US primary insurer Travelers is the first major carrier to report second-quarter 2023 results and has also disclosed changes to its reinsurance program from the recent renewals, but the elevated level of catastrophe losses experienced may be the main talking point.
First the elevated catastrophe losses, that follow an elevated cat loss burden from Q1 of this year.
Travelers has reported $1.481 billion of pre-tax catastrophe losses, net of reinsurance for Q2 2023, compared to $746 million pre-tax in the prior year quarter.
“This quarter we reported strong underlying results and investment returns, as well as net favorable prior year reserve development, which were essentially offset by an historic level of industry-wide catastrophe losses,” explained Alan Schnitzer, Chairman and Chief Executive Officer. “The fact that we were able to generate positive core income notwithstanding $1.5 billion of pre-tax catastrophe losses reflects the strength of our franchise and the resiliency of our underlying business model.”
Severe wind and hail storms in multiple states are reportedly the driver of the heavy cat loss burden.
But the carrier is preparing for any major catastrophe events, especially through the Atlantic hurricane season, with a new reinsurance treaty purchased at the July 1st renewals.
Travelers has secured this new Personal Insurance Hurricane Catastrophe Excess-of-Loss Reinsurance Treaty to cover specific named storm and hurricane exposures across United States coastal states from Texas to Maine, but excluding Florida.
This new hurricane reinsurance treaty provides Travelers up to $500 million of cover across a $1 billion layer of coverage for a single event, after a $1.75 billion retention.
Hence, for every dollar of loss between $1.75 billion and $2.75 billion, this new hurricane reinsurance treaty provides 50 cents of coverage, covering losses to homeowners property arising from a hurricane or tropical storm for the period from July 1st 2023 to June 30th 2024.
That will provide a significant additional source of cover for homeowners property losses after hurricanes for Travelers, as its focus shifts further towards having reinsurance resources in place for major events, rather than for frequency style losses as its aggregate used to cover.
In addition, Travelers said today that its Northeast Property Catastrophe Excess-of-Loss Reinsurance Treaty has been renewed at July 1st, albeit with some changes.
This northeast catastrophe reinsurance treaty has been adjusted a little higher up the tower, to provide $850 million of coverage, subject to a $2.50 billion retention.
That’s up from the up to $750 million of reinsurance cover across an $850 million layer of coverage, so roughly 88%, after a $2.25 billion retention, that the treaty provided last year.
So, while fully-placed this year, the $850 million layer has moved up the tower by $250 million, which is a similar experience to many cedents at these reinsurance renewals.
Travelers also has significant catastrophe bond coverage in-force for the coming hurricane season, of course, its latest sponsorship being the Long Point Re IV Ltd. (Series 2022-1) issuance from May 2022, that secured the carrier $575 million of collateralized catastrophe reinsurance.
The attachment point for this cat bond has now been reset at May 2023, to provide the $575 million of cover after a $2.48 billion retention.
At issuance, those cat bond notes attached at $2.2 billion of losses and exhausted their coverage at $2.9 billion, so these have moved up the reinsurance tower as well.
Travelers also renewed its Middle Market Earthquake Catastrophe Excess-of-Loss Reinsurance Treaty at July 1st, securing it $270 million of reinsurance across a $300 million layer, subject to a $125 million retention, which is a slight change to the prior years $248 million of reinsurance across a $275 million layer, subject to a $110 million retention.
Also renewed was the Canadian Property Catastrophe Excess-of-Loss Reinsurance Treaty, which provides coverage for 50% of losses in excess of C$100 million, up to C$200 million and 100% of losses above C$200 million, up to C$500 million, the same terms as a year earlier.
But, the catastrophe losses are likely to capture headlines in the mainstream financial press, while the reinsurance industry will likely be happy not to be on the hook for such a share of them, given there is no aggregate cover in place any more at Travelers.