Allianz expands aggregate reinsurance to cap cat volatility in 2022

Insurance giant Allianz has significantly expanded its aggregate catastrophe reinsurance protection, adding EUR 200 million of cover to take the excess-of-loss treaty to EUR 500 million in size for 2022, as the company looks to reduce volatility in its results and cap its catastrophe losses.

Allianz reported that its net natural catastrophe and severe weather losses, after reinsurance, amounted to EUR 1.637 billion in 2021, which the company explained was significantly above 2020’s EUR 880 million.

Giulio Terzariol, CFO of Allianz, explained last week that Allianz experienced higher than expected costs from natural catastrophe losses, which has led the company to increase its budget for catastrophe and severe weather losses for 2022.

The insurer has also increased the size of its aggregate reinsurance cover, to help minimise volatility to its business.

In 2021, Allianz’s nat cat losses made up 3.1% of its combined ratio, up from 1.7% in 2020 and well-above the ten-year full-year average of 1.9%.

Weather related losses, excluding nat cat, were 1.2% in 2021, slightly lower than the previous year’s 1.3%.

The insurer said that the main drivers of nat cat losses in 2021 for Allianz were flood and storm events across Europe in the summer months, with Germany the worst affected country for the firm.

To control natural catastrophe and severe weather loss accumulation through 2022, Allianz has now renewed its aggregate excess-of loss reinsurance treaty at EUR 500 million in size, up by EUR 200 million from 2021’s EUR 300 million aggregate treaty.

CFO Terzariol discussed this during an analyst call held after the results were reported last week and said the company has raised its budget for catastrophe losses for this year.

He explained that, “When we look at nat cat, internally, we look at cat cat and weather-related losses. So, overall, in the past, for the sum of nat cat and weather-related losses, we had a budget of about 3% of premium and we move this budget up already, in the last two years, to about 3.2% of premium.

“Now, for 2022, the way I look at that is 3.5 percentage points.

“So, I would say that compared to the situation of three, four years ago, we are 50 basis point higher in the cat allowance, including weather-related, than we were at that time.”

The CFO went on to reference the aggregate reinsurance treaty and how that helps to reduce volatility for Allianz.

“If we see more nat cats that are included in this 3.5% budget, I would say, when we start getting to 4.5 percentage point of load, that’s the point where the aggregate should come into play.

“So, think about that combined budget of nat cat and weather-related of 3.5%, which is 50 basis point higher compared to what we had a couple of years ago, and then, I will say, at 4.5%, we should be capped in terms of nat cats load, because the aggregate will come into play.”