Executive Director's Labor Day Message
As our country heads into the Labor Day weekend, we hope our members enjoy the unofficial end of summer, and I want to express sincere thanks for all you do for the citizens of Texas. This has been a challenging year – together we are facing social unrest, economic strife and a pandemic that has tested the resolve of our community both personally and professionally. Today, sitting in the midst of an exceptional hurricane season, we want to share with you this brief reminder about the ongoing hurricane season and our members' role in protecting Texas.
The recent hurricanes have reminded us of the importance of the Texas property and casualty industry and the support its provides for our policyholders. Fortunately, the Texas coast has evaded the brunt of two hurricanes, Hanna and Laura, and experienced a near miss with Hurricane Marco. However, this is not the time for complacency or to assume our hurricane risk is over. Texas consistently ranks in the top three or four in the nation for almost all types of severe weather losses, and we are entering the peak of hurricane season which lasts until November.
We hope that we do not experience a major hurricane this year, but we also know coastal residents, businesses, local leaders, and the insurance industry must remain vigilant and ready to respond to the next storm. Readiness means, in part, making sure the private market and the coastal "insurer of last resort," the Texas Windstorm Insurance Association (TWIA), have the financial resources to help Texans recover and rebuild.
Texas insurers write the majority of wind coverage along the Texas coast, along with auto, homeowners, and commercial for non-wind related losses, and thankfully are well positioned financially and ready to respond after catastrophic weather events. The private market understands the importance of protecting Texans, our coastal residents and the economic viability of this state, and has steadily increased coastal wind writing to nearly 60% of total wind premium along the coast. In addition, the industry has $1 billion committed to pay TWIA covered losses in the event of a major storm. For example, after Hurricane Harvey in 2017, the industry paid a total of $372 million in assessments to pay TWIA policyholder losses.
TWIA is intended to provide wind and hail insurance coverage for those who can't obtain coverage in the private market. Thanks to increased private market writings, TWIA’s share of coastal wind coverage has steadily declined, and contrary to what some have proposed, reduced TWIA writings is actually a step in the right direction. Nonetheless, it is very important for TWIA to be financially sound and ready to respond in the event of a storm.
As members of TWIA, the insurance industry has championed sound financial decisions and adherence to insurance principles for TWIA. Further, given the industry’s $1 billion commitment, companies are keenly interested in TWIA’s financial fortunes. Unfortunately, given TWIA’s current finances, a serious storm or even a series of smaller storms would deplete TWIA’s available premiums and reserves, Catastrophe Reserve Trust Fund (CRTF), and throw TWIA into a situation where more bonds/debt are needed to fund the payment of losses. TWIA already pays $24.1 million to service their existing debt from past storms. For some context, TWIA’s Hurricane Harvey losses were $1.7 billion; by comparison industry losses were $7 billion for auto, residential and commercial losses. A similar storm today would require TWIA to issue bonds totaling approximately $750 million, adding debt to repaid over a 10 year period! Even a smaller storm, comparable to the $250 million in TWIA losses from the 2016 hail storm, would be detrimental to its financial health.
The larger issue is TWIA’s current funding structure, based in part on selling bonds to pay losses, combined with a shrinking premium base, has resulted in approximately 70% of TWIA's annual premium revenue going to pay administrative costs, repayment of debt from catastrophe bonds, agent commissions, reinsurance, and other expenses, leaving only 30% left to pay claims and build up the CRTF. For 2020, TWIA will collect an estimated $350 million in premiums, leaving roughly $105 million for losses, with a CRTF balance of $177 million as of June 30, 2020.
We need to keep an eye on the Gulf and hope no major storms hit the Texas coast this season. At the same time, we need serious discussion on how TWIA should be funded to help protect policyholders who have to obtain coverage through the insurer of last resort. The current funding structure is risky and debt laden and not sustainable long-term. It also impacts Texas insurers who have to be ready to pay up to $1 billion for TWIA losses, in addition to their own losses, after a hurricane.
As the TWIA board and eventually the Texas legislature considers the future of TWIA, the property and casualty industry also has to pay attention to the larger question, how best to fund the insurer of last resort for the affected coastal counties and maintain a sustainable choice for those who cannot find coverage in the private market.
Thank you for your continued support. May you and yours remain safe.
Albert Betts Jr.