Allstate exhausts cat bond as 2021 cat reinsurance recoveries hit $1.37bn

US primary insurance carrier Allstate has revealed making $1.37 billion of recoveries under its catastrophe reinsurance arrangements during calendar year 2021, $300 million of which came after a full exhaustion of its Sanders Re II 2019-1 catastrophe bond transaction.

In 2021, Allstate reported almost $3.34 billion of catastrophe losses, with significant impacts from major events such as winter storm Uri in the first quarter and hurricane Ida in the third.

But Allstate managed down the impacts of catastrophe losses on its business with the help of reinsurance and catastrophe bonds, with both sources of protection responding in 2021.

The impacts of winter storm Uri and the related freezing weather in Texas were the first event to drive reinsurance recoveries from across Allstate’s tower.

That loss event was the one that initially triggered Allstate’s lowest layer of catastrophe bond-backed reinsurance protection, its Sanders Re II 2019-1 cat bonds Class B notes.

That cat bond provided both occurrence and annual aggregate reinsurance to Allstate and was the lowest-down layer of aggregate cat bond coverage the company had in-force.

With the aggregate loss year running from April, the occurrence of winter storm Uri was perfectly timed to trigger that layer of notes as Allstate’s aggregate losses rose beyond the attachment.

As a reminder, Allstate’s nationwide aggregate reinsurance attached at $3.576 billion of gross losses for that risk period (see this previous article for more details and a diagram of the towers).

The Sanders Re II 2019-1 cat bond provided $300 million of aggregate reinsurance protection above that trigger point, across a $400 million layer, so covering 75% of the losses to that layer of the tower for Allstate.

Allstate’s recoveries from the Sanders Re II 2019-1 cat bond have risen steadily, with roughly $184 million expected to be recovered from its nationwide aggregate reinsurance through the cat bond in April 2021, but the recovery was subsequently reported at $195 million in May and finally at $253 million after the second-quarter completed.

Allstate had continued to experience loss creep on first quarter 2021 catastrophe events, in April, May and also in June of last year, which clearly increased the qualifying loss under the terms of the catastrophe bond as well.

The secondary market the started to mark-down the cat bond notes for a total loss of principal, as investors and cat bond fund managers were anticipating the worst.

That’s a good example of how efficient the cat bond market can be, understanding its exposure thanks to regular updates from cedents that enable investment managers to mark their portfolios more accurately.

Now, we finally have confirmation that Allstate is recovering the full $300 million of protection from the Sanders Re II 2019-1 cat bond, as qualifying losses have crept further from that last annual aggregate year.

The recovery in full of the principal of the Sanders Re II 2019-1 cat bond is dwarfed by recoveries from the rest of Allstate’s reinsurance program though.

The third-quarter of 2021 saw hurricane Ida strike the United States and quickly Allstate said that its losses from Ida would be reduced significantly thanks to reinsurance recoveries.

In total, Allstate reported that its net loss figure for 2021 included catastrophe reinsurance recoveries of $1.37 billion, suggesting a $1 billion recovery from traditional reinsurance structures in its tower.

As ever, it’s not clear whether the recovery has been effected yet, or whether investors are still waiting for the final determination to be made.

But we understand a full recovery from the cat bond has been booked by Allstate, so no doubt the capital itself will flow soon to the insurers benefit.

See details of catastrophe bond losses and cat bonds considered at risk of loss in our Directory.