Allstate’s aggregate catastrophe bond cat loss run-rate only at $1.3bn after July

We’ve learned that Allstate’s annual aggregate catastrophe losses that are applicable under the terms of its Sanders Re catastrophe bond program has reached $1.3 billion after July 2024, so it is much lower than the accumulation of pre-tax catastrophe losses the company has suffered during the current risk period.

As we reported last week, including its latest July catastrophe loss disclosure, Allstate’s pre-tax catastrophe losses for the period since April 1st, which is when Allstate’s aggregate cat bond risk-period began, has now reached $2.64 billion.

As a result, the current run-rate for catastrophe losses that qualify under the terms of the aggregate Sanders Re cat bonds only seems to be around the 50% of total losses mark, which is perhaps lower than many had anticipated (ourselves included in that).

Allstate’s outstanding aggregate catastrophe bonds provide it with $650 million of reinsurance protection, between an attachment point of $3.56 billion and an exhaustion point of $4.41 billion after the latest annual reset.

Because of the $3.56 billion attachment, it means that qualifying aggregate catastrophe losses that are applicable to the outstanding Sanders Re aggregate cat bond notes have only reached almost 37% of the way through the retention layer so far.

Remember that these cat bonds now have an event deductible that means for any catastrophe loss to qualify under the terms of the aggregate cat bonds, it must cause Allstate at least a $50 million loss, which means that smaller events do not apply and do not eroded the deductible sitting beneath the cat bonds.

We’ve now learned the loss amounts Allstate has reported as applicable to the aggregate cat bonds each month from our catastrophe bond market sources.

So, you can see how Allstate’s reported pre-tax catastrophe losses for each month of the risk period so far compare to the amount reported that are actually qualifying and applicable to the catastrophe bonds below.

Pre-tax cat losses by month
Cat bond applicable by month
Cat bond annual aggregate (accumulating)

Apr 2024
$494m
$158m
$158m

May 2024
$1.4bn
$942m
$1.1bn

Jun 2024
$230m
$0
$1.1bn

Jul 2024
$542m
$200m
$1.3bn

From the above it is clear that the switch to the $50 million event deductible clause in the aggregate Sanders Re catastrophe bonds has made a huge difference.

Prior to that change, which only began to come into effect with cat bonds sponsored by Allstate in 2021, the insurer’s aggregate cat bonds featured a $1 million franchise deductible that meant the majority of its pre-tax catastrophe losses would qualify and erode the aggregate deductible.

Were that franchise deductible still in place today, we could have seen the erosion of the retention layer beneath the aggregate cat bonds being at a much higher level, perhaps as much as $2.2 billion looking back at how the losses qualified in previous years.

But, with the $50 million event deductible now in-force across all of the outstanding Sanders Re catastrophe bonds, only around 37% of the retention has been eroded so far, with just $1.3 billion of the cat losses qualifying under the cat bond terms, we are told.

The run-rate is lower than certain sources and analysts had expected, meaning the aggregate cat bonds remain further from potential loss, with another roughly $2.26 billion of aggregate retention left before any of their reinsurance coverage would attach and investors face any losses of principal.

But, as losses rose further in July, we are told that in the last week the four outstanding Sanders Re aggregate cat bond tranches were all marked down a little further in the secondary market.

This came at a time when the rest of the cat bond market is generally pricing up, so the moves of 1 to 2 points down for each of these Allstate aggregate cat bonds was quite noticeable in the pricing sheets on Friday, we understand.

You can see Allstate’s Nationwide catastrophe reinsurance tower where these aggregate cat bonds sit in our article from after its April renewal.

View details of every catastrophe bond ever sponsored by Allstate here.