Hurricanes and Tropical Storms: 2 Down, How Many More to Go?

With hurricane season halfway over for 2008, Louisiana has so far dodged the bullet but Texas has taken on two warning shots with Hurricane Dolly and Tropical Storm Edouard. As such storms go, neither packed a lot of punch, but together they did enough damage to impact the Windstorm Insurance Association (TWIA), the insurer of last resort for wind coverage along the Texas coast.

TWIA is paying hundreds of millions of dollars in claims generated by Dolly, which hit the south end of the Texas coast, and Edouard, which made landfall on the northern coastline. In an e-mailed statement, the Texas Coalition for Affordable Insurance Solutions (TCAIS) reported that TWIA has used all of its cash on hand, assessed the statewide property insurance market $100 million and used a substantial portion of its catastrophe reserve trust fund.

TWIA funding has been a sore spot for the state’s insurance industry for years; many believe TWIA is vulnerable should a Hurricane Katrina-like storm hit heavily populated areas of the Texas coast. A bill calling for a restructuring of the association that included a provision for the issuance of pre-event and post-event bonds as a way of generating capital to supplement reinsurance and TWIA’s reserves died on the last day of the legislative session in 2007. The proposal is expected to be resurrected in 2009.

The Texas Department of Insurance is being reviewed by the Texas Sunset Advisory Commission and by law the legislature has to pass in the 2009 session an insurance department “Sunset” bill. Commission staff recommended changes to the regulatory agency but its continuing existence is not threatened.

State Rep. Larry Taylor of Friendswood, an independent insurance agent, has said it is possible that a TWIA funding proposal could make it into the Sunset bill, as long as the issue doesn’t become controversial. Other issues, like territorial rating and make up of TWIA’s board, would be the subject of another bill, Taylor told insurance professionals at the 2008 Mid-Year Property and Casualty Symposium sponsored by the Insurance Council of Texas and the Association of Fire and Casualty Companies of Texas.

At the same event, Lee Ann Alexander, assistant vice president and legislative counsel for Liberty Mutual Co., questioned the wisdom of relying heavily on post-event bonds, noting the uncertainty not only of how to pay for post event bonds but if they could be issued at all. “The Florida hurricane catastrophe fund tried to issue $7 billion worth of bonds last year and only could issue three and a half (billion),” Alexander said. “It’s subject to credit market woes and it’s subject to inflation rates. Are we putting all our eggs in the basket?”

Taylor responded that such a situation would just have to be dealt with at the time. “All we can do is all we can do,” he said. “All you can do is the best you can do with what you have available. We know there is a bond market out there. We may have to pay a higher rate. There’s always capital out there if you pay a high enough rate.”

Meanwhile, at press time, Tropical Storm Gustav was churning in the central Caribbean, ac-cording to the National Hurricane Center, and moving northwesterly, straight for the Gulf of Mexico.