Travelers expected to make aggregate reinsurance recoveries for Q4

US primary insurer Travelers is expected to have benefited from further recoveries under its catastrophe aggregate reinsurance arrangement for the fourth-quarter of 2021, according to analysts and sources.

A number of analysts have highlighted the important role of aggregate catastrophe reinsurance for Travelers in recent years, having made recoveries off its aggregate cover towards the end of 2019 and again during the 2020 calendar year.

A calendar year arrangement, Travelers tends to renew its catastrophe aggregate reinsurance arrangement around the January renewal season.

A year ago, Travelers renewed its aggregate catastrophe reinsurance treaty at the January 2021 renewal season, with the arrangement set to provide slightly more coverage than the prior year, but at a higher attachment point.

For 2021, Travelers upsized its aggregate catastrophe reinsurance protection, with the treaty covering 70% of a $500 million layer above an attachment of $1.9 billion, so $350 million of coverage across this layer.

Travelers 2021 aggregate reinsurance treaty covered the insurer for qualifying losses from PCS-designated catastrophe events in North America in excess of $5 million per catastrophe event, up to a maximum of $250 million per-event.

After the first-quarter of 2021, Travelers was already half-way to eroding the retention and triggering its aggregate reinsurance.

The erosion of the aggregate retention then slowed through the second-quarter of 2021, but following the impacts of hurricane Ida in the third-quarter of the year, Travelers reported a $95 million recovery after its aggregate reinsurance was triggered.

With the insurer set to report its fourth-quarter results next week, now analysts and our sources are anticipating that some further aggregate reinsurance recoveries will have been made in Q4 2021.

Analysts at Bloomberg, KBW and Morgan Stanley all seem to be anticipating a recovery will be revealed alongside the results, while sources told us there is a strong chance further recoveries were made because of Q4 severe weather events.

With just a $5 million per event qualifying limit, the tornadoes and severe convective weather experienced in Q4 is almost certain to have driven more recoveries under the aggregate catastrophe treaty for Travelers.

The analysts are suggesting the aggregate excess-of-loss reinsurance may lighten Travelers Q4 catastrophe loss burden, precisely what this cover was designed to do for the insurer.

Travelers is expected to have renewed this aggregate arrangement at the January renewals, details of which are likely to emerge when it reports its results.

With the aggregate treaty having taken losses now three years in a row, it will be interesting to see what a renewal looks like, whether the cover shrinks a little and whether pricing rises as significantly for Travelers as it has for some at the renewal season.