Chubb’s Q3 catastrophe losses near $2bn, ABR Re to prove its worth

Primary insurance giant and specialist reinsurance player Chubb has revealed an update to its estimate of third-quarter 2017 catastrophe losses, adding $220 million for hurricane Maria, $25 million for the Mexico earthquakes and $107 million from other losses during the quarter to the $1.6 billion it already announced for hurricanes Harvey and Irma.

The addition of estimates for hurricane Maria, the two Mexico earthquakes and the other catastrophe loss activity during the quarter, takes Chubb’s total pre-tax and net of reinsurance loss for Q3 2017 very close to $2 billion ($1.952bn to be precise).

It’s a significant hit from this concentrated period of major catastrophe activity, with Chubb’s reinsurance and retrocession providers likely to have taken a significant hit as well. It’s understood some of those will be collateralized markets, as Chubb has some reinsurance protection provided by ILS markets we believe.

The losses won’t trouble Chubb’s in-force East Lane Re VI Ltd. (Series 2015-1) catastrophe bond, as that is a per-occurrence reinsurance structure with an indemnity trigger set at over $2.1 billion of losses to the insurer.

But some of the losses may well be falling to third-party backed reinsurance capital through Chubb’s joint-venture total-return reinsurer, ABR Reinsurance Ltd. (ABR Re).

As we wrote last week, Chubb’s total return reinsurer ABR Re effectively acts as an internal reinsurer, capitalised by third-party investors, while joint-venture partner investment giant BlackRock acts as the asset manager aiming to boost the reinsurance vehicles returns.

ABR Re can participate as a reinsurer on risks including non-life insurance, non-property catastrophe reinsurance and property catastrophe reinsurance contracts that Chubb has underwritten.

It seems likely that ABR Re will have gained exposure to at least some of the near $2 billion of losses from recent events and will be one of the reinsurers that has helped Chubb to reduce its own exposure to recent catastrophes.

Chubb put its loss from hurricane Maria at $220 million pre-tax and net of reinsurance, with $152 million from its commercial and personal property & casualty insurance lines, $53 million from reinsurance and another $15 million due to reinstatement premiums.

Chubb then added another $25 million for its pre-tax and net of reinsurance losses from the two recent major earthquakes in Mexico. Finally Chubb said other catastrophe events during the third-quarter are estimated to have added another $107 million of pre-tax losses to its bill for Q3 2017.

Add all of that to the already announced $1.6 billion of pre-tax and net of reinsurance losses from hurricanes Harvey and Irma, and the bill gets very close to $2 billion (at $1.952bn).

ABR Re, in taking a share of Chubb’s losses as one of its reinsurers but being backed by third-party capital and being internal to the company, will prove a very efficient source of capacity for the insurer.

Utilising a total-return structure as a way to both a greater share of the risk premium of business underwritten, while sharing in fee income and performance of the asset side and reducing the costs of reinsurance capital, should all help Chubb to better manage its efficiency and earnings over time.