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Carolinas primary carriers: reinsurance relationships

Munich Re, Swiss Re and Lloyd’s are the main reinsurers for the market share leaders in North Carolina and South Carolina, where Hurricane Florence struck at the end of last week.

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.

Although the market is increasingly sceptical that Florence will have a material impact on reinsurers, the hurricane’s damages still have potential to cause at least some earnings erosion for carriers.

Of course, this will depend on individual treaties and their attachment points. Furthermore, schedule F data is not limited to catastrophe-only business, so serves as only a very broad proxy for potential exposure.

While the industry consensus is that insured losses from the storm will be well under $10bn, modelling companies have disclosed diverging estimates.

CoreLogic previously predicted between $3bn and $5bn in insured wind and storm-surge losses while more recently Karen Clark & Company estimated insured claims of $2.5bn, excluding losses taken by the National Flood Insurance Program.

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 being 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.  

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Unsurprisingly, Munich Re and Swiss Re have the largest number of relationships with the nationwide insurers that have the biggest presence in the area and are also their main reinsurance providers at group level. However, nationwide carriers typically have higher retention points so their covers are less likely to trigger.

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 is the primary leader in the two states, writing 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. Nationwide has a $500mn attachment point for a southeast occurrence and also for its national occurrence tower. Extrapolating from its market share, the carrier’s reinsurance cover would kick in at an industry loss of over $6bn.

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.

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.

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