TWIA advised to get into cat bond market, start reinsurance renewal early

The Texas Windstorm Insurance Association (TWIA) is expected to buy more reinsurance and risk transfer in 2024 as its exposure grows and it has been advised to get into the catastrophe bond market sooner than later to renew a maturing issuance, while also starting its reinsurance renewal planning as soon as possible.

As we reported back in November, TWIA, the not-for-profit wind and hail insurer of last resort for the state of Texas, is forecasting a significant increase in its exposure in the months ahead, while risk transfer market conditions are likely to remain a bit more challenging with a continued hard reinsurance market expected for 2024.

TWIA’s 2023 reinsurance program consisted of $2.24 billion of reinsurance limit, with TWIA’s catastrophe bonds making up the biggest share at $1.2 billion, the rest being traditional reinsurance.

For 2024, the expectation currently is that TWIA will need to buy more reinsurance limit, albeit from a higher attachment point than last year.

Exposure growth continues at the insurer of last resort, both in terms of policy count as well as exposure and rising property values, with inflation being an important factor too.

Projections suggest that TWIA could need to buy more than $3 billion in reinsurance and risk transfer for the 2024 hurricane renewals, which is a significant increase.

The figures and budget have not yet been set, but estimated projections seem to suggest as much as $3.3 billion being needed, based on a higher 1-in-100 year PML due to exposure growth and model changes.

TWIA’s multi-year reinsurance from the Alamo Re catastrophe bonds will help, but of the $1.2 billion it currently has outstanding, $500 million mature just prior to the 2024 hurricane season.

So, as it stands, only $700 million of cat bonds will definitely be in-force, which is leading TWIA to consider an early venture to the catastrophe bond market, well in-advance of its renewal date, Artemis understands.

TWIA’s staff have been working closely with reinsurance broker Gallagher Re and its insurance-linked securities (ILS) focused investment banking arm Gallagher Securities, to develop a plan for approaching the reinsurance and catastrophe bond market’s for the next year.

Because of the continued hard reinsurance market conditions, the impending maturity of $500 million of Alamo Re catastrophe bonds and what is being termed “potentially significant” growth in the overall size of TWIA’s reinsurance program because of exposure growth, the insurer has been advised to get out to market as early as possible.

Reinsurance broker Gallagher Re has advised TWIA to begin the reinsurance planning and purchasing as soon as possible.

As a result of this, TWIA staff will ask the Board to approve them to commence the 2024 reinsurance placement now, at the very least in terms of looking to secure catastrophe bond coverage to replace the maturing $500 million of Alamo Re 2021 cat bond notes.

It’s likely the Board will approve this work to begin, so it’s possible we could see TWIA enter the cat bond market within weeks, it seems.

You can read about all of TWIA’s Alamo Re catastrophe bonds it has ever sponsored in the Artemis Deal Directory.