TWIA begins reinsurance renewal planning, may contain cat bonds

The Texas Windstorm Insurance Association (TWIA), the insurer of last resort for Gulf Coast property owners in the state, has begun planning for its 2015 reinsurance renewal, which could include another Alamo Re catastrophe bond.

TWIA effectively sponsored its first catastrophe bond in June 2014, with the issue of the $400m Alamo Re Ltd. (Series 2014-1) cat bond transaction.

Hannover Re acted as the direct sponsor for TWIA, who it reinsured in that case, but the Alamo Re special purpose Bermudian insurance vehicle is still available to be used. According to the agenda for its next actuarial and underwriting committee meeting TWIA may elect to use it once again in 2015.

For the last few years TWIA has been targeting funding goals, in order to demonstrate its ability to meet potential claims and its responsibilities to its Texas policyholders, by increasing its risk transfer and also beginning a depopulation program.

The Alamo Re cat bond in 2014 was the first time TWIA progressed its cat bond ambitions to the point of getting a deal to market. It had been exploring cat bonds as a piece of its reinsurance renewal for at least three years, but had never quite found the right time or market conditions to tap the ILS market. In 2014 the conditions for issuance were so conducive that TWIA took the leap and the $400m Alamo Re cat bond was the positive result of this.

After the Alamo Re deal completed John W. Polak, General Manager of TWIA, told Artemis; “The capital markets were able to provide meaningful capacity and have allowed TWIA to diversify and expand its overall risk transfer program.”

Access to meaningful, low-cost capacity for Texan hurricane risks will again be high up the agenda as the TWIA actuarial and underwriting committee comes together to discuss its 2015 risk transfer and reinsurance plans on the 29th January. Diversification of risk capital will also be a factor, however TWIA has already diversified its sources of risk transfer considerably in the last year, also adding $500m of pre-event bonding to its reinsurance and cat bonds.

So, for its 2015 reinsurance renewal, cost, efficiency and coverage terms will likely be the key deciding factors in whether TWIA seeks to issue another Alamo Re cat bond or taps the traditional and collateralized reinsurance markets instead. The cat bond market stands a good chance of seeing some of its 2015 program given the attractive pricing and continual broadening of coverage offered by the ILS market.

At next weeks meeting the committee will review and take possible action regarding its reinsurance renewal, including catastrophe bonds, for the 2015 hurricane season. As a result of the meeting recommendations will be developed to take to the TWIA board.

With any new Alamo Re cat bond issuance likely to hit the ILS investor market around late April or May, the committee will be hoping to develop those recommendations rapidly. The meeting next week will likely involve input from TWIA’s reinsurance brokers, Guy Carpenter in 2014, who will likely assist with making recommendations on the mix of structures and coverage to target in 2015.

A TWIA board meeting is then scheduled for the 3rd February, at which the first recommendations for the 2015 reinsurance and catastrophe bond program are likely to be presented.

We will update you as information comes to light on TWIA’s direction with its reinsurance and risk transfer for 2015.

Read all about Alamo Re Ltd. (Series 2014-1) in the Artemis Deal Directory.

Also read:

– Louisiana Citizens will seek to replace Pelican Re cat bond at renewal.

– TWIA appreciates diversification offered by Alamo Re catastrophe bond.