TWIA prices new Alamo Re to be the second biggest cat bond ever at $1.4bn

The Texas Windstorm Insurance Association (TWIA) has now secured the upsized target of $1.4 billion of collateralized reinsurance from its new Alamo Re Ltd. (Series 2024-1) catastrophe bond, as the deal has now priced which confirms it will be the second biggest cat bond ever issued.

This is TWIA’s largest catastrophe bond by a considerable margin, as its biggest prior to this Alamo Re 2024-1 cat bond was its $700 million Alamo Re Ltd. (Series 2015-1) deal.

Remember that, for 2024, TWIA needs to secure the largest reinsurance tower in its history, as exposure growth and inflation drove a need for more reinsurance, with a target set to have just over $4 billion in reinsurance limit in-force for the 2024 wind season.

Now, this new Alamo Re 2024-1 catastrophe bond has been priced and so will provide a significant $1.4 billion chunk of that total.

TWIA will have $700 million more in catastrophe bonds outstanding when the hurricane season begins, it currently has $1.2 billion but $500 million will mature, so that means the residual market insurer for the state of Texas will have $2.1 billion in cat bond risk capital outstanding to help it through the wind season.

It’s also notable that despite the expected growth in TWIA’s reinsurance tower, cat bonds and the capital markets will remain more than half of its protection this hurricane season.

Read about every one of the Texas Windstorm Insurance Association (TWIA)’s catastrophe bonds in our Deal Directory.

TWIA came back to the catastrophe bond market around the mid-point of March, initial aiming to secure $600 million in collateralized catastrophe reinsurance from what is set to be its tenth Alamo Re cat bond since 2014.

As we then reported, the target size for this Alamo Re 2024-1 cat bond was doubled to $1.2 billion, while the pricing guidance was revised downwards.

We then reported again when the target size was further increased, with TWIA then aiming to secure $1.4 billion of reinsurance protection through this catastrophe bond deal.

Now priced, TWIA has secured the necessary investor commitments to make this a $1.4 billion catastrophe bond issuance and the second biggest cat bond ever issued, second in size only to Florida Citizens’ $1.5 billion Everglades Re issuance from 2014.

Alamo Re Ltd., the Bermuda based special purpose insurer undertaking TWIA’s cat bond issuances, will issue three tranches of Series 2024-1 notes for this cat bond, with the now confirmed as $1.4 billion of reinsurance coverage to be spread across them.

The $1.4 billion of reinsurance protection will cover TWIA for certain losses from Texas named storms and severe thunderstorms, on an indemnity trigger and annual aggregate basis, the same as all the previous Alamo Re cat bonds.

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.

All three tranches of notes require a loss event to exceed $50 million in losses to TWIA, for the event to be considered covered under the aggregate coverage.

The upsized $500 million of Class A notes have an initial expected loss of 1.42% and were first offered with spread price guidance of 6.5% to 7.5%, which was then narrowed and lowered to 6.5% to 7%, before being lowered again to 6% to 6.5% and we’re now told these have priced for a spread of 6%, so the low-end of twice reduced guidance.

The Class B notes ballooned to $500 million in size as well, with an initial expected loss of 1.96% and were initially offered with spread price guidance of 7.5% to 8.5%, which was then narrowed and lowered to 7.5% to 8% and have now priced at 7.75%, so within the initial guidance range.

The Class C notes doubled to $400 million, with their initial expected loss of 3.29% and were first offered with spread price guidance of 11% to 12%, which was then narrowed and lowered to 11% to 11.5%, eventually pricing within guidance again at 11.25%, we are told.

It’s a fantastic result for TWIA, with the insurer having now secured a significant chunk of its reinsurance needs well in advance of its traditional program renewal date at the mid-year.

As we’ve noted before, there is even time for TWIA to come back with another Alamo Re cat bond before the hurricane season begins, if it found market conditions conducive to do so.

There is always a question over how much exposure the cat bond market can take to a single cedent, but in the case of a large reinsurance buyer like TWIA and with the cat bond market growing thanks to investor demand, it seems likely the market could absorb more Texas risk from the Association should it look to the cat bond market to fill out more of its reinsurance needs this year.

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.