US primary insurer Travelers decided to increase the size of its Northeast property catastrophe excess-of-loss (XoL) reinsurance treaty by $150 million at the July renewals, and also renewed its personal insurance hurricane cat XoL treaty with a higher retention.
Alongside the release of its second-quarter 2024 financial results, Travelers has provided an update on its 2024 catastrophe reinsurance arrangements, which includes both traditional reinsurance and capital markets-backed coverage.
Starting with its Northeast property cat treaty, which for 2023 provided the firm with $850 million of reinsurance excess a $2.5 billion retention, Travelers opted to increase the coverage limit to $1 billion, and also raised the retention by $250 million to $2.75 billion.
This treaty provides the carrier with protection against losses arising from a single occurrence and allows one reinstatement. Travelers explains that coverage is provided on an all perils basis, including but not limited to hurricanes, tornadoes, hail storms, earthquakes, winter storms and/or freeze losses. Coverage is included for terrorism events in limited circumstances, which is the same for cyber events. The treaty excludes coverage for communicable disease and nuclear, biological and radiological terrorism attacks.
In terms of geographic scope, the treaty, which is effective July 1, 2024 through and including June 30, 2025, covers territory from Virginia to Maine.
At the July 2023 renewals, Travelers entered into a new personal insurance hurricane catastrophe XoL treaty, and this has been renewed for 2024 with a higher retention. Last year, the treaty provided for up to $500 million of reinsurance across $1 billion of coverage for a single hurricane event, subject to a $1.75 billion retention. For 2024, this treaty again provides for up to $500 million of reinsurance across $1 billion of coverage for a single hurricane event, but the retention has risen to $2 billion.
This personal insurance hurricane agreement provides the firm with coverage for homeowners property losses arising from a hurricane or tropical storm for the period from July 1, 2024 through and including June 30, 2025, and covers the United States coastal states from Texas to Maine, excluding Florida.
As well as these two agreements, Travelers has $575 million of reinsurance in the form of a catastrophe bond, Long Point Re IV Ltd. (Series 2022-1), which was placed in May 2022 and saw its attachment point reset in May 2024.
The cat bond provides the insurer with protection through May 24, 2026 for certain property losses on specified lines of business from tropical cyclones, earthquakes, severe thunderstorms or winter storms from Virginia to Maine. Travelers explains that from May 25, 2024 through and including May 24, 2025, this treaty provides up to $575 million of coverage, subject to a $2.79 billion retention.
Additionally, Travelers has confirmed that effective July 1, 2024, it also secured a Middle Market earthquake catastrophe XoL reinsurance treaty, and a Canadian property catastrophe XoL treaty.
The insurer also has additional catastrophe reinsurance agreements that remain in effect, including its corporate cat XoL treaty, its personal insurance earthquake cat XoL arrangement, and other international reinsurance treaties.
For Q2 2024, Travelers recorded catastrophe losses, net of reinsurance, of roughly $1.5 billion, up slightly on last year’s second quarter. Catastrophe losses, net of reinsurance, for the first half of 2024 totalled $2.2 billion, which is up $205 million year-on-year. Despite this, higher investment income and elevated favourable prior year reserve development saw the firm produce net income for the quarter of $534 million, against a loss of $14 million in Q2 2023.
Given the significant level of catastrophe losses experienced by the firm in H1 2024, and the fact property and property catastrophe reinsurance market conditions are more stable, against a backdrop of increased demand and reinsurer appetite, it’s not too surprising that Travelers has opted to increase the size of its Northeast reinsurance program for 2024.
