The Texas Windstorm Insurance Association (TWIA) has lifted its target for the recently launched Alamo Re II Pte. Ltd. (Series 2020-1) catastrophe bond issuance, with as much as $400 million of reinsurance capacity from the capital markets now on the cards.
TWIA returned to the catastrophe bond market last week with a new issuance for 2020 that is the insurers first cat bond transaction to be issued out of Singapore.
The Alamo Re II cat bond transaction was launched with a target size of $200 million of reinsurance protection, but it now turns out TWIA has had such a positive response from the cat bond investor community that it will aim to significantly upsize the deal, with as much as $400 million of protection now in sight.
The Alamo Re II 2020-1 cat bond will provide TWIA with a three-year source of reinsurance protection against losses from Texas named storms and severe thunderstorms, on an indemnity trigger and annual aggregate basis.
The new cat bond will fit alongside other coverages, including previous cat bond issues ($400 million of Alamo Re Ltd. (Series 2018-1) cat bonds and $200 million of Alamo Re Ltd. (Series 2019-1) cat bonds) and traditional reinsurance, attaching at $2.1 billion of losses and running up to an exhaustion of the layer at $4.2 billion, as documented in the layer chart we published recently.
That would allow the cat bond flexibility to grow, if cat bond investor demand was sufficient and we now understand that it has proven to be.
We’re told that TWIA has now lifted its target to secure between $300 million and $400 million of collateralised reinsurance protection from its new Alamo Re II cat bond deal.
At the same time as raising its target for the issuance size, we understand that TWIA has also raised the coupon it will pay to investors.
At launch, the then $200 million tranche of Series 2020-1 Class A notes being issued by Alamo Re II Pte. Ltd., that have an initial expected loss of 1.78%, were marketed to cat bond investors with coupon price guidance in a range from 5.25% to 5.75%.
Now, with the issuance size set to grow to somewhere between $300 million to $400 million, the coupon has been raised to provide investors a better return, with the pricing now fixed at 5.75%, so the upper-end of guidance, so offering investors a more healthy multiple.
When TWIA returned to the market this year it said it would secure reinsurance in the most cost-effective manner, so it is encouraging to see the cat bond set to upsize.
It demonstrates that catastrophe bonds remain an effective source of diversifying risk capital, with a price point that is akin to traditional reinsurance and this will now help TWIA to maintain a more balance mix of reinsurance capital sources within its program.
We’ll update you once the final size and pricing is known for TWIA’s new Alamo Re II Pte. Ltd. (Series 2020-1) cat bond and you can view details on every catastrophe bond issued to-date in our extensive Artemis Deal Directory.