TWIA Board opts to only buy reinsurance and cat bonds up to 1-in-50 year PML in 2026

At a meeting held in Galveston today, the Texas Windstorm Insurance Association (TWIA) Board agreed to only pursue purchase of the statutory minimum amount of reinsurance and catastrophe bonds needed to hit the 1-in-50 year funding level in 2026, opting not to buy any additional risk transfer to cover higher return period events.

Recall that, legislative changes enacted in Texas halved the state mandated calculation for the amount of loss funding TWIA needs, from a 1-in-100 year minimum PML metric, down to a 1-in-50 year.

These changes adjust the statutorily required funding level TWIA’s Board needs to prepare for, although the Board also has the discretion to fund to a higher level if they decided which was a decision taken today.

As we reported last week, TWIA’s latest exposure data suggests its 1-in-50 year PML funding need will be $4.3051 billion for 2026, down from the 1-in-100 mandated $6.227 billion a year ago.

With $2 billion of statutory funding available, it meant a reinsurance and catastrophe bond risk transfer tower of around $2.3051 billion was expected to be required to meet the minimum funding level, so close to previous projections that we’d reported.

We further explained that TWIA will have $1.95 billion of catastrophe bonds in-force for the 2026 hurricane season from those still effective that were placed in 2025 and prior, suggesting the net-new reinsurance or cat bond backed risk transfer required for 2026 could be as low as just over $355 million.

It’s worth noting that catastrophe bonds can be redeemed early, as TWIA optimises its reinsurance mix for 2026, so the net-new risk transfer need could come from traditional or capital markets backed reinsurance sources and any formats, if the TWIA staff opt to call any outstanding cat bonds early. That decision may depend on how flexible the cat bond reset provisions are.

At today’s TWIA Board meeting in Galveston, Texas, which is ongoing, the agenda needed some key decisions to be made so that reinsurance brokers can go to market and begin preparing the TWIA catastrophe reinsurance tower for 2026.

The 1-in-50 year PML was agreed at the aforementioned $4.3051 billion level, based on the new model weightings that had been chosen a few months back.

But, Board members agreed to try and further fund the layers beneath the reinsurance with some additional funding expected to be in the CRTF, or Catastrophe Reserve Trust Fund.

Which meant the amount of reinsurance and cat bonds that need to be in-force to hit the 1-in-50 year PML for 2026 will actually be $2.2801 billion, so now $25 million lower than the $2.3051 billion mentioned above for the reinsurance and cat bond tower.

Which helps TWIA raise the attachment for the reinsurance and cat bond protection very slightly this year.

The Board discussion then moved on to whether TWIA should opt to buy more than the statutorily mandated protection to fund to the 1-in-50 level.

After a lengthy discussion that included staff from reinsurance broker Gallagher Re and risk modeller Aon explaining how a tVar view of the PML exceedance suggests events can be much more costly than the base figures would suggest, TWIA’s Board moved to not buy any additional cover, nor even to go to market for any quotes to buy any additional reinsurance over the statutorily required 1-in-50 level.

A motion was passed to only buy cat bonds and reinsurance up to the 1-in-50 year level for 2026, which suggests just $2.2801 billion, depending on how the CRTF funding pans out.

As we said, TWIA will have $1.95 billion of multi-year catastrophe bonds in-force for the 2026 hurricane season.

If they can all be reset into the lower-layers of the tower TWIA will now buy up to, that might suggest only slightly over $330 million of net-new risk transfer is required to be purchased this year.

But, it does depend on the flexibility of the resets with the outstanding TWIA cat bonds and whether they can all be accommodated in the new, much lower funding tower, as well as whether TWIA wants to be so weighted towards the cat bond market in its funding this year.

So more decisions now face the TWIA Board, in terms of what type of reinsurance protection and from what capital sources it should buy for 2026, with the cat bond resets perhaps a more important consideration than ever before for the Association.

The catastrophe bond resets need to be decided on during the month of March it appears, while any decisions to call any cat bonds early would be required during April we believe.

TWIA’s new funding needs could have ramifications for the cat bond market and its investor base, with the potential for some of the outstanding TWIA bonds being called early. We will of course report back as any further information emerges over the coming months.

Of course, if reinsurance and catastrophe bond pricing is particularly conducive then potentially TWIA could buy more coverage for the budget set aside for risk transfer this year. So there is still the potential for a decision to be taken to maximise the use of that, we suspect.

The current budget to get to the 1-in-50 year funding level is indicated at $237 million and executives from reinsurance broker Gallagher Re said they were confident the required reinsurance and cat bonds can be secured at or below that budgeted spend for 2026.

TWIA has been directly sponsoring catastrophe bonds since 2014 and remains one of the largest sponsors in our cat bond market sponsor leaderboard.