Travelers boosts cat bond cover, reduces traditional reinsurance
US-based property/casualty insurer Travelers has increased its catastrophe bond coverage to take advantage of the favourable pricing environment while reducing traditional reinsurance purchase, Travelers chief financial officer Jay Benet said during the second quarter 2018 conference call.
“While the structure of our cat reinsurance is generally consistent with the prior year, we did take advantage of the current pricing environment to increase our cat bond limit by $200 million while reducing our Northeast Property Cat Excess-of-Loss Treaty limit by the same amount,” Benet said.
An indemnity reinsurance agreement with Cayman Islands-based Long Point Re III with an aggregate principal of $300 million expired as scheduled in May 2018, according to the presentation. It was replaced and expanded by another cat bond with $500 million aggregate principal which was placed in the same month.
“The new agreement provides nor’easter, hurricane, earthquake, severe thunderstorm and/or winter storm coverage for certain property losses on specified lines of business through May 24 of 2022,” Benet explained. “The attachment point and maximum limit will be reset annually. Through May 24 of 2019, the full $500 million limit is available after covered losses from a single occurrence reach $1.9 billion and until such covered losses reach a maximum of $2.4 billion,” Benet added.
The Northeast Property Catastrophe Excess of Loss Reinsurance Treaty was renewed effective July 1, 2018. The agreement includes $600 million part of $850 million of coverage, subject to a $2.25 billion retention, for losses arising from a single occurrence, subject to one reinstatement, according to the presentation.
The coverage is provided on all perils basis, including but not limited to hurricanes, tornados, hail storms, earthquakes and winter storm and/or freeze losses (coverage is included for terrorism events in limited circumstances, but nuclear, biological and radiological attacks are entirely excluded) from Virginia to Maine for the period July 1, 2018 through and including June 30, 2019. Losses from a covered event anywhere in the United States, Canada, the Caribbean and Mexico and waters contiguous thereto may be used to satisfy the retention. Recoveries under the catastrophe bond (if any) would be first applied to reduce losses subject to this treaty.
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