TWIA needs $4.227bn of reinsurance & cat bonds for 2025 as PML set at $6.227bn

At a Board meeting held today, staff at the Texas Windstorm Insurance Association (TWIA) opted to set its 1-in-100 year probable maximum loss (PML) at $6.227 billion for the 2025 storm season, meaning that the association will need $4.227 billion in reinsurance and catastrophe bond coverage for the year.

We reported late last year that TWIA’s Board approved a 22% increase in the reinsurance budget for 2025 amid continued exposure growth at the insurer of last resort.

This followed TWIA projecting that it may need almost $5.8 billion in reinsurance limit for 2025 as its projected 1-in-100 year PML rose to $7.8 billion, based on a 75% / 25% blend of RMS and AIR catastrophe models, which is what the insurer used for 2024.

However, today, the Board voted to use a blend of 50% Aon’s Impact Forecasting, 25% Moody’s RMS, and 25% CoreLogic’s RQE risk model outputs to set its 1-in-100 year PML, which brings the PML down to the $6.227 billion, which includes a 15% loading for loss adjustment expenses (LAE).

The insurer of last resort has $2 billion in existing funding from other sources, so in order to have enough coverage up to the 1-in-100 year PML, staff will be directed to purchase $4.227 billion in traditional reinsurance and catastrophe bond protection for the 2025 storm season.

Now, TWIA has $2.1 billion of multi-year catastrophe bonds still in-force, although $200 million of this matures in early June, meaning the insurer will have $1.9 billion of cat bond coverage available. So, TWIA requires an additional $2.327 billion of reinsurance and/or cat bonds to be placed this year to fund it up to the PML.

In comparison, TWIA’s 2024 1-in-100 PML was set at $6.5 billion, a new high. As mentioned previously, this was based on a 75% / 25% blend of RMS and AIR catastrophe models and also includes a 15% adjustment for LAE. It meant that TWIA needed just over $4 billion in reinsurance limit for the 2024 wind season.

Setting the PML for 2025 wasn’t straightforward, and there was quite a lot of debate around the 1-in-100 year PML and exposure growth at TWIA, as well as the elevated cost of reinsurance, which all made for a more difficult and contentious decision.

Additionally, TWIA wants to replenish the Catastrophe Reserve Trust Fund (CRTF), which has been completely eroded due to the losses from hurricane Beryl, and some commented during the meeting that a lower PML and therefore lower reinsurance limit need, could help refill the CRTF.

Ultimately, the different blend of models has led to a lower PML and somewhat reduced TWIA’s reinsurance needs from the amount budgeted late last year.

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