In light of the hardening reinsurance market environment, insurance and reinsurance broker Gallagher has called on the Texas Windstorm Insurance Association (TWIA) to begin its reinsurance planning and buying as soon as possible.
TWIA’s Board meeting is scheduled for today, during which management will discuss the company’s 2023 reinsurance programme amid a firming marketplace, with action / vote on a draft resolution likely.
Meeting materials show that James Murphy, Chief Actuary, Vice President, Enterprise Analytics at TWIA, wrote to David Durden, General Manager of TWIA, in late November regarding the entity’s reinsurance renewal.
He notes that staff have been working closely with Gallagher Re, TWIA’s reinsurance broker and Gallagher Securities, which works on catastrophe bonds, in preparation for the upcoming reinsurance placement.
Gallagher has been asked to present information at today’s Board meeting regarding conditions in the reinsurance market, the impact on both price and capacity, as well as additional reinsurance options such as parametric and industry loss-weighted coverage.
“Given the hardening market conditions, Gallagher is recommending that the reinsurance planning and purchasing process begin as soon as possible. To that end, they recommend the TWIA board meet to set the 1:100 probable maximum loss amount in advance of its regular February meeting and authorize commencement of the reinsurance placement process at the December 13 meeting, at least in terms of a catastrophe bond transaction to replace the expiring 2020 Alamo Re bonds a few months early,” reads the memorandum.
The following resolution has been drafted to assist the Board in the event they agree with the recommendations presented by Gallagher at today’s meeting:
“Resolved, that TWIA staff is authorized and directed to engage Gallagher securities and others as recommended by the broker to begin the process of placement of the June 1, 2023 – May 31, 2024 reinsurance program and to work with the Board members to set out an Interim Board meeting in January to further move the process along by selecting the annual 1:100 probable maximum loss as required by law. Staff is also authorized and directed to move forward to seek to replace expiring catastrophe bonds early using a replacement transaction as presented to the board by Gallagher representatives.”
Currently, TWIA has three catastrophe bond transactions in-force, providing it with USD 1.1 billion of protection against Texas named storms and severe thunderstorms. One of these, the USD 400 million Alamo Re II Pte. Ltd. (2020-1) deal, is set to mature in June 2023.
It’s clear from the meeting materials that the TWIA board will be asked to adopt the draft resolution above, which includes the renewal of this expiring cat bond transaction and the planning and buying of reinsurance from the traditional market.
As we wrote in November, TWIA’s projected exposure into next year’s wind season suggests it will need to purchase more reinsurance than in the past, potentially up to the USD 3 billion mark.
For 2022, the firm secured just over USD 2 billion in reinsurance, of which USD 1.1 billion was from the catastrophe bond market.
It’s expected to be a late and challenging reinsurance renewals on the back of another year of elevated losses, so the advice from Gallagher for TWIA to get out into market as soon as possible, to both procure its traditional reinsurance and renew its maturing cat bonds, is at the very least, sensible.
Update: At TWIA’s Board meeting, which is ongoing, the above draft resolution was approved by the Board, with TWIA set to get out in the market as soon as possible to commence its reinsurance renewal and the issuance of a new catastrophe bond to replace the expiring Alamo deal.
