Allstate buys $1.5 billion of additional cat limit on $9.5 billion tower

By David Bull

May 1 - (The Insurer) - Allstate has secured an additional $1.5 billion of limit on its nationwide excess catastrophe reinsurance program, increasing the exhaustion point of the tower from just under $8 billion on the expiring structure to $9.5 billion.

The U.S. insurer said that on a risk-adjusted basis, the cost of its program will be down.

The structure includes a significant amount of multiyear contracts, including cat bond capacity, with the core program incepting at June 1 but some of the agreements effective April 1.

Commenting on Allstate’s earnings call on Thursday, chief financial officer Jess Merten said that although some parts of the carrier’s risk transfer program are yet to be finalised, including its standalone Florida tower, it has now placed the bulk of its nationwide program.

Merten said that the decision to increase its single event protection up to $9.5 billion was taken to reflect the change in its risk profile.

“We buy reinsurance based on our risk and return framework in our economic capital model, and the … placement went very well,” said the executive.

Merten explained that the increased total limit reflected the expansion of its homeowners book and the associated risk.

“On a risk-adjusted basis, the cost will be down, which I think is a really good outcome, and it helps protect us from a single event like we saw recently,” said Merten, referencing the California wildfires.

Allstate has so far reclaimed $1.1 billion from reinsurers of the $3.3 billion of gross catastrophe losses it reported in the first quarter.

Merten said that the nationwide cat placement is split evenly between traditional markets and the cat bond or ILS market and received good support this year.

Also on the call, Allstate’s president of property-liability Mario Rizzo said that the current net cat loss figure for Q1 of $2.2 billion, which was up from $731 million in the prior-year period, does not include potential subrogation recoveries.

The Allstate nationwide cat tower includes a series of contracts covering events up to $4.25 billion in excess of a $1.0 billion retention, with multiyear contracts providing coverage for events above $4.25 billion and single-year agreements filling capacity around the multiyear and ILS contracts for events above $4.25 billion.

Cat bond capacity comes from the Sanders Re series of issuances.

The structure also has an aggregate protection up to $500 million for cat events in excess of a deductible of $50 million per event, with $66 million of limit utilised by expected recoveries.