Allstate’s aggregate cat losses trend above average, with $350m in May

U.S. primary insurance giant Allstate has reported $350 million of pre-tax losses from natural catastrophe and severe weather events from May 2020, adding to a heavy toll for the start of the aggregate reinsurance contract year for a number of its catastrophe bonds.

The $350 million, pre-tax ($277 million, after-tax), of catastrophe losses experienced in May were experienced across eight specific severe weather loss events, from which losses totalled an estimated cost of $346 million, pre-tax ($273 million, after-tax)

The remainder was added because of unfavourable  development of prior period catastrophe losses amounting to $4 million.

As in other recent months, there was a concentration of losses from the convective storm peril, with four of the eight catastrophe events accounting for roughly 80% of Allstate’s May estimated catastrophe losses.

These four most significant events included rain, wind and hail, and primarily affected Texas and the Midwest region, the insurer said.

The May total of $350 million of catastrophe losses is above average for the month for Allstate, reflecting the high levels of severe weather activity in the United States last month.

Having previously announced $632 million of pre-tax catastrophe losses for the month of April 2020, Allstate’s estimated catastrophe losses for the two months of April and May 2020 have now reached $982 million, pre-tax ($776 million, after-tax).

As a result, the annual aggregation of losses under the reinsurance protection Allstate benefits from through its Sanders Re catastrophe bonds has begun quickly this time around.

The annual risk period for some of Allstate’s aggregate catastrophe bonds begins from April 1st, so the insurer has reinsurance protection that this now $982 million of pre-tax losses will begin to aggregate towards the attachment points of.

Any Allstate reported catastrophe losses that occur during the annual risk period that begins April 1st can be aggregated to erode the retention for these catastrophe bonds and qualify for coverage under the aggregate reinsurance limit.

The retention levels for these cat bond layers of Allstate’s reinsurance tower are high though.

For the insurer to be able to claim on any of the reinsurance provided by its aggregate Sanders Re catastrophe bonds its losses during the annual risk period would have to aggregate above $3.576 billion, which is where the 2019-1 Sanders Re cat bond can attach.

So there’s a significant way to go for any of Allstate’s cat bonds to be threatened by catastrophe losses in this annual risk period, but the total for April and May is a relatively high level of catastrophes to start the new aggregate year with.

Allstate recently added around $221 million of new protection to its core nationwide excess of loss catastrophe reinsurance program, with the capital markets playing an important role through its most recent Sanders Re II catastrophe bond issuance.