Policies in-force at the Texas Windstorm Insurance Association (TWIA) continue to rise, and combined with inflationary effects pushing up exposed values, the insurer of last resort might look to secure a 65.7% increase in reinsurance limit for 2024.
In December, we reported that TWIA had been advised to commence the planning and purchase of its reinsurance as soon as possible, with projections pointing to as much as $3.3 billion being needed for 2024, up by approximately $1 billion on 2023.
The $3.3 billion in limit required was based on a higher 1-in-100 year PML due to both exposure growth and model changes.
Now, though, modelling from broker Aon, using a comparable model, suggests that as a result of ongoing exposure growth and inflationary impacts, the 1-in-100 year PML for TWIA of $3.92 billion in 2023 has risen to as much as $5.331 billion for 2024.
Add to this a 15% adjustment for loss adjustment expenses and the 2024 PML hits $6.13 billion, which is 36% higher than 2023’s $4.5 billion.
For 2023, TWIA’s reinsurance program consisted of $2.2 billion of reinsurance limit, with catastrophe bonds accounting for $1.2 billion of this and the remainder coming from traditional reinsurance.
For this year, if purchasing on the same basis, the projection is that TWIA could need to obtain nearly $3.7 billion of reinsurance limit. This is with a 7% rise in the attachment for the 2024 program as other funding supports that increasing to $2.44 billion from $2.28 billion last year.
It’s understood that these figures will be presented to TWIA’s Actuarial Committee, with its recommendation then being taken to the Board. So, it’s worth noting that a different model, or number, could be chosen for the targeted level of reinsurance limit that is needed for 2024.
But, if TWIA’s board opts for comparable modelling for how the PML and reinsurance limit required was set in 2023, then it seems as though the insurer may have to target almost $3.7 billion of reinsurance, across its traditional reinsurance and catastrophe bonds for 2024.
