Reinsurance News

TWIA forgoes extra $1bn of reinsurance, looks to expand cat bond

19th May 2021 - Author: Matt Sheehan

The Texas Windstorm Insurance Association (TWIA) has decided not to pursue an additional $1 billion of reinsurance that would have brought its total aggregate coverage for the 2021 season to $5 billion.

TWIAIts Board will continue to seek the planned $1.9 billion of reinsurance protection at renewal this year, which, in excess of $2.1 billion in statutory funding, would take the 2021 hurricane season’s catastrophe funding to just over $4 billion.

However, executive suggested that TWIA may also look to expand its existing Alamo Re Ltd. (Series 2021-1) cat bond to fund the program, depending on pricing conditions.

Earlier this year, the Association 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 be paid for through assessments of its member companies.

TWIA also asked broker Guy Carpenter to provide it with pricing information on the procurement of a further $1 billion in reinsurance, which would have been to the 1:183 year aggregate loss level, but has now said it feels that member assessments were not warranted to protect TWIA to a significantly higher level.

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Had TWIA decided to target this additional coverage in 2021, it would have amounted to an additional $970 million layer, attaching at $4.03 billion and exhausting at $5 billion in the funding tower, with an estimated premium cost of $30 million to $35 million.

This would have involved a mix of cat bonds and traditional reinsurance again, staff said today, and had it been approved TWIA would have aimed to include a second Alamo Re catastrophe bond for 2021.

Currently, TWIA’s Alamo Re 2021-1 cat bond is sized at $250 million, but the Associations reinsurance for 2021 also includes its Alamo Re II Pte. Ltd. (Series 2020-1) and Alamo Re Ltd. (Series 2019-1) bonds.

Together, this amounts to at least $850 million of reinsurance from the capital markets, so TWIA could potentially be seeking $1.08 billion of traditional reinsurance, but this figure will decrease if it opts to expand the Alamo Re 2021-1 bond.

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.

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