Finances Are Shaping Up for Texas Windstorm Insurer

October 3, 2014

Texas Windstorm Insurance Association (TWIA) announced it has successfully obtained $500 million in funds to assist in paying future catastrophic claims and that the association is now in its best financial position since Hurricane Ike in 2008. The funds come from the issuance of pre-event Class 1 bonds by the Texas Public Finance Authority on behalf of TWIA.

The association’s current reinsurance program also includes a catastrophe bond for the first time, further bolstering TWIA’s finances.

“We’re very excited about the bond issuance, which will provide $500 million in funds that will be immediately available to pay claims after a catastrophe,” said TWIA’s Chief Financial Officer, Pete Gise. “The bonds bring our total funding for the 2014-2015 catastrophe season up to $3.85 billion. This is over a billion dollars more than the combined losses from Hurricanes Dolly and Ike, and would enable TWIA to pay claims associated with 98.6 percent of all modeled storms, or in other words, a 70-year storm. This also brings us closer to achieving our goal of securing funding for a 100-year storm.”

TWIA’s favorable financial condition is due in part to improvements in operational efficiency and several years of favorable weather, the association said.

With a relatively low number of losses in 2014, it is projected that TWIA will be able to contribute over $200 million to the Catastrophe Reserve Trust Fund (CRTF). Texas law requires TWIA to contribute any profits into the CRTF at the end of each year.

The issuance of the Class 1 bonds on September 30 diversifies and expands TWIA’s claims-paying capacity and provides a multi-year funding structure for the Association. The bonds come with a 10-year term and interest rate of approximately 8 percent.

The news of the Class 1 bonds comes on the heels of TWIA purchasing $1.45 billion in reinsurance coverage, including $400 million in catastrophe bonds.

TWIA’s funding structure for 2014 provides that after $1.9 billion dollars in losses have been incurred, reinsurance will pay for the next $1.45 billion. TWIA’s reinsurance paid for approximately $1.5 billion in losses associated with Hurricane Ike in 2008.

“TWIA appreciates the assistance of the Texas Public Finance Authority, the Texas Department of Insurance and Bank of America Merrill Lynch in successfully securing this most recent funding element and emphasizing our commitment to provide financial security to our policyholders,” said TWIA General Manager John Polak.

Source: Texas Windstorm Insurance Association (TWIA)

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