HOUSTON — The state windstorm insurer of last resort is short $200 million to cover Hurricane Ike claims — and its choices for raising the money present new problems.
One approach could tighten the state’s general revenue and the home insurance market for up to five years. The other could reduce the windstorm insurer’s reserves for paying future hurricane claims.
Hurricane Ike, which struck the upper Texas Gulf Coast in September 2008, has resulted in an estimated $2.3 billion in claims to the Texas Windstorm Insurance Association.
The insurer has raised $2.1 billion by assessing insurance companies statewide, draining its catastrophe reserve trust fund and collecting on reinsurance it buys to provide partial coverage for claims it pays.
In deciding how to make up the difference, TWIA will have to determine what law to follow, another headache for an operation already under fire for delays and confusion in processing claims from Ike and other storms.
The industry believes TWIA will collect the money by assessing insurance companies statewide as it was allowed to do under the law in effect when Ike hit, said Beaman Floyd, executive director of Texas Coalition for Affordable Insurance Solutions, an industry trade group.
That law allows companies to recover the payments through tax credits for up to five years, meaning less money for an already tight state budget.
In addition, paying the assessments immediately while waiting five years to recover them all through tax credits could reduce the surplus accounts that companies are required to keep for unexpected claims — straining the availability of insurance in the state.
“It would be like making an interest-free loan to the state, and they can only collect a percentage back each year,” Floyd said. “If you had a strain on your surplus and the ability to grow surplus, that would limit how much insurance you could write in Texas.”
But, in 2009, lawmakers eliminated the tax credits, and it’s not clear if companies still can recoup Ike-related assessments.
The new law allows TWIA to use current premiums to make up for the shortfall, but doing so would reduce TWIA’s catastrophe reserves, its actuary, Jim Murphy, noted in a June memo to its interim general manager.
Insurance Commissioner Mike Geeslin sent a letter to TWIA advising that current premiums probably shouldn’t be used to pay claims from earlier storms, and he suggested the board get legal advice on which law applies.
Jerry Hagins, a spokesman for the Texas Department of Insurance, said it would be up to the state comptroller’s office to decide whether new assessments stemming from storms before 2009 would be eligible for tax credits.
The comptroller’s office hasn’t had any current requests for such credits but is evaluating the issue, spokesman R.J. DeSilva said.
Hagins said additional assessments shouldn’t affect insurance rates if companies can recover the payments through tax credits. But if they can’t, nothing would prevent them from including the amounts in filings for rate increases.
“We would review any amount in a filing to make sure it is reasonable and look to see it was structured to be spread over several years,” Hagins said. “It’s possible, but it’s not a certainty that an assessment could be recouped through an increase.”
This may be the last time TWIA faces this dilemma. Legislation passed in the recent session allows TWIA to issue bonds to raise money.
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