As Texas faces growing exposure to hurricanes and severe weather, the Texas Windstorm Insurance Association (TWIA) Board has taken a proactive stance by approving a substantial 22% increase in the reinsurance budget for 2025. This decision was driven by a sharp rise in projected losses, considering the 1-in-100 year probable maximum loss (PML), which is expected to surge to $7.8 billion in 2025 from $6.5 billion in 2024. For several months, TWIA has been closely monitoring these developments and concluded that nearly $5.8 billion in reinsurance limits would be necessary to adequately manage the anticipated elevated risk.
In 2024, TWIA’s reinsurance program covered $4.05 billion, comprising $1.95 billion in traditional reinsurance and $2.1 billion in catastrophe bond protection. Unfortunately, Hurricane Beryl had depleted the Catastrophe Reserve Trust Fund (CRTF), which had a significant balance of $450 million, underscoring the need for increased reinsurance. By the end of September 2024, the hurricane’s aftermath incurred direct losses and loss adjustment expenses totaling $455 million for TWIA.
Rising Exposure and Financial Adjustments
Projected Losses Require Higher Reinsurance Budget
With the escalating exposure levels and the increased 1-in-100 year PML projection, TWIA faced the challenge head-on by raising its reinsurance budget. James Murphy, TWIA’s Chief Actuary and Vice President of Enterprise Analytics, highlighted that the depletion of the CRTF due to Hurricane Beryl and the ever-increasing exposures necessitated a larger reinsurance package for the upcoming year. Murphy emphasized the importance of recalibrating their approach to ensure sufficient financial protection.
TWIA plans to collaborate with its catastrophe modeling vendor, Aon, to reassess and update exposure models as of November 30, 2024. This reassessment will be instrumental in determining the 100-year PML and making well-informed decisions early in 2025. By doing so, TWIA aims to ensure that the reinsurance program is robust enough to handle potential catastrophic scenarios. This strategic adjustment underscores the Association’s commitment to staying ahead of shifting risk landscapes while safeguarding their financial stability.
Catastrophe Reserve Trust Fund Depleted
The Catastrophe Reserve Trust Fund plays a critical role in supporting TWIA’s reinsurance program, yet its balance was significantly impacted by Hurricane Beryl. As the storm wreaked havoc, resulting in direct losses and expenses totaling $455 million by September 2024, it became evident that the CRTF would be fully depleted. This depletion necessitated a renewed focus on bolstering reinsurance to manage future events effectively.
The financial strain imposed by the hurricane’s impact made it clear that TWIA’s current reinsurance structure required significant enhancement. The Board’s decision to increase the reinsurance budget by 22% reflects their commitment to maintaining financial resilience against natural disasters. As the insurance landscape evolves, TWIA’s proactive adjustments ensure that coverage remains robust, aligned with the projections of escalating risks and challenges.
Strategic Planning in Reinsurance
Addressing Exposure Growth
TWIA’s move to escalate its reinsurance budget is not just reactionary but part of a broader strategic vision to manage exposure growth more effectively. Exposure growth is driven by factors including urban expansion, regional development, and changing weather patterns influenced by climate change. These elements necessitate a more comprehensive risk management approach, and TWIA’s decisions reflect this necessity.
By increasing the reinsurance budget, TWIA is actively reinforcing its risk management strategy to accommodate the current and future growth in exposures. This approach not only ensures preparedness in face of catastrophic events but also instills confidence among policyholders and stakeholders regarding TWIA’s ability to manage large-scale losses. The association’s collaboration with experts and continuous reassessment underline their dedication to remaining vigilant and adaptive to new risks.
Securing Financial Protection
As Texas increasingly faces the threat of hurricanes and severe weather, the Texas Windstorm Insurance Association (TWIA) Board has adopted a proactive approach by approving a significant 22% increase in the reinsurance budget for 2025. This decision stems from a sharp rise in projected losses, with the 1-in-100 year probable maximum loss (PML) expected to escalate to $7.8 billion in 2025, up from $6.5 billion in 2024. For several months, TWIA has monitored these trends closely and determined that about $5.8 billion in reinsurance limits is necessary to adequately address the anticipated heightened risk.
In 2024, TWIA’s reinsurance program covered $4.05 billion, consisting of $1.95 billion in traditional reinsurance and $2.1 billion in catastrophe bond protection. However, Hurricane Beryl depleted the Catastrophe Reserve Trust Fund (CRTF), which held $450 million, highlighting the urgent need for increased reinsurance. By the end of September 2024, the damages and expenses from the hurricane totaled $455 million for TWIA.