Travelers buys more northeast cat reinsurance, as retentions & cat bond lift higher

US primary insurer Travelers has purchased a larger reinsurance program at the mid-year renewal season, adding more cover from its northeast catastrophe reinsurance protection. But its reinsurance retentions have increased, and Travelers has also lifted its catastrophe bond attachment higher up the tower.

There’s evidence of Travelers buying more cover overall, but also buying it higher up and lifting other towers, as reinsurers continue to push their capacity more aggressively in the upper-layers of programs.

It means buyers are often foregoing so much cover lower down, in favour of buying more higher-up, as the economics work out more attractive to them that way and as a result we’ve seen the pricing pressure amplified higher up, where reinsurers and ILS funds get more competitive on price as well.

Before getting onto the reinsurance renewal, Travelers has again reported an elevated level of catastrophe losses for the second-quarter, with $1.509 billion pre-tax this year, compared to $1.481 billion pre-tax in the prior year quarter. No doubt this will be an effect of the severe weather seen in recent months across the United States.

Travelers reported a net income of $534 million for Q2 of 2024 despite an underwriting loss of $65 million driven by the substantial cat losses, which were offset by net favourable prior year reserve development of $230 million and an investment income increase of 24%. Read more on the results over on Reinsurance News.

As a reminder, Travelers no longer has an aggregate catastrophe reinsurance treaty, so these losses presumably won’t have hit its main catastrophe towers, some of which were renewed at July 1st. There could be quota share effects, of course, if Travelers has any in-force at this time.

As a further reminder, at the January 2024 renewals, Travelers significantly increased the amount of protection it receives under its occurrence catastrophe excess-of-loss (XoL) reinsurance treaty, lifting it from 2022’s $2 billion excess of $3.5 billion, by 76% to provide $3.525 billion of cover for this year.

At the mid-year renewals, Travelers adjusted its Northeast Property Catastrophe Excess-of-Loss Reinsurance tower again and bought more limit this time around.

Last year this tower provided $850 million of coverage, subject to a $2.50 billion retention.

At July 1st 2024, Travelers has renewed this to provide a higher $1 billion of coverage, but subject to a higher $2.75 billion retention to run through the end of June 2025.

A year ago, Travelers also added a new Personal Insurance Hurricane Catastrophe Excess-of-Loss Reinsurance Treaty to cover specific named storm and hurricane exposures across United States coastal states from Texas to Maine, but excluding Florida.

Last year this hurricane reinsurance treaty provided Travelers up to $500 million of cover across a $1 billion layer of coverage for a single event, after a $1.75 billion retention.

For the 2024 hurricane season this reinsurance treaty has been renewed to provide again $500 million of cover across a $1 billion layer for a single event, but is now subject to a higher $2 billion retention.

Travelers also renewed its Middle Market Earthquake Catastrophe Excess-of-Loss Reinsurance Treaty at July 1st 2024, securing it $293 million (up from $270m) of reinsurance across a $325 million layer (up from $300m), subject to a $135 million retention (up from $325m).

Also renewed was its Canadian Property Catastrophe Excess-of-Loss Reinsurance Treaty, which provides coverage for 50% of losses in excess of C$100 million, up to C$200 million and 100% of losses above C$200 million, up to C$500 million, which as last year is the same terms as a year prior.

Travelers continues to have significant catastrophe bond backed reinsurance coverage in-force for the coming hurricane season as well, from the Long Point Re IV Ltd. (Series 2022-1) issuance from May 2022, that provides the carrier with $575 million of collateralized catastrophe reinsurance.

The attachment point for this cat bond has now been reset at May 2024, to provide the $575 million of cover after a$2.79 billion retention, which is a further uplift from the $2.48 billion retention the cat bond attachment point had been reset at a year earlier.