Earlier this week, Stuart Harbour, Chief Financial Officer (CFO) of the Texas Windstorm Insurance Association (TWIA), presented preliminary reinsurance projections to the Board, which show that the entity could purchase significantly more reinsurance protection for 2023.
According to the data, which is not an official budget but based on the output of modelling TWIA’s projected exposure into next year’s wind season and how the company might respond when it comes to acquiring needed protection, the firm is projecting that exposures in-force will continue to rise.
In fact, TWIA is projecting that its exposures in-force will increase by more than 25% through 2022 to more than $74.6 billion, with a further rise of 10.3% in 2023 also anticipated, to as much as $82.3 billion.
In contrast, TWIA’s exposures in-force at the end of 2021 stood at $59.5 billion. So, the rise in exposures is clear to see, and with the trend expected to persist through next year, it seems TWIA will be in need of greater protection than in the past, with reinsurance, both traditional and alternative (cat bonds), one of the options at its disposable.
As a result of the higher level of exposure, which again are preliminary figures based on modelling by TWIA’s service providers, CFO Harbour explained that the 100-year probable-maximum-loss (PML) for TWIA in 2023 could reach as high as $5.274 billion, while funding through debt, assessments, and the Catastrophe Reserve Trust Fund (CRTF) could rise to $2.28 billion together.
At this level, there would exist an almost $3 billion gap in funding that, typically, TWIA would fill with both traditional reinsurance and catastrophe bond transactions.
For the 2022 wind season, TWIA secured a little over $2 billion of reinsurance and cat bond coverage, so if these preliminary figures end up being accurate it would be a pretty significant year-on-year rise in protection for the association.
Harbour stressed that the modelled figures provided are only a starting point for assisting with budget preparations for 2023, noting that they are “extremely preliminary”.
“There’s a lot of things happening here, it’s a historically hard market that’s happening and it was challenging last year, actually and prices were up, as we’ve seen in our reinsurance in the current year,” said Harbour. “But now we’ve had all the different factors that come into play. We have hurricane Ian of course, we have higher interest rates which have an impact, because risk free capital is now available at 3% and 4% which will deter some people to invest elsewhere.”
Given that, in TWIA’s view, it’s a historically hard market, Harbour also explained that the early projections suggest a higher spend will be needed to secure the almost $3 billion in coverage. For 2022, TWIA’s reinsurance spend was nearly $131.4 million, but in order to obtain the ~$3 billion of protection for 2023, this could rise to more than $225.5 million.
Further, the rate-on-line could increase from the 6.45% of 2022’s reinsurance tower, to 7.6% for 2023, according to the projections.
