The Texas Windstorm Insurance Association (TWIA) has now successfully secured its new catastrophe bond backed reinsurance protection at an upsized $200 million, with pricing for the Alamo Re Ltd. (Series 2022-1) cat bond finalised at the top of initial guidance.
That’s quite a result for TWIA, in managing to increase the size of its cat bond while securing it priced still within guidance, albeit at the top-end of the range.
The majority of new catastrophe bonds of late, have priced above their guidance ranges, in some cases significantly so.
TWIA returned to the catastrophe bond market in early May, aiming to secure at least $185 million of reinsurance from the new Alamo Re Series 2022-1 issuance.
As we explained, the insurer of last resort for the state of Texas was experiencing much higher pricing for its overall reinsurance renewal, of which this catastrophe bond plays a part.
The target had then seemingly been fixed at $185 million, while pricing rose towards the top-end of guidance, as we explained last week.
But we’re now told that TWIA has taken the opportunity to capitalise on cat bond investor appetite for its new issuance, to upsize the deal slightly to provide it $200 million of reinsurance protection.
That’s particularly notable as TWIA’s 2019 catastrophe bond issuance, the $200 million of Alamo Re Ltd. (Series 2019-1), will mature in the coming weeks, so a renewal of this limit was always on the cards and TWIA will be pleased to have sustained the capital markets share of its reinsurance tower with this new issue.
So, Alamo Re will now issue a $200 million single tranche of Series 2022-1 Class A notes that will be sold to investors and the proceeds used to collateralize a multi-year source of reinsurance protection against losses from named storms and severe thunderstorms in Texas.
As with every TWIA-sponsored catastrophe bond so far, TWIA is again using the services of global reinsurance firm Hannover Re as the ceding reinsurer, while TWIA is the reinsured party.
Hannover Re will front the SPI, entering into a retrocessional reinsurance agreement with Alamo Re, while entering into a reinsurance agreement with TWIA to pass on the protection to the insurer.
The now $200 million of Series 2022-1 Class A notes will provide TWIA with three-years of reinsurance protection against losses from named storms and severe thunderstorms in the state of Texas, on an indemnity trigger and annual aggregate basis.
The Class A notes can attach at $2.2 billion of losses to TWIA, after a $50 million event deductible, covering a share of losses up to detachment at $2.843 billion.
Which gives the $200 million Class A notes an initial expected loss of 2.51% at the base case.
At first, the notes were offered to cat bond investors with price guidance in a range from 6.75% to 7.25%, but that was then raised, although still kept within guidance at 7% and 7.25%, to eventually be fixed at the top-end of guidance and finalised to pay investors a coupon of 7.25%.
With this new Alamo Re 2022-1 catastrophe bond, TWIA will sustain its $900 million of multi-year catastrophe bond protection still in-force through this renewal, from this new deal and its $400 million Alamo Re II Pte. Ltd. (Series 2020-1) catastrophe bond and $500 million Alamo Re Ltd. (Series 2021-1) catastrophe bond.
It means the capital markets remain a significant component of its $2.2 billion of private market reinsurance for the 2022 hurricane season.