Meeting of Board of Directors Texas Windstorm Insurance ... · Texas Windstorm Insurance...

Meeting of Board of Directors Texas Windstorm Insurance Association

Teleconference February 7, 2017 Radisson Hotel

111 East Cesar Chavez Austin, TX 78701

9:00 a.m.

Interested parties can listen to the meeting live by going to www.twia.org. Go to “About Us/Board Meetings” and click on the audio link.

1. Call to Order – Reminder of the Anti-Trust Statement 5 minutes

– Georgia Neblett

2. Introductions – Georgia Neblett 5 minutes

3. Consideration and Action to: Approve the Minutes from Prior Board of Directors’ Meetings 5 minutes

– Georgia Neblett* 4. Public Comment 15 minutes

5. TWIA Operational Highlights – John Polak 5 minutes

6. Financial 20 minutes

Consideration and Possible Action on the Following Financial Topics: A. Report of the Secretary/Treasurer – Debbie King*

1. Income Statement 2. Management Discussion and Analysis

B. Financial Statement Review by Staff – Pete Gise 1. Income Statement and Expense Statement 2. Balance Sheet 3. Cash & Short Term Investments 4. Cash Flow Statement 5. Historical Data

7. Internal Audit – Weaver & Tidwell 5 minutes

Consideration and Possible Action on the Following Audit Topics: A. Internal Audit Status & Update B. Risk Assessment Update

8. Actuarial – Jim Murphy 20 minutes

Consideration and Possible Action on the Following Actuarial Topics: A. Reserve Adequacy B. Policy Count/Exposures C. Reinsurance Options

TWIA Agenda 1

http://www.twia.org/

9. Underwriting – Denise Larzalere 10 minutes A. Operational Review UpdateB. Seamless Renewal Update

10. Claims 20 minutes Consideration and Possible Action on the Following Claims Topics:A. Claims Operations – Overview – Dave Williams B. Claims Litigation – David Durden

11. TWIA Operations 30 minutes Consideration and Possible Action on the Following Operations Topics:A. IT Update – John PolakB. Depopulation – John Polak/Jim MurphyC. TWIA Expert Panel – Dave WilliamsD. HB 2439 Rules Update – David DurdenE. Communications Update – Jennifer Armstrong

Lunch break, 11:30 30 minutes

12. Closed Session (Board Only) 60 minutes A. Personnel IssuesB. Legal Advice

13. Consideration of Issues Related to Matters Deliberated in Closed Session That May Require Action, if any, of the Board of Directors 5 minutes

14. Committees – Georgia Neblett 5 minutes

15. Future Meetings – John Polak 5 minutes • May 10, 2017 – Hyatt Regency – Austin• August 1, 2017 – Tremont House – Galveston

16. Adjourn

Estimated Total Length of Meeting 4 hours 15 minutes

*Indicates item on which General Manager believes the Board of Directors may take action

TWIA Agenda 2

1. Anti-Trust Statement

Anti-Trust Statement

The creation and operation of the Fair Access to Insurance Requirements (FAIR) Plan Association is authorized under Article 21.49A of the Texas Insurance Code. The Governing Committee is authorized to administer the FAIR Plan.

When involved in meetings or other activities of the FAIR Plan, Governing Committee members and insurer and agent participants are bound to limit their discussions and actions to matters relating solely to the business of the FAIR Plan and shall not discuss or pursue the business interests of individual insurers, agents, or others. There should be no discussions of or agreements to act that serve to restrain competition. This prohibition includes the exchange of information concerning individual company rates, coverage, market practices, claim settlement practices and other competitive aspects of individual company operations. Each member is obligated to speak up immediately for the purpose of preventing any discussion of any of the foregoing subjects. Counsel is asked to help us be mindful of these restraints and to alert us when our discussion goes into any of the prohibited subject areas.

PO Box 99090, Austin, TX 78709-9090 | Call 1-800-788-8247 | twia.org

3. Approve the Minutes

Minutes of the Texas Windstorm Insurance Association Board of Directors Meeting

Omni Hotel 900 North Shoreline Blvd.

Corpus Christi, Texas

December 6, 2016

1. Call to Order: Ms. Neblett called the meeting to order at 8:01 a.m. Board memberswere provided with a copy of the anti-trust statement and reminded of the prohibitions inthe anti-trust statement by counsel.

The following Board members were present, representing: 1. Georgia Neblett (Chairman) First Tier Coastal Representative 2. Joshua Fields (Vice Chair) First Tier Coastal Representative 3. Chandra Franklin Womack First Tier Coastal Representative 4. Blair Crossan Industry Representative 5. Mike Gerik Industry Representative 6. Debbie King (Secretary/Treasurer) Industry Representative 7. R. Scott Kesner Non-Seacoast Territory Representative 8. Tony Schrader Non-Seacoast Territory Representative 9. Bryan Shofner Non-Seacoast Territory Representative

The following TWIA staff, counsel, and agents were present: 1. John Polak, General Manager TWIA 2. Pete Gise, Chief Financial Officer TWIA 3. Jim Murphy, Chief Actuary TWIA 4. Dave Williams, VP Claims TWIA 6. David Durden, VP Legal TWIA 7. Denise Larzalere, VP Underwriting TWIA 8. Jennifer Armstrong, VP Communications TWIA

and Legislative Affairs9. Amy Berg-Ferguson, Executive Assistant TWIA10. Mike Perkins, Association Counsel Sneed, Vine & Perry, PC

The following were also present: Dalton Smith Bank of America/Merrill Lynch Clark Thomson Calhoun, Thomson + Matza Greg Smith City of Corpus Christi

Council Member Richard Thorp Corpus Christi Association of

Realtors Verle Petri Chubb Veronda Durden Guest Joan Polak Guest Marilyn Schrader Guest Tad Delk Guy Carpenter

12/6/16 Carlos Garcia Guy Carpenter Rep. Todd Hunter District 32 Representative Marcus Phipps Harlingen Board of Realtors Fred Strauss Holborn Corporation Matt Stillwell ICT Bob Betz JLT Re Brian O’Neill JLT Re Beaman Floyd TCAIS Marianne Baker TDI David Muckerheide TDI Brett Finley Texas Association of Realtors Frank Bauman, Jr. TFPA Governing Committee Jessica Davidson TWIA Lyndell Haigood Velocity Jennifer Kowalski Velocity Bruce Zaret Weaver & Tidwell Brant Chandler Wellington Allen Cashin Willis Re

2. Introductions: Meeting attendees introduced themselves.

3. Approval of Minutes: The minutes from the August 2, 2016 meeting in Galveston, Texaswere reviewed. Mr. Shofner moved to approve the minutes. Mr. Crossan seconded themotion. The motion passed.

4. Public Comment: There was no public comment.

5. TWIA Operational Highlights: Mr. Polak reviewed the TWIA operational highlightsdocument provided in the meeting materials. The Association has dramatically increasedthe detail on the metrics for the organization. The TWIA Board of Directors isincreasingly well informed to make decisions on governance issues. Mr. Polak definedthe criterial for the scorecard and reviewed the individual metrics. Depopulation hasresulted in over 100,000 policies being identified for offers. Claims Center has also had amajor impact.

6. Financial:a. Report of the Secretary/Treasurer: Ms. King reviewed the Treasurer’s Report.

Mr. Fields moved to approve the report. Mr. Shofner seconded the motion. Themotion passed unanimously.

b. Financial Statement Review by Staff: Mr. Gise reported TWIA’s results as ofSeptember 30, 2016 show net income of $141 million. Direct written premiumswere $396 million and the net underwriting gain was $168 million for the ninemonths ended September 2016. Year to date September 2016 written premiumsshow a decrease of 2% from September 2015, due to a combination of the 5%increase in rates for 2016 offset by the decrease in policies and exposures. Directpremiums earned decreased slightly to $373.1 million compared to $375.1 million

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12/6/16 in the same period last year. The minimal change is due to the decrease in premium written in 2016.

Through September 30, 2016, loss and loss adjustment expense incurred was $35.5 million, compared to $156.2 million as of September 30, 2016. Favorable weather was reflected in 2016 while 2015 shows considerable activity due to spring storms. The ultimate losses and loss adjustment expenses for Ike are $2.6 billion and $330 million for Dolly as of September 2016. There was no change from December 2015. Operating expenses decreased from $21.0 million in 2015 to $19.4 million in 2016 primarily as a result of planned temporary resources utilized in the 2015 implementation of Policy Center.

Commission expense and premium taxes decreased from the prior year and is attributable to the decrease in direct written premiums for 2016. Gross investment income is higher due to higher rates in the marketplace during 2016 versus 2015. Interest expense is $28.5 million in 2016 and $29.0 million in 2015.

7. Internal Audit:a. Internal Audit Status & Update: Mr. Zaret reported that the internal audit

function has fully transferred to Weaver and Tidwell. They are currently workingto update the current risk assessment and assisted with evaluating responsesreceived on the reinsurance Request for Proposal.

b. Policy Center Survey & Analysis: Weaver and Tidwell evaluated the PolicyCenter process by conducting a time study and agent surveys. The results showPolicy Center provides better access to information and there is less processingtime after the agents are experienced with the application. Mr. Gerik asked ifthere would come a time when Policy Center could issue seamless renewals. Mr.Polak said TWIA is working toward that objective and a timeframe should beavailable by the next board meeting.

8. Actuarial:a. Reserve Adequacy: Mr. Murphy reported that TWIA actuarial staff has

completed a review of Texas Windstorm Insurance Association loss and lossadjustment expense reserves as of September 30, 2016. The analysis indicates asignificant decrease in prior years due to favorable development, primarily in2015. The addition of the third quarter of 2016 is offset by favorabledevelopment to the first and second quarters of 2016; all three quarters’experience has been less than originally projected. The ultimate estimates forHurricane Dolly and Ike remain unchanged at $330 million and $2.6 billion,respectively. TWIA continues to monitor new and existing litigation activity toensure all outstanding obligations are properly reserved. Estimation of ultimateliabilities for these claims is unusually difficult and is subject to significantlygreater than normal variation and uncertainty.

As of September 30, 2016, TWIA carried $5.7 million in total loss and loss adjustment reserves for all claims. The Association’s reserves met the requirements of the insurance laws of Texas, were consistent with reserves computed in accordance with accepted actuarial standards and principles and

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12/6/16 made a reasonable provision for all combined unpaid loss and loss expense obligations of the Association under the terms of its contracts and agreements. While there remains a material risk of adverse development, reserves continue to make a reasonable provision for unpaid loss and loss adjustment expenses.

b. Policy Count/Exposures: Mr. Murphy said policy counts are down 4.7% andexposures are down almost 5%. This is fairly uniform across the coast.

c. Statutory Limits of Liability: The TWIA Board of Directors voted at its Augustmeeting to file with the Texas Department of Insurance no change to itsmaximum limits of liability for 2017 in accordance with statutory requirements.A hearing was held on November 30, 2016.

d. Reinsurance Broker Selection: Mr. Murphy reported the TWIA Actuarial andUnderwriting Committee met on November 8, 2016 to hear presentations fromthree finalists as part of the RFP for reinsurance brokerage and advisory servicesissued September 23, 2016. The finalists were Guy Carpenter, Holborn andWillis Re. After hearing the presentations, the committee deliberated andeventually voted 4-3 to recommend to the TWIA Board of Directors that it retainGuy Carpenter as its reinsurance broker. Issues discussed by the committeeincluded weighing past services provided by Guy Carpenter versus several newideas suggested by the other two brokers. Mr. Gerik expressed interest in theissues the dissenting voters identified. Mr. Gerik said reinsurance is a bigtransaction and he feels it is imperative that TWIA has the best representative.Mr. Gerik moved to retain Guy Carpenter as the broker for reinsurance. Mr.Fields seconded the motion. The motion passed unanimously.

9. Underwriting:a. Operational Review Update: Ms. Larzalere stated that the underwriting

department continues to experience improved and consistent turnaround time onall policy transactions. Over 95% of new business submissions, endorsements,renewals, inspections and cancellations are processed within 10 days. Qualityassurance results on the underwriting decisions continue to meet or exceedestablished goals and customer service telephone response time is withinestablished goals.

HB 2439 created a two-path system for ongoing and completed construction to certify that a structure complies with the applicable windstorm building code. Completed construction will be certified only by Texas-licensed engineers who may send either a signed and sealed design or post construction evaluation report directly to the Association for a Certificate of Compliance. By January 1, 2017, TWIA will be able to accept reports and begin issuing WPI-8’s. Commercial and manufactured homes business requirements are being developed for Policy Center, scheduled for implementation by year-end 2017. Ms. Franklin-Womack expressed some concern about the amount of liability the Association could potentially take on as a result of implementing the legislation. She is also concerned about the number of engineers available to perform inspections. Mr. Durden and Ms. Larzalere addressed Ms. Franklin-Womack’s concerns. Ms. Neblett asked that the board be notified if any results are issued before the next TWIA Board of Directors meeting.

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12/6/16 b. Agency Compliance Audit Update: In the third quarter of 2016, TWIA

conducted a review of 210 policies from twenty one randomly selected agents toverify compliance with the declination of coverage and flood insurancerequirements. The review also included an audit of the status of the agents’property and casualty insurance license. Results from the audit found that sevenagents were not in compliance with the declination requirements. Reasons fornon-compliance included: declinations provided from a company not writingwind and hail coverage in the first tier counties; declinations provided from asurplus lines company; or use of a group name in lieu of the specific companywithin the group. After follow-up calls to the agents and providing furtherexplanation of the declination requirements, staff was provided the requiredinformation to bring the declinations in compliance on all but one policy.

Of the 210 policies reviewed, three policies insured properties located in a zone requiring flood insurance. Two of the three were not compliant; one of the policies had no flood insurance. Since the TWIA policy covering this property expired during the audit, no action was required other than to place the property location on the “uninsurable list.” The other property had flood insurance, however, the contents coverage was less than 90% of the TWIA contents coverage. The policy was brought into compliance after the insured reduced the TWIA contents coverage. To assist agents with understanding the declination requirements, staff plans to publish an article in the 4th quarter newsletter outlining the specific information required for an acceptable declination and make a “proof of declination” template available online for agent use to document the information.

10. Claims:a. Claims Operations: Mr. Williams reported that new claim volume was 11% lower

than projected. The TWIA litigation inventory is down year to date. Total cycletime from first notice of loss to payment is 11.2 days.

b. Claims Litigation: Mr. Durden reported the Association is winding down theIke/Dolly litigation. One Rita case is still pending and five cases are on appeal inthe appellate court.

11. TWIA Operations:a. Receive and Act on Recommendations from Legislative and External Affairs

Committee Regarding Recommendations to Legislature and Biennial Report toLegislature: Mr. Polak reviewed the seven recommendations the committeedeveloped. Ms. Neblett recommended that all seven recommendations be turnedover to the legislature for consideration. Mr. Fields said he would leave it to thelegislature to determine which ones they will address. Mr. Shofner moved topresent the biennial report as written to the legislature. Ms. Franklin-Womackseconded the motion. The motion passed unanimously.

b. IT: Mr. Polak reported Claims Center is completed and Policy Center Commercialwill be completed at the end of 2017. Production support releases will take placeon an every three week schedule.

c. Depopulation: Mr. Murphy reported that the assumption reinsurancedepopulation program’s agent period concluded on October 31. A total of 18,074

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12/6/16 policies were approved by agents for possible transfer to the participating companies, representing approximately $32 million in written premium and $5.1 billion in direct exposures. TWIA and the participating companies will present offers to TWIA policyholders beginning December 1. Policyholders who choose not to opt out of the program will have their policy automatically transfer to a participating company via assumption reinsurance on June 1, 2017. Communications with the four participating companies continued throughout the agent period to respond to questions about contracts and agent communications and to follow up on companies’ feedback about agents experiencing difficulty with TWIA’s depopulation website. The project team was responsive, tracking and providing resolution to all reported user and system issues. Mr. Gerik asked TWIA staff to provide financial information on the companies taking out policies for the February board meeting.

d. TWIA Expert Panel: The recommendations have been handed down by the TWIAExpert Panel as well as the proposed rules. A market survey was undertaken todetermine the costs of implementing the recommendations. The estimatedminimum costs to implement the TWIA Expert Panel’s recommendations and theproposed rules are over $3 million. TWIA staff met with the Commissioner andtestified at a public hearing at the end of October and recommended the TWIAExpert Panel review their recommendations to come up with a lower cost option.Staff should have more information to share at the February board meeting. Ms.Neblett asked if this information is proprietary and could the Association sell theinformation to recoup some of the money spent on the TWIA Expert Panel. Mr.Durden said that is an option staff is examining.

e. HB 2439 Rules Update: This item was covered earlier in the meeting. TWIAstaff will put together a meeting with the staff at the Texas Board of ProfessionalEngineers to examine the Association’s part of the process.

f. Communications Update: Ms. Armstrong provided an update on thecommunications activities of the Association. Ms. Neblett asked for a bulletedlist of accomplishments in the next set of meeting materials as well as a list of thelegislators and their staffers that TWIA representatives speak with. Ms.Armstrong said she would include the information in the monthly report to theboard.

g. Review and Approval of 2017 Budget: TWIA is projected to show netunderwriting gain in 2016 of $218 million, which is above the 2016 budgeted netunderwriting gain of $187 million. The primary driver of the higher netunderwriting gain of $31 million is the favorable weather in the spring of 2016.TWIA is projecting a contribution to the CRTF of $142 million to be paid in lateMarch 2017 after the majority of the field work is completed for the 2016 auditedfinancial statement.

TWIA is projecting a net underwriting gain of $157 million as well as an $80 million net gain from operations in the 2017 budget. The $80 million net gain from operations would be contributed to the CRTF in March 2018. Gross expenses are projected to be lower in 2017 than 2016 due to lower overall system development costs in 2017. Claim system development expenses were reflected as unallocated expenses in 2016. Underwriting operating expenses are projected to decrease slightly and the direct expense ratio is projected to be 5.4% in 2017,

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12/6/16 which is slightly higher than the projected 2016 ratio of 5.3%. Mr. Fields moved to approve the budget as presented. Mr. Shofner seconded the motion. The motion carried unanimously.

12. Closed Session: The meeting went into closed session at 10:20 am and went back intoopen session at 11:38 am.

13. Consideration of issues related to matters deliberated in closed session that may requireaction, if any, of the Board of Directors: Mr. Fields moved to adjust the generalmanager’s compensation to the mid-point of the TWIA/TFPA salary range as discussedin closed session. This salary adjustment contemplates the general manager’s service asboth the head of TWIA and TFPA. It will be effective December 1, 2016. Mr. Crossanseconded the motion. Ms. Womack-Franklin noted that Mr. Polak has not had any salaryadjustment since the commencement of his employment with TWIA in early 2011 andthe board wanted to recognize his accomplishments. A roll call vote was taken:

Michael Gerik: yes Blair Crossan: yes Joshua Fields: yes R. Scott Kesner: yes Debbie King: yes Tony Schrader: yes Bryan Shofner: yes Chandra Franklin – Womack: yes Georgia Neblett: yes

The motion passed unanimously.

14. Committees:

a. Election of Officers: The election of officers will be delayed until the Maymeeting.

15. Future meetings:• February 7, 2017 – Radisson Hotel, Austin• May 10, 2017 – Hyatt Hotel, Austin• August 1, 2017 – Tremont House, Galveston

16. Adjourn: The meeting adjourned at 11:41 a.m.

____________________________ _________________________ Prepared by: Amy Berg-Ferguson Approved by: Georgia Neblett Executive Assistant TWIA Chairman

_________________________ Approved by: Joshua Fields TWIA Vice Chairman

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5. TWIA Operational Highlights

Texas Windstorm Insurance Association | Enterprise Score Card | As of December 31, 2016

TWIA Enterprise Scorecard

Quarterly Key Accomplishments Implemented a process to comply with House Bill 2439 which changes the windstorm

certification requirements and allows a person to apply to TWIA for a Certificate of Compliance (WPI‐8‐C) for completed improvements

Implemented a new enterprise‐wide, scalable voice system to help improve businesscommunications, provide more efficiency for customer‐facing employees, and deliver a higherlevel of service to policyholders and agents

Completed conversion of open claims in NOTUS to Claims Center

Notified selected policyholders of over 18,000 agent‐approved policy offers made through theAssumption Reinsurance Depopulation program

Continued to consistently exceed turnaround time and quality standards on Underwriting service levels

Maintained high Claims production and closures rates and a complaint ratio of .14%

Policies In‐Force 254,346

Exposures In‐Force $73.4 billion

Written Premiums YTD $487.4 million

Claims Received YTD 8,393

Losses Incurred YTD $38.6 million

REFERENCE DATA

6. Financial 6A. Report of the Secretary/Treasurer

6A1. Income Statement

A 1. Income Statement

2015 2016

503,824$ Direct Premiums Written 487,354$

Premiums Earned:501,722$ Direct Premiums Earned 496,457$

(124,127) Ceded Reinsurance Premiums (123,658) 0 Ceded Reinsurance Premiums - Depopulation (2,395)

377,594 Net Premiums Earned 370,404

Deductions:183,886 Direct Losses and LAE Incurred 38,669

(5,000) Direct Losses and LAE Incurred - Ike & Dolly 00 Ceded Losses and LAE Incurred - Depopulation (44)

27,840 Operating Expenses 26,000 80,600 Commission Expense 77,987 (3,256) Ceding commissions / brokerage (3,402)

0 Ceding commissions / brokerage - Depopulation (575) 9,789 Premium / Maintenance Tax 9,586

293,859 Total Deductions 148,221

83,736 Net Underwriting Gain or (Loss) 222,183

Other Income or (Expense):1,101 Gross Investment Income 3,279

(38,688) Interest Expense on Class 1 Bonds (37,596) (168) Debt Issuance & Other Investment Expenses (303)

4 Other Income (Expense) 67 (37,751) Total Other Income or (Expense) (34,553)

45,985 Net Income Before Income Taxes 187,630

(7,829) Federal Income Tax Expense (Benefit) 0

53,814$ Net Income (Loss) 187,630$

Surplus (Deficit) Account:0$ Beginning Surplus (Deficit) -$

53,814 Net Income (Loss) 187,630 (15,092) Principal Funded on Class 1 Bonds (net) (44,069)53,231 Change in nonadmitted assets - Income Tax Rec 0

1,308 Change in nonadmitted assets - Other 3,694(548) Other 0

(92,713) Statutory Fund Cost (147,255)0$ Ending Surplus (Deficit) 0$

TEXAS WINDSTORM INSURANCE ASSOCIATIONStatutory Income Statement

for the twelve months ended December 31,(000's omitted)

6A2. Management Discussion and Analysis

Texas Windstorm Insurance Association Management Discussion and Analysis

December 31, 2016 TWIA’s results as of December 31, 2016 show net income of $187.6 million. Direct written premiums were $487 million and the net underwriting gain was $222 million for the year ended December 2016. Written Premium: Year to date December 2016 written premiums show a decrease of 3% from December 2015, due to a combination of the 5% increase in rates for 2016 offset by the decrease in policies and exposures. Direct Premiums Earned: Direct premiums earned decreased to $496.5 million compared to $501.7 million in the same period last year. The change is due to the decrease in premium written in 2016. Assumption Reinsurance Depopulation: The Quota Share Reinsurance Agreements were effective December 1, 2016 with four participating carriers. As of December 2016 ceded earned premiums were $2.4 million. Loss and Loss Adjustment Expense Incurred: Through December 31, 2016 direct loss and loss adjustment expense incurred was $38.6 million, compared to $178.9 million as of December 31, 2016. 2016 reflects favorable weather, while 2015 shows considerable activity due to spring storms. The ultimate losses and loss adjustment expenses for Ike are $2.6 billion and $330 million for Dolly as of December 2016, no change from December 2015. Operating Expenses: Operating expenses decreased from $27.8 million in 2015 to $26.0 million in 2016 primarily as a result of planned temporary resources utilized in the 2015 implementation of Policy Center. Commission Expense and Premium Taxes: Decrease from prior year is attributable to the decrease in direct written premiums for 2016. Other Income (Expense): Gross investment income is higher due to higher rates in the marketplace during 2016 versus 2015. Interest expense is $37.6 million in 2016 and $38.7 million in 2015, the lower amount reflective of the payment of $41.6 million of bond principal in July 2016.

A2. Management Discussion and Analysis

6B. Financial Statement Review by Staff 6B1. Income Statement and Expense Statement

B1a. Income Statement

Actuals - 2016 Budget - 2016 Variance - 2016 Actuals - 2015

Premiums Written:Direct 487,354$ 541,195$ (53,841)$ 503,824$ Ceded (123,658) (125,374) 1,716 (124,127)Ceded - Depopulation (2,395) 0 (2,395) 0

Net 361,301 415,821 (54,520) 379,697

Premiums Earned:Direct 496,457$ 527,042$ (30,585)$ 501,722$ Ceded (123,658) (125,374) 1,716 (124,127)Ceded - Depopulation (2,395) 0 (2,395) 0

Net 370,404 401,668 (31,264) 377,594

Deductions:Direct Losses and LAE Incurred 38,669 92,171 (53,502) 183,886Direct Losses and LAE Incurred - Ike & Dolly 0 0 0 (5,000)Ceded Losses and LAE Incurred - Depopulation (44) 0 (44) 0Operating Expenses 26,000 28,191 (2,192) 27,840Commission Expense 77,987 86,591 (8,604) 80,600Ceding commissions / brokerage (3,402) (3,289) (113) (3,256)Ceding commissions / brokerage - Depopulation (575) 0 (575) 0Premium / Maintenance Tax 9,586 10,661 (1,075) 9,789

Total Deductions 148,221 214,325 (66,104) 293,859

Net Underwriting Gain or (Loss) 222,183 187,343 34,840 83,736

Other Income or (Expense):Gross Investment Income 3,279 1,007 2,272 1,101Interest Expense on Debt (37,596) (37,596) 0 (38,688)Debt Issuance & Other Investment Expenses (303) (432) 129 (168)Other Income (Expense) 67 0 67 4

Total Other Income or (Expense) (34,553) (37,021) 2,468 (37,751)

Net Income Before Income Taxes 187,630 150,322 37,308 45,985

Federal Income Tax Expense (Benefit) 0 0 0 (7,829)

Net Income (Loss) 187,630$ 150,322$ 37,308$ 53,814$

Surplus (Deficit) Account:Beginning Surplus (Deficit) 0 0 0 0

Net Income (Loss) 187,630 150,322 37,308 53,814Principal Funded on Class 1 Bonds (net) (44,069) (42,964) (1,105) (15,092)Change in nonadmitted assets - Income Tax Rec 0 0 0 53,231Change in nonadmitted assets - Other 3,694 2,686 1,008 1,308Other 0 0 0 (548)Statutory Fund Cost (147,255) (110,043) (37,211) (92,713)

Ending Surplus (Deficit) 0$ 0$ 0$ 0$

Key Operating Ratios:Direct:

Loss & LAE Ratio 7.8% 17.5% -9.7% 35.7%UW Expense Ratio:

Acquisition 18.0% 18.0% 0.0% 17.9%Non Acquisition 5.2% 5.3% -0.1% 5.5%

UW Expense Ratio 23.2% 23.3% -0.1% 23.5%

Combined Ratio 31.0% 40.8% -9.8% 59.1%

Net:Loss & LAE Ratio 10.4% 22.9% -12.5% 47.4%UW Expense Ratio:

Acquisition 23.0% 22.7% 0.3% 23.2%Non Acquisition 7.0% 7.0% 0.0% 7.4%

UW Expense Ratio 30.0% 29.8% 0.3% 30.6%

Combined Ratio 40.5% 52.7% -12.2% 77.9%

TEXAS WINDSTORM INSURANCE ASSOCIATIONStatutory Income Statement (000's omitted)for the twelve months ended December 31,

B1b. Expense Statement

Description Actuals - 2016 Budget - 2016 Variance - 2016 Actuals - 2015Personnel Expenses

Salaries & Wages - Permanent 10,692 11,148 (456) 10,488Contractor & Temporary Help 3,664 1,931 1,733 6,890Payroll Taxes 791 883 (92) 780Employee Benefits 3,554 3,467 87 3,654Recruiting, Training & Other 271 302 (32) 296

Subtotal 18,972 17,731 1,241 22,108

Professional & Consulting ServicesLegal 765 1,391 (626) 1,224Accounting & Auditing 174 286 (112) 257Information Technology 2,114 2,199 (85) 1,267Actuarial Services 25 45 (20) 38Omsbudsman Program 116 118 (2) 110Surveys & Inspections 2,011 2,109 (98) 1,790Disaster Recovery Services 159 216 (57) 254Other Services 2,134 2,062 71 3,361

Subtotal 7,497 8,425 (928) 8,301

Hardware/Software Purchases & Licensing 2,956 3,258 (303) 3,346Rental & Maintenance - Office/Equipment 1,258 1,355 (96) 1,375Travel Expenses 252 385 (133) 241Postage, Telephone and Express 1,046 1,115 (69) 1,214Capital Management Expenses 303 432 (129) 168Depreciation 2,730 2,751 (21) 1,974Other Operating Expenses 1,144 1,091 53 1,065

Total Operating Expenses 36,157 36,543 (386) 39,791

Capitalization of Fixed Assets 0 (65) 65 (233)Allocation To ULAE (9,855) (7,855) (2,000) (11,550)Allocation To Investing & Other Expense (303) (432) 129 (168)

Net Operating Expense - UW Operations 26,000 28,192 (2,192) 27,840

TEXAS WINDSTORM INSURANCE ASSOCIATIONStatutory Expense Report (000's omitted)for the twelve months ended December 31,

6B2. Balance Sheet

B2. Balance Sheet

December-16 December-15Admitted AssetsCash and short term investments:

Unrestricted 493,888$ 472,276$ Restricted - Funds Held at TTSTC 535,802 534,433 Restricted - Funds Held at TTSTC (Non Admitted) (59,160) (15,092)

Total cash and short term investments 970,530 991,617 Premiums receivable & other 2,068 1,477 Total admitted assets 972,597$ 993,094$

Liabilities, Surplus and other funds Liabilities: Loss and Loss adjustment expenses 53,514$ 75,053$ Underwriting expenses payable 9,955 11,087 Unearned premiums, net of ceded unearned premiums 237,726 246,829 Ceded reinsurance funds payable 29,316 26,039 Principal Outstanding on Class 1 Pre Event Bonds 458,400 500,000 Interest Payable on Class 1 Pre Event Bonds 18,252 19,344 Other payables 18,179 22,030 Statutory fund payable 147,255 92,713 Total liabilities 972,597 993,094

Surplus and others fundsUnassigned surplus 0 0 Total liabilities, surplus and other funds 972,597$ 993,094$

Balance in CRTF 587,860$ 487,170$

Balance in CRTF including Statutory fund payable 735,115$ 579,883$

TEXAS WINDSTORM INSURANCE ASSOCIATION Statutory Balance Sheet (000's omitted)

6B3. Cash & Short Term Investments

B.3 Cash Short Term Investments

BankNon Interest

Bearing Interest BearingTotal Amount of

Deposits

Blended Rate of Interest Bearing

Investments

Investment Duration of

Interest Bearing Investments (in

months)

Total Deposit % of TWIA's Portfolio

N.A. Bank Credit Rating

N.A Tier 1 Capital Ratio

N.A. Regulatory Capital

Are funds in excess of the

N.A. Regulatory Capital?

< 40%Superior or

Strong > 10% > $25B> .2% of N.A. Reg Capital

Balances as of 12/31/16:Bank of America 28,522 120,104 148,627 0.85% 2.8 30% Superior 13.1% $144 NoBlackRock Liquidity Funds 0 26,096 26,096 0.10% 0.0 5% N/A N/A N/A N/ACitibank 2 91,329 91,331 0.49% 0.7 18% Superior 13.0% $128 NoJP Morgan Chase 1,784 125,671 127,455 0.68% 2.6 26% Superior 13.4% $168 NoWells Fargo 0 100,379 100,379 0.57% 3.4 20% Superior 10.7% $127 No

Total of all financial institutions 30,308 463,580 493,888 0.63% 2.6 100%

Balances as of 12/31/15:Bank of America 60,670 80,000 140,670 0.35% 2.5 30% Superior 12.5% $144 NoCitibank 10,003 120,912 130,915 0.17% 0.5 28% Strong 12.7% $128 NoJP Morgan Chase 198 125,285 125,483 0.37% 4.6 27% Superior 13.0% $166 NoWells Fargo 0 75,207 75,207 0.16% 4.4 16% Superior 10.5% $125 No

Total of all financial institutions 70,872 401,404 472,276 0.27% 3.7 100%

Texas Windstorm Insurance AssociationUnrestricted Cash and Short Term Investments ($ in 000's)

December 31, 2016

Bank credit rating, Tier 1 Capital Ratios, and Regulatory Capital were reviewed with the latest financial information available as of September 30th. Rates, ratios and regulatory capital are comparable and consistent with year end National Association (N.A.) results.

6B4. Cash Flow Statement

B4. Cash Flow Statement

Actuals - 2016 Budget - 2016 Variance - 2016

Cash flows from operating activities:Premiums collected, net of reinsurance 359,700$ 416,580$ (56,880)$ Losses and loss adjustment expense paid (60,163) (124,301) 64,137Underwriting expenses paid (106,956) (119,018) 12,063Other (42,933) (42,964) 31

Net cash provided by operating activities 149,648 130,297 19,351Cash flows from nonoperating activities:

Statutory fund paid (92,713) (105,418) 12,706Net cash provided by nonoperating activities (92,713) (105,418) 12,706

Cash flows from investing activities:Net investment income (36,422) (38,113) 1,691

Net cash provided by investing activities (36,422) (38,113) 1,691Cash flows from financing activities:

Borrowed funds repaid (41,600) (41,600) 0Net cash provided by financing activities (41,600) (41,600) 0

Net increase (decrease) in cash and short-term investments (21,087) (54,834) 33,748Cash and short-term investments, Beginning 991,617 994,203 (2,586)

Cash and short-term investments, Ending 970,530$ 939,368$ 31,162$

TEXAS WINDSTORM INSURANCE ASSOCIATIONStatement of Cash Flows (000's omitted)

for the twelve months ended December 31,

6B5. Historical Data

B5. Historical Data

LIABILITY IN UNDERWRITINGFORCE POLICY WRITTEN LOSS & EARNED LOSS & EXPENSES UNDERWRITING CRTF BALANCE

YEAR END OF PERIOD COUNT RESID COMML PREMIUMS LAE INCURRED PREMIUMS LAE INCURRED INCURRED GAIN (LOSS) END OF PERIOD

1971 278,710$ 13,415 2,393$ 92$ 868$ 92$ 385$ 391$ 1972 739,983 33,577 4,138 214 3,468 214 849 2,405 1973 1,017,048 45,743 4,286 1,427 4,288 1,427 1,099 1,763 1974 1,064,772 45,901 4,512 452 4,378 452 1,106 2,819 1975 1,169,763 46,365 6,036 592 5,263 592 1,417 3,254 1976 1,387,252 48,747 8,130 231 6,953 231 1,878 4,844 1977 1,616,220 51,382 9,922 203 9,080 203 2,258 6,619 1978 1,633,521 48,820 10,523 296 10,249 296 2,329 7,624 1979 1,816,410 46,128 11,045 2,370 11,039 2,370 2,178 6,490 1980 1,936,388 43,613 9,675 14,217 10,245 14,217 2,079 (6,051) 1981 2,105,244 42,495 9,137 2,715 9,313 2,715 2,097 4,501 1982 2,285,594 51,034 8,641 982 9,106 982 2,095 6,029 1983 2,165,231 44,894 6,900 157,112 7,585 157,112 1,937 (151,463) 1984 3,178,079 51,311 9,450 1,294 7,989 1,294 2,493 4,202 1985 4,061,660 57,181 18,232 1,510 3,534 1,510 3,638 (1,614) 1986 4,510,378 60,028 20,987 1,202 5,229 1,202 3,997 30 1987 4,401,486 57,976 20,532 2,555 4,931 2,555 4,091 (1,715) 1988 4,266,615 56,773 -5.4% -15.0% 19,061 2,509 3,551 2,509 4,066 (3,024) 1989 4,236,600 55,401 - - 18,066 14,176 5,330 14,176 4,037 (12,883) 1990 4,248,611 56,155 3.1% -2.1% 18,244 1,590 16,761 1,590 4,171 11,000 1991 4,346,209 54,145 25.0% -2.0% 20,504 1,783 7,167 1,783 4,343 1,042 1992 5,155,790 55,471 -20% (I)/-75% (B) -22.9% 11,495 1,321 4,014 1,321 4,220 (1,527) 1993 6,500,165 56,921 30.0% - 19,377 4,778 123,515 4,778 5,161 113,576 1994 7,645,176 63,348 - - 26,545 1,572 25,692 1,572 6,982 17,138 124,847 1995 8,828,140 69,807 25.0% - 32,419 4,033 29,016 4,033 8,119 16,864 151,284 1996 10,001,843 72,977 - - 40,359 1,484 37,153 1,484 10,627 25,042 179,020 1997 10,907,937 75,361 - - 42,463 4,133 41,045 4,133 11,038 25,874 216,896 1998 11,633,935 77,261 0.2% -3.0% 44,411 27,235 28,256 27,235 12,181 (11,160) 238,221 1999 11,972,502 75,947 -9.4% - 44,581 11,320 28,702 11,320 11,524 5,858 250,403 2000 12,052,604 73,815 8.7% 9.0% 48,012 7,937 28,470 7,937 11,681 8,852 268,563 2001 13,249,407 77,022 18.5% 4.0% 54,631 8,011 31,112 8,011 12,936 10,165 280,063 2002 16,003,048 85,668 - 5.0% 72,968 32,359 44,516 32,359 16,584 (4,427) 303,185 2003 18,824,457 96,420 - 10.0% 87,987 24,955 51,702 24,955 19,682 7,065 305,599 2004 20,796,656 103,503 9.6% 10.0% 102,384 6,115 52,230 6,115 21,911 24,204 308,729 2005 23,263,934 109,693 - 10.0% 113,928 178,370 65,438 178,370 25,277 (138,209) 311,508 2006 38,313,022 143,999 3.1% 13.4% 196,833 5,188 85,467 5,188 37,138 43,141 361,823 2007 58,641,546 216,008 4.2% 3.7% 315,139 17,985 135,843 17,985 51,768 66,090 388,542 2008 58,585,060 215,537 8.2% 5.4% 331,049 2,587,123 (138,560) 1,117,123 53,759 (1,309,442) - 2009 61,700,891 230,545 12.3% 15.6% 382,342 (486,314) 389,600 (183,974) 87,899 485,675 - 2010 67,452,357 242,664 - - 385,550 555,025 351,730 252,685 85,598 13,447 76,334 2011 71,083,333 255,945 5.0% 5.0% 403,748 202,539 321,781 202,539 81,665 37,577 146,650 2012 74,186,949 266,726 5.0% 5.0% 443,480 401,873 321,122 401,873 93,583 (174,334) 178,902 2013 76,921,369 270,814 5.0% 5.0% 472,739 30,975 295,130 3,975 100,524 190,631 186,184 2014 78,763,302 275,626 5.0% 5.0% 494,036 (13,994) 367,555 (13,994) 109,189 272,360 216,813 2015 78,551,742 272,219 5.0% 5.0% 503,824 178,886 377,594 178,886 114,973 83,736 487,170 2016 73,393,573 254,346 5.0% 5.0% 487,354 38,669 370,404 38,625 109,596 222,183 587,860

TOTAL 5,398,068 4,039,099 3,614,855 2,542,055 1,156,158 (83,359)

*2016 data through 12/31/16.

CHANGESRATE

GROSS NET

TEXAS WINDSTORM INSURANCE ASSOCIATIONHISTORICAL DATA

1971 - 2016($ with 000's omitted)

7. Internal Audit 7A. Internal Audit Status & Update

MEMORANDUM

TO: The Board of Directors - Texas Windstorm Insurance Association FROM: Bruce Zaret and Adam Wright Weaver – Internal Audit DATE: February 7, 2017 SUBJECT: Status of Internal Audits Internal Audit Activities During 4th Quarter

1. Completed updates to the risk assessment and developed preliminary audit plans through 2019 (separate attachment):

Worked with department leaders to update and expand the inventory of key processes by function throughout the organization.

Worked with department leaders and other key personnel to complete the risk assessment process.

Internal audit plans were developed based on the results of the risk assessment.

2. Attended Executive Leadership Team and operations meetings.

AN INDEPENDENT MEMBER OF BAKER TILLY INTERNATIONAL

WEAVER AND TIDWELL, L.L.P. CERTIFIED PUBLIC ACCOUNTANTS AND ADVISORS

1601 SOUTH MOPAC EXPRESSWAY, SUITE D250, AUSTIN, TX 78746 P: 512.609.1900 F: 512.609.1911

7B. Risk Assessment Update

Texas Windstorm Insurance AssociationRisk Assessment Presentation

February 7, 2017

DRAFT – FOR DISCUSSION PURPOSES ONLY

Table of Contents• Summary Risk Assessment Results………. 3• Risk Assessment Process………………….. 5• Risk Assessment Definitions………………. 6• Risk Assessment Results…………………… 10

– Inherent Risk Scores by Process Area – Inherent Risk Heat Map

• Risk Response Plan………………………… 12 – Sample Residual Rating & Risk Heat Map

• Proposed Three Year Audit Plan………... 14

DRAFT - FOR DISCUSSION PURPOSES ONLY 2

Risk Assessment Results – Inherent Risk Heat Map – Before Control Testing

3DRAFT - FOR DISCUSSION PURPOSES ONLY

# Process Area (Descending by risk )

1 Claims Processing

2 Information Security

3 Database and Application Administration

4 Legal & Compliance

5 Underwriting

6 Depopulation

7 Financial Close and Reporting

8 Executive Management, Management Planning and Reporting

9 Actuarial (Pricing and Reserving)

10 Reinsurance

11 Communications

12 Application Development

13 Accounts Payable and Expense Processing

14 Information Technology Services

15 Human Resources Administration

16 Payroll

17 Accounts Receivable

18 Cash Management

19 Facilities and Services

20 Taxes (Premium Tax)

Rating Scale Composite Score

High 3.51 or higher

Moderate 2.51 to 3.50

Low 2.50 or less

Low

Risk Assessment Results – Sample Residual Risk Heat Map – After Control Testing


Internal controls will be evaluated during the course of the Internal Audit and Model Audit Rule reviews. The risk ratings will be updated based on the control evaluations.


High 3.51 or higher


Low 2.50 or less

High

Low

Risk Assessment Process

• Reviewed results of prior risk assessment conducted in August 2014

• Developed list of significant processes and activities

• Provided risk training to TWIA Managers in September 2016

• Scored process areas by rating probability of an event occurring and impact should event occur

• Met with ELT to confirm risk-rankings 5DRAFT - FOR DISCUSSION PURPOSES ONLY

Risk Assessment DefinitionsRisk Categories were evaluated to include the following

• Operations: The risk of loss arising from inadequate or failed internal/external processes, people, and systems.

• Legal and Compliance: The risk that TWIA's operations and ability to execute strategic objectives could be impacted by regulatory/legislative action and/or changes, such new rules and requirements implemented by TDI.

• Financial (Internal/External): Accuracy of financial reporting, financial sustainability and safeguarding of financial assets

• Informational Technology: The risk of loss due to internal or external influences on information technology operations or systems.


Risk Rating DefinitionsRisks were evaluated based on inherent versus residual risk

• Inherent Risk: The natural risk (exposure) in the significant activities of the organization without consideration of internal controls or other actions that mitigate risk.

• Residual Risk: The risk that remains after controls are taken into account (the net risk or risk after controls).

The Inherent Risk Assessment was used in developing the proposed areas of the internal audit plan. The plan is subject to review and approval of the Board.



Inherent vs. Residual Risk

Internal Controls

Risk

Risk

Risk

Risk

Risk

Risk

Risk

Inherent/Natural Risk

Risk

Risk

Risk

Residual Risk

Risk

RiskRisk

Risk

Risk Rating DefinitionsA scale from 1-5 (1- lowest, 5 – highest) was used to assess the Probability and Impact of the risk categories.

• Probability – The likelihood of an event occurring that impacts achieving the objectives over financial reporting, compliance and/or operations.

• Impact - The consequence the event has on operations, reputation, compliance, financial reporting and information technology.


Score Probability(Rated 1-5)

Impact(Rated 1-5)

1 Very Remote (<10% Chance) Low

2 Somewhat Likely (>10% - <50% Chance) Below Average

3 Likely (>50% - <70% Chance) Moderate

4 Probable (>70% - <90% Chance) Above Average

5 Highly Probable (>90% Chance) High

Risk Assessment Results – TWIAInherent/Natural Risk


Top 10 Risks

Risk Assessment Results – Inherent Risk Heat Map


# Process Area (Descending by risk )

1 Claims Processing


3 Database and Application Administration

4 Legal & Compliance

5 Underwriting

6 Depopulation

7 Financial Close and Reporting

8 Executive Management, Management Planning and Reporting

9 Actuarial (Pricing and Reserving)

10 Reinsurance

11 Communications

12 Application Development

13 Accounts Payable and Expense Processing

14 Information Technology Services

15 Human Resources Administration

16 Payroll

17 Accounts Receivable

18 Cash Management

19 Facilities and Services

20 Taxes (Premium Tax)


High 3.51 or higher


Low 2.50 or less

Low

Risk Response Plan

RANKING PROCESS AREA RISK RESPONSES

1 Claims Processing

• Formal Claims policies are in place and updated annually

• Controls are in place over claims validity, fraud, disbursements and settlements

• Disaster recovery and business continuity planning is in place


• IT security systems are updated regularly• Software access is properly restricted • A response policy is established for

managing the changing IT security environment


Risks are mitigated through internal controls and evaluated independently. Past audit findings have been addressed. Below is an example of risk responses:

Risk Response Observations

Weaver observed the following organizational culture characteristics while developing the Risk Assessment, Risk Response Plan, and Audit Plan:

Tone-at-the-top fosters strong control-focused culture

Management values feedback from external auditors

Communications team is proactive with education and outreach

Prior audits indicate internal controls are effective:

– Claims and Underwriting processes were audited in 2014

– Information security audit was performed in 2015

– Financial statements are audited annually by a third-party


Audit Plan Development

• A proposed audit plan was developed using results of the Risk Assessment and considered:– Process area risk rating– Annual audit budget– Judgment on audit procedures and best

practices

• The audit plan will be executed with Model Audit Rule documentation requirements



Proposed Three Year Audit Plan

2017Process Area Risk

Rating

Model Audit Rule (documentation) N/A

Information Security High

Claims Processing High


Rating

Model Audit Rule (light) N/A

Application Development Moderate

Underwriting & Agency High

Actuarial (Pricing and Reserving) Moderate

Legal, Compliance, & Depopulation High

Communications Moderate

Cash Management (Investments) Low


Rating

Model Audit Rule (light) N/A

Database and Application Administration High

Information Technology Services Moderate

Human Resources Administration Low

Accounts Payable and Expense Processing Moderate

Payroll Low

Accounts ReceivableIncluding Agent Commissions Low

Facilities and Services Low

8. Actuarial 8A. Reserve Adequacy

PO Box 99090, Austin, TX 78709-9090 | 1-800-788-8247 | twia.org

MEMORANDUM

DATE: January 9, 2017

TO: John Polak, General Manager

FROM: James Murphy, Chief Actuary & Vice President of Enterprise Analytics

RE: Reserve Adequacy as of December 31, 2016

TWIA actuarial staff has completed a review of Texas Windstorm Insurance Association loss and loss

adjustment expense reserves as of December 31, 2016.

The addition of the fourth quarter of 2016 is partially offset by favorable development to the first and

third quarters of 2016; all four quarters’ experience has been less than originally projected.

The ultimate estimates for Hurricane Dolly and Ike remain unchanged at $330 million and $2.6 billion,

respectively. TWIA continues to monitor new and existing litigation activity to ensure all outstanding

obligations are properly reserved. Estimation of ultimate liabilities for these claims is unusually difficult

and is subject to significantly greater than normal variation and uncertainty.

As of December 31, 2016, TWIA carried $53.5 million in total loss and loss adjustment reserves for all

claims. In my opinion, the Association’s reserves met the requirements of the insurance laws of Texas,

were consistent with reserves computed in accordance with accepted actuarial standards and principles,

and made a reasonable provision for all combined unpaid loss and loss expense obligations of the

Association under the terms of its contracts and agreements. While there remains a material risk of

adverse development, reserves continue to make a reasonable provision for unpaid loss and loss

adjustment expenses.

The complete actuarial analysis is available on request.

JM

Exhibit 8A Page 1 of 1

8B. Policy Count/Exposures

Texas Windstorm Insurance AssociationStatistical ReportAs of December 31, 2016

Policies In-Force PIF Growth Exposure In-Force Exposure Growth YTD Written Premium Premium GrowthCounty 12/31/15 12/31/16 Actual Percentage 12/31/15 12/31/16 Actual Percentage 12/31/15 12/31/16 Actual Percentage

Aransas 7,137 7,008 -129 -1.80 $2,392,202,018 $2,376,183,002 -$16,019,016 -0.70 $16,875,063 $17,073,512 $198,449 1.20Brazoria 51,332 45,838 -5,494 -10.70 $15,150,335,415 $13,511,280,320 -$1,639,055,095 -10.80 $90,174,308 $83,628,656 -$6,545,652 -7.30Calhoun 4,175 4,100 -75 -1.80 $1,063,512,401 $1,056,648,441 -$6,863,960 -0.60 $7,926,000 $8,037,937 $111,937 1.40Cameron 19,584 18,156 -1,428 -7.30 $4,963,675,884 $4,510,232,412 -$453,443,472 -9.10 $33,202,910 $30,924,814 -$2,278,096 -6.90Chambers 6,288 5,756 -532 -8.50 $1,996,269,402 $1,865,236,413 -$131,032,989 -6.60 $11,356,770 $10,953,464 -$403,306 -3.60Galveston 73,666 69,727 -3,939 -5.30 $23,923,982,761 $22,723,780,289 -$1,200,202,472 -5.00 $156,615,210 $153,564,493 -$3,050,717 -1.90Harris 3,956 3,791 -165 -4.20 $1,163,228,065 $1,127,734,037 -$35,494,028 -3.10 $5,492,545 $5,433,281 -$59,264 -1.10Jefferson 37,643 34,697 -2,946 -7.80 $9,020,082,514 $8,240,940,594 -$779,141,920 -8.60 $61,200,147 $57,702,307 -$3,497,840 -5.70Kenedy 21 20 -1 -4.80 $7,383,251 $7,231,341 -$151,910 -2.10 $54,979 $50,163 -$4,816 -8.80Kleberg 1,291 1,201 -90 -7.00 $309,258,750 $282,992,017 -$26,266,733 -8.50 $2,227,767 $2,141,152 -$86,615 -3.90Matagorda 5,447 5,277 -170 -3.10 $1,343,502,498 $1,318,752,476 -$24,750,022 -1.80 $9,160,222 $9,213,026 $52,804 0.60Nueces 51,861 49,441 -2,420 -4.70 $14,551,724,572 $13,821,897,417 -$729,827,155 -5.00 $94,891,122 $91,623,481 -$3,267,641 -3.40Refugio 416 417 1 0.20 $103,969,320 $105,054,090 $1,084,770 1.00 $811,744 $811,876 $132 0.00San Patricio 8,786 8,387 -399 -4.50 $2,429,451,041 $2,323,336,719 -$106,114,322 -4.40 $15,664,854 $15,258,835 -$406,019 -2.60Willacy 616 530 -86 -14.00 $133,164,433 $122,273,441 -$10,890,992 -8.20 $1,032,139 $936,540 -$95,599 -9.30

Total 272,219 254,346 -17,873 -6.57 78,551,742,325 73,393,573,009 -$5,158,169,316 -6.57 506,685,780 487,353,537 -$19,332,243 -3.82

Exhibit 8B Page 1 of 5

Texas Windstorm Insurance AssociationQuarterly Liability ReportAs of December 31, 2016

Class of Policies Written Risks Written Premium Written Liability at End of Quarter In-Force at End of QuarterBusiness During Qtr YTD During Qtr YTD During Qtr YTD Direct Indirect Policies Risks

AransasCommercial 107 546 222 1,108 648,708 3,083,930 296,464,033 7,251,495 419 945Manufactured Home 27 119 27 119 23,977 137,089 5,430,441 0 113 113Residential 1,334 6,724 1,409 7,104 2,799,339 13,852,493 2,074,288,528 176,316,590 6,476 6,825Total 1,468 7,389 1,658 8,331 3,472,024 17,073,512 2,376,183,002 183,568,085 7,008 7,883

BrazoriaCommercial 342 1,699 496 2,807 1,533,968 10,198,722 924,512,849 24,056,390 1,372 2,398Manufactured Home 34 205 34 205 42,714 292,529 11,305,504 0 186 186Residential 9,328 46,333 9,564 47,605 14,750,798 73,137,405 12,575,461,967 1,626,544,347 44,280 45,485SUM: 9,704 48,237 10,094 50,617 16,327,480 83,628,656 13,511,280,320 1,650,600,737 45,838 48,069

CalhounCommercial 57 333 114 580 324,103 1,637,816 142,038,539 1,763,005 269 503Manufactured Home 15 85 15 85 17,347 100,568 3,974,190 0 77 77Residential 719 3,895 767 4,274 1,159,468 6,299,553 910,635,712 75,590,826 3,754 4,124SUM: 791 4,313 896 4,939 1,500,918 8,037,937 1,056,648,441 77,353,831 4,100 4,704

CameronCommercial 208 1,210 334 2,332 1,394,175 11,306,904 1,273,686,866 12,037,295 953 1,954Manufactured Home 4 65 4 65 2,223 63,882 2,381,727 0 58 58Residential 3,370 17,922 3,435 18,391 3,632,256 19,554,028 3,234,163,819 366,747,957 17,145 17,602SUM: 3,582 19,197 3,773 20,788 5,028,654 30,924,814 4,510,232,412 378,785,252 18,156 19,614




ChambersCommercial 33 199 64 286 205,788 881,505 75,737,999 1,661,200 153 240Manufactured Home 9 108 9 108 12,221 84,514 3,294,930 0 99 99Residential 1,116 5,745 1,157 5,970 1,889,101 9,987,445 1,786,203,484 231,229,623 5,504 5,724SUM: 1,158 6,052 1,230 6,364 2,107,110 10,953,464 1,865,236,413 232,890,823 5,756 6,063

GalvestonCommercial 543 2,987 966 5,436 4,902,138 29,397,129 2,738,159,384 75,005,545 2,414 4,590Manufactured Home 42 212 43 214 52,819 275,147 10,687,599 0 191 193Residential 13,878 69,931 14,348 72,267 24,324,183 123,892,217 19,974,933,306 2,306,884,742 67,122 69,389SUM: 14,463 73,130 15,357 77,917 29,279,140 153,564,493 22,723,780,289 2,381,890,287 69,727 74,172

HarrisCommercial 20 125 36 239 144,052 925,509 89,198,800 2,121,810 109 223Manufactured Home 0 5 0 5 0 4,670 186,800 0 5 5Residential 770 3,815 784 3,945 913,851 4,503,102 1,038,348,437 130,459,669 3,677 3,787SUM: 790 3,945 820 4,189 1,057,903 5,433,281 1,127,734,037 132,581,479 3,791 4,015

JeffersonCommercial 226 1,371 344 2,255 871,121 7,326,986 629,804,998 25,924,490 1,186 1,971Manufactured Home 8 45 8 45 7,050 59,613 2,090,933 0 34 34Residential 6,355 34,959 6,495 35,861 9,185,014 50,315,708 7,609,044,663 948,110,259 33,477 34,337SUM: 6,589 36,375 6,847 38,161 10,063,185 57,702,307 8,240,940,594 974,034,749 34,697 36,342




KenedyCommercial 0 1 0 5 0 11,848 694,441 0 1 5Manufactured Home 0 0 0 0 0 0 0 0 0 0Residential 2 19 6 33 1,838 38,315 6,536,900 34,800 19 33SUM: 2 20 6 38 1,838 50,163 7,231,341 34,800 20 38

KlebergCommercial 24 110 27 152 10,817 575,338 56,471,133 826,620 74 114Manufactured Home 0 2 0 2 0 4,200 168,000 0 2 2Residential 229 1,176 239 1,239 282,854 1,561,614 226,352,884 23,822,827 1,125 1,182SUM: 253 1,288 266 1,393 293,671 2,141,152 282,992,017 24,649,447 1,201 1,298

MatagordaCommercial 61 325 88 657 273,648 1,690,841 146,160,047 2,791,040 261 568Manufactured Home 5 23 5 23 9,950 30,674 1,230,097 0 21 21Residential 964 5,170 993 5,387 1,428,155 7,491,511 1,171,362,332 120,445,349 4,995 5,209SUM: 1,030 5,518 1,086 6,067 1,711,753 9,213,026 1,318,752,476 123,236,389 5,277 5,798

NuecesCommercial 670 3,463 1,117 5,980 3,432,589 18,604,677 1,947,454,546 58,302,120 2,642 4,825Manufactured Home 3 28 3 28 -433 18,560 801,300 0 22 22Residential 9,564 48,678 9,831 50,611 14,373,490 73,000,244 11,873,641,571 1,330,710,396 46,777 48,572SUM: 10,237 52,169 10,951 56,619 17,805,646 91,623,481 13,821,897,417 1,389,012,516 49,441 53,419




RefugioCommercial 5 40 6 69 10,091 212,573 17,863,880 225,000 36 65Manufactured Home 2 12 2 14 4,100 20,309 745,553 0 11 13Residential 61 381 66 409 88,507 578,994 86,444,657 8,739,042 370 398SUM: 68 433 74 492 102,698 811,876 105,054,090 8,964,042 417 476

San PatricioCommercial 93 461 223 869 325,603 2,189,802 207,060,678 5,924,415 358 751Manufactured Home 7 39 7 39 8,921 55,954 2,151,973 0 34 34Residential 1,642 8,310 1,708 8,704 2,587,814 13,013,079 2,114,124,068 243,111,034 7,995 8,388SUM: 1,742 8,810 1,938 9,612 2,922,338 15,258,835 2,323,336,719 249,035,449 8,387 9,173

WillacyCommercial 10 46 25 94 27,526 235,110 23,132,360 418,470 38 83Manufactured Home 0 4 0 4 0 5,550 222,000 0 4 4Residential 81 512 84 539 94,218 695,880 98,919,081 8,224,141 488 512SUM: 91 562 109 637 121,744 936,540 122,273,441 8,642,611 530 599

Total All CountiesCommercial 2,399 12,916 4,062 22,869 14,104,327 88,278,690 8,568,440,553 218,308,895 10,285 19,235Manufactured Home 156 952 157 956 180,889 1,153,259 44,671,047 0 857 861Residential 49,413 253,570 50,886 262,339 77,510,886 397,921,588 64,780,461,409 7,596,971,601 243,204 251,567SUM: 51,968 267,438 55,105 286,164 91,796,102 487,353,537 73,393,573,009 7,815,280,496 254,346 271,663


8C. Reinsurance Options


MEMORANDUM




RE: 2017 Reinsurance Program Renewal

The Texas Windstorm Insurance Association reinsurance contract expires on May 31, 2017. The current

reinsurance program provides for $2.2 billion in coverage above a $2.7 billion retention, as shown in the

attached funding chart, and includes three catastrophe bonds in the aggregate amount of $1.1 billion.

Staff has begun the initial preparations for the renewal of the reinsurance program and is seeking Board

direction on the following topics:

Overall reinsurance program structure

Catastrophe bonds

Additional options

Based on the Board’s input, staff will work with TWIA’s reinsurance broker, Guy Carpenter, to meet with

reinsurance program participants and prepare one or more proposed reinsurance structures for 2017

for final Board approval at an upcoming meeting. A high‐level timeline of the overall program renewal is

below.

JM

Exhibit 8C Page 1 of 6


Overall Reinsurance Program Structure

With the expected contribution to the CRTF of over $140 million from 2016 operations, TWIA has the

opportunity to increase its reinsurance retention to $2.8 billion in 2017.

TWIA is required to maintain funding at least equal to the 100‐year PML, but chose to obtain funding in

excess of this minimum amount last year, in part to provide a provision for loss adjustment expenses.

Guy Carpenter has modeled TWIA exposures as of December 31, 2016 and, based on an average of the

AIR and RMS models, TWIA’s projected 100‐year PML for 2017 is approximately $4.3 billion, a $350

million decrease from 2016. The projected PML takes into account actual decreases in exposures over

the last year, along with the estimated impact of the Assumption Reinsurance Depopulation Program.

Depopulation alone accounts for over $100 million of the decrease. Model results with additional PMLs

are attached.

Catastrophe Bonds

The $400 million of 2014 Alamo Re catastrophe bonds expire this year, while the remaining catastrophe

bonds, issued in 2015, expire in 2018 and 2019. The catastrophe bonds have a variable reset feature

that allows TWIA to adjust the retention and exhaustion points of each bond annually prior to March 31.

Staff has begun preparations for the reset of the remaining catastrophe bonds, with the adjustment

taking into account the expected increase in retention and the updated 100‐year PML.

Staff has also had initial discussions on issuing new catastrophe bonds to replace the expiring bonds.

Market analysis indicates that catastrophe bonds continue to be competitively priced and provide a

cost‐efficient means of diversification for the reinsurance program.

Additional Options

Last year TWIA secured $350 million of second season coverage to mitigate the potential increase in

reinsurance costs the year following a catastrophe that depletes some or all of the CRTF. Other options

that have been discussed include multi‐year traditional reinsurance and reinsurance coverage for spring

hail storms.

Any budgeted amounts not utilized for the 2017 reinsurance program will be available for contribution

to the CRTF.



2017 Reinsurance Renewal Timeline

Month and Year Milestone

January 2017 Model TWIA exposures to determine 100‐year PML

February 2017 Receive initial TWIA Board direction on reinsurance program

March 2017 Prepare and hold renewal meetings with investors and reinsurers

Submit reinsurance renewal to market for initial quotes

Finalize reset of catastrophe bond attachment and exhaustion points

April 2017 Present reinsurance options to TWIA Board for final approval

Finalize reinsurance firm order terms

May 2017 Sign final reinsurance lines

June 2017 Program effective June 1, 2017


Texas Windstorm Insurance Association2016 Funding StructureExpiring May 31, 2017Reinsurance on Aggregate Basis

$4.9 Billion

100-YearSeason

50-Year$2.7 Billion Season

$2.45 Billion

$2.2 Billion

$1.95 Billion

$1.7 Billion

20-Year$1.2 Billion Season

$700 Million

10-YearSeason

$0

Notes: Storm frequencies based on an average of AIR and RMS modeled losses using TWIA exposures as of 12/31/15

Undetermined

$700 Million Premium and CRTF

$500 Million Class 1 Public Securities

$500 Million Class 1 Member Assessments





$400 Million Catastrophe Bond(Alamo Re 2015-B)

$400 Million Catastrophe Bond(Alamo Re 2014)

$300 Million Catastrophe Bond(Alamo Re 2015-A)

$1.1 BillionTraditional Reinsurance



Catastrophe Modeling Results

Hurricane Aggregate Loss Estimates – AIR Touchstone

Return AIR v3.1 AIR v4 as of 12/31/16 Percent Probability Period as of 12/31/15 No Depop. 100% Depop. Change

90.0% 10 $495,850,959 $475,114,684 $458,184,415 ‐4.2% to ‐7.6%

95.0% 20 $1,290,492,422 $1,223,949,895 $1,179,101,698 ‐5.2% to ‐8.6%

98.0% 50 $2,965,343,851 $2,829,847,073 $2,755,930,777 ‐4.6% to ‐7.1%

99.0% 100 $5,240,360,522 $5,003,594,434 $4,883,627,468 ‐4.5% to ‐6.8%

99.6% 250 $8,227,443,415 $7,850,894,104 $7,704,276,783 ‐4.6% to ‐6.4%

99.8% 500 $11,157,798,686 $10,627,274,425 $10,349,015,756 ‐4.8% to ‐7.2%

99.9% 1000 $13,496,041,945 $13,004,439,285 $12,346,943,635 ‐3.6% to ‐8.5%

Average Annual Loss $254,785,643 $242,964,775 $235,775,372 ‐4.6% to ‐7.5%

TWIA Modeled Limits $86,375,020,559 $81,212,801,694 $76,325,789,268 ‐6.0% to ‐11.6%

Hurricane Aggregate Loss Estimates – RMS RiskLink

Return RMS v15.0.1 RMS v16 as of 12/31/16 Percent Probability Period as of 12/31/15 No Depop. 100% Depop. Change

90.0% 10 $562,152,351 $531,256,371 $508,621,781 ‐5.5% to ‐9.5%

95.0% 20 $1,229,247,574 $1,159,515,825 $1,113,597,135 ‐5.7% to ‐9.4%

98.0% 50 $2,616,113,066 $2,468,812,146 $2,378,052,623 ‐5.6% to ‐9.1%

99.0% 100 $4,065,301,729 $3,840,963,757 $3,701,351,632 ‐5.5% to ‐9.0%

99.6% 250 $6,612,630,790 $6,270,956,363 $6,052,438,876 ‐5.2% to ‐8.5%

99.8% 500 $9,521,502,680 $9,059,926,985 $8,729,206,465 ‐4.8% to ‐8.3%

99.9% 1000 $12,649,291,826 $12,060,020,656 $11,614,756,356 ‐4.7% to ‐8.2%





Catastrophe Modeling Results

Average of AIR and RMS Models

Return as of 12/31/16 Percent Probability Period as of 12/31/15 No Depop. 100% Depop. Change

90.0% 10 $529,001,655 $503,185,527 $483,403,098 ‐4.9% to ‐8.6%

95.0% 20 $1,259,869,998 $1,191,732,860 $1,146,349,416 ‐5.4% to ‐9.0%

98.0% 50 $2,790,728,458 $2,649,329,609 $2,566,991,700 ‐5.1% to ‐8.0%

99.0% 100 $4,652,831,126 $4,422,279,095 $4,292,489,550 ‐5.0% to ‐7.7%

99.6% 250 $7,420,037,103 $7,060,925,234 $6,878,357,829 ‐4.8% to ‐7.3%

99.8% 500 $10,339,650,683 $9,843,600,705 $9,539,111,111 ‐4.8% to ‐7.7%

99.9% 1000 $13,072,666,885 $12,532,229,970 $11,980,849,996 ‐4.1% to ‐8.4%



Models assume stochastic (near‐term) event rates, include demand surge (loss amplification), and

exclude loss adjustment expenses and storm surge.

Exhibit 8CPage 6 of 6

9. Underwriting 9A. Operational Review Update


MEMORANDUM



FROM: Denise Larzalere, Vice-President-Underwriting

RE: Update on Underwriting Operational Highlights

4th Quarter 2016 Highlights

I. Service Results:

a. Underwriting continues to have improved and consistent turnaround time on all

transactions. Over 95% of New Business submissions, endorsements, renewals,

inspections and cancellations are processed within 10 days.

b. Quality Assurance Results on the Underwriting decisions continues to be meeting or

exceeding established goals.

c. Telephone service response time is within our established goals.

d. Underwriting is operating below budget. Largely due to minimal overtime, reduced

headcount and managing the inspection budget.

II. Underwriting Activities of Note:

a. HB2439 - TWIA Certificate of Compliance (WPI-8-c’s) status:

i. HB2439 allows Texas licensed engineers to send a post construction evaluation

report directly to TWIA for issuance of a certificate of compliance on completed

improvements only.

ii. By January 1, 2017 TWIA was able to accept applications for completed

construction certificates (WPI-3’s).

iii. As of January 24, 2017 we have received 48 applications

iv. Final rules were published and received during the first week of January. Minor

adjustments are needed to our process prior to being able to issue a certificate.

b. Commercial and Manufactured Homes Policy Center project on track for

implementation December 2017.


III. Agency Compliance Audits:

a. Audits were performed on 20 agents (200 properties) to verify compliance with the

declination of coverage and flood insurance requirements.

b. All 20 agents have an active property and casualty insurance license and after some

clarification all policies were able to provide proof of declination. One policy was found

to not have the required flood insurance and ultimately underwriting mailed a 30 day

Notice of Cancellation to the insured for failure to maintain flood insurance.

c. During the fourth quarter a newsletter article was published reminding agents of our

declination requirements. In December a new “Proof of Declination of Coverage”

template was published on www.twia.org. A reminder notice is scheduled for January.

http://www.twia.org/

9B. Seamless Renewal Update

Streamlining the Renewal ProcessJanuary 18, 2017

Background

• HB3 required TWIA to develop a simplified renewal process that allows for the acceptance of a renewal application and renewal premium from the agent or person insured

• Since the effective date of HB3 TWIA has and continues to simplify its renewal process accordingly– We have implemented electronic payment capability and reduced, but have

not eliminated, agent involvement in the payment process– We have also introduced electronic renewals and eliminated the agent

workload of mailing renewals to the policyholder and mortgagee• Our plan is compliant with HB3 requirement but additional improvement

opportunities exist• Existing plan goes beyond basic requirements of HB3 and provides

additional features to support improved policyholder and agency service by 2019

Issues

• While voluntary market policies are continuous until canceled, by statute TWIA policies expire annually unless renewed– Statute and Rules require that in order for a renewal to be

issued an application must be submitted with premium and there is an affirmation that the agent possesses proof that the risk is eligible (declination and flood requirements)

– Other issues• Coordinating application and payment• Affirmation of eligibility without agent involvement• Changes in coverage, coordinating TWIA and companion coverage

Summary of Renewal Processing changesPast Present Future

Acceptance of Renewal Applications

US Mail from:• Agent Only

Electronically from:• Agent

Electronically from:• Agent• PolicyholderUS Mail from:• Policyholder

Receipt of Premium

US Mail:• Paper Check (agent only)

Electronically from:• Agent• Premium Finance*• Policyholder (eCheck via agent)

US Mail• Agent• Policyholder (via agent)

Electronically from:• Agent• Policyholder• Premium Finance• MortgageeUS Mail from:• Policyholder• Mortgagee

Manual Intervention**& Impact

100%

Impact:• Seasonal backlog• Approx. 50% issued within

14 days

20%

Impact:• Zero Backlogs• 88% issued within 10 days

10%

Impact:• Zero backlogs• 90% issued within 5

days

Policy Delivery Method

US Mail to:• Agent Only• Agent must mail copies of

policy to policyholder andmortgagee

Electronically to:• Agent

TWIA uses US Mail to:• Policyholder & Mortgagee

Electronically to:• Agent• Policyholder• MortgageeUS Mail to:• Policyholder

*Electronic payments currently accepted on policies financed by Wellington only**Percentage of policies requiring manual review and approval by TWIA prior to issuance

Option to Accelerate the Transition

Modify the existing workflow to allow policyholders the ability to submit an application/payment voucher directly to TWIA using the US mail and a paper “application” rather than an electronic solution short term. Agent would still need to be involved but not as extensively.

Issues:

• Any interim changes would be throw away investments• Will temporarily increase incremental annual cost (postage, paper, processing incoming mail and

increased telephone traffic from policyholders)• TWIA would need to collect escrow account information and / or policyholder emails from agent• This would not include ability to accept Mortgagee payments• Time and cost to develop vs the perceived value• Could potentially delay other IT or process initiatives• Incorporating agent and other stakeholder input

10. Claims10A. Claims Operations – Overview

TWIA Claims Operations

2016 New Claim Volume

• Projected new claim volume was 9,702 • New claim volume was 8,393 or -1,309 (-13%) lower than projected

1

2016 HB3 Claims

• “Dispute Frequency” tracks number of HB3 claims and the number and percentage of all HB3 claims where the policyholder is disputing the claim disposition for any reason.

• A single disputed claim may have more than one “type of dispute.”

2

All HB3 Claims (Since November 2011)

• Chart represents information for all HB3 claims filed since inception of HB3 in late 2011.• “Dispute Frequency” tracks number of all HB3 claims and the number and percentage of all HB3 claims where the

policyholder is disputing the claim disposition for any reason.• A single disputed claim may have more than one “type of dispute.”

3

10B. Claims Litigation

TWIA Litigation Tracking Activity

Litigation Quarter Summary Fourth Quarter 2016

4th

Qua

rter

201

6

Summary of TWIA Claims In Suit New Settled Closed

Pre-HB3 HB3 Pre-HB3 HB3 Pre-HB3 HB3 October 0 2 1 0 2 3 November 0 3 0 0 1 1 December 0 2 0 1 0 1

0 7 1 1 3 5

2016 Annual Summary

2016 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Total Monthly Average Suits 1 2 2 2 4 2 3 3 4 2 3 2 30 2.5 LORs 7 9 8 6 11 6 6 10 8 3 3 4 81 6.75

4th

Qua

rter

201

6

Summary of TWIA Claims With LORs New Settled Closed

Pre-HB3 HB3 Pre-HB3 HB3 Pre-HB3 HB3 October 1 2 0 4 0 12 November 0 3 0 0 0 1 December 0 4 0 0 0 2

1 9 0 4 0 15

TWIA Claims Litigation December 2016

Dec

-16

TWIA Claims in Suit

Category Beginning Inventory New Closed Ending

Inventory

Pre-HB3 24 0 0 24 HB3 60 2 (1) 61

TOTALS 84 2 (1) 85

Dec

-16

TWIA Claims with LORs

Category Beginning Inventory New Closed Converted

to Suit Ending

Inventory

Pre-HB3 1 0 0 0 1 HB3 44 4 (2) (1) 45

TOTALS 45 4 (2) (1) 46

Dec

-16

TWIA Claims with Suits/LORs: Detail of Ending Inventory

Category

Active Unsettled Claims Settled & Funded (Awaiting closing documents and final

invoices) GRAND TOTAL

Suits LORs Suits LORs

Res Comm Res Comm Total Res Comm Res Comm Total Pre-HB3 8 13 1 0 22 0 3 0 0 3 25

HB3 54 6 38 4 102 0 1 2 1 4 106

TOTALS 62 19 39 4 124 0 4 2 1 7 131

Brazoria Cameron Chambers Galveston Jefferson Nueces Willacy Total1 1

3 8 110

1 11 1

1 11 1

1 1 21 12 2

1 11 0 3 10 3 4 1 22

Dec-

16

Speights

TOTALS

Hodge Law FirmJose Luis Flores

Firm

BuzbeeByrd Law FirmDavid W. Starnes

Weller Green Toups

Mostyn

TWIA Active Pre-HB3 Claims with Suits/LORs: Breakdown by Plaintiff Firm and County

Daly & Black

Baine Law Firm

Lindsay, Lindsay & Parsons

Brazoria Cameron Chambers Galveston Harris Jefferson Matagorda Nueces Total1 1

1 11 1

1 12 2

18 3 3 241 1

2 22 22 21 1 21 1

1 12 2

1 11 11 1

1 11 5 1 7

7 72 2

1 9 1 111 2 3

2 23 3

1 11 1 2

2 21 1 1 3

1 14 4

1 1 22 2 41 1

24 34 1 19 3 6 1 14 102TOTALS

Dec-

16

Richard Griffin JrRobert Green & Assoc, PC

Saucier & SmaistrlaSpeights

The Robinowitz Law FirmVincente Gonzalez

Von Dohlen Law FirmWil l iams Kherkher Hart Boundas , LLP

Wilson

BeamBarton

Daly & Black

Hodge Law FirmIgnacio G. Martinez, P.C.

Allan, Nava & Glander

Monk Law Firm

Ketterman

Firm

Brasher Law FirmCook & Anderson Law Firm, PLLC

Dimont & Associates

Ketterman & LA LawLane Law Firm

Langley & Banack

Lindsay, Lindsay & Parsons

Mendez Law Firm

Lopez Scott

McClenny Moseley & AssocMartin & Drought

Phipps R. Kent Livesay

Law Firm of Alton C. Todd

TWIA Active HB3 Claims with Suits/LORs: Breakdown by Plaintiff Firm and County

John Saenz & Associates, PC

MostynMoore

11. TWIA Operations11A. IT Update

2016 2017 2018

TWIA

TFPA

PolicyCenter Commercial

ClaimsCenter

Production Support releases (currently every 3 weeks)

TFPA Claims

TFPA Policy

De-Pop (Carrier, Agents, Policyholder)

Feb 2017= Deployed

EFT API

Unified CommInfrastructure

TFPA Billing

TFPA Portal

TFPA EDW

1

11B. Depopulation

PO Box 99090, Austin, TX 78709‐9090 | 1‐800‐788‐8247 | twia.org

MEMORANDUM




RE: Depopulation Programs

Assumption Reinsurance Depopulation Program

Following the conclusion of the agent period on October 31, 2016, TWIA and the participating companies

sent notifications to TWIA policyholders about offers beginning December 1. TWIA’s notifications also

included information about opting out of the program, and reminder communications are scheduled to

be sent out to policyholders in March and before the opt‐out period ends to ensure policyholders have

sufficient time to make a decision and take action in regards to their offer. Policyholders who choose not

to opt out of the program will have their policy automatically transfer to a participating company on June

1, 2017. A total of 1,622 policyholders have opted out through December 31, 2016, choosing to remain

with TWIA. After removing the opt‐outs and any policies no longer in‐force (due to cancellations, non‐

renewals, etc.), approximately 15,500 policies remain in the program.

Voluntary Market Depopulation Program

The first company has been formally approved to participate in the Voluntary Market program. Weston

Insurance was approved by the TDI on December 7, 2016 to approach the same policyholders they are

currently offering through the Assumption Reinsurance program. Two other companies are in the process

of obtaining approval to participate in the program.



MEMORANDUM



FROM: Pete Gise, Chief Financial Officer

RE: TWIA Financial Review of Depopulation Carriers

As part of the overall depopulation program, TWIA staff performed a financial review of the depopulation

carriers participating in the program. This financial review was limited to the credit risk exposure TWIA

potentially has in reinsuring risks to these carriers during the period from December 1, 2016 to May 31,

2017.

The Texas Department of Insurance (TDI) also performed a financial review of these carriers. Our

understanding of their review was that it was more focused on the carriers’ business plans (to include

those policies novated from TWIA on June 1, 2017). TDI’s review culminated in a consent order that in

some circumstances required additional capital or other financial measures to be taken.

TWIA’s financial review included the following:

A review of the depopulation carriers’ criteria to partner with external reinsurers to transfer risks

to such reinsurers. Note: in all cases, the depopulation carriers criteria met or exceeded TWIA’s

financial criteria for placing catastrophe reinsurance with reinsurers (AM Best A‐ or better and if

not to have exposure collateralized)

A review of the depopulation carriers’ rating from an Independent Rating Agency as well as the

narrative provided by such Rating Agency.

A review of historical and projected financial statements and the impact of certain probable

maximum losses (PML’s) on the financial statements and risk based capital levels.

Again, TWIA’s financial review was focused on the credit exposure associated with the Quota Share

Reinsurance Agreement from December 1, 2016 to May 31, 2017. The credit exposure is mitigated

substantially due to the structure of the agreement. TWIA will hold premiums net of losses during the

period and remit balance to reinsurers in mid‐June. TWIA’s credit risk is further reduced in that premiums



for policies renewed in June and July of 2017 for the depopulation carriers will be collected and remitted

to the carriers and could be used to offset balances owed to TWIA after June 30, 2017 if ever needed.

Based on the structure of the quota share reinsurance agreement and the financial review of the

depopulation carriers by TWIA staff, TWIA staff believes that the credit risk to TWIA is very minimal. In a

situation where severe spring storms occur, the likely recoverable from all reinsurers would be less than

$300K as of August 31, 2017.

Please let me know if you have any questions or would like to discuss this matter.


11C. TWIA Expert Panel

There is no exhibit for this topic

11D. HB 2439 Rules Update

WPI-3 Application Form for Certificate of Compliance for

Completed Improvement(s) (WPI-8-C)

v20170122 * Required field

Use this form to apply for a certificate of compliance for a completed improvement. Answer the following questions to determine if the project qualifies as an ongoing improvement or a completed improvement.

For ongoing improvements: Visit https://appscenter.tdi.texas.gov/windstorm/p/wpi1wizard or contact the Texas Department of Insurance Windstorm Inspection Program at 800-248-6032 for additional information regarding certifying ongoing construction. For the purposes of this form, improvement is used to describe construction of or repair, alteration, remodeling or enlargement of a structure.

Has the original transfer of title from the builder to the initial owner of the improvement occurred?*

☐ Yes CONTINUE

If you selected yes, on approximately what date did the original transfer of title from the builder to the initial owner of the improvement occur?

This improvement qualifies as a completed improvement under Texas Insurance Code §2210.2515(a)(1). Complete the remainder of the form beginning with Section I below.

☐ No STOP

If you selected no, the improvement is an ongoing improvement under Texas Insurance Code §2210.2515(a)(3) and cannot be certified by Texas Windstorm through this application process. See information in ‘For ongoing improvements’ heading above.

☐ Not Applicable (applies only to improvements for which title is not expected to transfer, e.g. roof repair)

If you selected not applicable, has the final framing state of the improvement, including attachment of component and cladding items and installation of any impact resistant glazing or delivery of any wood structural panels been completed?

☐ Yes CONTINUE

If you selected yes, this improvement qualifies as a completed improvement under Texas Insurance Code §2210.2515(a)(1). Complete the remainder of the form beginning with Section I below.

☐ No STOP

If you selected no, then the improvement is an ongoing improvement under Insurance Code §2210.2515(a)(3) and cannot be certified by Texas Windstorm through this application process. See information in ‘For ongoing improvements’ heading above.

I. REQUESTOR OF CERTIFICATE:* ☐ Owner ☐ Engineer ☐ Other Date of Application:*

First Name:* Last Name:* Entity:

Street Address: Unit Number:

City: State: Zip: Phone:

Email: Secondary Phone:

II. OWNER* (If different from requestor listed above)



City: State: Zip: Phone:*

Email: Secondary Phone: If you do not enter the email address of the owner, TWIA will not provide them with a confirmation of the completed form and a copy of thecertificate.

https://appscenter.tdi.texas.gov/windstorm/p/wpi1wizard


III. ENGINEER INFORMATION AND AFFIRMATION*

I, the undersigned professional engineer licensed in the state of Texas, do hereby ACKNOWLEDGE that the information provided in this application is true and correct to the best of my knowledge, and that the completed improvement complies with the applicable building code under the Texas Windstorm Insurance Association (TWIA) Plan of Operation (28 Texas Administrative Code 5.4001 et seq.), and as further indicated below. I understand and intend that TWIA will rely on this information in issuing a Certificate of Compliance.


Signature:* Date:

Texas Board of Professional Engineers Registration Number:*


City: State: Zip: Phone:

Email: Secondary Phone:

Provide either of the following*

☐ Plan or drawing number for the design

☐ The title, date, and number for the post construction evaluation report relied on to certify the improvement and date(s) of inspection Title(s): Date(s): Number(s):

Date(s) of inspection:*

IV. BUILDER OR CONTRACTOR WHO COMPLETED THE CONSTRUCTION*



City: State: Zip: Phone:*

V. LOCATION OF THE IMPROVEMENT TO BE CERTIFIED* (Complete 9-1-1 address including house/building number)

Street Address:* Unit Number:

City:* State: Zip:* County:*

Type of Building:* ☐ Commercial ☐ Residential Dwelling ☐ Duplex ☐ Detached Garage ☐ Garage Attached by Breezeway

☐ Condominium (Units per Bldg.: ) ☐ Townhouse (Units per Bldg.: ) ☐ Apartments (Units per Bldg.: )

☐ Farm & Ranch ☐ Metal Building ☐ Other (Specify):

Building Name or Number if Applicable:

Wind Zone:*☐ Inland II ☐ Inland I ☐ Seaward Coastal Barrier Resource Zone?*☐Yes ☐ No Importance Factor:*☐ I ☐ II ☐ III ☐ N/A (If using ASCE 7-93, IRC or IBC Standards)

VI. IMPROVEMENT TO BE CERTIFIED*

Date Construction Started:*

☐ Entire Building (Type): ☐ Repair (Type):

☐ Entire Re-Roof (Type): ☐ Mechanical Only (Type):

☐ Re-decking: ☐ Foundation Only (Type):

☒ Partial Re-Roof (Type and Area): ☐ Addition (Type):

☐ Re-decking: ☐ Retrofit of ALL Exterior Openings*:

☐ Alteration (Type): ☐ Other (Description):

Additional Comments: *For windborne debris protection only (impact resistant exterior opening products or shutters). All exterior openings shall include windows, doors, garage doors, and skylights.


VII. IMPROVEMENTS THAT BEGAN ON OR AFTER JANUARY 1, 1988 THROUGH AUGUST 31, 1998 For projects that commenced construction after August 31, 1998 skip section VII and continue to section VIII.

Building Code:*

☐ Southern Standard Building code, as amended May 8, 1973 (applicable to structures Inland of the Intracoastal Waterway)

☐ TCPIA Building Code for Windstorm Resistant Construction (applicable to structures Seaward of the Intracoastal Waterway)

VIII. PROJECTS THAT BEGAN ON OR AFTER SEPTEMBER 1, 1998 THROUGH JANUARY 31,2003 For projects that commenced construction after January 31, 2003 skip section VIII and continue to section IX

Building Code:*

☐ ASCE 7-93, Minimum Design Loads for Buildings or Other Structures. The design conditions were:

Exposure Category:* ☐ B ☐ C ☐ D

Wind Speed (fast mile):*

☐ 95 mph (required for Inland I areas)

☐ 100 mph (required for Seaward areas)1 1 All exterior openings (exterior doors, windows, garage doors, and skylights) contain products that have been designed and

inspected for compliance with uniform static wind pressure requirements. (Applicable only to those projects which include the installation of exterior opening products.)

Protection of Exterior Openings:* ☐ The exterior glazed openings utilize products and installation methods that have been designed and inspected for compliance with windborne debris criteria adopted by the Texas Department of Insurance (required for those projects located in the Seaward area).

☐ The exterior glazed openings do not utilize products and installation methods that have been designed and inspected for compliance with windborne debris criteria adopted by the Texas Department of Insurance.

☐ N/A

☐ The Southern Standard Building code, as amended May 8, 1973 (applicable to structures in Inland II areas)

IX. PROJECTS THAT BEGAN ON OR AFTER FEBURARY 1, 2003

Building Code:*

For projects that commenced construction on or after February 1, 2003 – December 31, 2004:

☐ International Residential Code, 2000 Edition (Amended with Texas Revisions)

☐ International Building Code, 2000 Edition (Amended with Texas Revisions)

For projects that commenced construction on January 1, 2005 - December 31, 2007:

☐ International Residential Code, 2003 Edition (Amended with 2003 Texas Revisions)

☐ International Building Code, 2003 Edition (Amended with 2003 Texas Revisions)

For projects that commenced construction on or after January 1, 2008:

☐ International Residential Code, 2006 Edition (Amended with 2006 Texas Revisions)

☐ International Building Code, 2006 Edition (Amended with 2006 Texas Revisions)

Exposure Category:* ☐ B ☐ C ☐ D

Wind Speed (3-second gust):*

☐ 110 mph (Required for Inland II)

☐ 120 mph (Required for Inland I)

☐ 130 mph (Required for Seaward)

Protection of Exterior Openings:* ☐ Provided for as specified in the Texas Revision (required for projects located in the Inland I / Seaward areas).

☐ Not provided for as specified in the Texas Revisions (applicable to projects located in the Inland II area).

☐ N/A

Please remit completed form to [email protected]; Fax 512-899-4950

It is a state jail felony to prepare or cause to be prepared a statement containing false or misleading material information that is presented to an insurer in support of an application for an insurance policy with intent to deceive or defraud the insurer. TWIA reports all suspected insurance fraud to TDI.

mailto:[email protected]

11E. Communications Update


MEMORANDUM



FROM: Jennifer Armstrong, Vice President, Communications & Legislative Affairs

RE: Communications & Legislative Affairs Operational Highlights

I. House Bill 2439 Implementation a) Worked with an enterprise project team to implement the new windstorm certification

process required by House Bill (HB) 2439. b) Developed new webpages on TWIA.org with detailed content with plans to further refine

content by audience. c) Sent communications to the agent community announcing the change and referring them

to our website for more information about the requirements and changes.

II. Agent Advisory Group (AAG) Updates a) New AAG Nomination Process

• The AAG approved a new nomination process at the December quarterly meeting of the group.

• The new process allows members of the agent community to submit an application to be considered by the AAG when the terms of current AAG members expire. Applicants would be nominated by members of the group and submitted to the General Manager for review and possible appointment.

• Agents will be informed of their ability to apply for the AAG in the Q1 Agent Newswire, and completed applications will be provided to the AAG members for review prior to the expiration of current members’ terms in June 2017.

b) Policy Center Enhancements Focus Group • An agent technical group event to discuss and prioritize possible Policy Center

enhancements will be held on January 23, 2017.


• 15 agency staff from the AAG members’ offices have confirmed their attendance for the event which will be held at our office in Austin.

III. Claims Center Survey a) The Communications & Legislative Affairs Department is working with the Claims

Department to identify agents who have submitted claims through Claims Center in order to survey them about their experience using the new system.

b) Information gathered from the surveys may be used to develop communications or additional training needs as well as identify potential pain points with the system that need to be resolved prior to the hurricane/storm season.

IV. 2017 Hurricane Preparedness Campaign a) The Communications & Legislative Affairs Department is in the planning phase of the

annual Hurricane Preparedness Campaign which includes: • An educational packet for elementary school teachers with activities that align

with 3rd and 4th grade TEKS (State of Texas curriculum); • Coastal outreach visits that aim to inform policyholders and communities on

TWIA’s readiness and hurricane preparedness in general; • Advertising through local media outlets that bring awareness to the benefits of

hurricane preparedness.

V. Legislative Affairs a) Testified at hearings of the Senate Business & Commerce and House Insurance

Committees in October regarding TWIA’s implementation of legislation passed in the 84th Legislative Session.

b) Participated in 7 meetings in Q4 2016 with Legislators and/or legislative staff related to topics such as the Expert Panel, LEA Committee Recommendations and Constituent Inquiries. Details are included each month in the board reports.

c) Held Quarterly TWIA Board Meeting Materials Review with various legislative staff in November.

d) Received 16 legislative inquiries in Q4 2016 and 10 regulatory inquiries from OPIC and TDI.

e) Staff is in the process of scheduling and meeting with legislative staff to coincide with the beginning of the 85th Legislative Session.

16. Future Meetings May 10, 2017 – Hyatt Regency – Austin

August 1, 2017 – Tremont House – Galveston

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