The Texas Windstorm Insurance Association (TWIA) has revealed that it will seek a $2.04 billion reinsurance program for the 2022 hurricane season at upcoming renewals.
TWIA’s projected reinsurance tower, minus the new attachment point and increased CRTF balance.
During a meeting yesterday, TWIA’s board voted to adopt a multi-model view of risk for the coming year, which includes a larger program of reinsurance coverage than the $1.93 billion it secured last year.
The Association is maintaining its risk transfer and reinsurance budget at $102.6 million for now, but the board acknowledged that this spend may also have to be increased in line with rising reinsurance rates.
What’s more, Gallagher Re, who TWIA recently opted to retain as its reinsurance broker, has warned that TWIA’s exposure is up 7% year-on-year, which will further increase the price of its desired reinsurance program.
TWIA introduced new catastrophe risk modelling services from Aon this year, although the board has voted to utilise an equal blend of models from RMS, Verisk (AIR), CoreLogic and Aon’s Impact Forecasting to inform its reinsurance purchase.
Additionally, the board adopted a motion to utilise the near term assumption view of risk when deriving a 1-in-100 year probable maximum loss figure to base their risk transfer purchases on.
And due to inflationary concerns, the 1-in-100 PML will include a 15% weighting for loss adjustment expenses and using the new expanded model blend, meaning that it amounts to $4.2363 billion for 2022.
Again, this figure is significantly up on the calculated 1-in-100 PML of $4.03 billion for 2021, which Guy Carpenter (now Gallagher Re) proposed to the board last year.
To meet this level of coverage, TWIA needs to obtain $2.0363 billion of reinsurance, excess the attachment point of its reinsurance tower, which is expected to be raised from $2.1 billion to $2.2 billion this year, using new funding for its Catastrophe Reserve Trust Fund (CRTF) that sits at the bottom of the tower.
Just under half of this figure will be accounted for by TWIA’s in-force catastrophe bonds, the $400 million Alamo Re II Pte. Ltd. (Series 2020-1) bond and the $500 million Alamo Re Ltd. (Series 2021-1) bond.
But the $200 million of Alamo Re Ltd. (Series 2019-1) cat bonds mature this year and so will need replacing in some form, while TWIA’s $830 million of traditional reinsurance will also need renewing.
This leaves TWIA looking to obtain around $1.1363 billion of reinsurance or catastophe bond protection for 2022.
Our ILS-focused sister publication, Artemis, contends that TWIA might opt to more than replace the maturing $200 million Alamo 2019 and make cat bonds a more significant component of its coverage, due to the rising costs of traditional reinsurance.
Details of all of TWIA’s catastrophe bonds to date, as well as every other catastrophe bond and ILS transaction since the market’s inception, can be viewed in the Artemis Deal Directory.
Although the Association has budgeted only $103 million for its reinsurance spend this year, the board did also yesterday discuss the option of maturing some traditional bonding to save money to be put towards reinsurance, with the possibility of the budget being able to stretch to as much as $117 million.
