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H1 catastrophes eat through almost 80% of Travelers agg reinsurance retention

21st July 2021 - Author: Luke Gallin

Despite US primary insurer Travelers reporting a slowdown in catastrophe losses for the second quarter, year-to-date, the firm has accumulated approximately $1.5 billion of qualifying losses towards its aggregate retention of $1.9 billion.

TravelersWhen reporting its Q2 2021 financials yesterday, Travelers announced catastrophe losses, net of reinsurance, of $475 million.

While this represents a decline from the prior year quarter, the insurer booked catastrophe losses, net of reinsurance, of $835 million in Q1 2021, taking its total for the first-half of the year to $1.31 billion.

Speaking during the firm’s Q2 earnings call, Dan Frey, Executive Vice President (EVP) and Chief Financial Officer (CFO), explained that cat losses in H1 are above what it would have assumed as a result of the high level experienced in Q1.

As we wrote back in April, severe winter weather in the US saw the insurer erode almost half of the deductible sitting under its aggregate catastrophe reinsurance protection.

This program is designed to cover losses of over $5 million from PCS-designated catastrophes in North America, up to a maximum of $250 million per-event, with the attachment for the coverage sitting at $1.9 billion.

When renewing this program at January 1st, 2021, Travelers raised its reinsurance coverage with the treaty now set to cover 70% of a $500 million slice, which translates to $350 million of protection and a $150 million retention.

During the earnings call, Frey explained that year-to-date, the firm has accumulated roughly $1.5 billion of qualifying losses toward its aggregate retention of $1.9 billion, meaning Travelers has now eroded almost 80% of its deductible halfway through the year.

The $835 million Q1 and $475 million Q2 cat loss figures are both net of reinsurance, hence coming in slightly below the roughly $1.5 billion of gross qualifying losses accumulated through H1 2021.

Of course, the Atlantic hurricane season is ongoing and forecasters have warned of above average activity and landfalls.

But for Travelers to trigger its aggregate catastrophe reinsurance protection a major event might not even be needed, as even a typical catastrophe experience through the remainder of 2021 likely has a good change of eating through the remaining 20% or so.

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