Allstate & Travelers Q1 cat loss suggests rising hit to collateralized markets

Two of the largest insurers in the U.S., Allstate and Travelers, have both revealed first-quarter 2017 catastrophe losses today and the higher than expected figures are likely to be reflected in a rising attritional hit to some ILS funds and collateralized reinsurance structures.

The first-quarter of 2017 has been an active quarter for severe convective weather, thunderstorm, hail and tornado events and the catastrophe loss disclosures from these two insurer giants demonstrate just how big the impact has been.

First, Allstate, which has revealed a $516 million pre-tax hit in March 2017 alone from catastrophes ($335 million after-tax), and an estimated $781 million pre-tax ($508 million after-tax) for the entire quarter.

Allstate said that 28 catastrophe events in the quarter resulted in an estimated loss of $777 million pre-tax, plus some unfavorable reserve re-estimation which increases it to the $781 million.

Just one severe hailstorm loss event in March, primarily affecting the state of Texas, accounts for more than a third of Allstate’s catastrophe losses during the quarter, the company said.

Interestingly, analysts at Keefe, Bruyette & Woods said that the $777 million of Q1 catastrophe losses is more than double the figure it had assumed, showing just how severe the impact of March’s severe weather in the United States has been.

Meanwhile Travelers, in its first-quarter 2017 results release today, said that it had suffered $347 million of pre-tax catastrophe losses during the quarter ($226 million after tax), which added 4.3% to its combined ratio taking it to 96%.

Alan Schnitzer, Chief Executive Officer of Travelers, cited “Unusually high first quarter catastrophe losses that arose from a record number of tornado and hail events.”

Travelers $347 million of catastrophe losses is after taking into account reinsurance arrangements.

Of course we have no way of knowing just how much these two companies have called on their reinsurance program support as a result of these losses, nor whether any ILS funds or collateralized reinsurance vehicles are exposed specifically to Allstate or Travelers losses from Q1 2017.

But the size of the loss impact reported by both of the insurers suggests that the attritional loss run-rate for many ILS funds and structures will have been rising due to Q1 severe weather in the U.S. (which we wrote has amounted to a $5.7 billion loss for the sector), while at the same time many aggregate reinsurance programs will have seen the qualifying loss numbers mounting rapidly, reducing the attachment probability for these layers across the remainder of the year.

As we wrote the other day, these increased severe thunderstorm, tornado and hail losses have definitely impacted the buffer beneath one aggregate private cat bond deal. It’s likely that the same is true of others, both private cat bond and collateralized reinsurance, while it’s also possible that some reinsurance sidecar structures could see attritional losses due to Q1 severe weather activity.

As ILS capital increases its share of global reinsurance, its exposure to more severe periods of seasonal weather extremes increases and both ILS funds and investors will see increasingly frequent, although perhaps minor and largely attritional, losses as a result.

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