TWIA Board Meeting: New Decisions for 2025 Storm Season
During today’s board meeting, the Texas Windstorm Insurance Association (TWIA) made significant decisions regarding its preparation for the 2025 storm season. The staff determined to set the 1-in-100 year probable maximum loss (PML) at $6.227 billion. This decision necessitates TWIA arranging $4.227 billion in reinsurance and catastrophe bond coverage for the forthcoming year.
In late 2023, TWIA’s Board had approved a 22% increase in the reinsurance budget for 2025, a move prompted by the ongoing growth in exposure at this insurer of last resort. At that time, TWIA projected a need for almost $5.8 billion in reinsurance limit for 2025, with the projected 1-in-100 year PML climbing to $7.8 billion, based on a 75%/25% mix of RMS and AIR catastrophe models used in 2024.
However, today’s board decision introduced a new blend of models: 50% Aon’s Impact Forecasting, 25% Moody’s RMS, and 25% CoreLogic’s RQE. This approach effectively reduced the PML to $6.227 billion, accounting for a 15% loading for loss adjustment expenses (LAE).
Having secured $2 billion in existing funding from other sources, TWIA now needs to procure $4.227 billion in combined traditional reinsurance and catastrophe bond protection for the 2025 season. Presently, TWIA retains $2.1 billion in multi-year catastrophe bonds, yet $200 million of this will mature in early June, leaving $1.9 billion of coverage. Consequently, an additional $2.327 billion in reinsurance and/or cat bonds is essential to meet the PML requirements.
In comparison, TWIA’s 2024 1-in-100 PML was established at $6.5 billion, marking a record high. This was derived from a 75%/25% mix of RMS and AIR catastrophe models, alongside a 15% LAE adjustment, necessitating just over $4 billion in reinsurance limit for the 2024 wind season.
The process of determining the PML for 2025 was complex and involved substantial discussion around TWIA’s exposure growth and the elevated cost of reinsurance, factors contributing to a more challenging decision-making environment. Furthermore, TWIA aims to replenish its Catastrophe Reserve Trust Fund (CRTF), depleted by hurricane Beryl’s impact, and some board members suggested that a lower PML could aid in refilling the CRTF.
Ultimately, utilizing a different model blend has led to a reduced PML, thereby lowering TWIA’s reinsurance needs compared to the previous budget estimation made late last year.
