Despite discussion of tail value at risk scenarios exceeding modeled losses, the Texas Windstorm Insurance Association board voted to limit 2026 catastrophe protection to the statutory 1-in-50 level of $4.3051 billion, setting up potential reset or redemption decisions on $1.95 billion of outstanding catastrophe bonds.
The board finalized the association’s 1-in-50 probable maximum loss (PML) at $4.3051 billion for the 2026 hurricane season. The 1-in-50 threshold represents losses expected to be exceeded 2% or less of the time on an annual basis and establishes TWIA’s minimum required catastrophe funding level.
With $2 billion available from statutory funding sources, TWIA determined that $2.2801 billion in reinsurance and catastrophe bonds must be in force to reach the 1-in-50 benchmark. That figure is $25 million lower than the previously cited $2.3051 billion due to anticipated additional funding in the Catastrophe Reserve Trust Fund, slightly increasing the program’s attachment point.
The current operating budget includes a placeholder of $237 million for reinsurance costs. Executives from Gallagher Re told the board they were confident the required placements can be secured at or below that amount.
The reduction in required limit follows a legislative amendment enacted in June that lowered TWIA’s funding requirement from a 1-in-100 PML to a 1-in-50 PML. Under the prior standard, the association’s 1-in-100 PML was calculated at $6.227 billion.
The board selected a methodology for determining the 1-in-50 PML based on recommendations from its Actuarial & Underwriting Committee. The approach uses Verisk Touchstone v13, RMS RiskLink v25, Impact Forecasting v18 and Cotality RQE v25.
The highest and lowest producing models receive 20% weight each, while the remaining two receive 30% each. Results are based on long-term hurricane frequency assumptions and include a 15% loss adjustment expense factor.
The Texas Insurance Commissioner may approve the selected method or adopt a different one by February 1, 2026.
TWIA has $1.95 billion of multi-year catastrophe bonds in force for the 2026 season. If those bonds can be reset into lower layers of the revised tower, net new risk transfer could fall to slightly above $330 million. The outcome depends on reset provisions and whether any bonds are called early.
Reset decisions are expected during March. Any early calls would need to occur in April.
Board members considered whether to purchase protection above the statutory minimum after presentations from Gallagher Re and Aon on tail value at risk measures and potential exceedance of base PML estimates. A motion was passed to limit purchases to the 1-in-50 level and not to seek quotes for additional cover.
Under Texas law, reinsurance above the minimum requirement would be funded through assessments on member insurers rather than TWIA funds, and insurers cannot recoup those assessments from policyholders through surcharges or tax credits.
August last year, TWIA’s board voted 7-1 to leave rates unchanged for 2026, following committee analysis showing rate adequacy gaps narrowing to 3% for residential and 5% for commercial lines. According to prior reporting in August, the change in catastrophe funding requirements and exemptions from certain premium and maintenance taxes contributed to improved rate adequacy.
The association covers nearly 300,000 coastal policyholders and reported a record 280,000 policies in June, up from 185,000 at the end of 2020. The revised funding level means TWIA will have about $3.8 billion in total reserves for 2026 compared with $6.2 billion in 2025, according to reporting published in August.
TWIA, created in the early 1970s, covers wind damage in 14 coastal counties. It has sponsored catastrophe bonds since 2014 and remains an active issuer in the insurance-linked securities market.
Net operating expenses are projected to rise from 5.2% of earned premium in 2025 to 5.5% in 2026.
The shift to a 1-in-50 standard places TWIA below the 1-in-100 benchmark typically maintained by many state-chartered residual insurers, altering its reinsurance demand profile heading into the 2026 renewal cycle.
