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TWIA secures $2.1bn of reinsurance & cat bonds after raising 2020 target

4th June 2020 - Author: Luke Gallin

The Texas Windstorm Insurance Association (TWIA) has completed the renewal of its 2020 reinsurance program, securing $4.2 billion in total aggregate funding, effective June 1st, 2020 to May 31st, 2021.

The $4.2 billion in total aggregate funding includes $1.1 billion of traditional reinsurance coverage for a one-year term, and $1 billion of capital market’s backed reinsurance protection split over three in-force catastrophe bond transactions, with the remaining 50% of funding coming from other sources.

TWIA notes that all reinsurance contracts and catastrophe bonds provide pro-rata coverage for $2.1 billion in excess of $2.1 billion within the funding stack of its reinsurance tower.

Towards the end of last year, TWIA said that it expects higher reinsurance costs in 2020 based on a 10% decline in the amount of aggregate cover purchased to $1.88 billion and a higher attachment point of $2.2 billion. However, in February of this year, the organisation’s Board directed staff to place a mix of traditional reinsurance and catastrophe bond protection, raising the 2020 program target to $2.1 billion.

Ultimately, this was achieved and means that the 2020 reinsurance program is the same size as the 2019 program. While it’s unclear how much the 2020 program cost, TWIA said previously that based on an aggregate limit of $1.88 billion, it expected costs of just over $93 million. So, considering that the reinsurance market has continued to firm and that TWIA eventually secured a larger program, it’s very likely that the 2020 program cost more than 2019 program.

This year’s program includes the newly-issued $400 million Alamo Re II Pte. Ltd. (Series 2020-1) catastrophe bond, the $200 million Alamo Re Ltd. (Series 2019-1) deal, and the $400 million Alamo Re Ltd. (Series 2018-1) transaction. Combined, these deals provide TWIA with $1 billion of third-party capital-backed reinsurance protection against Texas named storms and severe thunderstorms.

These three cat bonds, together with the $1.1 billion of traditional reinsurance coverage secured from the private market, takes TWIA’s aggregate amount of cover purchased to $2.1 billion.

The image below, provided by TWIA, details the organisations reinsurance tower and ultimate funding for 2020, and shows that at $177 million, funds deposited in the Catastrophe Reserve Trust Fund (CRT) increased from the $118 million in 2019.

TWIA 2020 reinsurance program

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