The Texas Windstorm Insurance Association (TWIA) is back in the catastrophe bond market as it puts together its reinsurance tower, seeking a $185 million or greater Alamo Re Ltd. (Series 2022-1) cat bond that will act as a renewal of a maturing issuance from 2019.
As we previously reported, for 2022 the Board of the Texas Windstorm Insurance Association (TWIA) voted to adopt a multi-model view of risk, with its newly derived 1-in-100 year probable maximum loss driving a decision to secure a roughly $2.04 billion tower of reinsurance and catastrophe bonds for 2022.
TWIA’s 2019 catastrophe bond issuance, the $200 million of Alamo Re Ltd. (Series 2019-1) cat bonds, will mature in the coming weeks, so a renewal was always on the cards.
TWIA, the residual market property insurer for the State of Texas, is using its Bermuda domiciled special purpose insurer (SPI) Alamo Re Ltd. for this latest cat bond issuance.
Alamo Re will look to issue a single tranche of Series 2022-1 Class A notes that will be sold to investors and the proceeds used to collateralize a $185 million or larger source of multi-year reinsurance protection against losses from named storms and severe thunderstorms in Texas.
As with every TWIA-sponsored catastrophe bond so far, we’re told that 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 therefore 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.
The $185 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, we understand.
The Class A notes would attach at $2.2 billion of losses to TWIA, after a $50 million event deductible, sources said, covering a share of losses up to detachment at $2.843 billion.
That gives the Class A notes an initial expected loss of 2.51% at the base case, while the notes are being offered to cat bond investors with price guidance in a range from 6.75% to 7.25%, we understand.
So it looks like TWIA will likely maintain the catastrophe bond component of its reinsurance tower in 2022, perhaps even upsize on it.
There is plenty of room for the new cat bond to be upsized, should investor demand and pricing allow.