Original Petition - Gamboa v. TWIA

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No. ______________

RAMIRO GAMBY GAMBOA, IN THE DISTRICT COURT OF
Plaintiff

v.

TEXAS WINDSTORM INSURANCE
ASSOCIATION, RICHARD CLIFTON TRAVIS COUNTY, TEXAS
CRAIG, STEPHEN L. ELBERT, LYNDELL
HAIGOOD, MICHAEL GERIK, RON
LAWSON, GEORGIA R. NEBLETT,
MICHAEL OMALLEY, EUGENE GENE
SEAMAN, and EDWARD J. SHERLOCK, III,
Defendants _____ JUDICIAL DISTRICT
PLAINTIFFS ORIGINAL PETITION
TO THE HONORABLE COURT:
Plaintiff, Ramiro Gamboa, respectfully submits this original petition complaining of the
Texas Windstorm Insurance Association, Richard Clifton Craig, Stephen L. Elbert, Lyndell
Haigood, Michael Gerik, Ron Lawson, Georgia R. Neblett, Michael OMalley, Eugene Gene
Seaman, and Edward J. Sherlock, III, Defendants, and would show the following:
I. Discovery Control Plan
Discovery is intended to be conducted under Level 2 of Texas Rule of Civil Procedure
190.3.
II. Parties
Plaintiff, Ramiro Gamby Gamboa, is an individual who resides in Corpus Christi,
Nueces County, Texas. Ramiro Gamboa is insured by the Texas Windstorm Insurance
Association.
Defendant, Texas Windstorm Insurance Association, is a pool of all property and casualty
insurance companies authorized to write coverage in Texas. TWIA provides basic wind and hail
insurance coverage for Gulf Coast property owners who might otherwise be left uninsured.
3/31/2014 12:38:21 PM
Amalia Rodriguez-Mendoza
District Clerk
Travis County
D-1-GN-14-000946
D-1-GN-14-000946
53RD

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TWIA may be served with process by serving the Texas Insurance Commissioner at 333
Guadalupe, Austin, Texas 78701, by certified mail, return receipt requested, as outlined in the
Texas Insurance Code section 804.201.
Defendants Richard Clifton Craig, Stephen L. Elbert, Lyndell Haigood, Michael Gerik,
Ron Lawson, Georgia R. Neblett, Michael OMalley, Eugene Gene Seaman, and Edward J.
Sherlock, III, are directors of TWIA, are sued in their capacity as directors, and may be served
by mailing to each defendant by registered or certified mail, return receipt requested, a true copy
of the citation with a copy of the petition attached thereto. They may be served by mail at their
usual place of business at the principal place of business for the Texas Windstorm Insurance
Association, 5700 South Mopac Expressway, Bldg. A, Austin, Texas 78749.
III. Venue
Venue is proper in Travis County, because it is the county of TWIAs principal of
business.
IV. Jurisdictional Statement
Plaintiff Ramiro Gamboa seeks relief because TWIA and its board of directors have
failed to properly assess insurance companies for the excess loss resulting from Hurricane Ike, in
the amount of approximately $600 million, and have shifted that cost onto policyholders instead
of the member insurance companies.
Plaintiff seeks monetary relief of $100,000 or less and nonmonetary relief.
V. Conditions Precedent
All conditions precedent have been performed or have occurred.

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VI. Facts
Gamby Gamboa lives near the gulf coast and owns a home in Nueces County. He is
insured by the Texas Windstorm Insurance Association (TWIA).
TWIA was established by legislative mandate to provide wind and hail insurance for gulf
coast property owners in the event of catastrophic loss, such as a hurricane. TWIA provides
basic coverage unavailable in traditional markets for consumers who might otherwise be left
uninsured. (Exhibit A, TWIA Website).
This lawsuit arises because TWIA is unlawfully imposing over $600 million in losses on
its insureds that instead should be paid by the insurers.
TWIA is a pool of all property and casualty insurance companies authorized to write
coverage in Texas. (Exhibit A). The membership includes every authorized property insurer in
the State of Texas, except companies excluded by law. Each member must participate in the
association writings, expenses, profits, and losses in proportion to the net direct premiums of that
member during the preceding year. (Exhibit B, TWIA Statuary Financial Statements 2007-2008,
p. 10).
On September 13, 2008, Hurricane Ike struck the Texas gulf coast, causing devastating
losses. Within days the losses were estimated at $2.5 billion, which was far more than TWIA
had reserved to pay claims. TWIA had to determine how to pay the excess loss. (Exhibit C,
TWIA minutes).
That determination is governed by law. TWIA is regulated by chapter 2210 of the Texas
Insurance Code. When Ike hit in 2008, the statute required payment of excess losses from
certain sources:
(1) premiums and other revenue;

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(2) $100 million assessment against member insurers;
(3) the catastrophe reserve fund;
(4) $200 million member assessment; and
(5) unlimited member assessments, which could be recouped through
premium tax credits.

(Exhibit D, 2210.058). The statute did not allow TWIA to pay past losses from future
premiums.
Because of the magnitude of the loss from Hurricane Ike loss, the TWIA board was
required by law to assess the member insurers for the excess loss. TWIAs board has failed to
comply with this legal obligation and has instead shifted over $600 million of the excess loss
from the member insurers and onto the insured policyholders.
TWIAs board has failed to comply, even though they understand that assessing members
is required by law. TWIAs 2008 financial statement, filed after the excess losses were apparent,
states:
The Act provides that members will share in the Associations losses on a policy
year basis to the extent of their percentage of participation during the policy year
involved, as determined under the provisions of the Act and the Association's Plan
of Operations. In the event of any net loss for any policy year, members
participating in that policy year may be assessed for their share of the loss based
upon their respective participation percentages.

(Exhibit B, p. 10).
In that same report, TWIAs independent auditors state: The Association has authority
to assess certain property and casualty insurers underwriting business in the State of Texas under
Texas Insurance Code Section 21.49 for losses incurred during 2008. (Exhibit B, p.5).
Consistent with this legal authority, TWIAs executive director, Jim Oliver, requested
that the board of directors make an assessment of $830 million from the insurance carriers under

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the 2008 TWIA statutory funding structure. Mr. Oliver noted that with cash from the trust fund
and reinsurance this assessment would allow TWIA to pay claims up to $2.5 billion. (Exhibit
C).
At the time, TWIA was governed by a nine-member board of directors. A majority were
aligned with insurers. At the September 17, 2008, meeting the four coastal representatives on the
board voted for the $830 million assessment, but the five insurance industry representatives did
not vote for the full assessment. The insurance company representatives would only approve a
$430 million assessment. (Exhibit C).
In 2009, the Legislature amended the statute to change the method for paying excess
losses, but the amendments were not retroactive. The language on payment of excess losses was
amended to provide for payment of excess losses from available reserves and amounts in the
trust fund. After that, losses are paid from three levels of public securities: Class 1, up to $1
billion, to be repaid from premium revenue; Class 2 up to $1 billion, to be repaid 30% from
member assessments and 70% from premium surcharges on insurance policies; and Class 3 up to
$500 million to be repaid from member assessments. (Exhibit E).
This change authorizes using current and future premium income to pay past losses,
where the old statute did not allow this. There is nothing in the new statute that applies it
retroactively to an existing loss like Hurricane Ike.
Under this new funding scheme, TWIAs policyholders are liable to pay an extra $700
million added to their policy premiums in any catastrophe year. (Exhibit F, p. 10).
After the 2009 amendments, TWIA continued to acknowledge that the excess loss from
Hurricane Ike would be paid by insurance company assessments under the old law. TWIAs
2009 annual statement said: The Association has authority to assess certain property and

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casualty insurers underwriting the business in the state of Texas under Texas Insurance Code
Section 21.49 for losses incurred in 2008. (Exhibit F, p. 10). Under that authority, TWIA did
in fact assess its members. TWIAs report explained:
Prior to the enactment of HB 4409 in 2009, member companies were
assessed to the extent that the Association's Board of Directors determined that
available funds were not sufficient to satisfy the obligations of the Association.
During 2009 and 2008, the Association assessed its members approximately
$905,000 and $530 million, respectively.

(Exhibit F, p. 13).
The TWIA Board was specifically advised that current and future premiums could not be
used to pay the excess Hurricane Ike loss. On March 21, 2011, Texas Insurance Commissioner
Mike Geeslin wrote a letter to TWIA, as the result of a legislative inquiry that specifically asked,
could the Association use current premium income to pay for Hurricane Ike and Dolly losses?
After analyzing the 2009 legislation (HB 4409), the Commissioner determined that assessments
were proper, instead of using current premium income. Commissioner Geeslin wrote:
As the losses from Hurricane Ike and Dolly are obligations and liabilities that
existed prior to the effective date of HB 4409, we believe the funding mechanism
for such losses is contained in Chapter 2210 before it was amended by HB 4409
(i.e. assessment of the companies) ... [.] It appears that current premium dollars
should not be used to pay claim losses from Hurricane Ike and Dolly.

(Exhibit G).

TWIAs general manager John Polak wrote a memo to the Board raising the issue. No
action was taken. (Exhibit H, p. 3).
At the June 28, 2011, Board meeting, an audit was presented, and TWIAs auditing
company noted: In the event of a net loss in any policy year prior to January 1, 2009, members
participating in that policy year may be assessed for their share of the loss based upon their
respective participation percentages. No action was taken by the Board to assess members.
(Exhibit H, p. 3).

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Instead, the Board allowed TWIA to unlawfully use premiums for post-2008 years to pay
Ike claims. Commissioner Geeslin again wrote to the TWIA Board, on August 12, 2011,
addressing the assessment issue. He wrote:
In my letter to the Board of Directors (Board) dated March 21, 2011, I
expressed concerns related to the proper use of current premium dollars and
requested that the Board address that issue as well as the 2008 Hurricane Ike
losses. I understand that those issues are still outstanding and that the Board is
seeking legal guidance.

Also, of substantial interests are issues related to the resolution of
Hurricane Ike losses and funding. These include, but are not limited to, the
potential assessment of member companies for 2008 losses, and accounting for
2009 through 2011 annual premium dollars that have been used to pay Ike claims.
How these matters are resolved will have an impact on the level of public trust of
TWIA ... I believe that at the next Board meeting, the Board should have all
available information from counsel and TWIA staff necessary to vote on and
resolve these issues.

(Exhibit I).
After that, assessment ceased to be discussed at board meetings throughout 2012. As a
result, several concerned coastal legislators wrote to the new Texas Insurance Commissioner,
Eleanor Kitzman. These included Joe Deshotel, Craig Eiland, Abel Herrero, Todd Hunter, Eddie
Lucio, III, and Allan Ritter. All the TWIA board members were sent copies of the letter, which
stated:
What the Board should do, as has long been advocated by Mike Geeslin, the
previous Insurance Commissioner, as well as coastal members of the Board, is
assess the insurance companies under the law applicable to insurance policies in
effect in September 2008.

(Exhibit H, p. 1).

The legislators noted that TWIA had spent approximately $316 million dollars in
premiums from 2009, 2010, 2011, and 2012 to resolve 2008 Hurricane Ike claims and had set
aside an additional $330 million from premiums to pay for the remaining claims. They requested

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that the Board take action to assess the member companies and put $600 million in the trust fund.
(Exhibit H, p. 4).
Ultimately, at the August 13, 2013, meeting the Board decided against assessments,
leaving the Ike claims to be paid from post-Ike premiums. The Board deadlocked, with the four
insurance industry board members voting not to assess the insurers. (Exhibit J, p. 6-8).
Thus, this lawsuit is necessary to compel TWIA and its Board to comply with their legal
duty to assess the insurers for the excess loss from Hurricane Ike.
Policyholders are harmed by the unlawful use of current premiums to pay 2008 Ike
claims. Because TWIA and the board have used post-2008 premiums to pay Ike claims, the
balance in the trust fund set aside for future claims is depleted. Every dollar of current premium
that is diverted to pay 2008 Ike claims is a dollar that wont be available to pay future claims.
Further, under the new funding system, when the reserved funds are insufficient TWIA
issues bonds 70% of which are repaid by a premium assessment on policyholders. Every
dollar spent on Ike claims means that current and future policyholders pay premium assessments
a dollar sooner.
In addition, current premiums are higher because they have to be used to fund the reserve
that has been unlawfully depleted to pay Ike claims.
The insurance companies profit to the same extent that policyholders are harmed, because
the policyholders are paying the insurers debt.
VII. Declaratory Judgment
Plaintiff brings this suit for a declaratory judgment under Tex. Civ. Prac. & Rem. Code
sections 37.004 and 37.009. Plaintiff asks the Court for a declaration that TWIA and its board
are required to assess member insurers for the excess loss from Hurricane Ike under the law as it

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existed in 2008. Declaratory relief is necessary because the Defendants have violated their
statutory duties regarding payment of excess losses, by paying the 2008 Ike loss with later
premiums.
VIII. Breach of Contract
The law as it existed in 2008 was incorporated into each policy issued by TWIA. By the
failure to assess insurers and the decision to instead use policyholder premiums to pay losses for
Hurricane Ike, resulting in premium overcharges to Plaintiff, TWIA has breached its contract
with Plaintiff. Plaintiffs claim was presented to Defendants, and they failed to act for more than
thirty days.
IX. Mandamus Relief
TWIA and its board members have a nondiscretionary legal duty to assess member
insurers for the 2008 Hurricane Ike loss. Plaintiff and others have demanded performance.
TWIA and its board have refused. Plaintiff therefore seeks a writ of mandamus compelling
TWIA and its board members to perform their legal duty to assess members.
X. Damages
As a direct result of Defendants conduct Plaintiff has suffered actual damages, which he
is entitled to recover.
XI. Attorneys Fees
Pursuant to Texas Civil Practices & Remedies Code sections 38.001 and 37.009, Plaintiff
seeks recovery of his reasonable and necessary attorneys fees and court costs.
XII. Jury Demand
Plaintiff requests that a jury decide this case, as allowed by Texas Rule of Civil
Procedure 216. The appropriate jury fee has been paid.

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XIII. Prayer
Plaintiff respectfully prays that the Defendants be cited to appear and answer and that
upon final trial Plaintiff have judgment as follows:
a. declaratory relief;
b. mandamus relief;
c. monetary relief for actual damages caused by TWIAs conduct;
d. prejudgment and postjudgment interest as provided by law;
e. reasonable attorneys fees;
f. court costs; and
g. such other and further relief to which Plaintiff may be justly entitled.
Respectfully submitted,

/s/ Mark L. Kincaid
_______________________________________
MARK L. KINCAID
State Bar No. 11431300

SUZETTE E. SELDEN
State Bar No. 24056292

GEORGE BROTHERS
KINCAID & HORTON, L.L.P.
114 West 7th Street, Suite 1100
Austin, Texas 78701
(512) 495-1400
(512) 499-0094 fax

ATTORNEYS FOR PLAINTIFF

3/25/14, 3:17 PM Home | Texas Windstorm Association | TWIA
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COASTAL STORM ACTIVITY
If your property has been damaged by
recent wind or hail storm events
please call your agent or the Texas
Windstorm Insurance Association at
800-788-8247 and follow prompts to
report your claim as soon as possible.
Once we are aware of your claim we
will assign an adjuster who will
contact you as quickly as possible. If
necessary, please make any minor
repairs to protect your property from
further loss and keep receipts for any
work. Please do not begin making
permanent repairs until a TWIA
assigned adjuster has contacted you
and inspected your property. Once
you have reported the loss you may
be assured we will process your claim
as quickly as possible.
Policyholders
TWIA offers a Policyholder Portal that
provides our policyholders direct
access to information about their
claims. You can get claim information
such as loss payments issued,
replacement depreciation holdbacks,
and contact information for your
adjuster and agent. To register for
and use this portal, be sure to have
your policy number and claim number
handy.
Policyholder User Guide
Adjusters
Follow these links to information for
adjusters about TWIA claims
processing.

Agents
The Agents section of this website is
designed to help agents conduct
business with TWIA.
When a storm is impending or recent,
click the "Agent Alerts" button below
for the latest updates from TWIA.

Use the "Agent Login" button to enter
the Agent Portal, where agents can
quote TWIA coverages, submit policy
applications, or file TWIA claims on
behalf of their clients.

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TWIA
The Texas Windstorm Insurance
Association (TWIA) was established
by legislative mandate to provide
wind and hail insurance for Texas Gulf
Coast property owners in the event of
catastrophic loss. We provide "basic"
coverage unavailable in traditional
markets for consumers who might
otherwise be left uninsured.

TWIA Instructions and Guidelines Manual
Agent Bulletins
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E-Quote Help
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More about TWIA
About TWIA
News & Upcoming Events

Helpful Links
NEW: A special meeting of the Board of
Directors of Texas Windstorm Insurance
Association is scheduled for Monday,
March 31 at 1:00 pm at 5700 South
MoPac Bldg A, Austin, TX 78749. Please
click here for the agenda. Please click
here to follow the meeting via audio link.
(Note: Silverlight installation required.)
TWIA Disavows Culture of Racism
TWIA Releases Newly Discovered
Potentially Offensive Emails to Litigator
Steve Mostyn.
TWIA Clearinghouse Feasibility Study
SB1702 eQuote Agent Bulletin
TWIA Annual Report Card - J une 1, 2013
Residential / Commercial Adjuster
Certification
TWIA Claims Key Performance Indicators
- J anuary 2014
TWIA Board of Directors' Biennial Report
- December 2012
TWIA Customer Care Survey - Claims
TWIA Customer Care Survey - Policies
Information Regarding the Public
Information Act
TDI
Crown Weather
NOAA (National Hurricane Center)
Weather Underground
Texas FAIR Plan Association
Commercial Replacement Cost Calculator
Residential Replacement Cost Calculator
Wellington Premium Finance (formerly
known as CG Premium Finance, Inc.)
EXHIBIT A
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5700 S. Mopac Expy | Bldg. A | Austin, TX 78749 | (512)899-4900 | Underwriting Fax (512) 899-4950 | Claims Fax (512) 899-4953
2009 Texas Windstorm Insurance Association, All Rights Reserved |Privacy & Legal Information
known as CG Premium Finance, Inc.)
Office of Public Insurance Counsel
FEMA
TWIA Plan of Operation

Social Media Disclaimer
3/25/14, 3:17 PM About TWIA
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About TWIA
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Member Companies
TWIA & TDI
Public Financial Information
About TWIA
TWIA's Purpose
When Hurricane Celia struck the Texas coast on August 3, 1970, many insurance
companies ceased to write business in this region. To protect consumers, the state
stepped in and in 1971 created the Texas Catastrophe Property Insurance Association
(now called the Texas Windstorm Insurance Association).
Texas Windstorm Insurance Association (TWIA) is a 'pool' of all property and casualty
(P&C) insurance companies authorized to write coverage in Texas. TWIA provides basic
wind and hail insurance coverage for Gulf Coast property owners who might otherwise
be left uninsured. Because TWIA is the provider of last resort, we do not try to expand
our customer base or actively compete against private insurance providers. Chapter
2210 of the Texas Insurance Code defines the structure of TWIA.
Mission Statement
The Texas Windstorm Insurance Association (TWIA) is the state's insurer of last resort
for wind and hail coverage in the fourteen (14) coastal counties and parts of Harris
County (east of Highway 146). TWIA provides wind and hail coverage when insurance
companies exclude it from their homeowners and other property policies sold to coastal
residents. TWIA employees are committed to promote hurricane safety and education,
together with the development and enforcement of coastal building codes, in an effort
to save lives and property. We strive to achieve the highest standards of personal and
business ethics and, in a positive working environment, are dedicated to providing
efficient, friendly and effective customer service.
Coverage
TWIA is similar to other insurance carriers in that we have a written contract that
specifies the extent and restrictions of the insurance coverage we provide. We collect
premiums and pay valid claims. Our policies are distributed to policyholders owning
property in 14 first-tier counties (and parts of Harris County) along the Texas Gulf Coast
through insurance agents, brokers and direct writers.
Traditional, for-profit insurance companies must assess risk differently than we do.
Generally, when estimated risk is low, traditional markets provide windstorm coverage
for high-risk areas. They may withdraw from this territory after catastrophic losses
occur. When risk is higher and traditional markets withdraw, TWIA absorb policies no
longer written by other carriers. Because we are a provider of last resort, it is very likely
that we will not have the most extensive coverage or the lowest prices.
Employees
TWIA employees are committed to promoting hurricane safety and education and the
development and enforcement of coastal building codes in an effort to save lives and
3/25/14, 3:17 PM About TWIA
Page 2 of 2 http://www.twia.org/AboutTWIA/tabid/56/Default.aspx

5700 S. Mopac Expy | Bldg. A | Austin, TX 78749 | (512)899-4900 | Underwriting Fax (512) 899-4950 | Claims Fax (512) 899-4953
2009 Texas Windstorm Insurance Association, All Rights Reserved |Privacy & Legal Information
development and enforcement of coastal building codes in an effort to save lives and
property. We strive to achieve the highest standards of personal and business ethics in a
positive working environment and are dedicated to providing efficient, friendly and
effective customer service.
Agents for Insureds
One way that TWIA differs from other carriers is that we do not have agents contracted
to sell policies for us. By state statute, agents properly licensed through the Texas
Department of Insurance (TDI) represent the insured (and not TWIA) in the insurance-
buying transaction for coverage placed with TWIA. This also means agents have no
binding authority on behalf of TWIA, and only TWIA employees can bind coverage on
behalf of the TWIA.
Board of Directors
TWIA is governed by a 10-member board of directors. The board meets on a quarterly
basis.
"
Texas Windstorm Insurance
Association
I - ~ ~ ~ ~ - _ . _ - __ ~ _ -- --- - --- --- ". - . -.
Statutory Financial Statements
Years Ended December 31, 2008 and 2007
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Certified Public Account ants
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EXHIBIT B
Association
Years Ended December 31,2008 and 2007
Texas Windstorm Insurance Association
Accountants' letter of qualifications
Independent auditors' report
Statutory financial statements
Statements of admitted assets, liabilities, surplus and other funds
Statements of income
Statements of changes in surplus and other funds
Statements of cash flows
Summary of significant accounting policies
Notes to statutory financial statements
Independent auditors' report on supplemental material
Supplemental material
Summary investment schedule
Supplemental investment risk interrogatories
Reinsurance interrogatories
Contents
3-4
5
6
7
8
9
10-13
14-25
26
27-28
29
30-32
2
ctm
Calhoun, Thomson+fv1atza, LLP
Certified Public Accountants
Accountants' Letter of Qualifications
Board of Directors
Texas \Vindstonn Insurance Association
9500 ArboTl:tum Blvd., Suite 120
A .. "tinJ Texas 78759
Phone: 512.439.8400
Fax! 512.439.8401
www.ct:mtlp.com
We have audited, ' ill accordance with auditing standards generally accepted in the United States of
America, the statutory financial statements of TexasWindstonn Insurance Association (the
"Association") for the years ended December 31, 2008 and 2007, and have issued Ollr repolt thereon
dated June 23, 2009. Tn C01U1ection therewith"ve advise yqu as follows:
a. We are independent cel1itled public accountants with respect to the Association and confonl1 to
the standards of the accounting profession as contained in the Code of Professional Conduct and
pronouncements of the American Institute of Celtifled Public Accountants, and the Rules of
Professional Conduct of the Texas Board of Public Accountancy.
b. The engagement partner and engagement manager, who are certified public accountants, have 16
years and 11 years, respectively, of experience in pliblic accounting and are experienced in
auditing insurance enterprises. Members of the engagement team, most of whom have had
experience in auditing insurance enterprises and most of whom are certified public accountants,
were assigned to perform taskS conunensurate with their training and experience.
c. \Ve understand that the Association intends to file its audited statutory financial statements and
our report thereon with the Texas Department of Insurance and that the Insurance Conunissioner
of that state \V'ill be relying on that infonnation in monitoring and regulating the statutory
financial condition of the Association.
While \\;e understand that ail objective 0 f issuing a report on the statutory tlmmcial statemellts is
to satisfy regulatory requirements, our audit was not planned to satisfy alJobjectives or
responsibilities of insurance regulators. In this context, the Association and Insurance
Conunissioner should understa11d that the objective of an audit of statutory financial statements in
accordance with auditing standards generally accepted in the United States of America is to fonn
an opinion and issue a report on whether the statutory financial statements present fairly, i:n all
material respects, the admitted assets, Liabilities, surplus and other funds, results of operations and
cash nows in confonuity with accoullting practices prescri.bed or pennitted by the Texas
Department of Insurance. Consequently, under auditing standards generally accepted in the
United States of America, we have the responsibility, within the inherent limitations of the
auditing process, to plan and perfoml our audit to obtain ['easonable assurance about whether the
statutory financial statements are free of material misstatement, whether caused by eITor or fraud,
and to exercise due professional care in the conduct of the audit. The concept. ofselective testing
of the da,ta being audited, which involves judb'111eilt both as to tllenUlnber of transactions to be
audited and the areas to be tested, has been generally accepted as a valld and sufticienl basis for
an auditor to express an opinion oil financial statements. Audit procedures that are etfective for
detecting eITors, if they exist, may be ineffective for detecting misstatemerits resulting from fraud.
Because of t ~ characteristics of fraud, parlicularly those illvolving concealment and falsified
documentation (including forgery), a properly phmned and perfonned audit may not detect a
material misstatement resulting from fraud. In addition, an audit does not address the possibility
3
that material misstatements resulting from fraud may occur in the. future. AlsQ, our use of
professional juclb'1llent and the assessment of materiality for the purpose of our audit means that
maHcrs may exist that would ba\'e been assessed differently by the Insurance Commissioner.
It is the responsibility of the management of the Association to adopt sound accounting policies,
to mailliaillan adequate and effective system of accollnts, to establish and maintam an
internal control structure that \\"iLl, among other things. prm-ide reasonable, but not absolute.
assurance that assets are safeguardeclagainst loss from unauthtmzed use or disposition 3ndtbat
transa,ctions are executed in accordance with management's authorization and recorded properly
to permit the preparation of financial statements in conformity with accounting practices
prescribed or permitted. by the Texas' Depm1ment of Insurance,
The Insurance Commissioner should ex.ercise due diligence to obtain whale\ er other infonnatiol1
thal m<lf bo.! for the purpose of monitoring and regulating the statutory financial
position of insurers and should not rely solely upon the lIldependent auditor's report ,
d_ We will retain the workpapersprepared iIi the conduct oC our audit until the Texas Department of
Insurance has tIled a Repon ofEx.lmination cO\ ering 2008, but not ionger than se\.'ell years,
After notification to the AssocitJ.tion, we will make the workpapers a\-aiLable for review by the
Texas Depm1ment of Insurance at the oftlccs of the instlrer, at oUr offices, at the InsuranCe
Department or at any other reasonable place designated by the Insurance Commissioner:
Furthermore,. in the conduct of the aforementioned periodic revlew by the Texas Department of
Insurance, photocopies of pertinent audit working papers may be made (under the control of the
accountant) and such copies may bereta ined by the Texas Department of Insurance,
e. Theengagelttent partn.er has served in that capacity \\ith respect to the .Associatio[l since 200-1-, is
licensed by the Te;.;.as Board of Public Accountancy, and is a i11ember in good standing of the
AmeJ;ican Institute of Certified Public Accountants ,
f. To the best of our knowleclge and belief, we are il1 compliance with rlle requirements of section 7
of the NAIC's Model Rufe (Regulatibn) Requit' ing: AlUlUal Audited Financial Reports regarding
qualifications of independent ce11ified public accountants,
This letter is intended solely for the inf0l111atiOlland use of the Texas Department ofInsuranceand is not
intendecl to be and should notbe used by anyone other than these specified
f .
June 23 , 2009
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Independent Auditors' Report
Board of Directors
Texas \Vindstorm Insurance Association
Austin, Texas
9500 Arbr,eturn Blvd., Suit", 120
Austin} Texas 7
Phone, 512.439.8400
Fax: 512.4J9.0401
www.etmUp.eom
We have audited the accompanying statutory statements of adll1itted assets, liabilities,surplus aild other
funds of Texas Windstonl1 Association (the "Association") as of Decetnber31, 2008 and 2007
and the related statutory statements of income and changes in surplus and other funds, alldcash flml/s for
the years then ended. These financial statements are the responsibility of the Association's management.
Our responsibility is to express an opinion on these financial statements based on our audits.
\Ve conducted our audits.in accordance with auditing standards generally accepted in the United States of
America. Those standards require that \veplan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. . Annudit includes consideration
of internal control over financial reporting as a basis for designing audit procedures that are appropriate in
the circumstances, but not for the purpose of expressinganopinioll on the ctTectiveness of the
Association's internal control over financial reponing. Accordingly, we express no>such opinion. An
auditalsoinc1udes examining. on a test basis, evidence supporting the amounts and disclosures in the
fin::ltlcial statements, assessing the accounting principles used and significant estimates made by
lrtnnagemelit, as ,,"ell as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
As desclibedmore fully in the Summary of Significant Accounting Policies "Basis of Accounting",
these financial statements were prepared in conformity with accounting practices prescribed orpennitted
by the Texas Department of Insurance, which is a comprehensive basis of accounting other than
accounting principles generally accepted in the United States of America.
On September 13, 2008 Hurricane Ike struck the gulf coast of Texas. Claims attributable to this hurricane
contributed greatly to the Association's $190.6 1l1i II ion net loss for 2008. The Association has authority
to assess certain property and casualty insurers underwriting business in the state of Texas under Texas
Insurance Code Section 21.49 for losses incurred during 2008. However, if another major claim eyent
occurs in the future, itcould have a seyere impact on the finam:ial condition of the Association.
In our opinion, the staMOl), nnancial statements refetTed to above present fairly, in all material respects,
the admitted assets, Liabilities, surplus and other funds of the Texas Windstonl1 Insurance Association at
December 31, 2.008 and 2007, and the results of its operations and its cash flows for the years then ended,
on the basis of accounting described in the Summary of Significant Accounting Policies - "Basis of
Accounting".
This report is intended solely for the infonnation and use by the Board of Directors alld the management
of Texas \Vindstoml Insurance Association and for filillg with the Texas Depaltment oflnsurance and is
not intended to be and should not be used by anyone other than these specified panies. Howe\.er, this
report is a matter of public retonl .and its distribution is notlimited.
} .' r"'
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5
Statutory Statements of Admitted Assets,
Liabilities, Surplus and Other Funds
December 31, 2008 2007
Admitted Assets
Cash and short-term investments $ 831,456,183 $ 214,201,564
Receivable from affiliate 485,334 108,559
Premiums receivable 292,178 135,598
Furniture and equipment, net 1,530,373 971,744
Federal income tax recoverable 4,671,812 530,000
Member assessments receivable 3,242
1
804 965
$ 841,678,684 $ 215,948,430
Liabilities:
Loss and loss adjustment expenses $ 395,196,680 $ 10,575,903
Other expenses payable 891,316 264,950
Other taxes, licenses and fees 1,058,346 2,759,400
Unearned premiums, net of ceded unearned premiums (7,058,946) 80,694,900
Advanced premiums 10,063,456 7,637,661
Ceded reinsurance premiums payable, net of ceding commissions 91,506,250 39,594,372
Funds held under reinsurance treaties 540,542,325
Amounts withheld or retained for account of others 90,438 171,471
Statutory fund ~ y b l e 74,335,805
Total liabilities 1,032,289,865 216,034,462
Commitments and contingencies (Notes 7, 8,9, 12 and 13)
Surplus and other funds:
Unassigned deficit {190,611,181} {86,032}
$ 841 ,678,684 $ 215,948,430
See accompanying summary of significant accounting policies and notes to statutory financial statements.
6
Statutory Statements of Income
Years ended December 31, 2008 2007
Underwriting income:
Premiums earned $ 321,936,632 $ 264,889,629
Premiums ceded {253,130
z
140}
Net 2remiums earned 68,806,492 135,842,246
Deductions:
Losses and loss expenses incurred 1,215,124,201 17,985,165
Other underwriting expenses incurred:
Commissions 32,821,433 33,691,750
General expenses 14,742,468 12,182,633
Premium and maintenance taxes 6,195,001 5,893,571
Total underwriting deductions 1,268,883,103 69,753,119
Net underwriting (loss) gain (1,200,076,611) 66,089,127
Investment income:
Net investment income earned 6,009,349 8,857,683
Other income:
J\ssessmentincome 530,000,000
Statutory fund income 469,281,450
Other {2,284} 2,890
Total other income 999,279,166 2,890
Net (loss) income before statutory fund cost and federal income tax
(benefit) expense (194,788,096) 74,949,700
Statutory fund cost 74,335,805
Net (loss) income before federal income tax (benefit) expense (194,788,096) 613,895
Federal income tax {benefit} eX2ense {4,141,812} 610,000
Net income $ $ 3,895
7
Statutory Statements Changes In Surplus and Other Funds
Balance at January 1,2007
Net income
Change in deferred income taxes
Change in nonadmitted assets
Balance at December 31, 2007
Net loss
Change in deferred income taxes
Change in nonadmitted assets
Other
Balance at December 31, 2008
Unassigned
Deficit
$ (86,032)
3,895
403,463
(407,358)
(86,032)
(190,646,284 )
62,063,302
(61,945,055)
2,888
$ (190,611,181)
8
Statutory Statements of Cash Flows
Cash from operations:
Premiums collected, net of reinsurance $ 35,374,591 $ 154,062,109
Net investment income 6,009,349 8,857,683
Miscellaneous income 999,282,054
Benefit and loss related payments (739,995,536) (18,377,944)
Commissions, expenses paid and aggregate write-ins for
deductions (144,883,952) (131,470,728)
Federal income taxes 2aid (4, 140,000}
Net cash from 02erations 155,786,506 8,931,120
Cash from financing and miscellaneous sources:
Other cash 2rovided 461,468,113 65,856,521
Net cash from financing and miscellaneous sources 461,468,113 65,856,521
Net change in cash and short-term investments 617,254,619 74,787,641
Cash and short-term investments, beginning of year 214,201,564 139,413,923
Cash and short-term investments, end of year $ 831,456,183 $ 214,201,564
See accompanying summary of significant accounting policies and notes to statutoryflnancial statements.
9
Summary of Significant Accounting Policies
Nature of Business
Texas Windstorm Insurance Association (the "Association") was created by the Texas Legislature when
it enacted Article 21.49 (the "Act"), as amended, of the Texas Insurance Code. The purpose of the Act is
to provide a method whereby adequate windstorm, hail and fire insurance may be obtained in certain
designated counties located in the gulf coast region of the State of Texas. Presently, only windstorm and
hail coverage is provided by the Association. The membership of the Association includes every
property insurer authorized to write property insurance in the State of Texas, except companies that are
excluded by law. The Act provides that members will share in the Association's losses on a policy year
basis to the extent of their percentage of participation during the policy year involved, as determined
under the provisions of the Act and the Association's Plan of Operations. In the event of a net loss for
any policy year, members participating in that policy year may be assessed for their share of the loss
based upon their respective participation percentages.
Basis of Accounting
The accompanying financial statements have been prepared on a statutory basis in accordance with
accounting practices prescribed or permitted by the Texas Department of Insurance. Prescribed statutory
accounting practices include state laws, regulations and general administrative rules applicable to all
insurance companies domiciled in the State of Texas and the National Association of Insurance
Commissioners' ("NAIC") Accounting Practices and Procedures Manual. Permitted statutory practices
include practices not prescribed but allowed by the Texas Department of Insurance.
A difference between Texas prescribed practices and NAIC statutory accounting practices, as they relate
to the Association, is that furniture, labor-saving devices, machines, and all other office equipment may
be an admitted asset depreciated in full not to exceed 5 years. NAIC statutory accounting practice
classifies these assets as non-admitted. The effect of admitting these assets is as follows:
December 31, 2008 2007
Unassigned deficit, as reported $ (190,611,181) $ (86,032)
Effect of Texas prescribed practices:
Admitted furniture and equipment (405,614) (370,530)
Effect of Texas 2ermitted 2ractices
deficit, NAIC SAP basis $ $

10
Significant differences between statutory accounting practices and accounting principles generally
accepted in the United States of America (ltGAAPlt), as they relate to the Association include the
following:
a) Certain assets designated as "non-admitted assets" are charged directly against surplus rather
than capitalized and charged to income as used. These include certain fixed assets, prepaid
expenses and other assets.
b) Loss and loss adjustment expense reserves are presented net of related reinsurance rather than on
a gross basis.
c) Commissions and other acquisition costs relating to issuance of new policies are expensed as
incurred rather than deferred and amortized over the period covered by the policies.
d) Defined pension liability excludes non-vested employees' rather than including vested and non-
vested employee obligations.
e) The statement of cash flows represent cash balances, cash equivalents and short-term
investments with initial maturities of one year or less rather than cash and cash equivalents with
initial maturities of three months or less.
f) Deferred income taxes are limited by an admissibility formula as opposed to using the "more
likely than not" standard. Also, changes in the net deferred income taxes are reflected in the
statutory statements of changes in surplus and other funds rather than reflected in the statement
of income.
Use of Significant Estimates
The preparation of financial statements in accordance with statutory accounting practices requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities,
and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported
amounts of revenues and expenses during the reporting period. Actual results could differ from those
estimates.
Short-Term Investments
Short-term investments are recorded at cost which approximates market value. These short-term
investments are comprised solely of United States government securities.
Furniture, Equipment and Depreciation
Furniture and equipment are stated at cost, net of accumulated depreciation. Depreciation is computed
using the straight-line method over the estimated useful life of3-5 years.
11
Income Taxes
The provision for federal income taxes is computed in accordance with Subchapter L of the Internal
Revenue Code.
The Association utilizes the balance sheet approach in computing its provision for deferred income
taxes. Accordingly, deferred income taxes arise from the temporary differences in the valuation of
certain assets and liabilities as determined for fmancial reporting purposes, and the benefits expected to
be realized from the use of capital loss carry forwards. Such temporary differences relate primarily to
the discounting of loss and loss adjustment expense reserves, the recognition of unearned premiums and
capital losses in excess of gains. The admissibility of deferred tax assets is limited by an admissibility
formula developed by the NAIC.
Premiums
All policies issued by the Association have a maximum term of one year from date of issuance.
Premiums earned are taken into income over the periods covered by the policies whereas the related
acquisition costs are expensed when incurred. Unearned premiums, net of deductions for reinsurance, are
computed on a pro-rata basis over the term of the policies.
Loss and Loss Adjustment Expense Reserves
Loss and loss adjustment expense reserves are based upon claim estimates for (1) losses for cases
reported prior to the close of the accounting period, (2) losses incurred but unreported prior to the close
of the accounting period, and (3) expenses for investigating and adjusting claims. Such liabilities are
necessarily based on assumptions and estimates and while management believes the amounts are
adequate, the ultimate liability may be in excess of or less than the amount provided. The methods for
making such estimates and for establishing the resulting liabilities are continually reviewed and any
adjustments are reflected in the period determined.
Reinsurance
In the normal course of business, the Association seeks to reduce the loss that may arise from
catastrophes or other events that cause unfavorable underwriting results by reinsuring certain levels of
risk in various areas of exposure with other insurance enterprises or reinsurers.
Advanced Premiums
Premiums are generally recognized as revenue on a pro-rata basis over the policy term after the policy is
issued. Those premiums received for policies not yet issued are included in advanced premiums within
the Association's statutory statement of admitted assets, liabilities, surplus and other funds.
12
Distributions/Assessments to Members
Distributions, if any, for each policy year require the prior approval of the commissioner of the Texas
Department of Insurance. The policy year is determined by the calendar year in which the policy term
commences. Members are assessed to the extent that the Association's Board of Directors determines
that available funds are not sufficient to meet the obligations of the Association. During 2008, the
Association assessed its members $530 million. There were no assessments made to its member in 2007.
(See Note 7)
For policy years beginning subsequent to January 1, 2009, the Board of Directors do not have assessment
authority. (See Note 18).
Fair Value of Financial Instruments
The following methods and assumptions were used by the Association to estimate the fair value of each
class of financial instruments for which it is practicable to estimate that value:
Cash and short-term investments: The carrying values approximate estimated value.
Reclassifications
Certain prior year balances have been reclassified to conform to current year presentation.
13
1.
2.
Notes to Statutory Financial Statements
Cash and Short-Term Investments
Cash and short-term investments are as follows:
December 31, 2008 2007
Cash $ 447,027,639 $ 107,385,495
Short-term investments 384,428,544 106,816,069
$ 831,456,183 $ 214,201,564
Furniture and Equipment
Furniture and equipment consist of the following:
December 31, 2008 2007
Furniture, fixtures and equipment $ 1,172,897 $ 1,025,440
Electronic data flrocessing eguiflment and software 2,600,342 1,709,037
3,773,239 2,734,477
Less: accumulated de2reciation (2,242,866} {l,762,733}
$ 1,530,373 $ 971,744
Depreciation expense was approximately $480,000 and $389,000 for the years ended December 31,
2008 and 2007, respectively.
3. Reinsurance
During 2008 and 2007, the Association entered into a reinsurance agreement. This agreement
reduces the amount of losses that can arise from claims under a general reinsurance contract known
as a catastrophe excess ofloss reinsurance agreement ("excess ofloss").
Effective June 1, 2008, the catastrophe excess of loss reinsurance agreement provides the
Association with three layers of coverage. The first layer provides 100% participation of $500
million in excess of$600 million. The second layer provides 100% participation of$500 million in
excess of $1.1 billion. The third layer provides 100% participation of $500 million in excess of
$1.6 billion. This agreement expired on May 31, 2009. The Association has decided to not renew
this reinsurance contract.
14
4.
Effective June 1, 2007, the catastrophe excess of loss reinsurance agreement provided the
Association with two layers of coverage. The first layer provided 100% participation of $500
million in excess of$500 million. The second layer provided 100% participation of$500 million in
excess of $1 billion. This agreement expired on May 31, 2008.
In accordance with the tenns of the reinsurance agreements, the Association paid the reinsurers net
premiums of approximately $354,500,000 and $153,000,000 for the years ended December 31,
Ceded reinsurance is treated as the risk and liability of the assuming companies; however, the
reinsurance contracts do not relieve the Association from its obligations to policyholders. Failure
of reinsurers to honor their obligations could result in losses to the Association. The Association,
together with the Texas Department ofInsurance, evaluates the financial conditions of its reinsurers
to minimize its exposure to significant losses from reinsurer insolvencies.
The effect of reinsurance on premiums written and earned for the years ended December 31, 2008
and 2007 is as follows:
2008 2007
Written Earned Written Earned
Direct $ 331,048,817 $ 321,936,632 $ 315,139,307 $ 264,889,629
Ceded (350,000,000} (253,130,140} {l67,104, 8582 {129,047,3832
Net $ $ 68,806,492 $ 148,034,449 $ 135,842,246
During 2008, the Association recovered approximately $115 million of paid losses and loss
adjustment expenses relating to reinsurance contracts. There were no recoveries pertaining to
reinsurance contracts that were deducted from losses incurred during 2007.
Ceded Reinsurance Premiums Payable
Ceded reinsurance premiums payable are reported net of reinsurance ceding commissions
receivable as follows:
December 31, 2008 2007
Ceded reinsurance premiums payable $ 96,109,375 $ 43,354,858
Reinsurance ceding commissions receivable ( 4,603,1252 (3,760,4862
$ 91,506,250 $ 39,594,372
15
5. Unearned Premiums
6.
Unearned premiums are reported net of ceded unearned premiums as follows:
December 31,
Gross unearned premiums
Ceded unearned premiums
Loss and Loss Adjustment Expenses
2008 2007
$ 159,434,109 $ 150,321,924
(166,493,055) (69,627,024)
$ (7,058,946) $ 80,694,900
Activity in the liability for unpaid losses and loss adjustment expenses is summarized as follows:
2008 2007
Beginning balance (net of reinsurance receivable of$O and
$O} $ 10,575,903 $ 17,526,821
Incurred related to:
Current loss year 1,223,282,709 20,738,000
Prior loss }:'ears (8
2
158,508} {2,752,835}
Losses and loss adiustment expense incurred 1,215,124,201 17,985,165
Paid related to:
Current loss year (825,177,874) (15,585,000)
Prior loss }:,eal's (5,325,550} (9,351,083}
Paid losses and loss adiustment expense (830
2
503,424} {24,936,0832
Ending balance (net of reinsurance receivable of
$1,257,175,137 and O ~ $ 395,196,680 $ 10,575,903
16
7. Statutory Fund
During 1993, the Texas Legislature amended Article 21.49 of the Texas Insurance Code
authorizing the creation of a Catastrophe Reserve Trust Fund ("Trust Fund") to be held by the
Texas Department of Insurance ("TDI") for the purpose of allowing the Association to enter into a
program with TDI in lieu of a renewal of the Association's past reinsurance arrangements.
Pursuant to the statutory agreement with TDI, the Association terminated its retrospective
reinsurance agreement. Consequently, the retrospective premium due from the reinsurers was
refunded directly to the Trust Fund, with legal title to such funds reverting to TDI. In accordance
with the statutory agreement, the Association shall pay the net equity of all member companies,
including all premiums and other revenue of the Association in excess of incurred losses and
operating expenses to the Trust Fund or a reinsurance program approved by TDI. As a result, the
Association paid $74.3 million to the Trust Fund during 2008 for the year ended December 31,
2007. For the year ended December 31,2007, the net income excluding statutory fund cost of
$74,339,700 less the change in deferred tax assets and nonadmitted assets of $3,895 is to be
transferred to the Trust Fund or used to fund a reinsurance program.
To administer these funds, TDI entered into a related Funds Management Agreement with the State
Comptroller of Public Accounts ("Comptroller") whereby the Comptroller will manage the funds
in the Trust Fund.
Under the statutory agreement with TDI, all monies in the Trust Fund are to be used for payment
of net losses from windstorm and hail catastrophe losses in excess of $1 00 million in any calendar
year and/or catastrophe mitigation (see Note 3). During 2008, the Association received a payment
of approximately $469 million from the Trust Fund to meet its estimated obligations.
8. Employee Benefit Plans
Defined Benefit Plan. The Association has a defined pension benefit plan, which covers
employees from their date of hire, if the employee is scheduled to work at least 1,000 hours in a
twelve-month period. Pension benefits are based on years of service and the employee's
compensation during the five highest consecutive years' earnings from the last ten years of
employment. An employee's benefits vest 5 years from date of hire. The Association makes
contributions to the plan that complies with the minimum funding provisions of the Employee
Retirement Income Security Act. Such contributions are included in general expenses.
17
The following sets forth a summary of projected benefit obligations, plan assets, funded status,
benefit costs and assumptions of the defined pension benefit plan as follows:
December 31, 2008 2007
Change in Projected Benefit Obligations for Vested Particigants:
Benefit obligation at beginning of year $ 3,618,822 $ 3,195,710
Service cost 351,225 190,293
Interest cost 241,662 206,033
Actuarial loss 461,939 89,966
Benefits {!aid {50,658} {63, 1802
Proiected benefit obligation at end o f ~ e r 4,622,990 3,618,822
Change in Plan Assets
Fair value of plan assets at beginning of year 3,359,615 2,727,455
Actual return on plan assets (1,042,255) 217,167
Employer contributions 364,548 478,173
Benefits {!aid {50,658} {63,180}
Fair value of{!lan assets at end o f ~ e r 2,631,250 3,359,615
Funded Status
Umecognized net loss 2,298,879 543,740
Prepaid benefit obligation for vested employees $ 307,139 $ 284,533
Accumulated Benefit Obligation for Vested Participants $ 2,631,250 $ 2,928,615
Benefit Obligation for Non-Vested Employees
Projected benefit obligation $ 538,207 $ 629,769
Accumulated benefit obligation $ 354,519 $ 322,571
Comgonents of Net Periodic Benefit Costs
Service costs $ 351,225 $ 190,293
Interest costs 241,662 206,033
Expected return on plan assets (279,299) (230,247)
Amount of loss recognized 28,354 43,174
Total net periodic benefit cost $ 341,942 $ 209,253
18
Minimum Pension Liability
Accrual is required when actuarial present value of accumulated benefits exceeds plan assets and
accrued pension liabilities. Minimum liability adjustment is reported as an adjustment to
unassigned funds. At December 31, 2008 and 2007, no additional minimum liability was required.
Pension Assumptions
December 31, 2008
Weighted-average assumptions used to determine net periodic benefit cost:
Discount rate 6.5%
Rate of compensation increase
Expected long-term rate of return of plan assets
4.0%
8.0%
Weighted-average assumptions used to determine projected benefit obligations:
Weighted-average discount rate 6.5%
Rate of compensation increase 4.0%
Measurement Date
A measurement date of December 31, 2008 was used to determine the above.
Asset Allocation
2007
6.0%
3.5%
8.00%
6.0%
3.5%
The defined benefit pension plan asset allocation as of the measurement date presented as a
percentage oftotal plan assets were as follows:
December 31, 2008 2007
Equity securities 50.6% 62.0%
Debt securities 45.9% 36.4%
Real estate 0.0% 0.0%
Other 3.5% 1.6%
100.0% 100.0%
The investment policy of the Plan is to maximize the total return of the fund while maintaining a
strong emphasis on preservation of capital. The total portfolio is expected to be less volatile than
the market the vast majority of the time. The plan assets are invested in a mix of equity and fixed
income investments subject to target allocation ranges. The target allocation range for fixed
income investments is between 20% and 40%. The target allocation range for international equity
investments is between 10% and 20%. Remaining funds not invested in the categories above are to
be invested in short-term cash equivalents such as money market funds.
19
The long-term rate of return represents the expected average rate of return on the plan assets based
on the expected long-term asset allocation of the plan. Several factors are considered, including
historical market index returns, expectations of future returns in each asset classes, and the
potential to outperform market index returns.
Future Payments
The following estimated future payments, which reflect expected future service, as appropriate, are
expected to be paid in the years indicated:
Years ending December 31,
2009
2010
2011
2012
2013
2014 - 2018
Planned Contributions
Amount
$ 123,896
140,127
183,476
206,237
253,577
1,791,286
The Association expects to make contributions of $335,635 during the year ending December 31,
2009.
Defined Contribution Plan. The Association has a defined contribution 401(k) plan available to
eligible employees after six months of employment. The Association contributed approximately
$252,000 and $218,000 for the years ended December 31, 2008 and 2007, respectively.
9. Lease Commitments
The Association leases office space under a non-cancellable operating lease agreement which
expires in 2012. Future minimum lease payments, by year and in the aggregate, under a non-
cancelable operating lease with initial or remaining terms of one year or more consisted of the
following at December 31, 2007:
Years ending December 31, Amount
2009 $ 687,537
2010 709,268
2011 730,999
2012 441,000
2013 and thereafter
$ 2,568,804
20
Rental expense under the non-cancelable operating lease was approximately $591,000 and
$514,000 for the years ended December 31,2008 and 2007, respectively.
10. Federal Income Taxes
The net deferred tax assets and the increase in nonadmitted deferred tax assets are comprised of the
following components:
December 31, 2008 2007
Total gross deferred tax assets $ 68,182,268 $ 6,118,966
Total gross deferred tax liabilities
Net deferred tax asset 68,182,268 6,118,966
Nonadmitted deferred tax assets (68,182,268} (6,118,966}
Net admitted deferred tax assets $ $
Increase in nonadmitted deferred tax assets $ $
The change in deferred income taxes reported in surplus before consideration of nonadmitted assets
is comprised of the following components:
December 31, 2008 2007
Net deferred tax assets $ 68,182,268 $ 6,118,966
Tax-effect of unrealized gains and losses
Net tax effect without unrealized and losses $ 68,182,268 $ 6,118,966
in net deferred income tax $ 62,063,302 $ 403,463
Deferred income tax assets and liabilities consist of the following major components:
December 31, 2008 2007
Deferred tax assets:
Discount of unpaid losses and LAE $ 4,502,488 $ 99,607
20% of unearned premiums 204,307 6,006,614
Net operating loss carryforward 63,212,220
AMT tax credit 260,423
Other 2,830 12,745
Total deferred tax assets 68,182,268 6,118,966
Nonadmitted deferred tax aSsets (68,182,268} {6,118
2
9662
Net admitted deferred tax assets $ $
21
The Company's income tax incurred and change in deferred income tax differ from the amount
obtained by applying the federal statutory rate to income before federal income taxes as follows:
Expected income tax expense at statutory rate $ (66,227,953) -34% $ 208,724 34%
Other 22,839 0% {2,187} 0%
Total income tax $ !66,205,114l -34% 206,537 34%
Federal income taxes incurred $ (4,141,812) -32% 610,000 100%
Change in net deferred income taxes {62,063,302} -2% {403,4632 -66%
Total statut0!l income taxes $ !66,205,114l
-34% $ 206,537 34%
At December 31, 2008, the Association utilized approximately $13 million of the 2008 net
operating losses to recover approximately $4.4 million of taxes paid for the tax years 2007 and
2006. The Association has approximately $186 million of net operating loss carryforwards that
will expire in 2028. In addition, the Association has approximately $260,000 of AMT tax credits
that will carryforward until utilized.
11. Related Parties
Pursuant to the Association's Plan of Operation, its Board of Directors consists of nine members.
Five directors are elected from the membership of the Association, two directors are appointed by
the Texas Department of Insurance from the public sector based on nominations by the Office of
Public Insurance Counsel and two directors, who are licensed local recording agents, are appointed
by the commissioner of the Texas Department of Insurance. Of the five directors elected from the
membership, a minimum of three members shall be from companies with multi-state operations and
a minimum of one member shall be from a company domiciled in the State of Texas.
During 2002, the Association entered into a service contract with The Texas Fair Plan Association
(the "Plan") in which the Association is to be fully reimbursed for all expenditures, professional
fees, consulting services, allocated employee time, lost investment income and other costs directly
associated with the services provided by the Association on behalf of the Plan. As of December 31,
2008 and 2007, the Association incurred or paid expenses for which it has not been reimbursed of
$485,334 and $108,559 respectively, on behalf of the Plan. These amounts are recognized in the
statutory statements of admitted assets, liabilities, surplus and other funds as a receivable from
affiliate.
22
12. Line of Credit
The Association has a $150 million line of credit with a bank. There were no balances outstanding
or drawn against the line of credit as of and for the years ended December 31, 2008 and 2007. As a
result of House Bill 4409 (see Note 18), the current line of credit agreement is no longer valid.
13. Commitments and Contingencies
The Association is subject to various investigations, claims and legal proceedings covering a wide
range of matters that arise in the ordinary course of its business activities. Management believes
that any liability that may ultimately result from the resolution of these matters in excess of the
amounts provided will not have a material adverse effect on the financial position of the
Association. These matters are subject to various uncertainties, and some of these matters may be
resolved unfavorably to the Association.
14. Concentration of Credit Risk
The Association maintains deposits of cash in excess of federally insured limits with certain
financial institutions. The Association has not experienced any losses in such accounts and believes
they are not exposed to any significant credit risk on cash.
15. Nonadmitted Assets
Nonadmitted assets consisted of the following:
December 31,
Premiums receivable
Prepaid pension cost
Deferred tax asset
Total nonadmitted assets
16. Fair Value of Financial Instruments
2008
$ 125,985 $
307,139
68,182,268
$ 68,615,392 $
2007
266,838
284,533
6,118,966
6,670,337
The estimated fair values and carrying values of tbe Association's financial instruments are as
follows:
December 31,
2008
Carrying
Amount
Fair
Value
Carrying
Amount
2007
Fair
Value
Cash and short-term investments $ 831,456,183 $831,456,183 $ 214,201,564 $ 214,201 ,564
23
17. Reconciliation with Annual Statement
The following schedules set forth the differences in the amounts reported by the Association to
Texas Department ofInsurance on its December 31, 2008 annual statement and as reported in the
accompanying 2008 audited financial statements. The adjustments, excluding minor
reclassifications, relate to the following:
Cash and short-term investments - An adjustment was made to properly reflect claim payments
due to timing differences.
Amounts recoverable from reinsures and provision for reinsurance - An adjustment was made to
reclass amounts as a reduction in reserves in accordance with SSAP No. 62
Loss and loss adjustment expense reserves - An adjustment was made to strengthen reserves based
on management's best estimate and also to reduce those reserves for the amounts ceded under
reinsurance contracts in accordance with SSAP No. 62.
Funds held under reinsurance treaties - An adjustment was made to reflect funds received in
advance for loss payments in accordance with SSAP No. 62.
December 31, 2008
Audited
Annual Financial
Statement Adjustments Statements
Statutory statement of admitted assets,
liabilities, surplus and other funds:
Cash and short-term investments $ 835,306,600 $ (3,850,417) $ 831,456,183
Amounts recoverable from reinsures 361,250,000 (361,250,000)
Receivables from affiliate 515,846 (30,512) 485,334
Loss and loss adjustment expense
reserves 1,152,371,816 (757,175,136) 395,196,680
Other expenses 921,829 (30,513) 891,316
Funds held under reinsurance treaties 540,542,325 540,542,325
Provision for reinsurance 22,752,085 (22,752,085)
Statutory statement of income:
incurred $ 1,083,273,783 $ 131,850,418 $ 1,215,124,201
Other underwriting expenses incurred 49,617,091 4,141,811 53,758,902
Federal income taxes incurred (4,141,812) (4,141,812)
24
Statutory statement of changes in surplus
and other funds:
Net loss $ (58,792,981) $ (131,853,303) $ (190,646,284)
Change in net deferred income tax 17,274,800 44,788,502 62,063,302
Change in nonadmitted assets (17,156,551) (44,788,504) (61,945,055)
Change in provision for reinsurance (22,752,085) 22,752,085
Other 2,888 2,888
Statutory statement of cash flows:
Benefit and loss related payments $ 213,299,404 $ 526,696,132 $ 739,995,536
Commissions, expenses paid and
aggregate write-ins for deductions 139,632,204 5,251,748 144,883,952
Federal income taxes paid (recovered) 4,141,812 (4,141,812)
Other cash provided (applied) (62,487,536) 523,955,649 461,468,113
N et in cash 621,105,037 617,254,619
There were no differences between the 2007 annual statements as filed with the Texas Department
of Insurance and the 2007 audited statutory financial statements.
18. Subsequent Events
On June 1,2009, the Texas Legislature passed House Bill 4409 in which the funding mechanism
for the Association was amended. A section of the bill provides that TWIA shall pay for losses in
excess of premium and other revenue as follows:
From available reserves and the Catastrophe Reserve Trust Fund;
From proceeds of Class 1 public securities not to exceed $1 billion per year or other
financing arrangements (including commercial paper). These proceeds must be repaid by
TWIA from its premiums and other revenue;
From proceeds of Class 2 public securities not to exceed $1 billion per year to be repaid as
follows: 30% of the cost shall be paid through non-recoupable assessments to member
companies; 70% of the cost shall be paid by a nonrefundable surcharge collected by every
insurer and assessed on all policyholder who reside or have operations in or whose
property is located in the TWIA catastrophe area. The surcharge applies to all policies that
provide coverage on any premises, locations operation or property located in the
catastrophe area for all property and casualty lines of insurance except federal flood
insurance, workers' compensation, accident and health and medical malpractice;
From proceeds of Class 3 public securities not to exceed $500M per year to be repaid
through non-recoupable assessments to the member companies.
25
on Supplemental Material
Our audits of the statutory fmancial statements included in the preceding section of this report were
performed for the purpose of fanning an opinion on those statements taken as a whole. The supplemental
material presented in the following section of this report is presented to comply with the National
Association of Insurance Commissioners Accounting Practices and Procedures Manual and Texas State
law. Such information has been subjected to the aUditing procedures applied in the audit of the financial
statements and, in our opinion, is fairly stated in all material respects in relation to the financial
statements taken as a whole.
This report is intended solely for the infonnation and use of the Board of Directors and the management
of Texas Windstorm Insurance Association and for filing with the Texas Department of Insurance and
should not be used by anyone other than these specified parties. However, this report is a matter of public
record and its distribution is not limited.
June 23, 2009
Austin, Texas
26
Investment categories
Bonds:
U.S. Treasury securities
U.S. Government agency obligations
(excluding mortgage-backed securities):
Issued by U.S. Government agencies
Issued by U.S. Government-sponsored
agencies
Foreign Government (including Canada,
excluding mortgage-backed securities)
Securities issued by states, territories and
possessions and political subdivisions in the
U.S.:
State, territories and possessions general
obligations
Political subdivisions of states, territories
and possessions political subdivisions
general obligations
Revenue and assessment obligations
Industrial development and similar
obligations
Mortgage-backed securities (includes
residential and commercial MBS):
Pass-through securities:
Issued or guaranteed by GNMA
Issued by FNMA and FHLMC
All other
CMO's and REMIC's:
Issued or guaranteed by GNMA, FNMA,
FHLMCorVA
Issued by non U.S. Government issuers and
collateralized by mortgage-backed
securities issued or guaranteed by agencies
All other
Other debt and other fixed income securities
(excluding short-term):
Unaffiliated domestic securities (includes
credit tenant loans rated by the SVO)
Unaffiliated foreign securities
Affiliated securities
$
Summary Investment Schedule
December 31,2008
Gross Investment
Holdings *
Amount %
- $
Admitted Assets
as Reported in the
Annual Statement
Amount %
See accompanying independent auditors' report on supplemental material.
27
Investment categories
Equity interests:
Investments in mutual funds
Preferred stocks:
Affiliated
Unaffiliated
Publicly trade equity securities (excluding
preferred stocks):
Affiliated
Unaffiliated
Other equity securities:
Affiliated
Unaffiliated
Other equity interests including tangible
personal property under lease:
Affiliated
Unaffiliated
Mortgage loans:
Construction and land development
Agricultural
Single family residential properties
Multifamily residential properties
Commercial loans
Mezzanine real estate loans
Real estate investments:
Property occupied by the company
Property held for production of income
Property held for sale
Contract loans
Receivables for securities
Cash, cash equivalents and short-term
investments
Other invested assets
Total invested assets
December 31, 2008
Gross Investment
Holdings *
Admitted Assets
as Reported in the
Annual Statement
Amount Amonnt %
831,456,183 100.000% 831,456,183 100.000%
$ 831,456,183 100.000% $ 831,456,183 100.000%
*Gross investment holdings as valued in compliance with the NAle Accounting Procedures Manual
28
Supplemental Investment Risk Interrogatories
December 31, 2008
1) Reporting entity' s total admitted assets as reported in the accompanying
financial statements.
Questions 2 through 23 are not applicable.
$ 841,678,684
29
Reinsurance Interrogatories
December 31, 2008
7.1 Has the reporting entity reinsured any risk with any other entity under a
quota share reinsurance contract that includes a provision that would limit the
reinsurer's losses below the stated quota share percentage (e.g., a deductible,
a loss ratio corridor, a loss cap, an aggregate limit or any similar provisions)? YES[] NO [X]
7.2 If yes, indicate the number of reinsurance contracts containing such
provisions.
7.3 If yes, does the amount of reinsurance credit taken reflect the reduction in
N/A
quota share coverage caused by any applicable limiting provision(s)? YES[] N/A [X]
8.1 Has this reporting entity reinsured any risk with any other entity and agreed
to release such entity from liability, in whole or in part, from any loss that
may occur on this risk, or portion thereof, reinsured? YES[] NO [X]
8.2 Is yes, give full information. N/A [X]
9.1 Has the reporting entity ceded any risk under any reinsurance contract (or under multiple contracts
with the same reinsurer or its affiliates) for which during the period covered by the statement (i) it
recorded a positive or negative underwriting result greater than 5% of prior year-end surplus as
regards policyholders or it reported calendar year written premium ceded or year-end loss and loss
expense reserves ceded greater than 5% of prior year-end surplus as regards policyholders; (ii) it
accounted for that contract as reinsurance and not as a deposit; and (iii) the contract(s) contain one
or more of the following features or other features that would have similar results:
(a) A contract term longer than two years and the contract is noncancellable
by the reporting entity during the contract term;
(b) A limjted or conditional cancellation provision under which cancellation
triggers an obligation by the reporting entity; or an affiliate of the
reporting entity, to enter into a new reinsurance contract with the
reinsurer, or an affiliate of the reinsurer;
(c) Aggregate stop loss reinsurance coverage;
(d) A unilateral right by either party (or both parties) to commute the
reinsurance contract, whether conditional or not, except for such
provisions which are only triggered by a decline in the credit status of the
other party
30
December 31, 2008
(e) A provision permitting reporting of losses, or payment of losses, less
frequently than a quarterly basis (unless there is no activity during the
period); or
(f) Payment schedule, accumulating retentions from multiple years or any
features inherently designed to delay timing of the reimbursement to the
ceding entity. YES [X] NO [ ]
9.2 Has the reporting entity during the period covered by the statement ceded any risk under any
reinsurance contract (or under multiple contracts with the same reinsurer or its affiliates), for
which, during the period covered by the statement, it recorded a positive or negative underwriting
result greater than 5% of prior year-end surplus as regards policyholders or it reported calendar
year written premium ceded or year-end loss and loss expense reserves ceded greater than 5% of
prior year-end surplus as regards policyholders; excluding cessions to approved pooling
arrangements or to captive insurance companies that are directly or indirectly controlling by, or
under control with (i) one or more unaffiliated policyholders of the reporting entity, or (ii) an
association of which one or more unaffiliated policyholders of the reporting entity is a member
where:
(a) The written premium ceded to the reinsurer by the reporting entity or its
affiliates represents fifty percent (50%) or more of the entire direct and
assumed premium written by the reinsurer based on its most recently
available financial statement; or
(b) Twenty-five percent (25%) or more of the written premium ceded to the
reinsurer has been retroceded back to the reporting entity or its affiliates
in a separate reinsurance contract? YES [] NO [X]
9.3 If yes to 9.1 or 9.2, please provide the following information in the Reinsurance Summary
Supplemental Filing for General Interrogatory 9:
(a) The aggregate financial statement impact gross of all such ceded
reinsurance contacts on the balance sheet and statement income.
(b) A summary of the reinsurance contract terms and indicate whether it
applies to the contracts meeting the criteria in 9.1 or 9.2; and
31
December 31, 2008
( c) A brief discussion of management's principle objectives in entering into
the reinsurance contract including the economic purpose to be achieved. N/A
9.4 Except for transactions meeting the requirements of paragraph 30 of SSAP No. 62, Property and
Casualty Reinsurance, has the reporting entity ceded any risk under any reinsurance contract (or
multiple contracts with the same reinsurer or its affiliates) during the period covered by the
financial statement, and either:
(a) Accounted for that contract as reinsurance (either prospective or
retroactive) under statutory accounting principles ("SAP") and as a
deposit under generally accepted accounting principles ("GAAP"); or
(b) Accounted for that contract as reinsurance under GAAP and as a deposit
under SAP? YES [] NO [X]
9.5 If yes to 9.4, explain in the Reinsurance SUlmnary Supplemental Filing for
General Interrogatory 9 (Section D) why the contract(s) is treated differently
for GAAP and SAP. NI A
9.6 The reporting entity is exempt from the Reinsurance Attestation Supplement
under one or more of the following criteria:
(a) The entity does not utilize reinsurance; or,
(b) The entity only engages in a 100% quota share contract with an affiliate
and the affiliated or lead company has filed an attestation supplement;
or,
(c) The entity has no external cessions and only participates III an
intercompany pool and the affiliated or lead company has filed an
attestation supplement.
YES [ ]
YES [ ]
YES [ ]
NO [X]
NO [X)
NO [X)
32
TWIA Board Meeting
9117/08
Dolly had seriously depleted TWIA's cash on hand. TWIA has received 8,018 claims
as a result of Hurricane Dolly and expects the incurred loss to be roughly $280
million. TWIA had $80 million on hand and assessed the companies $100 million
and received $100 million from the CRTF to pay Hurricane Dolly claims. The
Commissioner released $370 million from the CRTF on 9/16/08. TWIA must now
assess the members of the Assocation $200 million, a one-time assessment not
subject to premium tax credits. This will give TWIA approximately $570 million to
pay claims. Mr. Oliver stated that it takes about 30 days to start to get monies in from
an assessment. The letters to the companies will be sent out on 9/19/08 or 9/22/08,
meaning it will be late October before the Association gets most of the assessment
money. Before TWIA can access reinsurance it has to cover approximately a $30
million gap through assessment. The $30 million would be eligible for tax credits
that the companies can take against premium taxes. Above this $600 million the
Association has $1.5 billion of reinsurance. The reinsurance broker, Guy Carpenter,
is in the process of preparing collcction procedures for the first layer of reinsurance.
Mr. Oliver is confident that the reinsurance payments will be in full for the entire
contract. Reinsurance has a reinstatement premium of approximately $200 million.
Payment of the reinstatement premium, which is required under the reinsurance
agreements, will ensure that the Association is protected against future storm losses
through the current treaty year in the amount of $1.5 billion. Reinsurance proceeds
are paid net of the $200 million reinstatement premium. The amounts of the
reinstatement premium ate: $85 million from the first layer, $62 million from the
second layer and $52 million from the third layer. Each layer is reinstated as it is
used. This increases the assessments to the companies by $200 million, for a total of
$430 million. This provides TWIA with $2.1 billion for Hurricane Ike losses.
Should further assessments be required, the Association can assess the companies as
needed.
In the six affected counties (Jefferson, Chambers, Galveston, Harris, Brazoria,
Matagorda) TWIA has 142,566 policies with a total exposure of $38,629,758,056 for
building and contents. Additional living expenses (ALE) and business income brings
the exposure to approximately $42 billion. TWlA has 279,504 exposures because
many commercial and government policies (apartment complexes, schools, etc.) have
multiple items. Mr. Oliver stated that in the aftermath of Hurricane Dolly the
Association found that commercial losses, even if the building was left standing, had
a lot of water damage when rain entered through broken windows and damaged roofs.
The resulting remediation costs are very high. Assuming a 10% loss rate with
Hurricane Ike, TWIA could face losses up to $4 billion. He stated if the Board were
willing, he would like to ask the companies for $830 million, bringing TWIA up to
$2.5 billion to pay for losses. Mr. Goodman asked if TWIA has a line of credit with a
bank. Mr. Oliver replied that it has one in the amount of $150 million with Chase
Bank. Using it requires paying interest on it, so it is being held back for an
emergency. It is, however, readily available. Ms. Neblett asked Mr. Oliver what
assessment he would like to see. Mr. Oliver stated that at a minimum $430 million,
which would cover the Association to the top of its reinsurance program including all
reinsurance premiums and the $30 million gap between the assessment and
reinsurance. He would prefer $830 million to be sure the Association has funds for
the next 90-120 days, at which time total losses can be more closely assessed. Mr.
2
EXHIBIT C
TWIA Board Meeting
9/17/08
Kaufman stated that he would like to do everything possible to kcep TWIA out of a
cash crunch. Mr. Goodman agreed. Mr. Killian, Mr. Jensen, Ms. Morrison and Mr.
Dafgek stated that they would prefer the $430 million assessment, stating that if
another assessment is required, the Board can reconvene. Chairman Langford noted
that everyone should understand that this assessment would be based on the new
assessment percentage for 2008, which does not have any caps and was approved by
the Commissioner on September 2, 2008. TWIA received all premium change
information from the companies and it has been entered into the assessment formula.
Mr. Jensen asked if the Board could reconvene sooner than in 30 days if necessary.
Mr. Oliver stated that they could convene as needed. The assessments for Hurricane
Dolly came in quickly, within two weeks. Mr. Oliver noted it might be slower than
that this time, because the companies are paying hurricane claims in the Houston
area. Ms. Neblett moved to assess the companies $830 million. Mr. Goodman
seconded the motion. Discussion: Mr. Killian said that the companies are also
paying their own claims and making claims with their own reinsurerS. Farmers would
agree with the $430 million assessment but would not support any more than that.
$2.1 billion should be enough for the time being. Chairman Langford called the vote.
Ms. Neblett, Mr. Smecca, Mr. Goodman and Mr. Kaufman voted in favor of the $830
million assessment. Mr. Jensen, Mr. Killian, Ms. Morrison, Mr. Dasbkin and Mr.
Langford voted against it. Ms. Morrison moved that the Board authorize an
assessment of the companies in the amount of $430 million. Mr. Perkins offered the
following resolution:
RESOLVED, that as a result of losses caused by Hurricane Ike the General
Manager and staff of the Association arc hereby authorized and directed to
assess the members of the Association in the amount of $200 million in
accordance with Section 221O.058(a)(3) of the Texas Insurance Code and the
Plan of Operation of the Association in order to pay the insured losses and
operating expenses of the Association in excess of premium and other revenue
of the Association;
FURTHER RESOLVED, that as a result oflosses caused by Hurricane Ike the
General Manager and staff of the Association are hereby authorized and
directed to assess the members of the Association in the amount of $230
million in accordance with Section 2210.058(a)(4) of the Texas Insurance
Code and the Plan of Operation of the Association in order to pay the insured
losses and operating expenses of the Association in excess of premium and
other revenue of the Association, resulting in an aggregate assessment to the
members of the Association in the amount of $430 million; and
FURTHER RESOLVED. that the General Manager and staff of the Association are
hereby authorized and directed to take such actions, execute such documents, and
make such filings as they deem necessary or reasonable in order to implement the
foregoing resolutions.
The motion was unanimously approved.
3
2210.058. Payment of Excess Losses; Premium Tax Credit, V.T.C.A., Insurance Code .. .
V.T.C.A. , Insurance Code 2210.058
Vernon's Texas Statutes and Codes Annotated Currentness
Insurance Code
Title 10. Property and Casualty Insurance (Refs & Annos)
Subtitle G. Pools, Groups, Plans, and Self-Insurance
Chapter 2210. Texas Windstorm Insurance Association
Subchapter B. Administration of Association
2210.058. Payment of Excess Losses; Premium Tax Credit
(a) If, in any calendar year, an occurrence or series of occurrences in a catastrophe area results in insured losses and operating
expenses of the association in excess of premium and other revenue of the association, the excess losses shall be paid as follows:
(1) $100 million shall be assessed against the members of the association as provided by Subsection (b);
(2) losses in excess of $1 00 million shall be paid from the catastrophe reserve trust fund established under Subchapter J and
any reinsurance program established by the association;
(3) for losses in excess of those paid under Subdivisions (I) and (2), an additional $200 million shall be assessed against the
members of the association, as provided by Subsection (b); and
(4) losses in excess of those paid under Subdivisions (I), (2), and (3) shall be assessed against members of the association,
as provided by Subsection (b).
(b) The proportion of the losses allocable to each insurer under Subsections (a)( I), (3), and (4) shall be determined in the manner
used to determine each insurer's participation in the association for the year under Sect ion 2210.052.
(c) An insurer may credit an amount paid in accordance with Subsection (a)( 4) in a calendar year against the insurer's premium
tax under Chapter 221. The tax credit authorized under this subsection shall be allowed at a rate not to exceed 20 percent per
year for five or more successive years beginning the calendar year that the assessments under this section are paid. The balance
of payments made by the insurer and not claimed as a premium tax credit may be reflected in the books and records of the
insurer as an admitted asset of the insurer for all purposes, including exhibition in an annual statement under Secti on 862.00 I.
CREDIT(S)
Added by Acts 2005. 79th Leg .. ch. 727, ~ 2. eff. April 1,2007. Amended by Acts 2007. 80th Leg .. ch. 932. ~ 21, efr June
15. 2007.
HlSTORICAL AND STATUTORY NOTES
2007 Electronic Pocket Part Update
Prior Laws:
Acts 1971 , 62nd Leg., p. 843, ch. 100.
Acts 1979, 66th Leg. , p. 1599, ch. 675, I.
Acts 1993, 73rd Leg., ch. 685, 17.06.
Acts 1997, 75th Leg., ch. 642, 5.
V.A.T.S. lnsuranceCode, art. 2 1.49. 19.
Current through the end of the 2007 Regular Session of the 80th Legislature
End of ()oc umrllt
.:0<;'1 ', .. Next @ 2014 Thomson Reuters No claun to onglf,al U .. ) Goven nent o r k ~
EXHIBIT D
221(1.071. Payment or Excess LO$sl'.l8' ; Payment Fror!'l ... , n: !NS 2210.071
Vernon's Texas Statutes and Codes Annotated
Insurance Code
Subchapter B-1. Payment of Losses
V.T.C.A., Insurance Code 2210.071
2210.071. Payment of Excess Losses; Payment From Reserves and Trust Fund
Effective: September 28, 2011
Currentness
(a) If, in a catastrophe year, an occurrence or series of occurrences in a catastrophe area results in insured losses and operating
expenses of the association in excess of premium and other revenue of the association, the excess losses and operating expenses
shall be paid as provided by this subchapter.
(b) The association shall pay losses in excess of premium and other revenue of the association from available reserves of the
association and available amounts in the catastrophe reserve trust fund.
(c) Losses not paid under Subsection (b) shall be paid from the proceeds from public securities issued in accordance with this
subchapter and Subchapter M and, notwithstanding Subsection (a), may be paid from the proceeds of public securities issued
under Section 221 O.072(a) before an occurrence or series of occurrences that results in insured losses.
Credits
Added by Acts 2009, 81st Leg., ch. 1408, 16, eff. June 19,2009. Amended by Acts 2011, 82nd Leg., 1st C.S., ch. 2 (RB.
3), 10, eff. Sept. 28,2011.
Notes of Decisions (2)
V. T. C. A., Insurance Code 2210.071, TX INS 2210.071
Current through the end of the 2013 Third Called Session of the 83rd Legislature
. ,
EXHIBIT E
ret
22'10.072. PaymMi: From Ci as" 1 Public S?curWes; FlnnodaL., TX iN::> 2210.072
Vernon's Texas Stahltes and Codes Annotated
Insurance Code
Subchapter B-l. Payment of Losses
2210.072. Payment From Class 1 Public Securities; Financial Instmments
Currentness
(a) Losses not paid under Section 2210.071(b) shall be paid as provided by this section from the proceeds from Class 1 public
securities authorized to be issued in accordance with Subchapter M I before, on, or after the date of any occurrence or series
of occurrences that results in insured losses. Public securities issued under this section must be repaid within a period not to
exceed 14 years, and may be repaid sooner if the board of directors elects to do so and the commissioner approves.
(b) Public securities described by Subsection (a) that are issued before an occurrence or series of occurrences that results in
incurred losses:
(1) may be issued on the request of the board of directors with the approval of the commissioner; and
(2) may not, in the aggregate, exceed $1 billion at anyone time, regardless of the calendar year or years in which the
outstanding public securities were issued.
(b-I) Public securities described by Subsection (a):
(1) shall be issued as necessary in a principal amount not to exceed $1 billion per catastrophe year, in the aggregate, for
securities issued during that catastrophe year before the occurrence or series of occurrences that results in incurred losses in
that year and securities issued on or after the date of that occurrence or series of occurrences, and regardless of whether for
a single occurrence or a series of occurrences; and
(2) subject to the $1 billion maximum described by Subdivision (I), may be issued, in one or more issuances or tranches,
during the calendar year in which the occurrence or series of occurrences occurs or, ifthe public securities cannot reasonably
be issued in that year, during the following calendar year.
(c) Ifpublic securities are issued as described by this section, the public securities shall be repaid in the manner prescribed by
Subchapter M from association premium revenue.
2210.072. Paymellt From Class ~ Public S<>(: Irit.les: Finam:l;:{l..., TX It<lS 22'IO,On
(d) The association may borrow from, or enter into other financing arrangements with, any market source, under which the
market source makes interest-bearing loans or other financial instruments to the association to enable the association to pay
losses under this section or to obtain public securities under this section. For purposes of this subsection, financial instruments
includes commercial paper.
(e) The proceeds of any outstanding public securities described by Subsection (a) that are issued before an occurrence or series
of occurrences shaH be depleted before the proceeds of any securities issued after an occurrence or series of occurrences may
be used. This subsection does not prohibit the association from issuing securities after an occurrence or series of occurrences
before the proceeds of outstanding public securities issued during a previous catastrophe year have been depleted.
(f) If, under Subsection (e), the proceeds of any outstanding public securities issued during a previous catastrophe year must be
depleted, those proceeds shaH count against the $1 billion limit on public securities described by this section in the catastrophe
year in which the proceeds must be depleted.
Credits
Added by Acts 2009, 81st Leg., ch. 1408, 16, eff. June 19,2009. Amended by Acts 2011, 82nd Leg., 1st C.S., ch. 2 (H.B.
3), II, eff. Sept. 28, 2011.
Footnotes
V.T.C.A. , Insurance Code 2210.601 et seq.
Current through the end of the 2013 Third CaHed Session of the 83rd Legislature
t IU of Il.,,,lIn,,ut ~
t e
2210.073. P,,-ymi!nt FroB, CI;::ss 2 Public $!}curitim:., TX INS .22"10.013
Insurance Code
2210.073. Payment From Class 2 Public Secmities
Currentness
(a) Losses not paid under Sections 2210.071 and 2210.072 shall be paid as provided by this section from proceeds from Class
2 public securities authorized to be issued in accordance with Subchapter M on or after the date of any occurrence that results
in insured losses under this subsection. Public securities issued under this section must be repaid within a period not to exceed
10 years, and may be repaid sooner if the board of directors elects to do so and the conIDlissioner approves.
(b) Public securities described by Subsection (a):
(1) may be issued as necessary in a principal amount not to exceed $1 billion per catastrophe year, in the aggregate, whether
for a single occurrence or a series of occurrences; and
(2) subject to the $1 billion maximum described by Subdivision (I), may be issued, in one or more issuances or tranches,
during the calendar year in which the occurrence or series of occurrences occurs or, ifthe public securities cannot reasonably
(c) If the losses are paid with public securities described by this section, the public securities shall be repaid in the manner
prescribed by Subchapter M.
Credits
Added by Acts 2009, 81st Leg., ch. 1408, 16, eff. June 19, 2009. Amended by Acts 2011, 82nd Leg., 1st C.S., ch. 2 (H.B.
3), 12, eff. Sept. 28, 2011.
Current through the end ofthe 2013 Third Called Session of the 83rd Legislature
1111 "I II", 11m III
"
I' e t
2210.074. Payment Thr ugh CkiSS 3 Pvblic Securities, TX INS 221il.Oi' 4
Insurance Code
2210.074. Payment Through Class 3 Public Securities
Effective: September 28,2011
Currentness
(a) Losses not paid under Sections 2210,071,2210,072, and 2210,073 shall be paid as provided by this section from proceeds
from public securities authorized to be issued in accordance with Subchapter M 1 on or after the date of any occurrence that
results in insured losses under this subsection or through reinsurance as described by Section 2210.075. Public securities issued
under this section must be repaid within a period not to exceed 10 years, and may be repaid sooner if the board of directors
elects to do so and the commissioner approves.
(b) Public securities described by Subsection (a):
(1) may be issued as necessary in a principal amount not to exceed $500 million per catastrophe year, in the aggregate,
whether for a single occurrence or a series of occurrences; and
(2) subject to the $500 million maximum described by Subdivision (1), may be issued, in one or more issuances or tranches,
during the calendar year in which the occurrence or series of occurrences occurs or, if the public securities cannot reasonably
(c) lfthe losses are paid with public securities described by this section, the public securities shall be repaid in the manner
prescribed by Subchapter M through member assessments as provided by this section The association shall notify each member
of the association of the amount of the member's assessment under this section. The proportion of the losses allocable to each
insurer under this section shall be determined in the manner used to determine each insurer's participation in the association
for the year under Section 2210.052, A member of the association may not recoup an assessment paid under this subsection
through a premium surcharge or tax credit.
Credits
Added by Acts 2009, 81st Leg. , ch, 1408, 16, efT. June 19,2009. Amended by Acts 2011, 82nd Leg., 1st C.S" ch. 2 (H,B.
3), 13, elf. Sept. 28, 2011.
Footnotes
V .. T.C.A., Insurance Code 2210.601 ct seq.
2210.074. P;:;ym':!nt Through Class 3 Public Securities, TX INS 221f.).074
I 111101 1l ... III11[tll { \
.
221().612. Payment vf CII:IS!; '1 Public _'eclIritic5, TX INS 2210.12
Insurance Code
Subchapter M. Public Securities Progranl
2210.612. Payment of Class 1 Public Securities
Currentness
(a) The association shall pay Class I public securities issued under Section 221 o.on from its net premium and other revenue.
(b) The association may enter financing arrangements as described by Section 221 o.on( d) as necessary to obtain public
securities issued under Section 2210.072. Nothing in this subsection shall prevent the authorization and creation of one or more
programs for the issuance of commercial paper before the date of an occurrence or series of occurrences that results in insured
losses under Section 221O.072(a).
Credits
Added by Acts 2009, 81st Lcg .. ch. 1408, 41 , eff. June 19, 2009. Amended by Acts 2011, 82nd Leg., 1st C.S., ch. 2 (H.R
3), 49, efT. Sept. 28, 2011.
I uti 1,1 nil "III nl
2210.613. Payment Of Class 2 PUDlic S ~ lritif:s, TX !NS 22'10.613
Insurance Code
Subchapter M. Public Securities Program
2210.613. Payment Of Class 2 Public Securities
Currentness
(a) The association shall pay Class 2 public securities issued under Section 2210.073 as provided by this section. Thirty percent
of the cost of the public securities shall be paid through member assessments as provided by this section. The association shall
notify each member ofthe association of the amount of the member's assessment under this section. The proportion of the losses
allocable to each insurer under this section shall be determined in the manner used to determine each insurer's participation in
the association for the year under Section 2210.052. A member of the association may not recoup an assessment paid under
this subsection through a premium surcharge or tax credit.
(b) Seventy percent of the cost of the public securities shall be paid by a premium surcharge collected under this section in an
amount set by the commissioner. On approval by the commissioner, each insurer, the association, and the Texas FAIR Plan
Association shall assess, as provided by this section, a premium surcharge to each policyholder of a policy that is in effect on or
after the l80th day after the date the commissioner issues notice of the approval ofthe public securities. The premium surcharge
must be set in an amount sufficient to pay, for the duration of the issued public securities, all debt service not already covered
by available funds or member assessments and all related expenses on the public securities.
(c) The premium surcharge under Subsection (b) shall be assessed on all policyholders of policies that cover insured property
that is located in a catastrophe area, including automobiles principally garaged in a catastrophe area. The premium surcharge
shall be assessed on each Texas windstonn and hail insurance policy and each property and casualty insurance policy, including
an automobile insurance policy, issued for automobiles and other property located in the catastrophe area. A premium surcharge
under Subsection (b) applies to:
(1) all policies written under the following lines of insurance:
(A) fire and allied lines;
(B) fann and ranch owners;
(C) residential property insurance;
(D) private passenger automobile liability and physical damage insurance; and
2210.6'13. PaynHmt Of Cbss 2 Public Sncurl\ies, TiNS Z?10.M3
(E) commercial automobile liability and physical damage insurance; and
(2) the property insurance portion of a commercial multiple peril insurance policy.
(d) A premium surcharge under Subsection (b) is a separate charge in addition to the premiums collected and is not subject to
premium tax or commissions. Failure by a policyholder to pay the surcharge constitutes failure to pay premium for purposes
of policy cancellation.
Credits
Added by Acts 2009, 81st Leg., ch. 1408, 41, eff. June 19,2009. Amended by Acts 2011, 82nd Leg., 1st C.S., ch. 2 (H.B.
3), 50, efT. Sept. 28, 2011.
1,111,,1111 ""'lnl ):
2210.11S. Payment Of Cl ass :1 Ptib!L Seclldties, iX INS 221 .6135
Insurance Code
Subchapter M. Public Securities Program
2210.6135. Payment Of Class 3 Public Securities
Currentness
(a) The association shall pay Class 3 public securities issued under Section 221 0.074 as provided by this section through member
assessments. The association, for the payment of the losses, shall assess the members of the association a principal amount not
to exceed $500 million per catastrophe year. The association shall notify each member of the association of the amount of the
member's assessment under this section.
(b) The proportion of the losses allocable to each insurer under this section shall be determined in the manner used to determine
each insurer's participation in the association for the year under Section 2210.052.
(c) A member of the association may not recoup an assessment paid under this section through a premium surcharge or tax credit.
Credits
Added by Acts 2009, 81st Leg., eh. 1408, 41, eff. June 19,2009. Amended by Acts 2011, 82nd Leg., 1st C.S., ch. 2 (H.B.
3), 51, efT. Sept. 28, 2011.
11111 hi I'" tllIf\lI( I 1
N. t

Association

Years Ended December 31, 2009 and 2008

PDF created with pdfFactory trial version www.pdffactory.com
EXHIBIT F


Contents

2

Accountants letter of qualifications 3-4

Independent auditors report 5

Statutory financial statements
Statements of admitted assets, liabilities, surplus and other funds 6
Statements of income 7
Statements of changes in surplus and other funds 8
Statements of cash flows 9
Summary of significant accounting policies 10-13
Notes to statutory financial statements 14-28

Independent auditors report on supplemental material 29

Supplemental material
Summary investment schedule 30-31
Supplemental investment risk interrogatories 32
Reinsurance interrogatories 33-35


3

Accountants Letter of Qualifications

Board of Directors

We have audited, in accordance with auditing standards generally accepted in the United States of
America, the statutory financial statements of Texas Windstorm Insurance Association (the
Association) for the years ended December 31, 2009 and 2008, and have issued our report thereon
dated June 9, 2010. In connection therewith, we advise you as follows:

a. We are independent certified public accountants with respect to the Association and conform to
the standards of the accounting profession as contained in the Code of Professional Conduct and
pronouncements of the American Institute of Certified Public Accountants, and the Rules of
Professional Conduct of the Texas Board of Public Accountancy.

b. The engagement partner and engagement manager, who are certified public accountants, have 12
years and 5 years, respectively, of experience in public accounting and are experienced in
auditing insurance enterprises. Members of the engagement team, most of whom have had
experience in auditing insurance enterprises and most of whom are certified public accountants,
were assigned to perform tasks commensurate with their training and experience.

c. We understand that the Association intends to file its audited statutory financial statements and
our report thereon with the Texas Department of Insurance and that the Insurance Commissioner
of that state will be relying on that information in monitoring and regulating the statutory
financial condition of the Association.

While we understand that an objective of issuing a report on the statutory financial statements is
to satisfy regulatory requirements, our audit was not planned to satisfy all objectives or
responsibilities of insurance regulators. In this context, the Association and Insurance
Commissioner should understand that the objective of an audit of statutory financial statements in
accordance with auditing standards generally accepted in the United States of America is to form
an opinion and issue a report on whether the statutory financial statements present fairly, in all
material respects, the admitted assets, liabilities, surplus and other funds, results of operations and
cash flows in conformity with accounting practices prescribed or permitted by the Texas
Department of Insurance. Consequently, under auditing standards generally accepted in the
United States of America, we have the responsibility, within the inherent limitations of the
auditing process, to plan and perform our audit to obtain reasonable assurance about whether the
statutory financial statements are free of material misstatement, whether caused by error or fraud,
and to exercise due professional care in the conduct of the audit. The concept of selective testing
of the data being audited, which involves judgment both as to the number of transactions to be
audited and the areas to be tested, has been generally accepted as a valid and sufficient basis for
an auditor to express an opinion on financial statements. Audit procedures that are effective for
detecting errors, if they exist, may be ineffective for detecting misstatements resulting from fraud.
Because of the characteristics of fraud, particularly those involving concealment and falsified
documentation (including forgery), a properly planned and performed audit may not detect a
material misstatement resulting from fraud. In addition, an audit does not address the possibility

4
that material misstatements resulting from fraud may occur in the future. Also, our use of
professional judgment and the assessment of materiality for the purpose of our audit means that
matters may exist that would have been assessed differently by the Insurance Commissioner.

It is the responsibility of the management of the Association to adopt sound accounting policies,
to maintain an adequate and effective system of accounts, and to establish and maintain an
internal control structure that will, among other things, provide reasonable, but not absolute,
assurance that assets are safeguarded against loss from unauthorized use or disposition and that
transactions are executed in accordance with management's authorization and recorded properly
to permit the preparation of financial statements in conformity with accounting practices
prescribed or permitted by the Texas Department of Insurance.

The Insurance Commissioner should exercise due diligence to obtain whatever other information
that may be necessary for the purpose of monitoring and regulating the statutory financial
position of insurers and should not rely solely upon the independent auditor's report.

d. We will retain the workpapers prepared in the conduct of our audit until the Texas Department of
Insurance has filed a Report of Examination covering 2009, but not longer than seven years.
After notification to the Association, we will make the workpapers available for review by the
Texas Department of Insurance at the offices of the insurer, at our offices, at the Insurance
Department or at any other reasonable place designated by the Insurance Commissioner.
Furthermore, in the conduct of the aforementioned periodic review by the Texas Department of
Insurance, photocopies of pertinent audit working papers may be made (under the control of the
accountant) and such copies may be retained by the Texas Department of Insurance.

e. The engagement partner has served in that capacity with respect to the Association since 2009, is
licensed by the Texas Board of Public Accountancy, and is a member in good standing of the
American Institute of Certified Public Accountants.

f. To the best of our knowledge and belief, we are in compliance with the requirements of section 7
of the NAIC's Model Rule (Regulation) Requiring Annual Audited Financial Reports regarding
qualifications of independent certified public accountants.

This letter is intended solely for the information and use of the Texas Department of Insurance and is not
intended to be and should not be used by anyone other than these specified parties.

June 9, 2010


5
Independent Auditors Report

Board of Directors
Austin, Texas

We have audited the accompanying statutory statements of admitted assets, liabilities, surplus and other
funds of Texas Windstorm Insurance Association (the "Association") as of December 31, 2009 and 2008
and the related statutory statements of income and changes in surplus and other funds, and cash flows for
the years then ended. These financial statements are the responsibility of the Association's management.
Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the audits to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An audit includes consideration
of internal control over financial reporting as a basis for designing audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
Associations internal control over financial reporting. Accordingly, we express no such opinion. An
audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

As described more fully in the Summary of Significant Accounting Policies Basis of Accounting,
these financial statements were prepared in conformity with accounting practices prescribed or permitted
by the Texas Department of Insurance, which is a comprehensive basis of accounting other than
accounting principles generally accepted in the United States of America.

On September 13, 2008, Hurricane Ike struck the gulf coast of Texas. Claims attributable to this
hurricane contributed greatly to the Associations $190.6 million net loss for 2008. The Association has
authority to assess certain property and casualty insurers underwriting business in the state of Texas under
Texas Insurance Code Section 21.49 for losses incurred during 2008. However, if another major claim
event occurs in the future, it could have a severe impact on the financial condition of the Association.

In our opinion, the statutory financial statements referred to above present fairly, in all material respects,
the admitted assets, liabilities, surplus and other funds of the Texas Windstorm Insurance Association at
December 31, 2009 and 2008, and the results of its operations and its cash flows for the years then ended,
on the basis of accounting described in the Summary of Significant Accounting Policies Basis of
Accounting.

This report is intended solely for the information and use by the Board of Directors and the management
of Texas Windstorm Insurance Association and for filing with the Texas Department of Insurance and is
not intended to be and should not be used by anyone other than these specified parties. However, this
report is a matter of public record and its distribution is not limited.

June 9, 2010


Statutory Statements of Admitted Assets,

6
December 31, 2009 2008
Admitted Assets
Cash and short-term investments $ 352,013,162 $ 831,456,183
Receivable from Texas FAIR Plan Association 595,329 485,334
Premiums receivable 267,950 292,178
Furniture and equipment, net 1,339,868 1,530,373
Federal income tax recoverable - 4,671,812
Member assessments receivable 1,807,770 3,242,804
Amounts recoverable from reinsurers 93,168,209 -
$ 449,192,288 $ 841,678,684
Liabilities:
Loss and loss adjustment expenses $ 31,686,974 $ 395,196,680
Other expenses payable 2,874,342 891,316
Other taxes, licenses and fees 1,774,886 1,058,346
Current federal income taxes 38,880,652 -
Unearned premiums, net of ceded unearned premiums 183,870,362 (7,058,946)
Advanced premiums 8,607,382 10,063,456
Ceded reinsurance premiums payable, net of ceding commissions 41,058,472 91,506,250
Funds held under reinsurance treaties - 540,542,325
Amounts withheld or retained for account of others 100,230 90,438
Provision for reinsurance 69,239,449 -
Deferred pension liability 362,902 -
Additional minimum pension liability 1,183,067 -
Statutory fund payable 69,553,570 -
Total liabilities 449,192,288 1,032,289,865
Commitments and contingencies (Notes 7, 8, 9, 13, 14 and 15)
Surplus and other funds:
Unassigned surplus (deficit) - (190,611,181)
$ 449,192,288 $ 841,678,684



Statutory Statements of Income

7
Underwriting income:
Premiums earned $ 357,906,150 $ 321,936,632
Premiums ceded (167,443,257) (253,130,140)
Net premiums earned 190,462,893 68,806,492
Deductions:
Losses and loss expenses incurred (290,313,489) 1,215,124,201
Other underwriting expenses incurred:
Commissions 61,148,941 32,821,433
General expenses 19,714,562 14,742,468
Premium and maintenance taxes 7,035,201 6,195,001
Total underwriting deductions (202,414,785) 1,268,883,103
Net underwriting gain (loss) 392,877,678 (1,200,076,611)
Investment income:
Net investment income earned 707,687 6,009,349
Other income:
Assessment income 905,946 530,000,000
Statutory fund income - 469,281,450
Other 2,888 (2,284)
Total other income 908,834 999,279,166
Net income (loss) before statutory fund cost and federal
income tax expense (benefit) 394,494,199 (194,788,096)
Statutory fund cost 69,553,570 -
Net income (loss) before federal income tax expense (benefit) 324,940,629 (194,788,096)
Federal income tax expense (benefit) 57,000,000 (4,141,812)
Net income (loss) $ 267,940,629 $ (190,646,284)




Statutory Statements of Changes In Surplus and Other Funds

8
Unassigned
Surplus (Deficit)
Balance at January 1, 2008 $ (86,032)
Net loss (190,646,284)
Change in deferred income taxes 62,063,302
Change in nonadmitted assets (61,945,055)
Other 2,888
Balance at December 31, 2008 (190,611,181)
Net income 267,940,629
Change in deferred income taxes (54,418,012)
Change in nonadmitted assets 47,108,841
Change in provision for reinsurance (69,239,449)
Additional minimum pension liability (780,824)
Other (4)
Balance at December 31, 2009 $ -


Statutory Statements of Cash Flows

9
Cash from operations:
Premiums collected, net of reinsurance $ 329,505,218 $ 35,374,591
Net investment income 707,687 6,009,349
Miscellaneous income 908,797 999,282,054
Benefit and loss related payments (128,802,454) (739,995,536)
Commissions, expenses paid and aggregate write-ins for
deductions (122,794,273) (144,883,952)
Federal income taxes paid (13,447,536) -
Net cash from operations 66,077,439 155,786,506
Cash from financing and miscellaneous sources:
Other cash (applied) provided (545,520,460) 461,468,113
Net cash from financing and miscellaneous sources (545,520,460) 461,468,113
Net change in cash and short-term investments (479,443,021) 617,254,619
Cash and short-term investments, beginning of year 831,456,183 214,201,564
Cash and short-term investments, end of year $ 352,013,162 $ 831,456,183




10
Nature of Business
Texas Windstorm Insurance Association (the "Association") was created by the Texas Legislature when
it enacted Article 21.49 (the "Act"), as amended, of the Texas Insurance Code, currently codified as
chapter 2210. The purpose of the Act is to provide a method whereby adequate windstorm, hail and fire
insurance may be obtained in certain designated counties located in the gulf coast region of the State of
Texas. Presently, only windstorm and hail coverage is provided by the Association. The membership of
the Association includes every property insurer authorized to write property insurance in the State of
Texas, except companies that are excluded by law. The Act provides that members will share in the
Association's losses on a policy year basis to the extent of their percentage of participation during the
policy year involved, as determined under the provisions of the Act and the Association's Plan of
Operations. In the event of a net loss for any policy years prior to January 1, 2009, members
participating in that policy year may be assessed for their share of the loss based upon their respective
participation percentages.

On June 1, 2009, the Texas Legislature passed House Bill 4409 in which the funding mechanism for the
Association was amended. A section of the bill provides that the Association shall pay for losses in
excess of premium and other revenue as follows:

From available reserves and the Catastrophe Reserve Trust Fund;

From proceeds of Class 1 public securities not to exceed $1 billion per year or other financing
arrangements (including commercial paper). These proceeds must be repaid by the Association
from its premiums and other revenue;

From proceeds of Class 2 public securities not to exceed $1 billion per year to be repaid as
follows: 30% of the cost shall be paid through non-recoupable assessments to member
companies; 70% of the cost shall be paid by a nonrefundable surcharge collected by every
insurer and assessed on all policyholder who reside or have operations in or whose property is
located in the TWIA catastrophe area. The surcharge applies to all policies that provide
coverage on any premises, locations operation or property located in the catastrophe area for all
property and casualty lines of insurance except federal flood insurance, workers compensation,
accident and health and medical malpractice;

From proceeds of Class 3 public securities not to exceed $500M per year to be repaid through
non-recoupable assessments to the member companies.




11
Basis of Accounting
The accompanying financial statements have been prepared on a statutory basis in accordance with
accounting practices prescribed or permitted by the Texas Department of Insurance. Prescribed statutory
accounting practices include state laws, regulations and general administrative rules applicable to all
insurance companies domiciled in the State of Texas and the National Association of Insurance
Commissioners' ("NAIC") Accounting Practices and Procedures Manual. Permitted statutory practices
include practices not prescribed but allowed by the Texas Department of Insurance.

A difference between Texas prescribed practices and NAIC statutory accounting practices, as they relate
to the Association, is that furniture, labor-saving devices, machines, and all other office equipment may
be an admitted asset depreciated in full not to exceed 5 years. NAIC statutory accounting practice
classifies these assets as non-admitted. The effect of admitting these assets is as follows:
December 31, 2009 2008
Unassigned deficit, as reported $ - $ (190,611,181)
Effect of Texas prescribed practices:
Admitted furniture and equipment (758,988) (405,614)
Unassigned deficit, NAIC SAP basis $ (758,988) $ (191,016,795)

In the preparation of the accompanying financial statements, Texas Department of Insurance has
permitted companies domiciled in the state of Texas to delay the adoption of certain substantive
amendments (SSAP 10R) to the 2009 Accounting Practices and Procedures Manual.

Significant differences between statutory accounting practices and accounting principles generally
accepted in the United States of America ("GAAP"), as they relate to the Association include the
following:

a) Certain assets designated as non-admitted assets are charged directly against surplus rather
than capitalized and charged to income as used. These include certain fixed assets, prepaid
expenses and other assets.

b) Loss and loss adjustment expense reserves are presented net of related reinsurance rather than on
a gross basis.

c) Commissions and other acquisition costs relating to issuance of new policies are expensed as
incurred rather than deferred and amortized over the period covered by the policies.

d) Defined pension liability excludes non-vested employees rather than including vested and non-
vested employee obligations.




12
e) The statement of cash flows represent cash balances, cash equivalents and short-term
investments with initial maturities of one year or less rather than cash and cash equivalents with
initial maturities of three months or less.

f) Deferred income taxes are limited by an admissibility formula as opposed to using the more
likely than not standard. Also, changes in the net deferred income taxes are reflected in the
statutory statements of changes in surplus and other funds rather than reflected in the statement
of income.

Use of Significant Estimates
The preparation of financial statements in accordance with statutory accounting practices requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities,
and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported
amounts of revenues and expenses during the reporting period. Actual results could differ from those
estimates.

Short-Term Investments
Short-term investments are recorded at cost which approximates market value. These short-term
investments are comprised solely of United States government securities.

Furniture, Equipment and Depreciation
Furniture and equipment are stated at cost, net of accumulated depreciation. Depreciation is computed
using the straight-line method over the estimated useful life of 3-5 years.

Income Taxes
The provision for federal income taxes is computed in accordance with Subchapter L of the Internal
Revenue Code.

The Association utilizes the balance sheet approach in computing its provision for deferred income
taxes. Accordingly, deferred income taxes arise from the temporary differences in the valuation of
certain assets and liabilities as determined for financial reporting purposes, and the benefits expected to
be realized from the use of capital loss carry forwards. Such temporary differences relate primarily to
the discounting of loss and loss adjustment expense reserves, the recognition of unearned premiums and
capital losses in excess of gains. The admissibility of deferred tax assets is limited by an admissibility
formula developed by the NAIC.

Premiums
All policies issued by the Association have a maximum term of one year from date of issuance.
Premiums earned are taken into income over the periods covered by the policies whereas the related
acquisition costs are expensed when incurred. Unearned premiums, net of deductions for reinsurance, are
computed on a pro-rata basis over the term of the policies.



13
Loss and Loss Adjustment Expense Reserves
Loss and loss adjustment expense reserves are based upon claim estimates for (1) losses for cases
reported prior to the close of the accounting period, (2) losses incurred but unreported prior to the close
of the accounting period, and (3) expenses for investigating and adjusting claims. Such liabilities are
necessarily based on assumptions and estimates and while management believes the amounts are
adequate, the ultimate liability may be in excess of or less than the amount provided. The methods for
making such estimates and for establishing the resulting liabilities are continually reviewed and any
adjustments are reflected in the period determined.

Reinsurance
In the normal course of business, the Association seeks to reduce the loss that may arise from
catastrophes or other events that cause unfavorable underwriting results by reinsuring certain levels of
risk in various areas of exposure with other insurance enterprises or reinsurers.

Advanced Premiums
Premiums are generally recognized as revenue on a pro-rata basis over the policy term after the policy is
issued. Those premiums received for policies not yet issued are included in advanced premiums within
the Association's statutory statement of admitted assets, liabilities, surplus and other funds.

Assessments to Member Companies
Prior to the enactment of HB 4409 in 2009, member companies were assessed to the extent that the
Associations Board of Directors determined that available funds were not sufficient to satisfy the
obligations of the Association. During 2009 and 2008, the Association assessed its members
approximately $905,000 and $530 million, respectively.

Fair Value of Financial Instruments
The following methods and assumptions were used by the Association to estimate the fair value of each
class of financial instruments for which it is practicable to estimate that value:

Cash and short-term investments: The carrying values approximate estimated value.

Reclassifications
Certain prior year balances have been reclassified to conform to current year presentation.




14
1. Cash and Short-Term Investments
Cash and short-term investments are as follows:
December 31, 2009 2008
Cash $ 107,086,496 $ 447,027,639
Short-term investments 244,926,666 384,428,544
$ 352,013,162 $ 831,456,183

2. Furniture and Equipment
Furniture and equipment consist of the following:
December 31, 2009 2008
Furniture, fixtures and equipment $ 1,106,414 $ 1,172,897
Electronic data processing equipment and software 3,319,040 2,600,342
4,425,454 3,773,239
Less: accumulated depreciation (3,085,586) (2,242,866)
$ 1,339,868 $ 1,530,373

Depreciation expense was approximately $803,000 and $480,000 for the years ended December 31,

3. Reinsurance
During 2008, the Association entered into a reinsurance agreement. This agreement reduces the
amount of losses that can arise from claims under a general reinsurance contract known as a
catastrophe excess of loss reinsurance agreement ("excess of loss").

Effective June 1, 2008, the catastrophe excess of loss reinsurance agreement provided the
Association with three layers of coverage. The first layer provided 100% participation of $500
million in excess of $600 million. The second layer provided 100% participation of $500 million
in excess of $1.1 billion. The third layer provided 100% participation of $500 million in excess of
$1.6 billion. This agreement expired on May 31, 2009. The Association has decided to not renew
this reinsurance contract.



15
In accordance with the terms of the reinsurance agreement, the Association paid the reinsurers net
premiums of approximately $58,700,000 and $241,400,000 during 2009 and 2008, respectively.

Ceded reinsurance is treated as the risk and liability of the assuming companies; however, the
reinsurance contracts do not relieve the Association from its obligations to policyholders. Failure
of reinsurers to honor their obligations could result in losses to the Association. The Association,
together with the Texas Department of Insurance, evaluates the financial conditions of its reinsurers
to minimize its exposure to significant losses from reinsurer insolvencies.

The Association has unsecured reinsurance recoverables which exceed 3% of the Associations
surplus with the following reinsurers as of December 31, 2009: (in thousands)

Name of reinsurer 2009

Everest Reinsurance Company

$ 16,777
Liberty Mutual Insurance Company 936
Munich Reinsurance America, Incorporated 6,684
Odyssey America Reinsurance Corporation 10,069
QBE Reinsurance Company 924
Swiss Re Underwriters Agency, Inc. 8,943
Transatlantic Reinsurance Company 1,984
Folksamerica Reinsurance Company 4,472
Converium Reinsurance 11,553
Lexington Insurance Company, Pembroke 2,696
Liberty Syndicate Paris 832
Lloyds Underwriter Syndicate No. 0033 HIS 9,019
Lloyds Underwriter Syndicate No. 0318 MSP 528
Lloyds Underwriter Syndicate No. 0382 PWH 962
Lloyds Underwriter Syndicate No. 0435 FDY 6,343
Lloyds Underwriter Syndicate No. 0566 STN 7,887
Lloyds Underwriter Syndicate No. 0570 ATR 173
Lloyds Underwriter Syndicate No. 0623 AFB 200
Lloyds Underwriter Syndicate No. 0727 SAM 960
Lloyds Underwriter Syndicate No. 0780 ADV 522
Lloyds Underwriter Syndicate No. 1084 CSL 626
Lloyds Underwriter Syndicate No. 1274 AUL 1,201
Lloyds Underwriter Syndicate No. 1301 BGT 105
Lloyds Underwriter Syndicate No. 1400 DRE 1,330
Lloyds Underwriter Syndicate No. 1414 RTH 8,482
Lloyds Underwriter Syndicate No. 1910 ARW 1,810
Lloyds Underwriter Syndicate No. 2001 AML 12,235



16
Name of reinsurer 2009

Lloyds Underwriter Syndicate No. 2003 SJC

4,231
Lloyds Underwriter Syndicate No. 2007 NVA 962
Lloyds Underwriter Syndicate No. 2010 MMX 734
Lloyds Underwriter Syndicate No. 2623 AFB 850
Lloyds Underwriter Syndicate No. 2791 MAP 4,231
Lloyds Underwriter Syndicate No. 3000 MKL 2,119
Lloyds Underwriter Syndicate No. 3820 HDU 803
Lloyds Underwriter Syndicate No. 4020 ARK 690
Lloyds Underwriter Syndicate No. 4444 CNP 1,780
Mapfe Compania de Reaseguros S.A.

2,142
Ace Tempest Reinsurance Limited

452
Ariel Reinsurance Company Ltd

1,181
Axis Capital Holdings Limited

574
Catlin Insurance Company Ltd

251
Harbor Point Re Ltd 4,559
Hiscox Ltd 2,186
New Castle Reinsurance Company Ltd 38
PartnerRe Limited 265
Platinum Underwriters Holdings Ltd 221
Tokio Millennium Re Ltd 4,028
Validus Holdings Limited 88
Allianz Risk Transfer AG 2,878
Paris Re 205
Amilin Bermuda Ltd 10,629

Total

$ 164,350

The effect of reinsurance on premiums written and earned for the years ended December 31, 2009
and 2008 is as follows:

2009 2008
Written Earned Written Earned
Direct $ 382,342,402 $ 357,906,150 $ 331,048,817 $ 321,936,632
Ceded (950,202) (167,443,257) (350,000,000) (253,130,140)
Net $ 381,392,200 $ 190,462,893 $ (18,951,183) $ 68,806,492

During 2009 and 2008, the Association recovered approximately $675 million and $115 million,
respectively, of paid losses and loss adjustment expenses relating to reinsurance contracts.



17
4. Ceded Reinsurance Premiums Payable
Ceded reinsurance premiums payable are reported net of reinsurance ceding commissions
receivable as follows:
December 31, 2009 2008
Ceded reinsurance premiums payable $ 43,111,396 $ 96,109,375
Reinsurance ceding commissions receivable (2,052,924) (4,603,125)
$ 41,058,472 $ 91,506,250

5. Unearned Premiums
Unearned premiums are reported net of ceded unearned premiums as follows:
December 31, 2009 2008
Gross unearned premiums $ 183,870,362 $ 159,434,109
Ceded unearned premiums - (166,493,055)
$ 183,870,362 $ (7,058,946)

6. Loss and Loss Adjustment Expenses
Activity in the liability for unpaid losses and loss adjustment expenses is summarized as follows:
2009 2008
Beginning balance (net of reinsurance receivable of
$1,257,175,137 and $0) $ 395,196,680 $ 10,575,903
Incurred related to:
Current loss year 17,744,000 1,223,282,709
Prior loss years (308,057,489) (8,158,508)
Losses and loss adjustment expense incurred (290,313,489) 1,215,124,201
Paid related to:
Current loss year (9,656,000) (825,177,874)
Prior loss years (63,540,217) (5,325,550)
Paid losses and loss adjustment expense (73,196,217) (830,503,424)
Ending balance (net of reinsurance receivable of
$386,127,586 and $1,257,175,137) $ 31,686,974 $ 395,196,680




18
7. Statutory Fund
During 1993, the Texas Legislature amended Article 21.49 of the Texas Insurance Code
authorizing the creation of a Catastrophe Reserve Trust Fund ("Trust Fund") to be held by the
Texas Department of Insurance ("TDI") for the purpose of allowing the Association to enter into a
program with TDI in lieu of a renewal of the Association's past reinsurance arrangements.
Pursuant to the statutory agreement with TDI, the Association terminated its retrospective
reinsurance agreement. Consequently, the retrospective premium due from the reinsurers was
refunded directly to the Trust Fund, with legal title to such funds reverting to TDI. In accordance
with the statutory agreement, the Association shall pay the net equity, including all premiums and
other revenue of the Association in excess of incurred losses and operating expenses to the Trust
Fund or a reinsurance program approved by TDI. As a result, the Association accrued $69.5
million of statutory fund costs for the year ended December 31, 2009.

To administer these funds, TDI entered into a related Funds Management Agreement with the State
Comptroller of Public Accounts ("Comptroller") whereby the Comptroller will manage the funds
in the Trust Fund.

Under the statutory agreement with the TDI, under the law in effect prior to the enactment of HB
4409 all monies in the Trust Fund were to be used for payment of net losses from windstorm and
hail catastrophe losses in excess of $100 million in any calendar year and/or catastrophe mitigation
(see Note 3). During 2008, the Association received a payment of approximately $469 million
from the Trust Fund to meet its estimated obligations.

8. Employee Benefit Plans
Defined Benefit Plan. The Association has a defined pension benefit plan, which covers
employees from their date of hire, if the employee is scheduled to work at least 1,000 hours in a
twelve-month period. Pension benefits are based on years of service and the employee's
compensation during the five highest consecutive years' earnings from the last ten years of
employment. An employee's benefits vest 5 years from date of hire. The Association makes
contributions to the plan that complies with the minimum funding provisions of the Employee
Retirement Income Security Act. Such contributions are included in general expenses.




19
The following sets forth a summary of projected benefit obligations, plan assets, funded status,
benefit costs and assumptions of the defined pension benefit plan as follows:
December 31, 2009 2008
Change in Projected Benefit Obligations for Vested Participants:
Benefit obligation at beginning of year $ 4,622,990 $ 3,618,822
Service cost 680,919 351,225
Interest cost 312,070 241,662
Actuarial loss 639,496 461,939
Benefits paid (123,370) (50,658)
Projected benefit obligation at end of year 6,132,105 4,622,990
Change in Plan Assets
Fair value of plan assets at beginning of year 2,631,250 3,359,615
Actual return on plan assets 766,131 (1,042,255)
Employer contributions 335,640 364,548
Benefits paid (123,370) (50,658)
Fair value of plan assets at end of year 3,609,651 2,631,250
Funded Status
Unrecognized net loss 2,159,552 2,298,879
(Accrued) prepaid benefit obligation for vested employees $ (362,902) $ 307,139

Accumulated Benefit Obligation for Vested Participants $ 4,792,718 $ 2,631,250

Benefit Obligation for Non-Vested Employees
Projected benefit obligation $ 462,322 $ 538,207

Components of Net Periodic Benefit Costs
Service costs $ 680,919 $ 351,225
Interest costs 312,070 241,662
Expected return on plan assets (218,756) (279,299)
Amount of loss recognized 231,448 28,354
Total net periodic benefit cost $ 1,005,681 $ 341,942




20
Minimum Pension Liability
Accrual is required when actuarial present value of accumulated benefits exceeds plan assets and
accrued pension liabilities. Minimum liability adjustment is reported as an adjustment to
unassigned funds. At December 31, 2009 and 2008, additional minimum liability of $1,183,067
and $0 was required, respectively.

Pension Assumptions

December 31, 2009 2008

Weighted-average assumptions used to determine net periodic benefit cost:
Discount rate 6.0% 6.5%
Rate of compensation increase 4.0% 4.0%
Expected long-term rate of return of plan assets 8.0% 8.0%

Weighted-average assumptions used to determine projected benefit obligations:
Weighted-average discount rate 6.0% 6.5%
Rate of compensation increase 4.0% 4.0%

Measurement Date
A measurement date of December 31, 2009 was used to determine the above.

Asset Allocation
The defined benefit pension plan asset allocation as of the measurement date presented as a
percentage of total plan assets were as follows:

December 31,

2009 2008

Equity securities

58.1% 50.6%
Debt securities 39.0% 45.9%
Real estate 0.0% 0.0%
Other 2.9% 3.5%

100.0% 100.0%

The investment policy of the Plan is to maximize the total return of the fund while maintaining a
strong emphasis on preservation of capital. The total portfolio is expected to be less volatile than
the market the vast majority of the time. The plan assets are invested in a mix of equity and fixed
income investments subject to target allocation ranges. The target allocation range for fixed
income investments is between 20% and 40%. The target allocation range for international equity
investments is between 10% and 20%. Remaining funds not invested in the categories above are to
be invested in short-term cash equivalents such as money market funds.




21
The long-term rate of return represents the expected average rate of return on the plan assets based
on the expected long-term asset allocation of the plan. Several factors are considered, including
historical market index returns, expectations of future returns in each asset classes, and the
potential to outperform market index returns.

Future Payments
The following estimated future payments, which reflect expected future service, as appropriate, are
expected to be paid in the years indicated:
Years ending December 31,

Amount

2010 $ 142,763
2011 197,853
2012 223,269
2013 277,515
2014 310,653
2015 - 2019 2,426,757

Planned Contributions
The Association expects to make contributions of $759,736 during the year ending December 31,
2009.

Defined Contribution Plan. The Association has a defined contribution 401(k) plan available to
eligible employees after six months of employment. The Association contributed approximately
$258,000 and $252,000 for the years ended December 31, 2009 and 2008, respectively.

9. Lease Commitments
The Association leases office space under a non-cancellable operating lease agreement which
expires in 2012. Future minimum lease payments, by year and in the aggregate, under a non-
cancelable operating lease with initial or remaining terms of one year or more consisted of the
following at December 31, 2009:
Years ending December 31, Amount
2010 $ 709,268
2011 730,999
2012 441,000
2013 -
2014 and thereafter -
$ 1,881,267




22
Rental expense under the non-cancelable operating lease was approximately $621,000 and
$591,000 for the years ended December 31, 2009 and 2008, respectively.

10. Federal Income Taxes
The net deferred tax assets and the increase in nonadmitted deferred tax assets are comprised of the
following components:

December 31, 2009 2008

Total gross deferred tax assets $ 14,258,983 $ 68,182,268
Total gross deferred tax liabilities (92,484) -

Net deferred tax asset 14,166,499 68,182,268
Nonadmitted deferred tax assets (14,166,499) (68,182,268)

Net admitted deferred tax assets $ - $ -

Decrease (increase) in nonadmitted deferred tax assets $ 54,015,769 $ (62,063,302)

The change in deferred income taxes reported in surplus before consideration of nonadmitted assets
is comprised of the following components:
December 31, 2009 2008

Net deferred tax assets $ 14,166,499 $ 68,182,268
Tax-effect of additional minimum pension liability (402,243) -

Net tax effect without unrealized gains and losses $ 13,764,256 $ 68,182,268

Change in net deferred income tax $ (54,418,012) $ 62,063,302
Deferred income tax assets and liabilities consist of the following major components:

December 31,

2009 2008

Deferred tax assets:
Discount of unpaid losses and LAE $ 371,466 $ 4,502,488
20% of unearned premiums 13,473,442 204,307
Net operating loss carryforward - 63,212,220
AMT tax credit - 260,423
Additional minimum pension liability 402,243 -
Other (80,652) 2,830

Total deferred tax assets 14,166,499 68,182,268
Nonadmitted deferred tax assets (14,166,499) (68,182,268)

Net admitted deferred tax assets $ - $ -




23
The Companys income tax incurred and change in deferred income tax differ from the amount
obtained by applying the federal statutory rate to income before federal income taxes as follows:


Expected income tax expense at statutory rate $ 113,729,220 35% $ (66,227,953) -34%
Other - 0% 22,839 0%

Total income tax $ 113,729,220 35% $ (66,205,114) -34%

Federal income taxes incurred $ 57,000,000 17% $ (4,141,812) -32%
Change in net deferred income taxes 54,418,012 17% (62,063,302) -2%
Accrual adjustment/change in rate 2,311,208 1% - 0%

Total statutory income taxes $ 113,729,220 35% $ (66,205,114) -34%

At December 31, 2009, the Association utilized approximately $184 million of the 2008 net
operating losses to offset current year taxable income.

The amounts of federal income taxes incurred that are available for recoupment in the event of
future net losses are approximately $57 million for 2009.

11. Related Parties
Pursuant to the Association's Plan of Operation, its Board of Directors consists of nine members.
Five directors are elected from the membership of the Association, two directors are appointed by
the Texas Department of Insurance from the public sector based on nominations by the Office of
Public Insurance Counsel and two directors, who are licensed local recording agents, are appointed
by the commissioner of the Texas Department of Insurance. Of the five directors elected from the
membership, a minimum of three members shall be from companies with multi-state operations and
a minimum of one member shall be from a company domiciled in the State of Texas.

12. Service Contract with Texas FAIR Plan Association
During 2002, the Association entered into a service contract with the Texas Fair Plan Association
(the "Plan") in which the Association is to be fully reimbursed for all expenditures, professional
fees, consulting services, allocated employee time, lost investment income and other costs directly
associated with the services provided by the Association on behalf of the Plan. As of December 31,
2009 and 2008, the Association incurred or paid expenses for which it has not been reimbursed of
$7,604,974 (of which $7,009,645 has been non-admitted) and $485,334, respectively, on behalf of
the Plan. These amounts are recognized in the statutory statements of admitted assets, liabilities,
surplus and other funds as a receivable from Texas FAIR Plan Association.




24
13. Line of Credit
The Association had a $150 million line of credit with a bank. There were no balances outstanding
as of December 31, 2008 or drawn against the line of credit for the years ended December 31, 2009
and 2008. This agreement expired on July 13, 2009 and was not renewed.

14. Commitments and Contingencies
The Association is subject to various investigations, claims and legal proceedings covering a wide
range of matters that arise in the ordinary course of its business activities. Management believes
that any liability that may ultimately result from the resolution of these matters in excess of the
amounts provided will not have a material adverse effect on the financial position of the
Association. These matters are subject to various uncertainties, and some of these matters may be
resolved unfavorably to the Association.

15. Concentration of Credit Risk
The Association maintains deposits of cash in excess of federally insured limits with certain
financial institutions. The Association has not experienced any losses in such accounts and believes
they are not exposed to any significant credit risk on cash.

The Association writes windstorm and hail coverage primarily in the 13 counties along the Texas
coast.

16. Nonadmitted Assets
Nonadmitted assets consisted of the following:

December 31,

2009 2008

Premiums receivable $ 133,344 $ 125,985
Prepaid pension cost - 307,139
Deferred tax asset 14,166,499 68,182,268
Receivable from Texas FAIR Plan Association 7,009,645 -
Furniture and equipment 197,063 -

Total nonadmitted assets $ 21,506,551 $ 68,615,392

17. Fair Value of Financial Instruments
The estimated fair values and carrying values of the Association's financial instruments are as
follows:
2009 2008
December 31,
Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
Cash and short-term investments $ 352,013,162 $352,013,162 $ 831,456,183 $ 831,456,183




25
18. Reconciliation with Annual Statement
Texas Department of Insurance on its December 31, 2009 annual statement and as reported in the

Taxes, licenses and fees and current federal income taxes payable A reclassification adjustment
was made to properly classify current federal income taxes payable.

Receivable from Texas FAIR Plan An adjustment was made to non-admit certain receivables
from Texas FAIR Plan.

Other underwriting expenses incurred and additional minimum pension liability An adjustment
was made to record additional minimum pension liability in accordance with SSAP No. 89.

Statutory fund payable An adjustment was made to properly reflect the statutory fund cost in
accordance with Article 21.49 of the Texas Insurance Code.

Deferred tax assets An adjustment was made to reflect the tax effect of the above changes.

December 31, 2009

Annual
Statement Adjustments
Audited
Financial
Statements


Receivable from Texas FAIR Plan $ 7,604,974 $ (7,009,645) $ 595,329
Taxes, licenses and fees 40,655,550 (38,880,664) 1,774,886
Current federal income taxes - 38,880,652 38,880,652
Statutory fund payable 124,264,347 (54,710,777) 69,553,570
Unassigned deficit (47,701,144) 47,701,144 -




26
December 31, 2009

Annual
Audited
Financial
Statements


Statutory fund cost $ 124,264,347 $ (54,710,777) $ 69,553,570
Other underwriting expenses incurred 89,081,784 (1,183,080) 87,898,704

and other funds:

Net income $ 212,046,772 $ 55,893,857 $ 267,940,629
Change in net deferred income tax (54,242,329) (175,683) (54,418,012)
Change in non-admitted assets 54,345,046 (7,236,205) 47,108,841
Additional minimum pension liability - (780,824) (780,824)

Texas Department of Insurance on its December 31, 2008 annual statement and as reported in the

Cash and short-term investments An adjustment was made to properly reflect claim payments
due to timing differences.

Amounts recoverable from reinsures and provision for reinsurance An adjustment was made to
reclass amounts as a reduction in reserves in accordance with SSAP No. 62

Loss and loss adjustment expense reserves An adjustment was made to strengthen reserves based
on managements best estimate and also to reduce those reserves for the amounts ceded under
reinsurance contracts in accordance with SSAP No. 62.

Funds held under reinsurance treaties An adjustment was made to reflect funds received in
advance for loss payments in accordance with SSAP No. 62.



27
December 31, 2008

Annual
Audited
Financial
Statements


Cash and short-term investments $ 835,306,600 $ (3,850,417) $ 831,456,183
Amounts recoverable from reinsures 361,250,000 (361,250,000) -
Receivables from affiliate 515,846 (30,512) 485,334
reserves

1,152,371,816 (757,175,136) 395,196,680
Other expenses 921,829 (30,513) 891,316
Funds held under reinsurance treaties - 540,542,325 540,542,325
Provision for reinsurance 22,752,085 (22,752,085) -

incurred $ 1,083,273,783 $ 131,850,418 $ 1,215,124,201
Other underwriting expenses incurred 49,617,091 4,141,811 53,758,902
Federal income taxes incurred - (4,141,812) (4,141,812)

and other funds:

Net loss $ (58,792,981) $ (131,853,303) $ (190,646,284)
Change in net deferred income tax 17,274,800 44,788,502 62,063,302
Change in nonadmitted assets (17,156,551) (44,788,504) (61,945,055)
Change in provision for reinsurance (22,752,085) 22,752,085 -
Other - 2,888 2,888

Statutory statement of cash flows:
Benefit and loss related payments $ 213,299,404 $ 526,696,132 $ 739,995,536
Commissions, expenses paid and
aggregate write-ins for deductions

139,632,204 5,251,748 144,883,952
Federal income taxes paid (recovered) 4,141,812 (4,141,812) -
Other cash provided (applied) (62,487,536) 523,955,649 461,468,113
Net change in cash 621,105,037 (3,850,418) 617,254,619




28
19. Subsequent Events
No events have occurred subsequent to December 31, 2009 through the date of the audit report that
would have a material impact on the Associations financial statements or that would merit
disclosure.


29

on Supplemental Material

Our audits of the statutory financial statements included in the preceding section of this report were
performed for the purpose of forming an opinion on those statements taken as a whole. The supplemental
material presented in the following section of this report is presented to comply with the National
Association of Insurance Commissioners Accounting Practices and Procedures Manual and Texas State
law. Such information has been subjected to the auditing procedures applied in the audit of the financial
statements and, in our opinion, is fairly stated in all material respects in relation to the financial
statements taken as a whole.

This report is intended solely for the information and use of the Board of Directors and the management
of Texas Windstorm Insurance Association and for filing with the Texas Department of Insurance and
should not be used by anyone other than these specified parties. However, this report is a matter of public
record and its distribution is not limited.


June 9, 2010
Austin, Texas



December 31, 2009

30

Gross Investment
Holdings *
Admitted Assets
as Reported in the
Annual Statement
Investment categories Amount % Amount %
Bonds:

U.S. Treasury securities $ - - $ - -
U.S. Government agency obligations
(excluding mortgage-backed securities):

Issued by U.S. Government agencies - - - -
Issued by U.S. Government-sponsored
agencies

- - - -
Foreign Government (including Canada,
excluding mortgage-backed securities)

-

-

-

-
Securities issued by states, territories and
possessions and political subdivisions in the
U.S.:

State, territories and possessions general
obligations

-

-

-

-
Political subdivisions of states, territories
and possessions political subdivisions
general obligations

-

-

-

-
Revenue and assessment obligations - - - -
Industrial development and similar
obligations

-

-

-

-
Mortgage-backed securities (includes
residential and commercial MBS):

Pass-through securities:
Issued or guaranteed by GNMA - - - -
Issued by FNMA and FHLMC - - - -
All other - - - -
CMOs and REMICs:
Issued or guaranteed by GNMA, FNMA,
FHLMC or VA

-

-

-

-
Issued by non U.S. Government issuers and
collateralized by mortgage-backed
securities issued or guaranteed by agencies

- - - -
All other - - - -
Other debt and other fixed income securities
(excluding short-term):

Unaffiliated domestic securities (includes
credit tenant loans rated by the SVO)

-

-

-

-
Unaffiliated foreign securities - - - -
Affiliated securities - - - -



December 31, 2009

31

Gross Investment
Holdings *
Admitted Assets
as Reported in the
Annual Statement
Investment categories Amount % Amount %
Equity interests:

Investments in mutual funds - - - -
Preferred stocks:
Affiliated - - - -
Unaffiliated - - - -
Publicly trade equity securities (excluding
preferred stocks):

Affiliated - - - -
Other equity securities:
Affiliated - - - -
Other equity interests including tangible
personal property under lease:

Affiliated - - - -
Mortgage loans:
Construction and land development - - - -
Agricultural - - - -
Single family residential properties - - - -
Multifamily residential properties - - - -
Commercial loans - - - -
Mezzanine real estate loans - - - -
Real estate investments:
Property occupied by the company - - - -
Property held for production of income - - - -
Property held for sale - - - -
Contract loans - - - -
Receivables for securities - - - -
Cash, cash equivalents and short-term
investments

352,013,162

100.000%

352,013,162

100.000%
Other invested assets - - - -
Total invested assets $ 352,013,162 100.000% $ 352,013,162 100.000%
*Gross investment holdings as valued in compliance with the NAIC Accounting Procedures Manual



Supplemental Investment Risk Interrogatories
December 31, 2009

32
1) Reporting entitys total admitted assets as reported in the accompanying
financial statements. $ 449,192,288

Questions 2 through 23 are not applicable.



December 31, 2009

33
7.1 Has the reporting entity reinsured any risk with any other entity under a
quota share reinsurance contract that includes a provision that would limit the
reinsurers losses below the stated quota share percentage (e.g., a deductible,
a loss ratio corridor, a loss cap, an aggregate limit or any similar provisions)? YES[ ] NO [X]

7.2 If yes, indicate the number of reinsurance contracts containing such
provisions. N/A

7.3 If yes, does the amount of reinsurance credit taken reflect the reduction in
quota share coverage caused by any applicable limiting provision(s)? YES[ ] N/A [X]

8.1 Has this reporting entity reinsured any risk with any other entity and agreed
to release such entity from liability, in whole or in part, from any loss that
may occur on this risk, or portion thereof, reinsured? YES[ ] NO [X]

8.2 Is yes, give full information. N/A [X]

9.1 Has the reporting entity ceded any risk under any reinsurance contract (or under multiple contracts
with the same reinsurer or its affiliates) for which during the period covered by the statement (i) it
recorded a positive or negative underwriting result greater than 5% of prior year-end surplus as
regards policyholders or it reported calendar year written premium ceded or yearend loss and loss
expense reserves ceded greater than 5% of prior year-end surplus as regards policyholders; (ii) it
accounted for that contract as reinsurance and not as a deposit; and (iii) the contract(s) contain one
or more of the following features or other features that would have similar results:

(a) A contract term longer than two years and the contract is noncancellable
by the reporting entity during the contract term;

(b) A limited or conditional cancellation provision under which cancellation
triggers an obligation by the reporting entity; or an affiliate of the
reporting entity, to enter into a new reinsurance contract with the
reinsurer, or an affiliate of the reinsurer;

(c) Aggregate stop loss reinsurance coverage;

(d) A unilateral right by either party (or both parties) to commute the
reinsurance contract, whether conditional or not, except for such
provisions which are only triggered by a decline in the credit status of the
other party;



December 31, 2009

34
(e) A provision permitting reporting of losses, or payment of losses, less
frequently than a quarterly basis (unless there is no activity during the
period); or

(f) Payment schedule, accumulating retentions from multiple years or any
features inherently designed to delay timing of the reimbursement to the
ceding entity. YES[X] NO [ ]

9.2 Has the reporting entity during the period covered by the statement ceded any risk under any
reinsurance contract (or under multiple contracts with the same reinsurer or its affiliates), for
which, during the period covered by the statement, it recorded a positive or negative underwriting
result greater than 5% of prior year-end surplus as regards policyholders or it reported calendar
year written premium ceded or year-end loss and loss expense reserves ceded greater than 5% of
prior year-end surplus as regards policyholders; excluding cessions to approved pooling
arrangements or to captive insurance companies that are directly or indirectly controlling by, or
under control with (i) one or more unaffiliated policyholders of the reporting entity, or (ii) an
association of which one or more unaffiliated policyholders of the reporting entity is a member
where:

(a) The written premium ceded to the reinsurer by the reporting entity or its
affiliates represents fifty percent (50%) or more of the entire direct and
assumed premium written by the reinsurer based on its most recently
available financial statement; or

(b) Twenty-five percent (25%) or more of the written premium ceded to the
reinsurer has been retroceded back to the reporting entity or its affiliates
in a separate reinsurance contract? YES [ ] NO [X]

9.3 If yes to 9.1 or 9.2, please provide the following information in the Reinsurance Summary
Supplemental Filing for General Interrogatory 9:

(a) The aggregate financial statement impact gross of all such ceded
reinsurance contacts on the balance sheet and statement income.

(b) A summary of the reinsurance contract terms and indicate whether it
applies to the contracts meeting the criteria in 9.1 or 9.2; and



December 31, 2009

35
(c) A brief discussion of managements principle objectives in entering into
the reinsurance contract including the economic purpose to be achieved. N/A

9.4 Except for transactions meeting the requirements of paragraph 30 of SSAP No. 62, Property and
Casualty Reinsurance, has the reporting entity ceded any risk under any reinsurance contract (or
multiple contracts with the same reinsurer or its affiliates) during the period covered by the
financial statement, and either:

(a) Accounted for that contract as reinsurance (either prospective or
retroactive) under statutory accounting principles (SAP) and as a
deposit under generally accepted accounting principles (GAAP); or

(b) Accounted for that contract as reinsurance under GAAP and as a deposit
under SAP? YES [ ] NO [X]

9.5 If yes to 9.4, explain in the Reinsurance Summary Supplemental Filing for
General Interrogatory 9 (Section D) why the contract(s) is treated differently
for GAAP and SAP. N/A

9.6 The reporting entity is exempt from the Reinsurance Attestation Supplement
under one or more of the following criteria:

(a) The entity does not utilize reinsurance ; or, YES [ ] NO [X]

(b) The entity only engages in a 100% quota share contract with an affiliate
and the affiliated or lead company has filed an attestation supplement;
or, YES [ ] NO [X]

(c) The entity has no external cessions and only participates in an
intercompany pool and the affiliated or lead company has filed an
attestation supplement. YES [ ] NO [X]


.----. ---, .. __ .
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1)
:<:.1:(/,.-
... ., .;: omceoftbe CGmmIaalaner,MaIi COde 113-1C
333 P.O. Box 149104. Austin. Texas 78714-9104
512 512415-2005 fax WWW.IdI.stale.tx.u$
Mareh 21. 2011
Mr. Garry Kaufman, Chairman
GaMlston, Insurance Associates
6025 Heards .Lane
Galveston, TX.77551
Mr. Michae' Gel'lk
6xecutiVe VKle President
Texas FarmSureau MutuallnsufSnce Company
6420 Fish Pond Road
Waco, Texas 16710
Ms. Georgia Neblett
The University ofTe,ps- MarineScienae llistltute
750 Channel View 01'.
Port Aransas, Texas 18313
Re: The Association's Use of Current Premium Income
Dear 'Executive Committee Members:
Ina recent- the Legislature, the question of the proper use of current
premium donarsto pay claims and losses from Hurricanes Ike and Dplly was
raised. Specifically, the. question presented was "eould the Assooiatlon use
current premium inooroeto pay Hurricanes Ike and Dolly claims?"
When InsuranoeCode Chapter 2210 was amended by' the 8.1st Legislature
(House Bill 44'00), catastrGphe claim funding for future was revised. The
amendmen_ diQ not revise or amend the method of funding catastrophe claims
that existed before September 1, 2009. rhe amendments to Chapter 2210 are
dJd nQt that the amendments woutd be retroactiVely

Before HOU$e BIII4409, losses in any calendar yesr that exceeded premium and
other revenue, were to be resolved pursuant to Insufance Code Section
2210.058. SectIon 2210.058 set out specific sources 'and priority of funding to
pay for losses In any calendar year. Section 2210.058 was repealed by HB 4409
but the repeal did not address assessments neeessary to pay for losses that
existed befOre the effective date of the repeal.
EXHIBIT G
-------------_ ....._ .......__ .... __ ....._----_ ........__ ._ ....... _---
As. the .1os8e$ from Ike anci Dolly are obligations and liabilities that
to the effeCtIve date of Hi 4409, we believe the funding mechanism
for such losses IS contained In chapter 2210 before it was amended by HB 4409.
We are considering what would be a prudent course of action for the use of
current premium de!lanJ; and, at this time, it appeanJ current premium dollars
shoukf not be used to pay claims losses of Hurricanes Ike and Dolly. We
therefore urge the Soard to promptly obtain a legal analysis of the pertinent
statutes and provide appropriate to the Assooiation regarding
whether cun:ent premium income may be used for {he payment of Hurricane Ike
and Dolly Claims. this is an important and critical question that merits your
immediate attention.
Sincerely,

Mike. Geeslin
Commls&ioner of Insurance
Cmmt PFecE'
GN.8
QJsnuq PFecE:
One Plaza Square, Suite 203
Port Arthur, TX 77642
409-n4-0788
P.O. Box 2910
Austin, TX 78768-2910
512-463-0662
Fax: 512-463-8381
STATE of TEXAS
HOUSE of REPRESENTATIVES
Fax: 409-n4-0750
joe.deshotei@house.state.tx.us
Ms. Eleanor Kitzman
Commissioner
Texas Department of Insurance
333 Guadalupe
Austin, Texas 78701-3938
Mr. John W. Polak
General Manager
TWIA
5700 South MoPac Expressway
Building E, Suite 530
Austin, Texas 78749
Dear Ms Kitzman:
JOE DESHOTEL
e x a ~ State Representative
22nd Legislative District
March 24, 2013
Mr. Mike Gerik
Chainnan
Texas Windstonn Insurance Assoc.
5700 South MoPac Expressway
Building E, Suite 530
Austin, Texas78749
To follow up on our conversations from Thursday morning, March 21, 2013 in Chairman Todd
Hunter's office, we believe that the proposed discussion and any action to place TWIA into
Receivership is unnecessary and unwarranted. What the Board should do, as has long been
advocated by Mike Geeslin, the previous Insurance Commissioner, as well as coastal members
of the Board, is assess the insurance companies under the law applicable to insurance policies in
effect in September 2008.
In our meeting, as well as reflected in TWIA documents, we were advised that TWLA has spent
approximately $316 million dollars in 2009, 2010, 2011 and 20] 2 premiums to resolve 2008
Hurricane Ike claims. In addition, TWIA has set aside in reserves an additional $330+ million
from premiums to pay for the currently pending/remaining claims. This brings the total probable
payout for Hurricane Ike to $2.7 billion.
In the September 17. 2008 Board meeting after Hurricane Ike, Jim Oliver, the Executive Director
of TWIA, noted that with $42 Billion in insured exposure in the 6 county Ike impacted area, at a
COMMtnEes
Land a Resource Management
Chairman
Public Education
Member
EXHIBIT H
Ms. Eleanor Kitzman
March 24, 2013
Page 2
10% loss ratio, TWIA's exposure could be 4.0 Billion dollars. Mr. Mr. Oliver requested an
assessment of $830 million to the insurance carriers under the 2008 TWIA statutory funding
structure (this statutory structure was changed in 2009 by HB 4009 as discussed below). Mr.
Oliver noted that with cash from the Trust Fund and $1.5 billion in reinsurance this $830 million
assessment would allow TWIA to pay claims up to $2.5 billion. The four coastal representatives
on the Board votedfor the $830 million assessment, but the five insurance industry
representatives did not vote for the assessment. The insurance company representatives would
only go as high as a $430 assessment which brought TWlA to a capacity to pay $2.1 billion.
Despite (discussed below) to make further assessments at later dates, no further
assessment has ever been TTUUie! Instead, the TWIA Board, even under the oversight by TDI and
Commissioner Kitzman, has paid out and reserved $600+ million in premiums. If the Board
would simply follow the law in place for these 2008 policies and assess the insurance companies
and move the premium money to the Trust Fund, which currently has $178 million, TWlA
would have over $775 million, which is hundreds of millions more (50%) than the Trust Fund
has ever had!
At the October 8. 2008 Board meeting, it was noted that TWIA expected 90,000 claims and
estimated the cost to be $2.7 billion dollars. (Ironically, we were advised in our meeting on
3121113 that this is the total that TWlA has paid and reserved for all Ike claims.) Further, Mr.
Oliver noted that another assessment might not be necessary until the first quarter of 2009. The
Board agreed to wait to discuss another assessment until the December 2008 meeting.
On November 18. 2008 the head actuary for TWIA responded to an inquiry from Rep. Larry
Taylor's office that the estimated losses were $2.1-$2.5 and noted the $430 million in
assessments and added, "For example. if the ultimate lossesfrom Hurricane Ike are $2.5 billion,
we will need to assess an additional $400 million from the last layer of assessments . ..
The next meeting of the TWIA Board was December 9, 2008 at which time Mr. Oliver estimated
the losses would be $2.1-$2.4 and that another assessment might be necessary the following
(2009) summer.
Although there is no talk: of an assessment on the companies at the March 9, 2009 meeting, it
was noted that, "The two hurricanes (Ike and Dolly) depleted the Catastrophe Reserve Trust
Fund .... Unless a change is made in the statute, TWIA will have no funds for hurricane season
2009, except company assessments." Likewise, there was no talk of assessments during the June
23, 2009 or December t S. 2009 meetings.
The March 9. 2010 meeting had no discussions of assessments. It was noted that $ 1.4 billion had
been spent to date and there is a reference in the audit documents that $2.3 billion is the
estimated loss. The June 22, 2010 meeting did not reference any assessments and oddly
estimated losses at $1.9 billion "$100 million greater than originally anticipated" which is in
direct opposition to all of the above including their answers to the audit report in the March 2010
records.
Ms. Eleanor Kitzman
March 24, 2013
Page 3
The September 14.2010 meeting reflects that 92,700 claims had been filed and only 40,000
policyholders in the 6 counties had not had a claim filed. It was noted that $1.725 billion had
been paid out to date and the estimate was at $2.1 billion for Ike losses. It is also noted that there
was a recent settlement of the "slab" cases.
At the December 7. 2010 meeting, it was reported that $1.82 billion had been paid to date and
the incurred losses would probably be $2.3 billion "up from the original estimate of S2.1" yet
there was no discussion of assessments.
On March 21. 2011 Commissioner Mike Geeslin wrote a letter to TWIA, as the result of a
legislative inquiry, specifically, "could the Association use current premium income to pay for
Hurricane Ike and Dolly losses?" After analyzing the legislation that was passed in 2009 (HB
4409) the Commissioner determined that, without expressly saying it, TWIA should asses the
companies. "As the losses from Hurricane Ike and Dolly are obligations and liabilities that
existed prior to the effective date of HB 4409, we believe the funding mechanism for such losses
is contained in Chapter 2210 before it was amended by HB 4409 (i.e. assessment of the
companies) .... It appean that current premium dollan should not be used to pay claim
losses from Hurricane Ike and Dolly." Mr. Pollack wrote a memo to the Board raising the
issue. No action was taken.
At the June 28.2011 Board meeting, Mr. Pollack noted that it was unclear if assessments were
necessary. In an audit that was presented to the Board, the auditing company noted under the
section, ''Nature of Business" that, "In the event of a net loss in any policy year prior to January
1,2009, members participating in that policy year may be assessed for their share of the loss
based upon their respective participation percentages." No action was taken.
Before he left office, Commissioner of Insurance, Mike Geeslin, again wrote the TWIA Board
on August 12,2011 addressing the assessment issue. He wrote, "Also, of substantial interests
are issues related to the resolution of Hurricane Ike losses and funding. These include, but are
not limited to, the potential assessment of member companies for 2008 losses, and
accounting for 2009 through 2011 annual premium dollars that have been used to pay Ike
daims. How these matters are resolved will have an impact on the level of public trust of
TWlA ... I believe that at the next Board meeting, the Board should have all available information
from counsel and TWIA staff necessary to vote on and resolve these issues." How prophetic
Commissioner Geeslin was 18 months ago as we sit here today!
Commissioner Kitzman took over for Commissioner Geeslin between the June and September
2011 Board meetings. At the September 13, 2011 Board meeting, Commissiner Kitzman told
the Board that she did not think that an assessment was needed at that time despite the fact that
TWIA had paid and reserved over $200 million out of Post Ike Premiums and that the Board had
sufficient revenue (premiums???) and reinsurance to pay the remaining Hurricane Ike and Dolly
claims and that WI would continue to monitor the situation. It was then noted that TWIA had
paid out over $2.0 billion and that reinsurance would be exhausted by the end of the year.
'
Ms. Eleanor Kitzman
March 24, 2013
Page 4
At the December 13,2011 Board meeting it was noted that the reinsurance had been exhausted
and that $30 million remained uncollectable due to the Lehman Brothers failure. A memo dated
December 31,2011 raised the estimate of Ike losses to $2.35 Billion along with $305 million in
losses from Hmricane Dolly and noted that during a normal non stonn year approximately $200
mi1lion would be put into the Trust fund. However, because of the Robstown storm and
increasing reserves for Ike, only $82 million would be transferred to the Trust Fund. No
diseussion of assessments was mentioned.
A March 31, 2012 "Management Discussion and Analysis" presented at the May 15. 2012 Board
meeting raised the Ike loss claims estimate to $2.4 Billion. No mention of assessments was
presented. Likewise, at the August 12, 2012 Board meeting a lengthy discussion was held with
Commissioner Kitzman, about TWIA funding including the $174 million in the Trust Fund and
scenarios that could deplete available funding sources. Assessments were never mentioned by
anyone. This meeting is in contrast to the meeting just a year earlier where Commissioner said
TWIA had sufficient revenue and reinsurance to pay claims.
A memorandum from the TWIA executive director John PoUack presented to the Board at the
December 2012 meeting raised the Ike loss estimate from $2.4 billion to $2.53 billion.
Assessments were not mentioned.
A review of the available Board meeting minutes reveals that the TWIA Executive Director's
initial estimates that additional assessments were necessary were correct and that nobody ever
followed up on Commissioner Geeslin's directives. It is not too late for the Board to take action,
assess the member companies, put $600 million in the Trust Fund and shore up TWIA's funding
situation which would eliminate the need to even discuss receivership. With $775 million in the
Trust Fund the legislature could build a substantial financial model for the security of the coast
and the State of Texas.
Sincerely,
Abel Herrero
House District 34
a

House Dia;:J ;3
.
Ms. Eleanor Kitzman
March 24, 20 13
PageS
Cc: TWIA Board Members
David Durden
f:;:JAo =
Allan Ritter
House District 21
'(t:::
J
:
I:::;:'. Texas Department of Insurance
\"', ',lit -: Office ofthe Commissioner, Mall COde 1131C
\, ',' 333 Guadalupe P.O. Box 149104. Austin. Texas 78714-9104
'. 512 463-6464lelephone 512475-2005 fa)( www.tdi.state.tx.us
August 12. 2011
Mr. Mike Gerik, Chairman
Texas Farm Bureau Mutual Insurance Company
6420 Fish Pond Road
Waco, Texas 76710
Re: Texas Windstorm Insurance Association
Dear Mr. Gerik:
In my Jetter to the Board of Directors (Board) dated March 21, 2011, I expressed concerns
related to the proper use of current premium dollars and requested that the Board address that
issue as well as the 2008 Hurricane Ike losses. I understand that those issues are still outstanding
and that the Board is seeking legal guidance. The Board's decision to address those issues is
commendable.
Texas Insurance Code, Chapter 2210, Subchapter J. establishes the guides and steps for
accounting for the Association's annual net profits. The provisions of Subchapter J. except as to
the funding of the Mitigation and Preparedness Plan, have remained intact without substantial
change since 2008. Determining and filing an accurate annual financial statement will provide
great assistance in compliance with the provisions of Subchapter J.
Also, of substantial interest are issues related to the resolution of Hurricane Ike losses and
funding. These include, but are not limited to, the potential assessment of member companies
for 2008 losses, and accounting for 2009 through 2011 annual premium dollars that have been
to pay Hurricane Ike claims. HoW these matters are resolved will have an impact on the
level of public trUst aehic';,oo by TWIA:
I believe that at the next board meeting, the Board should have all available information from
counsel and TWIA staff necessary to vote on and resolve these issues. To that end, Tm staff
requests a meeting and dialogue with your legal advisors and staff. Please instruct your general
counsel to contact Gene C. Jannon @ (512) 475-2001 to arrange a date and time to begin these
important discussions.

Commissioner of Insurance
EXHIBIT I
Minutes of the Texas Windstorm Insurance Association
Board of Directors Meeting
Moody Gardens
Galveston, Texas
August 13,2013
Chairman Gerik called the meeting to order at 8:00 a.m. Board members were provided with a
. copy of the anti-trust statement and reminded of the prohibitions in the anti-trust statement by
counsel. Mr. Perkins stated that public comment is on the agenda and requested that any
speakers limit remarks to a maximum of three minutes.
The following board members were present, representing:
The following Board members were present, representing:
1. Michael Gerik, Chairman Insurance Industry Representative
2. Ron Lawson Insurance Industry Representative
3. Alice Gannon, Secretary/Treasurer Insurance Industry Representative
4. Mike O'Malley Insurance Industry Representative
5. Cliff Craig Non-Seacoast Territory Representative Member
6. David Franklin Non-Voting Engineer Member
7. Georgia Neblett, Vice Chairman First Tier Coastal County Resident Member
8. Steve Elbert First Tier Coastal County Resident Member
9. Edward (E.Jay) Sherlock First Tier Coastal County Resident Member
10. Gene Seanlan First Tier Coastal County Resident Member
The following TWIA staff. counsel, and agents were present:
1. John Polak, General Manager TWIA
2. Pete Gise, Controller TWIA
3. Jim Murphy, Actuary TWIA
4. Lee Talbert, Executive Assistant TWIA
5. Dave Williams, VP Claims TWIA
6. David Durden, VP Legal TWIA
7. Mike Perkins, Association Counsel Sneed, Vine & PelTY, PC
8. Clark Thomson Calhoun, Thomson + Matza, LLP
The following were also present:
Guests:
Ann O'Ryan
Dalton Smith
Verle Petri
Chris Carbone
Otie Zapp
AAATX
Bank of America Merrill Lynch
Chubb
Citibank
Coastal Windstorm Insurance Coalition
EXHIBIT J
8/13/13
Rick Spruill
Foster Edwards
Erin Moore
George Taylor
Wes Swift
Jon Green
Joan Polak
Amy Gimbel
Tad Delk
Henry Freudenburg
Pearl Mueller
Lee Loftis
Wally Goodman
Craig Fegley
Jonna Kay Hamilton
Kergin Bedell
Greg Smith
Brigitt Hartin
Lynette Kilgore
Justin Hudman
Lynette Kilgore
Cari Christman
Elizabeth McMillen
Ingrid D' Anna
Commissioner Julia Rathgeber
Marilyn l-Iamilton
Marianne Baker
Michael Nored
Bob Betz
Brian O'Neill
Wes Koehl
Tom Gonzales
Bo Gilbert
Gary Cox
Brant Chandler
Jerry Mohn
Corpus Christi Caller Times
Corpus Christi Chamber of Commerce
Elizabeth Christian & Associates
F.B. Taylor Insurance
GCDN
GSM Insurers
Guest
Guy Carpenter
Guy Carpenter
GWAC
ICT
lIAT
lIAT
JPMorgan Chase
Nationwide
OPIC
Port Aransas Chamber of Commerce
Rep. Bonnen's office
Rep. Eiland's office
Chairman Hunter's office
Rep. Eiland's office
Senator Taylor's office
SMlInsurance
SMIInsurance
TDI
TDl
TDI
TDI
Towers Watson
Towers Watson
TWIA
UPC Insurance
USAA
Wellington Premium Finance
Wellington Premilml Finance
WPIPOA
2. Approval of Minutes: The minutes from the .hme 18,2013 meeting in Austin were
reviewed. Ms. Neblett moved to approve the minutes. Ms. Gannon seconded the
motion. The motion was approved with one abstention (Mr. O'MalIey abstained
because he was not present at the June 18 meeting).
3. Public Comment:
Rep. Craig Eiland: Rep. Eiland urged the board to assess the member companies
without waiting for the Attorney General's opinion. He stated that policyholders
will sue the Association if it does not assess the companies, and that the
companies would sue the Association if it does assess the companies. In his
2
8/13113
opinion statute 2210.058 does not give the Association discretion regarding
assessing the companies. He added that the Commissioner of Insurance
challenged the Association to develop a three-year plan, which would be easier to
develop with additional funds in the CRTF.
Elizabeth McMillen, SMT Insurance: As an agent and an insured, Ms. McMillen
said she represents both sides of the issue. She stated that assessment is a better
alternative to increasing rates in order to maintain affordabiIity of coverage for
coastal dwellers.
Foster Edwards, President of Corpus Christi Chamber of Commerce: Mr.
Edwards believes that the companies should be assessed. He stated that the
insurance company representatives on the TWIA board should recuse themselves
because they have a conflict of interest in any vote on assessments.
Buzz Melton, Apartment/Hotel Associations in Galveston County: Urged the
board to make necessary difficult decision to ensure that there are funds to pay
claims.
Marie Robb, Galveston City Council: Asked the board to assess the companies,
stating that TWIA cannot be depopulated when companies are not motivated to
write coverage on the coast.
Otie Zapp, Coastal Windstorm Insurance Coalition: Stated that the word
. "incUlTed" determines the issue of member assessments, adding that TWIA is
financially vulnerable at this point in time.
Beaman Floyd, TX Coalition for Affordable Insurance Solutions: There are two
sides ofthis issue. The question seems to be whether excess loss is a snapshot in
time or overall. As far as insurance companies can tell, Ike claims have been paid
and TWIA had sufficient cash to continue to do so. Regarding conflicts of
interest on the board, the board is a community of interests; companies, insureds
and agents. The board was formulated by the legislature to be a community of
interests and no one should be disqualified to vote on the issue of assessments.
Jerry Moen, President, TX Chapter of American Shore and Beach Preservation:
Requested that the board consider the residents of the coastal communities, keep
the premiums low and assess the companies to maintain the quality ofIife of the
coastal dwellers.
4. Remarks by Commissioner Julia Rathgeber: The Commissioner said she is looking
forward to the discussion about the possibility of a clearing house, which may be a
good concept to make the market work better and allow more options tor insureds.
As well, the Commissioner is looking forward to options that are user friendly
coming from the ongoing feasibility study.
5. Financials:
A. Report of the Secretary/Treasurer: Ms. Gannon reviewed the income statement,
management discussion and analysis and cash balance sheet. Direct premium
written has increased by 9.6%, reflecting the 5% rate increase and some increase
in policy growth and premium trends. The Association has had favorable
development in HtuTicane Ike incurred losses. The deficit has been reduced to
$109 million. This does not include the money in the Catastrophe Reserve Trust
Fund, nor does it include the $60 million refund claim that has been filed with the
3
8113113
Associates on audit practices and procedures projects in the past. Staff has
engaged Rupert & Associates to ensure that, as the Association makes changes in
its processes it remains in compliance and that the board fhlfills its role in terms
of governance of the Association. Mr. Gise added that TOI previously approved
the board serving as the audit committee. The audit committee is a critical
component ofthe governance function. While staff is still researching the
creation of an internal audit function, it recommends pursuing this action, having
discussions with other wind plans that have implemented an internal audit
function, and providing specific recommendations to the board at the December
meeting, with a budget amount and a more defined implementation plan.
Chainnan Gerik noted that should there be an internal audit function, the
individual will report directly to the board. Ms. Neblett stated that this is
foresight on the pati of staff and that staff is authorized and directed to continue to
explore the establishment of an internal audit function and provide a
recommendation to the board at the December 2013 meeting. Ms. Gannon
seconded the motion. The motion was unanimously approved.
H. 2012 Financial Audit: Mr. Thomson reported that Calhoun, Thomson + Matza
completed the audit in accordance with statutory accounting and also in
accordance with GAAP. The auditors issued an unqualified opinion on the audit.
The auditors did not observe any material issues. There were no material
mistatements and no disagreements with management during the audit. Mr.
Thomson pointed out that there are two versions of the financial statements, one
statutory and one GAAP. The statutory statement is required under statute. The
GAAP is used for reporting to TO!. The auditors did not identify any material
deficiency in internal controls. Ms. Gannon moved that the board acknowledges
reviewing and hereby accepts the financial audit report of Calhoun Thomson +
Matza as presented to the board. Ms. Neblett seconded the motion. The motion
was unanimously approved.
1. Results of RFP and Selection of Accountant! Auditor for 2013 Audited
Statements: As directed by the board, staff coordinated a Request for Proposal
(RFP) for selection of the accountant/auditor for the 2013 TWIA financial audit.
Staff received five responses, one from a "big 4" firm, two Austin-based firms
and two firms recommended by PIPSO. An evaluation committee, consisting of
two knowledgeable TWIA staff members and partner with an independent CPA
finn who had not submitted a proposal, evaluated the responses. Based on criteria
of experience, clarity of proposal and cost, the staff recommended that Calhoun
Thomson + Matza should continue with the audit for 2013. Ms. Neblett
questioned how costs of the firms compared and was told Calhoun Thomson +
Matza was neithel' the highest or lowest, but based on their experience hours
required should be favorable to TWIA. Ms. Neblett moved tlmt the board accept
the recommendation of staff to retain Calhoun Thomson + Matza as the financial
audit firm for the Association's 2013 financial statements and authorizes the
execution of an engagement letter on terms similar to prior engagement letters.
Ms. Gannon seconded the motion. The motion was unanimously approved.
J. TDI Financial Examination: TOI notified staff that they will conduct a financial
examination of TWIA in conjunction with the previously announced exan1ination
of the Texas FAIR Plan. The examination is expected to commence in November
5
8/13/13
2013. Staff is conducting a readiness evaluation over the next weeks in
preparation for the examination.
K. State Sales and Use Tax Refund Claim: TWIA received a favorable ruling from
the Comptroller's office on the effective date of the exemption. The efIective
date has been changed to April 2007. Staff filed all refund claims with the
Comptroller's office, who has accepted them. Staff anticipates the audit to be
completed by the end of third quarter 2013. The overall reflmd is estimated to be
approximately $9 million.
L. IRS Refund Claim: This refund claim was filed almost two years ago. The
Association recently responded to the fifth document request from the IRS. The
application is pending and progressing, but there is no significant new
information.
M. 2013 storm season loss funding: Current funding for TWIA is at $2.7 billion,
excluding the BAN. Staffhas met with TDI and the Commissioner as well as the
Texas Public Finance Authority, to evaluate other funding opportunities. Staff
feels that the BAN is the best option; however, the time frame to execute the BAN
at this point in the storm season makes it less attractive. Consequently staff is
pursuing other alternatives. One option is liquidity funding with Chase Bank.
Staffhas received an updated proposal. The original proposal had two features: a
$250 million BAN secured by Class 2 securities and a $200 million line of credit.
Staff is evaluating the proposal. Some due diligence from TWIA and TDI is
required by Chase. A September storm would not preclude Chase from
continuing to assist TWIA with liquidity. Security for Chase is the issuance of
Class 2 and 3 bonds; to the extent that they can secure position there the liquidity
would be available in the mid to late October time frame. Chairman Gerik asked
if that would change the attachment point in the reinsurance. Mr. Gise said that it
would not impact the reinsurance. Mr. Polak stated that staff has done an
exhaustive review with the subcommittee and TDI and examined seven
alternatives. Staff continues to move forward developing a three-year storm
funding plan. Ms. Neblett moved that staff pursue a $200 million line of credit
and a companion $250 million Bond Anticipation Note with Chase Bank, with the
permission of TDI, for the 2013 huu-icane season. Mr. Craig seconded the
motion. The motion was unanimously approved. Mr. O'Malley encouraged staff
to pursue the option to secure pre-event bonds with a five-year term as well as
catastrophe bonds.
N. Assessment of InslU'ance Companies for Losses Resulting from Hurricane Ike:
Mr. Perkins stated that as of June 30, 2013 the estimated ultimate net loss to the
Association from Hurricane Ike was $2.67 billion. $1.3 billion was paid by
reinsurance. $430 million was paid through member company assessments and
$370 million through the Catastrophe Reserve Trust Fund. The remaining net
loss of$575 has been paid or reserved from the Association's premium revenue
and investment income earned or collected during the five years since Hurricane
Ike. The Association's financial position and funding options for the current
storm season are the subject of much discussion. Reinsurance has been placed.
However former Commissioner Kitzman denied the application for a $500
million BAN which would have provided liquidity to pay losses and been
convertible into a five-year anlortizing loan in the event other Class 1 public
6
8/13113
securities could not be sold. The BAN would also lave allowed reinsurance to
attach at a higher point, thus providing more reinsu ance coverage for the same
expense. As TWIA has sought funding options to'l1crease claims paying
capacity, the issue of member company assessmen s has again come up for
deliberation by the board. In 2009 the Texas legisl ture revised TWIA's funding
structure, replacing unlimited assessments on mem er companies supported by
tax credits with a borrowing structure i olving public securities
issued on behalf of the Association by the Texas Fnance Authority. The legal
basis to support continued authority for assessmen of the companies for losses
prior to the repeal of the law is unclear. Former C mmissioners Geeslin and
Kitzman had differing opinions on the issue of wh ther the Association should
seek to assess member companies for Ike losses. s TWIA's f1.mding challenges
persist, pressure has increased to take action on the assessment issue. Mr. Perkins
asked that the board receive confidential legal advi e prior to voting on the
assessment issue in open session.
6. Closed Session: At 9:25 a.m. Chairnlan Gerik conven d the Board into executive
session pursuant to Section 55] .071 and 551.074 ofth Texas Government Code. At
11 :58 a.m. the board moved back into open session.
7. Consideration of issues related to matters deliberated i closed session that ma .
require action, ifany, of the Board of Directors: Ms. annon stated that most
important consideration is that the board does what is egal and within the law. There
is still a question about which law applies; the new la or the one repealed in 2009.
Some clarity could be provided by waiting for the Att rney General's opinion. Mr.
O'Malley agreed with Ms. Gannon but added that an a sessment could be considered
in the event of a major storm .. Ms. Neblett said that th AG opinion is just that, an
opinion. Ms. Neblett moved that the member insurance companies be assessed $575
million, subject to the review of the TDI. Mr. Seaman seconded the motion.
Discussion: Mr. O'Malley asked ifTDI would review or actually approve the
assessments. Commissioner Rathgeber said that the T IA board decision on the
issue of assessment of insurers falls outside the curren administrative oversight of
TWIA by TDI. However, TDI would review the proc ss ofthe assessment.
Administrative oversight is a review of the processes nd procedures to implement
the assessment, not second guessing a vote ofthe boar . Ms. Neblett clarified her
motion: Ms. Neblett moved to assess the member co. panies for $575 million,
subject to the approval ofTDI of the procedures invol ed in making the assessment.
Mr. Seaman seconded the motion. Discussion: The bard discussed their opinions in
favor of or opposed to an assessment. Mr. Craig and 1'. Lawson pointed out that
there were no unpaid claims from HUl1'icane Ike. Mr. mig stated that there are many
issues to discuss, such as building codes and continuat on of coverage on non-eligible
structure. Mr. Lawson added that there is no immediae need to assess. Mr. Seaman
said that an assessment could be recouped through pre 11ium tax credits. Chairman
Gerik noted that the regulators have had differing opit ions on whether or not the
Association can assess the companies. In his opinion t might be illegal to assess the
companies. Through the recent settlement of Ike litig tion at the end of May 2013,
there was no need for assessment because the funding scheme in place had been
7
8113/13
followed and all claims were paid. He added that recent criticism of the board lor not
assessing the companies in 2008 and 2009 was unfounded; assessments are not made
based on events that have not happened. Mr. Sherlock thought the assessment would
be good for policyholders. Mr. O'Malley stated that the unanticipated lawsuits filed
after the storm caused the financial issues that the Association suffered. Nothing at
the time of the storm justified an additional assessment. Legislative action in 2009
made the ability to assess unclear. The AG opinion may provide legal c.larity for the
board. Chairman Gerik called the question. The motion failed by a vote of four to
four (in favor: Mr. Seaman, Ms. Neblett, Mr. Elbert, Mr. Sherlock. Opposed: Mr.
O'Malley, Mr. Craig, Mr. Lawson, Chail111an Gerik. Abstained: Ms. Gannon) Ms.
Gannon requested that, in light of the failure of the motion, Mr. Perkins present a
statement on behalf of the board.
Mr. Perkins presented the following statement for consideration by the board:
RESOLVED, that the TWIA board takes very seriously the liquidity and funding
challenges facing TWIA. The board is committed to take all actions that board
members believe to be fiscally prudent and clearly legally authorized to protect the
association and its policyholders and to maximize the association's ability to timely
pay policy claims and association expenses. However, the board members are
mindful of the fact that four years ago the legislature significantly revised the
association's funding structure to end unlimited assessment of member companies
passed through to all citizens of Texas through tax credits. The current system
involves funding thtough the issuance of public securities that are to be repaid from
specific funding sources that include TWIA premium, member assessments and
surcharges on coastal insureds. There is a legal basis to suppOli the continuing
authority to levy assessments. However, this authority is not clear and there is also a
legal basis for the contrary position on this issue. Therefore, the TWIA board will not
take action to levy an assessment at this time. The board will, however, leave the
option to act open and in the coming days the board members will remain vigilant.
Issues that the board will monitor include: 1) whether TWIA experiences a major
storm; 2) the Attorney General's opinion to be issued within the next several months
in response to the request filed last month by a member of the legislature; 3) any input
or direction received from the Texas Department of Insurance on this matter; and 4)
other relevant developments including any changes in TWIA's financial position.
This board has authority to call special and emergency meetings as circumstances
warrant and as Texas law and the Association's Plan of Operation permit. The board
will be at the ready if action is required. Ms. Gannon moved to accept the resolution.
Mr. Seaman seconded the motion. The motion passed by a vote of7-1. (In favor:
Mr. O'Malley, Mr. Craig, Mr. Gerik, Ms. Gannon, Mr. Elbeli, Mr. Lawson, Mr.
Seaman. Opposed: Ms. Neblett. Abstained: Mr. Sherlock) The motion passed.
8. Actuarial:
A. Reserve Adequacy: Mr. Murphy reported that the Association's reserves were
reviewed as of June 30, 2013. The review indicated a slight increase in prior
accident years and an increase in the 2013 accident year reserves resulting from
the most recent quarter development. In his opinion, the Association's reserves
met the requirements of the insurance laws of Texas. Hurricane Ike estimate has
8
8/13/13
decreased from $2.72 billion to $2.675 billion due to new litigation below
projections. The ultimate estimate for Hurricane Dolly increased from $305
million to $315 million, Despite the favorable trend in litigation activity, there is
a material risk of adverse development associated with variability associated with
litigation,
B. Policy Count/Exposures: Overall growth remains around 3% annually for policy
growth and 4% for exposures.
C. Board Review ofthe Actuarial/Underwriting Committee Recommendations and
Action of the Statutorily Required Rate Filing. Ms. Gannon said that the
committee met twice to discuss the rate filing, on July 25 and August 5. She
presented the formal recommendation of the ActuariallU nderwriting Committee
regarding the mandatory annual August 15 rate filing. Consistent with the
strategy the board developed in 2010 for moderate annual increases, the
committee unanimously recommended that TWIA file for a 5% rate increase
effective January 1,2014. The formal recommendation was seconded by Mr.
Craig. Discussion: Ms. GalIDOn stated that the actual indications developed by
staff actuary Mr. Murphy and outside consulting firm Merlinos were much higher
(33% for residential and 31 % for commercial). The committee agreed that the
balance between adequate rate and the need to move forward in a measured way
and sensitivity to the affordability issue made the 5% rate increase appropriate.
Ms. Neblett stated that the annual increases are making windstol111 insurance
unaffordable for coastal dwellers and suggested a zero rate increase. She added
that during the financial forecast discussion Mr. Gise stated that absent a rate
increase in 2014, TWIA could have a potential $25 million decrease in surplus.
She suggested that TWIA develop some method of saving $25 million rather than
asking for another rate increase. Ms. Gannon said that rate making is prospective,
making today's rate, compared to expected future losses, significantly inadequate,
a position suppOlted by OPIC alld an outside actuarial expelt. Mr. O'Malley
stated that, when Hurricane Ike hit, the Association had not had an assessment in
20 years, but 20 years of premium increases had proved inadequate. He added
that rates that are 31 % inadequate are a primary reason that TWIA is a dominant
writer in the market. Mr. Sherlock suggested changing the rating from a primary
to a secondary dwelling and charging more for secondary dwellings. Ms. Gannon
replied that the committee would be pleased to study this approach fmther if
requested. Mr. Craig suggested that the legislative affairs committee might
consider suggesting pricing differential as a recommendation to the legislature.
Chairman Gerik called the question. The motion passed by a vote of7-2. (In
favor: Ms. Gannon, Mr. O'Malley, Mr. Elbert, Mr. Craig, Mr. Gerik, Mr.
Sherlock, Mr. Lawson. Opposed: Ms. Neblett, Mr. Seaman)
D. Statutory Limits of Liability: As prescribed by the Texas Insurance code section
221 0.502(a), the liability limits are to be adjusted based on changes in the Boeckh
Index. As of June 30, 2013 there are 282 risks at the current limits ofliability.
The Association must make a filing with TOl before the annual September 30
deadline, as required by statute. Ms. Gannon moved to increase the limits of
liability as follows
Dwelling and individually owned townhouses
Cun'ent 20 13
$1,773,000
Indicated 2014
$1,816,000
9
8/13/13
Contents of apartment, condo or townhouse $ 374,000 $ 383,000
Commercial structures/associated contents $4,424,000 $4,514,000
Ms. Neblett seconded the motion. The motion was unanimously approved.
9. Underwriting
A. Underwriting Management Change: Mr. Polak reported that Vice President of
Undervvriting Randy Wipfleft TWIA on the first of August. Jim Murphy is
acting as interim manager. Several candidates have been identified, both internal
and external, and interviews will be scheduled in the coming weeks.
B. Agent Training: TWIA Underwriting is implementing on-line training courses as
an additional resource that agents can take at any time to obtain continuing
education credits. TWIA Underwriting will continue on-site training workshops
for agents.
10. Claims:
A. Claims Operations: Mr. Williams reported that claims has completed upgrading
its technology to be scalable for larger catastrophe events. Infrastructure
improvements allow for up to 100 remote users to key claims systems. Additional
capacity has been added for workstation hardware and software. Installation was
completed on the VOIP (voice over internet protocol) call center solution which is
the foundation for the enterprise phone system to be added later and permits
hundreds or thousands of users throughout the country if necessary in a major
catastrophe scenario. The field adjuster vendor management program is being
updated. Five aspects have been completed, subject to final approval. These
aspects include updated property damage evaluation guidelines, bringing TWIA
into synch with the rest of the industry. Operationally, as of June 30, 2013 claims
received 83% more claims than projected year to date. This was due to two
storms, Santa Fe and Corpus Christi. Despite the volume, there has been a very
low cycle time of 12 days from first notice of loss to payment. The complaint
ratio has been lowered compared to this time last year to 0.22%. Customer
feedback continues to indicate high customer satisfaction. Any negative customer
comments are followed up for resolution.
B. Claims Litigation: Mr. Durden reported that TWIA has 117 active unsettled
claims. 94 are active and 14 are "no policy" cases. 75 are related to Hurricane
Ike. Staff is working to resolve the remaining lawsuits, negotiating with plaintiff
firms.
11. Operations:
A. Operations/Management Report Card: Mr. Polak said that statIhas completed its
operations improvement plan initiated and developed in response to TD1's
administrative oversight. StatIis moving forward to make adjustments to
improve the ability of the organization to meet its primary mission of promptly
and fairly resolving claims in the event of a catastrophe event. The reactions of
policyholders to TWIA are far more favorable than in the past. The skills of
senior management have been upgraded with replacement of 70% of the
executive leadership at TWIA including replacement of all claims and
underwriting management personnel. Regular communication between the
10
8/13/13
Association and the board has improved. Many of these improvements have been
validated by outside audits. The extensive Association improvements exhibit that
has been provided to the board on a quarterly basis will be discontinued, with
staff reporting any changes to the board as they occur.
B. Clearing House: Staff has had discussions with the legislative/external affairs
committee concerning improvements that would require legislative change. One
area is depopulation. Staff has been investigating what it could accomplish
without legislative change and within TO! rules and the Plan of Operation. One
item included in legislation but not passed is the clearing house. One means to
help depopulate the organization would be to provide better knowledge to all
carriers about all potential policyholders. This would provide an opportunity for
the voluntary market to select and voluntarily write TWIA risks. Staff has begun
working with TD1 to design a proposed concept between now and the December
board meeting. At that mtecting staff will provide the board with a feasibility
study with key reference points and a structure that the Association could
implement without legislative action, as well as what type of legislative action
would be required to expand the concept. The IT capabilities are already in place.
Florida Citizens is the only other wind pool implementing this process and has
been a helpful and valuable resource.
12. 83
Td
Texas Legislature: No major legislative actions impacting TWIA funding or
structure came from the regular or the special sessions.
13. Committees: The audit committee will be on the December agenda.
14. Future meetings:
December 10,2013 - Omni, Corpus Christi
February 17,2014 - Marriott South, Austin
15. Adjourn: The meeting adjourned at 1 :30 p.m.
Prepared by: Lee Talbert
Executive Assistant
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