LOSSES
TWIA Committee Advises 10% Rate Hike; Actuary Says Beryl Could Cut Its $450M Cat Reserve by Half
GALVESTON, Texas //BestWire// - Category 1 Hurricane Beryl could cost the Texas Windstorm Insurance Association about half of its more than $450 million Catastrophe Reserve Trust Fund, according to Chief Actuary Jim Murphy.
The association has taken in about 16,000 windstorm claims. “It will be a significant storm for us,” and 2024 will likely be the third-costliest for the association, he told members of TWIA's Actuarial & Underwriting Committee.
While admitting it was a wild guess made one week after the storm hit, he said TWIA will most likely take in 20,000-something claims, generating losses that could “easily be above $200 million,” said Murphy.
The committee met on July 15 to suggest rate changes for 2025. It voted 5-1, with Board of Directors Vice Chair and Committee member Georgia Neblett dissenting, to recommend the TWIA board of directors seek a 10% rate increase from the Texas Department of Insurance for residential and commercial policyholders.
The adequacy of TWIA’s current rates worsened sharply this year, according to an analysis released earlier. Residential rates are inadequate by 38%, 18% higher than a year earlier. Commercial rate inadequacy more than doubled to 45% from 22% (BestWire, July 2, 2024).
The association attributed the situation to more policies, the need for greater reinsurance and economic inflation pushing construction labor and material costs higher. In a breakdown of the rate element, TWIA said reinsurance, which is one of three fixed expense categories, rose 20.5% this year to 44% for residential coverage and is up 24% to 50.4% for commercial coverage.
At the committee meeting, Neblett said the state legislature must deal with a state-wide insurance crisis, particularly in the wake of the state’s largest wildfire earlier in the year.
“If we went to rate adequacy, it still wouldn’t fix our problem,” said Neblett, but it would “impact people’s ability to live and work here... these aren’t rich people.”
Committee member David Futterlieb made the motion to recommend the 10% increases to the board of directors, saying, “I don’t think there are any easy answers.” Rate increases may not solve all of the problems, but waiting for legislative action shouldn’t preclude the committee from “making the recommendation we need to make at this point,” he added.
TWIA doesn’t charge differentiated rates for primary and secondary or corporate-owned properties, another matter Neblett said the legislature could decide.
In the first quarter, the agency said it added more than 25,000 policies over the previous year and the total insured value of covered properties rose by 26.4% (BestWire, Feb. 14, 2024).
“In any given year our results depend very heavily on what the weather looks like,” said Murphy. Inadequate rates make it difficult to build the CRTF “to allow for the bad years.”
This year, forecasters said they believe sea temperatures and climate conditions are ripe for a very active Atlantic hurricane season. At the start of July, Beryl became the earliest Category 5 hurricane recorded in the Atlantic Ocean. It tied 2005's Hurricane Emily as the strongest pre-August storm with 165 mph winds. Beryl made landfall in three countries, slowing considerably by the time it struck Texas (BestWire, July 9, 2024).
TWIA is mandated to make a rate filing with the Texas Department of Insurance by Aug. 15 annually. It is an insurer of last resort for coastal communities.
Last year, the committee recommended increases of 5% for residential and 8% for commercial policies after finding that residential rates were inadequate by 20% and commercial by 22% in 2023. The board of directors disregarded the advice and filed a rate application for flat rates (BestWire, Aug. 9, 2024).
Public comment will also be taken at TWIA’s Aug. 6 board meeting, when it will decide the filing for 2025 rates.
The five largest writers of homeowners multiperil coverage in Texas in 2023, based on direct premiums written, were: State Farm Group, with an 18.88% market share; Allstate Insurance Group, 14.87%; USAA Group, 10.23%; Liberty Mutual Insurance Cos., 8.43%; and Farmers Insurance Group, 7.33%, according to BestLink.
(By Renée Kiriluk-Hill, senior associate editor, BestWire: Renee.Kiriluk-Hill@ambest.com)