The Texas Windstorm Insurance Association (TWIA) has returned to the catastrophe bond market with a $250 million or larger Alamo Re Ltd. (Series 2021-1) transaction, which will go at least some of the way to renewing a soon to mature $400 million cat bond from 2018.
For 2021, the Texas Windstorm Insurance Association (TWIA) has returned to Bermuda as the home for this catastrophe bond issuance, having ventured to Singapore for its only cat bond of 2020.
The residual market property insurer for the State of Texas has now sponsored six catastrophe bonds, with this 2021 Alamo Re issuance set to be the firms seventh.
In total, the six previously sponsored cat bonds have provided TWIA with $2.5 billion of fully-collateralized reinsurance from the capital markets.
For 2021, as mentioned, we understand TWIA has returned to its Bermuda domiciled special purpose insurer (SPI) Alamo Re Ltd.
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.
That will go at least part of the way towards replacing TWIA’ maturing in July $400 million Alamo Re 2018-1 cat bond transaction. But it’s worth noting there is plenty of room for this new cat bond to upsize, should pricing and market conditions allow.
As with all of TWIA’s catastrophe bonds to-date, we’re told that TWIA is using the services of global reinsurance firm Hannover Re as the ceding reinsurer, while TWIA is the reinsured party.
Hannover Re will therefore 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.
Which suggests that, if the new Alamo Re 2021 cat bond follows the direction of other recent cat bond issuances and achieves keen pricing, TWIA’s latest cat bond could actually price more economically than the 2020 issuance and perhaps comparably, or better, compared to its 2019 cat bond deal.