2015 Annual Report Card John W. Polak, CPCU June 1, 2015 June 1, 2015 The Honorable Greg Abbott Governor The Honorable Dan Patrick Lieutenant Governor The Honorable Joe Straus Speaker, Texas House of Representatives The Honorable Kevin Eltife, Chair, and Members of the Senate Committee on Business & Commerce The Honorable John Frullo, Chair, and Members of the House Committee on Insurance Members, Windstorm Insurance Legislative Oversight Board The Honorable David Mattax Commissioner of Insurance RE: Annual Report Pursuant to Tex. Ins. Code, Section 2210.107(c) House Bill 3 (HB3), enacted by the 82nd Texas Legislature, First Called Session, became effective on September 28, 2011, modifying various aspects of the operations of the Texas Windstorm Insurance Association (TWIA or the Association). Pursuant to Tex. Ins. Code, Section 2210.107(c), please find the Annual Report for the 12-month period immediately preceding the date of this report evaluating the extent to which the Association has met the objectives described by Section 2210.107(a). The Annual Report focuses on those changes directly related to the objectives. The primary objectives of the TWIA Board of Directors are to ensure that the Board and TWIA: (1) operate in accordance with this chapter, the plan of operation, and commissioner rules; (2) comply with sound insurance principles; (3) meet all standards imposed under this chapter; (4) establish a code of conduct and performance standards for Association employees and persons with which the Association contracts; and (5) establish, and adhere to terms of, an annual evaluation of Association management necessary to achieve the statutory purpose, Board objectives, and any performance or enterprise risk management objectives established by the Board. The Annual Report is organized into the following sections: (1) Executive Summary; (2) State of the Association; and (3) Statutory Compliance. The Executive Summary highlights TWIA’s actions within the reporting period to comply in all areas of finances, operations, and governance. The State of the Association provides the bigger picture of the Association’s transformation since 2011 and its current state of affairs. Finally, the Statutory Compliance section expounds upon each required area of compliance, in order of the statutory reference to 2 | Page TWIA Annual Report Card June 1, 2015 which the subject matter relates. The Association believes it is in full material compliance with all current standards of performance outlined in each of the following sections. This is the fourth annual report card to be issued by TWIA since the enactment of HB 3. Should you have any questions, please feel free to contact me at (512) 899-4949. Sincerely, John W. Polak, CPCU General Manager 3 | Page TWIA Annual Report Card June 1, 2015 Table of Contents Executive Summary.............................................................................................................................................. 6 State of the Association ....................................................................................................................................... 8 History and Regulatory Changes ................................................................................................................ 8 Post-HB 3 Improvements .............................................................................................................................. 9 Leadership ...................................................................................................................................................... 9 Operational Improvements ....................................................................................................................... 12 Claims ............................................................................................................................................................. 12 Underwriting ............................................................................................................................................... 13 Other Areas .................................................................................................................................................. 15 Audit Results ................................................................................................................................................... 16 Biennial Report to the Legislature .............................................................................................................. 19 Insurable Property and Coverage Requirements .................................................................................. 19 Business Segmentation ............................................................................................................................... 19 Risk Visualization .......................................................................................................................................... 20 Quality Assurance & Training ................................................................................................................... 21 Agent Audit Process ..................................................................................................................................... 21 Rulemaking Authority ...................................................................................................................................... 22 Depopulation ....................................................................................................................................................... 22 Voluntary Coastal Windstorm Insurance Portal ............................................................................... 22 Depopulation Process .................................................................................................................................. 23 Standards of Conduct ....................................................................................................................................... 24 Ethics & Conflicts of Interest Policy ....................................................................................................... 24 Ethics Training & Initiatives ..................................................................................................................... 24 Fraud Reporting ............................................................................................................................................. 26 Special Investigations Unit/Fraud Abatement .............................................................................. 26 Whistleblower Policy ............................................................................................................................... 27 Annual Statement ............................................................................................................................................... 27 Examination of Association ............................................................................................................................ 27 4 | Page TWIA Annual Report Card June 1, 2015 State Auditor’s Office Examination ............................................................................................................. 27 Compensation and Bonuses ........................................................................................................................... 28 Catastrophe Funding ........................................................................................................................................ 28 Current Funding ............................................................................................................................................ 28 SB 900 ................................................................................................................................................................ 30 Board Composition ............................................................................................................................................ 31 Current Composition ................................................................................................................................... 31 SB 900 Composition ..................................................................................................................................... 32 Open Meetings Act ............................................................................................................................................. 32 Primary Board Objectives Reports .............................................................................................................. 33 Public Information Act ..................................................................................................................................... 33 Plan of Operation ............................................................................................................................................... 34 Policy Issuance .................................................................................................................................................... 35 Compliance with Building Codes ................................................................................................................. 35 Rates ........................................................................................................................................................................ 36 Catastrophe