TWIA doubles target to $1.2bn for new Alamo Re catastrophe bond
The Texas Windstorm Insurance Association (TWIA) is now targeting sponsorship of what could be the second largest catastrophe bond issuance the market has ever seen, as the size of its new Alamo Re Ltd. (Series 2024-1) issuance has doubled to $1.2 billion, with the pricing narrowed towards the lower-end for each tranche of notes.
The residual market property insurer for the State of Texas returned to the catastrophe bond market around the middle of March, seeking $600 million in collateralized catastrophe reinsurance from what will be TWIA’s tenth Alamo Re cat bond since 2014.
Read about every one of the Texas Windstorm Insurance Association (TWIA)’s catastrophe bonds in our Deal Directory.
Recall that, for 2024, TWIA needs to purchase the largest reinsurance tower in its history, as exposure growth and inflation drove its need for reinsurance higher, with a target set to have just over $4 billion in reinsurance limit in-force for the 2024 wind season.
So, while it was always understood TWIA would return to the cat bond market and that it’s appetite for cover could support a large issuance, we couldn’t forecast just how large that could be.
But now, sources have told Artemis that TWIA’s new Alamo Re 2024-1 cat bond is looking set to double in size from the initially targeted $600 million of reinsurance, with now $1.2 billion of protection the target for this deal.
At that size, this would only be second 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, is still targeting three tranches of Series 2024-1 notes for this cat bond, but with now $1.2 billion of reinsurance coverage to be spread across them.
The targeted $1.2 billion of reinsurance protection from each tranche will cover losses from Texas named storms and severe thunderstorms, on an indemnity trigger and annual aggregate basis, the same as previous Alamo Re cat bonds.
Two of the tranches of notes, Classes A and B, are set to 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.
This seems to be a shrewd strategy to stagger future maturities, given the large amounts of reinsurance capacity needed this year.
All three tranches of notes require loss events to exceed $50 million in cost to TWIA, for the event to be considered covered under the aggregate coverage.
What was a $300 million Class A tranche of notes are now updated with a target size of $500 million, we are told.
The Class A notes initial expected loss is 1.42% and they were first offered with spread price guidance of 6.5% to 7.5%, but we are now told that has been narrowed and lowered to 6.5% to 7%.
What was a $100 million Class B tranche of notes are now targeted to be triple that at $300 million in size, it’s said.
The Class B notes have an initial expected loss of 1.96% and were initially offered with spread price guidance of 7.5% to 8.5%, but we’re told they have also seen their guidance narrowed and lowered to 7.5% to 8%.
The final Class C tranche of notes (so the two year tranche) were first targeted to be $200 million in size, but that has now been doubled to $400 million, our sources told us.
The Class C notes have an initial expected loss of 3.29% and were first offered with spread price guidance of 11% to 12%, but again the guidance has narrowed and fallen to 11% to 11.5%.
So, all three tranches of notes are set to upsize significantly, while again for all three, the price guidance has narrowed towards the lower-end of the initial range.
All of which looks like a very strong result for TWIA and we can expect the residual market insurer to significantly increase its catastrophe bond risk capital outstanding from the Alamo Re program, with $1.2 billion of catastrophe bonds currently outstanding, but $500 million are scheduled to mature just prior to the 2024 hurricane season.
So, if this Alamo Re 2024-1 cat bond settles at the new $1.2 billion target size, it means TWIA would have at least $1.9 billion of cat bond backed reinsurance in-force for the hurricane season.
Of course, there could be time for another Alamo Re before the wind season begins, if TWIA elects to capitalise on the evidently strong investor interest in catastrophe bonds 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.
