Allstate’s cat losses hit $985m in August on hurricanes Laura & Isaias

U.S. primary insurance giant Allstate has reported the highest monthly total of catastrophe losses it has suffered for some time, as hurricanes Laura and Isaias helped to drive the total to $985 million for August 2020.

11 catastrophe events in August drove $969 million of pre-tax catastrophe losses, while adverse reserve development on events from previous months took the total to $985 million of pre-tax losses for Allstate, amounting to $778 million, after-tax.

The two largest events of the month of August were the hurricanes that made landfall in the United States during the period.

Hurricane Laura is estimated to have cost Allstate $430 million in losses before tax, while hurricane Isaias is estimated at $200 million, pre-tax.

Allstate’s estimates are typically delivered pre-tax and after reinsurance has been taken into account, although it’s never quite clear how much of a recovery has been made for any event until the insurers reporting comes out.

In this case though, it looks like hurricane Laura came relatively close to attaching Allstate’s nationwide excess of loss catastrophe reinsurance program, as this attaches after a $500 million layer of retained losses for the carrier.

The annual risk period for Allstate’s aggregate catastrophe bond backed reinsurance coverage begins from April 1st, so the insurer has reinsurance protection that losses over the next year aggregate towards the attachment points of.

Allstate had reported almost $1.2 billion of pre-tax catastrophe losses for the second-quarter of 2020 and then for July the total was $145 million.

Adding August’s heavy toll to that total takes the pre-tax catastrophe loss burden for the aggregate risk period to around $2.33 billion.

However, Allstate had also reported a recovery from PG&E related wildfire subrogation payments in July, which meant that July’s catastrophe losses were wiped out and positive income of $334 million reported for the month.

So, on an accounting basis, Allstate’s cat losses for July and August are reduced to $651 million, pre-tax.

That likely doesn’t affect the aggregation of catastrophe losses under the reinsurance program or catastrophe bonds though, as those will be focused on losses from the current risk period and the fact a recovery has been made from prior year claims is unlikely to reduce that total as it aggregates up towards the attachments for the various reinsurance that Allstate has in place.

Allstate’s retention for the cat bond backed layers of its reinsurance tower are higher than where its losses stand to date.

For Allstate to be able to claim on any of the reinsurance provided through the aggregate Sanders Re catastrophe bonds, its losses over the annual risk period need to aggregate above $3.576 billion, which is where the trigger of its 2019-1 Sanders Re cat bond is located.

As a result, at approximately $2.33 billion so far, there’s still a way to go for any of Allstate’s aggregate cat bonds to be threatened by catastrophe losses in this annual risk period. But the retained layer is certainly being significantly eroded so far, considering the risk period only began in April, so a triggering of this coverage can’t be ruled out if catastrophe losses continue at pace for the carrier.