TransRe further “reshapes” property catastrophe reinsurance book

TransRe, the reinsurance underwriting brand of the Alleghany Corporation, has continued its pull-back from property catastrophe reinsurance exposures during the second-quarter of the year, with another 17.2% reduction in premiums.

A former CEO of Alleghany had called out the industry for underpricing catastrophe risk back in November 2021 and said that TransRe would reduce its capacity for catastrophe-exposed property reinsurance exposures unless the company was paid properly to put the capital at risk.

This was put into practice at the January 2022 renewal season, when TransRe reported that it had reduced its property reinsurance writings by over 25%.

The reason being that the returns are not deemed sufficient for its balance-sheet, which evidently was still the case through the second-quarter and mid-year reinsurance renewals in 2022 as well.

Joe Brandon, President and Chief Executive Officer of Alleghany, explained that the shift towards more specialty classes of business continues at TransRe.

“Excluding a large quota share treaty TransRe elected not to renew at the end of 2021, TransRe’s casualty and specialty net premiums written grew by 14.6%, while its property business declined by 17.2% as it continued to reshape its property catastrophe portfolio,” Brandon said.

“Despite continued global catastrophe losses, TransRe produced $88 million of underwriting profit and a 92.9% combined ratio in the second quarter,” Brandon added.

But overall TransRe’s net premiums shrank by 9.1% in the second quarter and 5.9% in the first-half of 2022, driven by a non-renewal of a large whole-account quota share and the contraction in property catastrophe reinsurance business.

Catastrophe losses were $27 million for Q2 and $75 million for H1 of 2022, with the conflict between Russia and Ukraine driving the majority, at $44 million for the half, followed by $31 million from the flooding in Australia.

TransRe will be hoping to reduce its major natural catastrophe losses going forwards, after the pulling-back on net catastrophe premiums written and retained.

Of course, TransRe has options to deliver catastrophe premiums to third-party capital and is well-known for its long-standing Pangaea reinsurance sidecar series, as well as its ownership stake in ILS fund manager Pillar Capital and stake in ILS manager Integral as well.

TransRe’s collateralized reinsurance sidecar Pangaea has shrunk in recent years, but remains a core way the reinsurer is sharing risk with capital partners. The TransRe Capital Partners division could become increasingly important for the company as it shrinks its cat book back.

The Pangaea Re sidecar issued three series of notes in each of 2020 and 2021, while in 2022 at least one new series of notes have been issued to investors and we suspect a second tranche may have come to market around the mid-year renewal season.

These all give options that could see TransRe continue to write some of its long-standing catastrophe business, but with the goal of earning fee income of a sort, rather than holding risk on its own balance-sheet.

In addition, TransRe also has its Bowline Re catastrophe bonds, which enable it to moderate the catastrophe exposure on its book as well.

Most recently, TransRe secured its new Bowline Re Ltd. (Series 2022-1) catastrophe bond at $165 million to provide multi-peril retro protection, another way catastrophe risks are being shared by the reinsurer.

As many reinsurers cycle away from retention of catastrophe risks, having options to partner with and access third-party capital are becoming ever more important, as capital market investors retain an appetite to access well-managed portfolios of natural catastrophe risk.

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