Texas’ property insurer of last resort in coastal counties may have a difficult time remaining intact during the 2013 legislative session.
Claims from 2008’s Hurricane Ike still trickle in and ongoing Ike-related lawsuits against the Texas Windstorm Insurance Association (TWIA) continue to hamper the association’s efforts to shore up its finances, as do legislative limits on its ability to increase funding for catastrophes.
Although no bills had been filed as of this writing, proposals are reportedly in the works that would drastically change the structure and/or funding for the association.
One measure expected to be filed by Sen. John Corona would create a statewide assigned risk plan that would eliminate the state’s FAIR plan, as well as TWIA’s residential exposures, according to TWIA General Manager John Polak.
Texas Insurance Commissioner Eleanor Kitzman said that along with the assigned risk plan measure, a companion mitigation bill will likely be filed.
Another measure, anticipated to emerge out of a joint interim committee studying seacoast insurance issues, would rebuild TWIA’s catastrophic reserve trust fund through assessments and surcharges, and create a reinsurance facility, Polak said during a Feb. 19 meeting of the association’s board of directors.
TWIA’s 2012 reserve for Ike claims recently grew by $150 million “for a total of $400 million in reserve increases for Ike claims just in 2012,” Kitzman said at the board meeting. “For a frame of reference, TWIA’s annual premium revenue is approximately $400 million a year. I think even those of us who aren’t good at math get this picture.”
Kitzman has previously said that TWIA’s funding structure is unsustainable and stands by that opinion today.
“If TWIA were any other company it would have been shut down a long time ago,” Kitzman said. “But it’s not any other company and it was never intended to be.”
Noting that she has “taken a lot of heat” for her remarks about TWIA’s lack of sustainability, Kitzman said she doesn’t “know how else to characterize it when its exposure is increasing, its funding is capped at around $3.5 billion at best and its premium revenues are insufficient to purchase or otherwise provide adequate protection for policyholders, in large part because they’re being diverted to Ike claims.”
Kitzman acknowledged that TWIA was overwhelmed by Hurricane Ike. Together, the association and the FAIR plan received more than 100,000 claims.
“Approximately 60,000 of TWIA’s 92-plus thousand claims were paid and closed within six months,” Kitzman said. “Over 10,000 claims have involved attorney representation. Over 5,000 of the 10,000 involved claims that were originally paid and closed, and were reopened over 24 months after the claim was originally paid and closed. Most of those with no indication from the policyholder during the interim that there was any problem.”
She added that more than 50 claims were filed for the first time after Sept. 13, 2012, four years after Ike made landfall on the Texas coast.
Among the more than 7,000 lawsuits that were filed against TWIA post-Ike, 221 related to “damages to property that was never insured by TWIA,” Kitzman said. “To date, plaintiff attorney fees are estimated at $325 million, defense attorney fees have been approximately $70 million.”
A consulting firm, Alvarez & Marsal Insurance Advisory Services LLC (A&M), which was contracted by the Texas Department of Insurance to explore options for restructuring TWIA, as well as to manage remaining and continuing Ike claims, has been has been paid around $200,000 a month, Kitzman said. The Austin American Statesman recently reported that the total amount paid to A&M as of late February was more than $1.5 million.
TWIA said in its 2012 Biennial Report that it currently has around $3.1 billion available to pay claims, which according to the association would cover a 1-in-60 year event. In the report, TWIA estimated that a 1-in-100 year storm could result in losses to the association of more than $4.5 billion. At the Feb. 19 board meeting, TWIA actuary Jim Murphy said that more current estimates put the cost to TWIA from a 1-in-100 year storm at $4.66 billion.
Murphy said at year-end 2012, policy and exposure growth for the association remained at about 4 percent. Growth in premium revenue is higher – around 9.5 – due to rate increases and a rising policy count, he said.
“The largest area of growth appears to be in Jefferson County … our understanding as a result of voluntary market withdrawal in that area,” Murphy said. “Growth in the remainder of the catastrophe area remains stable.”