The Texas Windstorm Insurance Association (TWIA) is now set to finally appoint insurance and reinsurance broker Aon to provide catastrophe risk modeling services, after the company was recommended by its Actuarial & Underwriting Committee after a second round of RFP’s.
TWIA had issued a request for proposals (RFP) for catastrophe modeling services back in October 2021 and the Committee met and recommended Aon be put forwards for the job.
That happened at the same time as TWIA’s Board considered a change in reinsurance broker and opted for moving away from incumbent Guy Carpenter, to appoint Gallagher Re (Willis Re at the time of the decision).
However, on the new risk modelling service provider, TWIA’s Board asked for the RFP to be reissued, possibly due to there being too few responses the first time around, as it seems only Aon responded that time.
So the RFP for catastrophe modelling services was issued again in December and this time responses came in from Aon, Guy Carpenter and also AIR Worldwide (part of Verisk).
The successful company would provide catastrophe modeling analysis to help the TWIA Board in its determination of the 1-in-100-year probable maximum loss for the 2022 hurricane season and also in making reinsurance purchase decisions.
The Committee met yesterday and Aon has won the proposal and now a recommendation will be made to the TWIA Board to approve Aon’s appointment.
Aon had pitched two levels of catastrophe modelling services and we understand the Committee opted to recommend the Board retain Aon at the lower level of $600k, but also consider a second option that would cost another $1m at a later time.
We expect to see TWIA return to the catastrophe bond market in the first-half of 2022, in particular as the Association may look to harden up its reinsurance arrangements in 2022, after recent loss years.
TWIA has accessed the catastrophe bond market for reinsurance every year since 2014 with an Alamo Re issuance, all of which were brought to market with the assistance of AIR Worldwide as the third-party risk modeller.
We expect that won’t change, as it is not typical for a broker-owned modelling team to work on 144A catastrophe bonds, with the large, independent risk modeling firms more likely to be selected for this role.
The Aon catastrophe modeling services will provide valuable insights to help inform TWIA’s reinsurance purchases and use of catastrophe bonds going forwards though, with critical decisions often taken based on the PML of the TWIA portfolio and how much cover it needs to buy as a result.
The recommendation will be considered by the TWIA Board at a February 2nd meeting. The Board may also choose to propose TWIA staff perform the catastrophe modelling, rather than a service provider, we understand.
TWIA’s reinsurance program reached $1.93 billion in size in 2021, having been renewed in June, with catastrophe bonds making up 57% of the tower, reflecting the importance of access to the insurance-linked securities (ILS) market for the residual market insurer