Staff at the Texas Windstorm Insurance Association (TWIA) explained that the wind and hail insurer of last resort for the state of Texas requires approximately $1 billion more in reinsurance funding for 2024 when compared with 2023, as exposure growth persists.
TWIA’s Board noted previously that the insurer would need additional reinsurance limit for 2024 on the back of exposure growth and an increase in the Catastrophe Reserve Trust Fund (CRTF).
Earlier this month, TWIA’s reinsurance broker, Gallagher Re, advised it to begin the planning and purchase of its reinsurance as soon as possible, with projections pointing to as much as $3.3 billion being needed for 2024, based on a higher 1-in-100 year PML due to exposure growth and model changes.
Yesterday, a motion was put to the TWIA Board seeking approval to start this process, and the need for more reinsurance was noted.
Over the last two years, TWIA’s policies in‐force and direct liability have increased 27% and 57%, respectively. The growth is a result of insurer insolvencies and the challenged state of the private insurance market on the coast. By the end of next year, policies in-force are projected to reach nearly 265,000, with direct written premiums of more than $815 million.
Partially offsetting this, the CRTF, which is one of TWIA’s funding sources, is projected to grow to $461 million by the end of 2024, up from $278 million.
But given the significant rise in exposure, the TWIA Board was informed that it needs to secure a projected $5.635 billion in funding for 2024, which is around $1 billion higher than the $4.508 billion TWIA was funded to in 2023.
“The only lever that we can pull, the only adjustment that we can make, to meet our statutory requirements to hit that 1-in-100 year PML in funding, is reinsurance,” Chief Actuary, Jim Murphy told the Board.
“Given the growth that we expect to see in our PML next year, we could easily see the reinsurance going up a billion dollars from last year, because our PML’s we expect to be going up more than a billion dollars,” he added.
Murphy went on to explain to the Board that although the reinsurance market remains harder than it was in previous years, conditions appear to be stable.
“I think that we are cautiously optimistic that we will be able to fill our requirements and get everything done. It will be difficult, it’s a large increase in the total amount of reinsurance that we will need to be purchasing from last year to this year,” said Murphy.
TWIA also has a $500 million catastrophe bond set to mature just ahead of the 2024 wind season, leaving it with just $700 million of cat bonds that will definitely be in-force. The need to replace this and purchase an additional $1 billion in limit year-on-year, has led staff to seek approval to begin this process as soon as possible.
“We expect that we will need to purchase a lot of additional reinsurance when the board makes its final decision in February and we’re asking for specific authorisation to begin that process now, in advance.
“We know for example, we will need to replace $500 million of an expiring catastrophe bond. There’s a lot of administrative work that goes along with the issuing of the catastrophe bonds that we would like to get started right away, basically, so that we are ready to act when the board does make its final decision,” explained Murphy.
For 2023, TWIA secured $4.508 billion in funding after the insurer secured an additional $1.043 billion of traditional reinsurance, with cat bonds making up $1.2 billion of the program.
For 2024, across traditional reinsurance and cat bonds, it appears TWIA could buy somewhere around $3.3 billion in limit.
At yesterday’s Board meeting, TWIA’s Board approved a motion to allow this process to commence.
“Given the continuing hard market conditions, the need to replace $500 million of expiring catastrophe bonds in 2024, and a potentially significant increase in the overall size of the reinsurance program due to TWIA exposure growth, Gallagher is recommending that the reinsurance planning and purchasing process begin as soon as possible. To that end, they recommend the TWIA board authorize commencement of the reinsurance placement process at the December 12 meeting, at least in terms of a catastrophe bond transaction to replace the expiring 2021 Alamo Re bonds,” said the motion.
The TWIA Board “Resolved that TWIA staff is authorized and directed to engage Gallagher Securities and others as recommended by the broker to begin the process of placement of the June 1, 2024 – May 31, 2025 reinsurance program.”
