Texas windstorm insurer outlines funding mix, reinsurance and new state loan backstop

Jim Murphy, chief actuary for the Texas Windstorm Insurance Association, told the Georgia House study committee on insurance that TWIA currently insures just over 280,000 coastal properties and relies on a layered funding program — premiums, a trust fund, public securities and carrier assessments, and substantial reinsurance including catastrophe bonds — to pay claims.

Murphy said the association, created by the Texas Legislature in 1971, is governed by the Texas Insurance Code (chapter cited in his remarks) and regulated by the Texas Department of Insurance. TWIA writes only wind and hail coverage for 14 coastal counties and a portion of Harris County and operates as a residual market insurer intended to provide coverage when the private market will not.

"We don't directly receive any revenue any money from the state of Texas, and, again, we're not a state agency," Murphy told committee members, explaining that TWIA operates like an insurer: agents submit applications, the association issues policies that meet eligibility requirements, it collects premiums and pays losses. He said annual operating costs run about 5% of premium, lower than typical private-market averages.

Murphy described TWIA's funding order: premiums first, then the trust fund (which TWIA can exhaust in a large storm), then borrowing through public securities and company assessments, and finally reinsurance and related market instruments to reach a board-set funding target intended to cover a major storm season. He said the board sets the target each year and that TWIA has relied heavily on both traditional reinsurance and catastrophe bonds to reach it.

"The board sets that number, each year, and we're required to have funding at least up to that number," Murphy said, describing the requirement as a risk-management target that in recent years has been funded in part with multi-billion-dollar reinsurance placements.

Murphy said state lawmakers recently changed TWIA's structure to reduce the minimum required reinsurance from a "100-year storm season" standard to a 50-year standard and to consolidate multiple layers of bonds and assessments into two large financing layers that include a state-backed loan option. He described the new arrangement as a state loan, arranged through the Texas Comptroller, that would be repaid through surcharges on property policies statewide over up to three years; he said the change should lower interest costs compared with prior private-market bonds and leave more premium dollars available to rebuild reserves.

On how customers actually buy coverage, Murphy said there is no state law requiring homeowners to buy TWIA coverage, but mortgage lenders typically require insurance. "There's no state requirement. However, mortgage companies will require insurance," he said in response to Representative Carolyn Hughley's question. Murphy also reiterated that flood coverage is separate: "Flood policies through, like, for example, the National Flood Insurance Program, the NFIP, would be where policyholders would get coverage for the floodwaters that are often associated with the storm."

Committee members pressed Murphy on several practical matters: how TWIA coordinates with the Texas Fair Plan (the Fair Plan writes a full homeowners product statewide while TWIA provides only the wind-and-hail portion on the coast), how temporary contractors and claims examiners are engaged after large storms, and how company assessments are calculated. Murphy said assessments are allocated by comparing a company's statewide market share with its market share on the coast and charging companies that write proportionally less on the coast.

Murphy gave the committee several numerical snapshots: TWIA's insured limits exceed $120,000,000,000; TWIA wrote nearly $400,000,000 in premiums in the most recent full year reported in his remarks; and TWIA purchased more than $4,200,000,000 in reinsurance for the current year. He said the association currently employs a little over 200 staff and engages roughly 144 temporary contractors, mainly in claims handling after large events.

Murphy described the state's expert-panel approach to separating wind from flood in total-loss cases: after a major event, engineers and meteorologists work with models to estimate wind speeds and water arrival, producing an objective apportionment when structures are destroyed. "We found the smartest people we know, and this is their best estimate as to how much is wind and how much is water," he said.

Murphy told the committee he was available for follow-up questions and that TWIA files annual rate requests with the Texas Department of Insurance; rate increases require a two-thirds board vote and public posting of materials two weeks in advance of a rate vote.

The committee did not take formal action; members said they would follow up with written questions and thanked Murphy for the presentation.