TWIA may target $3.35bn reinsurance purchase for above $400m
TWIA approved a recommended $6.5 billion funding target for the coming hurricane year, implying $3.35 billion in reinsurance purchases, but started musing about alternative funding options on word that the reinsurance bill may double year to year to some $400 million.
The TWIA board approved a recommendation from its actuarial gurus to set the 1:100 PML at $6.5 billion, by the same measure setting the funding requirement for the year. The sum represents an increase of $2.0 billion over last year’s $4.5 billion 1:100 PML.
With only a marginal 7% increase in TWIA's allowable retention point, based on funds on hand, and with cat bonds already in place, the reinsurance purchase target rises to $3.35 billion.
Early consultations with TWIA’s broker Gallagher Re points to a reinsurance purchase cost “in the $400 million range,” TWIA general manager David Durden told the board of governors. That ran well ahead of the $298 million which management had preliminarily written into the budget and represents a rough doubling year on year, officials indicated.
That overshoot will likely leave TWIA able to put less money back into its own cash stockpiles, Durden indicated, implying increased reliance on reinsurance purchases to cover funding in future years.
The $6.5 billion PML calculation came on a 3:1 blend of the PML estimates from the updated RMS model and the model from AIR respectively with an added 15% tacked on top for loss adjustment expense.
A major portion of the run-up in funding requirement follows exposure growth which TWIA put at 26.4% to $104.8 billion to end-2023 as more than 25,00 policies came on board.
Further exposure growth is likely ahead of the reinsurance purchase and PML measurement deadline, growth that will need to be covered by the funding and for which TWIA has yet to account.
“The estimate is that it will grow about 10% by the time hurricane season arrives in 2024,” the chair of TWIA’s actuarial and underwriting committee, Debbie King, reported to the board. King suggested that the move to blend in the AIR model results could create a bit of wiggle room. “If you want to look at it like that, it includes a bit of growth,” she said.
Beyond exposure growth, a good portion of the increase in the PML calculation also came from the update in the RMS risk model, upon which TWIA had based 100% of is PML calculation in 2023.
The shift to the new RMS model, effective from mid-2023, would have increased the 2023 PML calculation by 15.1%, calculations by Aon had indicated. Taken together with the rise in exposure, the RMS total estimate rose 40.3% for 2024 excluding LAE.
Other estimate changes due to model updates were considerably more modest, some even negligible. The Verisk estimates attributed 0.6% of the estimate increase to model changes. Core Logic was up 0.7% on model change impact. The Impact Forecasting estimate was up 7.8% on their model changes.
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