The Texas Windstorm Insurance Association’s (TWIA) Actuarial & Underwriting Committee met yesterday to recommend the Board set $5.244 billion as the entity’s 1-in-100 probable maximum loss (PML) for the upcoming storm season, which suggests that TWIA could end up buying some 46% more in reinsurance limit for 2023.
Following a presentation from risk modelling experts at Aon, the Committee agreed to take a recommendation to its Board, which will drive its minimum statutory funding and risk transfer needs for the year ahead.
The Committee recommended that for 2023, only the AIR and RMS risk models be considered for setting the PML, with a 50% / 50% weighting for each. Further, the Committee shifted its recommendation to using long-term assumption of risk over the near-term view that has been used in the past.
As a result of these changes, the PML has effectively been raised, which suggests TWIA will need to purchase more reinsurance limit for 2023, at a time when prices are rising in hardening market conditions.
So, the 1-in-100 year PML that will be proposed to the TWIA Board next week, and which helps set its minimum statutory funding requirements, is just over $5.244 billion.
Alongside the 1-in-100 PML, a retention of $2.28 billion, which is slightly higher than the 2022 retention, has been suggested. Now, if this recommendation is approved by the Board and if TWIA opts to get fully-funded, the reinsurance limit required would be just over $2.964 billion for 2023.
In comparison, TWIA purchased just over $2 billion of reinsurance limit for the 2022 storm season, so the 2023 renewal could be 46%, or $928 million higher.
Last year, TWIA secured slightly more than $2 billion of reinsurance in total, of which $1.1 billion was from the catastrophe bond marketplace. There are still $1.1 billion of its Alamo Re cat bonds in-force, although $400 million of that is scheduled to mature before the 2023 storm season begins.
If the Board agrees to the $5.24 billion 1-in-100 year PML, and to the $2.964 billion of reinsurance limit as the target, between new cat bonds and traditional reinsurance, TWIA will need to purchase around $2.264 billion of additional protection before the start of the 2023 hurricane season.
When you consider that reinsurance pricing is up considerably, notably for catastrophe lines, this is a lot of additional limit that TWIA will need to obtain.
