TWIA gets the best from cat bond market with Alamo Re

by Artemis on July 4, 2014

The Texas Windstorm Insurance Association (TWIA) got the best out of the ILS market with its first catastrophe bond transaction, Alamo Re Ltd. (Series 2014-1), allowing it to diversify its reinsurance while benefiting from capital market features.

Insurance-linked securities investors showed strong support to TWIA as it tapped the capital market for the first time to source fully-collateralized reinsurance cover for Texas named storm risks. TWIA secured cover on very attractive terms and with a multitude of features which made the coverage more suitable and cost-effective for a state wind pool sponsor.

Cory Anger, Global Head of ILS Structuring at GC Securities, explained; “We are honored to have facilitated TWIA’s first catastrophe bond transaction and to have utilized such form of risk transfer capacity to achieve significant cost reductions, aid in converting TWIA’s risk transfer programs coverage from per occurrence to annual aggregate coverage for the entire program and allow for increased overall coverage limit (relative to recent years).”

The response from investors to TWIA’s first cat bond issue was good, allowing the association to benefit from pricing, terms and features in the coverage.

Cory Anger continued; “Capital markets investors have uniquely responded to the needs of the TWIA by providing meaningful and cost-effective annual aggregate capacity while also diversifying and expanding the claims payment capacity of the TWIA. The structural terms of the Alamo Re Series 2014-1 Notes incorporates all the latest features and benefits including a flexible variable reset feature to adjust where the catastrophe bond risk transfer layer will sit within TWIA’s overall claims paying capacity resources.”

TWIA’s renewal saw it leverage the best from both traditional and alternative capital markets, allowing it to utilise the features that make ILS capital more responsive, while also securing the bulk of its programme from traditional reinsurance partners.

Chi Hum, Global Head of ILS Distribution at GC Securities, commented; “The capital market investors have shown again that they will provide broad based support for Alamo Re, a well thought out approach by TWIA to develop a diversified reinsurance program. This approach combines competitive pricing across markets and innovative features that target the strengths of each capacity source. The breadth of investors providing multiyear collateralized capacity is a valuable complement to the rated markets capacity from the reinsurers. The strong execution on the placement of these notes signals to TWIA that investors are ready, willing and able to support continued issuance from this program.”

John Polak, General Manager of the Texas Windstorm Insurance Association, added; “TWIA appreciates the assistance of GC Securities and Hannover Re in successfully placing our first catastrophe bond. This transaction is another step forward towards our overall funding goals and demonstrates our ongoing commitment to provide financial security to our Texas policyholders.”

David Priebe, Vice Chairman of Guy Carpenter, said; “This transaction exemplifies the benefit of the convergence between the insurance, reinsurance and capital markets and demonstrates the value that TWIA achieved in partnering GC Securities, Guy Carpenter’s broking team and Hannover Re to deliver a solution best meeting TWIA’s risk transfer needs. Having pioneered the application of catastrophe bonds for residual market insurers, the successful execution of Alamo Re demonstrates our commitment, expertise and industry leading position in providing capital markets-based risk transfer solutions to residual market insurers and other public entity clients.”

Finally, Chief Executive Officer of Hannover Re, the reinsurer which acted as a transformer for TWIA’s Alamo Re cat bond, Ulrich Wallin stated; “With this transaction Hannover Re has underscored its long-standing expertise in the field of alternative risk transfer and leveraged the opportunity to generate low-risk and stable margins.”

TWIA clearly, after waiting so many years to attempt an actual cat bond issuance, made the most of its first foray to the catastrophe bond market. TWIA secured more cover, more cheaply and with better terms than it could have in any recent year when it discussed the potential for issuing a cat bond. 2014’s successful Alamo Re deal has put TWIA in the best financially protected state in its recent history with reinsurance and ILS capital playing a major role in its security.

Read more articles about TWIA’s Alamo Re Ltd. (Series 2014-1) catastrophe bond:

TWIA appreciates diversification offered by Alamo Re catastrophe bond.

TWIA’s $400m Alamo Re cat bond prices at low-end of reduced range.

TWIA’s Alamo Re cat bond exposed to a repeat of Texas hurricane Ike.

Alamo Re Ltd., TWIA’s first catastrophe bond, launches.

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