TWIA may need as much as $3.7bn in reinsurance limit for 2024

The Texas Windstorm Insurance Association (TWIA) may require more reinsurance limit than had been originally thought, as modelled data shows the insurer of last resort could look for as much as $3.7 billion for its 2024 renewal, almost $1.5 billion up on TWIA’s 2023 reinsurance and catastrophe bond purchase.

We had reported last year that TWIA is expected to need to buy more reinsurance and risk transfer in 2024, as its exposure growth has been significant and that the insurer had been advised to get into the catastrophe bond market sooner, than later, in order to renew a maturing $500 million issuance.

Later in December, we further reported that TWIA’s target could be for around $1 billion in additional reinsurance funding to be required for 2024.

But it now transpires that TWIA may consider as much as a 65.7% increase in reinsurance limit for 2024, with modelled 100 year PML’s suggesting a significant increase will be needed.

The driver is exposure growth, with TWIA’s policies in-force having risen and inflationary effects increased the values exposed at the same time.

Modelling from Aon suggests that a year ago the 1-in-100 year PML for TWIA was $3.92 billion, but that for 2024 this has risen to $5.331 billion, using a comparable model.

Add in the 15% adjustment for loss adjustment expenses and it sees the 2024 PML up at $6.13 billion, 36% up on 2023’s $4.5 billion.

At last year’s attachment point, 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.

Now, for 2024, the projection is that, if buying on the same basis TWIA could need to buy almost $3.7 billion of reinsurance limit.

That’s with an increase of 7% to the attachment point for the reinsurance, as other funding supports that rising from last year’s $2.28 billion to a 2024 reinsurance attachment point of $2.44 billion.

These figures are set to be presented to TWIA’s Actuarial Committee, with its recommendation then being taken to the Board, so a different model, or number, could be chosen for the target.

But, if the organisation chooses to stick with comparable modelling for how the PML and reinsurance limit required was set a year ago, then it appears TWIA may have to target almost $3.7 billion of reinsurance limit, across its catastrophe bonds and traditional reinsurance tower for 2024.

As a reminder, of the $1.2 billion of catastrophe bonds TWIA currently has outstanding, $500 million are scheduled to mature just prior to the 2024 hurricane season, meaning only $700 million of cat bonds will definitely be in-force.

All of which suggests that when TWIA comes back to the catastrophe bond market, as is anticipated, it could look to more than replace the expiring cat bonds, which could result in a particularly large new cat bond issuance from the residual market wind insurer.

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