The Texas Windstorm Insurance Association (TWIA) has commenced discussions with its reinsurance partners as it looks to secure up to $2.92 billion in coverage for the upcoming storm season, across traditional reinsurance and catastrophe bonds.
During a board meeting held yesterday, Jim Murphy, Chief Actuary, said that TWIA’s “begun setting up meetings to discuss with reinsurers, our plans for the reinsurance renewal this season.”
As well as an overview of TWIA’s financial statements and department operational reports, the board clarified the direction made at the January 19th meeting, when it voted to establish TWIA’s 1:100 probable maximum loss (PML) for the 2023 storm season at $4.5 billion, including LAE.
At the meeting on January 19th, TWIA’s board also agreed for Gallagher Re, its reinsurance broker, to get quotes on a further $700 million to potentially take its claims paying capacity to $5.2 billion for the year.
Currently, TWIA has $1.1 billion of in-force catastrophe bonds, although $400 million of that is scheduled to mature before the start of the 2023 storm season.
“We’ve begun work in issuing a replacement catastrophe bond, to replace the expiring cat bond,” Murphy explained yesterday.
The plan is for the new catastrophe bond for 2023 to sit alongside TWIA’s existing cat bonds and traditional reinsurance.
With a stated retention target of $2.265 billion of statutory capital, the Association needs to secure a minimum of $2.243 billion of reinsurance and cat bond coverage to run through 2023 at the 1:100 PML.
Remember that $700 million of cat bond protection will remain in-force for the upcoming storm season, meaning that TWIA will need to purchase roughly $1.543 billion of traditional reinsurance and new cat bonds for 2023 just to get to the $4.5 billion 1:100 PML level.
TWIA will look to secure its reinsurance and cat bond protection in the most cost-effective mix, so it could be that the new cat bond ends up being larger than the $400 million deal maturing, depending on how conducive the marketplace is, and how expensive traditional reinsurance coverage might be in light of the hard market environment.