Texas to Kick Off Reinsurance, Catastrophe Bond Review as Private Market Proposals Loom

Chris Westfall
Chris Westfall

The Texas Windstorm Insurance Association will begin discussions around their reinsurance program next week — as well as their newly minted catastrophe bond facility — as they gear up for annual renewals.

This year’s discussion’s will also be against a backdrop of two proposals from the Texas Legislature to shift a greater portion of TWIA’s windstorm risk into the private market, including reinsurance and alternative capital sources.

TWIA’s Actuarial/Underwriting Committee will meet next week to “[review] and possible action” regarding the program’s reinsurance commitments and :catastrophe bonds” for the 2015 hurricane season. The committee will develop its reinsurance and catastrophe bond proposals for consideration by TWIA’s full board of directors, which is scheduled to meet on February 3.

A spokeswoman for TWIA stated no additional information regarding the proposals was available prior to the meeting.

TWIA’s 2014 funding structure included $900 million in traditional reinsurance, $484 million in cash and access to $1.5 billion in class 2 and class 3 bonds, according to documents.  TWIA also successfully pushed through the approval of $500 million in pre-event Class 1 bonds by the Texas Public Finance Authority on behalf of TWIA last year.

Also at stake is the future of the Lone Star state’s first catastrophe bond, Alamo Re. Ltd. The $400 million series 2014-1 bonds — issued in June 2014 — provides annual aggregate protection from tropical storms causing at least $50 million loss to TWIA and was the first time the state issued a cat bond.

TWIA will move ahead with its plans for reinsurance renewals despite proposals from Texas lawmakers that would alter the pool’s funding mechanism.

State Rep. Todd Hunter, R-Corpus Christi, has offered a bill that would change the funding structure of TWIA, including multi year push to private market sources such as reinsurance and “alternative capital.”

House Bill 696  calls for the “purchase reinsurance or use alternative risk financing mechanisms in an aggregate amount not greater than $1billion,” but also allows for the purchase of another $800 million in reinsurance or alternative capital funds to limit TWIA’s probable maximum loss for a catastrophe year to one in 100.

State Sen. Juan Hinojosa, D-McAllen put out a separate proposal that calls for “study of market incentives to promote participation in the voluntary windstorm and hail insurance market in the seacoast territory.”


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