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TWIA hits 100-year funding level thanks to Alamo Re cat bonds: Polak


The Texas Windstorm Insurance Association (TWIA) is delighted with the response to its latest catastrophe bond from ILS investors and capital markets, helping it to secure an additional $700m of reinsurance capacity from Alamo Re Ltd. (Series 2015-1).

TWIA has grown its reinsurance capacity significantly in 2015, thanks to more attractive pricing, improved terms and the strong appetite shown by insurance-linked securities (ILS) investors and funds.

The insurer began its work towards the June 1st reinsurance renewal process hoping to secure sufficient capacity to get as close as possible to being protected up to at least a 1-in-100 year storm, while also limiting its spend on risk financing and transfer.

The TWIA board expressed a desire to get to that level of funding as quickly as possible, agreed that the capital markets should play a role and another Alamo Re catastrophe bond should be sponsored, as long as pricing was attractive.

Thanks to the recently completed Alamo Re 2015-1 cat bond, which was upsized during the marketing period by 60%, from the $450m it launched at to $700m in size, as well as its other reinsurance capacity, TWIA has now reached its funding goal.

“TWIA is very excited to have successfully issued an additional $700 million in catastrophe bonds through Alamo Re,” General Manager of TWIA, John W. Polak, told Artemis.

“With a total of $1.1 billion in outstanding catastrophe bonds, TWIA has been able to leverage capital market capacity to significantly expand its reinsurance program, achieving funding equal to its 100-year aggregate PML in 2015,” he continued.

Reaching the 1-on-100 year aggregate probable maximum loss (PML) funding level is a big step for TWIA. Only a few years ago the insurer was entering wind season lacking reinsurance and often with insufficient financing to meet storm claims without having to borrow, or levy assessments on policyholders in Texas.

The multi-year nature of catastrophe bonds, providing some certainty over rates, pricing and reinsurance expenses, as well as the diversification of sources of risk capital and counterparties, are also key for TWIA’s financing goals.

“TWIA appreciates the diversity and multi-year stability provided by the catastrophe bonds and expects to continue to rely on capital markets as part of its overall funding strategy,” Polak told us, suggesting that TWIA will likely be back to cat bonds whenever it needs additional capacity and the price is right.

Now, TWIA is entering the 2015 hurricane season with perhaps its best level of protection ever and the ILS market and catastrophe bonds have played a key role. With $1.1 billion of cat bond capacity outstanding, TWIA is now the fourth largest sponsor in the outstanding cat bond market, according to Artemis’ data.

Reinsurance from the traditional markets, alongside collateralized capacity from catastrophe bonds and maybe some other collateralized participation in the rest of its programme from ILS players, helps TWIA to ensure it can pay more claims, should the worst happen and a severe storm strike.

TWIA, along with other similar residual or last-resort property insurers, are increasingly finding the ILS market and catastrophe bonds a vital and growing component of their financing against hurricane losses. That bodes well for further issuance in future years from TWIA and other similar insurers.

The Alamo Re 2015-1 cat bond officially completed and settled on the 13th May. Fitch Ratings gave the $300m of Class A notes a rating of ‘B+sf’ and the $400m of Class B notes a rating of ‘BB-sf’. The addition of $700m of new risk capital issued took 2015 catastrophe bond and ILS issuance passed $4 billion for the first time.

You can read all about TWIA’s Alamo Re Ltd. (Series 2015-1), the largest catastrophe bond transaction issued in 2015 so far, in the Artemis Deal Directory.

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