Texas to Explore Reinsurance Boost, Cat Bond Reset and Broker RFP

The Texas Windstorm Insurance Association (TWIA) will consider upping its reinsurance purchase by $100 million, including a reset of its existing catastrophe bond lineup, as it prepares for the June 1 renewal.

Separately, the wind pool will send out its reinsurance broker mandate for review with RFPs hitting the market in the summer.

As part of an annual reinsurance renewal presentation to the board, TWIA staff recommended that the fund increase its current year $2.6 billion retention limit to $2.7 billion in 2016, according to state documents.

Funding for the increase will come from an expected $90 million to $100 million contribution from operations into TWIA’s Catastrophe Reserve Trust Fund.

TWIA will also explore “resetting” its current Alamo Re catastrophe bond lineup to adjust attachment levels to match the new retention limit.

“Staff has begun preparations for the reset of the catastrophe bonds and planning for the 2016 reinsurance program assuming a $2.7 billion retention and a gross premium of no more than $125 million, consistent with the TWIA 2016 budget,” TWIA documents state.

Alamo Re’s series 2015-1 notes were structured to reset on June 1, 2016 while also allowing TWIA the option to increase or decrease attachment levels within an exceedance probability range of 4.40% to 1.00%. If the risk is adjusted at reset, the risk interest spreads will also be recalculated for investors.

The final reinsurance program will be submitted to the TWIA board in April.

Following the June renewal TWIA will put its reinsurance broker contract up for bid after several years of working with Guy Carpenter. The RFP process will take place during the summer, with presentations by brokers in the fall to staff and the TWIA board.

“There are no concerns with our current broker” said James Murphy, TWIA’s Chief Actuary during the latest board meeting. “This allows us to go through the RFP process after reinsurance programs are in place.”


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