TWIA projects lower reinsurance and cat bond needs for 2027

The Texas Windstorm Insurance Association (TWIA) projects it will need to secure around $2.05 billion of reinsurance and catastrophe bonds for 2027. This represents a just over 10% decrease from the current year's requirement. Preliminary 2027 budget information outlining this reduced need is being presented to the TWIA Board this week.

Drivers behind the reduced protection needs

The projected reduction is largely due to significant growth in the insurer's Catastrophe Reserve Trust Fund (CRTF). That fund is projected to grow from $25 million this year to as much as $350 million ahead of the 2027 renewals. This growth means less new limit will likely be required. Exposure growth is expected to remain modest, contributing to the lower need. Exposure growth over calendar year 2026 is projected to be 2.6% from the end of 2025, with a total increase of just under 4% anticipated by the end of 2027.

Current reinsurance and catastrophe bond positioning

TWIA currently holds $1.05 billion in catastrophe bond protection, all of which is scheduled to remain in-force through 2028. If this coverage is retained, the association could need to place only around $1 billion of fresh limit next year. That $1 billion would be split across new reinsurance and cat bonds. Catastrophe bonds are likely to remain a key part of the programme, a preference TWIA has demonstrated since 2014 for the certainty and flexibility they provide.

Budget and risk transfer outlook for 2027

TWIA staff forecast the 2027 risk transfer budget could be around $173 million. This is nearly 18% below this year's almost $210 million budget. The lower limit requirement and softer market pricing are driving this projection. The budget is based on the Board's continued target of funding to a 1-in-50-year probable maximum loss (PML) level. TWIA projects the minimum required funding for that 1-in-50-year level will rise slightly to $4.4 billion in 2027, up from this year's $4.3051 billion.

The Board recently rejected a proposal to return to buying protection up to the more conservative 1-in-100-year level. The attachment point for 2027 protection would currently be around $2.35 billion, depending on CRTF availability. This is up from a $2.025 billion attachment point for the current year.

Broader context and funding stability

Despite the reduced need for new limits, TWIA projects it will still have $2 billion of statutory funding available for 2027. This indicates overall financial resilience. The proposed budget points to TWIA entering 2027 in a stronger position. TWIA staff are presenting preliminary 2027 budget information to the Board this week.