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TWIA targets $1.4bn reinsurance for 2018, as it raises Harvey loss estimate

14th May 2018 - Author: Luke Gallin

The Texas Windstorm Insurance Association (TWIA) is targeting $1.4 billion of reinsurance protection for the 2018-2019 Atlantic hurricane season, from a combination of both the traditional and alternative reinsurance markets, and has also increased its loss estimate for hurricane Harvey to $1.61 billion.

TWIA, the residual market property insurer for the state of Texas, has announced plans to secure an aggregate $1.4 billion of reinsurance coverage in excess of $2.8 billion, via a combination of traditional reinsurance and the issuance of a new catastrophe bond transaction, Alamo Re Ltd. (Series 2018-1), which is currently being marketed at $300 million in size.

Following the impacts of 2017 catastrophe events, TWIA has sought some changes to its reinsurance tower in order to find the most efficient way to meet the required coverage parameters outlined by its Board.

As well as the $1.4 billion of protection from both traditional reinsurance providers and the issuance of a new cat bond, this includes resetting its $400 million Series 2017-A catastrophe bonds to attach at $2 billion, which provides 50% of $800 million excess of $2 billion.

As a result of resetting the attachment point of this transaction, TWIA says it will now provide cover on the same layer as the $400 million ‘second season’ cover that it purchased last year, and which becomes effective June 1st, 2018, based on the drawdown of the CRTF in 2017.

TWIA has also announced that it will reset its $400 million in Series 2015-B cat bonds to attach at $4.2 billion, which combined with the above provides total funding of $4.6 billion, which is $300 million less than the $4.9 billion of overall protection secured for the 2017-2018 season.

TWIA 2018 reinsurance tower

The image above, from recent TWIA board meeting documents, outlines its funding structure for the 2018-2019 season.

Interestingly, TWIA also reveals that it’s increased the ultimate loss and loss adjustment expenses for hurricane Harvey, to $1.61 billion from the previous $1.46 billion. To date, TWIA has received funding of $1.288 billion from a combination of its reserves, the CRTF balance, and the net available proceeds from its Series 2014 Notes.

As at March 31st, 2018, TWIA had paid out approximately $1.23 billion in loss and loss adjustment expenses relating to Harvey, meaning that it only has roughly $58.5 million of funding left to pay future losses before an assessment is needed.

As a result, TWIA has said that it requires an additional $321.3 million in member assessments in order to meet the increased loss and loss adjustment expenses linked to hurricane Harvey.

“Based on the projected payout pattern for unpaid losses and expenses, Association staff proposes an initial assessment of member carriers of $175.0 million to be considered at the upcoming Board meeting,” said TWIA.

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