Progressive reverses May reinsurance recovery, but aggregate still near attachment

Progressive, the US primary insurance giant, has reversed its previously announced $95.1 million reinsurance recovery from May, saying that its loss estimates have now fallen. But the insurer noted that its aggregate reinsurance remains near its attachment.

After May, Progressive said that it had incurred $722.1 million of net catastrophe losses, or 12.3 loss ratio points, related to severe storms primarily in Texas and the Midwest.

Which led the company to explain that it recorded a reinsurance recoverable of $95.1 million for that month, including losses and allocated loss adjustment expenses.

That was expected to be booked under the firm’s occurrence catastrophe reinsurance structure, which has retention thresholds of $200 million.

A month later, the situation has changed and it seems Progressive’s ultimate net losses for May 2024 came in much lower than it had been expecting.

The insurer said today that it has, “Decreased our Property loss estimates a net $12 million, or about 4.7 points, relative to the May storms. We also reversed the reinsurance recoverable of $95 million, which included losses and allocated loss adjustment expenses, under our per occurrence reinsurance contracts.

“Since these storms occurred close to the end of the month, estimating the losses was challenging as virtually no claims had been reported at the time we estimated May results.”

Which does highlight the challenges faced in a monthly results reporting cycle, which Progressive has adopted unlike most US primary insurers.

Its reinsurance partners will be pleased though, in now avoiding any impacts from May catastrophe losses through their exposure to the insurer’s program.

More notable for certain other reinsurers and also the insurance-linked securities (ILS) market, Progressive has continued to take catastrophe losses through June 2024, reporting 17.1 points added to its net catastrophe loss ratio under its property business.

As a result, Progressive said that, “On a year-to-date basis as of June 30, 2024, we remain close to reaching the annual retention thresholds under our 2024 catastrophe aggregate excess of loss contracts.”

Previously, Progressive had explained that it has “reinsurance coverage up to $85 million for non-named storm property catastrophe losses.”

The firm’s latest Bonanza Re Ltd. (Series 2023-2) catastrophe bond, sponsored by Progressive-owned ARX Holding Corporation, provides $70 million of annual aggregate reinsurance cover for a range of perils including severe thunderstorms, as well as named storm events.

With a two section approach, the non-named storm (so other perils, including SCS) coverage would attach at $525 million of losses to ARX Holdings and the Progressive Home companies and those aggregate cat bond notes feature a $20 million event deductible and a maximum contribution per-event of $180 million.

We still have no visibility of how aggregating catastrophe losses might be accumulating under the Bonanza Re 2023-2 notes, but, it does seem likely there will have been some erosion of the retention layer through June.