The Texas Windstorm Insurance Association (TWIA) on Sept. 17 announced that anticipated claims from Hurricane Ike will force it to use the entire $370 million remainder of its Catastrophe Reserve Trust Fund, according to the Texas Coalition of Affordable Insurance Solutions (TCAIS). It also announced it will assess property and casualty companies operating in Texas $430 million.
But that may not be enough to pay all of TWIA’s Ike-associated claims. The Austin American Statesman reported that the state’s insurer of last resort for wind coverage along the coast could need nearly $2 billion more in order to cover claims.
The association and the companies that comprise it – all licensed insurance companies offering property insurance in the state are required to be members of the association – have for years lobbied the state legislature to adopt new methods of funding the association, fearing a hurricane such as Ike could severely test TWIA’s ability to pay claims.
A bill to revamp TWIA’s funding mechanism by adding the ability for the association to issue pre-event and post-event bonds to help cover claims costs in the event of such storm died on the last day of the legislative session in 2007.
TCAIS said the call to insurers for the money will be issued within a week. Companies pay these TWIA assessments in addition to any storm damage claims they pay to their own customers.
Beyond collected premium, TWIA funding sources include insurer assessments, the state’s Catastrophe Reserve Fund and reinsurance purchased by TWIA. Once these funds have been depleted any losses to TWIA would be financed via an unlimited assessment on insurers that is recoverable through premium tax credits. Insurers have warned that such an eventuality could severely and adversely affect the Texas general revenue fund.
Losses from earlier storms led to a $100 million TWIA assessment on Texas property insurance companies.
“Although it’s too early to have firm damage estimates, it’s likely they will be extremely high given the force of the storm and its path through a heavily developed and populated area,” stated Beaman Floyd, executive director of TCAIS.
“The reality is that all Texans will be affected as the marketplace is rocked by these losses. The combination of company losses and TWIA assessments is an enormous blow to the State of Texas. As we recover from the hurricanes of 2008, all Texans – not just those on the coast – should demand that lawmakers reform TWIA during the 2009 legislative session to provide a financially sound system that would minimize risk to TWIA policyholders, Texas taxpayers and the State of Texas.”
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