The Texas Windstorm Insurance Association (TWIA), the residual market property insurer for the state, is returning to the catastrophe bond market with a fourth transaction in its Alamo Re series of deals, a $300 million or greater Alamo Re Ltd. (Series 2018-1) multi-peril cat bond.
This fourth cat bond from TWIA is the insurers second that will transfer both Texan named storm risks and severe thunderstorm risks to the capital markets, as the states property insurer of last resort looks to secure fully-collateralized backing for a chunk of its 2018 reinsurance program.
As with all of its previous Alamo Re catastrophe bonds, the 2018-1 issuance sees TWIA working with reinsurance firm Hannover Re, acting as the ceding reinsurer through its Hannover Rück SE entity, our sources said.
TWIA will enter into a reinsurance agreement with Hannover Rück SE, which will in turn enter into a retrocession agreement with Alamo Re Ltd. to effect this 2018-1 cat bond transaction, with the proceeds from the sale to cat bond investors of the currently targeted $300 million of notes set to provide the collateral to underpin the arrangement.
Special purpose insurer Alamo Re Ltd. will seek to issue a single $300 million tranche of Series 2018-1 notes which will be exposed to losses from Texas named storms and Texas severe thunderstorms over a three-year term.
The reinsurance protection that TWIA will benefit from is on an indemnity and annual aggregate basis, with only loss events that cause a $50 million or greater loss to the insurer qualifying under the terms of this new cat bond, we understand.
We’re told that the attachment point for the $300 million of notes will be at $2.8 billion of losses to TWIA and the notes will cover a percentage of losses up to an exhaustion point of $4.2 billion, with the Alamo Re 2018-1 cat bond notes sitting alongside TWIA’s planned 2018 reinsurance renewal.
There is room for growth and we understand that if market conditions support it, TWIA could opt to upsize this cat bond to account for more of the coverage within that wide layer of its reinsurance tower, given the layer it is seeking to renew this year is $1.4 billion in size.
The $300 million of Series 2018-1 notes to be issued by Alamo Re will have an initial attachment probability of 2.19%, an initial expected loss of 1.65% and are being offered to ILS investors with coupon guidance of 3.5% to 4%, it’s said.
TWIA’s two existing catastrophe bonds are being reset to sit above (the $400m Class B notes of Alamo Re Ltd. (Series 2015-1)) and below (the $400m Alamo Re Ltd. (Series 2017-1) transaction) the layer this new Alamo Re 2018-1 cat bond will occupy, alongside the reinsurance, meaning that for the 2018 hurricane season TWIA will have at least $1.1 billion of cat bond backed reinsurance risk transfer available to it.
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