The newest board member of the Texas Windstorm Insurance Association Ron Walenta not only voted with the majority in passing a recommendation for a five percent rate increase on residential and commercial properties, Walenta seconded the motion for the rate hike. Approval of the rate increase came during a virtual meeting of the TWIA board on Dec. 8. The rate recommendation goes to the Texas Department of Insurance for review with a proposed effective date of April 1, or as soon as possible thereafter.
TDI has 30 days to review the rate filing. According to a TWIA spokesperson, absent a disapproval with reasons by the insurance commissioner, the rate will become effective as proposed. As of press time, TDI’s Chief Deputy Commissioner Doug Slape is recognized by law as assuming the role of commissioner while a vacancy in the position exists.
Walenta attended TWIA’s virtual Actuarial and Underwriting Committee meeting a week earlier, so he is familiar with the amended analysis provided by Willis Towers Watson (WTW). The new report incorporated several secondary building characteristics that TWIA gathered and provided after the firm’s initial report was made to the committee on Sept. 4. On a 4 to 3 vote, Dec. 1, the committee moved the WTW amended report to the full board on a motion by committee member and former Board Chairwoman Georgia Neblett. The motion stated that the committee made no rate recommendation.
Prior to the committee vote, David Futterleib, an actuary with Travelers and member of the committee, urged the committee to consider a 10 percent rate hike, based on the new indications provided by WTW. Futterleib said he is confident of the rate need and favors going up 10 percent, as a five percent increase “barely keeps up with inflation costs.” Any further research into the rate need, he said, would still find a need higher than 10 percent. Futterleib’s recommendation died a procedural death since Neblett’s motion was pending.
Committee member and board member Corise Morrison was one of the three no votes in committee, indicating that she preferred the committee make a rate recommendation to the full board. During the Dec. 8 board meeting, Morrison made the motion for the rate hike of five percent. The board approved the rate hike on a 6 Yeas to 2 Nays with 1 unrecorded vote.
The two no votes came from TWIA Board Chairwoman Chandra Franklin-Womack and board and committee member Neblett, both of whom are TWIA policyholders. The unrecorded vote was from Tim Garrett; it was unclear if he abstained or did not vote during the roll call due to technical difficulties. Once Association Counsel Michael Perkins announced that Garrett’s vote could not change the outcome, the board made no further attempts to obtain his vote.
The vote came after WTW presented its Dec. 1 report to the full board, a presentation that had been made to the Actuarial and Underwriting Committee. In the new report, WTW revised the rate need down for residential, but up for commercial, compared with its earlier estimate. Residential rate need was estimated at a 32 percent increase on Sept. 4, but lowered to a 26 percent increase in the Dec. 1 report. The rate indication for commercial properties went from a 42 percent increase to a 44 percent rate need.
WTW attributed the revisions to data that was made available over the last 43 business days. New data elements were included in both the RMS and AIR catastrophe models, with roof covering, roof age and roof geometry added to both models’ analysis. The RMS model, which WTW weighted for 75 percent of the modeling value, picked up roof condition, construction quality and opening protection. The AIR model, weighted at 25 percent, benefited from additional data on building condition, tree exposure and window protection.
Still, some secondary risk characteristics that the models can use were not available for the new analysis. WTW said that the models classify unknown characteristics, basing assumptions on industry averages. Futterleib told the Actuarial and Underwriting Committee that every insurer can always improve data, but improvements do not necessarily result in material impacts on the rate indications.
The new data reclassified more than 10,000 risks from single family homes to condo/apartment risks, a change that reduced expected loss costs. About 23 percent of commercial risks were more specifically re-categorized from general commercial. The new data elevated more than 50,000 properties’ roof coverings from “unknown” to hurricane rated and accounted for 42 percent of roofs being 12-years-old or less, having been replaced subsequent to 2008’s Hurricane Ike.
The rate discussion was preceded by two closely related agenda items: 2020 financials/2021 budget and public comments, with the financial discussion addressing the 2020 shortfall resulting from this year’s active hurricane season and the public comments urging against any rate increase for homes or businesses.
Morrison, board treasurer, and TWIA CFO Jerry Fadden presented the financials. The bottom line on the statutory income statement, as of Sept. 30, is TWIA is $144 million in the red. Still to come are losses from Hurricane Delta which made landfall in early October. Fadden said TWIA will not be contributing to the Catastrophe Reserve Trust Fund this year, largely due to hurricanes Hanna, Laura and Delta, which together Fadden predicted will reach $87 million in losses and loss adjustment expenses.
Morrison pointed out that year-to-date direct written premium was down 1.1 percent compared to the prior year, but was 5.1 percent higher than budgeted. Policy count was down at the end of the third quarter, but higher than anticipated. Direct earned premium was down 3.9 percent, compared with the end of September last year. Reinsurance cost, at $107.5 million, was higher than the budgeted, $93.1 million.
Direct losses and loss adjustment expenses for 2020, as of the end of the third quarter, totaled $72.7 million, including estimated ultimate losses from hurricanes Hanna and Laura at $52.9 million. Estimated losses from Hurricane Delta, which brought 2,627 claims to TWIA in the first week after the Oct. 9 landfall, will be included in fourth quarter results.
During the public comment period, no one acknowledged the 2020 financial condition of TWIA; all focused on why they opposed any TWIA rate increase. Testifying virtually were legislators Rep. Mayes Middleton, R-Galveston; Sen. Juan Hinojosa, D-Edinburg; Rep. J. M. Lozano, R-Portland; Rep. Todd Hunter, R-Corpus Christi; Rep. Abel Herraro, D-Robstown. Joining them in their opposition to any rate hike was Charles W. Zahn Jr., chairman of the Port of Corpus Christi; Brent Cheshey, Nueces county commissioner; Corpus City Councilman Greg Smith, on behalf of Mayor Joe McComb; Sally Bakko, director of policy and government relations for the City of Galveston; Marie Robb, newly elected city council member of the City of Galveston; Mary Branum, a Galveston resident, and Lynn Blumenfeld, resident of Colton.
Several of the commenters indicated that they had letters or resolutions from others also opposed to any rate increase.
Central to their arguments to the board were: the written comment period closed for the committee meeting prior to the WTW report becoming available on the TWIA website; any increase would be a financial hit to those already struggling due to the pandemic and the seasonal hurricane damage; lack of notice to the public by the board’s meeting agenda not specifically referring to consideration of a rate increase; too many questions about the data on the insured properties, particularly opening protections, still pending, and finally, a plea to let the legislature handle TWIA rates when it convenes in January.
Morrison commented that there will be opportunity to work with the legislators on TWIA rating issues, while in the meantime the five percent increase would get TWIA closer to financial soundness. She said she looks forward to working with the lawmakers on the issue.
The board meeting’s agenda item under which the board voted on a rate increase was stated as: “Presentation and Review of TWIA Actuarial and Underwriting 20 minutes Committee Meeting Rate Recommendations – Debbie King*.” King is a former board member who chairs the Actuarial and Underwriting Committee. The asterisk was footnoted on the agenda as “Indicates item on which General Manager believes the TWIA Board of Directors is likely to take action. However, the board may take action on any item that appears on this agenda.” The agenda was posted on TWIA’s website on Nov. 25, earlier than the 7-day prior notice required by law.
Executive Director John Polak announced that at least the next two TWIA board meetings would be held by webinar, with the scheduled dates of Feb. 23 and May 18, 2021. Webinars are open to public attendees; the public may also view the proceedings live or archived on YouTube.