The document discusses hurricane risk in Texas and the ability of the Texas Windstorm Insurance Association (TWIA) to handle a major hurricane. It finds that TWIA does not have adequate funding to pay claims from a Category 4 hurricane striking Galveston or Corpus Christi. This could cause TWIA to become insolvent, resulting in unrepaired storm damage and the withdrawal of bank financing from the coastal region. This would severely damage the economy of the Texas coast and have broader negative impacts on the entire state economy.

1. David W. Crump
davcrump@yahoo.com

2. Texas Hurricane Risk: Summary
Hurricanes – Naturally Texas
Our climate history confirms it.
Probable Maximum Loss
A “real bad day” in Insurance jargon – what is Texas’s PML?
Texas Windstorm Insurance Association
An insecure insurance facility because it can’t handle a major
hurricane strike (Galveston or Corpus Christi).

3. Texas Hurricane Risk: Summary
Climate History : When not if
Past 160 years: Major Hurricane Strikes*
Galveston 8 (including Ike)
Corpus Christi 5
Brownsville 8
*Source: NOAA
Hurricane Ike 2008 -- a very powerful Category 2 hurricane with actual
damage in the range of a major hurricane

4. Texas Hurricane Risk: 2012
Hurricane Forecast 2012: Uncertain
El Nino? La Nina?
(Continued La Nina: 45% probability = more hurricanes)
Atlantic Warm Surface Water?
(“THC” – Atlantic thermohaline circulation / continued warmer = more hurricanes)
Texas Landfalls?

5. Texas Hurricane Risk: Where?
Return Period for a Major Hurricane strike:
Galveston = 20 years (if you count Hurricane Ike 2008)
Corpus Christi = 33 years (Celia 1970)
Beaumont = 35 years (Rita 2005)
Brownsville = 30 years (Allen 1980)

6. Texas Hurricane Risk: Cost?
Texas Hurricane Strikes
1900 – 2011
NOAA: US Top 30, Total Cost
Ranked by: 2010 Projected Cost In Billions
3. Galveston1900-D $104
4. Galveston 1915 $ 71
9. Ike (Cat 2+) 2008 $ 29
22. Carla 1961 $ 15
(ninth most intense hurricane to
ever strike the U.S.)
27. Rita 2005 $ 13
29. Celia 1970 $ 12
--- Indianola 1886 (Cat. 4) ?
(fifth most intense hurricane to
ever strike the U.S.)

7. Texas Hurricane Risk: TWIA
What is TWIA’s exposure to the next Major Hurricane?
Target In-Force Cat. 3 Cat. 4 Cat. 4
City Exposures 75% 75% Maximum
(P.M.L. )
Brownsville $5 billion $300 mil. $900 mil. $3.4 billion
Corpus Christi $15 billion $1.3 bil. $5.3 billion $14.7 billion
Galveston $38 billion $1.9 bil. $6.4 billion $14.5 billion
Model results per Texas Windstorm Insurance Association, December 2010.
Losses are modeled for target city and adjacent first tier counties
75% = 75 percentile modeled loss outcome. Modeled by the AIR CLASIC/2 v12.0 using historical
event rates, including loss amplification and excluding storm surge as of 12/31/2010.
Total in-force exposures is as of 12/31/2010
P.M.L = Probable Maximum Loss

8. Texas Hurricane Risk: TWIA
Does TWIA’s have the finances for the next Major Hurricane?
Target P.M.L. --- TWIA = Claim Payments
City Cat. 4 Funding Shortfall *
Brownsville $900 million $2.875 billion none
Corpus Christi $5.3 billion $2.875 billion $2.4 billion
Galveston $6.4 billion $2.875 billion $3.5 billion
P.M.L. = Probably Maximum Loss (75th percentile modeled loss exposure)
Losses are modeled for target city and adjacent first tier counties
TWIA funding: see next slide
* Re-insurance may be purchased to offset some of the shortfall for the 2012 hurricane season
($636 million after $1.6 billion losses was purchased for the 2011 hurricane season)

9. Texas Hurricane Risk: TWIA
What is TWIA’s Funding Structure?
1. Available CRTF Reserves = $275 Real Money - $375 Million
2. Expected Revenues = $100 million
3. Bonds to be paid by TWIA = $1 billion Debt to TWIA
4. Re-insurance for 2012 = ? ($636 million purchased (reduces available revenues next 14 years)
for 2011 hurricane season after $1.6 billion
deductible)
Spends “real money” but can
5. Bonds to be paid by 70% property insurance
surcharge / 30% property Insurer assessments be good trade-off. (2011 cost
= $1 billion $100 million)
6. Bonds to be paid by property insurer assessments
= $500 million
Debt service cost passed on
Total = $2.875 billion (no re-insurance) to either directly or indirectly to
$3.375 billion? (with re-insurance) Texas property insurance
policy holders.

10. Texas Hurricane Risk: TWIA
Strike One, TWIA’s Out!
Our climate history is not one storm and done.
Does TWIA have the financial structure to take a major hurricane strike and
then be ready for future storm strikes in a short time period?
Texas Hurricane Strikes by Decade:
1960’s – Carla 1961 (cat. 4, central ), Cindy 1963 (cat. 1, north), Beulah 1967 (cat. 5, NW Mexico, cat. 3
winds @ Brownsville)
1970’s – Celia 1970 (cat. 3, central), Edith 1971 (cat. 2, north), Fern 1971 (cat 1, Central)
1980’s – Allen 1980 (cat. 3, south), Alicia 1983 (cat. 3, north), Berry 1983 (cat. 1, south), Bonnie 1986 (cat.
1, north), Chantal 1989 (cat. 1, north), Jerry 1989 (cat. 1, north)
1990’s – Bret 1999 (cat. 3, south)
2000’s – Claudette 2003 (cat. 1, central), Rita 2005 (cat. 3, north), Humberto 2007 (cat. 1, north), Dolly 2008
(cat. 1, south), Ike 2008 (cat. 2+, north)

11. Texas Hurricane Risk: Storm of the 21st Century
Hurricane Rita 2005
Rita turned north and veered away from our “Texas Sweet Spot” (30 miles south of Galveston) just hours before landfall. A strike
just south of Galveston puts the most powerful NE quadrant of a hurricane on Galveston & Harris Counties.
Hurricane Rita Storm History:
September 7, 2005 – Disturbance originated from a tropical wave off African coast
September 18, 2005 – Tropical Depression forms near Grand Turk Island
September 18, 2005 – Becomes Tropical Storm Rita late in the day southeast of the
Bahamas
September 20, 2005 – Moving west near Key West, Florida becomes a category 1
hurricane then category 2 four short hours later.
September 21, 2005 – Moving west / northwest in the southeastern Gulf of
Mexico, Rita strengthens very quickly to category 5
September 22-23, 2005 – Directly on track for
Galveston as category 4 hurricane
September 24, 2005 – Unexpectedly shifted northward with landfall as a large
category 3 hurricane near Sabine Pass

12. Texas Hurricane Risk: Dominoes
A Real Bad Day for TWIA – a major hurricane strike on either Galveston or Corpus
Christi causes claims well beyond the current funding level
Ugly Outcome for Property Owners at strike location – many TWIA
claims for wind damage are not paid / damaged buildings not repaired
Default for Mortgage Banks – damaged houses and businesses are abandoned to bank
foreclosure / banks lose hundreds of millions on damaged collateral
Disaster for the entire TWIA service area (whole Texas coast) –
banks withdraw from offering loans for houses and businesses insured by TWIA
Consequential Damage to the Entire Texas Economy –
A main driver of the Texas economy, our coastal region stalls due to lack of bank mortgage loans.
Recovery of the storm impact area is substantially delayed. The entire Texas economy is highly dependent
on the seaports, petro-chemical, transportation and other industries based in the TWIA service area.

13. Texas Hurricane Risk: How to Pay?
Five Ways to Pay for Hurricanes:
(Note: It is how we pay --- not, if we pay)
1. Pay in Advance – Insurance Surplus, Re-insurance
2. Pay When it Happens – Emergency Assessments
3. Pay After it Happens – Post-Event Bonds
4. Pay Over Time – Pre-Event Bonds
5. Economic Damage – Direct and In-direct Costs to overall Economy (claims not paid)

14. Texas Hurricane Risk: Texas is Not Safe!
Our coastal residents and the Texas economy is not safe without
adequate funding of our coastal hurricane risk.
The Texas Windstorm Insurance Association is not a secure insurance facility until it can at least handle the
probable maximum loss of a Category 4 hurricane strike on either Galveston or Corpus Christi. An
insolvent TWIA will severely damage the economy of the region it serves as bank mortgage financing
will become unavailable and storm damage will not be repaired. Major consequential damage to the entire
Texas economy will result due to a stalled economy in the important coastal region.