Blue Halo Re 2016-1 cat bond pays out $40m, maturity extended further

One tranche of the Blue Halo Re Ltd. (Series 2016-1) catastrophe bond, that was sponsored by Allianz Risk Transfer, a unit of global insurance and reinsurance group Allianz, has now paid out $40 million of its principal on losses.

Meanwhile, both tranches of this catastrophe bond deal have had their maturity extended further, to allow for ongoing loss development to continue.

It is the $55 million of 2016-1 Class B notes issued by Blue Halo Re, which had already been heavily marked down for potential losses in the secondary market, that are now paying out a reinsurance recovery to the benefit of its sponsor, we can report.

This tranche had been marked down for bids as low as 30 in the secondary market, and now it turns out that of the $55 million of original principal, just slightly over $40 million has now been paid out for the losses suffered.

The remaining principal of the Blue Halo Re 2016-1 Class B notes now stands at just slightly under $14.988 million, while now the notes have had their maturity extended by another month as well, to allow for the loss development to continue.

The $185 million catastrophe bond issuance had already seen its $130 million Class A tranche of notes extended by one month before, as it became clearer that they were likely to face some pressure from developing losses.

The cat bond, when issued, secured Allianz Risk Transfer (ART) a multi-year source of reinsurance and retrocessional cover against losses from U.S. named storms and U.S. earthquake risks, on an annual aggregate and industry loss trigger basis.

The riskier Class B tranche of notes that were issued had already been on watch for losses since soon after 2017’s hurricanes Harvey, Irma and Maria.

This tranche began to pay out some of its principal back in late 2018, but the latest reduction in principal only occurred on June 26th 2019.

Now the Class A notes are on watch as well, having had their maturity extended by another month.

The $130 million of Blue Halo Re 2016-1 Class A notes are currently priced in the secondary market for bids of around 97 or so, suggesting investors holding this tranche could escape without facing any actual losses, but the sponsor wants to retain the collateral to be sure, hence the extension of maturity.

The Class B tranche has now had its principal reduced four times, which we assume to each be a recovery under the related reinsurance provisions of the notes.

Given the exposure for this tranche is to the 2017 hurricane events, it’s assumed that it is hurricane Irma loss creep that has pushed the repeated reductions in principal.

With the industry loss for hurricane Irma still not finalised, there is every chances the loss continues for the Class B tranche.

Whether it begins to eat into the larger Class A tranche of notes remains to be seen, but the extension of maturity suggests the sponsor wants to wait and see.

We’ll update you should any further information on the fate of the Blue Halo Re Ltd. (Series 2016-1) catastrophe bond emerge.

You can read all about the catastrophe bonds that have defaulted, faced a loss of principal, or that are considered at risk of loss in our directory detailing catastrophe bond defaults and potential payouts.