The Texas Windstorm Insurance Association’s (TWIA) $400m Alamo Re Ltd. (Series 2014-1) catastrophe bond has had its rating upgraded by Fitch, after the insurer elected to use the variable reset feature to lower the attachment probability on the notes.
As Artemis wrote here in April, TWIA wanted to adjust the 2014-1 cat bond notes in order to slot them in between the two tranches of its latest deal, the Alamo Re Ltd. (Series 2015-1) cat bond.
This enabled TWIA to structure its reinsurance coverage more effectively, to take into account the new cat bond and any new reinsurance purchases, placing all three Alamo cat bond tranches together, co-participating with a layer of traditional reinsurance.
Fitch initially rated the Alamo Re Ltd. series 2014-1 class A notes at ‘Bsf’ when the deal was issued, but after the annual reset, which saw the modeled attachment probability lowered to 2.09% from its initial annual attachment probability of 3.80%, the 2014-1 notes have now been upgraded to ‘B+sf’.
Any cat bond with an attachment probability below 3.015% on Fitch’s Insurance Linked Securities Calibration Table is rated as ‘B+sf’ or higher.
At the reset, risk modeller AIR also recalculated the risk interest spread for the 2014-1 class A notes to 5.24%, a decrease from the initial spread of 6.35%.
Using the variable reset allows TWIA to move the attachment level of the Alamo Re 2014-1 class A notes up to $3.2 billion, from the initial attachment level of $1.9 billion. At the same time TWIA elected to increase the notes insurance percentage to 50% of its respective layer, up from approximately 30%.
Now, after the reset, TWIA has the Alamo Re 2014-1 Class A notes positioned in between the Series 2015-1 Class A and Class B notes, with all three tranches having a 50% co-participation alongside traditional reinsurance.
At the next annual reset, which will be on June 1st 2016, TWIA will be able to adjust its coverage again. This provides the insurer with flexibility to renew reinsurance in the most efficient way possible, while moving the cat bond tranches around to suit the new program structure.
After this reset TWIA’s reinsurance programme looks like the below image, with the three Alamo Re cat bond tranches stacked alongside traditional reinsurance: