Travelers shrinks agg reinsurance at renewal after depleting 2021 cover

US primary insurer Travelers has disclosed details of its reinsurance renewals for 2022, which include expansions to its corporate catastrophe cover but reductions to its aggregate cover, following the exhaustion of this program last year.

Travelers reported record net income of £1.33 billion in the fourth quarter of 2021, but another period of heavy catastrophe losses caused it to recover a further $255 million under its catastrophe aggregate reinsurance program.

With $95 million of recoveries having already been made in Q3, this meant that the insurer had fully exhausted its aggregate cover by the end of the year.

It’s perhaps unsurprising, then, that Travelers has emerged from the January renewal period with reductions to its aggregate catastrophe program for the coming year, given that aggregate cover is already more expensive and less available now, because of losses and market conditions.

Under the new treaty, reinsurance will cover the accumulation of qualifying losses from PCS-designated catastrophe events in North America in excess of $10 million per event, structured across a $500 million layer in excess of a $2.0 billion retention.

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Notably, reinsurers will now cover 45%, or $225 million, qualifying of qualifying losses covered by the treaty, with Travelers retaining the remaining 55%, or $275 million.

This represents a significant reduction in coverage from last year, when reinsurers agreed to accept 70%, or $350 million, of qualifying losses covered by the treatment, with Travelers retaining just 30%, or $150 million, of losses.

Coverage for, and contributions to the $2.0 billion retention from hurricanes and/or tropical storms, earthquakes and wildfires remain limited to $250 million per event for the 2022 renewal.

However, Travelers has seemingly offset the reduction in its aggregate cover to some extent by expanding its corporate catastrophe excess-of-loss reinsurance, which was also renewed in January 1.

Covering the accumulation of certain property losses from one or multiple occurrences, this $2.0 billion layer attaches at $3.0 billion of losses, with the treaty now covering 90%, or $1.8 billion, of qualifying losses.

This means Travelers now retains only 10%, or $200 million, of losses, compared to 25%, or $500 million, last year, when the treatment covered a significantly lower 75% of qualifying losses.

Qualifying losses for each occurrence under this treat are after a $100 million deductible, Travelers notes.

Travelers also maintains several other catastrophe reinsurance agreements that remain in effect as of January 1, 2022, including one related to its Long Point Re III cat bond, as well as XoL treaties for Northeast Property, Middle Market Earthquake, Personal Insurance Earthquake, Canadian Property, and other international treaties.

It was reported as early as April last year that Travelers was already halfway to triggering its aggregate cover, after accumulating almost $915 million of qualifying losses during Q1.

This figure rose to $1.5 billion by the end of H1, meaning Travelers was almost 80% of the way towards its aggregate retention of $1.9 billion at the halfway point in the year. Analysts had therefore been anticipating for some time that the insurer could exhaust its recoveries for the year.

And given that 2021 marked the third year in a row that Travelers utilised its aggregate treaty, it was also anticipated the company would face a challenging renewal period, particularly in light of hardening reinsurance market conditions, and this seems to have been reflected in the reduced coverage it has walked away with.

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