Allstate’s annual aggregate year catastrophe losses surpass $3bn, pre-tax

Allstate, the US nationwide insurance giant, has reported a further $313 million of pre-tax catastrophe losses for July 2023, which takes the pre-tax total for the first four months of the annual aggregate year for its catastrophe bonds above $3 billion.

For July 2023 Allstate said that the $313 million of pre-tax catastrophe losses came from 18 loss events that occurred during the month, which it noted were primarily related to geographically widespread wind and hail events.

Those losses actually drove $349 million of fresh pre-tax catastrophe losses during the month, but the total was reduced to the $313 million due to favorable reserve re-estimates for prior events, Allstate said.

After tax, the total fell to $247 million for the month.

Previously, Allstate had reported that its pre-tax catastrophe losses for the second-quarter of 2023 had reached $2.7 billion, as a particularly costly period of severe convective storm (SCS) activity impacted the carrier.

So, adding in the July month catastrophe losses, which for actual losses suffered in the month we’d use the $349 million figure, takes the running total from April to the end of July 2023 to almost $3.05 billion.

As we’ve reported before, Allstate has annual aggregate catastrophe bonds in-force that would attach at $3.4 billion of qualifying losses.

The annual risk period for those cat bonds began on April 1st, 2023.

So, with just four months of the annual aggregate risk period now passed, pre-tax cat losses are already above $3 billion and so there has been significant erosion of the deductible beneath those cat bonds that provide reinsurance protection to Allstate.

But, as we’ve explained before, it’s a challenge to know how the over $3 billion of pre-tax catastrophe losses translates into aggregate deductible erosion, given the lower down Sanders cat bonds that attach at $3.4 billion feature a $50 million event deductible.

We can see the Sanders Re aggregate catastrophe bonds are all marked down somewhat in secondary pricing, some more than others and with markdowns ranging from as little as 10% to as much as 30%, depending on the pricing sheets analysed.

Which suggests the market is discounting these now, as the qualifying (under the terms of the cat bonds and their event deductibles) annual aggregate catastrophe loss tally rises.

Finally, it’s also worth noting that Allstate is implementing premium rate increases for customers, as it seeks to improve profitability.

The carriers’ CFO Jess Merten explained, on property insurance, “Rate increases for Allstate brand homeowners insurance have resulted in a premium impact of 7.8%, which are expected to raise annualized written premiums by approximately $804 million. Implemented rate increases and inflation in insured home replacement costs resulted in a 14.1% increase in homeowners insurance average gross written premium in July 2023 compared to the prior year.”

US primary insurance carriers have suffered from the storm activity witnessed through recent months and this has driven some profitability challenges that are likely to be rectified through adding more rate.

With reinsurance layers mainly now attaching higher up, the cushioning effect from reinsurance capital is now not kicking in until later, meaning insurers are retaining more losses and so need to charge more on their inwards policy rates.

A year ago, by the end of H1 2022, Allstate’s aggregate catastrophe bond backed reinsurance coverage had attached at $2.7 billion of qualifying losses, so this year’s loss experience might already have been enough to attach some of that protection.

This year, now attaching at $3.4 billion, there is still some way to go, but the total has risen fast in recent months and aggregate cat bonds are likely to remain on watch for any additional qualifying losses from events including the wildfires in Hawaii over the next few weeks.