The Actuarial and Underwriting Committee of the Texas Windstorm Insurance Association (TWIA) has recommended that the Board sets the 2024 1-in-100 year PML at $6.5 billion, meaning TWIA could need to purchase even more reinsurance limit for the upcoming storm season.
At yesterday’s meeting, the Actuarial and Underwriting Committee voted unanimously to recommend that the 1-in-100 year PML be increased by $2 billion over 2023’s $4.5 billion amid continued exposure growth at the insurer of last resort.
Over the past 12 months, TWIA has added over 25,000 policies and the total insured value of the properties it covers has risen by more than 26%.
We reported earlier this week that TWIA could look to secure 66% more reinsurance limit for 2024 as modelling from Aon suggested that the Association’s 1-in-100 year PML for 2024 had risen to $5.331 billion for the year, increasing to $6.13 billion with the addition of a 15% adjustment for loss adjustment expenses, meaning up to $3.7 billion of reinsurance limit needed for 2024.
However, at yesterday’s meeting, the Committee voted to recommend the Board uses a 75% / 25% blend of RMS and AIR catastrophe models, which results in a base 1-in-100 year PML of $5.67 billion, increasing to $6.5 billion with the inclusion of a 15% factor for loss adjustment expenses.
It’s important to note that TWIA’s traditional reinsurance and catastrophe bonds are expected to attach a little bit higher this year, with funding of around $450 million expected from the Catastrophe Reserve Trust Fund (CRTF) helping to lift it.
This is expected to lift the attachment point by around 7% to $2.44 billion for 2024, compared with $2.28 billion last year.
What this all means is that if TWIA were to secure its reinsurance and catastrophe bond risk transfer up to the recommended PML of $6.5 billion, more than $4 billion of new limit will need to be secured for the 2024 storm season.
This recommendation does go to the Board of TWIA in the near future, so it’s important to remember that the Board could opt for a different model blend, or PML figure for the target, meaning the level of reinsurance limit needed could change.
In 2023, the Board did change the Committee’s recommendation and lowered the PML. But if the Board sticks with the Committee’s recommendation, then TWIA will look to secure around $4.06 billion of reinsurance, across its traditional reinsurance tower and cat bonds for 2024.
This would be quite a change from last year when TWIA 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.
