As well as its $1.1 billion of reinsurance cover purchased at its recent 2016 renewal, of which $110m was provided by collateralized markets as Artemis revealed last week, the Texas Windstorm Insurance Association (TWIA) also purchased additional coverage to provide second season protection.
TWIA has $2.2 billion of reinsurance protection for the 2016 hurricane season and year, with $1.1 billion of outstanding Alamo Re catastrophe bonds at the programs core, plus the $1.1 billion of traditional reinsurance arrangements ($110m of which is fully collateralized).
Added to its surplus, Catastrophe Reserve Trust Fund (CRTF) and other funding sources, TWIA has secured the 1-in-100 year level of financing for the 2016 season, of $4.9 billion in total funding available to pay claims from any storms or hurricanes.
But that protection is largely for the 2016 season and TWIA’s board stated concerns about how to finance the 2017 year, if a major storm eroded its surplus in 2016. That could leave the insurer with a whole, perhaps meaning it would have to fill it with a greater reinsurance purchase following a major storm event, which might not have been as efficient in terms of cost at its 2017 renewal.
Hence the board of TWIA discussed a second season reinsurance cover, at the recent meetings we covered here.
Artemis has learned that TWIA did procure that second season coverage at its recent reinsurance renewal, adding a layer of protection that will respond to losses incurred during the 2016 season.
TWIA explained to us that it has purchased a second season reinsurance cover, effective 1st June, which provides protection for 50% of $700 million of losses, above or excess $2 billion of losses, for the 2017 hurricane season.
This second season reinsurance cover is only activated after an event, or series of events, during the 2016 reinsurance contract term causes TWIA to draw-down on its surplus, held separately in the Catastrophe Reserve Trust Fund.
After that the second season reinsurance cover would then come into play for the 2017 season, with any remaining balance left in the CRTF fund inuring to the benefit of the reinsurance layer.
The purchase of this additional reinsurance cover should lessen the chance that TWIA faces much higher costs in 2017, should 2016 prove to be a loss heavy year and also help to lessen the chance that assessments, state-backed funding or rate hikes would be needed.
So not only does TWIA enter the 2016 season with its $4.9 billion of funding, made up of $1.1 billion of catastrophe bonds, $1.1 billion of traditional reinsurance and $2.2 billion of surplus etc, but the insurer is also seeking to leverage the reinsurance market to better protect itself a year ahead into the 2017 season as well.
With reinsurance capital becoming increasingly efficient and cost-effective this is now much more feasible, for insurers such as TWIA. It’s testament to both the maturing of TWIA’s reinsurance strategy and the effectiveness of property catastrophe reinsurance markets that this is possible today.
– TWIA reinsurance renewal has $110m placed with capital markets.
– TWIA to top up with $1.1bn traditional & collateralized reinsurance.
– TWIA to tweak reinsurance for 2016, may add second-event protection.
– TWIA to reset Alamo Re cat bonds to fit with 2016 reinsurance program.
– TWIA’s Alamo Re cat bonds designed to “interact seamlessly”: GC Securities.
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