TWIA won’t seek extra $1bn reinsurance in 2021, but cat bond may upsize

The Texas Windstorm Insurance Association (TWIA) remains focused on securing the planned just over $1.9 billion of reinsurance protection at its renewal this year, as its Board has turned down the option of adding an extra nearly $1 billion of protection.

But the mix of traditional reinsurance and catastrophe bonds across the roughly $1.9 billion reinsurance program for 2021 is yet to be defined and Board executives cited the fact that TWIA may look to upsize its currently in the market Alamo Re Ltd. (Series 2021-1) catastrophe bond transaction, depending on pricing.

Back in March, TWIA’s Board approved staff to move forwards to secure $1.9 billion of protection before the hurricane season, from a mix of catastrophe bonds and traditional reinsurance, but at the same time the Board also directed TWIA’s broker to secure pricing for an extra potential $1 billion placement.

The additional protection would have taken TWIA’s reinsurance and total funding well-above the 1:100 Probable Maximum Loss, that it typically protects itself to and would need to have been paid for through member company assessments.

At a meeting today though, the Board decided that the additional close to $1 billion of reinsurance will not be pursued this year, saying that it felt the member assessments were not warranted to protect TWIA to a significantly higher level, which would have been to the 1:183 year aggregate loss level.

Had TWIA decided to target this additional coverage in 2021, it would have amounted to an additional $970 million layer, attaching at $4.03 billion and exhausting at $5 billion in the funding tower, with an estimated premium cost of $30 million to $35 million.

This would have involved a mix of cat bonds and traditional reinsurance again, staff said today, and had it been approved TWIA would have aimed to include a second Alamo Re catastrophe bond for 2021.

But the additional layer won’t be sought and as a result TWIA remains on-target to secure $1.93 billion of reinsurance and catastrophe bonds, attaching at $2.1 billion and exhausting at $4.03 billion.

Part of that will be the new Alamo Re 2021-1 catastrophe bond, which remains sized at $250 million for now, but which TWIA staff explained it would likely look to upsize if market pricing is conducive.

The $1.93 billion of reinsurance TWIA will have in place for 2021 will include its $400 million Alamo Re II Pte. Ltd. (Series 2020-1)  catastrophe bond issuance and $200 million Alamo Re Ltd. (Series 2019-1) cat bonds as well.

With the $250 million or larger Alamo Re 2021-1 cat bond as well, that leaves TWIA with at least $850 million of cat bonds and so potentially looking for as much as $1.08 billion of traditional reinsurance, depending on whether the new cat bond upsizes.

Given market conditions for catastrophe bond issuance remain conducive to upsizing deals, there is every chance the reinsurance purchase for 2021 comes in below that level, with more of the program transferred to the cat bond market this year.

At the meeting today, Jerry Fadden, TWIA CFO, explained on the reinsurance renewal, “We are currently in the market with firm order terms and awaiting for submissions from reinsurers. The response has been very positive.”

On the cat bond market he added, “The overall catastrophe bond market has been very healthy of late, with new capital available for investment.

“Depending on the response, we may have the opportunity to upsize this issue.”

He further explained that a mix of traditional reinsurance and catastrophe bonds is always used to allow TWIA to diversify its program, saying that for 2021, “The final mix will depend on pricing.”

So TWIA could well upsize its latest cat bond, but unfortunately for the market won’t bring any additional transactions this year now it seems, with the additional layer of its program put on-hold for 2021.

You can read all about this new Alamo Re Ltd. (Series 2021-1) catastrophe bond from the Texas Windstorm Insurance Association (TWIA) in our extensive Artemis Deal Directory and we’ll update you as final sizing and pricing information becomes available.