Continental reinsurers lead reinsurance for Carolinian insurers

Munich Re and Swiss Re as well as Lloyd’s insurers are among the top reinsurers of the leading insurers in North Carolina and South Carolina, where Hurricane Florence struck at the end of last week, according to data on reinsurance cessions.

State Farm, USAA, Nationwide and Allstate are the leading primary carriers in the Carolinas in terms of cat-exposed lines of business such as allied lines, commercial auto, commercial multi-peril (non-liability), farmowners’ multi-peril, federal flood, fire and homeowners’ multi-peril, according to 2017 data from S&P Global.

With the market talking about Florence as a $5bn industry loss event, the bulk of the loss was expected to be borne by insurers, but some claims could flow through to the reinsurance market via quota shares or low-lying reinsurance excess-of-loss treaties.

Given the market shares and attachment points of the main primary carriers in the Carolinas, back-of-the-envelope calculations suggest an industry loss in excess of $6bn-$8bn could result in reinsurance covers beginning to be triggered.

For example, a simple extrapolation of gross losses based on state-wide market share suggests this would be the case for USAA, Nationwide, Allstate, Liberty Mutual and North Carolina Farm Bureau Insurance.  

Data on reinsurance cessions serves as only a very broad proxy for potential reinsurance exposure as it is not limited to catastrophe-exposed business and may involve premium cessions at remote risk points.

According to 2017 schedule F data, Munich Re was State Farm’s main reinsurer, assuming 14.0 percent of the mutual’s total ceded premiums at group level. State Farm writes 13.4 percent of premiums in lines of business that could be exposed to losses from the storm.

Nationwide’s largest reinsurer was HDI, which assumed 32.5 percent of the carrier’s ceded premiums in 2017.

Swiss Re and Everest Re are also among Nationwide’s largest reinsurers but they take on a much smaller proportion of the insurer’s premiums, each assuming less than 10 percent of total ceded business.

Allstate’s national cat programme attaches at $500mn, which means it could be triggered in the case of a $7.5bn industry loss (assuming a share of loss in proportion to its state-wide market share). Its largest reinsurers include Swiss Re, RenaissanceRe and Lloyd’s.

Some of these reinsurers use quota share sidecars that may involve ILS capital, while USAA and Nationwide both have aggregate cat bond covers that could have deductibles eroded as a result of the loss. However, the annual risk period has recently reset on these deals.

Of course, individual companies may have more or less exposure than their market share of state-wide premiums show based on geographic dispersion within the state, as well as other factors like underwriting standards and risk controls.