U.S. primary military mutual insurer USAA has added another of its catastrophe bonds to the list of those considered at-risk of facing losses, extending the maturity on the $55 million per-occurrence Class 1 tranche of its Residential Reinsurance 2017 Ltd. (Series 2017-2) transaction.
The move suggests that USAA is holding this bond tranche back, which should have matured this week, while it waits for the full loss impact from the recent 2018 California wildfires to become clear.
The notes are a risky per-occurrence layer, structured as zero-coupon notes and with an initial attachment probability of 23.17%, so attaching at $400m of losses and an expected loss of 15.75%.
As a result they are perhaps the most at-risk tranche of USAA’s catastrophe bond reinsurance tower, attaching lowest down on a per-occurrence basis.
These notes have not been extended before, so the reason for this weeks extension is presumably the recent California wildfires, with uncertainty over the insurers eventual gross loss from these events providing a reason to extend these notes.
The extension means this tranche of cat bond notes are now scheduled for maturity on March 6th 2019.
USAA has also further extended the maturity of two of its other outstanding Residential Re cat bonds.
The remaining $20 million of principal from the Residential Reinsurance 2013 Ltd. (Series 2013-2) catastrophe bond per-occurrence Class 1 notes have now had their maturity extended further to March 6th 2019 as well.
This tranche, which is the second most risky per-occurrence tranche of USAA’s program, was partially allowed to mature recently, reducing the amount of principal at risk to just $20 million from this risky tranche of the insurers cat bond backed reinsurance program. This tranche is priced for a roughly 65% loss of principal on secondary broker pricing sheets.
In addition, the $80 million aggregate Class 10 notes from the Residential Reinsurance 2014 Ltd. (Series 2014-1) cat bond have had their maturity extended by a further three months, to March 6th 2019.
These notes are priced for a total loss, with investors not expecting to recover any of the principal at this time.
Interestingly though, while USAA has extended some tranches of its at-risk cat bonds that were due to mature this week, it hasn’t further extended the $50 million zero-coupon aggregate Class 10 tranche of notes from its Residential Reinsurance 2017 Ltd. (Series 2017-1) cat bond.
This risky aggregate layer had been extended but with the market expecting it to become a total loss. The fact it hasn’t been extended again with the others may suggest that USAA has allowed it to mature perhaps, but at this time we cannot confirm that.
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