Despite its reinsurance attaching higher due to growth in the Catastrophe Reserve Trust Fund (CRTF), the Texas Windstorm Insurance Association (TWIA) expects to need additional reinsurance limit for 2024 as exposure growth persists.
TWIA, the Texas wind and hail insurer of last resort, is expecting annual exposure growth of 28.2% in total insured value through 2024. Direct exposures are forecast to be 44% higher than at the end of 2022, with policies in-force projected to reach almost 265,000 by year-end 2024, and direct written premium forecast to exceed $815 million.
As a result of this growth in exposure, TWIA says that it will need to buy more reinsurance limit for 2024 at its next renewal, and with the reinsurance market expected to remain firm, the insurer is expecting its reinsurance costs to rise as well.
“The hard market remains, as the reinsurers stay committed to improved terms and pricing. We have heard recently that there is more capacity and capital is returning to the market, but it is going to be a hard market all the way through 2024 and they expect it to be into 2025,” said TWIA CFO, Stuart Harbour.
In May, TWIA secured reinsurance and risk transfer for the 2023 wind season, with its tower placed to the targeted $4.508 billion exhaustion point. For 2023, the risk transfer part of the tower attaches at $2.265 billion of losses. For this tower, the projected cost is currently estimated to be $204.4 million.
However, for 2024, TWIA is likely to have a higher attachment point for its reinsurance and risk transfer, as the funding from the CRTF, which sits below the reinsurance layers, has increased.
While this will help somewhat with costs, Harbour explained that this will be more than offset by the need for additional reinsurance coverage.
“We will have a higher attachment point for our reinsurance due to the growth in the CRTF, not considerably higher, but it will be higher. But the savings will be overshadowed by the additional amount of reinsurance limit that will be needed to cover the projected higher level for the 1-in-100 probable maximum loss (PML),” said Harbour.
TWIA is projecting that in order to cover its 2024 reinsurance needs, the cost of coverage will rise 46% to $298 million for 2024, driven by exposure growth and the hard market environment.
“The 2024 amount shown of $298 million reflects a rough estimate, calculated by computing the expected rate-on-line for each $100 million layer of reinsurance, the revised exposures and input from our reinsurance intermediary Gallagher Re as to the potential market conditions, based on current conditions and forecast.
“The growth in this estimate is primarily based on the increase in exposures and assumes a relatively stable reinsurance market,” explained Harbour.
Commenting further on reinsurance pricing, Harbour told the Board that TWIA will have a better idea of pricing after the upcoming January 1st, 2024, reinsurance renewals, but stressed that “indications are that the reinsurers are still committed to maintaining the firm pricing that we had.”
“We are hearing that some capacity is returning to the market, which is encouraging,” he added.
TWIA’s reinsurance renewal process for the 2024 wind season typically begins in the spring, with the insurer completing its placement at the mid-year renewals.
In December, TWIA’s Board will approve a budget for 2024, which typically follows ongoing discussions around the types of funding and its use of both reinsurance and catastrophe bonds for its risk transfer needs. So, while TWIA has said that it needs to purchase more limit for 2024, it’s currently unclear exactly how much more coverage it will buy.
