TWIA Cash Position Not Improving

 $443 million in cash and short term assets

In a recent blog entry, I attempted to estimate the amount of cash the Texas Windstorm Insurance Association had in its operating account.  I said TWIA’s cash position was likely to be between $400 million to $700 million after the recent Ike settlement of $135 million was taken into account. Thanks to a public information request from Fox 26 TV’s Greg Groogan we now have a better fix.  If anything, I was a little optimistic.

TWIA has $443,453,000 in cash and short term investments, little changed from its position at the start of the year.  Its assets are down to $444,342,000.  But those figures are before  consideration of the $135 million Ike settlement, the so-called “Mostyn settlement.” They are also before TWIA spends an anticipated $100 million or so (in cash) on reinsurance, The figures are both from the end of April, 2013. If funding of the Ike settlements comes from operating funds or TWIA succeeds in obtaining reinsurance, that figure will likely be lower shortly.  If the Ike settlement instead comes from the Catastrophe Reserve Trust Fund, that $180 million fund will be significantly depleted.

The rest of the story on the TWIA cash position and finances

There are at least two other pieces of information that will be useful in assessing TWIA’s position as hurricane season moves forward. They may also help Governor Perry get from “certainly possible” to “yes” in considering requests that he convene a special session of the Texas legislature to address windstorm insurance reform.  What happened to the effort to spend $100 million or so on reinsurance?  Did they acquire it and on what terms?  Second, what has happened to the effort to prepare for post-event bonding now that former Commissioner Eleanor Kitzman authorized TWIA to do so?  Unless both of those efforts are particularly successful, however, I stand by my assertion that TWIA may well have little more than $1 billion in actual cash to pay claims on $80 billion worth of exposure. Moreover, the reinsurance doesn’t do as much good as it could, if TWIA can’t sell all of its authorized post-event bonds.

So, in this case, no news — or no new news — is bad news. If something like Hurricane Ike hit — a Category 2 storm in a populated area — TWIA policyholders might get only 40 cents or so for each dollar of legitimate claims. There would be no protection from the Texas Property & Casualty Guaranty Association. There would be no lawful obligation of the state to help out. Instead Texas would be left with a hope.  Perhaps the state legislature would meet swiftly and agree on a plan (with a 2/3 majority) to come up with billions of dollars  to help bail out a devastated coast.  As I recently said to reporter Groogan in response to Senator Larry Taylor’s understandable expression of such a hope:  “Good Luck.”

Footnote 1: Say what one will about TWIA and its history, I have again found them to be responsive over the past year to public information requests.  That helps build some trust.

Footnote 2: Remember State Representative Craig Eiland’s claims that TWIA could and should assess insurers today for Hurricane Ike losses and buttress in Catastrophe Reserve Trust Fund?  I’ve found a longer statement of his position here.  It’s such a mixed picture.  On the one hand,  outgoing Representative Eiland has great information on the timeline. He presents a forceful case that TWIA had the information that would have justified a larger assessment on the insurers for Ike under the old law before a 2009 law took effect.  He is right that TWIA would look a lot stronger today with $780 million in its CRTF rather than the $180 million it has today. What Representative Eiland still lacks, however, is any legal theory under which such an assessment could occur today.  As has been discussed here at length, the law under which assessments were authorized was repealed — Representative Eiland sadly joining others who voted to do so.

S.B. 1700 dead; Texas coast in grave danger

Senator Larry Taylor, sponsor of S.B. 1700, the only significant bill on windstorm reform to get through a legislative committee and at least have the chance of being approved, announced this evening that his efforts to get his bill passed have been frustrated by the Texas Trial Lawyers’ Association and the attorney with the largest share of the Ike cases, Steve Mostyn. I did not agree with much in S.B. 1700. It had many problems. But if this means that there will be no reform this legislative session of dysfunctional Texas insurance against tropical cyclones, I agree very much with Senator Taylor that this is a sad day indeed.

Here’s a copy of his press release.

Larry Taylor press release conceding defeat

Larry Taylor press release

There will be time in the next few days to discuss why certain trial lawyers may have objected to the bill but, from my perspective, the important is not whether the trial lawyers have a legitimate concern or whether, indeed, their objections are the only cause of the bill’s defeat.  Why, for example, did Steve Mostyn oppose it if the offensive provision had been removed? In some sense, however, this really doesn’t matter. The important issue is what on earth is Texas going to do about hurricane insurance until the 84th legislature two hurricane seasons from now.

Miracles?

There is, I suppose, a remote chance that the House could pass some minimalist bill that fixed the worst parts of the current scheme and try to ram it through the Senate.  I sure hope that happens. But I am not certain that there is the requisite level of support for such a scheme nor am I sure that there is time.  I do recall Representative John Smithee, chair of the House Insurance Committee, saying at a hearing that he did have a bill filed that had little content but that could be used as kind of an all purpose vehicle for TWIA reform.  But, again, I have doubts that there is the will or the time to get something passed before the end of the regular session.

There is also, I suppose, the possibility that Governor Rick Perry would add windstorm finance to a special legislative session.  But I have heard no rumor that such is contemplated.  And there is, I suppose, the possibility, that Texas is just counting on using its rainy day fund to pay for what could be a very rainy day on the coast of Texas this summer or next.  But I do not know whether such a use would be countenanced by the political powers or, since this is partly a self-inflicted wound, whether it should be used in that fashion.

What now?

And so, to my amazement, Texas is apparently choosing to to face the 2013 hurricane season — and perhaps the 2014 hurricane season too – with 62% of the property on the coast insured against tropical cyclones by an insurer that has been called insolvent by the Texas Insurance Commissioner, Eleanor Kitzman. The insurer has at in its Catastrophe Reserve Trust Fund at best 1/20th of the amount it should have if it wants to self-fund claims and has very doubtful ability to recapitalize itself in a significant way using post-event bonds.

As I told Fox TV today in a part that didn’t make the air this means two things for people on the coast. (1) People with insurance from the Texas Windstorm Insurance Association need to shop very aggressively for alternative forms of windstorm insurance.  They can’t just go to Allstate and State Farm and the usual suspects There are many insurers in Texas.  Many won’t write on the coast.  But maybe some of them will.  Even if it costs more, it may well be worth the peace of mind if and when a storm brews in the Gulf of Mexico this summer.  (2) People and businesses with TWIA policies should behave as if their policies have upwards of 30% coinsurance. That means taking every imaginable step both now to get their properties as resistant to hurricane damage as possible and to take every last minute precaution to reduce loss if a storm comes.

For my part, I’m going to keep watch on the extent to which TWIA succeeds in increasing its capitalization through a Bond Anticipation Note and through reinsurance.  I’ll try to dig further into the ability of TWIA to sell post-event bonds. And I’ll keep watch to see if any legislative cavalry is coming over the hill.  Right now, however, all is very silent in this calm before the storm.

Fox 26 Understands the Issue, the Houston Chronicle does not

Fox 26 in Houston will be airing a story tonight on the problems that will result from failure to develop (thus far) a sensible bill reforming TWIA that has broad political support. I’ll be in it. The story is particularly timely in that today’s failure of the legislature to address the only bill to emerge from a committee on the subject, S.B. 1700, is further evidence that time is running out.

And, might this be the time to criticize the Houston Chronicle and make yet more people annoyed with me? Perhaps so.  You can believe me on this issue, you can believe coastal legislators, or you can believe whom you want about the merits of various reform efforts,  but everyone who has bothered to look understands that the financial troubles — some would call it insolvency —  of the largest insurer on the Texas coast — right as hurricane season begins — is a pretty major issue. It affects tens of thousands of people in the Chronicle’s circulation area as well as hundreds of businesses and government bodies along the coast.  And, if what I am saying is right — which might just possibly be the case — the insolvency of TWIA following a significant storm this summer is going to affect every single person in Harris and surrounding counties. Indeed, on this issue, I suspect, some legislators who don’t like my reform ideas very much would probably agree.

And what coverage has the Houston Chronicle offered on this issue?  Nada.  Zilch. Less than the Corpus Christi Caller with its far more limited resources.  Less than even the Galveston Daily News. I know newspapers are really struggling right now and actually covering political news is a challenge, but I look at the Chron.com website right now and I see fascinating reports of a Fort Bend teenager bagging a large alligator, a story on the failure of an excellent restaurant to open in the Heights, and some local crime stories, but nothing on this issue.  And it’s not just this way today.  There has been silence from the Chronicle for the whole legislative session.  If a local TV station can cover this story competently, so too can Houston’s major daily.

P.S. For newer readers of this blog, please do not take my difficulties with the failure of the Senate to take up S.B. 1700 as support for that bill.  For reasons discussed elsewhere, I have serious problems with the bill.  My point is that the status quo is a disaster waiting to happen. A seriously amended S.B. 1700 could become the framework for a two-year patch up of TWIA. But if things don’t happen really soon, there will be no opportunity to get a bill through both houses of the Texas legislature, let alone one that could be in place before September 1, 2013.

Fox 26 Stays on the Story

Greg Groogan of Fox 26

Greg Groogan of Fox 26

Fox 26 Houston news with its reporter Greg Groogan has run another story on the problems facing the Texas Windstorm Insurance Association (TWIA).  I’m quoted again in this story (accurately, just like last time).  The story very well encapsulates the problem. TWIA does not have enough money to pay claims. Coastal residents don’t want their economy hurt by paying higher insurance premiums. And Texas taxpayers and property owners not on the coast don’t want to continue to pay wind and fire premiums not just on their own house but also help subsidize wind premiums on the homes of coastal residents, many of which are more expensive than theirs.  As a result, most involved are in one of the Kubler-Ross stages of grief: (1) denial, (2) anger; (3) bargaining; (4) depression; or, possibly (5) acceptance. And I agree with the realtor quoted in the story: as it stands Texas catastrophic risk system is pretty much prayer based.

P.S. Houston Chronicle: anybody home?

Unfortunately for Texas, the Fox 26 story quoted me correctly

I received an email Friday afternoon from an insurance agent.  It concerned the recent story on Fox 26 Houston TV in which I appeared.  Here’s what the letter said:

I believe  the  reporter in this publication has misquoted you or misunderstood what he was told.   It has been my understanding as a professional  agent for many years, and  also that of my associates,  that should TWIA become insolvent that insurance companies doing business in Texas will be assessed for millions of  dollars and  losses that then exceed those sums will be paid from the General Funds of the State of  Texas.  To rely on such a system is totally unacceptable—the delays in claim payments to policy holders would be unacceptable.  However, the statement that the State has no obligation to pay those claims remaining after the assessment is totally false.
If I am misinformed, please let me know the error of my ways.  I am correct, please ask  the reporter to print a correction.   If I am correct,  this misstatement is not only confusing but can do irreparable damage in further confusing the buying public.   The matter is already complicated enough .
I read the email while I was walking the dog. And, for a moment, I was unhappy.  It was, after all, being suggested that I had misled the public in a way that could do irreparable damage.  Falsely asserting an insurer is in deep trouble can create runs.  If publicized widely and treated as credible, such assertions become somewhat of a self-fulfilling prophesy.  Plus, the email author was incorrect in his understanding of how TWIA has worked since at least 2009. That probably meant that a large segment of the public — and even the insurance public — were not up to date on what has been going on in Texas for the past five years. Depressing. But, on reflection and return from my canine adventure, I recognized that this meant that the Fox 26 story by reporter Greg Groogan had an impact and that I had an opportunity here to do some targeted education.
Here’s what I wrote back.

Thanks for your interest in this topic and your taking the time to send me a polite email. I was walking the dog when I received your email so I just tapped out a brief reply.  I would be delighted to speak with you by phone at your convenience. You can reach me on my cell at xxx-xxx-xxxx. The short version, however, is that the Fox 26 reporter basically got it right and, unfortunately, I can not claim to have been misquoted.   I would be happy to  explain this to you in more detail. To get you started, you might want to look at any of the following:

David Crump, another Texas citizen interested in these issues, and an insurance agent also sent my emailer a polite and helpful response.

Later Friday night I received a reply from the insurance agent. Here’s what he said.

Dr Chandler, thank you for all the information you have provided.  I am embarrassed that my understanding is so outdated.  Armed with this information I am at least better equipped to explain to our clients the problems they face when the next hurricane comes.  We can only hope and pray that our Texas legislators find the wisdom and political courage to do whatever is necessary to resolve this issue–and do so in time.  At the moment it is difficult to place adequate coverage for our clients, but that is better than the impossibility that it may become without a resolution.

Again my sincere thanks for taking the time to correct my misinformed understanding.

I then felt really good.  First, a civil exchange between two people who might initially have been taking adverse positions had ended in some agreement.  Second, I’d educated someone who sells insurance to the public. That agent and his colleagues are now in a position to give the public better guidance in their choices.  And third, I recognized that I’d actually covered a lot of ground in this blog and that it was a very useful source of information and education.  The only sad part was that what the agent wrote back was precisely correct: “We can only hope and pray that our Texas legislators find the wisdom and political courage to do whatever is necessary to resolve this issue–and do so in time.  At the moment it is difficult to place adequate coverage for our clients, but that is better than the impossibility that it may become without a resolution.”