TWIA targets at least $2.1bn of reinsurance & cat bonds for 2019

The Texas Windstorm Insurance Association (TWIA) will aim to secure at least $2.1 billion of protection from the global reinsurance and insurance-linked securities (ILS) market for the 2019 hurricane season, taking its total claims-paying capacity to at least $4.2 billion.

TWIA’s Board this week approved its staff to go to market and renew or purchase afresh whatever reinsurance and catastrophe bond coverage may be required to ensure it meets its target of coverage for a 1-in-100 year loss.

TWIA is the largely coastal residual market property insurer in the state of Texas, providing insurance to its clients in some of the most hurricane exposed regions of the United States.

As a result, it has become a heavy user of reinsurance protection and since 2014 the Association has been accessing additional reinsurance capacity from the capital markets through the sponsorship of a series of catastrophe bonds under the name Alamo Re.

For 2019 the TWIA Board has approved a return to both the catastrophe bond and reinsurance market to secure a new program that provides the statutory minimum levels of protection.

TWIA’s funding structure, which is outlined in statute, calls for the Association to maintain its minimum claims-paying capacity to cover a probable maximum loss with a probability of 1-in-100 years, which for 2019 is $4.2 billion.

TWIA’s Board of Directors voted at the meeting to authorise Association staff to work alongside reinsurance broker Guy Carpenter to secure reinsurance protection that will provide an aggregate total claims-paying capacity of at least $4.2 billion for the 2019 hurricane season.

With TWIA having $2.1 billion of statutory funding sources in place for 2019, made up of its Catastrophe Reserve Trust Fund, layers of industry member assessments and public debt securities that can be issued to fund losses from catastrophe events, the reinsurance coverage will have to reach $2.1 billion at least to hit the statutory funding target.

TWIA currently has $1.2 billion of in-force Alamo Re catastrophe bonds, but $400 million of this from the Alamo Re Ltd. (Series 2015-1) transaction is scheduled to mature in June 2019, leaving $800 million of cat bond coverage in-force for the coming hurricane season.

We understand from sources that early discussion suggest TWIA is likely to sit its cat bonds and traditional reinsurance side by side in the top $2.1 billion to $4.2 billion layer of the funding tower, with each providing a pro-rata percentage of coverage, from attachment up, so sharing in any losses that eat into its private reinsurance market protection.

That would be a change from an excess-of-loss approach, where layered cat bonds and reinsurance attached at different levels in the tower. If this is the case, it will shift TWIA’s strategy to one where all private market reinsurance instruments attach at the same point and share losses above that on a pro-rata basis.

TWIA’s renewal for 2019 will be due in June but the Association and its brokers will be working from now to ensure it has the right mix of reinsurance and cat bonds to provide the coverage required at the most efficient cost.

Last year TWIA purchased a $1 billion traditional reinsurance layer and a new $400 million catastrophe bond in June. It seems likely we could see a similar mix purchased for the 2019 wind season.

John Polak, General Manager of TWIA, told Artemis, “TWIA is committed to the financial security of our policyholders, and we look forward to securing a reinsurance program for the 2019 season that provides us with sufficient capacity and liquidity to pay policyholder claims and meet our financial obligations, as we have done successfully since 1971.”