At a meeting of the Texas Windstorm Insurance Association (TWIA) Board today, the recently proposed new weighting methodology for a blending of catastrophe risk models to derive the 1-in-50 year PML was approved.
As we reported after an Actuarial & Underwriting Committee on October 23rd, it was decided to recommend to the TWIA Board a methodology to weight the highest and lowest catastrophe risk model outputs at 20% each, the two middle figures at 30% each.
As it stood, that would mean the Verisk and RMS cat models would be given a 20% weighting, the Cotality and Impact Forecasting models would receive a 30% weighting.
The Committee also decided to recommend use of long-term hurricane frequency assumptions to derive the PML figure for 2026, and to continue loading the PML with a 15% loss adjustment expense (LAE) amount.
We did some calculations, based on TWIA’s end of August 2025 exposure and that gave us a rough approximation of a 1-in-50 year PML of $4.32 billion.
Today, the TWIA Board voted to adopt that new methodology so it will now be taken forwards. But there remains uncertainty in exactly where the new PML falls, as it depends on the exposure data at the time it is calculated (typically end of November data), as well as the specific model outputs.
As we explained, the Insurance Commissioner for Texas needs to approve it in February, before we’ll know exactly what kind of reinsurance and catastrophe bond renewal the insurer will require for 2026.
The range of $4 billion to $4.5 billion would appear a little hopeful, as it seems more likely to fall in the upper-half of that range for the 1-in-50 year PML, especially given exposures continue to grow, although have been doing so at a decelerating rate.
It’s worth noting that when TWIA purchased its reinsurance and catastrophe bonds for the 2025 hurricane season it did so based on a $6.227 billion 1-in-100 year PML.
But legislative changes now mean the 1-in-50 year is the minimum, so TWIA could potentially buy far less reinsurance.
This year TWIA renewed $4.227 billion of reinsurance and cat bonds and continues to have $2.45 billion of catastrophe bonds in-force.
Interestingly, during today’s TWIA Board meeting, one attendee raised the prospect of buying more reinsurance as the new legislative changes mean any spend above the 1-in-50 year level would be paid for by TWIA members, rather than coming out of its budget.
There’s still a lot that could happen between now and TWIA’s reinsurance and catastrophe bond renewals next year and the new process could mean the insurer gets out into the market a little later as well perhaps, given the final determination for how much protection to buy may not be taken until nearer April it seems.
TWIA’s budget for reinsurance and cat bond protection for 2026 is currently set at $237 million, which is assumed enough to support a PML in the $4 billion to $4.5 billion range.
But it’s worth remembering that TWIA spent $416.6 million on reinsurance and cat bonds this year, so the costs to the insurer are definitely set to decline meaningfully, although there is a chance its members could foot the bill if a decision was taken to purchase reinsurance to a higher than 1-in-50 year level.
TWIA has been directly sponsoring catastrophe bonds since 2014 and remains one of the largest sponsors in our cat bond market sponsor leaderboard.
