28 TAC §5.4001
The Commissioner of Insurance adopts amendments to §5.4001,
concerning the plan of operation of the Texas Windstorm Insurance Association
(association or TWIA). The amendments to §5.4001 are adopted without
changes to the text published in the June 8, 2001 issue of the
Texas Register
(26 TexReg 4016) and will not be republished.
The purpose of the association is to provide windstorm and hail insurance
coverage to coastal residents who are unable to obtain such coverage in the
voluntary market. In 1993, the Legislature established the catastrophe reserve
trust fund to protect the policyholders of the association and to reduce the
potential for payments by members of the association that give rise to premium
tax credits in the event of a catastrophic loss. In 1999, the 76th Legislature
again amended Article 21.49 through the enactment of HB 2253. The amendments
to §5.4001 (plan of operation or plan) are necessary to conform to amendments
to Article 21.49 of the Insurance Code in HB 2253.
In HB 2253, the legislature in its declaration of legislative intent stated
that the catastrophe reserve trust fund was formed to shelter the state's
general revenue fund from dissipation through the loss of premium taxes in
the event of catastrophic hurricane losses and as part of the state's planning
and provision for relief from catastrophic hurricane losses. The more funds
that are on deposit in the catastrophe reserve trust fund, the less likely
the need for the association to make assessments that result in a loss of
general revenue.
In support of the sound public policy of maintaining and protecting the
catastrophe reserve trust fund to prevent losses to the general revenue fund
and to provide for payment of catastrophic excess losses, the legislature
declared that each year the association is required by Article 21.49 §8(i)(3)
to pay the net equity of the association members into the catastrophe reserve
trust fund or use the net equity to purchase reinsurance approved by the commissioner.
Consistent with the required uses of each year's net equity, the legislature
declared that it was the purpose of HB 2253 to further clarify the permitted
uses of the assets of the association and the distribution of those assets
upon dissolution of the association. HB 2253 amended Article 21.49 §4
to add subsections (c) and (d) which clarify the purposes for which the assets
of the association may be used. Subsection (c) states that no part of the
net earnings of the association may benefit any private shareholder or individual.
Subsection (c) further specifies the purposes for which the assets of the
association may be used as follows: (1) satisfy a claim on a policy written
by the association, (2) make investments as authorized by law, (3) pay reasonable
and necessary administrative expenses including operating and claims processing
expenses, and (4) make remittances under the laws of this state to be used
by the state to pay claims, purchase reinsurance, and prepare for or mitigate
the effects of catastrophic natural events. Subsection (d) establishes that
on dissolution of TWIA, all assets of TWIA revert to the state. Article 21.49 §8(i)
was amended by HB 2253 to replace the provision authorizing TWIA to enter
into a written agreement with the department, with a new provision which states
that under rules promulgated by the commissioner the member insurers are required,
through the TWIA, to relinquish their net equity by making payments to the
trust fund directly. All references to the written agreement were deleted.
Accordingly, the trust fund is no longer maintained pursuant to the written
agreement between TWIA, the department, and the comptroller. Moreover, these
amendments to Article 21.49 specify that all money deposited in the trust
fund is state money to be held by the comptroller outside of the state treasury
on behalf of, and with legal title in, the department, until disbursements
are made in accordance with §5.9903(c). The amendments to Article 21.49
by HB 2253 are intended to clarify the legislature's original intent, that
monies in the trust fund are state funds. The Commissioner considered the
amendments in a public hearing on July 17, 2001, under docket no. 2486.
Subsection (c)(3) of the plan, concerning distributions to the members,
has been deleted in its entirety. Subsection (c)(4) entitled "Use of funds"
has been renumbered as (c)(3), and other references changed as necessary.
As a result of changes to Article 21.49 by HB 2253 there is no authorization
to make distributions of the association's assets to individual member insurers
of TWIA. Subsection (c)(3)(A) of the plan specifies that the assets of the
association may be used to pay operating expenses, claims, and reinsurance
premiums and that the net equity of the association members must be paid into
the trust fund annually. Subsection (c)(3)(B) of the plan specifies that funds
are to be disbursed from the trust fund in accordance with §5.9903(c).
The amendments to subsection (c)(3)(B) of the plan also specify that funds
disbursed from the trust fund may not be distributed to members of the association
and that if any funds remain unspent after payment of losses and loss adjustment
expenses those funds must be remitted to the comptroller for redeposit in
the trust fund. Subsection (c)(3)(B) also deletes the provision concerning
reimbursement of members for their payment of amounts reallocated from insolvent
insurers' inability to pay because HB 2253 does not authorize the disbursement
of association assets to member insurers. Subsections (c)(4)(C), (D), and
(G) of the plan have been deleted, as the amendments made by HB 2253 do not
authorize disbursements to members. For better organization of the subsection,
the provision concerning the use of association funds to purchase reinsurance
has been adopted as subsection (c)(3)(A)(i), and the provision concerning
the payment of net equity into the trust fund has been adopted as subsection
(c)(3)(A)(ii). Subsection (c)(4)(F) of the plan, concerning the establishment
of a reserve fund for catastrophe losses, is no longer necessary because the
catastrophe reserve trust fund was established in 1993. Therefore, subsection
(c)(4)(F) has been deleted. Typographical corrections have been made to the
section.
No comments were received on the section.
The amendments are adopted pursuant to the Insurance Code Article
21.49 and §36.001. Article 21.49, §5(c) of the Insurance Code provides
that the Commissioner of Insurance by rule shall adopt the TWIA plan of operation
with the advice of the TWIA board of directors. Section 5(f) of Article 21.49
provides that any interested person may petition the Commissioner to modify
the plan of operation in accordance with the Administrative Procedure Act.
Insurance Code §36.001 authorizes the Commissioner of Insurance to adopt
rules for the conduct and execution of the duties and functions of the Texas
Department of Insurance only as authorized by statute.
This agency hereby certifies that the adoption has been reviewed
by legal counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of
the Secretary of State on August 9, 2001.
TRD-200104599
Lynda Nesenholtz
General Counsel and Chief Clerk
Texas Department of Insurance
Effective date: August 29, 2001
Proposal publication date: June 8, 2001
For further information, please call: (512) 463-6327