TWIA reports worsening rate adequacy in line with rising reinsurance costs

TWIA reports worsening rate adequacy in line with rising reinsurance costs | Insurance Business Canada

Reinsurance

TWIA reports worsening rate adequacy in line with rising reinsurance costs

Residential rates’ inadequacy grew by double digits

Reinsurance

By
Kenneth Araullo

The Texas Windstorm Insurance Association (TWIA) reported a significant worsening in the adequacy of its current rates this year, according to an analysis released ahead of a board of directors vote on a rate filing.

The association found residential rates are inadequate by 38%, up 18% from a year earlier. Commercial rate inadequacy more than doubled, increasing to 45% from 22%.

According to a report by AM Best, TWIA attributed the situation to an increase in policies, the need for greater reinsurance, and economic inflation raising construction labor and material costs.

In a breakdown of rate elements, TWIA noted that reinsurance, one of three fixed expense categories, rose 20.5% this year to 44% for residential coverage and increased 24% to 50.4% for commercial coverage.

TWIA set $6.5 billion as its statutory target for 2024 storm season coverage, establishing it as its 1:100 probable maximum loss for the season. This funding level is $2 billion more than TWIA secured in 2023. The agency added more than 25,000 policies over the previous year, and the total insured value of covered properties rose by 26.4%.

Operating expenses decreased 2.3% to 5.2%, and there is currently no outstanding debt, TWIA said in the rate adequacy analysis. Variable expenses are 0.1% lower, and provisions for non-hurricane and hurricane losses declined.

Over nearly two decades, the annual analysis has routinely indicated inadequacy rates of 26% or greater for residential and 21% or greater for commercial. However, rates were unchanged in seven years since 2008, with a 5% increase in most other years.

State law requires TWIA to post a rate adequacy analysis at least 14 days before its board of directors votes on a rate filing.

TWIA is mandated to make a rate filing with the Texas Department of Insurance by August 15 annually. Public comment on an upcoming rate filing will be taken at an Actuarial & Underwriting committee meeting on July 15 and at TWIA’s board meeting on Aug. 6, when it will decide the filing.

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