HB3689

HB3689 changes how the Texas Windstorm Insurance Association (TWIA) finances major storm losses, using state financing repaid through potentially statewide property-insurance surcharges rather than relying on its former public-bond structure. It also lowers TWIA’s minimum catastrophe-funding benchmark from a modeled one-in-100-year loss to a one-in-50-year loss. This is a funding change, not a promise of cheaper premiums or a change to what an individual insurance policy covers. Final law.

For catastrophe years and excess losses after December 31, 2025, the new sequence uses available reserves and the catastrophe reserve trust fund first, then up to $1 billion in state financing, then up to $1 billion in assessments on member insurers for that catastrophe year. Reinsurance—insurance bought by TWIA against its own losses—and other authorized financing also support the required overall funding. Insurers may buy reinsurance against their assessments, but may not recoup the new loss assessments through a premium surcharge or tax credit. That assessment restriction is distinct from the separately authorized policyholder surcharge used to repay state financing.

The borrowing figures are limits, not an automatic cash grant. TWIA may arrange up to $500 million before an event and up to $1 billion after an event depletes the catastrophe reserve trust fund. Insurance Code Section 2210.632 expressly reduces the post-event amount available by outstanding pre-event or post-event financing. Government Code Section 404.0242 separately authorizes investing up to $1 billion of Economic Stabilization Fund money per catastrophe year and sets a $2 billion aggregate outstanding ceiling. The larger aggregate ceiling does not erase the Insurance Code’s reduction rule or mean $1.5 billion is automatically available after one storm.

The state financing depends on the Economic Stabilization Fund being above its statutory sufficient-balance threshold when the investment is made. Interest is the comparable-maturity U.S. Treasury rate plus two percentage points, with no more than 36 months to maturity; an agreement may include the specified 1.10–1.25 contractual coverage amount. TWIA and the comptroller can increase the principal requested for identified issuance costs, a debt-service reserve and up to the allowed six months of capitalized interest. These are repayable arrangements, not an unconditional appropriation to cover every possible loss.

Who could pay a surcharge? When the statutory financing conditions are met, the insurance commissioner, consulting TWIA’s board and the comptroller, may order a percentage-of-premium catastrophe surcharge on the covered policies statewide. Those lines are fire and allied lines, farm and ranch owners, residential property insurance, and the property portion of commercial multiple-peril policies. Covered collectors include TWIA, the FAIR Plan, specified admitted and surplus-lines insurers, and farm mutuals. Collection alone does not make a non-fronting farm mutual a TWIA member. The statute does not list auto, life or health policies as surcharge lines. Policies issued to the state, its agencies or its political subdivisions are exempt.

A surcharge can support qualifying pre-event financing, not just a loan after a hurricane. For post-event financing, the commissioner must determine that TWIA’s reserves, other money and catastrophe reserve trust fund have been depleted. Collections must cover—but cannot exceed—the financing obligation and administrative expenses for the arrangement underlying that surcharge; collection may be spread over no more than three years. The law sets no single statewide percentage in advance. The surcharge is separate from premium, not subject to commissions or premium tax, and not refundable when the policy is canceled or terminated. Failure to pay it counts as nonpayment of premium for cancellation purposes, and policy documents must carry a prominent disclosure.

The act also establishes financing accounts, authorized uses, repayment agreements, annual financial reporting, remedies for financing parties and a state promise not to impair repayment collections. The financing does not pledge the state’s general taxing power or full faith and credit. Separately, Government Code Section 404.0242(g) broadly bars civil claims against the state, the treasury trust company and specified officials and others concerning the investment decisions covered there, and makes a claimant liable for defense costs and attorney fees. That is a significant limitation on challenges, not a finding that all investment outcomes are risk-free.

Most provisions took effect September 1, 2025; implementation rules were due by December 1, 2025. The new loss-funding system applies to 2026-and-later catastrophe years and losses. Repeal of the old bond subchapters and several conforming amendments occurs September 1, 2027, with savings provisions protecting the earlier-loss and existing-securities framework. The act also allows state financing as an alternative for specified pre-2026 losses; it does not simply extinguish old obligations.