The Board of the Texas Windstorm Insurance Association (TWIA) recently voted in favour of the Actuarial and Underwriting Committee’s recommendation to set the 1-in-100 year PML for the 2024 storm season at $6.5 billion.
We wrote last week that the Committee voted to recommend the Board uses a 75% / 25% blend of RMS and AIR catastrophe models, resulting in a base 1-in-100 year PML of $5.67 billion, rising to $6.5 billion after a 15% adjustment for loss adjustment expenses (LAE).
As part of today’s meeting of the Board of Directors, reinsurance procurement for the 2024 storm season was debated as the Board looked to determine the 1-in-100 year PML.
The Board voted in favour, eight for and one against, setting the 1-in-100 year PML at the $6.5 billion level, which as we reported previously, means TWIA will need to purchase as much as $4 billion in limit across traditional reinsurance and catastrophe bonds.
In comparison, including LAE, TWIA’s 2023 1-in-100 year PML stood at $4.5 billion, with TWIA securing around $2.238 billion of reinsurance and cat bond risk transfer for the 2023 wind season.
The significant rise in the 1-in-100 year PML is a result of continued exposure growth at TWIA, with the association adding over 25,000 policies in the past 12 months alone, while the total insured value of the properties it covers has risen by more than 26%.
So, as a result of the higher 1-in-100 year PML on the back of the exposure growth and selected cat risk model blend, TWIA looks set to be in the market for roughly 81% more reinsurance limit for the upcoming season when compared with last year.
Of course, the reinsurance market is still firm, and while rate rises at 1.1 2024 were less dramatic than a year earlier, they did still rise in many areas and this trend is expected to persist at the mid-year renewals.
This, combined with the fact it is buying more reinsurance, means that TWIA’s reinsurance spend is poised to rise this year.
During the meeting, it was confirmed that during discussions with TWIA’s reinsurance broker, Gallagher Re, the cost of securing reinsurance limit to the $6.5 billion PML would be in the $400 million range, which is notably above the placeholder budgeted figure of $298 million.
