September 13, 2013

TDI Issues Notice of Hearing to Set Guaranty Assessment Recoupment Charge

The Texas Department of Insurance (TDI) published notice today in the Texas Register for a hearing to take place on Nov. 15, 2013. The purpose of the hearing is to set the amount to be charged for a guaranty assessment recoupment fee in connection with the failure of Southern Title Guaranty Company.

Earlier this year, the Texas Title Insurance Guaranty Association (TTIGA) assessed Texas underwriters an amount based on estimates of the total claims liability of Southern Title, a regional underwriter that was licensed to do business for several years in Texas and later declared bankruptcy. This assessment is essentially a loan from the underwriters to TTIGA to provide funds to pay the claims of the failed underwriter. There is a mechanism in place, both in statute (Sec. 2602.210) and in regulation in P-30, for the underwriters to recoup these funds that have been assessed.

The original amount Texas underwriters were assessed, on a pro-rata share based on premiums written in the previous year, was approximately $8 million. However, the TTIGA Board of Directors recently voted to lower the assessment based on more recent estimates of claims that will need to be paid in the short-term, and some $5.5 million has been refunded to the contributing underwriters. This leaves approximately $2.5 million that is the subject of the recoupment charge hearing.

Once the amount of the assessment recoupment charge is established through this hearing process and an effective date has been set, title agents will be required to collect this fee, charged to consumers on each policy, and render it quarterly to TTIGA, in a similar manner to the current “Guaranty Fee.” This process was carried out once before in the early 1990s in connection with the failure of Title USA.

It is important to note that the statute allows for the guaranty assessment recoupment fee to be charged for one year, in the subsequent year after the assessment. If there are additional assessments on the underwriters by TTIGA, which is certainly possible if they are needed to cover more Southern Title claims, a separate hearing and recoupment fee process will occur and another fee will be established to be charged in a subsequent year. Also, remaining amounts not recouped through this assessment recoupment charge process can be reimbursed to the contributing underwriters through a premium tax credit over a longer period of time.  

The public policy goal of the statute establishing this process is to insure that consumers are able to have their title policies honored, even in the event of an underwriter insolvency. It is another reason why Texas has one of the strongest and best title products in the nation, providing consumers maximum protection.

Rest assured that TLTA will keep you informed throughout this process, and provide all the information needed for you to comply once this new assessment recoupment charge is established and an effective date set.

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