Texas Windstorm Insurance Association upsized its first catastrophe bond issued from the Alamo Re shelf program, to $400 million from $350 million.
The bonds, which transfer the risk of damange from tropical cyclones over a three-year period and have a preliminary 'B' rating from Fitch Ratings, were sold at a coupon rate of 6.35%, according to GC Securities, which served as sole structurer and sole bookrunner. TWIA used German reinsurer Hannover Re as the ceding reinsurer in the transaction.
TWIA was established by the Texas Legislature in 1971 as a residual insurer of last resort. Although applicants must have been denied coverage by at least one commercial insurer, all properties insured by TWIA must be certified as built to specified building codes, must have flood insurance coverage in specified flood areas and have maximum limits per residential dwelling of $1,773,000 (higher limits are available for commercial structures).
Only named storms that affect Texas and cause an ultimate net loss to TWIA of more than $50 million will qualify as covered under the terms of the Alamo Re program
Noteholders are subject to principal loss (and reduced interest) if annual aggregate ultimate net losses exceed the attachment point of $1.90 billion and a total loss of principal occurs if the severity reaches $3.25 billion in the first 12-month risk period, according to the Fitch press release.
According to Fitch, the covered portfolio of business is located over 14 first-tier, seacoast counties of Texas. Ficth said that this represents $84.4 billion (as of Dec. 31, 2013) of total insured value that is primarily residential (85%) and commercial (15%) with very little exposure to mobile homes. Galveston and Brazoria counties represent 50% of the total insured value.
The ratings agency said that there have been 37 hurricanes that have made landfall in Texas since 1900. Recent hurricanes, Dolly and Ike (two events in 2008) would have caused an estimated 26% principal loss to the notes. Hurricane Rita (2005) would not have caused any losses. Four hurricanes prior to 1933 would have totally exhausted the notes.
The series 2014-1 notes issued by Alamo Re Ltd. has an attachment probability of 3.8%, an expected loss of 2.84% and an exhaustion probability of 2.09%.