US primary insurance firm Travelers has renewed its occurrence catastrophe excess-of-loss (XoL) reinsurance treaty at a higher attachment point, but the carrier appears not to have renewed its aggregate catastrophe cover, a possible reaction to market conditions and pricing.
Typically, Travelers renews both its occurrence catastrophe reinsurance and aggregate treaty at the January renewal season.
In recent years, the occurrence XoL reinsurance treaty has seemingly been the easier to renew, with the aggregate treaty providing slimmer coverage as terms have become more restrictive.
This is likely due to Travelers having made reinsurance recoveries against its aggregate catastrophe XoL reinsurance treaty in 2019, 2020 and 2021.
While this year, it appears a little unclear still, as to whether a recovery could be possible, as winter storm Elliott bulked out Travelers aggregate catastrophe claims running total towards the end of last year.
A year ago, Travelers renewed its core corporate catastrophe XoL reinsurance, the per-occurrence treaty, at a slightly expanded level, so the coverage for 2022 attached at $3 billion of losses, with 90% of a $2 billion layer above that protected.
For 2023, the terms have again changed and the influence of the harder reinsurance market environment is clear.
Travelers has renewed this corporate catastrophe excess-of-loss reinsurance to attach higher up at $3.5 billion of losses, but the full $2 billion layer above that is protected again.
So a higher per-occurrence reinsurance retention has been enforced by the market, but with Travelers a growing insurer still this is unlikely to prove too onerous to the company.
The event related terms are the same as last year, so qualifying losses for each catastrophe occurrence must be above a $100 million deductible.
So that is the main reinsurance renewal secured at January 2023 by Travelers, but there is no sign of its aggregate reinsurance treaty.
Each year, Travelers typically announces the corporate catastrophe XoL and an aggregate XoL reinsurance renewal.
But, in recent years the terms of the aggregate cover have been tightened considerably, as Travelers has made repeated recoveries from it and recovered the full amount in 2021.
With 2022 perhaps still uncertain, as to whether any recovery could be made, but also as pricing for aggregate reinsurance is now so much higher, it is entirely possible Travelers has opted to go without for this year.
Given the insurers size and financial strength, it could easily forego the aggregate reinsurance protection, especially if the cost and terms would make it punitive to do so, compared to how the reinsurance has worked out economically in prior years.
A year ago, Travelers only renewed an aggregate catastrophe XoL reinsurance treaty that covered 45% of losses across a $500 million layer, attaching after a $2 billion retention.
So that was only $225 million of protection, covering aggregated PCS-designated catastrophe events in North America in excess of $10 million per catastrophe event, providing 45% coverage from $2 billion up to $2.5 billion of aggregated losses to the insurer.
As we reported the other day, Travelers catastrophe aggregate losses for 2022 had reached around $1.4 billion after Q3, with the $459 million of largely winter storm Elliott losses to add. But it’s always hard to know what the gross loss would have been, as this isn’t disclosed, so it’s possible the aggregate cover from 2022 should be considered at-risk.
Which could explain why the insurer has not disclosed an aggregate reinsurance renewal, as tougher terms and higher pricing, plus reduced reinsurer appetite, may all have made renewing that layer economically unattractive in 2023.