Texas Windstorm (TWIA) targets $600m Alamo Re catastrophe bond

The Texas Windstorm Insurance Association (TWIA), the residual market property insurer for the State of Texas, has returned to the catastrophe bond market seeking to place a large $600 million Alamo Re Ltd. (Series 2024-1) issuance as it looks to build-out its reinsurance for the years ahead with the help of the capital markets, Artemis can report.

Remember that, for 2024, TWIA needs a significantly larger reinsurance purchase than in prior years, having set a target to have just over $4 billion in reinsurance limit in-force for the 2024 wind season.

Which means in addition to its still in-force catastrophe bonds, that provide multi-year reinsurance, an additional $3.35 billion or so is required. Which means a big increase from $2.24 billion of reinsurance limit in 2023, to just over $4 billion this year.

So, it’s no surprise TWIA is out with a large catastrophe bond, as it looks to maximise the participation of the capital markets in its reinsurance tower this year.

As with previous TWIA-sponsored catastrophe bonds, we understand that global reinsurance firm Hannover Re will act as the ceding reinsurer to front the capital markets, while TWIA will be the reinsured party, sources explained.

Hannover Re will therefore front the Alamo Re special purpose insurer, entering into a retrocessional reinsurance agreement with it, while entering into a reinsurance agreement with TWIA to pass on the protection to the Texas based insurer.

Alamo Re Ltd., the Bermuda based special purpose insurer, is set issue three tranches of Series 2024-1 notes for this cat bond, with at least $600 million of reinsurance coverage sought for TWIA.

The reinsurance protection from all three tranches is for Texas named storms and severe thunderstorms, on an indemnity trigger and annual aggregate basis, so the same as previous Alamo Re cat bonds have provided to TWIA.

Two of the tranches of notes, Classes A and B, will provide three years of cover from June 1st to the end of May 2027, while the third Class C tranche will only cover two years from June 1st to the end of May 2026, we are told.

All three tranches need loss events to exceed $50 million in cost to TWIA, for those events to apply under the aggregate coverage, we understand.

A $300 million Class A tranche of notes will cover TWIA for losses from an attachment of $6 billion to $6.5 billion, giving the notes an initial attachment probability of 1.48% and an initial expected loss of 1.42%. These notes are being offered with spread price guidance of 6.5% to 7.5%, it’s said.

A $100 million Class B tranche of notes will cover TWIA for losses from an attachment of $3.65 billion to $6 billion, so sit beneath the A’s, giving the notes an initial attachment probability of 2.61% and an initial expected loss of 1.96%. They span a particularly wide layer of the tower and these notes are being offered with spread price guidance of 7.5% to 8.5%.

A $200 million Class C tranche of notes (so the two year tranche) will cover TWIA for losses from an attachment of $2.45 billion to $3.45 billion, giving the notes an initial attachment probability of 3.97% and an initial expected loss of 3.29%, so are a good deal riskier. These notes are being offered with spread price guidance of 11% to 12%, we understand.

This 2024-1 catastrophe bond from the Texas Windstorm Insurance Association (TWIA) looks set to be one of the largest of this year so far, at $600 million as an initial target.

Read all about this new Alamo Re Ltd. (Series 2024-1) catastrophe bond from the Texas Windstorm Insurance Association and every other cat bond transaction in the Artemis Deal Directory.