Allstate’s May pre-tax catastrophe losses hit $1.4bn

As anticipated, US primary insurer Allstate has reported a significant month of catastrophe losses for May 2024, with $1.4 billion announced pre-tax, some 58% up on the previous year.

With May having seen significant severe weather events across the United State a heavy catastrophe loss toll was expected for the major insurers.

We got our first look at this with Progressive earlier this month, when it reported a heavy cat loss burden and that it has made some reinsurance recoveries as a result.

Then, we reported yesterday that analysts at BMO have estimated that Allstate’s second-quarter catastrophe losses could reach $2.65 billion, which suggested a high figure to come for May.

For April 2024, Allstate had reported $494 million of pre-tax catastrophe losses.

As a reminder, Allstate has a number of aggregate catastrophe bond tranches in-force, with the lowest down attaching above $3.6 billion in qualifying losses.

The annual aggregate risk period for the cat bonds begins with the second-quarter, starting April 1st, but those aggregate Sanders Re cat bonds feature a $50 million per-event deductible, so not all of the pre-tax cat loss figure qualifies under them.

So, for May 2024 Allstate has reported $1.4 billion of pre-tax losses, or $1 billion after tax.

The insurer said these came from 14 events estimated at $1.48 billion, suggesting there was a little prior period loss improvement that lowered the pre-tax figure to just $1.4 billion.

For the aggregate cat bonds, we suspect the $1.48 billion is the figure to look at, although without knowing which events were over $50 million it is impossible to tell what kind of deductible erosion may have occurred, although some erosion is inevitable at this level of losses we expect.

Allstate said that 70% of the losses related to five wind and hail events, primarily in Texas, Colorado and Illinois. Those five events may well have all surpassed $50 million to count for that much of the monthly burden.

Which, if that was the case, would mean around $1 billion of deductible erosion for the aggregate cat bonds. Please note, this is just conjecture at this stage.

Allstate said that its total catastrophe losses for April and May were $1.89 billion, pre-tax, and total catastrophe losses for May year-to-date were $2.62 billion, pre-tax.

June is expected to bring another relatively heavy toll, as the month has seen more severe weather and flooding across southern United States and other regions.

As a result, there is every chance Allstate’s pre-tax catastrophe losses are near the BMO estimate for the second-quarter, which would be a fast start to the annual aggregate year for the catastrophe bonds and could suggest a relatively meaningful erosion of their deductible so far.

You can see details of Allstate’s occurrence reinsurance, that attaches at $500 million and aggregate cat bonds that attach at $3.6 billion of qualifying losses here.

It seems unlikely any of May’s losses would have triggered the occurrence tower, but they will erode some of the retention layer sitting beneath the aggregate cat bonds and this could affect those bonds prices in the secondary market.