GALVESTON — Putting Texas Windstorm Insurance Association into receivership would not place current policies in peril, according to a fact sheet released by the Texas Department of Insurance.
The department released a four-page statement Thursday, a day after the revelation that the windstorm association’s board scheduled an emergency meeting to discuss its financial situation and to discuss the possibility of putting the association into receivership, a process that is similar to bankruptcy.
The document — which refers to the receivership as “rehabilitation” — answers questions about the process and effects the move would have and about the association’s current financial situation.
Ordering rehabilitation would strip power away from the association’s board of directors and give it to the state’s insurance commissioner, Eleanor Kitzman, in order to resolve outstanding claims. Policyholders would still have insurance during the time it is in receivership, and the association would continue to renew and issue policies. A temporary hold would be place on existing claims payments, though, if existing funds cannot cover all existing claims “it may be necessary for the Rehabilitator to make partial payments on a pro-rata basis,” according to the statement.
Discussions about putting the association into receivership were prompted by its annual statement, which showed its liabilities now exceed assets by $183 million, making the insurer insolvent.
“Allowing TWIA to continue to operate in this condition could place new policyholders in jeopardy,” according to the department of insurance.
State leaders have decried the decision to raise the possibility of receivership, which they say could damage the association’s ability to get loans. It did not stop TWIA from getting a $500 million loan from Bank of America this week to cover any storms that happen this year, however.
State Rep. Craig Eiland, D-Galveston, has said the agency should charge insurance companies for $400 million now that could have been charged back in 2008. Eiland said doing so would raise more than enough to cover the current deficit.
It’s unclear whether that is possible. In 2009, part of the insurance code allowing the association to charge private companies assessments was repealed and its funding mechanism was changed to receive funding through the sale of bonds.
An association spokesperson did not answer questions about Eiland’s proposed solution.
Also, an association subcommittee decided to delay a decision to seek a 5 percent increase on windstorm policies, something that has been done every year since 2009. The association board of directors has the ability to raise rates by 5 percent annually. Higher rate increases must be approved by the insurance commissioner.
Kitzman herself has been at the center of quiet speculation in the capital. Her term ended last month, and she has not yet been reappointed by Gov. Rick Perry. If she is reappointed, she must gain confirmation from the state Senate, or she will be out of a job in 10 weeks. Kitzman has said that current windstorm rates are inadequate to cover costs and in the past pushed for private consultants to be hired to consider rate hikes in various parts of the state.
The insurance department’s statement seemed to head off questions that paying consultants contributed to the association’s jeopardized status.
Question 16 reads “If TWIA had not paid for assistance with litigation and claims operations, could TWIA have been saved and not sent into Rehabilitation?”
The answer: “No. TWIA is insolvent by $183 million. The insolvency is the direct result of litigation stemming primarily from Hurricane Ike. The total overall loss from Hurricane Ike is now over $2.5 billion.”