Insurance Trade Group Sees Storm Brewing in Texas

Hurricane season is just a few short months away and the head of a Texas-based insurance trade group already sees some dark clouds on the horizon.

“The Texas Windstorm Insurance Association is considerably under funded in the event a major hurricane makes landfall in Galveston or Corpus Christi,” Jerry Johns, president of Southwestern Insurance Information Service said. “Last year TWIA had a $130 million deficit as a result of losses caused by Hurricane Rita and that would be a drop in bucket had the storm hit Galveston.”

The number of structures insured by TWIA is growing dramatically. In 2001 the association had 68,756 policyholders. At the end of 2005 that number has grown to 99,246, according to Jim Oliver, general manager of the Texas Windstorm Insurance Association.

“TWIA’s exposure in 1992 was about $5 billion in the 14 coastal counties and a portion of Harris County,” Oliver said. “At the end of 2005 our exposure was approximately $26 billion.”

“Because the rates we collect fall far short of the risk we assume, it is sad but true that Texas coast can no longer afford itself,” Oliver noted.

Oliver indicated that TWIA has $1.3 billion in funding, but when you compare that against a hurricane with the potential of causing $4-5 billion in losses along the Texas coast, something has to change. This will, obviously, result in some shortfall, which will have to be made up by the State of Texas.

Dr. William Gray of Colorado State University has predicted that during 2006 we will have nine hurricanes and 17 named storms. The number of hurricanes in an average year is 5.9 and 9.6 for named storms.

“We have had a wake-up call and it is time to be sure TWIA is property funded,” Johns said.

Insured losses from Hurricane Katrina are estimated to be $34 billion and hurricane modeling firms are predicting that damage to the U. S. from storms could rise as much as 60 percent in the coming years.

“Under our current funding, once we assess companies, exhaust the Catastrophe Reserve Fund and penetrate our layers of reinsurance we would have to tap the state’s General Revenue Fund through tax credits,” Oliver said.

TWIA’s funding mechanism was developed in the early 1990’s when the association had about one-fifth the exposure we have today, he added.

The TWIA Board has approved recommendations for changes in legislation which call for issuing $800 million in pre and post-event bonds to be paid for by a surcharge on property and casualty policies in Texas, excluding workers’ compensation, medical malpractice and health and accident policies.

“To accomplish this would require the approval of the legislature and they will not meet in regular session until January 2007,” Johns said “That means TWIA will go through another storm season before funding solutions are considered, unless TWIA issues are considered in a Special Session of the Legislature.”

“We need look no further than Florida where Citizens Property Insurance Corp, the insurer of last resort is expected to have a deficit in 2005 of $1.5 billion,” he said. “We don’t want a similar deficit to occur in Texas.”

“Finding a resolution to the funding of TWIA and reducing reinsurance costs are essential,” Johns said. “Otherwise there is the potential that the state General Revenue Fund could be hit if a major hurricane affected the Texas coast.”