DALLAS - Compromise legislation authorizing up to $2.5 billion of tax-exempt bonds to replenish Texas' dwindling windstorm insurance reserve fund passed in the Legislature just hours before lawmakers ended the biannual session on Monday night.
Monday also marked the first day of the Gulf Coast hurricane season that will extend to the end of November.
Gov. Rick Perry said last week he would call the Legislature into special session if it failed to approve some relief for the Texas Windstorm Insurance Association. The state-chartered association's fund, which once totaled $2.1 billion, has been almost depleted by claims resulting from hurricanes Ike and Dolly in 2008.
HB 4409 authorizes $2.5 billion of 10-year bonds a year if claims from a storm deplete the TWIA's reserves.
The bonds can be issued by the Texas Public Finance Authority only after a storm occurs. The TWIA board and the state insurance commissioner must approve the sale before any bonds can be issued.
The authorized annual debt includes $1 billion of bonds supported by a surcharge on insurance premiums, $1 billion with 30% of the debt service supported by the insurance companies and 70% by premium surcharges, and $500 million supported by an assessment on insurance companies.
Policyholders in coastal areas could be assessed a surcharge of up to 2.8% a year for 10 years to support the debt.
The insurance companies are allowed to purchase reinsurance to cover their payments into the system in the event of an expensive storm. Residential and business rate increases in non-storm years are capped at 10%.
Jim Oliver, executive director of the TWIA, said the association intends to act quickly to issue bonds in the wake of a hurricane or other devastating wind event.
"We are going to do all the legwork and have the paperwork ready," he said.
The legislation also authorizes the TWIA to enter into a commercial paper program, according to Oliver. Agreements can be reached, he said, but as with the bonds, the commercial paper can not be issued until after a storm.
"We will be meeting [today] with financial institutions to discuss how to get that program started," he said.
Oliver said the TWIA's reserve has dwindled to $200 million after paying more than 90,000 claims from the 2008 hurricanes. Up to 50 claims resulting from the storms continue to come in daily, he said.
"We have plenty of cash to take care of normal events, but not for a hurricane like Ike," Oliver said.
The state Senate on Sunday passed a version of the windstorm act that called for replenishing the TWIA's reserve fund with $600 million of bonds and a $400 million assessment on association members. However, the largely rewritten final version was incorporated Monday into House-sponsored legislation that dealt with emergency preparedness.
"It had to be added to another bill because of the late hour," Oliver said.
The Legislature created the TWIA in 1971 as a private, nonprofit agency. It's a pool of all property and casualty insurance companies authorized to write coverage in the state.
The TWIA became the sole wind and hail property insurer for as many as 300,000 residents and businesses in 14 Texas coastal counties and part of Harris County after 2005. Many insurers left the coastal market due to losses from hurricanes Katrina and Rita.
It is funded through premiums, assessments on insurance companies, and reinsurance policies.
