Travelers pleased to secure extra reinsurance, renew Fidelis quota share: CFO Frey

Having significantly increased the size of its catastrophe excess-of-loss reinsurance treaty for 2024, US insurer Travelers is pleased with the extra protection and expects the additional cost will be covered by inward price increases, according to its CFO Dan Frey.

Travelers has also renewed its 20% quota share arrangement with Bermudian re/insurer Fidelis, seeing market conditions as still attractive enough to want to participate in the E&S and reinsurance market via this arrangement.

Dan Frey, CFO of Travelers was discussing the insurers progress after the fourth-quarter during its earnings call today.

We reported earlier that the company significantly increased the amount of protection it receives under its catastrophe excess-of-loss (XoL) reinsurance treaty, lifting it from 2022’s $2 billion excess of $3.5 billion, by 76% to provide $3.525 billion of cover for 2024 above the same attachment point.

Travelers CFO Frey commented on this, “Our long standing cat XoL treaty continues to provide coverage for both single cat events and the aggregation of losses from multiple cat events we’ve increased the amount of total coverage for 2024.

“Despite the growth in our property book, our attachment point remains steady and the per-occurrence loss deductible is unchanged at $100 million.

“For 2024, we have placed coverage for $3.5 billion of the $4.5 billion layer, above the $3.5 billion dollar attachment point.”

He went on to highlight one of the key drivers for the increasing need for reinsurance at Travelers.

Saying, “We’re pleased to have obtained the extra protection in light of the recent inflationary impact on insured values.”

That’s been a key driver for major US insurers and influencing their reinsurance buying for 2024, which could be a significant incremental demand driver for the mid-year renewals as well.

Frey went on to explain that, “For context, we’ve never hit this treaty. Nonetheless, this is prudent affordable balance-sheet protection for tail events.

“The cost of the additional reinsurance will be largely offset by the strong renewal pricing we continue to achieve on our direct written property premiums, resulting in only a de minimis impact on the underlying combined ratio.”

Also notable from today’s Travelers Q4 2023 earnings call, is the fact the insurer revealed that it has renewed its quota share arrangement with Fidelis.

Travelers first entered into the 20% quota share reinsurance deal with Fidelis after it made a minority investment in the company a year ago.

The insurers’ executives said that the move would help Travelers to benefit from hard reinsurance market returns.

The relationship sees Travelers sharing in Fidelis’ premiums and also losses, as a way to access parts of the insurance and reinsurance value-chain that it does not operate in.

During today’s earnings call, CFO Dan Frey said, “For 2024, in light of continued strong pricing and terms in the E&S and reinsurance markets, we are pleased to share that we have renewed the 20% quota share with Fidelis. The renewal includes the same loss ratio cap we had for 2023.”

Frey went on to say that, “The written premium volume, which will again be included as part of international within the business insurance segment, is not expected to be material to the segment.”

But further stated that it, “Should have a modestly favourable impact on the underlying combined ratio for 2024 as it earns in.”

This quota share arrangement works well for both parties, aligning Travelers and Fidelis more closely, while providing Travelers access to hard reinsurance and E&S market returns, while Fidelis deepens the relationship with this key trading partner and reduces its need for quota share coverage from elsewhere.

Read all of our reinsurance renewal news coverage.