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.