U.S. primary military mutual insurer USAA has elected to extend the maturity dates for $170 million of catastrophe bond notes across three Residential Re issuances, as the firm continues to expect that it may be able to recover some of its losses from the principal that remains outstanding.
USAA continues to wait for loss development to complete across a number of catastrophe events from 2017 and also 2018, with the main drivers of potential further loss creep and therefore reinsurance recovery from the principal of the cat bond notes being the California wildfires of late 2017 and winter storm Riley losses from 2018.
The catastrophe bond tranches extended are the $50 million zero-coupon Class 10 tranche of notes from USAA’s Residential Reinsurance 2017 Ltd. (Series 2017-1) cat bond, the $80 million Class 10 notes from the Residential Reinsurance 2014 Ltd. (Series 2014-1) transaction and the remaining $40 million of principal of the Residential Reinsurance 2013 Ltd. (Series 2013-2) catastrophe bond Class 1 notes.
All three of these cat bond tranches, which provided USAA with reinsurance cover for the hurricanes, wildfires and winter storm loss events, and their remaining principal were scheduled to mature as of 6th June 2018 but this has now been extended by three months to 6th September 2018.
Maturity on the ResRe 2013-2 notes had already been extended twice and half of the $80 million Class 1 tranche of notes allowed to mature earlier this year. These notes, which are per-occurrence and assumed to face a loss of at least a portion of the remaining $40 million, are now extended again.
The other two tranches, $50 million ResRe 2017-1 Class 10 and $80 million ResRe 2014 Class 10, are both annual aggregate notes and both are priced on the secondary market by brokers at zero, with an expectation that there is a good chance of a full loss of the $130 million of principal across the pair.
So now three tranches of USAA’s Residential Re cat bond notes are extended in preparation for at least some reinsurance recoveries, while there are also other tranches considered at risk of some level of loss, namely the $65 million of Class 10 notes from Residential Reinsurance 2016 Ltd. (Series 2016-1) which are seen as next most at-risk and likely triggered, and the $50 million of Class 10 Residential Reinsurance 2015 Ltd. (Series 2015-1) cat bond notes which are also marked down on secondary broker pricing sheets.
So there are now $170 million of Residential Re cat bond notes officially with extended maturities, while a portion of another $115 million are also considered at some level of risk of facing losses.
These Residential Re catastrophe bond losses will become clear to investors in the months to come, as USAA finalises its loss estimates and makes reinsurance claims against whichever tranches of notes are eventually triggered.
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