The Texas Windstorm Insurance Association (TWIA) is returning to the catastrophe bond market for its third transaction, a $250 million Alamo Re Ltd. (Series 2017-1) deal, which again sees Hannover Re acting as the sponsor, but this time the cat bond will cover TWIA for losses from Texas severe thunderstorms for the first time, alongside Texas named storms.
TWIA has become a regular user of the capital markets for a portion of its reinsurance program, with the Alamo Re cat bond series having secured the residual market property insurer $1.1 billion of coverage to-date. The insurers $400 million Alamo Re 2014-1 cat bond is set to mature in June this year, so the 2017 deal will go some way to replacing that capital market coverage.
This Alamo Re 2017-1 cat bond sees TWIA once again coming to the catastrophe bond market with the assistance of Hannover Re’s entity Hannover Rück SE, which acts as the sponsor of the transaction while TWIA is technically the reinsured, although ultimately the beneficiary of the coverage.
Bermuda domiciled SPI Alamo Re Ltd. will look to issue a single tranche of Series 2017-1 Class A notes, currently targeting a $250 million issuance, which will be sold to ILS and cat bond investors in order to collateralize a retrocessional reinsurance agreement between the issuer and Hannover Rück SE. Hannover Rück SE will in turn enter into a reinsurance agreement with TWIA to provide the coverage.
The $250 million of notes issued by Alamo Re in this 2017-1 issuance will provide TWIA with a three-year source of fully-collateralized reinsurance protection against losses from named storms and severe thunderstorms in the state of Texas. The cat bond notes will feature an indemnity trigger and the reinsurance coverage will be on an annual aggregate basis.
In order to become a qualifying event, under the terms of the Alamo Re 2017-1 cat bond deal, named storm or severe thunderstorm events must cause TWIA a loss of above $50 million in the covered area.
We understand from sources that losses will attach to the notes only above an attachment point of $2.8 billion of losses, and cover up to an exhaustion point of $4.2 billion. In this layer the Alamo Re 2017-1 cat bond will sit alongside traditional reinsurance coverage, so should pricing be attractive there is plenty of room for TWIA to elect to upsize this deal.
The initial attachment probability is 2.28% and the expected loss is 1.71%. We’re told the notes are being offered to investors with coupon price guidance of 3.9% to 4.4%.
The Alamo Re 2017-1 cat bond will sit directly beneath the $700m of Alamo Re 2015-1 notes in TWIA’s reinsurance tower.
While TWIA has opted to add severe thunderstorm risks into its 2017 cat bond, we understand that they make up a minimal proportion of the expected loss and that named storm risks remain the main exposure ILS investors will be assuming with this transaction.
But, when you look at the significant losses suffered in Texas from the severe thunderstorm risks of tornado and hail in recent years, it makes perfect sense for TWIA to add this into the mix in an annual aggregate multi-peril catastrophe bond coverage.
We understand that the Alamo Re Ltd. (Series 2017-1) catastrophe bond is scheduled for completion during May, in advance of TWIA’s June 1st reinsurance renewal.
We’ll keep you updated as the transaction comes to market and you can read about this and every other cat bond in the Artemis Deal Directory.
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