Travelers erodes 60% of aggregate retention, renews cat treaties at July

U.S. primary insurer Travelers has experienced sufficient losses so far this year that on an aggregated basis have eaten around 60% of the way through the retention of its new $500 million aggregate reinsurance treaty.

The insurer has also revealed the terms of a range of catastrophe reinsurance treaties it renewed at July 1st.

Travelers renewed its $2 billion corporate catastrophe excess of loss reinsurance treaty and added a brand new $500 million aggregate property catastrophe excess of loss treaty at the January 2019 renewals.

The new addition of a $500 million layer of protection to cover the insurer against smaller, frequency type catastrophe loss events, seemed a sensible addition, after it subsequently emerged that had this aggregate layer been in place over 2017 and 2018, Travelers would have benefited from a full recovery under the $500 million treaty.

The effectiveness of this layer of protection has now been further demonstrated by the fact Travelers has already eaten through around 60% of the retention for this aggregate layer.

Dan Frey, CFO of Travelers, reported yesterday that the insurer has been steadily accumulating losses throughout the year so far, taking its aggregate more than half-way to the $1.3 billion attachment point for this new reinsurance layer.

“Through June 30, we’ve accumulated a little less than $800 million towards the $1.3 billion retention,” he explained.

Although the aggregate treaty only covers PCS designated catastrophe events, and Frey also explained that much of the impact Travelers felt in the quarter was also contributed by non-PCS weather events that did not count towards the treaty.

Frey further explained that this aggregate reinsurance treaty provides Travelers with “coverage for PCS designated events for which we incur $5 million or more in losses, above an aggregate retention of $1.3 billion.”

So with almost $800 million, or 61% already eaten through in the first-half of the year, it leaves room for just $500 million or so more of these PCS designated catastrophe events that have a $5 million or greater impact on Travelers before it begins to call on reinsurance partners for support.

That suggests this new aggregate treaty has a reasonable chance of being triggered in 2019, should catastrophe losses continue at a similar run-rate for Travelers through the rest of 2019.

Travelers also renewed other core components of its catastrophe reinsurance program at July 1st 2019, including its Northeast Property Catastrophe Excess-of-Loss Reinsurance Treaty which Frey said renewed with, “substantially similar terms and flat pricing.”

This treaty provides Travelers with $600 million of per-occurrence reinsurance coverage across an $850 million layer for northeast U.S. catastrophe events, subject to a $2.25 billion retention.

The insurer also renewed its Middle Market Earthquake Catastrophe Excess-of-Loss Reinsurance Treaty and its Canadian Property Catastrophe Excess-of-Loss Reinsurance Treaty at July 1st as well.

In addition, Travelers reset the attachment point for its $500 million Long Point Re III  2018-1, which it sponsored in 2018.

For the risk period from the end of May the attachment point has been lowered to $1.79 billion, from the $1.9 billion it had originally been issued at.

This improves the coverage from the cat bond for Travelers, more neatly fitting it into its current reinsurance tower, while Frey explained that “the total cost of the program was flat year-over-year.”