The Board of the Texas Windstorm Insurance Association (TWIA) has voted to purchase $2.9 billion in reinsurance for 2023, which combined with $2.28 billion in statutory funding, would take the association’s total funding for the upcoming storm season to $5.2 billion.
During yesterday’s meeting, the Board voted to establish TWIA’s 1:100 probable maximum loss (PML) for the 2023 storm season at $4.5 billion.
In determining its 1:100 PML, the Board elected to use the RMS catastrophe model based on long-term assumptions, and include a 15% load for loss adjustment expenses, which takes the PML from $3.9 billion to the $4.5 billion.
While the PML has been set at $4.5 billion, the TWIA Board has directed staff and Gallagher Re, the association’s reinsurance broker, to pursue $2.9 billion in reinsurance “on the most favorable terms that can be achieved in the market,” which together with the retention of $2.28 billion takes the total funding above the 1:100 PML.
Now, because the board has elected to purchase reinsurance above the 1:100 PML, the cost for the $700 million in reinsurance limit above this will be paid by member insurers through an assessment.
TWIA notes that the 2023 reinsurance programme may be comprised of traditional reinsurance and catastrophe bonds, and will include $700 million in existing multi-year cat bonds that will be available for the upcoming storm season.
What was approved yesterday differs slightly from the meeting last week, when the Committee recommended that only the AIR and RMS risk models be taken into account for setting the PML, with a 50% – 50% weighting for each and a long-term view of risk be used. This would have effectively raised the 1:100 year PML to just over $5.244 billion.
To summarise, under the RMS PML of $3.9 billion plus 15% for LAE taking it to $4.5 billion, and based on the previous stated retention target of $2.28 billion of statutory capital, TWIA needs to secure a minimum of $2.205 billion of reinsurance and cat bond coverage to run through 2023, which is roughly $760 million less than if it bought up to the $5.2 billion level where it would require $2.92 billion.
Although $2.92 billion has been stated as the target by TWIA, the Board will also consider cost and now has a minimum based on the 1-in-100 PML that it can buy down to.
The motion was passed by 4 votes to 3, as a split Board was not in agreement on the way the association should purchase its reinsurance for 2023.
