Travelers cat losses slow, but aggregate reinsurance still on-watch

US primary insurer Travelers has reported lower catastrophe losses for the second-quarter of 2021, but its year-to-date run-rate continues to outpace the prior year, as its aggregate net catastrophe losses have reached above $1.3 billion by the middle of this year.

As we explained back in April, following a particularly costly first-quarter of catastrophe losses in Q1, thanks to US winter storms, freezing weather and severe weather, Travelers had already eroded almost half the deductible sitting under its aggregate catastrophe reinsurance.

Travelers 2021 aggregate reinsurance treaty covers qualifying losses from PCS-designated catastrophe events in North America in excess of $5 million per catastrophe event, up to a maximum of $250 million per-event, with the attachment for the coverage sitting at $1.9 billion.

We previously reported that Travelers upsized on its aggregate catastrophe reinsurance protection for 2021, with the renewed treaty set to cover 70% of a $500 million layer, so $350 million of coverage and a $150 million retention.

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

The run-rate has slowed dramatically, with Q2 a far more benign period for catastrophe events.

But Travelers has still reported today a further $475 million of pre-tax catastrophe losses net of reinsurance, taking its pre-tax and net of reinsurance toll to $1.31 billion for the half-year. That’s well down on the $854 million reported for the prior year quarter.

Those are the net figures and the gross tends to be some roughly 8% to as much as 15% higher than the reported figures in its accounts, a cursory glance through recent reports shows, meaning the actual gross run-rate could be closer to $1.4 billion to $1.45 billion (estimated by us), although it does depend on how much of the Q2 losses actually qualified as PCS designated cat events.

With the aggregate reinsurance treaty kicking in at $1.9 billion of losses and half the year left to run, including the hurricane season, Travelers remains well on-track to benefit from its aggregate reinsurance again in 2021, even though Q2 has been more benign.

The company could be as much as 70% to three-quarters of the way to its aggregate reinsurance attachment point already, it appears.

The run-rate, year-to-date, remains ahead of 2020, as by the middle of the year Travelers had only reported $1.187 billion of net and after reinsurance catastrophe losses.

All of this means Travelers aggregate reinsurance remains a layer of coverage to watch as the year progresses, as even a typical run of catastrophes through the rest of the year should have a good chance to triggering it.