Hurricane and severe convective storm losses in the US are spurring greater interest among regional and super-regional mutuals in buying aggregate covers, although the cost of such protections means there are question marks over whether these programs will ultimately be purchased, market practitioners have told The Insurer.

Ida collage

With Hurricane Ida set to cost (re)insurers upwards of $25bn and severe convective storm losses again totalling more than $10bn in 2021, delegates at last week’s National Association of Mutual Insurance Companies (Namic) conference in Nashville, Tennessee, spoke of increased interest in purchasing aggregate covers.

“With the increase in cat losses, and notably severe convective storms which have impacted so many of the midwestern mutuals, those companies are taking a harder look at aggregate programs,” one source said.

A separate source explained that clients “do feel there’s a lot of value there [in aggregate covers] as a way to protect their balance sheet from difficult years”.

It is not just the headline-grabbing weather events that are causing mutuals pain. As another source explained, mutuals focused on one particular state or group of neighbouring states can suffer significant losses from weather events that are limited in scale.

As highlighted by Munich Re back in January, the economic impact from North American thunderstorms has increased substantially in recent years, with some $40bn of losses in 2020.


Aggregate covers are attractive to regional mutuals as they may suffer losses from several such events within one year, but none of them will be of sufficient scale to exceed the retention on their cat programs.

“We’ve seen a trend over the last several years of increased interest in aggregate covers to protect against that frequency of both medium and smaller sized losses, or even a frequency of larger losses,” one source said.

Another market source shared a similar sentiment.

“There will be a lot [of discussion about aggregate cover] going on this year,” they predicted.

Despite the elevated interest, it remains to be seen whether mutuals new to the coverages ultimately decide to make the purchase.

“When push comes to shove it’s hard to say how many of them will actually jump [and buy],” a broking source said.

“Most of them that will actually buy aggregate programs probably already have them,” the source said, adding that those that do not have them are frequently put off by their high cost.

“A couple of times when we’ve quoted them up and then put them in front of clients who don’t have them because they think they’d be helpful, they’ve been a bit stung [by the price].

“[Aggregate covers] aren’t free and the cost can be significant, and often [the clients] do not pull the trigger,” they added.

Another source said reinsurers do have capacity available to write these aggregate coverages, but “it’s getting more expensive” to do so as they look to impose price rises in the wake of this year’s cat activity.

Raising retentions to offset costs

That source suggested mutuals may look to manage those increased reinsurance costs by raising their retentions.

As the source explained, and as The Insurer reported last week, the US mutual market grew its capital and surplus by 8.3 percent last year.

Some individual mutuals that have significantly bolstered their capital may raise their retention to offset some of the expected increase in reinsurance costs at the upcoming 1 January renewal.

A hard reinsurance market

The comments come after Namic’s president and CEO Neil Alldredge downplayed the potential impact of increased reinsurance costs on his organisation’s members, insisting that the heightened cost of coverage is not “terribly drastic in a historical context”.

“Definitely the reinsurance market has hardened. There’s no doubt about that, and that cost is borne out in the operating costs of the primary insurers,” Alldredge told The Insurer during his organisation’s conference.

The cost of reinsurance may have gone up, but Alldredge also highlighted that “there’s a lot of capital being invested and available” in the sector, and that will help stymie the rate rises.

“It would be one thing if costs were going up and there wasn’t capital available to meet the demand, but there is at the moment, so there’s no availability problem.

“There’s a bit of a price issue, but we’ve seen these cycles before [and] it’s not something that’s terribly drastic in a historical context at the moment,” Alldredge said.