Travelers agg retention 79% eroded, raises Long Point cat bond trigger

Qualifying catastrophe losses through the first-half of 2021 have now eroded through roughly 79% of US primary insurer Travelers retention for its aggregate catastrophe reinsurance layer.

The company has also raised the attachment point of its $500 million Long Point Re III Ltd. (Series 2018-1) catastrophe bond arrangement, which provides a source of per-occurrence catastrophe reinsurance protection.

Yesterday, based on net catastrophe loss figures published in the carriers Q2 results statement, we estimated that Travelers could be as much as $1.45 billion of the way to the $1.9 billion attachment point of its aggregate catastrophe reinsurance treaty.

It turns out we were a little short, as Travelers CFO Dan Frey explained during a later earnings call, that qualifying catastrophe losses have now reached $1.5 billion, so almost 80% of the way to the trigger for the aggregate reinsurance layer.

As a reminder, Travelers ramped up its aggregate catastrophe reinsurance protection for 2021, with a renewed treaty covering 70% of a $500 million layer, so $350 million of coverage and a $150 million retention, above $1.9 billion of qualifying losses.

By the end of Q1 Travelers had accumulated some $915 million of qualifying losses towards the aggregate retention of its reinsurance.

But the run-rate of losses slowed in a more benign Q2 for US catastrophe activity.

Even so, Travelers has added another significant chunk and with qualifying losses now at $1.5 billion and half the year still left to run, there is a very strong chance the insurer calls on its aggregate reinsurance coverage again this year.

Frey explained that despite the more benign Q2, catastrophe losses at Travelers are still running ahead of expectations, because of the heavy toll experienced in the first-quarter.

Frey also discussed the insurers changes to its reinsurance arrangements at the mid-year, with its Northeast catastrophe reinsurance treaty renewed at “substantially similar terms and pricing that was up only slightly on an exposure adjusted basis.”

This treaty provides $600 million of coverage across an $850 million layer, after a $2.25 billion retention and was renewed at July 1st.

Travelers catastrophe bond, the 2018 issued $500 million Long Point Re III Ltd. (Series 2018-1) per-occurrence multi-peril cat bond, is now in its final year of coverage, Frey explained.

For the 2021 hurricane season, Travelers has opted to lift the attachment point of the Long Point Re III cat bond to $1.98 billion, up from the $1.87 billion it had attached at in the prior year.