April 15, 2011 RECEIVED APR 15, Via Hand Delivery aon Jamie Walker, CFT Financial, Gen Momt Assistant Chief Examiner Toros Nepectme st once ‘Texas Department of Insurance 333 Guadalupe Street Austin, Texas 78701 Re: Texas Windstorm Insurance Association (Association) — Examination as of February 23, 2011 by John Sedgwick, Examiner Dear Ms. Walker: This letter responds to your April 1, 2011 letter transmitting the final examination report (Final Report) of the Association as of February 23, 2011, ‘The Board of Directors reviewed the Final Report at its board meeting on April 13, 2011, and we suggest some factual corrections to the report, The fourth bullet point on page 5 of the Final Report was not a part of the resolutions adopted by the board of directors. Further, the Feport states incorrectly that “(These resolutions were ultimately nor adopted by the board)”, ‘emphasis added. The resolutions were adopted by the board of directors at its February 28, 2011 meeting and the minutes containing such resolutions were approved at its March 22, 2011 board meeting. A copy of the signed minutes from the February 28, 2011 meeting is enclosed, Staff at the Association has presented its disagreement with the Texas Department of Insurance's (Department) assertion in the Final Report that the Association did not report to the Department reasonably suspected fraudulent acts within 30 days. Association staff has concluded that an appeal of the Final Report would not constitute a productive use of the Association’s resources. Therefore, no appeal will be filed. However, the Association attaches and incorporates by this reference copies of its prior written comments to Department staff originally submitted in response to the draft of the Final Report. The Association reserves allrights to dispute any matter asserted in the Final Report in any forum and does not waive any ddofense or right with regard to matters in the Final Report. Your letter requests a written response to advise you of the corrective actions taken with respect to the Department's assertion that the Association did not timely report reasonably suspected fraud. While the Association does not agree with the Department's assertion, the procedure for appropriate fraud analysis and reporting is being reviewed. Sincerely, he Moke Mike Gerik, ChairmanL exes Windstorm insurance Association MINUTES OF THE TWIA. BOARD OF DIRECTORS’ MEETING February 28, 2011 Teleconference Austin, TX Call to Order Chairman Kaufman called the meeting to order at 2:00 p.m. Board members were provided with a copy of the anti-trust statement and reminded of the prohibitions in the anti-trust statement by counsel ‘The following Board members were present, representing: Garry Kaufman, Chairman First Tier Coastal County Resident Member Alice Gannon Insurance Industry Representative Michael Gerik, Secretary/Treasurer Insurance Industry Representative Bob Shepard First Tier Coastal County Resident Member Peter Kelly Insurance Industry Representative Cliff Craig Non-Seacoast Territory Representative Member Georgia Neblett, Vice Chairman First Tier Coastal County Resident Member Craig Nadziejka Insurance Industry Representative Joseph Minor First Tier Coastal County Resident Member David Franklin Non-Voting Engineer Member ‘The following TWIA staff and counsel were present: 2. 3. 4 James Oliver, General Manager TWIA David Weber, Vice President - Legal TWIA Mike Perkins, General Counsel Sneed, Vine & Perry, PC Kasi Moeskau, General Counsel Sneed, Vine & Perry, PC Imminent administrative oversight or other intervention by the Texas Department of Insurance: Chairman Kaufiman asked Mr. Perkins to provide the board with a general overview of the administrative oversight process Mr. Perkins described the administrative oversight process and indicated that, it is sometimes referred to as “supervision lite.” Mr. Perkins stated that administrative oversight is typically intended to be a temporary condition and can be a positive tool used by the department to assist an insurer in restoring the confidence of the commissioner and his staff. Mr. Nadziejka asked about the criteria for placing a company in administrative oversight. Mr. Perkins responded that the Commissioner uses the same authority that he would use to place a company in supervision. Mr. Gerik asked if the administrative oversight condition changed the board’s authority. Mr. Perkins responded thatTWIA Board Meeting 2/28/11 Vv. the oversight status was not intended to change the board's authority or responsibilities. Mr. Oliver reported that he met briefly with staff from the Department regarding the administrative oversight. [argeted examination by the Texas Department of Insurance focusing on “information maintained by TWIA regarding the employment, performance, and termination and/or resignation of Reggie Warren and Bill Knarr, as well as inporoniate unaofessional or unethical conduct that may have led he resignatic ination or separation of any wil vel, title or responsibilities commensurate of ‘vice president "" Mr. *Rautinan stated that copies of the letter regarding the targeted examination were available for the public and that TWIA has and will continue to fully cooperate with the Department during the examination. Closed Session: At 2:17 p.m. Chairman Kaufman convened the Board into executive session pursuant to Section 551.071 of the Texas Government Code to consult with legal counsel and to discuss personnel issues pursuant to Section 551.074 of the Texas Government Code. At approximately 6:15 p.m. the Board moved back into open session, Consideration of issues related to matters deliberated in closed session that may require action, if any, of the Board of Directors. Ms. Neblett made the following resolution: Resolved, that the staff at the Association is hereby directed that no type of in- kind payments will be made to employees of the Association as a part of a severance package and that the Board instructs the TWIA staff to fully cooperate with the Texas Department of Insurance and its staff in connection with its administrative oversight of the Association and the target examination being conducted by the Department. The resolution was seconded by Mr. Craig. The resolution was unanimously approved Ms. Gannon made the following resolution: Resolved, that the TWIA staff draft a proposal for review by the Board at the March quarterly meeting to establish a committee composed of board members to conduct or hire a consultant to conduct an investigation of claims handling practices of TWIA including the issues raised in the Department's February 23, 2011 letter commencing its target examination. Chairman Kaufman and Mr. Shepard, who are both coastal insurance agents, stated that because some of their customers’ claims were included in the claims under review they would recuse themselves for the vote. Chairman Kaufman and Mr. Shepard withdrew from the meeting and left the room. TheTWIA Board Meeting 2/28/11 Vi resolution was seconded by Mr. Craig. The resolution passed unanimously. Chairman Kaufman and Mr. Shepard returned to the meeting. Mr. Gerik made the following resolution: Resolved, that the Board hereby delegates to the Executive Committee the duty of creating and implementing a transition plan that will ultimately result in the hiring of a new General Manager of the Association. The Board requests that the Chairman work with Mr. Oliver and other staff to prepare recommendations for consideration by the Executive Committee at a public meeting noticed in accordance with applicable law and the Association’s plan of operation, Further resolved, that there will be no change in Mr. Oliver’s status or duties at this time. Further resolved, that due to the importance and urgency of these matters the Board directs that the actions authorized and required by these resolutions be taken as quickly as possible. Mr. Kelley seconded the resolution. The resolution passed unanimously. Adjoum, There being no further business, the meeting was adjoumed at 6:22 p.m. Approved by: Michael Gerik TWIA Secretary/TreasurerMEMORANDUM DATE: March 14, 2011 TO: John Sedgwick Examiner-in-Charge TDI FROM: ——_ James W. Oliver RE: General Manager Examination of Texas Windstorm Insurance Association as of February 23,2011 Tam writing in reference to your March 10, 2011 memorandum. I am returning the “company acknowledgement” with a request to participate in an exit conference, 1 offer the following dissenting 1. WS: (On page three, section titled, “Separation of Employment of Catastrophe Office Manager and Vice President, Claims”, in the first sentence it says, “Mr. Oliver stated that he was told on December 23, 2010". In fact, the conversation with the claims supervisor occurred on December 22, 2010. Please correct the date. ‘TDI examiner-in-charge, Jackie Yarbrough, asked me to sign a letter of representation affirming that all information requested during the examination had been provided. I am attaching a copy of that letter. I told Ms. Yarbrough that I could not sign any document when I did not see the information to which the document refers. Please refer to bullet points two and four. I do not know what Ms, Yarbrough and/or anyone else at TDI wrote down when they were talking with me. If I am able to review items that were written down and verify that they are correct, then 1 would sign the document, I do not believe that you should ask anyone to sign a document without reviewing the information to which the document refers. 1 do not agree that the Association did not report to the Department “reasonably suspected fraudulent acts within 30 days”. We did not believe that the information brought to our attention was sufficiently strong to warrant an immediate report of suspected fraud so we determined to first conduct an investigation, We sought the advice and counsel of more than one attorney to ensure that we were on the right course and to make sure that this was the correct course. Once we had a draft of the third-party report, which indicated that there was a possibility of fraud, we reported it. This report was within the 30-day requirement. TWIA staff and our attorneys did not feel that it was reasonable to presume possible fraud until we had verification from a third party ion ox $9090, Austin, Texas ‘Texas Windstorm Insurance Associ ‘5700 South MoPa Expressway, Building E, Sot 530, Austin, Texas 7789 s12-890-4000| 709.9080Please let us know as soon as possible when the exit conference is schedule. Attachment ce: M. Gerik G. Kaufman G. Neblett ‘Texas Windstorm Insurance Association 5700 South MoPae Expressway, Building E, Suite $30, Austi, Texas 78749 « P.O Box 90H), Aestin, Texas 78709-9090, 2599-490 Fy $12-899-4950,