Swiss Re Insurance-Linked Fund Management

Original Risk: A Society for Change Agents

Blue Halo Re 2016-1 cat bond principal reduced again


The Class B tranche of the Blue Halo Re Ltd. (Series 2016-1) catastrophe bond, originally sponsored by Allianz Risk Transfer, a unit of global insurance and reinsurance group Allianz, has seen a further small reduction in its principal as presumed loss payments to its beneficiary continue.

Blue Halo Re catastrophe bondWe reported back in July that the riskier $55 million tranche of 2016-1 Class B notes issued by Blue Halo Re had been making regular payouts under the terms of its reinsurance to the benefit of its sponsor.

This continued in the third-quarter of the year, with a further payout of principal being made and the notes having their maturity extended again.

When we last covered the fate of this catastrophe bond in October, there was around $13.78 million of the original $55 million of principal remaining, after the rest had been paid out.

Now, a further draw-down under the reinsurance coverage has reduced the outstanding principal of the Blue Halo Re 2016-1 Class B notes to just $10.868 million, as the amount of collateral held reduces further, presumably as the sponsor makes recoveries.

With just this $10.868 million slice of notes left in circulation of the cat bond tranche, the broker pricing sheets continue to have it marked down for further possible losses, with it priced as low as for bids of 45 cents on the dollar.

At the same time, the maturity date for both this reduced in size Class B tranche and also the as yet untouched $130 million Class A tranche of notes, have both been extended out to June 22nd 2022, which is a significant length of time to hold the collateral for.

That will allow losses to be fully realised by the beneficiary, enabling it to claim back under the reinsurance coverage that the Blue Halo Re 2016-1 cat bond provides it.

The $130 million of Blue Halo Re 2016-1 Class A notes provide annual aggregate reinsurance protection from an index point attaching directly as the Class B notes exhaust their coverage.

With the Class B notes now around 80% paid out and still marked down for further losses by traders, there is every chance that losses near the attachment for the Class A layer of coverage. The Class A notes are priced for bids of around 95 to 97 cents on the dollar currently, suggesting investors are wary of the possibility these could attach in future.

The Blue Halo Re cat bond is industry loss trigger based, so with the loss for 2017 hurricanes and some other catastrophe events yet to be finalised there is still potential for loss creep to occur, particularly with hurricane Irma. So there is every chance further reductions of principal are made before these cat bond tranches are allowed to finally mature.

We’ll update you should as 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.

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