Travelers sees $175m cat loss erode ~9% aggregate reinsurance retention

US primary insurer Travelers witnessed the erosion of almost 9% of its smaller catastrophe aggregate reinsurance treaty in the first-quarter of 2022, as the firm accumulated $175 million of qualifying losses in the period.

As we wrote back in January, Travelers shrunk its aggregate coverage at the January 1st, 2022, reinsurance renewals at tighter terms, in a reflection of market conditions and heightened loss activity.

Remember that in both calendar years 2020 and 2021, the primary insurer completely exhausted its aggregate reinsurance, recovering the full amount that was available as a result of severe adverse weather and climate-related events.

After completely eroding its aggregate coverage two years in a row, and in light of market conditions, the insurer made some changes to its reinsurance use at 1/1, including the expansion of its core per-occurrence catastrophe cover, and the reduction of its aggregate protection.

As a reminder, for 2022, the aggregate cover now only covers PCS-designated catastrophe events in North America in excess of $10 million per catastrophe event ($5m in 2021), while the treaty now covers 45% (70% in 2021) of a $500 million layer and attaches at a $2 billion ($1.9bn in 2021) retention.

So, this provides Travelers with $225 million ($350m in 2021) of aggregate reinsurance protection through the 2022 calendar year, with the remaining 55%, or $275 million of qualifying losses retained by Travelers.

Speaking recently during the firm’s Q1 2022 earnings call, Chief Financial Officer (CFO), Dan Frey, confirmed that through March 31st, 2022, “we’ve accumulated $175 million of qualifying losses towards the aggregate retention.”

With a now higher attachment point of $2 billion for the aggregate layer of its reinsurance tower, the $175 million of qualifying losses means that Travelers has eroded 8.75% of its aggregate deductible through the first-quarter of the year.

It will be interesting to see how the company’s restructured reinsurance treaties perform in the months ahead.

While the year has started relatively benign for the carrier in terms of catastrophe losses (net of reinsurance), which fell year-on-year by $675 million to just $160 million in Q1 2022, it’s worth highlighting that the exhaustion of its 2021 aggregate treaty was driven by a $255 million recovery in the final quarter of the year.

Alongside the lower catastrophe load, Travelers announced record net written premiums of $8.4 billion for the quarter, as well as net income of more than $1 billion, a higher underwriting gain of $659 million, and a stronger combined ratio of 91.3%, when compared with the first-quarter of 2021.