(a) Powers of the association. The association is created by the Act and will be governed by the provisions of the Act and this subchapter.     
      (b) Collection and investment of funds.      
        (1) Collection. The treasurer is responsible for the collection of all the premiums received by the association, all assessments levied against the members, all assessments and charges levied against policyholders (including contributions to the stabilization reserve funds), and all proceeds from the investment of funds.       
        (2) Investment.                  (A) All funds collected by the association must be retained in appropriate accounts in any bank or banks doing business in Texas and may be invested only in the following:                      (i) interest-bearing time deposits or certificates of deposit in any bank or banks doing business in Texas that are members of the Federal Deposit Insurance Corporation;                       (ii) treasury bills, notes, or bonds of the government of the United States of America; or                       (iii) other investments as may be proposed by the board of directors and approved by the Commissioner.                     (B) The board of directors must determine what portion of such funds should be retained in a checking account or accounts and what portion of such funds should be invested in the investments set forth in subparagraph (A) of this paragraph, as well as which specific investments, if any, should be made.         
      (c) Stabilization reserve funds. Insurance Code §2203.301 creates a policyholder's stabilization reserve fund for physicians and certain health care providers (§2203.301 fund), and Insurance Code §2203.303 creates a stabilization reserve fund for for-profit and not-for-profit nursing homes and assisted living facilities (§2203.303 fund) and further provides that these funds must be administered as provided in Insurance Code Chapter 2203 and this subchapter and that the advisory directors must be chosen as provided in this subchapter.      
        (1) General provisions.                  (A) In accordance with Insurance Code §2203.101 and §2203.103, the Commissioner will establish by order the categories of physicians and other health care providers, including health care practitioners, and health care facilities, who are eligible to obtain coverage from the association. The order may indicate the stabilization reserve fund appropriate to the new category and may be revised from time to time to include or exclude from eligibility some categories of health care providers and physicians.                   (B) The following provisions also govern the stabilization reserve funds under Insurance Code §2203.301 and §2203.303:                      (i) Within 15 days after the effective date of any Commissioner order establishing eligibility, the board of directors must extend invitations to the appropriate Texas organizations representing eligible §2203.301 fund health care providers and physicians and §2203.303 fund for-profit and not-for-profit nursing homes and assisted living facilities to each designate an advisory director to represent each eligible category of §2203.301 fund health care provider and physician and §2203.303 fund for-profit and not-for-profit nursing home and assisted living facility, and advise the association of its choice of director.                       (ii) Each designated advisory director has a vote on any matter coming before any meeting of the entire body of advisory directors for the §2203.301 fund or §2203.303 fund to which the advisory director has been designated. That vote will be weighted in the proportion that the net written premium collected during the most recent calendar year from policies issued to each category of §2203.301 fund health care provider and physician or §2203.303 fund for-profit or not-for-profit nursing home and assisted living facility bears to the total net written premiums collected from all categories of §2203.301 fund health care providers and physicians or to all categories of §2203.303 fund for-profit and not-for-profit nursing homes and assisted living facilities as applicable during the same calendar year. The proportion of weighting of the advisory directors' votes for the §2203.301 fund and the §2203.303 fund respectively must be determined annually by the association, not later than August 31.                       (iii) The designated advisory directors for the §2203.301 fund and the §2203.303 fund respectively must meet not later than September 15 of each year, at a place in Texas stipulated by the board of directors to consider the amount of funds available and the status of the respective §2203.301 fund or §2203.303 fund. The designated advisory directors for the respective §2203.301 fund and §2203.303 fund must inform the board of directors of the percentage to be charged to all policyholders of all policies issued or renewed by the association for the respective §2203.301 fund or §2203.303 fund during the next calendar year. This percentage must be communicated to the board of directors no later than September 20, annually.                       (iv) If any organization described in clause (i) of this subparagraph fails to designate an advisory director, the directors designated by the remaining organizations constitute the entire body of advisory directors for the respective §2203.301 fund or §2203.303 fund, and their establishment of the respective §2203.301 fund or §2203.303 fund charge must be accepted as valid by the association and imposed pursuant to the operational procedures of the association, upon approval of the department.                       (v) In the event that the advisory directors fail to establish a specific percentage charge for the respective §2203.301 fund or §2203.303 fund to be collected for the coming calendar year before the applicable deadline, the board of directors must immediately submit for approval by the Commissioner a charge to be collected from the respective §2203.301 fund or §2203.303 fund policyholders of each new and renewal policy during the upcoming calendar year in accordance with the provisions of the Insurance Code.                       (vi) The advisory directors serve without salary or other fee, and they may not be reimbursed for any expenses. The advisory directors, in the performance of their duties, will be afforded the protection of §5.2002(h) of this title (relating to Operation of the Texas Medical Liability Insurance Underwriting Association).                     (C) The respective §2203.301 fund or §2203.303 fund charge must be collected annually from each policyholder of the applicable §2203.301 or §2203.303 fund, as may be appropriate, and must be stated as a percentage of the annual premium due for all coverages on all policies issued or renewed on or after the effective date of the charge. The percentage charge will remain in effect until changed in accordance with subparagraph (B) of this paragraph.                   (D) The respective §2203.301 fund or §2203.303 fund charge must be separately stated in the policy, but may not constitute a part of premium or be subject to premium taxation, servicing fees, acquisition costs, commissions, or any other such charges. Further, the respective fund charge will not be considered premiums for the purpose of any assessments levied under subsection (d) of this section.                   (E) The respective §2203.301 fund or §2203.303 fund charges must be collected and administered by the association and must be treated as a liability of the association along with and in the same manner as premium and loss reserves. The §2203.301 fund and the §2203.303 fund must be valued annually by the board of directors within 90 days of the last day of the preceding calendar year.                   (F) Collections of the respective §2203.301 fund or §2203.303 fund charge must continue throughout each calendar year for which they are established, provided that no charge will be made during the next succeeding calendar year if the net balance in the respective fund after recoupment of any prior year's deficit equals or exceeds the association's estimate of the projected sum of premiums to be written in the calendar year following the valuation date of the respective fund.         
        (2) §2203.301 fund or §2203.303 fund charge. The respective proportionate §2203.301 fund or §2203.303 fund charge must be based on the total annual written premium for all coverages provided by the association to the applicable §2203.301 fund or §2203.303 fund policyholders. The respective §2203.301 fund or §2203.303 fund charges are not be refundable if the policy is cancelled after the 90th day of coverage. If cancelled within the 90th day of coverage, the earned charge will be based on the same earned percentage charged for the insurance premium.       
        (3) Disbursements from the respective §2203.301 fund or §2203.303 fund. Disbursements from the respective §2203.301 fund or §2203.303 fund may not be made for any purpose other than to recoup a deficit from operations as defined in subsection (d) of this section. Upon suspension of the association by the Commissioner, any funds remaining in the §2203.301 fund must be added to the special fund created by the Commissioner, acting as receiver, or a special deputy receiver acting on behalf of the receiver. Any investment income earned on the funds of the §2203.301 fund must be added to that fund. Upon termination of the §2203.303 fund, all assets of the fund must be transferred as provided in the Act.       
      (d) Participation by members and policyholders of the association.      
        (1) Deficit and remedy of a deficit.                  (A) The association must have sustained a deficit from operations whenever the aggregate of the incurred losses (reported and unreported), plus all loss adjustment expenses incurred, plus commissions and plus other administrative expenses (including servicing carrier fees) incurred by the association in a given calendar year, exceed the aggregate of the net premiums earned and other net income (including investment income earned) realized by the association in the same calendar year.                   (B) Any deficits sustained by the association in any one calendar year with respect to any category of physicians or health care providers subject to Insurance Code §2203.101 or for-profit or not-for-profit nursing homes or assisted living facilities subject to Insurance Code §2203.102 must be recouped, pursuant to this subchapter and the rating plan in effect, by one or more of the following procedures in this sequence:                      (i) first, a contribution from the §2203.301 fund or §2203.303 fund, as appropriate, until the respective fund is exhausted;                       (ii) second, an assessment upon the policyholders pursuant to paragraph (3) of this subsection and Insurance Code §2203.252;                       (iii) third, an assessment upon the members of the association pursuant to paragraph (4) of this subsection and Insurance Code §2203.053.           
        (2) Surplus and disposition of a surplus.                  (A) The association must have sustained a surplus from operations whenever the aggregate of the incurred losses (reported and unreported), plus all loss adjustment expenses incurred, plus commissions and plus other administrative expenses (including servicing carrier fees) incurred by the association in a given calendar year, do not exceed the aggregate of the net premiums earned and other net income (including investment income earned) realized by the association in the same calendar year.                   (B) Upon approval by the board of directors, surplus from operations must be ratably distributed as reimbursements to members who have been assessed pursuant to paragraph (4) of this subsection and have paid such assessments, but have not been previously reimbursed and have not been allowed the premium tax credit (offset) pursuant to subsection (e) of this section.                   (C) Upon approval of the Commissioner, the association must reimburse the state to the extent that the members have recouped their assessments using premium tax credits pursuant to subsection (e) of this section, with interest at a rate to be approved by the Commissioner.                   (D) Any balance remaining in the funds of the association at the close of its fiscal year, meaning its then excess of revenue over expenditures after approved reimbursement of members' contributions, must be added to the reserves of the association.         
        (3) Participation by policyholders of the association.                  (A) Assessment of policyholders; contingent liability. Each policyholder within either the §2203.301 fund or §2203.303 fund must have contingent liability for a proportionate share of any assessment of policyholders in the applicable §2203.301 fund or §2203.303 fund made by the association pursuant to Insurance Code §2203.252 and the provisions of the plan of operation set forth in this subchapter.                   (B) Procedure for assessment of policyholders. Assessment of policyholders shall be made in accordance with the following:                      (i) Notice of assessment must be sent by certified mail, return receipt requested, to each policyholder being assessed within 30 days of the board of directors meeting at which such assessment was levied. Notice must be forwarded to the address of each policyholder as it appears on the books of the association. The notice must state the policyholder's allocated amount of assessment and must inform each policyholder of the sanctions imposed by clause (ii) of this subparagraph for the failure to pay such assessment within the time prescribed by this section.                      Cont'd...