Helene and Milton losses below $200m retention of Progressive’s occurrence XoL reinsurance

Progressive, the property and auto-focused insurance group, has revealed that incurred property losses and allocated loss adjustment expenses (ALAE) related to hurricanes Helene and Milton did not exceed the $200 million retention under its occurrence excess of loss (XoL) reinsurance program, but it’s currently unclear as to how the storms have impacted the company’s catastrophe aggregate XoL contracts.

During the month of September, Progressive incurred catastrophe losses of $563 million related to hurricane Helene, primarily in the Southeastern US. Of this, vehicle losses, including boats and recreational vehicles, total $401 million, and in the firm’s property business, the firm incurred net losses of $162 million and an additional $23 million of ALAE.

“Under our occurrence excess of loss reinsurance program, no amounts were ceded related to Hurricane Helene, as our incurred Property losses and ALAE did not exceed our $200 million retention threshold,” explains the firm.

Not too long after Helene’s landfall in the Big Bend region of the Florida coast, hurricane Milton made landfall in Southwest Florida, impacting many of the same areas as Helene with strong winds, storm surge, and inland flooding.

As of October 14th, 2024, Progressive estimates that its vehicle businesses will incur losses of around $325 million, and its property business will incur net losses and ALAE below the $200 million retention threshold under its occurrence XoL reinsurance program.

Under its occurrence XoL agreement, Progressive retains the first $200 million of losses and ALAE for the first event. As of the end of December 2023, coverage limits in place, net of retention, are $2.4 billion for a first event in Florida, and $2 billion for second event outside of the state.

So, currently, it appears that property losses from neither Helene or Milton were sufficient to trigger the firm’s occurrence XoL coverage.

Progressive also has an aggregate XoL reinsurance program for its property business, which it renewed back in January with a lower retention for both layers.

For 2024, the first retention layer threshold ranges from $450 million to $475 million and provides coverage of $85 million, although this layer does not provide coverage for named tropical storms or hurricanes. However, the second layer, which has a retention threshold of $525 million for 2024 and provides $100 million of coverage, includes coverage for named tropical storms or hurricanes, as well as a secondary coverage part with a retention threshold of $425 million that shares the same $100 million limit.

In today’s update, Progressive does not mention its aggregate XoL reinsurance, but back in July did say that on a year-to-date basis, as of June 30th, 2024, “we remain close to reaching the annual retention thresholds under our 2024 catastrophe aggregate excess of loss contracts.”

Together, property losses and ALAE from Helene and Milton for Progressive are below $400 million, which is under the second retention layer threshold, but given that the firm said previously it was close to reaching the annual thresholds under these contracts, it’s likely that these two storms have further eroded some of the annual retention.

Progressive also has aggregate reinsurance protection from the capital markets through its Bonanza Re Ltd. (Series 2023-2) catastrophe bond, a $70 million transaction which provides the insurer with annual aggregate reinsurance against losses from the perils of US named storms, earthquakes, severe thunderstorms, winter storm, and wildfires.

From what we understand, property losses driven by Helene and Milton are not high enough to attach these two tranches of cat bond notes, but the storms have likely eroded some of the deductible under the cat bond.

As well as providing an update on its Helene and Milton losses and reinsurance implications, Progressive has revealed that is has once again recognized favorable development in its property business, of about $77 million, on current year storms that occurred prior to September, with just over 60% relating to the May storms.

Last month, the insurer reported favourable development of around $110 million in the month of August, with just over 60% relating to the May storms.

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