Hurricane Activity (2004-2008)
Homeowners rates in Texas as well as all coastal states were adversely affected by major hurricane activity in 2004-2005. Four hurricanes made landfall in Florida in 2004, and Hurricanes Katrina and Rita struck Louisiana and Texas respectively in 2005. While the insurance industry has built-in capacity to handle occasional hurricanes, this unusual concentration of severe storm activity resulted in significant upward pressure on homeowners rates, primarily due to increased costs for reinsurance, building materials, and significant readjustments to catastrophe models. This effect was exacerbated especially in Texas by Hurricane Dolly in July 2008 and Hurricane Ike, the largest recorded storm in Texas history, in September 2008. As a result, much of the rate relief achieved through legislative reform and regulatory action under the new system has been offset by weather-related market forces (see Exhibit 1). Nevertheless, rate increases in Texas are far below the pace of increases in other states (and other Gulf coast states in particular).