SECTION 5.4023. Per Risk Reinsured Excess Coverage

(a) Purpose. Under Insurance Code §2210.505, the Texas Windstorm Insurance Association may issue a policy of windstorm and hail insurance that includes coverage for an amount in excess of the maximum limit of liability approved by the commissioner.

(b) Definitions. The following words and terms when used in this section have the following meanings unless the context clearly indicates otherwise.

(1) Available reinsurance capacity--Amount of reinsurance purchased by the association pursuant to the excess per risk reinsurance contract to provide reinsured excess coverage to association policyholders as provided in Insurance Code §2210.505.

(2) Excess per risk reinsurance contract--An agreement entered into by the association with an approved reinsurer to provide coverage to association policyholders for an amount in excess of the liability limits approved by the commissioner.

(3) Reinsured excess coverage--Coverage provided under a windstorm and hail insurance policy issued by the association through a reinsurance agreement with an approved reinsurer for amounts of insurance that are in excess of the maximum limits of liability available to the individual risk from the association.

(4) Reinsured excess coverage program--The program operated by the association to provide reinsured excess coverage, the excess per risk reinsurance contract or contracts entered into between the association and the commissioner-approved reinsurer or reinsurers, this section, and any orders issued, including the collection of premium, issuance of coverage under the windstorm and hail insurance policy, and the processing and payment of claims for the reinsured excess coverage.

(c) Administration.

(1) The association must administer the reinsured excess coverage program on behalf of each policyholder of a windstorm and hail insurance policy to which reinsurance is provided by an approved reinsurer.

(2) The association must distribute the available reinsurance capacity for the reinsured excess coverage in a fair and reasonable manner to risks qualifying under the association's reinsured excess coverage program.

(3) The association must annually review the reinsured excess coverage program, including the rates, reinsurers, excess per risk reinsurance contracts, use of available reinsurance capacity, the association's costs to administer the reinsured excess coverage program, and the rules in this section, and must provide an annual summary of the review to the commissioner.

(d) Approval of reinsurer. Before the association may provide reinsurance coverage on an individual risk that is in excess of the maximum limits of liability approved by the commissioner, the association must first obtain from a reinsurer approved by the commissioner reinsurance for the full amount of policy exposure above the limits approved by the commissioner for any given type of risk. The approval of the reinsurer must be in accordance with this subsection.

(1) The association must submit a petition to the commissioner requesting approval of the reinsurer before any excess per risk reinsurance contract or renewal of such contract becomes effective. The petition must include the name of the proposed reinsurer or reinsurers; the reinsurance proposal; the draft excess per risk reinsurance contract; information on the financial health of the proposed reinsurer or reinsurers and any other information related to the reasons for the association's selection of reinsurer or reinsurers; estimated costs for the reinsurance; the proposed cost to the association to administer the reinsured excess coverage program; estimated total premium for the reinsurance; the method of making the reinsurance capacity available to policyholders; and any other information the association or the commissioner deems necessary to enable the commissioner to determine whether to approve or disapprove the proposed reinsurer or reinsurers.

(2) The commissioner must issue an order approving or disapproving the proposed reinsurer. The order must be issued no later than December 31 of each year preceding the calendar year in which the reinsured excess coverage program is operated except for the first year the program is operated when the order must be issued following the adoption of this section.

(3) An excess per risk reinsurance contract may not become effective until the commissioner has issued an order approving the reinsurer. The excess per risk reinsurance contract does not require approval by the commissioner.

(4) The association must submit written notice of any amendments to any existing excess per risk reinsurance contract to the commissioner at least 30 days prior to the effective date of the proposed amendments. The notice must include an explanation of the reason for the amendments and a copy of the draft amendments. The reinsurer under the amended contract must be deemed approved by the commissioner unless within 30 days following the submission of the written notice the commissioner enters an order disapproving the reinsurer. Amendments to the contract do not require approval by the commissioner.

(e) Coverage. The association may issue a policy of windstorm and hail insurance that includes coverage that is in excess of a liability limit approved by the commissioner. Any such policy must be issued in accordance with this subsection.

(1) Excess liability limits. The amount of reinsurance excess coverage available to an individual risk must be determined in accordance with the reinsured excess coverage program.

(2) Policy provisions.

(A) The total limit of liability must be the limit of liability insured by the association and the amount of reinsured excess coverage provided on the individual risk under the reinsured excess coverage program.

(B) All terms and conditions of the windstorm and hail insurance policy issued by the association must apply to the reinsured excess coverage provided under the windstorm and hail insurance policy.

(C) The amount of reinsured excess coverage must be shown separately on the declarations page of the policy.

(3) Types of risks.

(A) The association may provide reinsured excess coverage for dwelling structures only, commercial structures only, or for both dwelling structures and commercial structures.

(B) Reinsured excess coverage may be provided on either buildings or contents, or on building and contents. If reinsured excess coverage is provided on building and contents, building structures must be insured for 100 percent replacement cost, up to the total maximum limit of liability available for the risk and the available reinsured excess coverage amount provided under the reinsured excess coverage program before reinsured excess coverage may be applied to contents.

(f) Premium.

(1) Premium computation. The total premium charged by the association for the reinsured excess coverage provided on a windstorm and hail insurance policy issued by the association must be the total of:

(A) the amount of the excess per risk reinsurance premium charged to the association by the reinsurer for the reinsured excess coverage provided on any given risk; and

(B) the payment to the association that is approved by the commissioner.

(2) Display of premium. The total premium charged by the association for the reinsured excess coverage provided in a windstorm and hail insurance policy issued by the association must be shown separately on the declarations page of the policy.

(g) Payment to the association. The premium charged by the association for the excess coverage must be equal to the amount of the reinsurance premium charged to the association by the reinsurer plus any payment to the association that is approved by the commissioner.

(1) The payment to the association that may be proposed by the association for approval by the commissioner may include the amount of the direct and indirect costs identified by the association to administer the reinsured excess coverage program and may include costs for claims, underwriting, accounting, technical and administrative support, computer equipment, agent commissions, taxes, and any other administrative costs approved by the commissioner.

(2) The commissioner will issue an order approving or disapproving the proposed payment to the association. The commissioner may take action in the order issued under subsection (d)(2) of this section.

Source Note: The provisions of this §5.4023 adopted to be effective March 28, 2017, 42 TexReg 1459