The TWIA Board of Directors met on Jan. 19 and voted 4-3 to establish $4.5 billion ($3.9 billion plus 15% LAE) as the Association’s 1:100 PML for the 2023 storm season. The motion was made by non-seacoast territory representative to the board, Ron Walenta, with Chairwoman Chandra Franklin Womack seconding it; board members Peggy Gonzalez, Tim Garrett voted in support; while board members Mike Gerik, Karen Guard, and Tony Schrader voted against the motion. Board member Georgia Neblett was absent.
By statute, the 1:100 PML sets the funding level needed for TWIA and helps to determine the minimum amount of reinsurance needed to meet TWIA's statutory funding obligations. The Board voted to use the RMS catastrophe model, apply the model results based on long-term assumptions, and include loss adjustment expense in determining the 1:100 PML. This was despite the TWIA Actuarial & Underwriting Committee recommendation that the 1:100 PML be set at $5.244 billion. In addition, TWIA staff and other models had also projected a 1:100 PML in the $5.2 billion range.
After approving the lower 1:100 PML amount, the Board included instructions to TWIA's reinsurance broker Gallagher Re to pursue $2.92 billion in reinsurance. This reinsurance funding is in addition to $2.28 billion in statutory funding (consisting of CRTF, TWIA loss funding, and insurer assessments) and would bring TWIA’s total funding for the 2023 storm season to $5.2 billion. Insurers would be assessed for the cost of the difference between the reinsurance purchased at the approved 1:100 PML level and reinsurance purchased above the approved 1:100 PML. According to TWIA, the cost for the $700 million in reinsurance above the PML will be paid by member insurance companies through an assessment. This is a significant decision that will directly impact Texas insurers. As background, by statute, insurers are required to pay for TWIA's reinsurance more than the 1:100 PML as determined by the TWIA board. This excess reinsurance assessment was established by HB 1900, which passed during the 2019 legislative session. This is the first time such an assessment has been triggered.
There are various laws and rules regarding the excess reinsurance assessment process, and you can find that information here. This potential assessment is distinct from an assessment to pay for losses after a storm. TWIA will not know the cost of the reinsurance purchase until later this Spring. We will continue to monitor and update with any new information.
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