Allstate ups reinsurance limit, lowers aggregate retention with cat bond

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U.S. primary insurer Allstate increased the amount of reinsurance limit in both its per-occurrence and aggregate excess catastrophe towers at renewals recently, while the use of catastrophe bonds has also helped the firm to reduce its aggregate retention as well.

Allstate logoAllstate’s reinsurance towers now provide for $4.863 billion of reinsurance limit in its Nationwide excess catastrophe reinsurance tower, up from $4.5 billion in the second half of 2018.

The latest catastrophe bond sponsored by Allstate, the $300 million Sanders Re II 2019-1 issuance from March, has helped Allstate develop a greater level of reinsurance protection for multiple and smaller catastrophe events, by reducing its retention somewhat.

The cat bond replaced a matured Sanders 2014 tranche of notes and alongside a new $200 million “wrap fill” traditional reinsurance contract that was purchased at April 1st, as well as some other layer tweaks, has helped Allstate to boost its per-occurrence reinsurance limit for the year.

On the aggregate side, Allstate’s latest Sanders Re II cat bond is entirely new, slotting in beneath the aggregate section of coverage that the insurers 2018-1 Sanders Re cat bond provides.

As a result, the retention in Allstate’s Nationwide aggregate excess catastrophe reinsurance tower has dropped to $3.54 billion, down from $3.75 billion in the prior year.

This better level of protection achieved through reinsurance purchases made so far in 2019 has cost Allstate a little more than it spent in the prior year period. Allstate spent $85 million in Q1 2018 and $88 million in Q1 2019, but given the higher reinsurance limit, better protection and reduced retention the new program towers provide, it seems this was money well spent.

These Nationwide per-occurrence and aggregate reinsurance towers cover Allstate for personal lines property and automobile excess catastrophe losses resulting from multiple perils in every state except Florida.

The insurers Florida tower will be renewed in the upcoming mid-year period, when it is likely to be faced by higher pricing it seems.

However, it is only the layer below the FHCF participation and the FHCF participation itself that Allstate has to renew this year, as it has multi-year reinsurance in its Florida tower from the Sanders Re 2017-2 cat bond and a traditional excess layer.

Allstate’s strategy of using the capital markets to benefit from multi-year coverage commitments, as well as its now two section occurrence and aggregate protection from recent cat bonds, is clearly working and helping the insurer to become better protected against major catastrophe loss impact.

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