The Texas Windstorm Insurance Association (TWIA) is looking to secure up to $5 billion of reinsurance protection ahead of the 2021 Atlantic hurricane season, through a combination of traditional reinsurance, catastrophe bonds, and statutory funding.
TWIA’s Board received a presentation from staff and reinsurance broker Guy Carpenter, and subsequently voted to establish the probable maximum loss (PML) for TWIA for a hurricane season with a probability of one-in-100, at $4.03 billion for 2021.
To meet this level of funding, the Board has directed staff to place a combination of catastrophe bonds and traditional reinsurance protection in an aggregate amount of $1.9 billion.
This is in excess of $2.1 billion in statutory funding, taking the 2021 hurricane season’s cat funding to just over $4 billion.
Additionally, the Board also voted for Guy Carpenter to provide it with pricing information on the procurement of a further $1 billion in reinsurance to bring TWIA’s total funding for the upcoming season to $5 billion.
“Statute requires that any additional reinsurance purchased to bring the Association’s funding above the 1:100 Probable Maximum Loss be paid for through assessments of the Association’s member companies,” explains TWIA.
For 2020, TWIA secured $2.1 billion of protection across both traditional reinsurance and catastrophe bonds transactions, taking total aggregate funding to $4.2 billion for the season.
The association has three catastrophe bond transactions that remain in-force; 2020’s $400 million Alamo Re II Pte. Ltd. (Series 2020-1) deal, the prior year’s $200 million Alamo Re Ltd. (Series 2019-1) transaction, and also the $400 million deal issued in 2018, Alamo Re Ltd. (Series 2018-1).
However, the 2018 deal is scheduled to mature this year, leaving TWIA with just $600 million of protection from the capital markets. Typically, TWIA’s cat bonds come to market in either May or June, and with conditions favourable for cat bond issuances, it’s likely the entity will return to market ahead of the hurricane season.