US primary insurance carrier Allstate has reported its fourth-quarter 2021 catastrophe losses, revealing a total of $528 million, pre-tax, with relatively significant impacts experienced from December loss events, including Colorado’s Marshall Fire.
For just the month of December 2021, Allstate estimates its pre-tax catastrophe losses at $411 million, which would be $325 million, after-tax.
That $411 million figure is actually made up of $381 million of fresh losses from catastrophes and severe weather that occurred in December 2021, as well as some loading from unfavorable reserve reestimates, or loss creep.
The company said that some 78% of the December catastrophe loss tally came from the US tornado outbreak and the Marshall Fire that impacted parts of Colorado during the month.
The Marshall Fire was the largest loss event of the fourth-quarter for Allstate, it seems, with the company currently estimating that it has caused it $218 million of losses.
Allstate did not report monthly catastrophe losses for either October or November and now the December data has been revealed it seems they must have been relatively benign months for the company.
However, prior to that Allstate experienced a significant loss from hurricane Ida in the main, as well as other third-quarter events, which as we previously explained drove almost $1 billion of reinsurance recoveries for the insurer.
Those recoveries came from Allstate’s excess-of-loss reinsurance, it seemed, but its aggregate reinsurance deductible will also have been eroded by the heavy catastrophe loss activity experienced.
Adding in the losses experienced in Q4 2021, this all effectively heightens the risk for Allstate’s catastrophe bonds over the rest of their risk period, that runs to April 2022, with further deductible erosion likely experienced.
Adding up pre-tax catastrophe losses reported by Allstate since April 2021, which aligns with the risk period of the aggregate Sanders Re catastrophe bond coverage that the company has in place, the run-rate for losses stood at $2.78 billion after December.
Based on the last reinsurance program disclosure from Allstate, the aggregate reinsurance tower which is all made up of cat bonds, attaches at $3.8 billion of losses.
Interestingly though, Allstate’s most recent cat bond issuance, the $400 million Sanders Re II Ltd. (Series 2021-2) deal, has a $150 million aggregate layer of cover that only comes into force at April 2022, but could attach at $2.5 billion of losses to the insurer.
That recent cat bond featured a Class B tranche of notes that only provide occurrence reinsurance through until April, so from the start of the next aggregate risk period.
But the way Allstate’s catastrophe losses have aggregated through the current risk period so far, shows that this new cat bond could turn out to be a risky layer to hold, once April arrives.