Travelers expands cat XoL at renewal, but aggregate shrinks at tighter terms

US primary insurance firm Travelers has expanded its core per-occurrence catastrophe cover at the reinsurance renewals in January 2022, but shrunk its aggregate cover and renewed it at tighter terms, reflecting market conditions and loss activity.

As we explained earlier today, Travelers has 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 is the second year in a row that the aggregate catastrophe cover has been completely eroded.

The insurer has also disclosed some of the details of its reinsurance renewal and it’s clear that market conditions led to mixed success, with one treaty growing significantly, while the aggregate cover size shrank, the deductible increased and the renewed aggregate treaty attaches higher up as well.

First the core Corporate Catastrophe Excess-of-Loss Reinsurance Treaty, which Travelers always renews at 1/1.

For 2021, this cover attached at $3 billion of losses, with Travelers covered for 75% of losses across a $2 billion layer above it, meaning that $1.5 billion of losses were reinsured, while the other 25% or $500 million were retained by the insurer.

At the January 2022 renewals, Travelers has expanded the size of this core catastrophe excess-of-loss reinsurance cover.

It still attaches at $3 billion of losses, but for 2022 90% of the $2 billion layer above that are now covered by the treaty.

As a result, the Corporate Catastrophe Excess-of-Loss Reinsurance Treaty will provide Travelers $1.8 billion of cover, while 10% or $200 million will be retained, for large loss events that breach the $3 billion, with qualifying losses for each occurrence after a $100 million deductible.

So that provides Travelers a much larger amount of occurrence protection from its calendar year XoL reinsurance treaty through 2022.

While the excess-of-loss reinsurance market has clearly been attractive enough to encourage Travelers to build this treaty out, the same cannot be said of the aggregate focused side of the market.

After having exhausted its aggregate catastrophe reinsurance two years in a row now, Travelers has seemingly faced much stricter terms in the market at this renewal.

The 2021 aggregate treaty covered 70% of a $500 million layer above an attachment of $1.9 billion, so $350 million of aggregate coverage across this layer. While the 2021 aggregate treaty covered qualifying losses from PCS-designated catastrophe events in North America in excess of $5 million per catastrophe event, up to a maximum of $250 million per-event.

But for 2022 there are a number of changes.

The aggregate cover now only covers PCS-designated catastrophe events in North America in excess of $10 million per catastrophe event.

The treaty covers now only 45% of a $500 million layer and attaches higher up after a $2 billion retention.

So just $225 million of aggregate cover is available through the treaty for the 2022 calendar year, with 55% or $275 million of qualifying losses retained by Travelers.

Hence, Travelers goes into 2022 with an aggregate reinsurance cover that will take more losses to attach, with each loss needing to be larger, so smaller catastrophe or weather loss events that may have contributed in the past may not do so any more.

At the same time the amount of cover is now greatly reduced, meaning the cover will need more loss activity to attach, but provide protection and recoveries for a shorter amount of time, potentially.

Travelers experience at the January 2022 reinsurance renewals seems to have been typical of others and aligns with commentary from us and other analysts.

Placing aggregate treaties has been more challenging and reinsurers have been focused on attachments, deductibles and reducing coverage.

At the same time, occurrence and higher-layer excess-of-loss covers are far more abundant and in fact in some cases are coming in with attractive pricing still, despite market hardening.

Meaning the end result for Travelers is not unexpected, but likely reflects higher priced protection, forcing the carrier to make tough decisions on how best to structure its program for 2022 and where coverage can effectively be reduced.

Also read: Travelers exhausts aggregate reinsurance in 2021, recovers $255m in Q4.