The Texas Windstorm Insurance Association (TWIA) is now expected to double in size its new Alamo Re Ltd. (Series 2021-1) catastrophe bond transaction, which will now more than replace a soon to mature $400 million cat bond from 2018.
As we were first to report this week, TWIA’s staff said at a meeting on Wednesday that the new cat bond could be upsized, depending on the investor reception to the deal and resulting market pricing.
TWIA returned to the catastrophe bond market for this new Alamo Re 2021 catastrophe bond just over one week ago, at which time it was seeking just $250 million of reinsurance with the issuance.
Thanks to attractive pricing in the softer primary catastrophe bond market, it looks like TWIA will take advantage of this to build on its capital market backed reinsurance, with the revised target now said by our sources to be a doubled $500 million for the deal.
So, this catastrophe bond is now targeted to provide TWIA with a $500 million, three-year source of annual aggregate and indemnity triggered reinsurance protection, covering losses from named storms and severe thunderstorms in Texas.
The $500 million of Alamo Re 2021-1 Class A notes will sit across a wide layer of TWIA’s reinsurance tower, attaching at $2.1 billion of losses and running up to $4.03 billion initially, which will be shared with traditional reinsurance and also its remaining in-force $600 million of cat bonds.
So, across the roughly $1.93 billion layer of private reinsurance in TWIA’s funding tower for 2021, it looks likely that $1.1 billion, so more than half, will come from the catastrophe bond market through Alamo Re deals.
The now $500 million of notes being issued have an initial expected loss of 1.76%.
They were first offered to cat bond investors with price guidance in a range from 4% to 4.75%, but we’re now told by sources that this is being fixed at the low-end of 4%.
That represents a multiple-at-market of 2.7 times the expected loss, which is lower than the 2.5 times EL multiple of TWIA’s 2019 cat bond and far lower than the 3.2 times EL multiple of its 2020 deal.
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.
As a result, the way this new Alamo Re 2021-1 cat bond looks likely to now complete, indicates the notes pricing more cheaply for TWIA than a comparable issuance in 2019, lending further support to our theory that the cat bond market has softened back to early-to mid-2019 levels.