Even Chubb sees property cat reinsurance retention rise at renewals

In the current hard reinsurance market environment, even the very largest cedents with the best track-records now have increased retentions. Case in point being Chubb, as its global property catastrophe reinsurance retention has risen at its latest renewal.

Chubb renews its global property catastrophe reinsurance tower for its North American and International operations at April 1st each year.

For 2023 through to the end of March 2024, the re/insurer said that these reinsurance treaties were renewed with “no material changes in coverage from the expiring program.”

Except the one thing that has changed is the attachment point for this property catastrophe reinsurance coverage, with Chubb’s retention rising on both the US and International sides.

In the United States, Chubb’s catastrophe reinsurance retention has now risen from $1 billion at April 1st 2022 to $1.1 billion at the April 1st 2023 renewal, although it is important to note that per-risk and other coverages can make the effective retention a little lower.

The layers above have all shifted to start $100 million higher, although overall Chubb’s US property catastrophe reinsurance tower still only covers it to a $3.5 billion exhaustion point.

A similar situation is now seen in Chubb’s International property catastrophe reinsurance arrangements, with the retention increasing from $175 million at April 1st 2022, to now stand at $200 million after the April 1st 2023 renewals.

The second layer above now extends $25 million higher, with Chubb’s International property cat program exhausting at $1.3 billion for the company for all territories excluding Alaska, Hawaii and Canada.

But, for Alaska, Hawaii and Canada a third-layer of international property cat reinsurance kicks in, starting from that $1.3 billion attachment and running for 2023/4 to $2.45 billion. The top of this International tower has actually come down to $2.45 billion at this year’s renewal, from the $2.52 billion it ran to after the 2022 renewal, despite the fact the retention has increased as well.

All of which does translate into a little less reinsurance available for Chubb, with some more losses likely to be retained as well.

This is visible in Chubb’s modelled probably maximum loss (PML) disclosures, that show the 1-in-100 worldwide annual aggregate loss at $5.197 billion, or 9.8% of shareholders equity, up from $4.558 billion, or 8.8% of equity a year earlier.

On US hurricane risks, Chubb’s 1-in-100 year PML is now estimated at $3.477 billion, or 6.6% of shareholders equity, up from last year’s $2.916 billion, or 5.6% of equity level.

It’s important to remember that Chubb has been growing strongly, with the last quarter seeing the company disclosing a record period.

This growth, while the reinsurance tower has not increased in size, and is in fact providing a little less coverage this year, is why the PML estimates have risen so much, but Chubb feels well-equipped to manage any major loss scenarios that occurred, higher retention or not.

A cedent with the global scale and diversification of Chubb can manage its reinsurance in this way, with the move to higher retentions likely a reaction to the higher costs being charged, but for smaller and less financially strong cedents the harder market is presenting challenges that could see them more exposed when major catastrophes occur.