Texas Windstorm Insurance Association secures $1.4bn reinsurance cover

The Texas Windstorm Insurance Association (TWIA) has secured $1.4 billion in reinsurance coverage for the 2018 hurricane season, according to its annual report.

TWIA was created to give coastal Texans access to wind and hail property insurance when no other insurer will provide it. The association was put to the test on August 25, 2017, when category 4 Hurricane Harvey hit the Texas coast just north of Corpus Christi. In the counties hardest hit — Nueces, San Patricio, and Aransas — 72 percent of the properties have TWIA policies. This resulted in more than 75,000 TWIA claims, the second-highest number of claims received in the association’s history (Ike produced nearly 90,000).

TWIA’s funding sources include the purchase of reinsurance, relying on a combination of traditional reinsurance contracts and privately placed catastrophe bonds. The traditional reinsurance programme provides coverage on an aggregate basis, meaning multiple hurricane events would be covered under the same reinsurance programme.

TWIA’s 2018 reinsurance programme, effective June 1, 2018 to May 31, 2019, provides $4.6 billion in total aggregate funding sources.

A combination of $1.0 billion in traditional reinsurance coverage and $400 million in newly issued catastrophe bonds provide an aggregate of $1.4 billion in excess of $2.8 billion. The traditional reinsurance has a one-year term, and the catastrophe bonds mature in three years.

The association’s 2018 reinsurance programme includes $400 million of three-year catastrophe bonds issued in 2017, which provide coverage for aggregate losses in excess of $2.0 billion and provide 50 percent of the $800 million layer in excess of $2.0 billion.

A $400 million “Second Season” reinsurance contract purchased in 2017 and effective June 1, 2018 is based on the 2017 drawdown of the Credit for Reinsurance Trust Fund (CRTF) to fund Hurricane Harvey losses. The funding available for the 2018 hurricane season is impacted by the depletion of the CRTF in 2017 and the drawdown of funds from the proceeds of the Series 2014 Bonds.

The programme also includes $400 million of catastrophe bonds issued in 2015, which attach at $4.2 billion, providing total funding to $4.6 billion.

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