Allstate books $36m Sanders Re II cat bond recoverable after heavy 2023 cat loss year

Allstate reported a massive toll from severe weather related wind and hail events in 2023 and has booked a $36 million catastrophe reinsurance recoverable against one of its exposed Sanders Re II catastrophe bonds for the year.

That $36 million reinsurance recoverable from Allstate’s cat bond program is booked against the 2023 calendar year and is down on the $85 million it had booked for 2022.

However, the catastrophe loss burden was far higher in 2023 for Allstate, as the insurer reported an 81.1% or $2.52 billion increase in catastrophe losses during 2023, compared to 2022, which it said was primarily from the increased number of wind/hail events and also larger losses occurring per event.

In fact, during 2023, Allstate reported 136 wind/hail loss events, that cost the insurer a total of $5.065 billion for the year.

That’s up on 106 wind/hail events for a loss of $1.936 billion in 2022, clearly demonstrating the much higher average loss wind and hail outbreaks caused for the insurer last year.

So far, the company has not booked any aggregate reinsurance recoveries for the calendar year 2023, so this recoverable booked appears to be related to the erosion of one tranche of cat bond notes following hurricane Ian, we suspect.

But it’s still highly possible more aggregate recoveries are booked before the end of the next annual risk period, on March 31st, as Allstate’s retention is already severely eroded beneath its remaining aggregate cat bond tranches.

As a reminder, more details on this here in our last piece on the eroded cat bond retention, the $100 million Sanders Re II Ltd. (Series 2020-1) Class B tranche of note aggregate cat bond tranche is the last remaining with a $1m franchise deductible per-event.

Given the large number of wind and hail losses suffered by Allstate, it’s no surprise this tranche is heavily marked down still (recall, it attaches at $5.1 billion of qualifying losses, but over an annual risk period running from April 1st).

The only other Sanders Re II tranche exposed on an aggregate basis is the $150 million Sanders Re II Ltd. (Series 2021-2) that has a $50 million event deductible, although attaches much lower down and also runs from April 1st.

While three Sanders Re III tranches have also seen their retentions eroded as well, again detailed in that last article.

Perhaps the bigger story though, is the fact that despite the exceptionally heavy catastrophe loss burden from wind and hail events in 2023, none of the aggregate cat bonds triggered during the calendar year.

A year or two ago, when more aggregate cat bond tranches had the $1m franchise deductible and attached lower down for Allstate, they may already have been paying out by the end of the calendar year, had such an aggregation of severe wind and hail losses occurred.

Which shows that the cat bond market’s retrenching up and away from frequency risk and secondary perils has helped to reduce losses and perhaps just in time, given the experience Allstate had in 2023, which will have been played out across many other carriers as well.

As we reported on Friday in relation to the Texas wildfires, Allstate does have aggregate cat bond coverage that includes wildfire as a covered peril and recent winter storms and weather may also have been adding to the erosion of retentions beneath the remaining aggregate cat bonds. As we reported, January events added a reasonable catastrophe loss burden.

Details of catastrophe bonds facing losses, deemed at risk, or already paid out, can be found in our cat bond losses Deal Directory here.