Reinsurance News

Firm order terms for TWIA’s 2022 reinsurance renewal suggests ROL of 6.75%

18th May 2022 - Author: Luke Gallin

The Texas Windstorm Insurance Association (TWIA) looks set to pay more for its larger 2022 traditional reinsurance program, with firm-order-terms (FOT) for the renewal pointing to a rate-on-line (ROL) of 6.75%, according to its broker Gallagher Re.

TWIAYesterday, the board of the Texas insurer of last resort heard from representatives of its broker, who underlined the rising cost of reinsurance protection in a hardening marketplace.

As we wrote in early March, TWIA is seeking a larger $2.04 billion reinsurance program for the 2022 hurricane season at the upcoming renewals, which includes traditional reinsurance and in-force catastrophe bonds.

When compared with the 2021 renewal, TWIA is seeking to procure approximately $120 million more reinsurance for 2022 to offset rising exposures, with the coverage attaching at $2.2 billion, which is higher than last year, and running to $4.236 billion.

Within the tower, TWIA has $900 million of in-force cat bonds via its $400 million Alamo Re II Pte. Ltd. (Series 2020-1) deal and its $500 million Alamo Re Ltd. (Series 2021-1) transaction.

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Currently, the entity is in the market seeking a renewal of its maturing $200 million Alamo Re Ltd. (Series 2019-1) deal.

Addressing TWIA’s board, Gallagher Re executive, Allen Cashin, explained that there remains some favourable conditions in the reinsurance market for some buyers of protection, but warned that challenges persist and that years of elevated catastrophe losses are pushing reinsurers to shift their capacity around the market.

“Obviously, as you have cat losses come into the market, it affects price,” said Cashin.

He went on to note that the market is also seeing some bigger buyers of coverage, which includes some residual markets acquiring more reinsurance in 2022. On top of this, rising inflation is seen as a major headwind by reinsurers, which is leading buyers to require greater limits as they prepare to pay for higher losses driven by inflationary issues.

Gallagher Re’s representatives explained that the starting point for pricing discussions for TWIA’s 2022 renewal was the 5.25% rate-on-line secured across the 2021 reinsurance program FOT.

Documents show that from this starting point a number of additions are to be considered, such as year-on-year exposure changes, updates to models, an increase in the attachment point, inflation, and market conditions. Taking all of this into account gives an indicative program ROL of 6.82%.

But Gallagher Re has said that FOT for the 2022 traditional reinsurance renewal look set to come in at 6.75%, which is below what the financial modelling suggests.

Still, at 6.75%, this does represent an almost 29% year-on-year increase to the expected 2022 FOT, which isn’t too surprising given the larger program and the higher cost of reinsurance at this time.

Speaking on cost, Gallagher Re forecasts that TWIA’s final reinsurance expenditure for 2022 will be somewhere between $119 million and $120.5 million, across both traditional reinsurance and cat bonds, compared with the budgeted amount of $102 million for the 2021 renewal.

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