Texas residual insurer TWIA rate adequacy down on reinsurance spike

Rate adequacy at the Texas insurer of last resort, the  Texas Windstorm Insurance Association (TWIA) deteriorated into 2023, leaving residential rates with 20% to go to the actuarial requirement and 22% for commercial, TWIA analysts said to kick-off the 2023 rate adjustment process.

Reinsurance costs are to blame for the worsening of rate adequacy, contributing six percentage points to the five-point deterioration from the prior indicative residential rate, offsetting light declines for the expense ratio and hurricane loss ratio.

The deterioration in rate adequacy for commercial property is more stark, doubling from the prior year analysis. Of that 11 point increase in the indicative rate move, nine points can be attributed to the rise in reinsurance costs and five points to a total modelled loss ratio, offset by improvement on expense and attritional losses.

“By its statutory design, as a residual market insurer, TWIA is unavoidably subject to adverse selections,” authors noted. “The cumulative impact of the adverse selection is expected to be fully reflected in TWIA modelled hurricane loss ratios, but not in industry experience-based loss ratios.”

The study kicks off a rate adjustment process that winds up in October. TWIA must make a rate filing with the Texas Department of Insurance by August 15, then wait up to two months for a regulatory decision.

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