TWIA might need 66% hike in limit in 2024; RMS model change in focus
Texas' insurer of last resort, the Texas Windstorm Insurance Association (TWIA), may need a 66% increase in limit for its pending reinsurance program should it structure its PML estimate as it did for 2023, data being prepared ahead of the 2024 renewal decision indicates.
On a repeat of the prior-year calculation, based exclusively on the RMS model and including a 15% top-up for loss adjustment expense (LAE), the 100-year PML target would rise 36% or $1.6 billion to $6.13 billion, a study by global broker Aon for TWIA showed.
With only a marginal 7% increase in TWIA's allowable retention point, based on funds on hand, the amount of required limit would rise $1.46 billion or 65.7% to $3.69 billion.
A healthy portion of the 36% rise in PML stems from the increase in exposures. Total exposures rose 26.4% to $104.78 billion in 2023.
But a good portion also comes from the update in the RMS risk model, upon, which TWIA had based 100% of is PML calculation in 2023, excluding three higher modelled estimates which it had previously averaged in.
The shift to the new RMS model, effective from mid-2023, would have increased the 2023 PML calculation by 15.1%, Aon's calculations now show, which, taken together with the rise in exposure, leads to a 40.3% increase in the RMS estimate for 2024 (excluding LAE). The RMS increase comes chiefly on vulnerability recalibrations for year-built, number of stories and other factors.
Other estimate changes due to model updates were considerably more modest, some even negligible. The Verisk estimates, still the highest from the pool of modelled estimates ordered, 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.
As a results, the RMS model went from offering the lowest of four modelled estimates for TWIA PML's to number two behind only Verisk. Impact Forecasting now offers the single lowest 100-year PML estimate for TWIA exposures at $4.9 billion, still excluding LAE.
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