Reinsurance Regulation

On September 1, 2015, Texas Senate Bill 900 went into effect after passing both the Texas House and Senate this past summer. The bill amends the operation of the Texas Windstorm Insurance Association (“TWIA”), a state backed insurer of last resort. The TWIA was created in 1971 to fill in coverage gaps for windstorm and hail protection when private insurance became too expensive or when private insurance simply failed to provide coverage. The goal of the TWIA is to make coverage affordable for residential and commercial properties in areas prone to claims, most notably in certain coastal counties.

Senate Bill 900 makes a few important changes to the association. The insurer’s board of directors will now encompass three members from the insurance industry, three members from coastal Texas counties, and three members from inland Texas. It requires that the insurer maintain “available loss funding” to cover a once in a 100 year storm disaster. It also clarifies the purchasing requirements of reinsurance and alternative risk financing, both used in order to limit payout risk. Finally, Senate Bill 900 allows for the appointment of an administrator to run the insurer.

Texas Senate Bill 900 (2015)

This post written by Matthew Burrows, a law clerk at Carlton Fields in Washington, DC.

See our disclaimer.

On September 1, 2015, Texas Senate Bill 900 went into effect after passing both the Texas House and Senate this past summer. The bill amends the operation of the Texas Windstorm Insurance Association (“TWIA”), a state backed insurer of last resort. The TWIA was created in 1971 to fill in coverage gaps for windstorm and hail protection when private insurance became too expensive or when private insurance simply failed to provide coverage. The goal of the TWIA is to make coverage affordable for residential and commercial properties in areas prone to claims, most notably in certain coastal counties.

Senate Bill 900 makes a few important changes to the association. The insurer’s board of directors will now encompass three members from the insurance industry, three members from coastal Texas counties, and three members from inland Texas. It requires that the insurer maintain “available loss funding” to cover a once in a 100 year storm disaster. It also clarifies the purchasing requirements of reinsurance and alternative risk financing, both used in order to limit payout risk. Finally, Senate Bill 900 allows for the appointment of an administrator to run the insurer.

Texas Senate Bill 900 (2015)

This post written by Matthew Burrows, a law clerk at Carlton Fields in Washington, DC.

See our disclaimer.

Governor Greg Abbott of Texas has recently signed into law amendments to the Texas Insurance Code broadening the authority of captives.  This law is effective as of September 1, 2015.

There are three amendments in this law:

1. Section 964.052 increases the types of risks that pools can now write to include reinsurance pools composed only of other captives and affiliated captive insurance companies.
2. Section 964.063 provides that captives can, with the permission of the Commissioner, pay dividends or make distributions to “holders of an equity interest in the captive insurance company.”  Further, the Commissioner is required to issue rules implementing this section.
3. Section 964.072 sets forth the two requirements that must be satisfied before a captive can participate in a reinsurance pool pursuant to Section 964.052, the pool is composed only of captive insurance companies; and the captive is sufficiently capitalized in order to meet the pool’s financial obligations.

It is clear that Texas is inviting companies to form their captives in Texas. Tex. SB No. 667 (eff. Sept. 1, 2015).

This post written by Barry Weissman.

See our disclaimer.

A Texas appeals court affirmed a summary judgment that rejected an attempt by two insurers to recover more than $1.1 million for taxes, penalties, and interest on certain reinsurance agreements. Argonaut Insurance Company and Argonaut Great Central Insurance Company (jointly “Argonaut”) provided insurance to two self-funded government risk pools formed on behalf of Texas counties and school districts. These risk pools provided various insurance products to their membership. As part of a reinsurance arrangement with these risk pools, Argonaut agreed to provide indemnity for losses accumulated under member insurance policies in return for member premium payments. Argonaut considered these premium payments non-taxable “reinsurance income,” but the Texas Comptroller rejected this classification finding that “for premiums to qualify as paid for reinsurance, the transaction must occur between two licensed insurance companies.”

On appeal, all parties agreed that the main issue centered on “whether the premiums received by Argonaut from [the risk pools] are premiums received from another insurer for reinsurance.” Argonaut argued that the agreements with the risk pools have reinsurance characteristics, a factor that outweighs whether or not the risk pools are licensed insurance companies. The court found that while a risk pool “is expressly authorized to purchase reinsurance, it is also expressly declared not to be insurance or an insurer” under Texas insurance and tax codes. For these reasons, the court affirmed the trial court’s grant of summary judgment for the Texas Comptroller. Argonaut Ins. Co. et al. v. Hegar et al., No. 03-13-00619-CV (Tex. Ct. App. June 24, 2015).

This post written by Matthew Burrows, a law clerk at Carlton Fields in Washington, DC.

See our disclaimer.