Travelers aggregate reinsurance close to triggering

U.S. primary insurance carrier Travelers is now very close to attaching or triggering its $280 million of aggregate reinsurance coverage, after a heavy catastrophe toll from severe weather in the second-quarter added to the companies losses.

Travelers reported higher catastrophe losses than the prior year at $854 million pre-tax for Q2 2020.

That took its total reported pre-tax and net of reinsurance catastrophe losses to $1.187 billion for the first-half, as reported in its results.

But the aggregate total qualifying catastrophe losses, that could attach its aggregate reinsurance agreement, now stand only $155 million below the trigger attachment point for the aggregate cover it renewed in January.

Travelers renewed its aggregate catastrophe reinsurance arrangement at the January renewals on more stringent terms.

The renewed aggregate cover sees Travelers retaining much more of its losses than the prior year, with the $500 million layer of aggregate reinsurance protection attaching at $1.55 billion of losses to Travelers, but with reinsurers only bearing 56% of this or $280 million for 2020, while Travelers will now retain the other 44% or $220 million.

At its earnings call yesterday, Travelers CFO Dan Frey explained that the company has been hit relatively hard by severe weather and the U.S. riots through recent months.

“Our second-quarter results include $854 million of pre-tax cat losses, compared to only $367 million in last year’s second quarter,” Frey said. “This quarter’s cat’s includes severe storms in several regions of the United States, as well as $91 million of losses related to civil unrest.”

The impacts from this have elevated Travelers catastrophe loss experience to such a degree that its aggregate tower is now very close to coming into play for the insurer.

Frey explained, “Regarding our property aggregate catastrophe excess-of-loss treaty for 2020. As of June 30th, we have accumulated about $1.4 billion of qualifying losses toward the aggregate retention of $1.55 billion. The treaty provides aggregate coverage of $280 million out of $500 million of losses, above that $1.55 billion retention.”

That suggests Travelers will likely trigger this layer of coverage in the coming weeks, particularly as there have already been severe weather outbreaks in July that may have driven further impacts to the insurers book. It’s unlikely the reinsurers and perhaps ILS funds backing this agreement will escape losses, with half the year still to run.