Progressive says hurricanes Helene, Milton haven’t attached occurrence reinsurance

Progressive, the US primary insurance giant, has reported in its September results that it does not anticipate per-occurrence reinsurance recoveries from either hurricane Helene or hurricane Milton based on its estimates for losses at this time, but they could have implications for its aggregate cover, including its catastrophe bonds.

First, on hurricane Helene which was a September event, Progressive has said that it “incurred $563 million of catastrophe losses, or 9.0 loss ratio points, related to Hurricane Helene, primarily in the Southeastern United States.”

Progressive then explained, “For the month, we incurred vehicle losses of $401 million, including boats and recreational vehicles, and in our Property business, we incurred $162 million of net losses and an additional $23 million of allocated loss adjustment expenses (ALAE).

“Under our occurrence excess of loss reinsurance program, no amounts were ceded related to Hurricane Helene, as our incurred Property losses and ALAE did not exceed our $200 million retention threshold.”

September also saw Progressive experiencing more favourable development from prior periods, with about $77 million, or 31 loss ratio points, booked related to current year storms that occurred prior to September, with just over 60% of that favourable development relating to the May severe storms.

On hurricane Milton, which occurred in October so is not in Progressive’s monthly results disclosure, the company said, “As of October 14, 2024, we estimated that our vehicle businesses (including our special lines products) will incur losses of approximately $325 million and that our Property business will incur net losses and ALAE not to exceed $200 million, which is the retention threshold under our occurrence excess of loss reinsurance program.”

Progressive said its early hurricane Milton estimates are based on, “very early claims reporting information, our experience with severity and reporting patterns from many past storms, and several assumptions, including mix of claims.”

The insurer also said, “these estimates will change, and could change materially, as additional information develops and claims are reported.”

Back at the end of the first-half of 2024, Progressive had commented on its aggregate reinsurance arrangements. But it has not mentioned them in the reporting on hurricanes Helene and Milton.

Progressive had said at that time, “On a year-to-date basis as of June 30, 2024, we remain close to reaching the annual retention thresholds under our 2024 catastrophe aggregate excess of loss contracts.”

Some of Progressive’s aggregate excess-of-loss reinsurance renewed at the start of this year is applicable under named storm losses, but it’s not clear whether any of the traditional aggregate protection will be affected at this time.

The firm’s most recently sponsors Bonanza Re Ltd. (Series 2023-2) catastrophe bond, sponsored under the Progressive-owned ARX Holding Corporation, provides $70 million of annual aggregate reinsurance cover for a range of perils including severe thunderstorms, as well as named storm events.

With a two section approach, the named storm coverage under the Bonanza Re 2023-2 cat bond would attach at $425 million of losses to ARX Holdings and the Progressive Home companies, but these aggregate cat bond notes feature a $25 million event deductible and a maximum contribution per-event of $175 million.

Which, based on the disclosures of loss estimates for Helene and Milton, suggests that each storm could make a significant erosion of the deductible, although Helene falls below the maximum event contribution, while Milton may reach it, it appears based on the estimates released today.

However, two events can only reach a maximum contribution of $350 million towards the $425 million attachment point, so Progressive may need to experience another named storm event loss in order for the coverage the Bonanza Re 2023-2 cat bond to attach, we believe.

As we reported earlier this week, when looking at some of the catastrophe bonds that saw their prices marked down in the secondary market, the Bonanza 2023-2 cat bond that covers the Progressive Home companies did see its price marked down, but it was by less than 10%, implying the market understood that it could not yet be triggered by two named storm loss events.

It will be interesting to see whether these Bonanza Re 2023-2 cat bond notes get marked down any further, based on these two event loss disclosures from Progressive. Or whether they market feels the chances of a third significant named storm loss could be less likely, now the peak of hurricane season has passed.

Other in-force Bonanza Re catastrophe bonds provide occurrence protection attaching much higher up to Progressive Home, or are focused on protection for its American Strategic entity, again providing higher-up occurrence coverage. No visibility of losses to American Strategic are available at this time.