Calling the Texas Windstorm Insurance Association’s present structure “unsustainable,” Texas Insurance Commissioner Eleanor Kitzman has put forth a proposal to hire consultants to reduce the state-backed insurer’s exposure and “improve service to policyholders.”
Noting that the residual market entity’s share of the Texas market has grown to 57.2% in 2010 from 17.9% at the turn of the century, Kitzman declared in a Feb. 17 statement that a “fundamental restructuring of TWIA is necessary.” In addition to issuing a request for proposals, Kitzman intends to name a technical advisory committee to offer input on restructuring.
The committee and consultant would both be chosen by April 1, and a preliminary report would be prepared by the June 1 start of the 2012 hurricane season, the Texas Department of Insurance said. Among the options that could be explored are a member reinsurance program and a program under which insurers would be paid fees to service TWIA policies.
“TWIA was supposed to be the market of last resort for the 14 coastal counties that comprise Tier 1, but that is not the case anymore,” Kitzman said.
With no other significant source of funding to pay claims, this growth in exposure is an excessive burden on coastal citizens. Additionally, it is not reasonable to expect that any single organization can effectively manage the explosive growth in claims activity that occurs after a significant tropical storm. On July 1, 2008, TWIA had 247 open claims; 90 days and two storms later, it had over 65,000 claims and was simply overwhelmed.
According to a November 2011 response from TWIA to a public information request from Austin-based author and activist David Crump, TWIA faces a maximum loss outcome of $14.7 billion and probable maximum loss of $5.3 billion should a Category 4 hurricane strike Corpus Christi and a PML of $6.4 billion and MLO of $14.5 billion for a similar storm striking Galveston.* TWIA’s total insurance liability, including adjacent areas, is $15.4 billion for Corpus Christi and $37.9 billion for Galveston.
The authority projects it will have between $250 million and $275 million in its Catastrophe Reserve Trust Fund by the June 1 start of the 2012 hurricane season. TWIA said it expects another $100 million in funding from premiums and other revenues, which would constitute the first layer of funding to pay any 2012 losses.
Should both premiums and reserves be exhausted, TWIA can raise an additional $2.5 billion through the issuance of three layers of post-event securities, and has the option to purchase reinsurance, either in addition to or in concert with the reserve trust and securities layers. In 2011, the authority had $636 million in reinsurance above an initial $1.6 billion retention.
* This article initially misrepresented the maximum loss outcome figures as probable maximum loss.