-Building and Machinery Form - Special.

11. Form No. 52, Cotton Seed Oil Mill-Blanket Building and Machinery-Blanket.

12. Form No. 53, Cotton Seed and Cotton Seed Products at Oil Mill.

13. Form No. 54, Cotton Seed Oil Mills-Market Value Clause.

14. Form No. 166, Revised Amount Endorsement.

15. Form No. 170, Rice Value Clause.

16. Form No. 179, Theatre Form.

17. Form No. TDP-015, Contract of Sale (Dwelling only).

B. Texas standard forms withdrawn because the provisions of the endorsements are added to the proposed TWIA policy forms and/or endorsements.

1. Form No. 105, Improvements and Betterments Endorsement. The provisions of this endorsement have been added to the TWIA policy provisions.

2. Form No. 165, Replacement Cost Endorsement No. 1. The provisions of this endorsement have been added to the proposed new Form No. TWIA-164, Replacement Cost Endorsement, which is to be used in conjunction with the TWIA commercial policy.

C. Current Association endorsement forms repealed because of incorporation into the TWIA policy form provisions.

1. TCPIA Form 300---mandatory breakaway wall exclusion endorsement.

2. TCPIA Form 500---$100 deductible clause other than one or two-family dwellings.

3. TCPIA Form 510---dwelling percentage deductible clause.

4. TCPIA Form 520---dwelling $100 deductible clause.

5. TCPIA Form 530---dwelling $250 deductible clause.

6. TCPIA Form 525---dwelling optional large deductible clause.

D. Current Association endorsement form repealed because of incorporation into the new Form No. TWIA-280, Condominium Property Form-Additional Policy Provisions.

TCPIA Form 280-condominium property form.

IV. Category of endorsement forms for use with the TWIA mobile home policy. The following forms 570 and 575 relating to the mobile home percentage deductible clause are being redesignated as TWIA forms instead of TCPIA forms because of the change in name of the Association, but there are no other amendments at this time since these forms apply only to the mobile home policy. Because the provisions of the following form 29, mandatory endorsement, are incorporated into the TWIA dwelling and commercial policy forms, this form will now only be used with the mobile home policy, and the form is being redesignated as a TWIA form because of the change in name of the Association. The forms are thus categorized in the amended section for use with the TWIA mobile home policy.

A. Form No. TWIA-29, Mandatory Endorsement

B. Form No. TWIA-570, Mobile Home Percentage Deductible Clause.

C. Form No. TWIA-575, Mobile Home Percentage Deductible Clause.

V. Summary.

The following list shows the status of the Association forms referred to in this proposal.

Proposed---New

Form No. TWIA-1, Blank Schedule Form

Form No. TWIA-12, Assignment of Interest or Change in Mortgagee or Trustee

Form No. TWIA-18, Builders Risk-Stated Value Form

Form No. TWIA-21, Builders Risk-Actual Completed Value Form

Form No. TWIA-23, Cancellation Report

Form No. TWIA-26, Church Form

Form No. TWIA-65, Large Deductible Endorsement

Form No. TWIA-77, General Change Endorsement

Form No. TWIA-112, Loss Payable Clause

Form No. TWIA-113, Lost Policy Voucher

Form No. TWIA-115, Lumber Form---Specific---Retail Yard

Form No. TWIA-130, Mortgage Clause (Without Contribution)

Form No. TWIA-151A, Premium Assignment Clause

Form No. TWIA-164, Replacement Cost Endorsement

Form No. TWIA-175, Sale Contract Clause

Form No. TWIA-176, School Form

Form No. TWIA-195, Sworn Statement in Proof of Loss

Form No. TWIA-280, Condominium Property Form-Additional Policy Provisions

Form No. TWIA-400, Actual Cash Value-Roofs (One or Two Family Dwellings)

Form No. TWIA-410, Conversion to Farm and Ranch Dwelling Policy

Form No. TWIA-420, Exclusion of Cosmetic Damage to Roof Coverings Caused by Hail

Form No. TWIA-430, Extension of Coverage-Increased Cost in Construction

Proposed-Amended

Form No. TWIA-29, Mandatory Endorsement

Form No. TWIA-282, Condominium Property Form---Additional Policy Provisions

Form No. TWIA-310, Extensions of Coverage

Form No. TWIA-315, Extensions of Coverage

Form No. TWIA-320, Extensions of Coverage

Form No. TWIA-325, Extensions of Coverage

Form No. TWIA-326, Extensions of Coverage

Form No. TWIA-328, Extensions of Coverage

Form No. TWIA-330, Extensions of Coverage

Form No. TWIA-335, Extensions of Coverage

Form No. TWIA-340, Extensions of Coverage

Form No. TWIA-345, Extensions of Coverage

Form No. TWIA-350, Extensions of Coverage

Form No. TWIA-365, Replacement Cost Endorsement---Personal Property

Form No. TWIA-570, Mobile Home Percentage Deductible Clause

Form No. TWIA-575, Mobile Home Percentage Deductible Clause

Proposed for Repeal

TCPIA Form 280---Condominium Property Form

TCPIA Form 300---Mandatory Breakaway Wall Exclusion Endorsement

TCPIA Form 500---One Hundred Dollar Deductible Clause Other Than One Or Two Family Dwellings

TCPIA Form 510---Dwelling Percentage Deductible Clause

TCPIA Form 520---Dwelling One Hundred Dollar Deductible Clause

TCPIA Form 525---Dwelling Optional Large Deductible Clause

TCPIA Form 530---Dwelling $250 Deductible Clause

The effective date stated in the proposed amendments is June 1, 1999; however, that date may change depending on the date on which any amendments are adopted.

The department will consider the adoption of amendments to §5.4201 in a public hearing under Docket Number 2404, scheduled for 9:00 a.m. on April 29, 1999, in Room 100 of the William P. Hobby, Jr. State Office Building, 333 Guadalupe Street, Austin, Texas.

Mr. Durden 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 administering the proposed amendments will be the availability of windstorm and hail insurance coverage from the Association that provides endorsements to specifically address coverage needs for dwelling risks and commercial risks. The proposed amendments also provide consumers with more consistent coverage by providing appropriate endorsements to track the proposed new policy forms and eliminating unnecessary endorsements that are not needed in writing windstorm and hail insurance through the Association. The new endorsements and revised endorsements provide consumers with more consistency with companion policies that are issued in the voluntary market. That consistency allows for compatibility of policy forms and endorsements and policy conditions. In addition, consumers benefit from the availability of new coverage to pay losses not currently included as covered losses under the Association's windstorm and hail insurance policy. The new and revised endorsements which provide increased coverages will produce an increased cost for consumers; however, the endorsements are optional for selection by the consumer, and any increased cost would be based on the consumer opting to purchase additional coverage. Consumers also benefit with endorsement forms that are in simplified language and are reorganized and reformatted for ease of reading and understanding. There are costs for persons required to comply with the proposed rule. The Association will have costs for printing the new and revised endorsements; however, the Association has agreed to bear such costs by filing the petition. There is no additional coverage being provided by these endorsements except for the extension of coverage for law and ordinance, Form No. TWIA-430; however, this is an optional coverage endorsement for which there will be a premium charge. Also, as set forth in the analysis in the proposal for the manual rules and regulations, published separately in this edition of the Texas Register under 28 TAC §5.4501, the Association's petition proposing this endorsement reflects its determination that the proposed rates will be sufficient to cover any potential losses that the Association must pay. It is the case that the TWIA policy forms to which these endorsements may be attached could result in increased costs for payment of losses because of the additional coverages in the policies. As set forth in the new policy forms proposal published separately in this edition of the Texas Register under 28 TAC §5.4101, the amount of increased costs for payable losses by the Association is dependent on the types of losses and severity of losses that may be caused by windstorms (hurricanes) or hail storms; however, the Association, by filing a petition for new policy forms and endorsements, has agreed to bear such increased costs due to increased coverages. These increased costs for payable losses may over time be reflected in the premium rate for consumers, again being dependent on the types of losses and severity of losses that may be caused by windstorms (hurricanes) or hail storms. It is therefore difficult to predict any amount of increase as it is difficult to predict hurricanes and hail storms, and it is important to note that the possibility of an increase based on payment of losses over time is outweighed by the overall benefit, required by law, of providing available insurance in areas to consumers who are unable to obtain such coverage in the voluntary market. The same analysis applies to potential increases in deductibles for commercial risks over the current $100 deductible in use by the Association. Additionally, the Association will provide the consumer a rate credit as set forth in the proposed manual rules and regulations for the Association, which are proposed for adoption in 28 TAC §5.4501, which is published separately in this edition of the Texas Register . Government Code §2006.011 defines "small business" in pertinent part as a legal entity, including a corporation, partnership, or sole proprietorship that is formed for the purpose of making a profit. Since the Association was not formed for the purpose of making a profit, it does not meet the definition of "small business", and thus it is not necessary to include a small business analysis in this proposal. Further, since the Association is the entity affected by this proposal, the impact on the Association has been discussed.

Comments on the proposed amendments to be considered by the department must be submitted within 30 days after publication of the proposed section in the Texas Register 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 submitted to David Durden, Deputy Commissioner, Automobile and Homeowners Division, MC 104-5A, Texas Department of Insurance, P. O. Box 149104, Austin, Texas 78714-9104. Article 21.49, §5A of the Insurance Code requires a hearing to be held before any orders may be issued pursuant to Article 21.49 and provides that any person may appear and testify for or against the adoption of the proposed order.

The amendments are proposed pursuant to the Insurance Code, Articles 21.49 and 1.03A, and in accordance with the Government Code, §§2001.004-2001.038. Pursuant to Article 21.49, §§7 and 8, the Commissioner is authorized to prepare endorsements and forms applicable to the standard policies which he has promulgated for use by the Association in providing windstorm and hail insurance coverage without regard to other forms filed with, approved by, or promulgated by the Commissioner for use in this state. Article 21.49, §5A provides that the Commissioner may, after notice and hearing, issue any orders which the Commissioner considers necessary to carry out the purposes of Article 21.49, including, but not limited to, maximum rates, competitive rates, and policy forms. Article 21.49, §8A(a) provides that a policy of windstorm and hail insurance issued by the Association may include replacement cost coverage for one and two-family dwellings, including outbuildings, as provided under the dwelling extension coverage in the policy, subject to any applicable deductibles and the limits for coverage purchased by the insured. Article 21.49, §8A(b), among other things, allows the commissioner to adopt rules to authorize the Association to provide actual cash value coverage instead of replacement cost coverage on the roof covering of a building insured by the Association. Article 21.49, §8A(c) provides that the commissioner may promulgate such rules and regulations as necessary to implement this section 8A. The Texas Legislature in House Bill 1632 (Acts 1997, 75th Legislature, chapter 438, §1, effective September 1, 1997) amended Article 21.49 to change the name of the Texas Catastrophe Property Insurance Association to the Texas Windstorm Insurance Association. Article 1.03A authorizes the Commissioner of Insurance to adopt rules and regulations, which must be for general and uniform application, for the conduct and execution of the duties and functions of the Texas Department of Insurance only as authorized by a statute. The Government Code, §§2001.004-2001.038 (Administrative Procedure Act), authorize and require each state agency to adopt rules of practice stating the nature and requirements of available formal and informal procedures and prescribe the procedures for adoption of rules by a state agency.

The following statutes are affected by this proposal: Statute Insurance Code, Article 21.49.

§5.4201. Endorsements for Use with [~~Standard Texas Catastrophe Property Insurance~~] Association Policy Forms [ ~~for Windstorm and Hail~~ ]

The Commissioner of Insurance adopts by reference endorsements for use with the Texas Windstorm Insurance Association Policy Forms [ ~~the standard Texas Catastrophe Property Insurance Association forms for windstorm and hail~~ ]. Specimen copies of these endorsement forms are available from the Texas Windstorm [ ~~Catastrophe Property~~ ] Insurance Association, P.O. Box 2930, Austin, Texas 78768-2930 [ ~~78767~~ ]. They are also available from the Automobile and Homeowners [ ~~Property and Casualty~~ ] Division, Mail Code 104-5A [ ~~MC #103-1A~~ ], Texas Department of Insurance, 333 Guadalupe Street, P.O. Box 149104, Austin, Texas 78714-9104. The endorsement forms are more specifically identified as follows.

(1)

Endorsements for use with the Association Dwelling Policy and the Association Commercial Policy and the Association Farm and Ranch Dwelling Policy.

(A)

Form No. TWIA-1, Blank Schedule Form, effective June 1, 1999.

(B)

Form No. TWIA-430, Extension of Coverage--Increased Cost in Construction, effective June 1, 1999.

(2)

Endorsements for use with the Association Dwelling Policy and the Association Commercial Policy and the Association Farm and Ranch Dwelling Policy and the Texas Special Mobile Home Windstorm and Hail Insurance Policy.

(A)

Form No. TWIA-12, Assignment of Interest or Change in Mortgagee or Trustee, effective June 1, 1999.

(B)

Form No. TWIA-23, Cancellation Report, effective June 1, 1999.

(C)

Form No. TWIA-77, General Change Endorsement, effective June 1, 1999.

(D)

Form No. TWIA-112, Loss Payable Clause, effective June 1, 1999.

(E)

Form No. TWIA-113, Lost Policy Voucher, effective June 1, 1999.

(F)

Form No. TWIA-130, Mortgage Clause (Without Contribution), effective June 1, 1999.

(G)

Form No. TWIA-151A, Premium Assignment Clause, effective June 1, 1999.

(H)

Form No. TWIA-175, Sale Contract Clause, effective June 1, 1999.

(I)

Form No. TWIA-195, Sworn Statement in Proof of Loss, effective June 1, 1999.

(3)

Endorsements for use with the Association Commercial Policy.

(A)

Form No. TWIA-18, Builders Risk--Stated Value Form, effective June 1, 1999.

(B)

Form No. TWIA-21, Builders Risk--Actual Completed Value Form, effective June 1, 1999.

(C)

Form No. TWIA-26, Church Form, effective June 1, 1999.

(D)

Form No. TWIA-65, Large Deductible Endorsement, effective June 1, 1999.

(E)

Form No. TWIA-115, Lumber Form---Specific---Retail Yard, effective June 1, 1999.

(F)

Form No. TWIA-164, Replacement Cost Endorsement, effective June 1, 1999.

(G)

Form No. TWIA-176, School Form, effective June 1, 1999.

(H)

Form No. TWIA-280, Condominium Property Form---Additional Policy Provisions, effective June 1, 1999.

(I)

Form No. TWIA-282, Condominium Property Form---Additional Policy Provisions, amended June 1, 1999.

(4)

Endorsements for use with the Association Dwelling Policy.

(A)

Form No. TWIA-310, Extensions of Coverage, amended June 1, 1999.

(B)

Form No. TWIA-315, Extensions of Coverage, amended June 1, 1999.

(C)

Form No. TWIA-320, Extensions of Coverage, amended June 1, 1999.

(D)

Form No. TWIA-325, Extensions of Coverage, amended June 1, 1999.

(E)

Form No. TWIA-326, Extensions of Coverage, amended June 1, 1999.

(F)

Form No. TWIA-328, Extensions of Coverage, amended June 1, 1999.

(G)

Form No. TWIA-410, Conversion to Farm and Ranch Dwelling Policy, effective June 1, 1999.

(5)

Endorsements for use with the Association Dwelling Policy and the Association Farm and Ranch Dwelling Policy.

(A)

Form No. TWIA-330, Extensions of Coverage, amended June 1, 1999.

(B)

Form No. TWIA-335, Extensions of Coverage, amended June 1, 1999.

(C)

Form No. TWIA-340, Extensions of Coverage, amended June 1, 1999.

(D)

Form No. TWIA-345, Extensions of Coverage, amended June 1, 1999.

(E)

Form No. TWIA-350, Extensions of Coverage, amended June 1, 1999.

(F)

Form No. TWIA-365, Replacement Cost Endorsement---Personal Property, amended June 1, 1999.

(G)

Form No. TWIA-400, Actual Cash Value---Roofs (One or Two Family Dwellings), effective June 1, 1999.

(H)

Form No. TWIA-420, Exclusion of Cosmetic Damage to Roof Coverings Caused by Hail, effective June 1, 1999.

(6)

Endorsements for use with the Association Mobile Home Policy-Texas Special Mobile Home Windstorm and Hail Insurance Policy.

(A)

[ ~~(1) TCPIA~~ ] Form No. TWIA-29, Mandatory Endorsement, effective June 1, 1999. [ ~~29--mandatory endorsement. Effective September 1, 1991.~~ ]

~~[(2)~~

~~TCPIA Form 300--mandatory breakaway wall exclusion endorsement. Effective July 1, 1987.]~~

~~[(3)~~

~~TCPIA Form 365--replacement cost endorsement--household goods. Effective January 1, 1994.]~~

~~[(4)~~

~~TCPIA Form 500--$100 deductible clause other than one or two-family dwellings. Effective March 15, 1973.]~~

~~[(5)~~

~~TCPIA Form 510--dwelling percentage deductible clause. Effective May 1, 1972.]~~

~~[(6)~~

~~TCPIA Form 520--dwelling $100 deductible clause. Effective May 1, 1972.]~~

[(7)

~~TCPIA Form 530--dwelling $250 deductible clause. Effective May 1, 1972.]~~

(B)

[ ~~(8) TCPIA~~ ] Form No. TWIA-570, Mobile Home Percentage Deductible Clause, effective June 1, 1999. [ ~~570--mobile home percentage deductible clause. Effective August 17, 1976.~~ ]

(C)

[ ~~(9) TCPIA~~ ] Form No. TWIA-575, Mobile Home Percentage Deductible Clause, effective June 1, 1999 . [ ~~575--mobile home percentage deductible clause. Effective August 17, 1976.~~ ]

~~[(10)~~

~~TCPIA Form 280--condominium property form. Effective January 1, 1991.]~~

~~[(11)~~

~~TCPIA Form 282--condominium endorsement. Effective January 1, 1991.]~~

~~[(12)~~

~~TCPIA Form 310 (HO)--extensions of coverage, windstorm and hail. Effective January 1, 1994.]~~

~~[(13)~~

~~TCPIA Form 315 (HO)--extensions of coverage, windstorm and hail. Effective January 1, 1994.]~~

~~[(14)~~

~~TCPIA Form 320 (HO)--extensions of coverage, windstorm and hail. Effective January 1, 1994.]~~

~~[(15)~~

~~TCPIA Form 325 (HO-Tenant)--extensions of coverage, windstorm and hail. Effective January 1, 1994.]~~

~~[(16)~~

~~TCPIA Form 326 (HO-CONDO)--extensions of coverage, windstorm and hail. Effective January 1, 1994.]~~

~~[(17)~~

~~TCPIA Form 328 (HO-CONDO)--extensions of coverage, windstorm and hail. Effective January 1, 1994.]~~

~~[(18)~~

~~TCPIA Form 330 (TDP and TFR)--extensions of coverage, windstorm and hail. Effective January 1, 1994.]~~

~~[(19)~~

TCPIA Form 335 (TDP and TFR)--extensions of coverage, windstorm and hail. Effective January 1, 1994.] [ ~~20) TCPIA Form 340 (FRO)--extensions of coverage, windstorm and hail. Effective January 1, 1994.~~ ]

~~[(21)~~

~~TCPIA Form 345 (FRO)--extensions of coverage, windstorm and hail. Effective January 1, 1994.]~~

~~[(22)~~

~~TCPIA Form 350 (FRO)--extensions of coverage, windstorm and hail. Effective January 1, 1994.]~~

~~[(23)~~

~~TCPIA FORM 525--dwelling optional large deductible clause. Effective May 1, 1996.]~~

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 March 12, 1999.

TRD-9901520

Lynda H. Nesenholtz

General Counsel and Chief Clerk

Texas Department of Insurance

Earliest possible date of adoption: April 25, 1999

For further information, please call: (512) 463-6327

Division 6. Manual

28 TAC §5.4501

The Texas Department of Insurance proposes amendments to §5.4501 concerning the adoption by reference of a revised manual of rules governing the writing of windstorm and hail insurance coverage by the Texas Windstorm Insurance Association (Association). Created in 1971 by the Texas legislature as the Texas Catastrophe Property Insurance Association, the Association is composed of all insurers authorized to transact property insurance in Texas and operates pursuant to Article 21.49 of the Insurance Code. The Texas legislature in House Bill 1632 (Acts 1997, 75th Legislature, chapter 438, §1, p. 1707, effective September 1, 1997) changed the name of the Texas Catastrophe Property Insurance Association to the Texas Windstorm Insurance Association. The purpose of the Association is to provide windstorm and hail insurance coverage to residents in designated catastrophe areas who are unable to obtain such coverage in the voluntary market. Since its inception, the Association has provided this coverage to residents of 14 coastal counties: Aransas, Brazoria, Calhoun, Cameron, Chambers, Galveston, Jefferson, Kenedy, Kleberg, Matagorda, Nueces, Refugio, San Patricio and Willacy. The Association also provides coverage to certain designated catastrophe areas in Harris County: (i) effective March 1, 1996, the area located east of a boundary line of State Highway 146 and inside the city limits of the City of Seabrook and the area located east of the boundary line of State Highway 146 and inside the city limits of the City of La Porte (Commissioner's Order Number 95-1200, November 14, 1995); (ii) effective June 1, 1996, the City of Morgan's Point (Commissioner's Order Number 96-0380, April 5, 1996); and (iii) effective April 1, 1997, the areas located east of State Highway 146 and inside the city limits of the City of Shoreacres and the City of Pasadena (Commissioner's Order Number 97-0225, March 11, 1997). These proposed revisions to the manual are necessary (i) to simplify and clarify current manual rules and to reorganize and reformat the rules for ease of reading and understanding; (ii) to revise the current rules for writing windstorm and hail insurance to apply to the new policy forms proposed for adoption under amendments to 28 TAC §5.4101 and to the new and revised endorsement forms proposed for adoption under amendments to 28 TAC §5.4201, both of which are published in separate rule proposals in this edition of the Texas Register ; (iii) to promulgate new rules to govern the writing of new coverages to be provided under the new policy forms proposed for adoption under §5.4101 and the new and revised endorsement forms proposed for adoption under §5.4201 and to repeal rules which are no longer used or needed by the Association for the writing of windstorm and hail insurance; and (iv) to implement legislation passed by the 75th Texas Legislature. The proposed revised manual consists of the following sections: I-General Rules; II-Policy Forms and Endorsements, III-Rating Rules, and IV-Manufactured Housing (Mobile Home). Because of the enactment of House Bill 1632 which amended Article 21.49 to change the name of the Association from the Texas Catastrophe Property Insurance Association to the Texas Windstorm Insurance Association, all references to the Texas Catastrophe Property Insurance Association throughout the manual have been changed to the Texas Windstorm Insurance Association and the reference to "TCPIA" has been changed to "Association." Other proposed changes include:

Proposed New Rules. Five new rules that have not previously been adopted for use by the Association are proposed for inclusion in the revised manual.

New Rule II-B-3 is proposed to govern the writing of the new Actual Cash Value--Roofs (Dwelling) Endorsement Form No. TWIA-400, proposed for adoption under 28 TAC §5.4201, which is published separately in this edition of the Texas Register . The proposed endorsement and rule are necessary to implement Senate Bill 1837 (Acts 1997, 75th Legislature, chapter 1000, §2, effective January 1, 1998) by the 75th Legislature that amended Article 21.49, §8A(b) of the Insurance Code to authorize the Commissioner, after notice and hearing, to adopt rules to authorize the Association to provide actual cash value coverage instead of replacement cost coverage on the roof covering of a dwelling insured by the Association and to determine the conditions under which the Association may provide the actual cash value coverage, the appropriate premium reductions, and the disclosure that must be provided to the policyholder. The proposed rule specifies the eligibility requirements for attachment of the endorsement to the Association's dwelling policy; defines roof covering in accordance with §8A(e) of Article 21.49; proposes a premium credit of 15 percent when the endorsement is attached to a dwelling policy; limits the deduction for depreciation to a maximum of 50 percent except in certain specified instances; prohibits the attachment of the endorsement to a policy insuring a dwelling with a roof covering qualifying for and receiving a mandatory roof covering credit because the roof covering meets an impact resistant test; and requires a disclosure on the face of the policy to notify the insured that the coverage under the policy is restricted to actual cash value on roof coverings. Under the proposed rule, the endorsement form may only be attached to a policy insuring a dwelling and only if the deductible amount for the coverage on the dwelling is 1 percent or less of the Coverage A (Dwelling) limit of liability and on roof coverings that meet the criteria specified in the proposed rule, including significant deterioration, improper installation or repair, and 15 years of age or older. The proposed rule defines roof covering to mean the roofing material exposed to the weather, the underlayments applied for moisture protection, and all flashings required in the replacement of a roof covering. The proposed rule governs the premium calculation and proposes a premium credit of 15 percent for all rating territories in the designated catastrophe areas to be applied to the modified extended coverage premium before any other adjustments are made to the modified extended coverage premium. The proposed 15 percent credit is based on an actuarial review of likely savings under the actual cash value endorsement. The first step in the estimation of savings was to assume that approximately 20 percent of the Association's expected losses would be due to non-hurricane related claims and that 80 percent would be due to hurricane related claims. This is essentially the same relationship between the two categories of loss as has been assumed previously by Department staff in pricings related to the Association's business. Given whether a loss was produced by a non-hurricane or a hurricane event, estimates of the proportion of total losses that would be due to damages to the roof covering were made. These were adopted from a study made by a major insurer of savings under a similar, though not identical, actual cash value endorsement that insurer proposed to introduce in Texas. Given that the criteria for eligibility for the endorsement include that the roof show significant deterioration, improper installation or repair, and be 15 years of age or older, which serve to increase the general damageability of the roof coverings, the Department staff felt that these assumptions were reasonable. Also, because of these criteria, as well as the fact that under the proposed rule the maximum depreciation allowed for adjusting a loss to a roof covering under the endorsement is 50 percent except in certain specified instances, the Department staff felt that the average depreciation would likely approximate 50 percent. (Under an actual cash value policy or endorsement, the amount of loss is calculated as replacement cost of the affected part of the property less depreciation.) Based on these assumptions, savings in expected losses were calculated. Using the loss and expense provisions underlying the extended coverage benchmark rate for the first tier of coastal counties, anticipated savings were then expressed as a percentage of the rate. The indicated savings were 14.3 percent of premium. This was rounded to 15 percent. Under the proposed rule, the percentage of depreciation allowed for adjusting the loss to a roof covering on an actual cash value basis is a maximum of 50 percent, except that depreciation can be greater than 50 percent if at the time of the event causing the loss the roof covering was not performing its intended function of keeping out the elements.

New Rule II-B-4 is proposed to regulate the writing of the optional Exclusion of Cosmetic Damage to Roof Coverings Caused by Hail endorsement (Form No. TWIA-420). This endorsement excludes cosmetic loss or damage from coverage under the policy in the event any loss occurs to a hail resistant roof covering for which the policyholder is receiving a premium credit for the installation of an impact resistant roof covering as provided under proposed Rule III-C-2. The endorsement may be attached by the Association to a dwelling policy that insures a risk eligible for and receiving the mandatory roof covering premium credit provided in proposed new Rule III-C-2. This exclusionary endorsement is similar to the exclusionary endorsement available under a Texas homeowners or dwelling policy (adopted pursuant to Commissioner's Order Number 98-0390, effective May 2, 1998). Under the proposed rule, the endorsement may be attached at the inception date of a new policy, the inception date of a renewal policy, or during the term of the policy on the date a roof covering premium credit is applied to the policy. The proposed rule requires that the endorsement be signed by the insured to be effective. The proposed rule requires the Association to inform the consumer of the possibility that cosmetic loss or damage may be excluded from the policy in the event any loss occurs to a roof and the damaged roof is replaced with a hail resistant roof covering.

New Rule III-C-2 is proposed to provide mandatory premium credits for dwelling risks with residential roof coverings that comply with certain impact resistance testing criteria of the Underwriters Laboratories (U.L. Standard 2218). The proposed rule is substantially the same as adopted in Commissioner's Order Number 98-0390 (April 8, 1998) to provide mandatory credits for residential roof coverings insured under the Texas homeowners and dwelling policies. The proposed mandatory premium credits, which vary from 4 percent to 14 percent based on impact resistance classifications specified by the U.L., would be applied to the dwelling modified extended coverage premium before any other adjustments. The proposed rule requires that the installer of the roof covering provide the policyholder with a completed certificate of installation promulgated by the Department. This proposed certificate of installation is in Appendix B of the proposed revised manual. The policyholder would then submit the certificate to the Association, but submission of the certificate would not preclude the Association from inspecting the risk for verification of roof covering installation. The proposed rule also specifies product labeling requirements for roofing manufacturers. Premium credits for qualified impact resistant roof coverings installed prior to June 1, 1999, the proposed effective date of the manual, are optional with the Association. The proposed premium credits are based primarily on actuarial review of statistical information underlying the credits adopted for homeowners and dwelling policies pursuant to Commissioner's Order Number 98-0390. In order to determine single discounts by U.L. category of roof for the territories in the designated catastrophe area, an average of the discounts adopted by the Commissioner for extended coverage in Commissioner's Order Number 98-0390, weighted by the Association's most recent distribution of residential property coverage by county, was calculated. Extended coverage protects against certain perils other that hurricane, windstorm, and hail, including smoke, explosion, aircraft, vehicles, and riot or civil commotion; the Association only covers losses arising out of hurricanes, windstorms, and hail. Because of this, Article 21.49, §8(h)(2) of the Insurance Code requires that the extended coverage rate promulgated by the Commissioner in accordance with Chapter 5 of the Insurance Code be reduced by 10 percent in calculating the dwelling property rates of the Association. This, in theory, eliminates the losses and premium needs for perils that the Association does not cover. In calculating the discounts adopted by the Commissioner, these other perils were taken into account. It was assumed that the only damage to roofs occurs under the perils covered by the Association. Since the Association's rates only cover hurricane, windstorm, and hail, the average discounts calculated were divided by .9 and rounded to the nearest whole percent in order to obtain the proposed discounts.

New Rule II-B-7 is proposed to govern the writing of a new endorsement (TWIA-430) proposed to provide coverage for the increased cost in construction due to the requirement to rebuild or repair a structure in accordance with the windstorm resistant building code applicable to the area in which the structure is located. The new endorsement is proposed for adoption under 28 TAC §5.4201, which is published separately in this edition of the Texas Register . Under the proposed new rule and endorsement, the insured, under either the dwelling policy or the commercial policy, could select limits of liability of 5 percent of the Coverage A limit of liability, 10 percent of the Coverage A limit of liability, or 15 percent of the Coverage A limit of liability. The coverage provided by the endorsement would be additional insurance, but the total payment for a covered loss under the windstorm and hail policy, including the increased cost in construction endorsement, could not exceed the maximum limit of liability established by law for the specific type of structure that is insured by the Association. The proposed rates for the endorsement are: 5 percent of building coverage: .02 rate per $100 of building amount; 10 percent of building coverage: .035 rate per $100 of building amount; and 15 percent of building coverage: .05 rate per $100 of building amount. These rates were proposed by the Association in a petition filed with the Department on November 12, 1998. According to the petition, the Association engaged the independent actuarial consulting firm Tillinghast-Towers Perrin (Tillinghast) to review data and recommend a proposed rate. The Association board members determined at a board meeting held on November 2, 1998, that the rate proposed by Tillinghast was too high. According to the petition, this assessment was largely one based on instinct and business judgment rather than data, and the board members agreed that there is perhaps insufficient data upon which to base an actuarially credible rate. The Board voted 6 to 2 (one absent) to recommend the rating plan outlined in this proposed rule. The Department's actuarial staff has reviewed the recommended rating plan and supports it. The petition filed by the Association contains (i) relevant correspondence; (ii) Tillinghast's actuarial report; (iii) report of the Association's actuarial committee regarding their review of the Tillinghast report; (iv) recommended rating plan; and (v) recommended endorsement form. Copies of the petition are available for review in the Chief Clerk's Office, Texas Department of Insurance, 333 Guadalupe Street, Austin, Texas, 78714-9104. To request a copy of the petition, please contact Angela Arizpe at 512/322-4147 (refer to Reference Number P-1198-29).

Three new standard deductible amounts are proposed for commercial and public building risks in new Rule I-J-2: (i) a $250 deductible for policies with a limit of liability up to $49,999, (ii) a $500 deductible for policies with a limit of liability of $50,000 to $99,999, and (iii) a $1,000 deductible for policies with a limit of liability of $100,000 and over. These new deductibles are necessary because the current standard deductible available for commercial risks and public building risks is $100, regardless of the limit of liability of the policy. This $100 deductible is not consistent with the standard deductibles available in the voluntary market for commercial risks. The proposed new standard deductibles will eliminate the payment of minor losses and thereby reduce the amount of losses paid by the Association for commercial risks. Also, the application of proposed rate credits for the new standard deductibles will reduce insurance costs for commercial risks. A 12 percent premium credit is proposed for each of the three new standard deductible amounts. The 12 percent credit was recommended in a petition (Reference Number P-0399-03) filed by the Association on September 3, 1997. This recommendation, according to the petition, is based on the fact that 12 percent is the current credit allowed for a $1,000 deductible. The Department staff supports the proposed 12 percent credit for each of the new standard deductible amounts. It is the Department's position that this credit is reasonable in that the proposed deductibles bear approximately the same relationship to the corresponding policy limits intervals. The premium charged by the Association is directly proportional to the limits purchased; therefore, if the amount of the deductible is roughly proportional to the limits, it is reasonable that the percentage credit should be the same.

The amounts noted in this proposal may change based on evidence adduced at the hearing and/or comments received regarding this proposal.

Proposed Amendments and Rule Repeals. The following amendments and repeal of current rules are proposed:

I--General Rules

Rule I-A: An amendment is proposed to Rule I-A to provide that the manual applies to all policies issued by the Association. This amendment is necessary because currently there is only one policy form issued by the Association; however, a new commercial policy form and a new dwelling policy form are proposed for adoption in 28 TAC §5.4101, which is published separately in this edition of the Texas Register .

Rule I-B: Rule I-B on Eligibility is proposed to specify that windstorm and hail insurance may be provided by the Association only on property located in the designated catastrophe areas and to specify the type of risks that can be insured and the policy form applicable to each type of risk. This rule is necessary because of the new policy forms proposed for adoption in 28 TAC §5.4101, which is published separately in this edition of the Texas Register , and because the Legislature enacted Senate Bill 1499 (Acts 1997, 75th Legislature, p. 5030, ch. 1330, §1, effective September 1, 1997) to provide that effective January 1, 1998, farm and ranch and farm and ranch owners insurance are no longer regulated as personal lines coverage pursuant to Articles 5.35 and 5.101 of the Insurance Code, but rather are to be regulated as commercial property insurance under Article 5.13-2 of the Insurance Code. As provided under proposed Rule I-B-2b, farm and ranch property, except farm and ranch dwellings, will be insured under the Association commercial policy form, and as provided under proposed Rule I-B-2c, the farm and ranch dwelling will be insured under the Association dwelling policy form with Endorsement No. TWIA-410 attached for Conversion to Farm and Ranch Dwelling Policy. Endorsement No. TWIA-410 is proposed for adoption in 28 TAC §5.4201, which is published separately in this edition of the Texas Register .

Rule I-C: In the Definitions subsection, current definitions have been clarified and reformatted to be consistent with the new policy forms proposed for adoption in 28 TAC §5.4101, which is published separately in this edition of the Texas Register and the new endorsement forms proposed for adoption in 28 TAC §5.4201, which is published separately in this edition of the Texas Register . An amendment is proposed to the Definitions subsection to provide a new definition for farm and ranch risks to clearly provide that all buildings and structures located on a farm and ranch, including the dwelling, are commercial buildings. This amendment is necessary because the 75th Texas Legislature enacted Senate Bill 1499 (Acts 1997, 75th Legislature, p. 5030, chapter 1330, §1, effective September 1, 1997) to provide that effective January 1, 1998, farm and ranch and farm and ranch owners insurance are no longer regulated as personal lines coverage pursuant to Articles 5.35 and 5.101 of the Insurance Code, but rather are to be regulated as commercial property insurance under Article 5.13-2 of the Insurance Code. Also, a new definition for public buildings is proposed to differentiate between public buildings and commercial risks.

Rule I-D: An amendment is proposed to redesignate Current Rule I-C, Determination of Territory (Catastrophe Areas), as Rule I-D; no changes are proposed to the text of the current rule.

Rule I-E: Rule I-E (Rating Territories) is proposed to include the designation of the rating territories for each of the counties located in the designated catastrophe areas and the applicable territory number for each county for rating purposes. The rule contains no changes to the current rating territories for the counties located in the designated catastrophe areas. This rule is proposed for inclusion in the revised manual for purposes of efficiency and convenience.

Rule I-F: Current Rule I-D (Insurable Property) is proposed to be redesignated as Rule I-F. The only amendment proposed to newly designated Rule F is to change "TCPIA" to "Association."

Rule I-G: Current Rule I-E (Policy Term) is proposed to be redesignated as Rule I-G; there are no substantive changes proposed to the rule.

Rule I-H: The current Rule I-F on Coinsurance is redesignated as Rule I-H, and amendments to the rule are proposed to clarify the applicable coinsurance for each type of risk and to change the term "contents" to either "business personal property" for commercial risks or "personal property" for dwelling risks to conform with the new policy forms proposed for adoption in 28 TAC §5.4101, which is published separately in this edition of the Texas Register and new endorsement forms proposed for adoption in 28 TAC §5.4201, which is published separately in this edition of the Texas Register . The current Special Index, Supplemental Special Index, and General Index are proposed to be new Appendices A-1, A-2, and A-3 respectively in the revised manual; no changes are proposed to these appendices. Amendments to Rule I-H-1 are proposed to indicate the new appendices. Rule I-H-2 on Waiver of Coinsurance is based upon current Rule III-F (Calculation of Premium When Value Exceeds Pool Limits or the Deductible Amount) which is proposed to be moved from Section III of the current manual to Rule H-2 and H-3 in Section I of the proposed revised manual. Amendments are proposed to Rule I-H-2 to clearly indicate when coinsurance may be waived under a windstorm and hail insurance policy. The inclusion of this rule does not change any of the current provisions for the Association's waiving of coinsurance. Rule I-H-3 on Determination of Premium is also based on current manual Rule III-F and includes the first loss scale formula used in determining the premium when the Association waives the coinsurance requirements. In addition, amendments are proposed to the rule to clarify that it applies only when the Association waives the coinsurance requirements. These changes are necessary for clarity and efficiency of organization of the manual. No changes are proposed to the first loss scale formula.

Rule I-I: Current Rule I-G on New or Increased Coverage and Renewal Applications is redesignated as Rule I-I. Changes are proposed to provide that, in addition to the current provisions, the effective date for new or increased coverage is on the date mailed if sent by other similar mailing procedure as approved by the Association's Board of Directors.

Rule I-J: The current Rule I-H on Deductibles is redesignated as Rule I-J. In addition, amendments are proposed to conform the rule with the proposed new dwelling and commercial policy forms proposed for adoption in 28 TAC §5.4101, which is published separately in this edition of the Texas Register . The proposed new forms specify the applicable deductible in the policy form itself rather than in an endorsement. Amendments are proposed to address separately the available deductibles for dwellings and the available deductibles for commercial and public buildings. While there are no substantive changes to the current rules on deductibles and applicable credits for dwellings, three new standard deductible amounts are proposed for commercial and public building risks; these new deductibles and credits are discussed under the "Proposed New Rules" subheading of this preamble. There are no changes proposed to the current credits for the current optional large deductibles for commercial and public building risks. An amendment is proposed to Rule I-J-2b, Optional Large Deductible for Commercial Risks and Public Buildings, to delete the provision "on a per occurrence basis" when Form No. TWIA-65 may be attached to provide a large deductible. This amendment does not change the available deductibles or how they can be applied because optional large deductibles can be provided on an occurrence or on a per item basis.

New Rule I-K: Current Rule I-I on Cancellations is redesignated Rule I-K. Amendments are proposed to change the cancellation procedures for Association policies from short rate cancellation to pro rata cancellation. This means that under the proposed rules Association insureds who cancel their policies would no longer be penalized for canceling their policy during the policy term by losing part of the unearned premium. This change is necessary to conform the Association's cancellation procedures to those of companies in the voluntary market. Amendments are proposed to Rule I-K-3 to clarify that the Association may not initiate flat cancellation for any reason. Rule I-K-4 is proposed to be repealed because builder's risk policies would no longer be treated differently from other Association policies.

Current Rule I-K: Current Rule I-K on Excluded Property is proposed for repeal because the rule is no longer necessary. The rule excludes mobile homes and automobiles from eligibility for insurance under a windstorm and hail insurance policy. Mobile homes are now insured by the Association (Section IV of the proposed revised manual). Article 5.01 of the Insurance Code limits automobile insurance to motor vehicle or automobile insurance written pursuant to Chapter 5 of the Insurance Code.

Rule I-L: Current Rule I-J on Maximum Limits of Liability is proposed to be redesignated as Rule I-L in the revised manual. Amendments are proposed to reorganize and simplify Rule I-L to specify what is covered under the maximum limits of liability for dwellings, commercial risks, and public buildings. The rule is also changed to incorporate the current maximum limits of liability approved by the Commissioner under Commissioner's Order Number 98-1500 (effective January 1, 1999). Because of the enactment of Senate Bill 1499 (Acts 1997, 75th Legislature, p. 5030, ch. 1330, §1, effective September 1, 1997), farm and ranch property is considered commercial property for rating purposes. However, Article 21.49, §8D(a)(1) provides the statutory minimum for the maximum limits of liability for a dwelling, and §8D(a)(4) provides the statutory minimum for the maximum limits of liability for a structure other than a dwelling or a public building. Article 21.49, §8D(a) also provides that the maximum limits of liability shall be proposed by the Association's board of directors and approved by the Commissioner. Pursuant to Commissioner's Order Number 98-1500, the maximum limit of liability for a farm and ranch dwelling is $365,000 (the same as for other dwellings), and the maximum limit of liability for other farm and ranch buildings/structures is $1,584,000 (the same as for a structure other than a dwelling or a public building). Amendments are proposed to change the term "corporeal movable property" to "personal property" for dwellings and to "business personal property" for commercial risks and public buildings to conform to new policy forms proposed under 28 TAC §5.4101 and to new and amended endorsement forms proposed under 28 TAC §5.4201, both of which are published separately in this edition of the Texas Register .

Rule I-M: Current Rule I-L on Minimum Premium is redesignated as Rule I-M. No changes are proposed to the rule except to change the reference to "TCPIA" to the "Association."

Rule I-N: Current Rule I-M on the applicability of rules from the Texas General Basis Schedules is redesignated as Rule I-N, and amendments are proposed to provide that the rules of the Texas General Basis Schedules approved prior to and in effect on October 1, 1991, that are applicable in whole or in part to risks insured by the Association are contained in new Appendix C.

II--Policy Forms and Endorsements

Rule II-A: Amendments are proposed to the Policy Forms and Endorsements section of the proposed revised manual to specify in Rule II-A-1 the policy forms that may be used by the Association in writing windstorm and hail insurance. The new policy forms are proposed for adoption and the current policy forms are proposed for repeal under amendments to 28 TAC §5.4101 which is published in a separate rule proposal in this edition of the Texas Register . Amendments are proposed to specify in Rule II-A-2 the endorsement forms that may be used by the Association in writing windstorm and hail insurance. New endorsement forms are proposed for adoption and current endorsement forms are proposed to be amended or repealed in 28 TAC §5.4201 which is published in a separate rule proposal in this edition of the Texas Register . The listing of endorsements in Rule II-A is organized in accordance with the policy forms with which they may be used. The current manual rule on policy forms and endorsements is proposed for repeal.

Rule II-B: The current rules governing the attachment of certain endorsements have been organized under a newly designated Rule II-B. The proposed changes to Rule II-B are necessary to conform the rule to the amended, repealed, and new endorsement forms proposed in 28 TAC §5.4201, which is published in a separate rule proposal in this edition of the Texas Register . These changes include: (i) amendments to Rule II-B-1 (currently Rule II-C), which governs the writing of the Replacement Cost Endorsement No. TWIA-365 to change references to "household goods" to "personal property"; (ii) amendments to Rule II-B-2 (currently Rule II-E) governing the 11 Extensions of Coverage Endorsements that are attached to an Association policy when companion policies are issued that exclude the coverage provided by these endorsements; (iii) proposed new Rule II-B-3 on Actual Cash Value--Roofs (Dwellings), Endorsement Form No. TWIA-400; see discussion of this rule under "Proposed New Rules" subheading of this preamble; (iv) proposed new Rule II-B-4 on Exclusion of Cosmetic Damage to Roof Coverings Caused by Hail, Endorsement Form No. TWIA 400; see discussion of this new rule under "Proposed New Rules" subheading of this preamble; (v) proposed new Rule II-B-7 on Extension of Coverage--Increased Cost in Construction Form No. TWIA-430; see discussion of this rule under "Proposed New Rules" subheading of this preamble and (vi) proposed Rules II-B-5 and II-B-6 on Builder's Risk Form No. TWIA-21 and Builder's Risk Form No. TWIA-18. Rules II-B-5 and II-B-6 governing the writing of builder's risk coverage under a windstorm and hail policy using either an Actual Completed Value Form (Form No. TWIA-21) or a Stated Value Form (Form No. TWIA-18) are proposed for incorporation into the manual. Existing rules for writing builders risk policies through the Association are contained in the Texas General Basis Schedules which are adopted by reference in the current manual (Rule I-M). These existing rules are proposed to be incorporated into the manual for purposes of efficiency and convenience. The proposed rules contain no substantive changes from the current rules, but the rules have been technically edited for readability and to eliminate requirements and conditions for writing builder's risk policies that are not applicable to the writing of a builder's risk through the Association.

Current Rule II-B: Under the proposed revisions to the manual, current Rule II-B governing the writing of the Windstorm, Hurricane and Hail Deductible Endorsement Form No. 66 is proposed for repeal because it is no longer necessary. Association insureds who purchase excess windstorm and hail insurance above the maximum limits of liability obtain such coverage in the voluntary market. The Association does not provide excess windstorm and hail coverage to which deductible Endorsement Form No. 66 would be attached.

Current Rule II-C: Current Rule II-C is redesignated as Rule II-B-1.

Current Rule II-D: Current Rule II-D is proposed to be repealed. This rule governs the use of the Mandatory Breakaway Wall Exclusion Endorsement Form No. TCPIA-300 which is proposed for repeal under 28 TAC §5.4201, which is published in a separate rule proposal in this edition of the Texas Register . This endorsement is no longer necessary because the exclusion is incorporated into the Association's new policy forms proposed for adoption in 28 TAC §5.4101, which is published separately in this edition of the Texas Register .

Current Rule II-E: This rule is proposed to be redesignated as Rule II-B-2, Extensions of Coverage Endorsements. These endorsements are attached to an Association policy when companion policies are issued that exclude the coverage provided by these endorsements. Amendments are proposed to reference "equivalent" policy forms to the various Texas standard residential property policy forms to take into account that the companion policy may be an existing Texas standard policy coverage form or an equivalent coverage form. This change is necessary because of the enactment of Senate Bill 1499 (Acts 1997, 75th Leg., R.S., ch. 1330, §13, eff. Sept. 1, 1997) which authorizes the Commissioner in Article 5.35 of the Insurance Code to adopt policy forms and endorsements of national insurers or a national organization of insurance companies or similar organization on policy forms and endorsements. Amendments are also proposed to reference the proposed new Association policies to which the extensions of coverage may be attached.

III--Rating Rules. The proposed revisions to the manual include the reorganization and amendment of the Rating Rules in Section III to address in separate rules commercial risks, including buildings/structures that are occupied for business, professional, or manufacturing purposes (including apartments), farm and ranch property, townhouses and condominiums; public buildings; and dwellings. There are no substantive changes to the rating rules except to those rules that govern the rating of dwellings and farm and ranch property.

Rule III-A-1: Amendments to Rule III-A-1 governing the rating of buildings/structures that are occupied for business, professional, or manufacturing purposes are proposed to change the reference in the exception for determining the annual extended coverage rate of apartments from "contents" to "business personal property/personal property" of apartments for consistency with the Association's new policy forms proposed for adoption in 28 TAC §5.4101, which is published separately in this edition of the Texas Register . Amendments are also proposed to specify the appendix references for the Special Index, (Appendix A-1) the Special Supplements Index (Appendix A-2), and the General Index (Appendix A-3). These references are necessary because the proposed revisions to the manual include placement of these indices in an appendix with no changes to the indices.

Rule III-A-2: Current Rule III-D governing the rating of farm and ranch property is proposed to be redesignated as Rule III-A-2 and amended to provide that these rates are to be determined in accordance with a new Appendix D. The Legislature last session enacted Senate Bill 1499 (Acts 1997, 75th Leg., ch. 1330, §1, p. 5030, eff. Sept. 1, 1997) to provide that effective January 1, 1998, farm and ranch and farm and ranch owners insurance lines are no longer regulated as personal lines coverage pursuant to Articles 5.35 and 5.101 of the Insurance Code, but rather are to be regulated as commercial property insurance under Article 5.13-2 of the Insurance Code. The current rating rules in Rule III-D provide that the premium and rate charts contained in the Farm and Ranch Section of the Texas Personal Lines Manual are to be used in determining the appropriate modified extended coverage premium for a windstorm and hail policy insuring farm and ranch property. Because farm and ranch insurance is now regulated as commercial insurance pursuant to Article 5.13-2 of the Insurance Code, the current rules referencing the Farm and Ranch Section of the Texas Personal Lines Manual are no longer appropriate. A new Appendix D is proposed to be included in the manual to specify the rates and rules governing the writing of farm and ranch properties insured under an Association policy. Pursuant to Article 5.13-2, §5, the Association is required to file commercial farm and ranch rates. The current rates are contained in Appendix D of the proposed revised manual. These rates were adopted in Commissioner's Order Number 98-1258 to be effective January 1, 1999.

Rule III-A-3: Current Rule III-B governing the rating of townhouses and condominiums is proposed be redesignated as Rule III-A-3 and amended to change the reference in the exception for determining the annual extended coverage rate of apartments from "contents" to "business personal property/personal property" of apartments for consistency with the Association's new policy forms proposed for adoption in 28 TAC §5.4101, which is published separately in this edition of the Texas Register .

Rule III-B: That part of current Rule III-A-1 governing the rating of public buildings is redesignated as Rule III-B, and amendments are proposed to specify the appendix references for the Special Index (Appendix A-1), the Special Supplements Index (Appendix A-2), and the General Index (Appendix A-3). These references are necessary because the proposed revisions to the manual include placement of these indices in an appendix with no changes to the indices.

Rule III-C: Amendments to Rule III-C governing the rating of dwellings are proposed to divide the rules into two major areas: (i) rules on premium calculation for determining the applicable windstorm premium for the insured dwelling, and extensions of coverage that require a modification in the calculation of the applicable windstorm premium; there are no substantive changes to these rating rules; and (ii) a proposed new rule to provide mandatory premium credits for dwelling risks with residential roof coverings that comply with certain impact resistance testing criteria of the Underwriters Laboratories (U.L. Standard 2218). This proposed new rule is discussed under the "Proposed New Rules" subheading of this preamble.

Rule III-C-3: The proposed manual is revised to incorporate the rule on mandatory building code credits that was adopted in 28 TAC §5.4700 pursuant to Commissioner's Order Number 99-0215 (February 4, 1999). This rule is effective on policies issued on and after February 28, 1999. The rule provides mandatory credits for new residential construction, excluding additions or repairs to existing structures, constructed to the standards of the Building Code for Windstorm Resistant Construction or to higher standards than the Building Code for Windstorm Resistant Construction and requires that these the credits be applied to the modified extended coverage premium. The rule provides mandatory credits for residential structures in any of the designated catastrophe areas which were constructed prior to September 1, 1998, in which all exterior openings have been retro-fitted with exterior opening protections that meet the windborne debris criteria standards of the Building Code for Windstorm Resistant Construction, or equivalent criteria recognized by the Texas Department of Insurance and requires that these credits be applied to the modified extended coverage premium.

Current Rule III-F: The proposed manual is revised to move current Rule III-F on Calculation of Premium When Value Exceeds Pool Limits or the Deductible Amount to Rule I-H-2 and Rule I-H-3 with no substantive changes to the rule. Under this rule, when the value exceeds the maximum Association limit or the deductible amount, the Association may waive the coinsurance requirements and charge a premium in accordance with the first loss scale formula. This reorganization is proposed for purposes of readability and efficiency in the organization of the manual.

IV--Rate Tables. Amendments to the commercial Rate Tables A, B, and C contained in the current manual are proposed to incorporate the most current approved commercial rates (adopted in Commissioner's Order Number 98-1258 to be effective January 1, 1999) and to add a footnote to Rate Tables A and B containing rating rules relating to excess areas. This footnote is not included in the current rate tables and must be obtained from the Texas General Basis Schedule. Including the footnote in the rate tables in the manual eliminates the need to reference another manual for necessary rating rules. Amendments are proposed to Rate Table C to reflect that the table applies to the rating of "business personal property" and "personal property" in lieu of "contents" for consistency with the Association's new commercial policy form proposed for adoption in 28 TAC §5.4101, which is published in a separate rule proposal in this edition of the Texas Register .

V--Manufactured Housing (Mobile Homes). The current form and rating rules governing the writing of windstorm and hail insurance by the Association on manufactured housing (mobile homes) are proposed to be included in the revised manual. These current rules are contained in a bulletin issued by the Association to its member companies and are not currently part of the manual. The inclusion of these rules in the Association's manual will centralize all of the form and rating rules for the various Association policy forms into one publication and thereby make it easier and more efficient for agents writing coverage through the Association.

Rule V-A: This rule specifies the eligibility requirements for a manufactured home to be insured by the Association for windstorm and hail insurance.

Rule V-B: This rule regulates the rating of additions made to a mobile home and requires all site-built additions attached to a mobile home to rate as part of the mobile home. A building certification is required from the Texas Department of Insurance for any site-built addition to a mobile home. In addition, the rule provides that any separate structures on the premises of a mobile home are not eligible for coverage under a mobile home policy issued by the Association. A separate dwelling policy issued by the Association is required on all structures not connected to the mobile home, and such structures must meet the eligibility requirements for insurance under a dwelling policy issued by the Association.

Rule V-C: This rule provides that the maximum limit of liability for a mobile home insured by the Association is $84,000 for the mobile home, including any site-built additions attached to the home and any household goods located in the mobile home.

Rule V-D: This rule governs the deductibles applicable to mobile homes insured under a windstorm and hail insurance policy. For mobile homes located inland of the Intracoastal Canal, the deductible is 1 percent of the limit of liability with a $250 minimum. For mobile homes located seaward of the Intracoastal Canal, the deductible is 2 percent of the limit of liability with a $250 minimum. In addition, the rule provides that deductibles apply separately to the mobile home and the household goods.

Rule V-E: Rule V-E specifies the policy form and endorsements that may be used to provide coverage for mobile homes.

Rule V-F: This rule specifies the rates applicable to mobile homes and household goods located in a mobile home. These rates are $2.50 per $100 coverage for risks located inland of the Intracoastal Canal and $5.00 per $100 coverage for risks located seaward of the Intracoastal Canal. These are the rates currently in effect and are simply being provided in rule form in the revised manual.

The revised manual is proposed to be effective on June 1, 1999; however, that date may change depending on the date on which any amendments are adopted.

The Commissioner will consider the adoption of the proposed revised manual (adopted by reference in §5.4501) in a public hearing under Docket Number 2405, at 9:00 a.m. on April 29, 1999, in Room 100 of the William P. Hobby, Jr. State Office Building, 333 Guadalupe Street, Austin, Texas.

David Durden, deputy commissioner of the automobile and homeowners group of the Texas Department of Insurance, has determined that for each year of the first five years the proposed amendments are in effect, there will be no fiscal implications to local government as a result of enforcing or administering the amended section. Any costs incurred by the Department in reproducing or printing the revised manual will be recouped through charges to purchasers of the manual. There will be no adverse effect on local employment or the local economy as a result of enforcing or administering the amended section.

Figure: 28 TAC Chapter 5--Preamble

The proposed new rates for the attachment of Endorsement No. TWIA-430 as provided in proposed new Rule II-B-7 were proposed by the Association in a petition filed with the Department on November 12, 1998. Therefore, it is the Association's determination that these proposed rates will be sufficient to cover any losses that the Association must pay as a result of the adoption of Rule II-B-7. Government Code, §2006.001 defines "small business" in pertinent part as a legal entity, including a corporation, partnership, or sole proprietorship that is formed for the purpose of making a profit. The Association was not formed for the purpose of making a profit and operates accordingly, and therefore, does not meet the definition of "small business" under §2006.001 of the Government Code. Therefore, it is not necessary to include a small business analysis for the Association for this component of the cost note; however, the economic effect on the Association is addressed. Commercial risks qualifying as a small business under the Government Code, §2006.001, who opt to purchase this coverage will pay the same rate for this coverage as a large business. No business is required to purchase this coverage. (v) Under proposed new Rule I-J-2, policyholders of commercial risks and public building risks insured under a policy written through the Association will have the option of three new standard deductibles: (a) a $250 deductible for policies with a limit of liability up to $49,999, (b) a $500 deductible for policies with a limit of liability of $50,000 to $99,999, and (c) a $1,000 deductible for policies with a limit of liability of $100,000 and over. Currently, only a $100 deductible is available to policyholders of commercial risks and public building risks. While the availability of the higher deductibles will result in reduced premium costs for these types of risks, it will also mean that minor losses for these types of risks, as well as the higher deductible amount for more major losses, will be absorbed by the policyholder. How much these losses will cost policyholders will depend on the amount of the loss and the amount of the deductible selected by the policyholder. The Association will receive less premium but the Association's losses will also be reduced because the Association will no longer be paying for the amount of losses between $100 and the new higher deductibles. It is the Department's opinion that the reduced premium volume resulting from the adoption of these deductibles will be offset by the decrease in losses to be paid by the Association. In addition, the Association recommended the 12 percent credit in a petition (Reference Number P-0399-03) filed on September 3, 1997. Government Code §2006.001 defines "small business" in pertinent part as a legal entity, including a corporation, partnership, or sole proprietorship that is formed for the purpose of making a profit. The Association was not formed for the purpose of making a profit and operates accordingly, and therefore, does not meet the definition of "small business." Therefore, it is not necessary to include a small business analysis for the Association for this component of the cost note; however, the economic effect on the Association is addressed. The premium for policyholders with commercial risks qualifying as a small business under the Government Code, §2006.001, who opt for one of the three standard deductibles proposed in new Rule I-J-2 will not be calculated at a higher rate than the premium for policyholders with large business commercial risks. The same factors are used to calculate the rate of small business commercial risks as large business commercial risks. No business is required to choose any particular deductible but rather all businesses, both large and small, may choose the deductible that best suits their business and financial situation. Again, these costs are determined by the coverage choices selected by the policyholders.

Comments on the proposal must be submitted within 30 days after publication of the proposal in the Texas Register to the Office of the Chief Clerk, Texas Department of Insurance, P. O. Box 149104, MC #113-2A, Austin, Texas 78714-9104. An additional copy of the comment is to be submitted to David Durden, Deputy Commissioner, Property and Casualty Program, Texas Department of Insurance, P. O. Box 149104, MC #104-5A, Austin, Texas 78714-9104. Article 21.49, §5A of the Insurance Code requires a hearing to be held before any orders may be issued pursuant to Article 21.49 and provides that any person may appear and testify for or against the adoption of the proposal.

The amendments to §5.4501, which adopts by reference the rules manual for the Texas Windstorm Insurance Association, are proposed pursuant to the Insurance Code, Articles 21.49 and 1.03A, and in accordance with the Government Code §§2001.004-2001.038. Article 21.49, §8 authorizes the Commissioner of Insurance to approve, modify, or disapprove every manual of classifications, rules, rates, rating plans, and every modification of any of the foregoing used by the Association. Article 21.49, §5A authorizes the Commissioner of Insurance to issue after notice and hearing, any orders which are considered necessary to carry out the purposes of Article 21.49, including, but not limited to, maximum rates, competitive rates, and policy forms. Article 21.49, §§5A and 8, by their terms, delegate the foregoing authority to the State Board of Insurance. However, under Article 1.02 of the Insurance Code, as amended by the 73rd Texas Legislature in House Bill 1461 (Acts 1993, 73rd Leg., ch. 685, §1.01, eff. Sept. 1, 1993), a reference in the Insurance Code or another insurance law to the State Board of Insurance means the Commissioner of Insurance or the Texas Department of Insurance, as consistent with the respective powers and duties of the Commissioner and the Department under Article 1.02. Article 21.49, §8A(b) of the Insurance Code authorizes the Commissioner, after notice and hearing, to adopt rules to authorize the Association to provide actual cash value coverage instead of replacement cost coverage on the roof covering of a dwelling insured by the Association and to determine the conditions under which the Association may provide the actual cash value coverage, the appropriate premium reductions, and the disclosure that must be provided to the policyholder. Article 1.03A authorizes the Commissioner of Insurance to adopt rules and regulations, which must be for general and uniform application, for the conduct and execution of the duties and functions of the Texas Department of Insurance only as authorized by a statute. The Government Code §§2001.004-2001.038 (Administrative Procedure Act) authorize and require each state agency to adopt rules of practice stating the nature and requirements of available formal and informal procedures and prescribe the procedures for adoption of rules by a state agency.

The following statutes are affected by this proposal: Insurance Code, Article 21.49

§5.4501.Rules and Regulations for the Texas Windstorm [ ~~Catastrophe Property~~ ] Insurance Association [ ~~(association)~~ ]

The Texas Department of Insurance adopts by reference a rules manual for the Texas Windstorm Insurance Association [ ~~association~~ ] as amended, effective June 1, 1999 [ ~~April 1, 1997~~ ]. Copies of the rules manual may be obtained by contacting the Automobile and Homeowners [ ~~Property/Casualty~~ ] Division, Mail Code 104-5A [ ~~103-1A~~ ], Texas Department of Insurance, 333 Guadalupe Street, P.O. Box 149104, Austin, Texas 78714-9104.

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 March 12, 1999.

TRD-9901519

Lynda H. Nesenholtz

General Counsel and Chief Clerk

Texas Department of Insurance

Earliest possible date of adoption: April 28, 1999

For further information, please call: (512) 463-6327

Part II. Texas Workers' Compensation Commission

Chapter 129. Income Benefits--Temporary Income Benefits

28 TAC §129.3

(Editor's note: The text of the following section proposed for repeal will not be published. The section may be examined in the offices of the Texas Workers' Compensation Commission or in the Texas Register office, Room 245, James Earl Rudder Building, 1019 Brazos Street, Austin.)

The Texas Workers' Compensation Commission (the Commission) proposes the repeal of §129.3, concerning Information Included with the First payment of Temporary Income Benefits. The repeal is proposed because the provisions of §129.3 have been incorporated into proposed new §124.2 published in the March 19, 1999, issue of the Texas Register .

Section 129.3 requires that an insurance carrier enclose with the first payment of temporary income benefits to the injured employee a notice on a form prescribed by the Commission. This notice requirement has been expanded and included in proposed new §124.2. Therefore, §129.3 will no longer be needed and is proposed for repeal.

Ed Buchanan, Finance Manager, has determined that for the first five-year period the proposed rule is in effect there will be no fiscal implications for state or local governments as a result of enforcing or administering the repeal of §129.3. Because similar provisions will be included in proposed new §124.2, there will be no additional costs, reductions in costs, or loss or increase in revenue as a result of the repeal. It will be necessary for the Commission to draft a new form for notice to the injured employee to meet the provisions of proposed new §124.2, however the cost of this will be minimal.

Local government and state government as a covered regulated entity will be impacted in the same manner as described later in this preamble for persons required to comply with the repeal as proposed.

Mr. Buchanan has also determined that for each year of the first five years the repeal as proposed is in effect, the public benefit anticipated will be the provision of plain language written communications between injured employees/legal beneficiaries and insurance carriers which will be easier to understand for all participants in the system. The provisions of proposed new §124.2 which will replace §129.3 are expected to provide a better understanding by injured employees of the actions taken and the reason(s) the insurance carrier took the action. This better understanding by the injured employee may reduce verbal contacts to the insurance carrier requesting clarification and may also reduce the number of disputes raised due to misunderstanding.

There will be no anticipated economic costs to persons who are required to comply with the repeal. There will be no adverse economic impact on small businesses. There will be no difference in the cost of compliance for small businesses as compared to large businesses.

Comments on the proposal or requests for public hearing must be submitted to Donna Davila by 5:00 p.m., April 26, 1999, at Office of the General Counsel, Mailstop #4-D, Texas Workers' Compensation Commission, Southfield Building, 4000 South IH-35, Austin, Texas, 78704-7491.

The repeal is proposed pursuant to the Texas Labor Code, §402.061, which authorizes the commission to adopt rules necessary to administer the Act; the Texas Labor Code, §408.083, which establishes a time limitation on eligibility for income benefits; the Texas Labor Code, §408.103, which sets out the computation of temporary income benefits; the Texas Labor Code, §409.013, which requires the Commission to develop plain language information for public dissemination about the benefit process and provide the information to injured employees; the Texas Labor Code, §409.021, which requires the initiation of benefits; the Texas Labor Code, §409.041, which mandates the commission to maintain an ombudsman program to assist injured workers and persons claiming death benefits and sets out the responsibilities of an ombudsman; and the Texas Labor Code, §409.042, which requires each field office to employ at least one ombudsman.

The repeal affects the following statutes: the Texas Labor Code, §402.061, which authorizes the commission to adopt rules necessary to administer the Act; the Texas Labor Code, §408.083, which establishes a time limitation on eligibility for income benefits; the Texas Labor Code, §408.103, which sets out the computation of temporary income benefits; the Texas Labor Code, §409.013, which requires the Commission to develop plain language information for public dissemination about the benefit process and provide the information to injured employees; the Texas Labor Code, §409.021, which requires the initiation of benefits; the Texas Labor Code, §409.041, which mandates the commission to maintain an ombudsman program to assist injured workers and persons claiming death benefits and sets out the responsibilities of an ombudsman; and the Texas Labor Code, §409.042, which requires each field office to employ at least one ombudsman.

§129.3.Information Included with the First Payment of Temporary Income Benefits.

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 March 15, 1999.

TRD-9901542

Susan M. Cory

General Counsel

Texas Workers' Compensation Commission

Earliest possible date of adoption: April 25, 1999

For further information, please call: (512) 708-5829