The Texas Windstorm Insurance Association (TWIA) is back in the capital markets seeking another at least $200 million of collateralized reinsurance protection from a new Alamo Re Ltd. (Series 2019-1) transaction.
This will be the Texas state residual market insurers’ fifth Alamo Re catastrophe bond transaction and the fourth year in a row it has sponsored one, having missed out 2016.
Earlier this year, TWIA said it would aim to secure at least $2.1 billion of protection from the global reinsurance and insurance-linked securities (ILS) market for the 2019 hurricane season.
Right now TWIA has $1.2 billion of in-force Alamo Re catastrophe bonds. But a $400 million slice of this, from the Alamo Re Ltd. (Series 2015-1) transaction, will mature in June 2019, leaving only $800 million of cat bond coverage in-force for the coming hurricane season.
As a result, while this new Alamo Re 2019-1 catastrophe bond has launched at $200 million in size, there is every chance TWIA looks to upsize the cat bond to cover that maturing reinsurance capacity at least.
TWIA has rearranged its reinsurance tower this year, we understand, having added some new sources of capital, with this new cat bond set to sit directly alongside the 2017 and 2018 Alamo Re deals, all occupying vertical slices of the same layer where its traditional reinsurance sits attaching at $2.1 billion of losses and covering a share of the layer up to $4.2 billion.
Therefore, if pricing and execution is particularly efficient with the Alamo Re 2019-1 cat bond, TWIA could elect to grow it relatively significantly to fill more of its reinsurance needs for the year ahead.
With this latest cat bond, Alamo Re Ltd. will look to issue a single tranche of Series 2019-1 cat bond notes, sized at least $200 million, sources said.
The cat bond is again coming to market with the assistance of German reinsurer Hannover Re, which acts as the ceding reinsurer for TWIA’s cat bond deals.
TWIA will enter into a reinsurance agreement with Hannover Rück SE and then enter into a retrocession agreement with Alamo Re Ltd. to effect the transaction and retrieve the coverage.
The $200 million or greater of notes will provide TWIA ultimately with a three-year source of fully collateralized reinsurance, on an indemnity trigger and annual aggregate basis, against losses from Texas named storms and severe thunderstorms.
Qualifying events have to cause TWIA over $50 million of loss before they can start to erode the cat bond retention and attach from $2.1 billion of losses upwards.
As a result, the notes will have an initial expected loss of 1.8% and we’re told are offered to investors with a coupon guidance range of 4.25% to 4.75%.
It will be interesting to see how TWIA mixes its traditional reinsurance and catastrophe bond coverage this year. There is every chance that the cat bond could at least replace the maturing 2015 transaction, perhaps becoming one of the largest ever sponsored by TWIA.
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