The Texas Windstorm Insurance Association (TWIA) appreciates the diversification that its recently completed first catastrophe bond transaction, Alamo Re Ltd. (Series 2014-1), provides to its risk transfer program.
The Texas windstorm insurer of last resort had been looking at the catastrophe bond market for at least three years, considering its inclusion in its annual reinsurance renewal. Each year the cat bond proposal was turned down at the last hurdle, as costs had not made it attractive enough to pursue, but in 2014 the cat bond market pricing and conditions made it an attractive option for augmenting TWIA’s reinsurance cover.
The Alamo Re catastrophe bond completed last week and the notes have now been rated by Fitch as ‘Bsf’. TWIA now has the most capital markets backed reinsurance cover in its history, with the $400m Alamo Re plus likely a portion of its traditional reinsurance protection provided by non-traditional markets.
John W. Polak, General Manager of TWIA, told Artemis; “TWIA is extremely pleased to have successfully placed our first catastrophe bond. This transaction is another step forward towards our overall funding goals and demonstrates our ongoing commitment to provide financial security to our Texas policyholders.”
TWIA decided to pursue a catastrophe bond as part of an aggregate reinsurance program. 2014 is the first year TWIA had been able to pursue annual aggregate cover as pricing had now declined sufficiently to make the more responsive protection attractive to the insurer.
Eventually TWIA secured a $400m layer of three year aggregate protection through Alamo Re from the catastrophe bond market, which alongside its traditional reinsurance purchase now puts TWIA in perhaps the best protected situation of the insurers history.
One of the attractions of the catastrophe bond market for a residual market insurer like TWIA is to tap into a source of risk capital that diversifies it away from traditional reinsurers. By adding the capital markets as a source of protection TWIA spreads its risk across traditional reinsurer balance sheets and ILS fund or institutional investor capital, helping to ensure it gets paid if a large event occurred.
John W. Polak explained; “The capital markets were able to provide meaningful capacity and have allowed TWIA to diversify and expand its overall risk transfer program.”
TWIA is also delighted with the partners it used for the Alamo Re transaction, who helped it to get its first catastrophe bond to market and to achieve the $400m of multi-year, fully-collateralized reinsurance protection.
“TWIA is very happy to have partnered with GC Securities and Hannover Re in the execution of this transaction; their experience and assistance were of great help to us throughout the issuance process,” Polak commented.