Allstate’s reinsurance & cat bond benefits evident in burgeoning recoverable

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After a calendar year in which US primary insurance carrier Allstate reported almost $3.34 billion of catastrophe losses, it is no surprise to see the company extolling the importance of its traditional and capital markets reinsurance arrangements.

Allstate logoAllstate reported its results yesterday, revealing a strong year featuring nearly 21% revenue growth across its business, as our sister publication Reinsurance News reported this morning.

But Allstate’s catastrophe losses rose by almost 19% year-on-year, to the $3.34 billion for 2021, while the insurers’ P&C combined ratio rose by 8.3 points to 95.9% for the year.

Catastrophe losses for the final quarter of the calendar year were also elevated, up 24.5% at $528 million, while the P&C combined ratio was 98.9%.

But helping Allstate right through 2021, in managing the heavy catastrophe loss burden, was its robust reinsurance arrangements and also its catastrophe bonds.

Allstate made recoveries across both its traditional reinsurance tower and its capital market investor backed catastrophe bonds in 2021.

Earlier last year, Allstate’s aggregate catastrophe losses soared on the impacts of winter storm Uri and the related freezing weather in Texas, resulting in reinsurance recoveries from across its tower.

Those losses also triggered Allstate’s lowest layer of catastrophe bond-backed reinsurance protection, the Sanders Re II 2019-1 cat bond.

Losses to that catastrophe bond and its investors continued to escalate through the year, as loss creep from the winter storm and freeze event continued.

At this point in time, the Sanders Re II 2019-1 cat bond notes are marked down for a total loss of the $300 million principal, although we haven’t seen any official update on the losses expected by investors, only secondary pricing sheets that have it marked down to almost zero.

The third-quarter of the year saw hurricane Ida strike the United States and quickly Allstate said that its losses from Ida would be reduced significantly thanks to reinsurance recoveries, which were presumably from its excess-of-loss program as no other cat bonds were triggered at that stage.

Later, in November, we reported that Allstate’s catastrophe reinsurance recoveries for the third-quarter of 2021 were approaching $1 billion, as the carrier continued to see significant benefits from its program.

After the fourth-quarter of 2021, Allstate’s run-rate for aggregated catastrophe losses stood at $2.78 billion after December, still well below the aggregate reinsurance tower trigger, which is all made up of cat bonds, that attaches at $3.8 billion of losses.

Recall, the aggregate year for Allstate begins April 1st, hence the cat bond recovery came in the previous risk-period.

But evident in the carriers full-year 2021 results is the significant support that Allstate has received and expects to receive, in terms of reinsurance recoveries and recoverables anticipated for the last year.

Allstate’s net reinsurance and indemnification recoverables rose by over $2.8 billion during the calendar year, to hit more than $10 billion at year-end.

The size of these figures really drive home the importance of reinsurance for Allstate, as do the recoveries that became public over the course of 2021, including the important capital markets support from the Sanders catastrophe bond.

It’s also noteworthy that the insurer said that that its homeowners insurance strategy includes to “Leverage traditional and capital market reinsurance capacity and brokering in areas where return objectives cannot be
achieved.”

Reinsurance and cat bonds proved themselves for Allstate in 2021, greatly minimising the impacts to its earnings and ultimately shareholders, while this will also have helped to shield policyholders from potentially far steeper price increases had Allstate retained more of the losses.

It’s also important to note that, despite the recoveries, Allstate continued to access the capital markets for protection, sponsoring another $650 million of cat bonds across the course of 2021.

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