TWIA committee recommends model weights to set PML for reinsurance & cat bond buying

The Texas Windstorm Insurance Association (TWIA) has made some progress in determining how much in reinsurance and catastrophe bonds it will buy in 2026, as its Actuarial & Underwriting Committee met yesterday in a lengthy meeting to select a weighting methodology for a blending of risk models to derive the 1-in-50 year PML.

The upshot is that, based on the latest exposure data available, the blend of models to be recommended to TWIA’s Board suggest a 1-in-50 year probable maximum loss (PML) metric in the range of $4.32 billion, which is based on exposure as of August 31st 2025.

Recall that, legislative changes enacted in Texas halved the state mandated calculation for the amount of loss funding TWIA is needs, from a 1-in-100 year minimum PML metric, down to a 1-in-50 year, which is likely to result in less reinsurance and catastrophe bonds being purchased in 2026.

At a Board meeting in August, they discussed the evolution of the property insurer of last resort’s funding under new state legislation, concluding that it may result in TWIA opting to reset and perhaps even redeem early some of its catastrophe bonds.

Then, at a meeting earlier in October documents showed that based on last year’s methodology for the blending of risk model weights to derive the PML, at the 1-in-50 year level it suggested it could fall to $4.5 billion for 2026.

As we then explained, given the $2 billion of statutory funding expected to be available and an estimated $200 million in the replenished Catastrophe Reserve Trust Fund (CRTF), it meant the reinsurance and cat bond need for 2026 could be just $2.3 billion.

Which is down significantly from the $4.227 billion of reinsurance TWIA had in-force for this year’s 2025 hurricane season.

In fact, it’s lower even than the $2.45 billion of catastrophe bonds TWIA has in-force, alongside which the property insurer for Texas has $1.777 billion of traditional reinsurance for the current year.

At yesterday’s lengthy meeting the Actuarial and Underwriting Committee demonstrated just how difficult it is to make a recommendation on model blend and weighting to use, especially when its Board could opt for something different and the Board then has to make a recommendation to the Texas Insurance Commissioner, who can also choose a different method anyway.

As we’ve seen in previous meetings, there was a desire not to go with the highest or lowest figures output by the models, rather to find a way to blend them to get a result that sat somewhere around the middle, so not being overly conservative or too low so TWIA remains under-protected.

Of course, buying reinsurance and cat bonds to just the 1-in-50 year PML is going to leave TWIA exposed to draining its resources when a major hurricane does hit the state, resulting in a drain on state or taxpayer resources, given it will dramatically reduce the amount of reinsurance and cat bond protection that can absorb some of a major storm loss.

The Committee has opted to use a blend of all four main catastrophe models for setting the 2026 PML, Verisk Touchstone version 13, RMS RiskLink version 25, Impact Forecasting version 18, and Cotality RQE version 25.

The blend to be recommended is to weight the highest and lowest model outputs at 20% each, the two middle figures by 30% each.

On that basis it is Verisk and RMS cat models that would be given a 20% weighting, the Cotality and Impact Forecasting models would receive a 30% weighting, based on the latest model data available.

TWIA’s Committee will also recommend using the long-term hurricane frequency assumptions to derive its figure for 2026, so that all historical data is taken into account in the models. The near-term tends to drive a higher PML figure.

In addition, the Committee opted to continue loading the PML with a 15% loss adjustment expense (LAE) amount, to ensure LAE is covered.

However, it’s worth noting that during the meeting one Committee member said LAE is running slightly over 16% on average at this time for TWIA.

So, looking at data from August 31st 2025, if we apply that weighting and methodology, we get to a 1-in-50 year PML for TWIA of approximately $4.32 billion including the LAE.

The actual PML calculations will be made using November 30th 2025 data, so you can expect to add few percentage points of exposure growth to that as well.

So that could get you closer to the $4.5 billion projection the TWIA Board discussed at the previous meeting, aligned with a reinsurance and catastrophe bond need for 2026 of somewhere around the $2.3 billion figure still, although potentially slightly below depending on exposure growth to Nov 30th.

TWIA’s Board will now consider the recommendation at its next meeting in November, but the Insurance Commissioner for Texas needs to approve it in February, before we’ll know exactly what kind of reinsurance and catastrophe bond renewal the insurer will require 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.