Reinsurance capital has played a significant role in helping primary insurance giant and specialist reinsurance player Chubb to manage the impact of recent major catastrophe events, with the company managing to claim back around $1.1 billion from its reinsurance partners reducing its near $3 billion gross cat loss down to $1.9 billion.
Chubb reported a loss of -$70 million for the third-quarter of 2017, as the major losses from hurricanes Harvey, Irma and Maria, as well as the Mexico earthquakes, hit the firms portfolio resulting in a net loss of around $1.9 billion.
But without the support of its reinsurers and their capital, a good amount of which likely emanates from collateralised reinsurance providers and ILS funds, Chubb would have faced a much larger and more significant loss.
Chubb’s gross loss from the hurricanes and Q3 catastrophes totaled $2.984 billion, but after reinsurance recoveries the total dropped to $1.915 billion.
The largest gross catastrophe loss Chubb experienced was from hurricane Irma, at $1.279 billion. But the event that saw the greatest percentage of gross losses recovered under reinsurance arrangements was hurricane Maria, which as a $559 million gross loss, but only $207 million net after reinsurance, meaning it was about 63% covered for its losses in the Caribbean and Puerto Rico from Maria.
At $1.279 billion of gross loss, hurricane Irma did not come close to triggering Chubb’s only in-force catastrophe bond, East Lane Re VI Ltd. (Series 2015-1), as that is a per-occurrence reinsurance structure with an indemnity trigger set at over $2.1 billion of losses to the insurer.
Some of the reinsurance recoverable received will have been from Chubb’s own joint-venture total-return reinsurer, ABR Reinsurance Ltd. (ABR Re) though, meaning third-party investors in that vehicle will have supported Chubb’s recovery from these major loss events.
Chubb does not report on its cessions to ABR Re, but the reinsurance vehicle has a mandate to participate as a reinsurer on risks Chubb has underwritten, including non-life insurance, non-property catastrophe reinsurance and property catastrophe reinsurance contracts.
ABR Re acts as an internal reinsurer, akin to a sidecar, capitalised by third-party investors, while joint-venture partner investment giant BlackRock acts as the asset manager aiming to boost the reinsurance vehicles total return.
With Chubb earning underwriting fees and profit shares from ABR Re, it makes it a particularly effective source of reinsurance capacity for its book and so it’s safe to assume that it will have taken a reasonable sized share of Chubb’s total loss.
ABR Re, in taking a share of Chubb’s losses as one of its reinsurers but being backed by third-party capital at the same time as being internal to the company, will prove a very efficient source of capacity for the insurer in a time of major loss.
The total-return structure helps Chubb to extract a greater share of the risk premium of business underwritten, while benefiting from fee income and the performance of the asset side as well as a lower cost source of reinsurance. All important factors as re/insurers look to manage their efficiency across the cycle and ABR Re will have helped to reduce the volatility associated with the impacts of recent catastrophe events.