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Ike Drains More Than 30 Years of TWIA Reserves

By Independent Insurance Agents of Texas | Jan 21, 2009
Ike Drains More Than 30 Years of TWIA Reserves image

What You May Not Know About TWIA and Ike

1. The storms of 2008 wiped out more than 30 years of
TWIA premium reserves.

2. Prior to 2008, TWIA had paid out a total of $536 million
in storm claims, from 1971 to 2007. In 2008, TWIA may
pay out more than $3.0 billion.

3. Nearly three-fourths of the homes insured by TWIA are
primary residences and 100 percent of the businesses
insured by TWIA add value to the local economy and
employ thousands of local residents. Less than 8 percent
of TWIA insured homes are valued above $250,000.

4. TWIA is obligated by statue to pay covered claims. It
cannot “run out of money.” Losses that aren’t covered by
current premiums, reserves and reinsurance purchases
are paid by all insurance companies writing property
insurance in Texas.

5. Ike, a category 2 hurricane, is expected to produce total
losses between $8 and $12 billion. Insurance
companies writing property insurance in Texas, in
addition to paying losses on the property they directly
insure, will pay some portion of TWIA assessments,
which could approach $1 billion.

6. TWIA covers only loss by windstorm and hail. Most
property owners buy separate homeowners or dwelling
insurance that covers all other losses besides wind.
Neither TWIA policies nor most homeowners polices
cover damage by flood waters or tidal surge. These
losses are covered by a federal flood policy, which
anyone can buy regardless of property location. It is
estimated that only about 20 percent of Galveston
residents purchased flood insurance.

7. Only residents in the Tier 1 coastal counties can buy
wind insurance from TWIA. This does not include most of
Harris County. Admitted insurance companies that write
insurance for homeowners outside Tier 1 counties
cannot exclude wind coverage.

8. Insurance companies are assessed for losses that TWIA
can’t pay. In 2008, companies have been assessed
$300 million which they cannot recover from the state or
from policyholders. In addition, companies have been
assessed an additional $230 million, which can be
recovered over time from premium tax credits. Total
assessments from the storm are likely to exceed $500
million.

9. While insurance companies can recover these
assessments through tax credits, they can only recover
up to 20 percent of their total assessment in one year,
and then only up to the amount of premium taxes they
pay on property lines. It could take some companies
more than twenty years to recover their assessments. In
essence, insurance companies are providing the state
with a $500 million long-term loan at no interest.

10. In 2007, TWIA collected $315 million in premium from
216,000 policies. To cover the claims just from storms in
2008, TWIA would have had to increase premium
reserves more than 10-fold.

11. Rates are set by the Texas Department of Insurance, not
by insurance companies. The average annual rate
increase over the last 17 years on TWIA property has
been 0.9 percent for residences and 0.5 percent for
businesses. Since the storms of 2005 (Katrina, Rita),
rate increases have averaged 3.1 percent for residences
and 23 percent for businesses.

12. Slightly more than $1 billion was paid out by property
insurers during the mold crisis early in the decade
resulting in a major disruption of homeowners insurance
markets. Losses from Hurricane Ike alone will exceed $8
billion.

13. The cost of annual debt service on $1 billion of bonds (at
6.5 percent interest for twenty years) would increase
policy premiums by 27 percent for TWIA policyholders
only; by 4.2 percent for all Tier 1 policyholders, and by
only 0.4 percent for statewide policyholders.

14. TWIA’s liability for insured buildings and contents has
increased by 362 percent in the last seven years (from
$12 billion to $56 billion in 2007).

15. The number of insurance policies written by TWIA
doubled in two years, from the end of 2005 to the end of
2007.