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

The awaited first catastrophe bond transaction to be issued on behalf of the Texas Windstorm Insurance Association (TWIA) has now come to market, Artemis understands, in the form of the $300m Texas named storm cat bond Alamo Re Ltd. (Series 2014-1).

TWIA’s first catastrophe bond has been expected as the association has been discussing its reinsurance program and the potential to include a cat bond in it for the first time at recent board meetings. The ultimate decision taken was to secure a $1.35 billion layer of reinsurance protection, on an annual aggregate basis, with up to $400m of it slated to come from the capital markets in the form of a cat bond.

Artemis understands that the TWIA cat bond has been launched to the market today and is to be issued by Bermuda registered special purpose insurer Alamo Re Ltd. TWIA is using German reinsurer Hannover Re as the ceding reinsurer in the transaction, so TWIA enters into a reinsurance agreement with Hannover Re while it enters into a retrocession agreement with Alamo Re Ltd.

In this cat bond issuance Alamo Re Ltd. is set to issue and sell to investors a single tranche of Series 2014-1 notes to collateralize the retrocessional agreement with Hannover Re and ultimately the reinsurance agreement with TWIA. The single tranche of notes are sized at $300m at launch, although that could grow if TWIA sticks to its $400m target, and have a three-year term, with maturity expected at 1st June 2017.

The Alamo Re 2014-1 catastrophe bond will provide three years of reinsurance protection, ultimately to TWIA, on an annual aggregate basis using an indemnity trigger based on TWIA’s ultimate net losses suffered in the covered area. The protection is for Texas named storms, meaning that the Alamo Re cat bond will cover TWIA for losses from hurricanes and tropical storms.

Only named storms that affect Texas and cause an ultimate net loss to TWIA of more than $50m will qualify as covered under the terms of the Alamo Re cat bond, we’re told. That means that TWIA, while gaining the aggregate benefit of protection for frequent smaller windstorms affecting Texas, will not see its aggregate eroded by the smallest of storms. Using the named storm definition for tropical cyclones also means that perils such as hail and tornadoes which occur due to tropical storm systems will also qualify if they cause a sufficiently large loss to TWIA.

The Alamo Re 2014-1 cat bond will trigger at the private reinsurance layer attachment point of $1.9 billion and will provide cover up to the layer exhaustion point of $3.25 billion. This means the cat bond will provide reinsurance for a percentage of TWIA’s losses within the private reinsurance layer. It also means that should TWIA choose to it could upsize the cat bond even further than the $400m if it should deem it more cost-effective than traditional reinsurance protection.

The $300m of notes being issued by Alamo Re Ltd. in this Series 2014-1 deal have an attachment probability of 3.8%, an expected loss of 2.84% and an exhaustion probability of 2.09%, Artemis understands. The notes are being marketed with coupon price guidance of 6.5% to 7%.

TWIA’s reinsurance broker Guy Carpenter is leading the issuance of Alamo Re for the association, with GC Securities acting as the sole structuring agent and bookrunner. AIR Worldwide is providing risk modelling services.

Artemis understands that the Alamo Re cat bond will be completed in June. The Alamo Re Ltd. (Series 2014-1) catastrophe bond has been added to the Artemis Deal Directory. We will update you as the transaction progresses to market.