American Financial replaces reinsurance layers hit by Harvey & Irma

by Artemis on October 4, 2017

Primary insurance firm American Financial Group, Inc. (AFG), the parent to Great American Insurance Group and Lloyd’s focused Neon, has revealed that it has already replaced its reinsurance program layers that were hit by hurricanes Harvey and Irma, one of the many opportunities to replace coverage that have come to market in recent weeks.

AFG also said that its catastrophe bond, the $190 million Riverfront Re Ltd. (Series 2017-1) transaction for Great American, is not affected by its losses and remains a key source of reinsurance protection going forwards.

AFG said that it estimates $105 million of pre-tax losses due to the impacts of third quarter catastrophe events, including hurricanes Harvey, Irma and Maria, as well as the two earthquakes that struck Mexico.

The loss is after catastrophe reinsurance has paid out for the group, which includes a $15 million per occurrence net retention for the insurers U.S. P&C operations and a separate $15 million per occurrence retention for Neon.

AFG said that after hurricane Irma struck it actively went out to market to source and buy replacement reinsurance coverage for any layers of the catastrophe reinsurance program that were likely to be hit by hurricanes Harvey and Irma.

It also noted the fully-collateralized reinsurance coverage, of up to 95% of $200 million for catastrophe losses in excess of $100 million, that its Great American unit benefits from through the Riverfront Re 2017 catastrophe bond.

There have been opportunities emerging to provide replacement layers of coverage for affected insurers following third-quarter catastrophe events. ILS funds that had cash available, or could call on investors to provide new capital, have in some cases benefited from this by being able to command better rates for some replacement covers.

Numerous insurers are finding key layers of their programs eroded and in a lot of cases not automatically reinstated, meaning they are looking to buy coverage to get them to their next normal renewal point. Underwriters are often able to command a higher price for this making them attractive deals on a risk adjusted basis over the duration of the covers.

The same is being seen in retrocession, although with a lot of that market renewing in January the opportunities for replacement coverage are said to be fewer at this time.

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