The Texas Windstorm Insurance Association (TWIA) has projected that it might need almost $5.8 billion in reinsurance limit for 2025 as 20% exposure growth lifts its projected 1-in-100 year probable maximum loss (PML) to $7.8 billion, while total losses from hurricane Beryl are expected to almost deplete the Catastrophe Reserve Trust Fund (CRTF).
Back in May, exposure growth at TWIA led staff to recommend lawmakers to explore ways of reducing its reinsurance use after its largest purchase of coverage in 2024.
For this year, TWIA’s board approved the 1-in-100 year PML at $6.5 billion, leading the insurer of last resort to purchase $4.05 billion of reinsurance, comprised of $1.95 billion of traditional reinsurance and $2.1 billion of catastrophe bond protection from the capital markets.
Below the reinsurance, TWIA also funded itself with the $450 million CRTF and $2 billion of member assessments and public securities, meaning that the private market risk transfer portion of its protection attached at $2.45 billion.
For 2025, though, documents show that TWIA anticipates needing to buy even more reinsurance than it did for 2024, following continued exposure growth and the impacts of hurricane Beryl.
TWIA estimates ultimate loss and loss adjustment expenses for Beryl of $455 million as of September 30th, 2024, which is roughly equivalent to the current balance in the CRTF.
“Higher costs projected due to anticipated need for additional limit due to increased exposures and depletion of the Catastrophe Reserve Trust Fund to pay losses and loss adjustment expenses from Hurricane Beryl,” says TWIA.
This brings down the funding at the very lowest-layer of TWIA’s reinsurance tower, which suggests its reinsurance arrangements for 2025 might need to attach lower down to fill some of the lower risk layers as well as the upper ones, unless TWIA secures funding from other sources.
Alongside the almost depleted CRTF, 20% exposure growth has increased TWIA’s projected 1-in-100 year PML to $7.8 billion for 2025, which is $1.3 billion higher than 2024’s $6.5 billion. This suggests that $1.3 billion of additional reinsurance is required, but when you consider the near-erosion of the CRTF, it implies a need for even more reinsurance protection for the 2025 storm season.
In light of this, TWIA projects that it needs to secure $5.795 billion of reinsurance and catastrophe bond limit for 2025, which is up a significant 43% on the $4.05 billion secured for this year.
To secure this level of limit, TWIA’s estimated gross reinsurance premium is $485 million, which is 22% higher than the $397.1 million cost of its reinsurance for 2024.
Of course, TWIA can reduce its PML through its two depopulation programs designed to help policyholders obtain coverage in the private insurance market. But while between 2016 and 2023 the entity completed six programs via its assumption reinsurance depopulation program, resulting in the takeout of over 16,000 policies, round seven and round eight were cancelled due to a lack of insurer interest.
“Depopulation was not factored in the 2025 projections or 2025 budget due to immateriality and the absence of carriers registered to participate in the most recent depopulation program,” states TWIA.
It will be interesting to see how TWIA’s reinsurance needs evolve ahead of its 2025 renewal, and whether it goes out early next year with another catastrophe bond to capitalise on investor appetite.
