Progressive makes reinsurance recovery after significant May catastrophe losses

US insurance giant Progressive has recorded a reinsurance recovery of $95.1 million under its per-occurrence coverage after suffering significant catastrophe losses in May, while also saying its aggregate reinsurance is nearing attachment after the month.

During the month of May, Progressive said that it incurred $722.1 million of net catastrophe losses, or 12.3 loss ratio points, related to severe storms primarily in Texas and the Midwest.

However, that 12.3 point catastrophe driven loss ratio was company-wide and driving home just how impactful May has been, for severe weather losses in the United States, Progressive’s property segment catastrophe loss ratio reached a massive 173.4% for the month and its combined ratio almost 283%.

The insurer said that three events, primarily impacting Texas and the Midwest, accounted for nearly 60% of the catastrophe losses during the month.

In that property underwriting segment, Progressive said it recorded a reinsurance recoverable of $95.1 million, including losses and allocated loss adjustment expenses.

That was under the firm’s occurrence catastrophe reinsurance structure, which have retention thresholds of $200 million.

Notable for the insurance-linked securities (ILS) market perhaps, Progressive also reported today that, as of May 31st 2024, it is “close to reaching the annual retention thresholds under our 2024 catastrophe aggregate excess of loss contracts.”

Once those attachment thresholds are reached, for the aggregate reinsurance, Progressive said it has “reinsurance coverage up to $85 million for non-named storm property catastrophe losses.”

The latest Bonanza Re Ltd. (Series 2023-2) catastrophe bond, sponsored by Progressive-owned ARX Holding Corporation, provides $70 million of annual aggregate cover for a range of perils including severe thunderstorms, as well as named storm events.

With a two section approach, the non-named storm (so other perils, including SCS) coverage would attach at $525 million of losses to ARX Holdings and the Progressive Home companies, we understand.

These aggregate cat bond notes feature a $20 million event deductible and a maximum contribution per-event of $180 million.

It’s important to note that we do not know how the May catastrophe losses might have accumulated under the Bonanza Re 2023-2 notes, given the way the coverage is applied and which Progressive linked companies were covered.

But, it does seem possible there could have been some erosion of that retention layer through the May catastrophe loss events, so perhaps raising the risk for the notes somewhat and this could, if it has eroded them, result in some marking down of the notes in the secondary markets. Again, we have to stress that we cannot be certain of this fact at this stage.

So, a very costly May for Progressive and this raises the prospects other major insurers will also recognise significant property insurance losses from that severe weather from the month. This could become more evident when we get Allstate’s latest monthly catastrophe loss disclosure in the coming weeks and the data from Progressive suggests other major insurers will have shouldered a significant loss burden from last month as well.