A new law in Texas has significantly lowered the loss funding requirements for the Texas Windstorm Insurance Association (TWIA), shifting the standard from coverage for a 1-in-100-year storm event to just a 1-in-50-year event, meaning it may scale back its purchases of reinsurance and other forms of risk transfer.
The Texas House Bill 3689 noted, “The association shall maintain total available loss funding in an amount not less than the probable maximum loss for the association for a catastrophe year with a probability of one in 50.
“If necessary, the required funding level shall be achieved through the purchase of reinsurance or the use of alternative financing mechanisms, or both, to operate in addition to or in concert with the trust fund, public securities, financial instruments, and assessments authorised by this chapter.”
As Reinsurance News understands, this legislation implies that TWIA’s funding requirements will likely decrease, leading to a reduced reliance on reinsurance and other risk transfer mechanisms like catastrophe bonds.
According to our sister publication, Artemis, TWIA has been directly sponsoring catastrophe bonds since 2014 and is among the largest sponsors on record.
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At a recent meeting, TWIA staff reportedly discussed rate adequacy on the inwards side, indicating that reinsurance expenses could decrease by 25% or more under the 1-in-50-year loss funding scenario.
As a result, TWIA’s Actuarial & Underwriting Committee has recommended no rate change for 2026 policies, citing the anticipated reduction in reinsurance costs, a key component of the current rates.
“This is attributed directly to legislation passed in the recently concluded session of the Texas Legislature, which reduced TWIA’s expected costs related to reinsurance and premium & maintenance taxes,” a statement said.
However, it is worth noting that the decline is not definitive, as a major hurricane striking Texas this season could alter TWIA’s funding and reinsurance needs for 2026.
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