Travelers cat losses near half-way to aggregate reinsurance trigger

At the mid-point of 2022, US property casualty insurance giant Travelers CFO has disclosed that the insurers qualifying catastrophe losses are running at almost half-way to the trigger point for its aggregate catastrophe reinsurance treaty.

As we explained in our update on Travelers reinsurance arrangements earlier today, the company had reported $746 million of catastrophe losses, pre-tax and net of reinsurance, for the second-quarter of 2022.

That took Travelers pre-tax and net of reinsurance catastrophe loss tally to $906 million for the first-half.

But, during the firm’s Q2 earnings call just now, CFO Dan Frey disclosed that qualifying losses, that can count towards erosion of its aggregate reinsurance retention, now stand at $935 million.

Frey explained during the in-progress earnings call, “While catastrophe losses were higher year-over-year, they were not outside our modelled expectations.”

Then Frey further explained that, “Year to date, we’ve accumulated $935 million of qualifying losses towards the aggregate retention of $2 billion on our property catastrophe aggregate excess-of-loss treaty.”

So, that’s almost half the aggregate retention now eroded by the mid-point of 2022.

At the January renewals this year, Travelers shrank its aggregate reinsurance cover and renewed it at tighter terms, reflecting market conditions and loss activity.

For 2022, the aggregate catastrophe reinsurance treaty is structured around a $500 million layer above an attachment of $2 billion.

But out of that $500 million, only 45% or $225 million is actually covered by reinsurance, with Travelers set to retain the other $275 million as losses eat through the $2 billion attachment to the $2.5 billion exhaustion.

On the terms, the new 2022 aggregate catastrophe reinsurance treaty only covers PCS-designated catastrophe events in North America in excess of $10 million per catastrophe event.

The 2021 aggregate treaty had a $5 million per-event qualifying term in the contract.

But despite the change in qualifying event, Travelers catastrophe losses are still eating through that retention at a reasonable rate.

With the hurricane season set to peak over the coming months, it remains to be seen whether reinsurers and ILS funds writing Travelers aggregate cover get away without any losses this year.

Recall that, Travelers had completely exhausted its aggregate reinsurance through calendar year 2021, recovering the full $350 million that was available, $255 million of which was recovered in Q4 2021.

That was the second year in a row that Travelers aggregate catastrophe cover paid out in full, as the layer was eroded through 2020 as well.

In 2022 so far, a significant proportion of Travelers catastrophe losses seem to be from what could be characterised as severe convective storm, thunderstorm and hail events it seems.

With $935 million of the aggregate retention eroded and losses nearly half-way to the $2 billion trigger, if the second-half is as impactful as the first, we could see Travelers very close to making more aggregate reinsurance recoveries again.