Swiss Re Insurance-Linked Fund Management

PCS - Emerging Risks, New Opportunities

Alamo Re Ltd. (Series 2021-1)

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Alamo Re Ltd. (Series 2021-1) – At a glance:

  • Issuer: Alamo Re Ltd.
  • Cedent / sponsor: Texas Windstorm Insurance Association (TWIA)
  • Placement / structuring agent/s: GC Securities is sole structuring agent and bookrunner
  • Risk modelling / calculation agents etc: AIR Worldwide
  • Risks / perils covered: Texas named storms and severe thunderstorms
  • Size: $500m
  • Trigger type: Indemnity
  • Ratings: NR
  • Date of issue: May 2021

Alamo Re Ltd. (Series 2021-1) – Full details:

The Texas Windstorm Insurance Association (TWIA) has now launched an anticipated new catastrophe bond which will go at least part of the way towards replacing its maturing in July $400 million Alamo Re 2018-1 cat bond transaction.

For its latest catastrophe bond, TWIA has returned to its Bermuda domiciled special purpose insurer (SPI) Alamo Re Ltd., after it had ventured to Singapore for its 2020 cat bond issuance.

For this new cat bond, TWIA is seeking at least $250 million of fully-collateralized and multi-year reinsurance protection against losses from named storms and severe thunderstorms in Texas.

As with all of TWIA’s catastrophe bonds to-date, the company is using the services of global reinsurance firm Hannover Re as the ceding reinsurer, while TWIA is the reinsured party.

For this new cat bond, TWIA is seeking at least $250 million of fully-collateralized and multi-year reinsurance protection against losses from named storms and severe thunderstorms in Texas.

But it’s worth noting there is plenty of room for this new cat bond to upsize, should pricing and market conditions allow.

Hannover Re will front the SPI, entering into retrocessional reinsurance agreements with it, while entering into reinsurance agreements with TWIA to pass on the coverage.

The SPI, Alamo Re Ltd., will offer investors a single, currently $250 million tranche of Class A notes, with the proceeds from their sale used to collateralize the retro agreements with reinsurer Hannover Re.

The $250 million of notes will ultimately provide TWIA with a three-year source of annual aggregate and indemnity triggered reinsurance protection, covering losses from named storms and severe thunderstorms in Texas.

In order to qualify, a named storm or severe thunderstorm event must cause TWIA at least $50 million of UNL, sources said, with aggregation of qualifying losses running across three consecutive one-year risk periods beginning on June 1st.

We’re told that the Alamo Re 2021-1 Class A notes will cover a wide layer of TWIA’s reinsurance tower, attaching at $2.1 billion of losses and running up to $4.03 billion initially.

That gives the currently $250 million of notes an initial expected loss of 1.76%, while the notes are being offered to cat bond investors with price guidance in a range from 4% to 4.75%, we’re told.

For comparison, TWIA’s Alamo Re 2019-1 cat bond had an initial expected loss of 1.8% and priced at 4.5%, while TWIA’s Alamo Re II Pte. 2020-1 cat bond had an initial expected loss of 1.78%  and priced at 5.75%, with both of those deals also attaching at $2.1 billion of losses.

Update 1:

TWIA is targeting a doubling in size of its latest catastrophe bond, with the target raised to $500 million.

At the same time, the pricing of the notes coupon was lowered and fixed at 4%, which implies more cost-effective pricing than the last two cat bonds from TWIA, on a multiple of expected loss basis.

That represents a multiple-at-market of 2.7 times the expected loss, which is lower than the 2.5 times EL multiple of TWIA’s 2019 cat bond and far lower than the 3.2 times EL multiple of its 2020 deal.

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