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Abbott: State Has No Obligation to Aid TWIA Financially

In an opinion issued this week, Attorney General Greg Abbott says the state is under no legal obligation to help cover any potential shortfall faced by the Texas Windstorm Insurance Association.

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If the financially troubled Texas Windstorm Insurance Association’s reserves fall short of its obligations for storm damage, it can’t count on the state to come to its rescue.

Responding to an inquiry by state Rep. John Smithee, R-Amarillo, Attorney General Greg Abbott declared this week that the state has no legal obligation to pay for any storm damage incurred by TWIA policyholders if the agency runs out of money to pay out its claims.

In his opinion, Abbott said that when the Legislature created TWIA — the insurance provider for coastal residents who cannot get insurance elsewhere — it mandated that TWIA make payments on insurance claims from revenue generated by the agency.

“The Legislature has decided, however, that that a public security issued under chapter 2210 ‘is not a debt of this state or any state agency or political subdivision of this state and does not constitute a pledge of faith and credit to this state,'” Abbott said.

Abbott also said the Texas Constitution prohibits creating state debt without voter approval.

If TWIA’s obligations exceed its reserves, it could sell $1.5 billion bonds to help pay off claims. Sen. Larry Taylor, R-Friendswood, an insurance agent, said that policyholders would eventually get their claims filled  — it just might take some time.

"It's going to be a lot slower as far as claims being paid," Taylor said. "I have no doubt that at the end of the day we would get it taken care of, but it would take a little longer." 

TWIA, which currently has $500 million in its coffers to cover hurricane damage, earned $321 million in premiums in 2012. Overall, it has issued more than $74 billion in insurance policies to Texans, according to a report at its June meeting.

TWIA is currently trying to build up its storm reserves to $3.45 billion, but it is unclear whether the agency will have that on hand if a storm hits this hurricane season. It is currently trying to gain approval from Texas Insurance Commissioner Julia Rathgeber to take out a $500 million loan to reach this goal. Rathgeber upheld a previous ruling denying TWIA’s request but said she would reconsider if the agency could demonstrate its financial situation had improved.

Policyholders claimed $2.7 billion in damages from Hurricane Ike in 2008, putting the agency $183 million in the negative. TWIA is still dealing with Hurricane Ike claims.

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