Texas Votes to $130M Spend for 2015 Cat Reinsurance

The board for the Texas Windstorm Insurance Association (TWIA) voted Tuesday to spend up to $130 million on reinsurance during the next windstorm season, with the caveat that the upcoming spring storms do not constrain the budget prior to the buy.

“I think this is an opportunity for TWIA to buy more capacity in the soft market that we are in and spend whatever we can spend — within budgetary means — to get as much as reinsurance as we can,” said one board member during the meeting in Austin yesterday.

Key to the board’s decision was a recommendation by the actuarial committee that the state’s insurer of last resort achieve a 1-in-100 probable maximum loss (PML), a goal that has eluded TWIA for years.

The reinsurance purchase plan, as determined by TWIA’s actuarial committee, includes expanding the reinsurance aggregate capacity of between $2 billion $2.6 billion for a maxim cost of $120 million. However, since the upper limit of that aggregate would only get insurer to a 1-in-90 year PML, the board allowed staff and broker Guy Carpenter to spend an extra $10 million to get TWIA to 1-in-100 PML.

The plan also allows TWIA to consider a second catastrophe bond, following up to its Alamo Re program issued in 2014. Board documents showed that if TWIA does move ahead with a second cat bond it will likely include a 3 year term.

Approval of the reinsurance program was unanimous.



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