Letter from Austin: TWIA weighs rate hikes, territorial rating

by Julie Drenner on April 25, 2012

The Texas Windstorm Insurance Association could soon be raising premiums and, for the first time, implementing a more risk-based approach.

On April 20, TWIA’s actuarial committee recommended a rate increase of 4.7% overall, with the greatest increases for those policyholders in the most storm-prone areas, with decreases for some of those least likely to incur damages.  Based on rate-making rules the Legislature adopted last year, TWIA rates can’t vary more than 8% across the 14 Tier 1 coastal counties.

The vote came after hearing TWIA could potentially cover just $3.79 billion in losses. TWIA’s resources include through a combination of premiums, company income and pre-event bonding. That includes an estimated $436 million of premiums and other income and $2.5 billion of bonds authorized by the Legislature.

The committee’s recommendations have to be voted on by TWIA Board of Directors and Insurance Commissioner Eleanor Kitzman would have final say on any rate increases.

According to Georgia-based Merlinos and Associates, the firm consulting TWIA on its actuarial soundness, there is a 27% chance the agency could not cover all of its liabilities in the event of a 1-in-100-year storm.

Such uncertainty for funding should drive lawmakers to find ways to incentivize private industry to re-enter the marketplace to better serve coastal residents.  They should be free to enjoy the benefits of competition in a free market like the rest of the state.


Surprise, surprise.  Travis County residents are now picking up the tab for road improvements necessary for Formula One races even though they were promised the expenses would be shouldered by the organizers, Circuit of Americas. Like most forms of government subsidies, this corporate welfare program promises more than it can deliver.  The State of Texas has already given organizers millions of dollars to host the event in Austin and now the local taxpayers are required to pitch in an estimated $8 million more for these road improvements.  My prediction is that we will still be paying off all of these “investments” when race organizers decide to leave town for a better offer in another city.


Do you know how much your local school district is in debt?  Leander Independent School District, near Austin, enrolls 30,000 students, has a $953.4 million of principle outstanding and is paying $1.88 billion in interest. This example is just a reminder that deficits are rampant at every level of government. So make sure you vote in every race on the ballot this election cycle.

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  • Davcrump

    Julie – The actuary’s analysis was focused on rating issuesu00a0and average loss expectation. A better way to judge TWIA’s capability of handling our hurricane risk is a different question. What is TWIA’s Probable Maximum Loss risk for a storm of record event on the largest risk concentration? The answer is a Category 4 Hurricane strike on the Galveston area and the PML projected at a 75% percentile is $6.4 billion. Based on current financial structure, this puts TWIA $3 to $3.5 billion short depending on reinsurance purchased. nnI welcome sharing the TWIA public information request response I received that has this data – just email me at and request it. u00a0I also have a PowerPoint that uses this data and connects-the-dots between our historic hurricane risk, TWIA PML risk, financial structure and consequences.u00a0You can view the PowerPoint – http://www.slideshare.net/davcrump/texas-hurricane-risk-2012nn

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