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Travelers renews cat reinsurance at July 1, but eats into aggregate retention

23rd July 2019 - Author: Matt Sheehan

U.S. primary insurer Travelers has disclosed the terms of the catastrophe reinsurance treaties it purchased at the recent July 1, 2019 renewals.

TravelersManagement also revealed on an earnings conference call today that the company has incurred just under $800 million towards the attachment point of its new catastrophe reinsurance treaty.

This represents an unexpectedly large erosion into the treaty’s $1.3 billion attachment point, given that Travelers is only half way through the year, and with the majority of the Atlantic hurricane season still to come.

The largest coverage purchased by Travelers at the July renewalswas its Northeast Property Catastrophe Excess-of-Loss Reinsurance Treaty, which provides up to $600 million part of $850 million of coverage, subject to a $2.25 billion retention for losses arising from a single occurrence.

Coverage is provided on an all perils basis, including hurricanes, tornadoes, hail storms, earthquakes and winter storm and/or freeze losses from Virginia to Maine for the period July 1, 2019 to June 30, 2020.

Also renewed at July 1 was Travelers’ Middle Market Earthquake Catastrophe Excess-of-Loss Reinsurance Treaty and Canadian Property Catastrophe Excess-of-Loss Reinsurance Treaty.

The middle market quake treaty provides for up to $225 million part of $250 million of coverage, subject to a $100 million retention for losses arising from earthquake, including fire and sprinkler leakage.

The Canadian property cat treaty, meanwhile, provides coverage for the accumulation of net property losses resulting from one occurrence on business written by Travelers’ Canadian businesses.

This includes habitational property, commercial property, inland marine, ocean marine and auto physical damages exposures.

The coverage applies to 50% of losses in excess of CAD 100 million (US $76 million), up to CAD 200 million (US $153 million) and to 100% of losses in excess of CAD 200 million (US$153 million), up to CAD 600 million (US$458 million).

Details of Travelers’ reinsurance renewal terms came as part of the release of its second quarter results, which saw the company record net income growth and a slight weakening in its underlying combined ratio.

The performance was attributed to an increase in non-catastrophe weather-related losses and lower favourable prior year reserve development.

Travelers also stated that “Reinsurance recoverables on unpaid losses at June 30, 2019 decreased by $160 million from December 31, 2018, primarily reflecting the impact of cash collections in the first six months of 2019.”

This would suggest that the company has been collecting steadily on reinsurance for prior year claims over the first half of this year.

Additionally, Travelers revealed that the attachment point of its $500 million Long Point Re III Ltd. catastrophe bond was reset in May 2019.

The bond provides coverage to Travelers through to May 2022 for property losses from tropical cyclones, earthquakes, severe thunderstorms or winter storms from Virginia to Maine.

The attachment point and maximum limit is due to be reset annually to adjust the expected loss of the layer within a predetermined range.

Until May 2020, Travelers is now entitled to begin recovering losses if they reach an attachment amount of $1.79 billion, with the full $500 million available until covered losses reach a maximum of $2.29 billion.

In addition to its renewed treaties, Travelers has a number of other catastrophe reinsurance agreements still in place, including a Corporate Catastrophe Excess-of-Loss Reinsurance Treaty, an Underlying Property Aggregate Catastrophe Excess-of-Loss Reinsurance Treaty, a Personal Insurance Earthquake Catastrophe Excess-of-Loss Reinsurance Treaty, and Other International Reinsurance Treaties.

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