RSA taps collateralised markets at reinsurance renewal

UK headquartered primary insurer RSA Insurance Group has tapped the collateralised markets for a portion of its recent reinsurance renewal, with now 9% of its 3-year aggregate program backed by collateralised sources of reinsurance capital.

RSA Insurance Group purchased a group-wide aggregate reinsurance cover with a three-year term back in 2015 and has now renwed this until the end of 2020.

The aggregate reinsurance tower protects RSA against aggregations of losses across all of its short-tail business lines, including property, marine, construction and engineering.

RSA is protected under the terms of the aggregate reinsurance program when qualifying events greater than £10 million collectively cost the insurer more than £170 million in a single calendar year.

So the aggregate tower attaches at £170 million and will then pay up to £150 million of losses in a single year, so exhausting at £320 million. Over the three-year term though there is a maximum recovery of £300 million that can be made, so two year’s worth of the full aggregate.

It’s a cleverly structured multi-year reinsurance deal and the collateralised markets are backing 9% of it, RSA said.

There could be other collateralised or ILS fund sources capacity in the program as well on a fronted basis, with 45% of the program backed by AA- or better rated counterparites and 46% by A- or better rated. Some of those could be fronting for the ILS fund market, we expect.

The renewed aggregate reinsurance helps to protect RSA against frequency loss events, also having retentions of £75 million for UK catastrophe events, £50 million for non-UK catastrophes (Canada/ US/ Caribbean C$75m); and a maximum of £50 million for Property Risk losses.

RSA ceded a lot more risk and spent a significant amount more on reinsurance in the first-half of 2018, reporting £731 million of reinsurance premiums this year, compared to £577 million in the prior year.

At the same time the firm reports that its reinsurance recoveries were actually much lower, at £217 million in H1 2018 compared to £482 million in H1 2017, against a backdrop of gross claims being roughly £220 million higher in 2017.

It appears that the combined attritional, weather and large catastrophe losses in 2017 hit the reinsurance program triggers in a manner that led to a larger proportion of the claims being recovered than has been seen so far this year.

Large losses were higher in the prior year, but so far this year it is weather costs that have affected RSA across the group, which might provide a chance for the aggregate reinsurance program to demonstrate its worth in 2018.