Meeting of Board of Directors
Texas Windstorm Insurance Association
Teleconference
February 3, 2015
Radisson Austin Downtown
111 East Cesar Chavez
Austin, Texas 78701
8:00 a.m.
Interested parties can listen to the meeting live by going to www.twia.org. Go to “News and
Upcoming Events” and click on the audio link. It will take you to the link to listen to the
meeting. Silverlight installation is required.
1. Call to Order – Reminder of the Anti-Trust Statement/Meeting Format
– Georgia Neblett
5 minutes
2. Consideration and Action to:
Approve the Minutes from Prior Board of Directors’ Meetings
– Georgia Neblett*
5 minutes
3. Public Comment
15 minutes
4. Financial
Consideration and Possible Action on the Following Financial Topics:
A. Report of the Secretary/Treasurer – Mike Gerik*
1. Income Statement
2. Management Discussion and Analysis
B. Financial Statement Review by Staff – Pete Gise
1. Income Statement and Expense Statement
2. Balance Sheet
3. Cash & Short Term Investments
4. Cash Flow Statement
5. Historical Data
C. IRS Refund Claim – Mike Perkins
45 minutes
5. Internal Audit – Karen Meriwether
Consideration and Possible Action on the Following Audit Topics:
A. Internal Audit Status & Update
5 minutes
6. Actuarial – Jim Murphy
Consideration and Possible Action on the Following Actuarial Topics:
A. Reserve Adequacy
B. Policy Count/Exposures
C. Reinsurance Options, Including Catastrophe Bonds*
20 minutes
TWIA Agenda
1
7. Underwriting – John Morrison
Consideration and Possible Action on the Following Underwriting Topics:
A. WPI-8’s
B. Agent and Policyholder Surveys
C. Agent Audit Program
D. Insurance-to-Value Analysis
15 minutes
8. Claims – Dave Williams
Consideration and Possible Action on the Following Claims Topics:
A. Claims Operations – Dave Williams
B. Claims Litigation – David Durden
20 minutes
9. TWIA Operations
Consideration and Possible Action on the Following Operations Topics:
A. Operations / Management – John Polak
B. Amendments to Plan of Operation – John Polak*
C. Gamboa Case – David Durden
D. Depopulation – John Polak / Jim Murphy
E. IT – John Polak
45 minutes
10. 84th Texas Legislature – John Polak
5 minutes
Lunch break, 11:30
30 minutes
11. Closed Session (Board Only)
A. Personnel Issues
B. Legal Advice
60 minutes
12. Consideration of Issues Related to Matters Deliberated in Closed Session
That May Require Action, if any, of the Board of Directors*
5 minutes
13. Committees – Georgia Neblett
5 minutes
14. Future Meetings – John Polak
• May 5, 2015 – Hyatt Regency, Austin
• August 2015 - TBD
5 minutes
15. Adjourn
Estimated Total Length of Meeting
4 hours 45 minutes
*Indicates item on which General Manager believes the Board of Directors may take action
TWIA Agenda
2
1. Anti-Trust Statement
ANTI-TRUST COMPLIANCE STATEMENT
The Board of Directors of TWIA is committed to strict compliance with federal and state
anti-trust laws. The anti-trust laws are designed to promote free and open competition
and to penalize any activities that unreasonably lessen business rivalry. Members of
the Board of Directors of TWIA may freely discuss and agree upon agenda items
relating to their responsibilities as Directors including such topics as coordinating efforts
regarding state or federal legislation, discussion of TWIA policy on legislative issues and
methods of legislative lobbying including grass-roots lobbying, public relations,
testimony before legislative committees and meetings with state and federal legislators
and regulators.
Because TWIA meetings bring together competitors, any unauthorized discussion of
topics prohibited by the anti-trust laws such as agreements between competitors on
prices and rates, agreements to boycott third parties or agreements to divide markets or
even individual insureds could lead to an inference that such an illegal agreement
among participants to the discussion was in fact reached. Accordingly, the following
guidelines apply to any meeting or other activity conducted under the auspices of TWIA:
•
Someone on the TWIA staff shall be present at all times during meetings of the
TWIA Board of Directors or other official activities such as meetings of various TWIA
committees unless such meetings are for the purpose of discussing personnel
matters;
•
At any such meetings or official activities, there shall be no discussion of voluntary
market rates, prices, discounts or other terms and conditions of sale without the
General Manager or the General Counsel being present;
•
There shall be no discussion of the areas in which TWIA Board members and their
respective member companies will compete for the products and services that they
will offer; and
•
There shall be no discussion of any agreement or understanding to boycott a third
party or to deal with a third party only on certain terms.
Texas Windstorm Insurance Association
5700 South MoPac Expressway, Building A, Austin, Texas 78749 ● P.O. Box 99090, Austin, Texas 78709-9090
512-899-4900 / Fax 512-899-4950
TWIA Anti-Trust Compliance Statement
Without the prior authorization of TWIA’s General Manager or its General Counsel,
there shall be no discussion of agreements to deal exclusively with certain parties,
requirements that purchasers of particular products or services must purchase other
products or services, standard-setting, certification, statistical reporting, or codes of
ethics and other self-regulatory activities.
•
Only TWIA staff shall keep minutes of TWIA meetings and will immediately terminate
any discussion that may violate these guidelines.
•
At TWIA meetings, TWIA company representatives should adhere to the written
agenda and outside of TWIA meetings should scrupulously avoid discussion of any
topic that might violate these guidelines.
Severe civil and criminal penalties, including fines and imprisonment, can result from
violations of the anti-trust laws. Whenever in doubt about how to apply these
guidelines, the directors, members, officers and guests of TWIA should consult its
General Manager and General Counsel and proceed in a conservative manner in order
to avoid any actual, or apparent, violation of antitrust guidelines.
Texas Windstorm Insurance Association
5700 South MoPac Expressway, Building A, Austin, Texas 78749 ● P.O. Box 99090, Austin, Texas 78709-9090
512-899-4900 / Fax 512-899-4950
2. Approve the Minutes
Minutes of the Texas Windstorm Insurance Association
Board of Directors Meeting
Omni Corpus Christi Hotel
Corpus Christi, Texas
December 9, 2014
1.
Call to Order: Chairman Neblett called the meeting to order at 8:00 a.m. Board members
were provided with a copy of the anti-trust statement and reminded of the prohibitions in
the anti-trust statement by counsel.
The following board members were present, representing:
The following Board members were present, representing:
1.
Georgia Neblett, Chairman
First Tier Coastal County Resident Member
2.
Cliff Craig, Vice Chairman
Non-Seacoast Territory Representative Member
3.
Michael Gerik, Secretary-Treasurer
Insurance Industry Representative
4.
Ron Lawson
Insurance Industry Representative
5.
Mike O’Malley
Insurance Industry Representative
6.
Lyndell Haigood
Insurance Industry Representative
7.
David Franklin
Non-Voting Engineer Member
8.
Steve Elbert
First Tier Coastal County Resident Member
9.
Edward (E. Jay) Sherlock
First Tier Coastal County Resident Member
10.
Gene Seaman
First Tier Coastal County Resident Member
The following TWIA staff, counsel, and agents were present:
1.
John Polak, General Manager
TWIA
2.
Pete Gise, Chief Financial Officer
TWIA
3.
Jim Murphy, Chief Actuary
TWIA
4.
Dave Williams, VP Claims
TWIA
6.
David Durden, VP Legal
TWIA
7.
John Morrison, VP Underwriting
TWIA
8.
Amy Berg-Ferguson, Executive Assistant TWIA
9.
Mike Perkins, Association Counsel
Sneed, Vine & Perry, PC
The following were also present:
Anne O’Ryan
Dalton Smith
Clark Thomson
Verle Petri
Tom Tagliabue
Auto Club Enterprises
Bank of America/Merrill Lynch
Calhoun, Thomson + Matza
Chubb
City of Corpus Christi
Ginny Cross
Sandra Alvarez
Joseph Minor
Dick Myers
Glenda Myers
Joan Polak
Tad Delk
Jeff Legare
Pearl Mueller
Wally Goodman
Matilda Saenz
Sylvia Ramirez
Beverly Moore
Brant Chandler
Marianne Baker
Marilyn Hamilton
Lou Cusano
J.D. Lester
Camron Malik
Joel Matthies
Karen Meriwether
Tony Gonzalez
Erik Johnson
12/9/14
Corpus Christi Chamber of Commerce
Guest
Guest
Guest
Guest
Guest
Guy Carpenter
Guy Carpenter
ICT
IIAT
Rep. Herrero’s Office
Rep. Juan Hinojosa’s Office
Rep. J.M. Logan’s Office
Southwest Frontier Consulting
TDI
TDI
TWIA
TWIA
TWIA
TWIA
TWIA
UPC
Windstorm Specialties
2. Approval of Minutes: The minutes from the August 12, 2014 meeting in Galveston,
Texas were reviewed. Mr. O’Malley moved to approve the minutes. Mr. Lawson
seconded the motion. The motion was approved unanimously.
3. Public Comment: Public comment was received and comments were made by the
following individual:
Erik Johnson, Windstorm Specialties
4. Financial:
A. Report of the Secretary/Treasurer: Mr. Gerik reviewed the treasurer’s report. Mr.
Seaman moved to accept the treasurer’s report. Mr. Craig seconded the motion.
The motion passed unanimously.
B. Financial Statement Review by Staff: TWIA’s results as of September 30, 2014
show net income of $190M. Direct written premiums were $392M and the net
underwriting gain was $189M for the nine months ended September 2014. Year
to date September 2014 written premiums show an increase of 5% from
September 2013, primarily due to the 5% increase in rates for 2014. The increase
of $21M of direct earned premiums is a result of increased direct written
premiums in 2013 and 2014. The reduction in ceded reinsurance premium is the
result of the change made in 2013 whereby the entire cost of the 2013 reinsurance
contract was recognized over the six month period ending November 30, 2013. In
the first five months of 2013, 5/12 of the 2012 reinsurance contract was also
recognized.
2
12/9/14
Through September 30, 2014, net loss and loss adjustment expense incurred was
$8.8M, compared to $96.9 million as of September 30, 2013 due to favorable loss
experience so far this year. The ultimate losses and loss adjustment expenses for
Ike are $2.64B and $315M for Dolly as of September 30, 2014. These estimates
are unchanged from the previous quarter.
Operating expenses increased from $16.6M in 2013 to $20M in 2014. This is due
to planned increases in non-claims personnel expenses, surveys and inspections
and other expenses. The increase in commission expense and premium taxes is
attributable to the increase in direct written premiums. TWIA’s other income is
slightly less in 2014 than in 2013. The calculation of other income in 2014
includes $7.0 million of Class 1 Bond issuance expenses ($6.1M is for the bond
underwriters discount and expenses). In addition, 2014 also includes sales tax
recoveries of approximately $6.8M.
Mr. Gerik asked if growth is staying around 5%. Mr. Murphy said growth was a
little less than 4% for each of the last few years and staff has seen that growth
decline recently. Mr. Gerik asked if there were any indications as to why growth
was slowing down. Mr. Murphy said he thought one of the answers was the
voluntary market was no longer ceding risks to the wind pool. Mr. Gerik asked if
staff was seeing any growth demographics, i.e. closer to the water or the back end
of the county. Mr. Murphy said it didn’t appear to be concentrated on any one
area along the coast. TWIA doesn’t normally analyze growth this specifically,
but will bring this information to the February TWIA Board meeting.
C. State Sales Tax Refund Claim: Mr. Gise reminded the TWIA Board of Directors
that the Association had received a Texas Sales Tax exemption in August 2012
and the effective date for the exemption is April 2007. The Association has made
refund claims of prior sales taxes paid dating back to transactions occurring in
August 2008. Under Texas law, an organization has a four year statute of
limitations to make such refund claims with the Texas Comptroller’s office
(Comptroller). The potential of the refund claims is approximately $9.9M.
TWIA has received $2.1M in 2013 and $6.9M in 2014. These have been included
in the respective years’ income statement as miscellaneous income. At this time,
$0.9M has been approved and is at the processing center of the Comptroller’s
office. We expect to receive the final payment in December 2014 and this has
been included in the 2014 forecast.
D. IRS Refund Claim: Mr. Perkins reported that confidential legal advice would be
provided regarding this item during the closed session.
E. 2014 Storm Season Funding: Mr. Gise reported for the 2014 storm season, TWIA
was successful in various initiatives to secure overall funding of $3.85B and
doubled the liquidity available immediately after a storm. This equates to being
able to fund a 1 in 70 year probability storm event. Some of the initiatives
executed included placement of traditional reinsurance of $1.05B effective as of
June 2014, placement of $400M of reinsurance secured through the issuance of a
three year CAT Bond effective June of 2014 and issuance of $500M of Pre-Event
Class 1 bonds effective September 2014 by the Texas Public Finance Authority
(TFPA) on behalf of TWIA (10 years). For the 2015 storm season, some key
assumptions include no significant changes in the reinsurance market, exposure
3
12/9/14
growth and probable maximum loss growth would be 1%, $600 million would be
available from the CRTF and 2015 earnings, no significant changes in the
statutorily available funding, class 1 post event bonds would not be marketable
and thus would not be issued and class 2 and 3 post event bonds would be
marketable and issued.
The result of the above is available funding for the 2015 storm season of $4.6B,
which equates to being able to fund a 1 in 90 year probability storm event. TWIA
will also be looking to increase liquidity by working with TFPA and their legal
and financial advisors to develop ready to use documents for the issuance of Class
2 securities. It is desired to be able to reduce the issuance time from 180 days
after a storm event to 90 days. The work on such documents would commence in
late May/early June once the results of any funding changes from the Texas
Legislature are known.
Ms. Neblett commented that some reports are saying that if a storm came along,
TWIA’s reserves would be wiped out. That isn’t true. Not every property TWIA
insures would be destroyed and that fact is worth noting. Mr. O’Malley asked if
TWIA should go back to the market to do a bond issuance again. Mr. Polak said
the funding is much more stable. The Association has more predictability in the
funding structure than in the past. Mr. Gerik said the Association is reliant on
bond issuance. Staff was asked to examine additional options for reinsurance.
5. Internal Audit:
A. Review of TDI 2012 Examination Report: Ms. Meriwether reviewed the 2012
examination report. There were a few management letter comments which will
be addressed. Mr. O’Malley moved that each member of the TWIA Board of
Directors has reviewed the adopted Texas Department of Insurance examination
report regarding the association as of December 31, 2012 and the board hereby
accepts the report. Mr. Lawson seconded the motion. The motion passed
unanimously.
B. Internal Audit Activity & Status, Including Enterprise Risk Management: Ms.
Meriwether reviewed the activity and status document. Mr. Lawson moved that
the TWIA Board of Directors approves the enterprise risk management policy and
procedure included in the materials provided to the board and reviewed with the
board by the director of internal audit. Mr. Haigood seconded the motion. The
motion passed unanimously.
C. Review Internal Audit Plan for 2015: Ms. Meriwether reviewed the internal audit
plan for 2015. Mr. O’Malley asked if TDI has indicated an ORSA was required.
Mr. Polak said the indications were they don’t believe that applies to TWIA. Mr.
O’Malley moved that the TWIA Board of Directors approves the proposed
revisions to the internal audit plan for 2015 to add four optional projects to
replace projects in the plan that may not be required, as included in the materials
provided to the board and reviewed with the board by the director of internal
audit. Mr. Lawson seconded the motion. The motion passed unanimously.
4
12/9/14
6. Actuarial:
A. Reserve Adequacy: Mr. Murphy reported that TWIA actuarial staff has
completed a review of Texas Windstorm Insurance Association loss and loss
adjustment expense reserves as of September 30, 2014. The analysis indicates a
slight increase in both 2014 and prior years due to a change in the methodology
for projecting unallocated loss adjustment expenses. The increase in the ultimate
estimate for 2014 is also the result of the addition of the current quarter’s
experience. Overall claims experience has been very favorable compared to
budgeted amounts through the third quarter of 2014. The ultimate estimates for
Hurricane Dolly and Ike remain at $315M and $2.64B, respectively. It is likely
that both estimates will change as of 12/31/14 to account for recent lawsuit
settlements. TWIA continues to monitor new and existing litigation activity,
including recent settlements, to ensure all outstanding obligations are properly
reserved. As of 9/30/14, the Association held approximately $96M in reserves
for Hurricane Dolly and Ike claims, with 49 claims with lawsuits still pending.
Estimation of ultimate liabilities for these claims is unusually difficult and is
subject to significantly greater than normal variation and uncertainty. Mr.
Murphy said it was his opinion that the Association’s reserves met the
requirements of the insurance laws of Texas, were consistent with reserves
computed in accordance with accepted actuarial standards and principles and
made a reasonable provision for all combined unpaid loss and loss expense
obligations of the Association under the terms of its contracts and agreements.
While there remains a material risk of adverse development, reserves continue to
make a reasonable provision for unpaid loss and loss adjustment expenses. Mr.
Gerik asked if the reserves needed to be discussed publicly. Mr. Perkins said that
generally the association’s financial statement information is public information.
Mr. Murphy will work with Mr. Perkins to make sure the TWIA Board gets the
information on reserve adequacy the board needs going forward.
B. Policy Count/Exposures: Overall policy growth year over year through
September 30, 2014 is 1.96%. Premium growth is a little over 4%.
C. Annual Rate Filing: Mr. Murphy reminded the TWIA Board of Directors it
voted at its August meeting to file with the Texas Department of Insurance a 5%
increase in both its residential and commercial rates, pursuant to Section 2210.352
(a-1) of the Texas Insurance Code. This filing was made August 14, 2014 and
will become effective January 1, 2015.
D. Statutory Limits of Liability: Mr. Murphy also reminded the TWIA Board of
Directors it voted at its August meeting to file with the Texas Department of
Insurance an increase to its maximum limits of liability for 2015 in accordance
with statutory requirements. This filing was made September 17, 2014 and a
hearing was held November 5, 2014. For dwellings and individually owned
townhouses, the current limit is $1,733,000 and the proposed limit is $1,853,000.
For contents of an apartment, condominium or townhouse, the current limit is
$374,000 and the proposed limit is $390,000. For commercial and governmental
structures and associated contents, the current limit is $4,424,000 and the
proposed limit is $4,606,000. On November 14, 2014 the Commissioner of
Insurance issued an order disapproving the filing and, as a result, 2015 maximum
limits will remain the same as 2014 limits. The Commissioner’s order referenced
5
12/9/14
cumulative changes in TWIA maximum limits since 2005 compared to
cumulative increases in construction costs over that same time period in its
findings.
E. Reinsurance Options: Mr. Murphy reported that TWIA’s reinsurance contract
expires May 31, 2015. The current reinsurance program provides for $1.45B in
coverage above $1.9B retention, as shown previously, and includes a catastrophe
bond in the amount of $400M. The 2014 catastrophe bond has a variable reset
feature that allows TWIA to adjust the retention and exhaustion points of the bond
each year prior to March 31. With the recent issuance of $500M in pre-event
Class 1 bonds and an expected contribution to the CRTF of over $200M, TWIA
has the opportunity to increase its retention up to $700M in 2015, from $1.9B to
$2.6B. This would allow TWIA to purchase considerably more reinsurance,
approaching its 100-year PML. In prior years, the TWIA Board has directed staff
to purchase as much reinsurance as possible within a given budget and above a
given retention. In order to begin preparations for the re-set of the 2014
catastrophe bond and planning for the 2015 reinsurance program, staff requests
direction from the TWIA Board on the preliminary strategy for 2015, and
specifically proposed an initial assumption of a $2.6B retention and a gross
premium of no more than $117M, consistent with the proposed TWIA 2015
budget.
As a direct result of the cost savings achieved with the issuance of the 2014
catastrophe bond, TWIA was able to purchase an additional $100M of reinsurance
within its approved budget. Given the potential continued cost savings, staff also
requests approval from the TWIA Board to begin preliminary work on an
additional catastrophe bond issuance for 2015 as part of the overall reinsurance
program. In the coming months, staff will work with Guy Carpenter to monitor
the reinsurance and alternative capital markets, model its exposures and prepare a
proposed reinsurance structure for 2015, with the possible inclusion of an
additional catastrophe bond, for final TWIA Board approval. Mr. Murphy will
present the options in February.
7. Underwriting:
A. Policies with Outstanding WPI-8’s from Ike and Dolly: Mr. Morrison reported
that TWIA is currently tracking 2,223 policies with outstanding requests for
Certificates of Compliance (Form WPI-8). Sixty days prior to renewal, a
notification is provided to the policyholder’s agent. This information will be
updated and reported at subsequent board meetings until all 2014 renewals have
been processed.
B. SB1702 Implementation Status: Senate bill 1702, enacted by the 83rd Texas
legislature, became law in June of 2013, repealing the Alternative Certification
provision (WPI-12’s). SB 1702 also states an applicant who has been nonrenewed or cancelled by their private market insurer on or after June 19, 2009 and
is missing one or more Certificate(s) of Compliance (Form WPI-8) from that time
period, may be eligible for coverage through TWIA. The applicant will pay
premium for basic coverage based on 110% of the rate charged in the voluntary
market for wind and hail. To facilitate the implementation of SB 1702, TWIA
bound coverage for applicants who met the criteria described in the prior
6
12/9/14
paragraph at the regular TWIA rates in effect. TWIA Underwriting consolidated
all eligible policies to one staff underwriter to calculate the appropriate premium
for each coverage period once the voluntary market rate information became
available.
At present, six policies have met the requirements for SB 1702 eligibility. TWIA
staff members are evaluating the eligibility of a seventh application. Following
the receipt of the voluntary market rate information from the Texas Department of
Insurance on July 1st, 2014 we finalized the premium calculation process and
reviewed the key points with the Texas Department of Insurance staff. Premium
calculations on five SB 1702 eligible policies have been completed and the
impacted policyholders and their agents have been notified. The sixth policy
requires additional information from the private market carrier to complete the
calculation. TWIA staff members are working with TDI to obtain the necessary
information.
SB 1702 provides that all exceptions outlined above terminate after December 31,
2015. Beginning January 1, 2016, to be eligible for coverage through TWIA, all
structures must have certificates of compliance (WPI-8’s) for construction
occurring on or after January 1, 1988, to certify they comply with the TWIA
windstorm building code in effect on the date the structure was built, added to,
remodeled, altered or enlarged.
C. Customer Care Surveys: Mr. Morrison reviewed the customer care survey results.
As of October 2014, 265 agent surveys were received and 36 policyholder
surveys were returned. Mr. Polak commented that Mr. Morrison deserved credit
for clearing out the backlog of policy renewals in record time due to better
business practices in his department. The underwriting team is working with the
Agent Advisory Committee to keep them in the loop about the results.
D. Agent Audit Program: Mr. Morrison reminded the TWIA Board of the genesis of
the agent audit program. On September 8, TWIA introduced the proposed agent
audit procedure to Texas Department of Insurance (TDI) personnel to seek their
feedback before moving forward with the audit program. On September 30,
TWIA provided the Independent Insurance Agents of Texas (IIAT) a copy of the
proposed agent audit procedure for their review and feedback. On October 6,
TWIA provided the Agent Advisory Group (AAG) a copy of the proposed agent
audit procedure for their review and feedback. On October 14, TWIA issued a
bulletin to all registered agents advising them a TWIA representative would be
contacting a few randomly selected agents for a review of a small number of their
policies.
TWIA’s Agent Auditor began contacting ten randomly selected agents for a
review of ten randomly selected policies within their agencies. Over the
following four weeks, the auditor reviewed the status of the insurance license for
each of the ten agents and requested proof of declination of coverage and flood
insurance, when appropriate, to test their compliance with the law. TWIA
provided a survey to members of the AAG to get their feedback on the program.
Based on the audit experience and using feedback from members of the AAG,
7
12/9/14
edits to the audit program will be evaluated in early December and the revised
procedures will be communicated to the stakeholders office’s.
E. Risk Visualization Program: Mr. Morrison reported that as of November 17,
2014, TWIA has ordered 43,660 Risk Management reports. Initially, TWIA
reviewed the reports against new business applications prior to policy issuance,
comparing the information received from EagleView against the submitted
application, the Marshall & Swift/Boeckh (MSB) replacement cost calculations,
and any associated physical property inspections and other data sources. As
seasonal volume peaked over July and August, the additional task of reviewing
the Risk Management reports created significant delays in new business
application processing. To improve the processing times, Underwriting moved
the review of the risk management reports to a post issuance review beginning in
September. The most common issue found remains a difference in the square
footage of the primary structure. Initially, variances between the figures provided
with the application and the risk visualization program data were accepted up to
10%. Following feedback from the agent community, the threshold has been
increased to 25%. We continue to provide notification to agents of discrepancies,
but only require a response in excess of 25%.
We are beginning to see increases in the insurance coverage amounts following
notification to the agents; however, the increases do not offset the increases in the
estimated replacement cost. Other common issues identified are differences in the
age of the structure, unrepaired damages, missing or incorrect identification of
multiple structures on a single property and identification of structures requiring
Windstorm Inspection Certificates (WPI-8’s). The number of physical
inspections ordered continues to decline since the introduction of EagleView in
late May. The percentage of physical inspections resulting in significant finding
is also increasing.
F. Insurance-to-Value Plan: Mr. Polak said one of the results of the EagleView
review was to bring the board information and a recommendation on Insuranceto-Value (ITV). Mr. Morrison recommended taking a measured approach on this
question. It appears no legislative action is required to permit updating of the
major components of TWIA’s ITV program. Recommendations to address gaps
identified through this review can be implemented through modification of
TWIA’s plan of operation, underwriting guidelines, underwriting procedures and
policy forms and endorsements. If any legislative opportunities are identified
during this comprehensive ITV review, each will be reported to the Legislative
and External Affairs Committee for consideration. The ITV review will
necessarily be completed in stages over the entirety of 2015, due to significant
commitments already underway in TWIA Underwriting, including the continued
development, deployment and support for Policy Center. The proposed goals for
the program review are to establish an appropriate ITV target for TWIA policies
and to reduce the variance of the ITV ratios between individual properties.
Replacement cost components will be addressed by the recently established senior
underwriting manager responsible for agent and vendor services, in coordination
with the senior manager for data management and reporting. Insurance coverage
components will be addressed by the senior manager for policy services. Both
groups will work with our chief actuary to analyze the contribution of each
8
12/9/14
component and the impact of any recommended changes. Mr. Gerik requested
when Mr. Murphy does rate indications, that he also factor in rate increases and
ITV. After discussion, Mr. O’Malley moved that Mr. Morrison move forward
with the ITV project and recommend solutions to the Actuarial and Underwriting
Committee by June 30. The committee will determine if a recommendation needs
to be made to the board regarding the project. Mr. Gerik seconded the motion.
The motion passed unanimously.
8. Claims:
A. Claims Operations: Mr. Williams reported claim volume is very low at this
time. New claim volume was down 55% and 49% lower than third quarter of
2013. Projected new claim volume for the quarter was 1,699. Year to date, new
claim volume is 76% lower than projected.
B. Claims Litigation: Mr. Durden said a handful of new suits came in during the last
quarter. Three quarters of the existing suits are pre-HB3 and a quarter is post
HB3. The City of Galveston and Brownsville suits were settled and staff is
working through the others. Trials are set for early next year, one of which is City
of Dickinson. The Galveston cases are scheduled through June of 2015. Most of
the cases are coming from the Mostyn law firm. Mr. Gerik asked about the
number of suits regarding municipalities. Mr. Durden will include the
municipality suits in the next TWIA Board report.
9. TWIA Operations:
A. Operations/Management: Mr. Polak reviewed the TWIA key accomplishments
document. TWIA is an evolving organization. The Association has a positive
cash surplus and is in the best financial situation in recent memory. The deficit
was eliminated much earlier than expected and pre-event Class 1 public securities
have been issued. TWIA has maximized the financing tools available to the
Association by the legislature. This is the fourth consecutive year the finances
have come in under budget and TWIA remains the third lowest administrative
cost plan in the U.S. Mr. Polak also reviewed the Policy Center project.
B. Gamboa Suit: Mr. Durden reported the court granted TWIA’s plea to the
jurisdiction. The order was signed November 21. The plaintiffs have 30 days to
respond.
C. Receive and Act on Recommendations from Legislative/External Affairs
Committee Regarding Recommendations to Legislature and Biennial Report to
Legislature: Mr. O’Malley took the TWIA Board through the key aspects of the
2015 legislative recommendations document. He noted the committee met three
times since the August board meeting, the board was well represented on the
committee as well as coastal representatives. Recommendation number 7 on the
list was “Require TDI to regularly report to the Legislature the progress of TWIA
towards meeting the criteria for removing them from administrative oversight.”
Mr. Gerik didn’t like the use of the word “require.” He thought the word could be
softened. Mr. Gerik thought this item should be struck from the list. Mr.
Haigood agreed. Mr. O’Malley moved to strike item 7 from the recommendation
list. Mr. Lawson seconded the motion. The motion passed unanimously. Mr.
Gerik asked for clarification if this meant that a conversation should occur with
the commissioner regarding oversight. Mr. Polak said he has discussed the issue
9
12/9/14
with the TDI Commissioner and she acknowledged that the Association has
addressed all the issues that brought the organization under oversight. However,
she has shown reluctance to release TWIA from oversight. If discussions could
facilitate her decision, that would be an opportunity. Mr. Gerik said with the
legislative session and then storm season coming up shortly, he would like that
conversation to take place soon. Mr. Haigood moved that representatives of the
TWIA Board should visit with the commissioner to determine the steps to be
released from oversight. Mr. Lawson seconded the motion. Mr. Perkins pointed
out that meetings of the TWIA board are subject to the Open Meetings Act and
suggested that the motion could be carried out if Ms. Neblett were to meet with
Commissioner on behalf of the board The motion carried unanimously.
Mr. O’Malley reviewed item 8A on the proposed list, “Authorize TWIA to
develop and adopt a depopulation program, subject to approval by the
commissioner that permits the removal of policies from TWIA by private insurers
through any combination of assumption reinsurance and/or offers of insurance
made to TWIA policyholders at policy expiration. Adopt statutory language that
makes it clear that all legal and contractual obligations under policies taken out of
TWIA, whether by assumption reinsurance or at policy expiration, are obligations
of the insurer assuming or taking the policy out of TWIA as of the effective date
of the assumption, take-out or removal of the policy, even if TWIA continues to
provide some services to the policy until it is renewed on the take-out insurer's
policy.” He also addressed item 8B, “Require insureds, as part of a TWIA
depopulation plan, to accept any voluntary market coverage offer, provided that a
surplus lines carrier must have at least a minimum A7 rating from A.M. Best, and
the offer includes comparable coverage and a premium within statutorily set
parameters (e.g., no more than a certain percentage higher than the comparable
TWIA premium).” After discussion, Ms. Neblett asked for a motion to handle
items 8A and 8B separately. Mr. O’Malley asked for the TWIA Board to move
on items to remove and then vote to ratify the rest of the recommendations. Ms.
Neblett amended her motion to remove 8B. Mr. Craig seconded the motion. A
roll call vote took place:
Cliff Craig: No
Mike Gerik: No
Steve Elbert: Yes
Lyndell Haigood: No
Ron Lawson: No
Michael O’Malley: No
Gene Seaman: No
Edward Sherlock: No
Georgia Neblett: Yes
The motion did not pass. Mr. O’Malley moved to amend the motion to reflect
that the consumer isn’t forced to accept the voluntary offer, but if an offer is
received by the insured and meets set parameters, the consumer isn’t eligible for
coverage under TWIA. Mr. Craig seconded the motion.
10
12/9/14
Cliff Craig: Yes
Mike Gerik: Yes
Steve Elbert: Yes
Lyndell Haigood: Yes
Ron Lawson: Yes
Michael O’Malley: Yes
Gene Seaman: Yes
Edward Sherlock: Yes
Georgia Neblett: No
The motion passed.
Mr. O’Malley reviewed item 10 on the list, “Extend the current WPI-8 waiver
program for residential property with an insurance replacement cost value of less
than $400,000 through December 31, 2017 in order to give homeowners
additional time to make any required improvements.” Mr. Gerik asked what the
reason for going to $400,000 was. Mr. Murphy said $400,000 would cover 90%
of the policyholders. Mr. Seaman moved to change the recommendation from
$400,000 to $200,000. Mr. Lawson seconded the motion. The motion passed.
Mr. O’Malley reviewed item 11 on the list, “Consider requiring WPI-8 in all
circumstances of new construction, reconstruction or repair consistent with
existing WPI-8 inspection requirements for properties located within the 14
coastal counties and other TWIA eligible coverage areas.” Mr. O’Malley said he
thought a word was missing, “structural” should be added in front of
reconstruction and repair. The TWIA Board agreed the revised statement should
read, “Consider requiring WPI-8 in all circumstances of new construction,
structural reconstruction or structural repair consistent with existing WPI-8
inspection requirements for properties located within the 14 coastal counties and
other TWIA eligible coverage areas.”
Mr. O’Malley reviewed four items from the 2012 report that were excluded from
the 2014 report. After discussion of the items, Mr. Gerik requested that staff
work on the rate at which premium is earned during the hurricane storm season.
Mr. O’Malley reviewed the actions by the board. Item 7 was stricken from the
list and items 8B, 10 and 11 were amended. Mr. O’Malley moved to accept the
biennial report, with the changes discussed by the TWIA Board incorporated into
the final document. Mr. Lawson seconded the motion. Mr. Gerik asked Mr.
Durden if he thought of anything else needed to be included in the report. Mr.
Durden said he couldn’t identify any other items to add to the report. The
motion passed unanimously. Mr. O’Malley thanked TWIA staff and the
Legislative and External Affairs Committee for their hard work.
D. Receive and Act on Recommendations from Actuarial and Underwriting
Committee on Insurance-to-Value and Other Underwriting Matters: This item
was discussed during the underwriting portion of the meeting.
11
E.
F.
G.
H.
I.
J.
12/9/14
TWIA Expert Panel Update: Mr. Williams reported the panel is going to conduct
a peer review and determine if it is a valid model. TWIA is working TDI to
evaluate the model that was in place when Hurricane Ike came ashore. TWIA
met with legal counsel, claims management and defense counsel on how to
operationalize this process. Hopefully, there will be a recommendation by July
for a model to put into effect for the next storm season.
Clearinghouse and Takeout Plans: Mr. Murphy said the portal is live and
allowing access. He will provide an update at the next TWIA Board meeting.
Just over 20,000 policyholders opted out of the program.
Plan of Operation: Mr. Durden reported the first phase of the plan of operation
rewrite is completed, which incorporated statute changes. They are analyzing the
statute to determine what needs to be in the plan. In the next phase, they will go
into more depth about underwriting rules and make changes that are based on
what should be in the plan. The next phase will likely take place after the
legislative session.
IT: Mr. Polak said one of the major expense items for 2015 is changing the
association’s legacy policy administration system to Guidewire’s Policy Center.
Policy Center was put aside after Ike but it is being picked up for implementation
again. Mr. Polak reviewed how the IT organization operates at TWIA. He
explained that staff had concluded that Guidewire was the best vendor to contract
with after diligent review of the finalists for TWIA’s replacement of the legacy
claim system. The Guidewire Claim Center system had all the capabilities the
organization needed right out of the box. He then reviewed the cost/benefit
analysis of the system. In discussion with the FAIR Plan Board, the benefits can
cross over both organizations. Mr. Gerik moved to approve purchasing the claims
system. Mr. Haigood seconded the motion. The motion passed unanimously.
Employee Compensation: Mr. Polak reviewed the budget for compensation in
2015.
Review/Approval of 2015 Budget: Mr. Gise reported that TWIA is projected to
show net income in 2014 of $226M, which is above the 2014 budgeted net
income of $168M. The primary driver of the higher net income of $57M is the
favorable weather in 2014. TWIA is projecting a contribution to the CRTF of
$227M to be paid in May 2015 after the audited financial statements are available.
TWIA is projecting a net income of $149M in the 2015 budget. The change from
2014 is a result of a higher loss ratio expected in 2015. Mr. Gise noted that 2014
was an unusually positive year with respect to favorable weather. In addition,
2015 includes a full year of interest costs associated with the Class 1 Bonds issued
in September 2014. Gross expenses are projected to be flat year over year, while
underwriting operating expenses are projected to grow primarily as a result of
continued investments in information technology projects and continued
development of new departments during 2015. The direct expense ratio is
projected to be 6.0% in 2014, up slightly from the 2014 ratio of 5.6%. After
discussion, Mr. O’Malley moved that the TWIA Board of Directors adopts the
2015 budget of the Association as set forth in the materials provided to the board
and reviewed with the board by staff. Mr. Craig seconded the motion. The
motion passed unanimously.
12
12/9/14
10. Evaluation of General Manager Performance, Compensation & Benefits: This item
will be covered in closed session.
11. Closed Session: The meeting went into closed session at 12:09 p.m. The meeting
returned to open session at 2:19 pm.
12. Consideration of issues related to matters deliberated in closed session that may
require action, if any, of the Board of Directors: Mr. O’Malley moved that the Board
authorize the chair and her designees to work with the TDI Commissioner to
determine the TWIA General Manager’s compensation for 2015 within the guidelines
discussed during the executive session. Mr. Lawson seconded the motion. The
motion carried unanimously. Mr. Lawson moved that General Manager and
Association staff are authorized and directed to take all actions and execute all
documents they deem necessary and reasonable to resolve the outstanding refund
claim for federal income taxes paid on terms set forth in the notice of proposed
adjustment prepared by the IRS and presented by staff with any adjustments that may
be required to correct any errors and to otherwise ensure the appropriate refund
amount is ultimately obtained. Mr. Sherlock seconded the motion. The motion
passed unanimously.
13. Committees: There was nothing further to report.
14. Future meetings:
• February 3, 2015 – Radisson Austin Downtown
• May 2015 – TBD
15. Adjourn: The meeting adjourned at 2:22 p.m.
____________________________
Prepared by: Amy Berg-Ferguson
Executive Assistant
_________________________
Approved by: Georgia Neblett
TWIA Chairman
_________________________
Approved by: Cliff Craig
TWIA Vice Chairman
13
4. Financial
4A. Report of the Secretary/Treasurer
4A1. Income Statement
TEXAS WINDSTORM INSURANCE ASSOCIATION
Statutory Income Statement
for the twelve months ended December 31,
(000's omitted)
2013
2014
$
472,739
$
456,630
(161,499)
295,130
Premiums Earned:
Direct Premiums Earned
Ceded Reinsurance Premiums
Net Premiums Earned
$
494,036
$
484,049
(116,493)
367,555
100,975
(70,000)
(27,000)
24,138
75,609
(8,523)
9,300
104,499
Deductions:
Direct Losses and LAE Incurred
Direct Losses and LAE Incurred - Ike & Dolly
Ceded Losses and LAE Incurred
Operating Expenses
Commission Expense
Ceding commissions / brokerage
Premium / Maintenance Tax
Total Deductions
9,703
(20,000)
0
26,731
79,014
(5,962)
9,600
99,085
190,631
Net Underwriting Gain or (Loss)
268,471
1,077
0
(147)
2,177
3,106
193,737
0
$
Direct Premiums Written
193,737
$ (182,979)
193,737
11,018
71
984
(22,830)
$
-
Other Income or (Expense):
Gross Investment Income
Interest Expense on Debt
Debt Issuance & Other Investment Expenses
Sales Tax Refund and Other Income (Expense)
Total Other Income or (Expense)
1,074
(9,779)
(7,136)
7,904
(7,937)
260,534
Net Income Before Income Taxes
Federal Income Tax Expense (Benefit)
Net Income (Loss)
Surplus (Deficit) Account:
Beginning Surplus (Deficit)
Net Income (Loss)
Change in Provision for Reinsurance
Change in nonadmitted assets - Income Tax Rec
Change in nonadmitted assets - Other
Other
Statutory Fund Cost
Ending Surplus (Deficit)
4 A 1. Income Statement
6,939
$
$
253,595
253,595
0
6,939
1,152
(1,400)
(260,286)
$
-
4A2. Management Discussion and Analysis
Texas Windstorm Insurance Association
Management Discussion and Analysis
December 31, 2014
TWIA’s results as of December 31, 2014 show net income of $253 million. Direct
Written premiums were $494 million and the net underwriting gain was $268 million for
the twelve months ended December 2014.
The 2014 current year earnings to be contributed to the CRTF in 2015 are $260 million.
This is approximately $90 million higher than planned and $33 million higher than
previously forecasted and communicated to the Board in December 2014. The
improvement from the forecasted results was due to favorable weather during the fourth
quarter of 2014 and a reduction in the Ike estimate.
Written Premium: Year to date December 2014 written premiums show an increase of
5% from December 2013, primarily due to the 5% increase in rates for 2014.
Direct Premiums Earned: The increase of $27 million of Direct Earned Premiums is a
result of increased Direct Written Premiums in 2013 and 2014. The reduction in Ceded
Reinsurance Premium is due to the change made in 2013 whereby the 2013 Reinsurance
Contract is recognized over the 6 month period ending November 30th. In the first 5
months of 2013, the 5/12 of the 2012 Reinsurance Contract was recognized.
Loss and Loss Adjustment Expense Incurred: Through December 31, 2014 net loss and
loss adjustment expense incurred was negative $10 million, compared to $3.9 million as
of December 31, 2013 due to favorable loss experience this year and a reduction in the
Ike Ultimate.
The ultimate losses and loss adjustment expenses for Ike are $2.61 billion and $325
million for Dolly as of December 2014.
Operating Expenses: Operating expenses increased from $24.1 million in 2013 to $26.7
million in 2014. This is due to planned increases in non-claims personnel expenses,
surveys and inspections and other expenses.
Commission Expense and Premium Taxes: Increase is attributable to the increase in
Direct Written Premiums.
Other Income (Expense): TWIA’s other income is less in 2014 than in 2013. 2014
includes $7.1 million of Class 1 Bond issuance expenses ($6.1 million is for the bond
underwriters discount and expenses) and $9.7 million of related interest expense on that
debt. 2014 also includes sales tax recoveries of approximately $7.9 million.
4 A2. Management Discussion and Analysis
Texas Windstorm Insurance Association
Management Discussion and Analysis (Continued)
December 31, 2014
Federal Income Tax Expense
TWIA has worked closely with the Internal Revenue Service (IRS) during 2014 on
refund claims pertaining to tax year 2009. TWIA had recorded a $60 million income tax
receivable. This asset though was non-admitted under Statutory Accounting rules which
had the cumulative effect of a $60 million direct reduction to surplus since 2009.
Based on a preliminary agreement with the IRS, TWIA has reduced the income tax
receivable from $60 million to $53 million. TWIA has also reduced the corresponding
non-admitted asset from $60 million to $53 million. The impacts of those adjustments
are included as a $7 million tax expense with a corresponding $7 million benefit from the
reduction in non-admitted assets.
The adjustments made did not impact TWIA’s surplus. However, when the $53 million
refund is received, this will improve TWIA’s surplus at that time.
4 A2. Management Discussion and Analysis
4B. Financial Statement Review by Staff
4B1. Income Statement and Expense Statement
TEXAS WINDSTORM INSURANCE ASSOCIATION
Statutory Income Statement (000's omitted)
for the twelve months ended December 31,
Actuals - 2014
Premiums Written:
Direct
Ceded
Net
Premiums Earned:
Direct
Ceded
Net
Budget - 2014
Variance - 2014
Actuals - 2013
$
494,036 $
(116,493)
377,543
500,555 $
(113,933)
386,622
(6,519)
(2,560)
(9,079)
$
472,739
(116,331)
356,409
$
484,049 $
(116,493)
367,555
487,456 $
(113,933)
373,523
(3,407)
(2,560)
(5,968)
$
456,630
(161,499)
295,130
Deductions:
Direct Losses and LAE Incurred
Direct Losses and LAE Incurred - Ike & Dolly
Ceded Losses and LAE Incurred
Operating Expenses
Commission Expense
Ceding commissions / brokerage
Premium / Maintenance Tax
Total Deductions
9,703
(20,000)
0
26,731
79,014
(5,962)
9,600
99,085
82,926
0
0
26,987
80,089
(8,614)
9,712
191,099
(73,223)
(20,000)
0
(256)
(1,075)
2,652
(112)
(92,015)
100,975
(70,000)
(27,000)
24,138
75,609
(8,523)
9,300
104,499
Net Underwriting Gain or (Loss)
268,471
182,424
86,047
190,631
1,536
(14,016)
(1,700)
0
(14,180)
(462)
4,237
(5,436)
7,904
6,243
260,534
168,244
92,290
193,737
6,939
0
6,939
0
Other Income or (Expense):
Gross Investment Income
Interest Expense on Debt
Debt Issuance & Other Investment Expenses
Sales Tax Refund and Other Income (Expense)
Total Other Income or (Expense)
1,074
(9,779)
(7,136)
7,904
(7,937)
Net Income Before Income Taxes
Federal Income Tax Expense (Benefit)
Net Income (Loss)
Surplus (Deficit) Account:
Beginning Surplus (Deficit)
Net Income (Loss)
Change in Provision for Reinsurance
Change in nonadmitted assets - Income Tax Rec
Change in nonadmitted assets - Other
Other
Statutory Fund Cost
Ending Surplus (Deficit)
$
$
253,595
$
168,244
$
85,351
0
253,595
0
6,939
1,152
(1,400)
(260,286)
- $
0
168,244
0
0
1,395
0
(169,639)
- $
0
85,351
0
6,939
(244)
(1,400)
(90,646)
-
1,077
0
(147)
2,177
3,106
$
193,737
$
(182,979)
193,737
11,018
0
71
984
(22,830)
-
Key Operating Ratios:
Direct:
Loss & LAE Ratio
UW Expense Ratio:
Acquisition
Non Acquisition
UW Expense Ratio
-2.1%
17.0%
-19.1%
6.8%
17.9%
5.5%
23.4%
17.9%
5.5%
23.5%
0.0%
0.0%
0.0%
18.0%
5.3%
23.2%
Combined Ratio
21.3%
40.5%
-19.2%
30.0%
Net:
Loss & LAE Ratio
UW Expense Ratio:
Acquisition
Non Acquisition
UW Expense Ratio
-2.8%
22.2%
-25.0%
1.3%
21.9%
7.3%
29.2%
21.1%
7.2%
28.3%
0.8%
0.0%
0.9%
23.8%
8.2%
32.0%
Combined Ratio
26.4%
50.5%
-24.1%
33.4%
4 B1a. Income Statement
TEXAS WINDSTORM INSURANCE ASSOCIATION
Statutory Expense Report (000's omitted)
for the twelve months ended December 31,
Description
Actuals - 2014
Budget - 2014
Variance - 2014
Actuals - 2013
10,208
3,920
786
3,317
116
18,347
11,636
2,563
993
3,551
169
18,912
(1,428)
1,357
(207)
(234)
(53)
(565)
9,843
6,024
809
4,388
181
21,244
Professional & Consulting Services
Legal
Accounting & Auditing
Information Technology
Actuarial Services
Omsbudsman Program
Surveys & Inspections
Disaster Recovery Services
Other Services
Subtotal
3,056
235
1,720
10
100
1,668
237
1,197
8,224
3,379
108
1,472
45
90
1,750
234
904
7,982
(323)
127
248
(35)
10
(82)
4
293
242
3,723
213
1,350
85
81
637
224
3,030
9,343
Hardware/Software Purchases & Licensing
Hardware
Software Purchases & Licensing
Subtotal
676
2,371
3,046
997
2,401
3,398
(322)
(30)
(351)
989
2,549
3,538
Rental & Maintenance - Office/Equipment
Travel Expenses
Postage, Telephone and Express
1,165
282
1,239
1,340
270
1,151
(175)
13
88
1,177
155
1,014
Capital Management Expenses
Line of Credit Fees
Bond Issuance
Subtotal
0
7,136
7,136
0
1,700
1,700
0
5,436
5,436
824
902
1,931
1,125
(1,107)
(223)
914
1,179
Total Operating Expenses
41,165
37,809
3,356
38,708
Capitalization of Fixed Assets
Allocation To ULAE
Allocation To Investing & Other Expense
Net Operating Expense - UW Operations
0
(7,299)
(7,136)
26,731
(536)
(8,587)
(1,700)
26,987
536
1,288
(5,436)
(256)
(766)
(13,657)
(147)
24,138
Personnel Expenses
Salaries & Wages - Permanent
Contractor & Temporary Help
Payroll Taxes
Employee Benefits
Recruiting, Training & Other
Subtotal
Depreciation
Other Operating Expenses
4 B1b. Expense Statement
0
143
143
4B2. Balance Sheet
TEXAS WINDSTORM INSURANCE ASSOCIATION
Statutory Balance Sheet (000's omitted)
December-14
Admitted Assets
Cash and short term investments:
Unrestricted
Restricted - Funds Held at TTSTC
Total cash and short term investments
Premiums receivable & other
Amounts recoverable from reinsurers
Total admitted assets
$
$
Liabilities, Surplus and other funds
Liabilities:
Loss and Loss adjustment expenses
Underwriting expenses payable
Unearned premiums, net of ceded unearned premiums
Ceded reinsurance premiums payable
Principal Outstanding on Class 1 Pre Event Bonds
Interest Payable on Class 1 Pre Event Bonds
Provision for reinsurance
Other payables
Statutory fund payable
Total liabilities
$
December-13
641,550
503,773
1,145,323
1,126
1,146,449
$
75,006
10,485
244,726
27,377
500,000
9,779
18,791
260,286
1,146,449
$
$
439,193
0
439,193
1,039
440,231
132,959
10,366
234,739
24,745
14,592
22,830
440,231
Surplus and others funds
Unassigned surplus
Total liabilities, surplus and other funds
$
1,146,449
$
440,231
Balance in CRTF
$
216,813
$
186,183
Balance in CRTF including Statutory fund payable
$
477,099
$
209,014
4 B2. Balance Sheet
4B3. Cash & Short Term Investments
Texas Windstorm Insurance Association
Unrestricted Cash and Short Term Investments ($ in 000's)
December 31, 2014
Bank
Total Amount of
Deposits
Blended Rate of
Investments
% of
TWIA's
Portfolio
< 40%
N.A. Bank Credit
Rating
Superior or Strong
Tier 1 Capital
Ratio
> 10%
N.A. Regulatory
Capital
> $25B
Are funds in excess of the N.A.
Regulatory Capital?
> .2% of N.A. Reg Capital
Superior
Strong
Superior
Superior
13.4%
10.7%
11.6%
12.6%
$188
$164
$232
$283
No
No
No
No
Balances as of 12/31/14:
Bank of America
Citibank
JP Morgan Chase
Wells Fargo
239,879
201,483
100,106
100,083
0.16%
0.18%
0.17%
0.15%
37%
31%
16%
16%
Total of all financial institutions
641,550
0.17%
100%
Balances as of 12/31/13:
Bank of America
Citibank
JP Morgan Chase
Wells Fargo
183,189
201,031
54,973
-
0.21%
0.32%
0.17%
0.00%
42%
46%
13%
0%
Total of all financial institutions
439,193
0.25%
100%
Bank credit rating, Tier 1 Capital Ratios and Regulatory Capital were reviewed with the latest financial information available as of December 31st at the holding company level.
Rates, ratios and regulatory capital are comparable and consistent with year end National Association (N.A.) results. Please be advised that N.A. data for 12/31/14 is not yet available
for Regulatory Capital but is available for the other financial measures indicated.
4 B.3 Cash Short Term Investments
4B4. Cash Flow Statement
TEXAS WINDSTORM INSURANCE ASSOCIATION
Statement of Cash Flows (000's omitted)
for the twelve months ended December 31,
Actuals - 2014
Cash flows from operating activities:
Premiums collected, net of reinsurance
Losses and loss adjustment expense paid
Underwriting expenses paid
Other
Net cash provided by operating activities
Cash flows from nonoperating activities:
Statutory fund paid
Other
Net cash provided by nonoperating activities
Cash flows from investing activities:
Sales and maturities of investments
Net investment income
Net cash provided by investing activities
Cash flows from financing activities:
Borrowed funds
Borrowed funds repaid
Net cash provided by financing activities
$
Budget - 2014
382,515 $
(47,656)
(108,092)
7,904
234,671
$
4 B4. Cash Flow Statement
385,913 $
(169,627)
(106,142)
110,144
(3,398)
121,971
(1,950)
7,904
124,527
(22,830)
387
(22,443)
(17,309)
(17,309)
(5,521)
387
(5,134)
(6,098)
(6,098)
(164)
(164)
(5,934)
(5,934)
500,000
500,000
Net increase (decrease) in cash and short-term investments
Cash and short-term investments, Beginning
Cash and short-term investments, Ending
Variance - 2014
706,130
439,193
1,145,323
$
500,000
(500,000)
-
500,000
500,000
92,672
431,381
524,052
613,459
7,812
621,271
$
4B5. Historical Data
TEXAS WINDSTORM INSURANCE ASSOCIATION
HISTORICAL DATA
1971 - 2014
($ with 000's omitted)
YEAR
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
LIABILITY IN
FORCE
END OF PERIOD
$
POLICY
COUNT
278,710
739,983
1,017,048
1,064,772
1,169,763
1,387,252
1,616,220
1,633,521
1,816,410
1,936,388
2,105,244
2,285,594
2,165,231
3,178,079
4,061,660
4,510,378
4,401,486
4,266,615
4,236,600
4,248,611
4,346,209
5,155,790
6,500,165
7,645,176
8,828,140
10,001,843
10,907,937
11,633,935
11,972,502
12,052,604
13,249,407
16,003,048
18,824,457
20,796,656
23,263,934
38,313,022
58,641,546
58,585,060
61,700,891
67,452,357
71,083,333
74,186,949
76,921,369
78,763,302
TOTAL
13,415
33,577
45,743
45,901
46,365
48,747
51,382
48,820
46,128
43,613
42,495
51,034
44,894
51,311
57,181
60,028
57,976
56,773
55,401
56,155
54,145
55,471
56,921
63,348
69,807
72,977
75,361
77,261
75,947
73,815
77,022
85,668
96,420
103,503
109,693
143,999
216,008
215,537
230,545
242,664
255,945
266,726
270,814
275,626
GROSS
RATE
CHANGES
RESID
COMML
WRITTEN
PREMIUMS
$
-5.4%
3.1%
25.0%
-20% (I)/-75% (B)
30.0%
25.0%
0.2%
-9.4%
8.7%
18.5%
9.6%
3.1%
4.2%
8.2%
12.3%
5.0%
5.0%
5.0%
5.0%
-15.0%
-2.1%
-2.0%
-22.9%
-3.0%
9.0%
4.0%
5.0%
10.0%
10.0%
10.0%
13.4%
3.7%
5.4%
15.6%
5.0%
5.0%
5.0%
5.0%
2,393
4,138
4,286
4,512
6,036
8,130
9,922
10,523
11,045
9,675
9,137
8,641
6,900
9,450
18,232
20,987
20,532
19,061
18,066
18,244
20,504
11,495
19,377
26,545
32,419
40,359
42,463
44,411
44,581
48,012
54,631
72,968
87,987
102,384
113,928
196,833
315,139
331,049
382,342
385,550
403,748
443,480
472,739
494,036
4,406,890
LOSS &
LAE INCURRED
$
92
214
1,427
452
592
231
203
296
2,370
14,217
2,715
982
157,112
1,294
1,510
1,202
2,555
2,509
14,176
1,590
1,783
1,321
4,778
1,572
4,033
1,484
4,133
27,235
11,320
7,937
8,011
32,359
24,955
6,115
178,370
5,188
17,985
2,587,123
(486,314)
555,025
202,539
401,873
3,975
(10,297)
3,798,242
*2014 includes data through 12/31/14
4 B4. Historical Data
EARNED
PREMIUMS
$
NET
UNDERWRITING
LOSS &
EXPENSES
LAE INCURRED
INCURRED
868 $
3,468
4,288
4,378
5,263
6,953
9,080
10,249
11,039
10,245
9,313
9,106
7,585
7,989
3,534
5,229
4,931
3,551
5,330
16,761
7,167
4,014
123,515
25,692
29,016
37,153
41,045
28,256
28,702
28,470
31,112
44,516
51,702
52,230
65,438
85,467
135,843
(138,560)
389,600
351,730
321,781
321,122
295,130
367,555
2,866,856
92 $
214
1,427
452
592
231
203
296
2,370
14,217
2,715
982
157,112
1,294
1,510
1,202
2,555
2,509
14,176
1,590
1,783
1,321
4,778
1,572
4,033
1,484
4,133
27,235
11,320
7,937
8,011
32,359
24,955
6,115
178,370
5,188
17,985
1,117,123
(183,974)
252,685
202,539
401,873
3,975
(10,297)
385
849
1,099
1,106
1,417
1,878
2,258
2,329
2,178
2,079
2,097
2,095
1,937
2,493
3,638
3,997
4,091
4,066
4,037
4,171
4,343
4,220
5,161
6,982
8,119
10,627
11,038
12,181
11,524
11,681
12,936
16,584
19,682
21,911
25,277
37,138
51,768
53,759
87,899
85,598
81,665
93,583
100,524
109,382
2,328,241
931,782
UNDERWRITING
GAIN (LOSS)
$
391
2,405
1,763
2,819
3,254
4,844
6,619
7,624
6,490
(6,051)
4,501
6,029
(151,463)
4,202
(1,614)
30
(1,715)
(3,024)
(12,883)
11,000
1,042
(1,527)
113,576
17,138
16,864
25,042
25,874
(11,160)
5,858
8,852
10,165
(4,427)
7,065
24,204
(138,209)
43,141
66,090
(1,309,442)
485,675
13,447
37,577
(174,334)
190,631
268,471
(393,167)
Texas Windstorm Insurance Association
Catastrophe Reserve Trust Fund
Summary by Year
(Amounts in Thousands)
Year
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Balance
Beginning
280,063
303,185
305,599
308,729
311,508
361,823
388,542
0
0
76,334
146,650
178,902
186,184
Deposits
Gain from
Operations
19,102
0
0
28,558
35,302
8,654
74,336
0
69,554
63,589
24,666
0
22,830
Deposits
Surcharge
0
0
0
0
0
0
0
0
6,719
6,675
7,408
7,234
7,773
Withdrawals
Storms
0
0
0
(35,000)
0
0
(469,281)
0
0
0
0
0
0
Withdrawals
Other
(1,000)
(1,000)
(1,000)
(1,000)
(1,000)
(1,000)
(1,000)
0
0
0
0
0
0
Investment
Income
5,082
3,470
4,197
10,285
16,076
19,140
7,469
0
62
51
195
81
63
Investment
Management Fees
(62)
(56)
(67)
(64)
(63)
(75)
(65)
0
0
0
(17)
(33)
(37)
Balance
Ending
124,847
151,284
179,020
216,896
238,221
250,403
268,563
280,063
303,185
305,599
308,729
311,508
361,823
388,542
0
0
76,334
146,650
178,902
186,184
216,813
4C. IRS Refund Claim
There is no exhibit for this topic
5. Internal Audit
5A. Internal Audit Status & Update
Karen Meriwether
Director
Internal Audit
MEMORANDUM
DATE:
February 3, 2015
TO:
John Polak
General Manager
RE:
2014 Internal Audit Activity Highlights and 2015 Priorities
I.
II.
III.
IV.
2014 HIGHLIGHTS
Established and implemented Internal Audit function and framework in 2014, including
documenting and obtaining Board approval for Internal Audit Charter, Internal Audit
Policy and Procedure, Internal Controls Policy and Procedure, and Enterprise Risk
Management Policy and Procedure.
Developed and documented an Internal Audit Manual to define the day-to-day guidelines
within which the Internal Audit function will operate. To support the framework
referenced above, created a Risk Register; identified the Universe of Auditable Processes
for the Association; developed risk-based Internal Audit Plans for the remainder of 2014
and for 2015, obtaining Board approval for these Plans and subsequently implementing
the Plans. An Activity/ Status Report of audits/ projects completed in 2014 or underway
at year-end was provided to the Board at the December meeting.
Completed and issued final report for audit of Business Continuity Plan; completed 3
other audit projects on the 2014 Internal Audit Plan and determined that one project
(Management’s Report on ICFR) was not required and so also closed. At year end, 4
audit projects on the 2014 Internal Audit Plan were underway (see December’s Board
report from Internal Audit.)
Other Activities
A. Oversaw external audit of Underwriting and Claims Reviews performed by Milliman,
obtained action plans from management to resolve findings, and prepared and
delivered report to inform regulator of progress on management’s actions to resolve
findings.
B. Followed-up on open finding from SAO report issued in 2012; issue was
subsequently considered resolved by the SAO based on follow-up information
provided.
C. Delivered information to Executive Management regarding the NAIC RMORSA
Model Law, Risk Management, and Risk Identification and Assessment.
D. At request of CFO, facilitated SWOT Analysis by executive leadership team as part
of Strategic Planning process. Also facilitated individual functional department
SWOT Analyses to assist them with their Business Planning process. These were
combined with meetings to discuss the functional department risk registers.
E. Assisted various departments as follows:
1. Discussed with IT and reviewed plans to update IT’s disaster recovery options.
1
2. Participated in the interview process for candidates for Compliance &
Communications Department vacancies.
3. Participated in meetings with staff and TDI to discuss planning for Agency
Audits.
4. Reviewed CAT Plan and provided feedback during the week-long test of the plan
led by Claims team.
5. Currently participating on the team to update the Association’s Business
Continuity Plans.
5. Identified the potential requirement for TWIA to file with the regulator
Management’s Report on Internal Control Over Financial Reporting. While not
required for 2014 due to premium volume, potential is that this report may be
required for 2015. Met with CFO and his team to discuss next steps.
6. Met with Accounting personnel to discuss SSAE16 reports the Association should
obtain from its third party vendors to ensure vendor controls are strong.
7. Arranged for Accounting personnel to attend training on how to spot fraud and
discussed accounting fraud indicators. Met with Accounting personnel after the
Association was notified its bank (Chase) had been hacked, to discuss next steps
and security issues.
8. Reviewed a variety of policies and procedures, including the Compensation
Policy, Safety Policy, Organizational Change Management Plan, and Media &
Public Relations Policy, and provided feedback to management regarding possible
changes & improvements.
9. Met with management and staff involved with Policy Center project to discuss
data protection in the new software slated for implementation in early 2015.
10. Assisted management with drafting responses to audit findings coming out of TDI
examination. Obtained action plans from management to resolve findings. These
will be followed up in 2015.
11. Reviewed travel policy and discussed reimbursement policy with General
Manager, Manager of Accounts Payable and Director of Compliance.
12. Training
a. Attended internal TWIA 101 and TWIA 201, Learning Lunches presented
at the Association, and Crucial Conversations training provided by TWIA.
b. Attended 18 webinars that qualify for CPE for licensing requirements.
These are offered free of charge through various professional associations
and vendors and are a cost-saving way to maintain my CPA license.
c. Completed all courses included in the Association’s internal leadership
training/development plan.
I.
II.
III.
2015 FIRST QUARTER PRIORITIES
Begin audits slated for first quarter 2015 per the approved 2015 Internal Audit Plan (see
December’s Board report from Internal Audit.)
Follow-up on management’s progress toward resolving audit findings from Milliman
audit, TDI Examination, and Business Continuity Plan audit and update Audit Tracker.
Finalize 2014 audit projects in progress.
2
6. Actuarial
6A. Reserve Adequacy
James C. Murphy, FCAS, MAAA
Chief Actuary
Vice President, Enterprise Analytics
MEMORANDUM
DATE:
January 16, 2015
TO:
John Polak, General Manager
RE:
Reserve Adequacy as of December 31, 2014
TWIA actuarial staff has completed a review of Texas Windstorm Insurance Association loss
and loss adjustment expense reserves as of December 31, 2014.
The analysis indicates a slight increase in 2014 due to the inclusion of the fourth quarter and a
change in the methodology for projecting unallocated loss adjustment expenses. Prior years show
a slight decrease due to favorable loss development. Overall 2014 claims experience has been
very favorable compared to budgeted amounts.
The combined ultimate estimates for Hurricanes Dolly and Ike have decreased $20 million to
reflect recent lawsuit settlements and continued favorable lawsuit activity. The ultimate estimate
for Hurricane Ike has decreased $30 million, from $2.64 billion to $2.61 billion. The ultimate
estimate for Hurricane Dolly has increased $10 million, from $315 million to $325 million.
TWIA continues to monitor new and existing litigation activity to ensure all outstanding
obligations are properly reserved. Estimation of ultimate liabilities for these claims is unusually
difficult and is subject to significantly greater than normal variation and uncertainty.
As of December 31, 2014, TWIA carried $75.0 million in total loss and loss adjustment reserves.
In my opinion, the Association’s reserves met the requirements of the insurance laws of Texas,
were consistent with reserves computed in accordance with accepted actuarial standards and
principles, and made a reasonable provision for all combined unpaid loss and loss expense
obligations of the Association under the terms of its contracts and agreements. While there
remains a material risk of adverse development, reserves continue to make a reasonable
provision for unpaid loss and loss adjustment expenses.
The complete actuarial analysis is available on request.
JM
Texas Windstorm Insurance Association
5700 South MoPac Expressway, Building A, Austin, Texas 78749 ● P.O. Box 99090, Austin, Texas 78709-9090
512-899-4900 / Fax 512-899-4950
Exhibit 6A
Page 1 of 1
6B. Policy Count/Exposures
Texas Windstorm Insurance Association
Statistical Report
As of 12/31/14
County
# PIF
# PIF
12/31/13
12/31/14
#
%
Liability
Liability
#
Gain
Gain
12/31/13
12/31/14
Gain
%
Gain
Prem YTD
Prem YTD
Premium
12/31/13
12/31/14
Gain
%
Premium
Aransas
7,011
7,104
93
1.30
$2,283,222,945
$2,365,753,412
$82,530,467
3.60
$15,206,085
$16,259,354
$1,053,269
6.90
Brazoria
52,198
52,814
616
1.20
$14,952,366,550
$15,273,924,851
$321,558,301
2.20
$83,988,669
$87,528,371
$3,539,702
4.20
Calhoun
4,260
4,303
43
1.00
$1,023,238,775
$1,047,826,758
$24,587,983
2.40
$7,250,141
$7,534,530
$284,389
3.90
Cameron
18,289
19,481
1,192
6.50
$5,178,995,485
$5,059,800,937
-$119,194,548
-2.30
$33,000,912
$32,143,703
-$857,209
-2.60
Chambers
6,064
6,330
266
4.40
$1,845,948,100
$1,961,845,389
$115,897,289
6.30
$10,046,678
$10,930,311
$883,633
8.80
Galveston
73,469
74,358
889
1.20
$23,282,957,077
$23,867,149,646
$584,192,569
2.50
$145,318,089
$152,470,929
$7,152,840
4.90
3,866
3,888
22
0.60
$1,105,583,407
$1,129,741,400
$24,157,993
2.20
$4,910,622
$5,125,319
$214,697
4.40
38,575
38,646
71
0.20
$9,331,136,076
$9,394,755,153
$63,619,077
0.70
$60,404,959
$61,963,833
$1,558,874
2.60
Kenedy
24
23
-1
-4.20
$8,953,344
$8,888,241
-$65,103
-0.70
$66,775
$72,509
$5,734
8.60
Kleberg
1,344
1,366
22
1.60
$337,470,078
$330,457,536
-$7,012,542
-2.10
$2,367,741
$2,387,205
$19,464
0.80
Matagorda
5,457
5,616
159
2.90
$1,248,677,832
$1,326,992,662
$78,314,830
6.30
$8,140,575
$8,821,913
$681,338
8.40
Nueces
50,473
51,741
1,268
2.50
$13,718,910,106
$14,329,631,728
$610,721,621
4.50
$86,701,849
$91,750,957
$5,049,108
5.80
Refugio
414
410
-4
-1.00
$101,010,747
$109,003,751
$7,993,004
7.90
$715,113
$812,353
$97,240
13.60
8,746
8,854
108
1.20
$2,373,234,257
$2,409,403,915
$36,169,658
1.50
$14,720,151
$15,085,144
$364,993
2.50
624
692
68
10.90
$129,664,683
$148,150,760
$18,486,077
14.30
$913,991
$1,074,122
$160,131
17.50
270,814
275,626
4,812
1.78
$76,921,369,462
$78,763,326,139
$1,841,956,676
2.39
$473,752,350
$493,960,553 $20,208,203
4.27
Harris
Jefferson
San Patricio
Willacy
Total:
Texas Windstorm Insurance Association
Quarterly Liability Report
End of Period: 12/31/2014
Aransas
Policies
Written
During
Period
Policies
Written
YTD
Risks
Written
During
Period
Risks
Written
YTD
Premium
Written
During Period
Premium
Written
YTD
Dir. Liab.
End of Period
Indir. Liab.
End of Period
Policies
Inforce
End of Period
Risks
Inforce
End of Period
Commercial
122
606
223
1,337
$695,817
$3,642,822
$380,738,793
$10,099,280
484
1,163
Mobile Home
32
134
32
134
$31,807
$159,536
$6,367,066
$0
128
128
1,446
6,774
1,507
7,121
$2,577,801
$12,456,996
$1,978,647,553
$164,869,644
6,492
6,831
1,600
7,514
1,762
8,592
$3,305,425
$16,259,354
$2,365,753,412
$174,968,924
7,104
8,122
Policies
Written
During
Period
Policies
Written
YTD
Risks
Written
During
Period
Risks
Written
YTD
Premium
Written
During Period
Premium
Written
YTD
Dir. Liab.
End of Period
Indir. Liab.
End of Period
Policies
Inforce
End of Period
Risks
Inforce
End of Period
Commercial
360
1,856
626
3,412
$1,903,227
$11,734,083
$1,202,430,892
$33,839,785
1,567
2,955
Mobile Home
33
218
33
218
$42,056
$281,762
$11,442,770
$0
201
201
11,886
53,205
12,174
54,441
$16,973,494
$75,512,526
$14,060,051,189
$1,780,657,669
51,046
52,234
12,279
55,279
12,833
58,071
$18,918,777
$87,528,371
$15,273,924,851
$1,814,497,454
52,814
55,390
Policies
Written
During
Period
Policies
Written
YTD
Risks
Written
During
Period
Risks
Written
YTD
Premium
Written
During Period
Premium
Written
YTD
Dir. Liab.
End of Period
Indir. Liab.
End of Period
Policies
Inforce
End of Period
Risks
Inforce
End of Period
65
366
132
651
$348,474
$1,703,319
$162,933,241
$2,313,600
307
561
Class of Business
Residential
TOTAL:
Brazoria
Class of Business
Residential
TOTAL:
Calhoun
Class of Business
Commercial
Texas Windstorm Insurance Association
Quarterly Liability Report
End of Period: 12/31/2014
Calhoun
Policies
Written
During
Period
Policies
Written
YTD
Risks
Written
During
Period
Risks
Written
YTD
Premium
Written
During Period
Premium
Written
YTD
Dir. Liab.
End of Period
Indir. Liab.
End of Period
Policies
Inforce
End of Period
Risks
Inforce
End of Period
20
97
20
97
$25,325
$114,224
$4,675,140
$0
97
97
802
4,044
868
4,413
$1,089,515
$5,716,987
$880,218,377
$72,179,988
3,899
4,265
887
4,507
1,020
5,161
$1,463,314
$7,534,530
$1,047,826,758
$74,493,588
4,303
4,923
Policies
Written
During
Period
Policies
Written
YTD
Risks
Written
During
Period
Risks
Written
YTD
Premium
Written
During Period
Premium
Written
YTD
Dir. Liab.
End of Period
Indir. Liab.
End of Period
Policies
Inforce
End of Period
Risks
Inforce
End of Period
271
1,401
674
3,151
$2,074,181
$12,374,255
$1,626,754,535
$19,162,140
1,168
2,753
5
57
5
57
$5,741
$52,980
$2,131,084
$0
54
54
4,072
19,192
4,498
20,197
$4,205,135
$19,716,468
$3,430,915,318
$366,017,141
18,259
19,118
4,348
20,650
5,177
23,405
$6,285,057
$32,143,703
$5,059,800,937
$385,179,281
19,481
21,925
Policies
Written
During
Period
Policies
Written
YTD
Risks
Written
During
Period
Risks
Written
YTD
Premium
Written
During Period
Premium
Written
YTD
Dir. Liab.
End of Period
Indir. Liab.
End of Period
Policies
Inforce
End of Period
Risks
Inforce
End of Period
Commercial
63
241
108
357
$354,010
$1,106,523
$108,279,735
$1,823,785
189
304
Mobile Home
12
117
12
117
$16,975
$97,912
$3,826,619
$0
115
115
Class of Business
Mobile Home
Residential
TOTAL:
Cameron
Class of Business
Commercial
Mobile Home
Residential
TOTAL:
Chambers
Class of Business
Texas Windstorm Insurance Association
Quarterly Liability Report
End of Period: 12/31/2014
Chambers
Policies
Written
During
Period
Policies
Written
YTD
Risks
Written
During
Period
Risks
Written
YTD
Premium
Written
During Period
Premium
Written
YTD
Dir. Liab.
End of Period
Indir. Liab.
End of Period
Policies
Inforce
End of Period
Risks
Inforce
End of Period
1,387
6,290
1,436
6,518
$2,133,651
$9,725,876
$1,849,739,035
$232,591,933
6,026
6,252
1,462
6,648
1,556
6,992
$2,504,636
$10,930,311
$1,961,845,389
$234,415,718
6,330
6,671
Policies
Written
During
Period
Policies
Written
YTD
Risks
Written
During
Period
Risks
Written
YTD
Premium
Written
During Period
Premium
Written
YTD
Dir. Liab.
End of Period
Indir. Liab.
End of Period
Policies
Inforce
End of Period
Risks
Inforce
End of Period
Commercial
762
3,707
1,461
6,845
$7,003,694
$32,768,031
$3,321,650,971
$95,567,160
2,975
5,757
Mobile Home
52
235
52
235
$72,743
$304,118
$12,052,910
$0
226
226
15,969
74,304
16,505
76,824
$25,184,783
$119,398,780
$20,533,445,765
$2,328,981,369
71,157
73,535
16,783
78,246
18,018
83,904
$32,261,220
$152,470,929
$23,867,149,646
$2,424,548,529
74,358
79,518
Policies
Written
During
Period
Policies
Written
YTD
Risks
Written
During
Period
Risks
Written
YTD
Premium
Written
During Period
Premium
Written
YTD
Dir. Liab.
End of Period
Indir. Liab.
End of Period
Policies
Inforce
End of Period
Risks
Inforce
End of Period
Commercial
27
142
48
296
$234,563
$1,005,469
$111,203,304
$2,944,290
131
283
Mobile Home
1
7
1
7
$1,875
$7,245
$289,800
$0
7
7
Class of Business
Residential
TOTAL:
Galveston
Class of Business
Residential
TOTAL:
Harris
Class of Business
Texas Windstorm Insurance Association
Quarterly Liability Report
End of Period: 12/31/2014
Harris
Policies
Written
During
Period
Policies
Written
YTD
Risks
Written
During
Period
Risks
Written
YTD
Premium
Written
During Period
Premium
Written
YTD
Dir. Liab.
End of Period
Indir. Liab.
End of Period
Policies
Inforce
End of Period
Risks
Inforce
End of Period
874
3,935
890
4,068
$903,085
$4,112,605
$1,018,248,296
$122,918,043
3,750
3,857
902
4,084
939
4,371
$1,139,523
$5,125,319
$1,129,741,400
$125,862,333
3,888
4,147
Policies
Written
During
Period
Policies
Written
YTD
Risks
Written
During
Period
Risks
Written
YTD
Premium
Written
During Period
Premium
Written
YTD
Dir. Liab.
End of Period
Indir. Liab.
End of Period
Policies
Inforce
End of Period
Risks
Inforce
End of Period
323
1,761
592
3,166
$2,019,051
$10,388,402
$1,017,580,302
$43,574,840
1,547
2,876
6
32
6
32
$4,550
$52,097
$1,835,030
$0
30
30
7,695
38,845
7,989
39,944
$10,374,782
$51,523,334
$8,375,339,821
$1,018,720,173
37,069
38,136
8,024
40,638
8,587
43,142
$12,398,383
$61,963,833
$9,394,755,153
$1,062,295,013
38,646
41,042
Policies
Written
During
Period
Policies
Written
YTD
Risks
Written
During
Period
Risks
Written
YTD
Premium
Written
During Period
Premium
Written
YTD
Dir. Liab.
End of Period
Indir. Liab.
End of Period
Policies
Inforce
End of Period
Risks
Inforce
End of Period
Commercial
0
3
0
10
$0
$30,318
$1,451,341
$0
2
9
Mobile Home
0
0
0
0
$0
$0
$0
$0
0
0
Class of Business
Residential
TOTAL:
Jefferson
Class of Business
Commercial
Mobile Home
Residential
TOTAL:
Kenedy
Class of Business
Texas Windstorm Insurance Association
Quarterly Liability Report
End of Period: 12/31/2014
Kenedy
Policies
Written
During
Period
Policies
Written
YTD
Risks
Written
During
Period
Risks
Written
YTD
Premium
Written
During Period
Premium
Written
YTD
Dir. Liab.
End of Period
Indir. Liab.
End of Period
Policies
Inforce
End of Period
Risks
Inforce
End of Period
2
23
6
39
$1,425
$42,191
$7,436,900
$73,000
21
37
2
26
6
49
$1,425
$72,509
$8,888,241
$73,000
23
46
Policies
Written
During
Period
Policies
Written
YTD
Risks
Written
During
Period
Risks
Written
YTD
Premium
Written
During Period
Premium
Written
YTD
Dir. Liab.
End of Period
Indir. Liab.
End of Period
Policies
Inforce
End of Period
Risks
Inforce
End of Period
Commercial
36
152
62
316
$189,943
$789,125
$83,081,209
$1,512,880
113
174
Mobile Home
0
6
0
6
-$900
$6,451
$234,000
$0
5
5
293
1,340
308
1,455
$341,839
$1,591,629
$247,142,327
$24,043,684
1,248
1,364
329
1,498
370
1,777
$530,882
$2,387,205
$330,457,536
$25,556,564
1,366
1,543
Policies
Written
During
Period
Policies
Written
YTD
Risks
Written
During
Period
Risks
Written
YTD
Premium
Written
During Period
Premium
Written
YTD
Dir. Liab.
End of Period
Indir. Liab.
End of Period
Policies
Inforce
End of Period
Risks
Inforce
End of Period
Commercial
85
385
118
660
$359,289
$1,724,850
$167,237,402
$3,073,490
309
548
Mobile Home
5
25
5
25
$9,151
$32,481
$1,393,097
$0
26
26
Class of Business
Residential
TOTAL:
Kleberg
Class of Business
Residential
TOTAL:
Matagorda
Class of Business
Texas Windstorm Insurance Association
Quarterly Liability Report
End of Period: 12/31/2014
Matagorda
Policies
Written
During
Period
Policies
Written
YTD
Risks
Written
During
Period
Risks
Written
YTD
Premium
Written
During Period
Premium
Written
YTD
Dir. Liab.
End of Period
Indir. Liab.
End of Period
Policies
Inforce
End of Period
Risks
Inforce
End of Period
1,129
5,490
1,179
5,779
$1,463,019
$7,064,582
$1,158,362,163
$116,875,059
5,281
5,561
1,219
5,900
1,302
6,464
$1,831,459
$8,821,913
$1,326,992,662
$119,948,549
5,616
6,135
Policies
Written
During
Period
Policies
Written
YTD
Risks
Written
During
Period
Risks
Written
YTD
Premium
Written
During Period
Premium
Written
YTD
Dir. Liab.
End of Period
Indir. Liab.
End of Period
Policies
Inforce
End of Period
Risks
Inforce
End of Period
847
4,046
1,560
8,110
$4,390,075
$24,055,044
$2,720,187,313
$86,320,465
3,205
6,777
3
51
3
51
$3,038
$44,929
$1,814,650
$0
48
48
10,611
50,949
10,998
53,098
$14,137,389
$67,650,984
$11,607,629,764
$1,271,826,739
48,488
50,455
11,461
55,046
12,561
61,259
$18,530,502
$91,750,957
$14,329,631,728
$1,358,147,204
51,741
57,280
Policies
Written
During
Period
Policies
Written
YTD
Risks
Written
During
Period
Risks
Written
YTD
Premium
Written
During Period
Premium
Written
YTD
Dir. Liab.
End of Period
Indir. Liab.
End of Period
Policies
Inforce
End of Period
Risks
Inforce
End of Period
Commercial
13
59
47
130
$72,367
$284,429
$27,687,850
$962,730
47
111
Mobile Home
1
10
1
11
$1,501
$14,737
$651,553
$0
10
11
Class of Business
Residential
TOTAL:
Nueces
Class of Business
Commercial
Mobile Home
Residential
TOTAL:
Refugio
Class of Business
Texas Windstorm Insurance Association
Quarterly Liability Report
End of Period: 12/31/2014
Refugio
Policies
Written
During
Period
Policies
Written
YTD
Risks
Written
During
Period
Risks
Written
YTD
Premium
Written
During Period
Premium
Written
YTD
Dir. Liab.
End of Period
Indir. Liab.
End of Period
Policies
Inforce
End of Period
Risks
Inforce
End of Period
60
371
63
398
$94,699
$513,187
$80,664,348
$7,005,684
353
380
74
440
111
539
$168,567
$812,353
$109,003,751
$7,968,414
410
502
Policies
Written
During
Period
Policies
Written
YTD
Risks
Written
During
Period
Risks
Written
YTD
Premium
Written
During Period
Premium
Written
YTD
Dir. Liab.
End of Period
Indir. Liab.
End of Period
Policies
Inforce
End of Period
Risks
Inforce
End of Period
128
508
407
1,148
$750,647
$2,744,205
$293,389,769
$7,659,145
421
1,003
4
24
4
24
$3,788
$30,490
$1,240,970
$0
22
22
1,843
8,840
1,904
9,307
$2,579,807
$12,310,449
$2,114,773,176
$238,303,490
8,411
8,882
1,975
9,372
2,315
10,479
$3,334,242
$15,085,144
$2,409,403,915
$245,962,635
8,854
9,907
Policies
Written
During
Period
Policies
Written
YTD
Risks
Written
During
Period
Risks
Written
YTD
Premium
Written
During Period
Premium
Written
YTD
Dir. Liab.
End of Period
Indir. Liab.
End of Period
Policies
Inforce
End of Period
Risks
Inforce
End of Period
Commercial
16
65
32
120
$79,853
$273,862
$30,760,617
$458,550
54
108
Mobile Home
0
5
0
5
$0
$5,460
$302,400
$0
6
6
Class of Business
Residential
TOTAL:
San Patricio
Class of Business
Commercial
Mobile Home
Residential
TOTAL:
Willacy
Class of Business
Texas Windstorm Insurance Association
Quarterly Liability Report
End of Period: 12/31/2014
Willacy
Class of Business
Policies
Written
During
Period
Policies
Written
YTD
Risks
Written
During
Period
Risks
Written
YTD
Premium
Written
During Period
Premium
Written
YTD
Dir. Liab.
End of Period
Indir. Liab.
End of Period
Policies
Inforce
End of Period
Risks
Inforce
End of Period
142
658
154
691
$165,308
$794,800
$117,087,743
$9,413,359
632
665
158
728
186
816
$245,161
$1,074,122
$148,150,760
$9,871,909
692
779
Policies
Written
During
Period
Policies
Written
YTD
Risks
Written
During
Period
Risks
Written
YTD
Premium
Written
During Period
Premium
Written
YTD
Dir. Liab.
End of Period
Indir. Liab.
End of Period
Policies
Inforce
End of Period
Risks
Inforce
End of Period
3,118
15,298
6,090
29,709
$20,475,191
$104,624,737
$11,255,367,274
$309,312,140
12,519
25,382
174
1,018
174
1,019
$217,650
$1,204,422
$48,257,089
$0
975
976
58,211
274,260
60,479
284,293
$82,225,732
$388,131,394
$67,459,701,775
$7,754,476,973
262,132
271,572
61,503
290,576
66,743
315,021
$102,918,573
$493,960,553
$78,763,326,139
$8,063,789,113
275,626
297,930
Residential
TOTAL:
Total All Counties
Class of Business
Commercial
Mobile Home
Residential
TOTAL:
6C. Reinsurance Options, Including Catastrophe Bonds
James C. Murphy, FCAS, MAAA
Vice President
Actuarial & Enterprise Analytics
MEMORANDUM
DATE:
January 16, 2015
TO:
John W. Polak, General Manager
RE:
TWIA Reinsurance Options for 2015 Hurricane Season
The Texas Windstorm Insurance Association reinsurance contract expires this year on May 31.
The current reinsurance program provides for $1.45 billion in coverage above a $1.9 billion
retention and includes a catastrophe bond in the amount of $400 million.
At its December 9, 2014 meeting, the Board of Directors directed staff to explore various options
for the structure of the reinsurance placement for 2015. With the recent issuance of $500 million
in pre-event Class 1 bonds and an expected contribution to the CRTF of over $200 million,
TWIA could increase its retention up to $700 million in 2015, from $1.9 billion to $2.6 billion.
This would allow TWIA to purchase considerably more reinsurance, approaching its 100-year
PML.
The TWIA Actuarial & Underwriting Committee has scheduled a meeting on January 29, 2015
to discuss the 2015 reinsurance program, including the reset of the 2014 Alamo Re catastrophe
bond. TWIA’s reinsurance broker, Guy Carpenter, will discuss the state of the reinsurance
market and TWIA’s options at this meeting. A copy of Guy Carpenter’s presentation is attached
for your reference. Any recommendations from the Committee will be presented at the February
3, 2015 meeting.
JM
Exhibit 6C
Page 1 of 1
Reinsurance Planning – Texas Windstorm Insurance Association
Actuarial and Underwriting Committee Meeting
January 29, 2015
January Renewal Insights – Reinsurance Market
Pricing Summary
Structure/Coverage Changes
•
• Aggregate structures – Significant market appetite and
increase in limit purchased
Guy Carpenter 1/1/2015 Cat Portfolio
– Global Property Cat ROL index fell by 11%
– US risk adjusted pricing decreases averaged
10.4% (range of -7% to -15%)
– Regional placements decreased between 11%
and 14% risk adjusted
– National placements decreased between 7%
and 15% risk adjusted
– Capacity remains robust. 71.5% of authorized
capacity deployed (down from 74% in 2014)
– Lack of costly catastrophic events was a
significant factor in driving rate reduction
– Global insured cat losses for 2014 ~$34B
– Lowest in four years and 25% below 2013
– Expanding portfolios realize most significant risk
adjusted rate decreases
GUY CARPENTER
• Multi-Year – Important renewal theme. 35% of placements
have some portion on multi-year basis
–Typically offered to “core” partners
– Annual reset to adjust premium/limit based on updated
exposure/SPI
– Partial placements can mitigate market volatility
• Extended Hours expansion of hours clause, varies by both
duration and peril
• Premium adjustment methods
–Traditional SPI or TIV may be more favorable in current
environment
– Model based adjustments can align cat pricing and
exposures
• Terrorism
–Significant talking point at 1/1 given non-renewal of TRIPRA
–Indications of market flexibility and willingness to provide
solutions
–Extension now signed into law through 2020
1
January Renewal Insights – Reinsurance Market
Market observations
• Quoting behavior by Region
– Bermuda
Higher
– London
• Tiering
– Larger buyers are focusing trading
relationships
– Core versus transactional support
– Domestic
– Europe
Counter-party management
Lower
• Firm orders to quotes
– 91.7% of average quote
– 98.6% of lowest quote
• Capacity sources
– 82% Rated Capacity
– 18% Non-Rated Capacity
– Source of Capital (traditional reinsurers,
capital market investors)
• Private placements
– Strategic products and bespoke solutions (by
reinsurer) have gained traction
– Concurrency less of a focus
• M&A
− Renaissance / Platinum
– Up from 15% in 2013
− XL / Catlin
– 2014 cat bond issuance at all time high
(>$8B)
− Other mergers likely in current environment
GUY CARPENTER
2
Market Drivers
State of the P&C Catastrophe Bond Market
2014 Summary
 Record breaking year in terms of
issuance of twenty-five 144A P&C
Catastrophe
Bonds
(USD$8.027
Billion) and risk capital currently
outstanding ($22.868 Billion)
− Includes TWIA’s $400M Alamo Re
2014-1 catastrophe bond
 Pricing declined 15-25% year over
year
144A Cat Bond Risk Capital Issued and Outstanding
1997 – 2014
2015 Market Environment
 Over $3.5 Billion of catastrophe
bonds will mature in the first quarter
 Over $5 Billion of 144A catastrophe
bonds will mature in the first half of
2015, which is the highest percentage
of the outstanding 144A catastrophe
bonds since 2011
 The high level of maturities in 2015
will continue to pressure the capital
markets on pricing of catastrophe
bonds to sponsors like TWIA
 Up to three new deals are expected
to be marketed in January 2015
including the recently announced
Vitality Re VI Limited benefiting Aetna
GUY CARPENTER
Source: GC Securities Proprietary Database (P&C catastrophe bonds as of January 14, 2015 excluding private transactions and deals currently being marketed)
3
TWIA Property Catastrophe
2014 Reinsurance Renewal Highlights
• Extensive review of structure alternatives given objective risk based measurements and
cost/benefit tradeoffs
• Consideration given to:
– Occurrence vs. aggregate Protection
– Alternative retentions, layering and reinstatement provisions
– Program duration
– Catastrophe Bond
• Achieved 45% additional limit with <5% increase in spend
• Increased retention by $200m from contribution to the CRTF
• YOY TIV growth of approximately 3.5%
• Placement of Alamo Re (2014), a new 3 year $400M Cat Bond with a variable reset
• Additional $100m reinsurance layer purchased with savings achieved from Main Cat and Bond
• 100% placement on aggregate basis
• Competitive placement; 10 markets declined, including 3 incumbents and more than $20M of
expiring capacity
GUY CARPENTER
4
Alamo Re Ltd. 2014-1
Distribution Analysis
Marketing Highlights

Texas only risk profile and TWIA as a first time sponsor helped secure attractive pricing and terms – Texas only wind
exposure has historically been a difficult risk for the ILS market to access. In addition, TWIA’s stated commitment to the market
and long term limit purchasing objectives make it a natural sponsor for the 144A market. The investor base appreciated all of
these features and accordingly supported TWIA with lower pricing than initially expected, notwithstanding a slightly widening
market (in general) during the time period in which the Alamo 2014-1 Class A Notes were being marketed.

Transaction was broadly supported across the full ILS investor base – Texas only exposure, offered at an attractive yield
profile prompted an exceptionally broadly placed book. Particularly strong support was received from traditional asset
managers, not all of which were typical supporters of the 144A catastrophe bond market. Transaction was ultimately placed
with more than 30 accounts, while upsizing from a an initial announce target of USD 300M to a final placed amount of USD
400M. Final pricing settled at a risk spread of 635 basis points; 15 basis points below the low end of the initial guidance range.
Class A Notes
Risk Capital Breakdown by Investor Region
Asia Pacific, 2.8%
Hedge ‐
Reinsurer, Multi, 3.4%
5.1%
Reins. Ded ‐
ILS, 2.0%
Trad. Asset Mgr, 15.1%
Western Europe, 28.6%
North America, 68.6%
GUY CARPENTER
Risk Capital Breakdown by Investor Type
ILS Only , 74.3%
5
Exposure Summary – Year over Year Comparison
Exposures
Statutory Limits (Renewal Data)
Total Values (Renewal Data)
Total Insured Values (Peak Wind Season)
In-Force Premium (Renewal Data)
Modeled Outputs
RMS
1-250 Year Return Period
1-100 Year Return Period
Portfolio Average Annual Loss
AIR
1-250 Year Return Period
1-100 Year Return Period
Portfolio Average Annual Loss
GUY CARPENTER
June 1, 2013 Treaty
Data 12/31/12
June 1, 2014 Treaty
Data 12/31/13
June 1, 2015 Treaty
Data 12/31/14
$81,407,714,098
$90,709,956,877
$86,000,000,000
$446,302,411
$84,446,035,582
$93,537,050,013
$87,500,000,000
$473,752,350
$86,860,108,077
$95,218,318,007
$88,000,000,000
$493,960,553
2.9%
1.8%
0.6%
4.3%
$6,755,372,884
$4,276,902,758
$274,759,757
$7,480,000,653
$4,565,672,222
$274,176,221
$7,465,153,734
$4,598,314,830
$275,352,886
-0.2%
0.7%
0.4%
$7,876,265,844
$5,054,955,917
$259,705,204
$7,824,895,808
$5,125,062,730
$276,489,664
$8,202,391,895
$5,190,120,145
$276,624,171
4.8%
1.3%
0.0%
RMS v11 stochastic, w/ LA, w/o SS
RMS v13 stochastic, w/ LA, w/o SS
RMS v13.1 stochastic, w/ LA, w/o SS
AIR v 14, stochastic, w/ DS, w/o SS
AIR v 15, stochastic, w/ DS, w/o SS
AIR TS v2.0.1, stochastic, w/ DS, w/o SS
Per Occurrence Return Periods
Aggregate Return Periods
Aggregate Return Periods
% Change
6
Catastrophe Model Results
12/31/2014 Exposure Data and Year over Year Comparison
Limit
Values
Risk Count
12/13 Exposures
$84,446,035,582
$93,537,050,013
296,417
12/14 Exposures
$86,860,108,077
$95,218,318,007
297,958
Change %
2.9%
1.8%
0.5%
Return Period
500
250
100
50
25
20
10
Occurrence Loss Estimates ‐ Gross
12/13 Exposures
12/14 Exposures
Change %
AIR Clasic v15 AIR Touchstone v2.0.1 12/13 to Near‐Term w/ DS Near‐Term w/ DS 12/14 $10,438,958,602
$10,561,642,040
1.2%
$7,592,907,918
$7,657,106,152
0.8%
$4,992,374,269
$4,977,682,861
‐0.3%
$2,847,290,359
$2,862,154,977
0.5%
$1,475,849,759
$1,464,313,228
‐0.8%
$1,205,795,917
$1,199,191,445
‐0.5%
$513,238,850
$486,666,977
‐5.2%
Return Period
500
250
100
50
25
20
10
Occurrence Loss Estimates ‐ Gross
12/13 Exposures 12/14 Exposures Change %
RMS v13
RMS v13.1 12/13 to Near‐Term w/ LA Near‐Term w/ LA 12/14 $10,172,400,021
$10,137,820,705
‐0.3%
$7,157,160,146
$7,140,935,988
‐0.2%
$4,336,186,904
$4,359,630,490
0.5%
$2,770,557,883
$2,790,970,316
0.7%
$1,551,154,626
$1,553,995,031
0.2%
$1,256,306,421
$1,253,925,723
‐0.2%
$562,535,406
$560,614,463
‐0.3%
Return Period
500
250
100
50
25
20
10
AAL
Aggregate Loss Estimates ‐ Gross
12/13 Exposures 12/14 Exposures AIR Clasic v15
AIR Touchstone v2.0.1 Near‐Term w/ DS Near‐Term w/ DS $10,668,974,096
$10,871,056,565
$7,824,895,808
$8,202,391,895
$5,125,062,730
$5,190,120,145
$3,019,562,305
$3,027,399,007
$1,598,701,490
$1,628,249,320
$1,312,640,101
$1,349,050,624
$561,887,739
$539,983,142
$276,489,664
$276,624,171
Return Period
500
250
100
50
25
20
10
AAL
Aggregate Loss Estimates ‐ Gross
12/13 Exposures 12/14 Exposures Change %
RMS v13.1
12/13 to RMS v13
Near‐Term w/ LA Near‐Term w/ LA 12/14 $10,423,924,422
$10,479,005,432
0.5%
$7,480,000,653
$7,465,153,734
‐0.2%
$4,565,672,222
$4,598,314,830
0.7%
$2,954,132,202
$2,963,639,657
0.3%
$1,680,387,373
$1,676,079,083
‐0.3%
$1,362,979,540
$1,357,073,561
‐0.4%
$616,404,231
$613,288,654
‐0.5%
$274,176,221
$275,352,886
0.4%
Change % 12/13 to 12/14 1.9%
4.8%
1.3%
0.3%
1.8%
2.8%
‐3.9%
0.0%
Results include Hurricane, Tornado, Hail and Loss Amplification / Demand Surge. Excluding Storm Surge.
GUY CARPENTER
7
Current Financial Picture
Direct Premiums Written
Net Premiums Earned
Incurred Losses and LAE
Expenses and Other
2014 Actual
$494M
$368M
($10M)
$109M
2015 Budget
$523M
$391M
$85M
$118M
Catastrophe Reserve Trust Fund (CRTF)
Current Balance
Projected 2015 Premiums and CRTF Contribution
Projected CRTF
$217M
$411M
$628M
Public Securities Program
Class 1: $500M issued; $500M statutorily available post-event
Class 2: $1,000M post-event
Class 3: $500M post event
GUY CARPENTER
8
Review of Committee Objectives and Issues Impacting 2015 Reinsurance
• Recent Risk Management Objectives
– Grow Catastrophe Reserve Trust Fund
– Increase funding to 1-100
– Limit spending to fixed amount
• Discussion of Alternative Objectives
• Determination of attachment point and total capacity requirements
• Structural considerations
– Single Season vs Multi Year
– Alamo Re (2014)
– Alamo Re (2015)
GUY CARPENTER
9
Committee & Board Decision Tree
• Desired Attachment Point for 2015……………….$1.1B, $2.1B, 2.6B, or other
• Reset of Alamo Re (2014)
– Attachment Range must be between…………$1.7B and $3.7B
• Desired Limit
– Target Amount…………………………………..$__________
– Maximize within Budget Constraint……………yes / no
• Sources of Capacity
– Traditional Reinsurance…………………………yes / no
– Alamo (2014)……………………………………..yes
– Additional Cat Bond (i.e. Alamo (2015))…..…..yes / no
• Multi-Year Capacity
– Reinsurance………………………………………yes / no / some
– Cat Bond…………………………………………..yes
• Budget Constraint
– Expiring $....................................................... $__________
– Expiring % of Original Premiums………….......__________%
GUY CARPENTER
10
2014 Funding Structure
$4.8B, 100 Years
Undetermined
$3.85B, 70 Years
$500 Million Class 3 Bonds and remaining funds (if any) $3.35B, 53 Years
$1.45 Billion Reinsurance
(including $400M Cat Bond)
$1.9B, 27 Years $1.9B
$500 Million Class 3 Bonds
Repaid by Company Assessments
$1.4B
$1 Billion Class 2 Bonds
Repaid by Policyholder Surcharges (70%)
and Company Assessments (30%)
(Class 1 Not Illustrated*)
$1.9 Billion in funding from cash, CRTF, and bonds
$400M
$400 Million Premium and CRTF
GUY CARPENTER
Notes: *Actual amounts of bond tranches are subject to marketability, Class 1 bonds not in illustration on left given uncertainty of issue at 2014 renewal. $500 M pre event bonds secured in September increases total funding above reinsurance.
Return Periods are a blend of current model version for RMS and AIR at the time of the renewal 11
2015 Funding Structure Options
Undetermined
100 Years
$4.9B
Undetermined
Undetermined
Remaining funds (if any) 90 Years
Remaining funds
(Class 2 & 3 Bonds)
$3.7B
Remaining funds
(Class 1, 2 & 3 Bonds)
$2.1B
$1.7B
$1.1B
$500 Million Class 3 Bonds
Repaid by Company Assessments
$1 Billion Class 2 Bonds
Repaid by Policyholder Surcharges (70%)
and Company Assessments (30%)
$1.75B xs $2.1B
Reinsurance
& Catastrophe Bond(s)
$600 Million Catastrophe Reserve Trust Fund
GUY CARPENTER
$2.0B xs $2.6B
Reinsurance
& Catastrophe Bond(s)
50 Years
40 Years
$1.25B xs $1.1B
Reinsurance
$2.6 Billion in funding from cash, CRTF, and Class 1,2,&3 bonds
Alamo (2014)
& Catastrophe Bond(s)
20 Years
$2.1 Billion in funding from cash, CRTF, and Class 1 & 2 bonds
$500 Million Class 1 Bonds
Repaid by TWIA Premiums
$600M
70 Years
Alamo (2014)
$3.45B
$2.6B
Alamo (2014)
$1.1 Billion in funding from cash, CRTF, and
Class 1 bonds
Option 1
10 Years
Option 2
Option 3
Alamo (2014) must be reset for year 2 based on pre‐agreed terms. Alamo (2015) and/or 2015 Reinsurance have significant flexibility around final Alamo (2014) structure
12
TWIA Property Catastrophe Structure
Initial Pricing Guidance under various Parameters
• Total capacity requirements and allocation to various capacity providers (reinsurance/collateralized/cat bond) will have
impact on final pricing which is estimated to be within the ranges above. Suggest TWIA Staff and Guy Carpenter be given
flexibility to structure capacity in a way to best leverage total pricing.
• Alternative reinsurance structures and formal cat bond pricing to be quoted by the market and tailored based on
Committee/Board objectives
• Reinsurance can be structured for single wind season (2015) or multiple wind seasons
• Similar to Alamo (2014), expect additional bond purchase to be 3 year term.
GUY CARPENTER
13
APPENDIX
Introduction to ILS
Coverage Comparison: Cat Bonds vs Traditional Reinsurance
Coverage Comparison
Feature
Perils
Loss Trigger
Term
Reinstatement
Counterparty Risk
Growth Changes
Traditional Reinsurance
Cat Bonds
Named Storms
Named Storms
Indemnity
Indemnity
Typically 1 year, limited multi-year available
Typically 3-5 years
Available with and without reinstatement
No
Unsecured credit risk from rated counterparties
Limit is 100% collateralized
Intra-Year: Premium adjustments based on TIV / Model
risk profile changes
Inter-Year: Typically not applicable
Loss Adjustment Expense
Exclusions
Loss Reporting /
Loss Payments &
Collectability
Commutation
GUY CARPENTER
Intra-Year: 10% of growth for free
Inter-Year: Annual reset to fully reflect updated exposures with
feature to adjust layer with formulaic change to premium
Covered
Covered (through applicable adjustment factor
applied to losses)
Typical list of exclusions
Same as traditional reinsurance with possible addition
of ECO/XPL type of losses
Loss Reporting: Monthly or Quarterly Loss Reporting;
Loss Payments: Based on actual paid (or to be paid)
loss settlement; note requirement for “to be paid” varies
by contract
Collectability: Subject to auditing by reinsurers;
arbitration provided for in reinsurance agreements
Not Typical
Loss Reporting: Monthly or Quarterly Loss Reporting:
Loss Payments: Based on actual paid (or to be paid in next 30
days) loss settlement; also, utilize monthly payment dates
Collectability: Subject to audit by independent claims reviewer
(for application policy terms and not adjusters’ evaluation);
arbitration provided for in reinsurance agreement; collateral
cannot be released to investors until reinsurance agreement is
terminated
Typically at end of extension period
(i.e. up to 3yrs after end of risk period)
Loss Reserves are reviewed by
independent loss reserve specialist
15
Established Tool for Residual Market Insurers and Government Entities
Cat Bond Issuance History (2003 - 2014)
3,000
2500
2,500
USD Millions
2,000
1500
1750
1,500
1207
1000
1,000
500
765
250
400
315
~202
500
400
500
450
290
100
315
0
Issue Outstnd
Central Re
(TREIP-Taiwan)
500
Issue Outstnd
FONDEN
(Mexico)
96
Issue Outstnd
NCJUA/NCIUA
2006
2009
250
250
200
250
450
96
200
160
2003
450
305
315
100
0
1500
850
150
0
Issue Outstnd
MPIUA
2010
Issue Outstnd
CEA
2011
2012
Issue Outstnd
California State
Compensation
Insurance Fund
2013
265
265
140
140
125
125
400
400
400
250
Issue Outstnd
Issue Outstnd
Louisiana
Citizens
Florida
Citizens
2014
400
400
750
Issue Outstnd
TCIP
(Turkey)
200
200
200
200
400
Issue Outstnd
Issue Outstnd
FMTAC
(MTA-NY)
TWIA
Maturing in 2015
Source: GC Securities Proprietary Database as of January 14, 2015 (P&C catastrophe bonds excluding private transactions)
Note: No residual market or government entity issued catastrophe bonds in 2004, 2005, 2007 and 2008
GUY CARPENTER
16
Established Tool for Insurers
Voluntary Insurers’ Use of Catastrophe Bonds (2005 – 2014)



In the last 10 years, 32 private market insurers have issued $26.955 Billion of 144A P&C Catastrophe Bonds
Cumulative insurer-sponsored issuance since 1996 is recorded at $30.640 Billion
As of January 14, 2015, $11.954 Billion of Insurer-sponsored catastrophe bonds are currently outstanding
Source: GC Securities Proprietary Database (P&C catastrophe bonds as of January 14, 2015 excluding private transactions and deals currently being marketed)
GUY CARPENTER
17
Disclosure
Securities or investments, as applicable are offered in the US through GC Securities, a division of MMC Securities Corp. (“MMCSC”), a US registered
broker-dealer and member FINRA/SIPC. Main office: 1166 Avenue of the Americas, New York, NY 10036. Phone: 212.345.5000. Securities or
investments, as applicable are offered in the European Union by GC Securities, a division of MMC Securities (Europe) Ltd., which is authorized and
regulated by the Financial Services Authority. Reinsurance products are placed through qualified affiliates of Guy Carpenter & Company, LLC. MMC
Securities Corp., MMC Securities (Europe) Ltd., and Guy Carpenter, LLC are affiliates owned by Marsh & McLennan Companies (“MMC”). Reinsurance
intermediary services are offered through Guy Carpenter & Company, LLC.
This information was prepared by MMCSC and/or Guy Carpenter & Company, LLC. (“Guy Carpenter” or ”GC”), the reinsurance brokerage arm of MMC.
All statistical tables, charts, graphs or other illustrations contained herein were prepared by MMCSC or GC unless otherwise noted. Results from
simulations and projections are for illustrative purposes only and are based on certain assumptions. Therefore the recipient should not place undue
reliance on these results. Past performance does not guarantee future results.
Neither MMCSC nor GC is a legal, tax or accounting adviser and makes no representation as to the accuracy or completeness of any data or
information gathered or prepared by MMCSC or GC hereunder. Your company should therefore consult with its own tax, accounting, legal or other
advisers and make its own independent analysis and investigation of the proposed transaction, as well as the financial and tax consequences thereof,
the creditworthiness of the parties involved and all other matters relating to the transaction, prior to its own independent decision whether or not to enter
into any agreements in connection with any transaction.
This document contains indicative terms for discussion purposes only. MMCSC and GC give no assurance that any transaction will be consummated on
the basis of these indicative terms and no specific issuer is obligated to issue any security or instrument on such indicative terms. This presentation
does not constitute an offer to sell or any solicitation of any offer to buy or sell any security or instrument or to enter into any transaction on such
indicative terms. An investment in insurance linked securities is speculative, involves a high degree of risk and should be considered only by institutional
investors who can bear the economic risks of their investments and who can afford to sustain the loss of their investments. Noteholders may lose all or
a portion of their investment. Institutional investors should thoroughly consider the information contained herein.
This document is not intended to provide the sole basis for any evaluation by you of any transaction, security or instrument described herein and you
agree that the merits or suitability of any such transaction, security or instrument to your particular situation will be independently determined by you
including consideration of the legal, tax, accounting, regulatory financial and other related aspects thereof. Opinions and estimates constitute MMCSC’s
and/or GC’s judgment and are subject to change without notice. In particular, neither MMCSC nor GC owes duty to you (except as required by the rules
of the Securities and Exchange Commission, Financial Industry Regulatory Authority, Financial Services Authority, and/or any other regulatory body
having proper jurisdiction) to exercise any judgment on your behalf as to the merits or suitability of any transaction, security or instrument. The
information contained herein is provided to you on a strictly confidential basis and you agree that it may not be copied, reproduced or otherwise
distributed by you (other than to your professional advisers) without our prior written consent.
This material provides general and conceptual information about certain financial strategies, and does not discuss or refer to any specific securities or
other financial product. This presentation is not intended as marketing, solicitation or offering any security or other financial product in Japan. This
material is intended only for sponsors, financial intuitions and qualified investors.
MMCSC and/or GC may have an independent business relationship with any companies described herein.
Trademarks and service marks are the property of their respective owners.
The source of information for any charts, graphs, or illustrations in this document is GC Securities Proprietary Database 2014, unless otherwise
indicated.
Cory Anger, Chi Hum, Geoff Sweitzer, Ryan Clarke, Jay Green and Sung Yim are registered representatives of MMCSC.
GUY CARPENTER
GUY CARPENTER
7. Underwriting
7A. WPI-8’s
John Morrison, CPCU, AIC, SCLA
Vice President; Underwriting Memorandum Date: January 21, 2015 To: John Polak, General Manager Re: Policies with Outstanding Requests for WPI‐8’s from Ike and Dolly At the June 2013 TWIA Board Meeting, TWIA staff recommended non‐renewing policies with outstanding WPI‐8 requests from Hurricanes Ike and Dolly at their expiration date, rather than using a common cancellation date. The Board approved the recommendation and requested a communication to each policyholder beginning in September of 2013. TWIA began sending a letter to each policyholder and their agent regarding the requirement to obtain any and all outstanding WPI‐8’s prior to their 2014 policy renewal. TWIA ultimately tracked 2,223 policies with outstanding requests for Certificate(s) of Compliance (Form WPI‐8) through their 2014 renewal. Approximately 49.1% of the policies with outstanding requests from Ike and Dolly failed to renew. The table below provides final details on the status of this policy group. Policy Status
Inactive Policies
Active Policies
Cancelled policy
Application rejected
Policy expired
Complete
Pending
Policies
2,223
(39)
(177)
(875)
Subtotal (1,091) 1,132
All WPI‐8's satisfied
(536)
Buildings excluded
(212)
Reissued on waiver
(384)
Subtotal (1,132) ‐
Extensions granted
‐
In 60 day renewal notice period
‐
Policies prior to 60 day renewal notice period
‐
Remaining ‐
7B. Agent and Policyholder Surveys
John Morrison, CPCU, AIC, SCLA
Vice President; Underwriting Memorandum Date: January 16, 2015 To: John Polak, General Manager Re: Customer Care Surveys AgentandPolicyholderSurveyResults
2014
Agent Survey
Jan
Received
Promotors
Passives
Detractors
NPS
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Year to Date
110
63
18
26
34%
26
14
5
7
27%
32%
18
9
0
9
0%
11
8
0
3
45%
19
8
4
7
5%
13%
19
11
2
6
26%
18
9
0
9
0%
8
2
1
5
‐38%
4%
36
17
0
17
0%
9
6
1
2
44%
6
6
0
0
100%
20%
280
153
31
91
22%
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Year to Date
3
1
0
2
‐33%
3
2
0
1
33%
0%
2
1
0
1
0%
3
1
1
1
0%
5
3
0
2
20%
10%
9
4
2
3
11%
2
1
0
1
0%
7
0
0
7
‐100%
‐33%
2
2
0
0
100%
0
0
0
0
N/A
2
0
0
2
‐100%
0%
38
15
3
20
‐13%
Q1
Policyholder Survey
Q2
Q3
Q4
2014
Jan
Received
Promotors
Passives
Detractors
NPS
Q1
Q2
Q3
Q4
Samplecomments
11/14/2014 8 (Promoter) “Maria is awesome. She helped me complete a transaction that I had never done before. She was kind, understanding and walked me through the process. You folks are usually good to me, but her efforts were exemplary. She's a treasure! Please thank her again for me.” 12/9/2014 10 (Promoter) “They are very helpful and usually refer me to your website for further assistance; I assumed I would be able to access your website with no issues, but I'm having difficulty finding the customers declarations page to renew her policy in our files. I understand from your office that she is active and pif. Thank you, Mica” Background
TWIA Underwriting implemented two surveys in 2014; an Agent Customer Care Survey and a Policyholder Customer Care Survey. By engaging both agents and policyholders we ensure vital components of the health and success of the department are addressed including agent and policyholder satisfaction, employee engagement, operational efficiency and complaint ratios. The surveys utilize a modified version of the Net Promoter format, a simple one question survey with a 0‐10 scale: “How well did TWIA Underwriting meet your service expectations?” By providing a comment box, users can include additional information on their praise or concerns and the survey asks for a policy number and a contact number. Underwriting managers attempt to contact all respondents with negative scores or negative comments. Rating


0‐6
7‐8
Detractors – Unhappy with their experience Passives – Satisfied but unenthusiastic  9‐10 Promoters – Enthusiastic about their experience
Detractors
0‐6
Promoters
9‐10
Calculation
#
#
#
∗ 100 A positive NPS is considered “good” and an NPS of 50% or higher is considered “excellent”. TWIA Underwriting |
Customer Care Surveys
Page | 2
7C. Agent Audit Program
John Morrison, CPCU, AIC, SCLA
Vice President; Underwriting Memorandum Date: January 16, 2015 To: John Polak, General Manager Re: Agent Audit Status Background
In 2009, HB 4409 mandated that agents meet specific declination of coverage and flood insurance requirements on a property before they could remit a windstorm application to TWIA. The law directed TWIA to implement an agent audit program to verify that agents are complying with the mandate, and to cancel policies when it was determined the structure did not meet these requirements. The law also required that TWIA establish a procedure for suspending non‐compliant agents from submitting future applications to TWIA. CurrentStatus
From October 15 through November, TWIA’s Agent Auditor contacted ten randomly selected agents for a review of ten randomly selected policies within their agencies. The auditor reviewed the status of the insurance license for each of the ten agents and requested proof of declination of coverage and flood insurance, when appropriate, to test their compliance with the law. Results from the audit found that all ten agents had active insurance licenses, and all were in compliance with declination and flood insurance requirements. Based on the audit experience, as well as feedback from members of the Agent Advisory Group (AAG), TWIA made several refinements to the audit program. In 2015, the audit will be conducted quarterly. The sample size will be doubled to 20 agents including a review of 200 policies; and all agents, regardless of their in‐force policy count, will be subject to selection. Tentative procedures were designed to handle the suspension and appeal process for non‐
compliant agents. In addition, the definition of support for declination was updated to include a commented file or a copy of an email/ letter demonstrating a company’s refusal. A company’s underwriting guidelines was removed as qualifying support. During the review, it was also identified that TWIA has no systematic review of an agent’s license once an agent becomes eligible with TWIA, outside of the newly implemented audit procedures. As a result, there is a potential that an agent with an inactive license could submit applications to TWIA without immediate detection. TWIA is working to establishing a systematic review outside of the agent audit. NextSteps
In January, 2015, the revised audit program, as well as the updated definition of support for declination, will be presented to the TDI, AAG, IIAT and Legislative Offices. A bulletin to the agents will follow on the updated definition of support for declination. With approval of the revised audit procedure by TDI, we anticipate that we can start a new audit following issuance of a new bulletin to all agents. We also anticipate implementing the suspension and appeal process for non‐compliant agents in the 2nd quarter. Approval of the final audit program, including the agent suspension and appeal process, will be sought from TDI in the 3rd quarter. TWIA Underwriting |
Agent Audit Status Page | 2
7D. Insurance-to-Value Analysis
There is no exhibit for this topic
8A. Claims Operations
TWIA Claims Operations
Q4 2014 New Claim Volume
•
•
•
Projected new claim volume was 1,721
New claim volume was 623 or -1,098 (-64%) lower than projected
New claim volume was -336 (-35%) lower vs. Q4 2013
1
YTD 2014 New Claim Volume
•
•
•
•
•
•
Projected new claim volume was 11,050
New claim volume was 2,858 or -8,192 (-74%) lower than projected
New claim volume was -7,738 (-73%) lower vs. YTD 2013
Chart represents information for all HB 3 claims filed since inception of HB 3 in late 2011
“Disputed claim frequency” tracks number of all HB 3 claims and the number and percentage of all
HB 3 claims where the policyholder is disputing the claim disposition for any reason
A single disputed claim may have more than one “type of dispute”
2014 Results:
•
•
•
120 new disputed HB 3 claims increased total from 106 at end of 2013 to 226 (+113%)
2014 disputed claim rate was 4%
Percentage of disputed HB 3 claims across all filed HB 3 claims continues to stay at 1%
Comments:
•
•
•
We anticipate the number of disputed claims for all filed HB 3 claims will continue to increase as
more claims are filed over time and our policyholders and their representatives become more
familiar with the HB 3 claim dispute processes
We project the disputed claim rate to fall within a 1-2% range over time
The above disputed claims with appraisal information breaks down as follows:
o 44% of claims with appraisal requests actually go through the appraisal process
o 29% are resolved without going through the appraisal process
o 27% are withdrawn or ineligible
2
2014 Risk Visualization (RV) Program
•
•
Results shown for first 8 months of program
3 RV Programs for Claims:
o Utilization of “Before & After” images
 Identify pre-loss property condition to remove damage not related to claimed loss
 Results for first eight months indicated in chart above
o Enhanced accuracy of new claim triage, assignment, and dispatch processes
 Designed to ensure assignment of claims to right resource, for the right reasons (by
complexity), and at the right time (get it right the first time)
 Reduces reassignments by >25%
 Identifies opportunities to avoid loss adjusting expenses through “Fast Track” or desk
adjusting claim process
o ITV Process – reduce cycle time/increase accuracy
 Low claim volume…currently not delivering expected opportunities
3
8B. Claims Litigation
TEXAS WINDSTORM INSURANCE ASSOCIATION
LITIGATION QUARTER SUMMARY
4th Quarter 2014
4th Quarter 2014
FOURTH QUARTER 2014
SUMMARY OF TWIA CLAIMS IN SUIT
New
Pre-HB3
October
0
November
0
December
0
0
HB3
0
1
0
1
Settled
Pre-HB3
HB3
6
1
4
0
11
0
21
1
Closed
Pre-HB3
HB3
7
0
3
0
1
0
11
0
SUMMARY OF TWIA CLAIMS WITH LORS
New
Pre-HB3
October
0
November
1
December
0
1
HB3
3
13
18
34
Settled
Pre-HB3
HB3
0
0
1
2
11
3
12
5
Closed
Pre-HB3
HB3
0
1
3
4
1
3
4
8
TWIA Claims Litigation
Dec-14
TWIA Claims in Suit
Category
Beginning
Inventory
Ending
Inventory
Pre-HB3
127
0
(1)
126
HB3
13
0
0
13
TOTALS
140
0
(1)
139
New Closed
Dec-14
TWIA Claims with LORs
Category
Beginning
Inventory
Ending
Inventory
Pre-HB3
16
0
(1)
15
HB3
33
18
(3)
48
TOTALS
49
18
(4)
63
New Closed
No Anticipation of Litigation: 33 Residential (3 Pre-HB3, 30 HB3)
TWIA Claims with Suits/LORs: Detail of Ending Inventory
Settled & Funded (Awaiting
closing documents and final invoices)
Dec-14
Active Unsettled Cases
Category
Pre-HB3
HB3
TOTALS
Suits
LORs
Suits
Res.
Comm.
Res.
Comm.
37
10
47
22
2
24
5
39
44
0
3
3
Total
64
54
118
LORs
Res.
Comm.
Res.
Comm.
55
1
56
12
0
12
10
5
15
1
0
1
Total
78
6
84
GRAND
TOTAL
142
60
202
TWIA Claims Litigation
Firm
Byrd
Mazzola
Hodge
Toups
Clarkson
Daly
Allan Nava & Glander
Gonzalez
Ketterman
Lopez Scott
Mostyn
Speights
Remaining 15 firms
Municipalities
Settlement/funding issues
TOTALS
Pre-HB3
26
1
0
1
0
4
2
1
1
0
3
3
8
14
0
64
HB3
0
0
3
5
4
0
1
2
26
1
0
0
12
0
0
54
TWIA Active Claims with Suits/LORs:
County of Loss Location
Dec-14
Dec-14
TWIA Active Claims with Suits/LORs:
Breakdown by Plaintiff Firm
County
Aransas
Brazoria
Cameron
Chambers
Galveston
Jefferson
Nueces
San Patricio
TOTALS
Pre-HB3
1
7
7
3
18
7
19
2
64
HB3
0
2
32
3
11
3
2
1
54
Total
1
9
39
6
29
10
21
3
118
Total
26
1
3
6
4
4
3
3
27
1
3
3
20
14
0
118
9. TWIA Operations
9A. Operations/Management
TWIA Key Accomplishments
Financial
• Projected to contribute approximately $260 million to the CRTF as a result
of 2014 operations, bringing the balance to over$475 million for the 2015
storm season
• Secured the highest level of funding for the 2014 hurricane season since
2008, with up to $3.85 billion in total funds available to pay claims – over
$1 billion more than the total projected cost of Ike
• Issued $500M in pre-event Class 1 public securities to provide immediate
claims-paying capacity after a storm and additional protection to coastal
residents, with no associated impact on rates
• Issued the Association’s first catastrophe bond as part of the overall
reinsurance program, diversifying and expanding claims-paying capacity
• Performed below budget on controllable expenses for the fourth
consecutive year
rd
• Maintained the 3 lowest cost per policy in 2013 of the 37 U.S. FAIR plans
and wind pools, despite being the 2nd largest plan nationwide
Communications & Transparency
• Began new website development to provide stakeholders with a better
web experience and easier access to information
• Implemented quarterly Agent Advisory Group meetings to improve
communications with agents and soliciting input for process improvements
• Created an Agent Services team to serve as a help desk for agents during
the implementation of Policy Center
• Increased frequency of coastal outreach events to educate communities
about TWIA’s mission, vision, and operations
• Scheduled TDI quarterly outreach presentations for the 2nd year
• Developing Legislative and Media briefing materials to provide timely,
accurate information
• Developed depopulation process based on extensive input from a diverse
stakeholder committee to provide policy data to carriers in order to offer
TWIA policyholders voluntary alternatives
Texas Windstorm Insurance Association
5700 MoPac Expressway, Building A, Austin TX 78745 | 512-899-4900 | www.twia.org
Management, Controls & Accountability
• Received positive results from TDI audit and independent audit of
Underwriting and Claims operations in October 2014, with no material
weaknesses or issues found in operational or financial controls
• Addressed 100% of HB-3 required changes in TWIA operations
• Developed extensive controls and detailed financial and operational
metrics to measure and evaluate performance at every level in the
Association
• Implemented policyholder and agent satisfaction surveys with increasingly
positive results
• Instituted comprehensive performance management program to ensure
outcome-focused accountability and credible, objective criteria to align
compensation with performance
• Hired an internal auditor to report to the Board and facilitate informed
governance through independent validation of the Association’s
compliance and risk management practices
Operational Efficiency
• Enhanced the Catastrophe Plan, which includes contracted vendor
commitments for up to 6,626 field adjusters and 745 desk examiners –
sufficient to handle claim volume associated with a 100-year event
• Simplified underwriting workflows to eliminate seasonal backlogs and
prevent them from occurring in the future.
• Developed training programs to promote a learning and continuously
improving organization, including the first extensive new hire orientation,
online business skills training, and manager-specific skills training
• Completed initial development of Policy Center and implemented a
systematic approach to manage and communicate the change to
stakeholders
• Reduced claims cycle time from 30+ days in 2011 to fewer than 8 in 2014;
more than 50% less than the industry average
• Implemented risk visualization – a more efficient underwriting inspection
process that improves assessments of insurability and premium accuracy
As of 12/31/2014
9B. Amendments to Plan of Operation
David Durden
Vice President, Legal
MEMORANDUM
Date: January 21, 2015
To: John Polak, General Manager
Subject: Plan of Operation
Phase 1 of the revision to the TWIA Plan of Operation (Plan) is complete. This project was
initiated after the Texas Department of Insurance suggested that TWIA consider a
comprehensive revision of the Plan. The overall goal of the revision is to update the Plan, make
the Plan more readable, user friendly, internally consistent and eliminate any unnecessary
duplication.
Staff and Mr. Perkins, consulted with TDI staff and agreed that the project should be
accomplished with a phased approach. Phase 1 incorporates statutory changes that are not
reflected in the current Plan, ensures that the Plan contains the provisions required to provide for
the efficient, economical, fair and nondiscriminatory administration of TWIA and improves the
readability of the Plan. Page 2 provides a summary of the changes contained in Phase 1
Phase 2 will include a comprehensive review of our underwriting processes to determine which
provisions need to be included in the Plan and ensuring that the provisions are readable, and
internally consistent. Phase 2 will begin in June 2015.
Page 1 of 2
Summary of Changes to the TWIA Plan of Operation
1) Contents of the Plan of Operation – Section 2210.152 and other provisions of 2210 require the
plan to address specific issues.
a. Provisions in the plan that were not required to be included were moved out of the Plan
of Operation.
i. Coastal Outreach and Assistance Services Team
(COAST) Program
ii. Appraisal Process
iii. Mediation Process
iv. Expert Panel
v. Windstorm Inspection Manual
vi. Appointment of Qualified Engineers and Qualified Inspectors
b. Sections in other divisions of the code were moved into the plan of operation
i. Additional Requirements
ii. Declination of Coverage
iii. Flood Insurance
iv. Minimum Retained Premium
2)
Streamlining Plan Language - Readability
a. Revised the organization of Division 1, improved the structure by providing specific
section references resulting in an improved Table of Contents
b. Eliminated provisions of the plan that merely duplicated language in the Insurance
Code. Examples include the provisions regarding the Board of Directors and
membership of the association
c. Revised sections throughout the Plan to make them more concise.
d. Eliminated outdated, unnecessary language
3)
Incorporated Latest Statutory Changes
a. HB 4409 (enacted in 2009)
b. HB 3 (enacted in 2011)
Page 2 of 2
9C. Gamboa Case
David Durden
Vice President, Legal
MEMORANDUM
Date: January 15, 2015
To: John Polak, General Manager
Subject: Gamboa Update
On December 12, 2014 TWIA received Plaintiff’s notice of appeal in the Gamboa matter. You
will recall that the district court in Travis County granted our plea to the jurisdiction and
dismissed the case by order signed on November 21, 2014.
On January 9, 2015 we received notice that the case has been transferred to the Amarillo Court
of Appeals. The transfer was purely administrative; part of an effort by the Texas Supreme Court
to equalize the dockets among the courts of appeal.
A general timeline for the appeals process is as follows:
Filing of Appellate Record—60 days after the judgment was signed. The deadline for the
trial court to file the appellate record is 60 days after the judgment was signed (November 21,
2014). The governing rules allow this deadline to be extended when requested by the trial court.
The record will likely be filed sometime in January or early February.
Gamboa’s Opening Brief Due—30 days after the appellate record is filed. Gamboa’s
opening brief will be due 30 days after the appellate record is filed. This deadline will likely fall
in mid-February or early March. Gamboa may request one or more 30-day extensions and such
requests are generally granted. Depending on extensions, Gamboa’s brief will likely be due
sometime between mid-February and mid-May.
TWIA’s Response Brief Due—30 days after Gamboa’s brief is filed. TWIA’s response brief
will be due 30 days after Gamboa files his opening brief. TWIA can likewise request extensions,
so our brief may be due anywhere from March to sometime in late summer of 2015.
Gamboa’s Reply Brief Due—20 days after TWIA’s brief is filed. Gamboa’s reply brief will
be due 20 days after TWIA files its response brief. Gamboa may also request extensions so this
deadline could be anywhere from April to early fall of 2015 given the possibility of extensions.
Texas Windstorm Insurance Association
5700 South MoPac Expressway, Building A, Austin, Texas 78749 ● P.O. Box 99090, Austin, Texas 78709-9090
512-899-4900 / Fax 512-899-4950
Once all the briefing is in, the Court may grant oral argument and then it will consider the case
and issue an opinion. We do not know when after briefing is complete that a decision will be
made, but court statistics suggest it will be around two to three months.
Court statistics also show that, on average, appeals take around a year from filing to disposition,
and potentially longer if the court grants oral argument.
Texas Windstorm Insurance Association
5700 South MoPac Expressway, Building A, Austin, Texas 78749 ● P.O. Box 99090, Austin, Texas 78709-9090
512-899-4900 / Fax 512-899-4950
9D. Depopulation
There is no exhibit for this topic
9E. IT
Completed Phases
Acquire
“Vendor
Management”
Inception
“Financial &
Resources”
Planned remaining Milestones:
Develop
“Software
Development”
User Acceptance Testing
April 2015
Policy Center (Residential) &
EDW
May 1, 2015
Stabilize
“User Acceptance”
Deploy
“Production”
Ongoing
Jan-Apr, 2015
May-1, 2015
• Agent Training
begins March
16th
• New Business
effective May
1st and later
• Staff Training
begins Jan 21st
• Renewals
effective July
1st and later
Current Website
What it could look like
Key Milestones
Inception
Development
Deploy TWIA.org
Plan Date
January 20, 2015
April 15, 2015
May 1, 2015
10. 84th Texas Legislature
There is no exhibit for this topic
14. Future Meetings
May 5, 2015 – Hyatt Regency, Austin
August 2015 - TBD