December 9, 2023

Major US insurer Travelers was the first major carrier to report Q2 2023 results and also disclosed changes to its reinsurance program following recent renewals, but the elevated levels of catastrophe losses experienced are likely to be the main talking point.

travel umbrellaThe first is an increase in catastrophe losses, which follows an increase in the cat loss burden since the first quarter of this year.

Travelers reported a pre-tax catastrophe loss of $1.481 billion after deducting reinsurance losses in the second quarter of 2023, compared with a pre-tax loss of $746 million a year earlier.

“We reported strong underlying performance and investment returns this quarter, as well as net favorable reserve development in the prior year, which was largely offset by historical levels of industry-wide catastrophe losses,” explained Chairman and Chief Executive Officer Alan Schnitzel. “The fact that we were able to generate positive core revenue despite pre-tax catastrophe losses of $1.5 billion reflects the strength of our franchise and the resilience of our underlying business model.”

Strong winds and hailstorms in several states were reported to be responsible for the cat’s toll.

As a reminder, Traveler did not renew its catastrophe total reinsurance treaty this year.

But the airline is bracing for any major catastrophic event, especially during the Atlantic hurricane season, and bought new reinsurance treaties at its July 1 renewal.

Travelers has acquired this new personal insurance hurricane catastrophe excess loss reinsurance treaty to cover specific storm and hurricane risks in the U.S. coastal states from Texas to Maine (but excluding Florida).

The new hurricane reinsurance treaty offers travelers up to $500 million in coverage after retaining $1.75 billion, with a single event coverage layer of $1 billion.

So, for every dollar of loss between $1.75 billion and $2.75 billion, this new hurricane reinsurance treaty will provide 50 cents of coverage for homeowner property damage due to hurricanes or tropical storms between July 1, 2023, and June 30, 2024.

This will provide an important additional source of coverage for post-Traveler homeowner property losses as the focus shifts further toward providing reinsurance resources for major events rather than frequency-style losses like its totals cover.

Additionally, Travelers said today that its Northeast Property Catastrophe Excess Loss Reinsurance Treaty was renewed on July 1 with some changes.

The Northeast catastrophe reinsurance treaty has been adjusted slightly higher, offering $850 million in coverage but retaining $2.5 billion.

This is an increase, or about 88%, from the maximum reinsurance coverage of $750 million of the $850 million in reinsurance coverage offered by the treaty last year (with a $2.25 billion reserve).

So, while it’s all in place this year, the $850 million insurance layer has moved upwards by $250 million, similar to what many ceding companies experience with reinsurance renewals.

Travelers also has a number of cat bonds in effect for the upcoming hurricane season, and of course its latest sponsorship is Long Point Re IV Ltd. (series 2022-1) from May 2022, providing the airline with $575 million in collateralized catastrophe reinsurance.

The cat bond’s attachment point has now been reset in May 2023 to provide $575 million of coverage after retaining $2.48 billion.

These catastrophe bonds were issued with a $2.2 billion loss attached and exhausted $2.9 billion of coverage, so these bonds also rose to the reinsurance tower.

Travelers also renewed its Mid-Market Earthquake Catastrophe Excess Loss Reinsurance Treaty on July 1, ensuring $270 million of reinsurance in the $300 million tier with a $125 million retain, a slight change from previous years when it provided $248 million of reinsurance in the $275 million tier with a $110 million retain.

Also updated is the Canadian Property Catastrophe Excess Loss Reinsurance Treaty, which provides 50% coverage for losses over $100 million up to $200 million and 100% coverage for losses over $200 million up to $500 million, on the same terms as a year ago.

But catastrophic losses are likely to grab headlines in the mainstream financial media, and the reinsurance industry may be happy not to cover such a large portion of losses, since travelers no longer have total insurance.

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