Chubb reports rising cat losses. Reinsurance and ABR Re reduces them

Chubb has reported an estimated $320 million of fourth-quarter 2017 catastrophe losses, $280 million of which are due to the impacts of California wildfires, taking its losses for the second-half of the year above $2.2 billion after claims made on its reinsurance, which will have included cessions to its total-return reinsurance joint-venture ABR Re.

The fourth-quarter figures are for losses before tax, after tax the totals come down to $249 million, with $215 million being from the California wildfires.

With Chubb assumed to have around a 3% market share in California, according to analysts at Keefe, Bruyette & Woods (KBW), the estimate of wildfire insured losses is consistent with a roughly $10 billion industry loss.

Chubb’s estimates are for losses net of reinsurance and reinstatement premiums, which will have included any losses ceded through to the ABR Re total-return reinsurer.

For the third-quarter Chubb suffered almost $3 billion of gross catastrophe losses, due to the impacts of hurricanes Harvey, Irma and Maria, as well as the Mexican earthquakes, a figure which was reduced down to $1.9 billion thanks to reinsurance support the re/insurer received.

So the fourth-quarter catastrophe losses, including the California wildfires, take Chubb’s net of reinsurance loss to above $2.2 billion, but the gross loss is likely now nearer to $3.6 billion or perhaps higher at this stage.

With one month to go of the year there is always the chance that these figures rise further, which would put Chubb’s reinsurers on the hook for an even larger share of its final 2017 catastrophe bill.

Without the support of its reinsurers and their capital, a reasonable amount of which likely comes from collateralised reinsurance providers and ILS funds, Chubb would have faced a much larger and more significant loss so far this year.

Additionally, the investors behind the ABR Re joint-venture between Chubb and investment manager Blackrock will also have taken a share of the fourth-quarter catastrophe hit, as some of the reinsurance recoverable will have been sourced from ABR Reinsurance Ltd.

ABR Re has a mandate to participate as a reinsurer on risks Chubb has underwritten, including non-life insurance, non-property catastrophe reinsurance and also property catastrophe reinsurance contracts. That suggests the wildfires must have had some kind of impact.

Akin to a sidecar and backed by third-party investors, while also having a total return investment strategy, ABR Re will likely have proved a very efficient source of reinsurance for Chubb in 2017.

ABR Re and its ilk are another way that institutional investors can access returns of re/insurance business, through a structure that also aims for a total-return to beat the market, thanks to Blackrock’s investment management in this case.

But in year’s like 2017 all of Chubb’s reinsurance support will have been called upon, apart from its one outstanding catastrophe bond, East Lane Re VI Ltd. (Series 2015-1), as that has a per-occurrence trigger set at over $2.1 billion of losses to the insurer and so none of the 2017 events came close to touching that layer of protection.

Capital market investors will have provided a significant level of support, while ABR Re will have also helped to ensure the cost of reinsurance was not as high as if it had all been ceded to unrelated third-parties.

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