Catastrophe funding big on the radar screen for 2006

Some 60 to 70 percent of the estimated $4.7 billion in insured losses caused by Hurricane Rita in September 2005 occurred in Texas. The state experienced 188,000 claims, representing $2.1 billion, from the storm, which generated around 400,000 claims overall.

That catastrophe, coupled with the devastation caused by Hurricane Katrina in Louisiana and Mississippi last year and the four hurricanes that hit Florida in 2004, have many in the Texas insurance industry wondering how the state will hold up financially should a Katrina or Rita caliber storm land on the densely populated areas of Galveston and Harris counties.

Last year’s hurricanes hit during a profitable year for insurers, which had an estimated combined ratio of 92.7 percent in advance of the storms, according to figures presented by the Independent Insurance Agents of Texas at the “Preview 2006: Industry Update” during the association’s Joe Vincent Management Seminar, held in Austin in late January. At that session, IIAT representatives Paul Martin, Jim Gavin and Bo Gilbert, explained that among the issues of concern is the funding mechanism for the Texas Windstorm Insurance Associa-tion (TWIA), with the general consensus being that TWIA’s $1.3 billion in reserves would not be enough to cover the cost of rebuilding highly populated areas of the coast, should a category 3, 4 or 5 storm make landfall there.

Part of the problem is that insurers operating in the state face an unknown assessment should a catastrophic storm wipe out TWIA’s reserves. Martin noted that if companies take too big a hit, it will be tremendous disincentive to do business in Texas.

Funding for TWIA, the insurer of last resort for wind and hail for residents and businesses along the Texas coast, is expected to be taken up by the legislature when it meets this spring to work on property tax and school funding reform. There are a number of scenarios being proposed as to how to beef up TWIA’s surplus, including a proposal for the issuance pre-event bonds that would push the amount of a catastrophe fund up to $3 billion, as well as post-event bonds that would provide more money after a devastating storm.

Gilbert said the insurance industry, including agents, brokers and companies, must speak with one voice on the issue, as Gov. Rick Perry would not want any divisiveness to distract lawmakers from their primary purpose of dealing with property taxes and school funding.

Topics Catastrophe Texas Hurricane