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Blue Halo Re 2016-1 cat bond principal reduction continues


The Class B tranche of the Blue Halo Re Ltd. (Series 2016-1) catastrophe bond, that was originally sponsored by Allianz Risk Transfer, a unit of global insurance and reinsurance group Allianz, has continued to see its principal reduced over the last two months, as loss pay outs continue.

haloAs we were first to report back in July, the riskier $55 million tranche of 2016-1 Class B notes issued by Blue Halo Re has been making regular payouts under the terms of its reinsurance to the benefit of its sponsor.

Principal had been reduced by around $40 million by July, but since then two further loss payments have been made at the end of August and September, taking total loss pay outs (or reinsurance recoveries) to now just over $43 million and reducing the remaining principal of this tranche to around $11.9 million of notes.

The cat bond, which at issuance was a $185 million deal across two tranches of notes, 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 $55 million Class B tranche of notes had already been on-watch for losses since soon after 2017’s hurricanes Harvey, Irma and Maria saw their industry loss estimates escalate.

This tranche began to pay out some of its principal back in late 2018, with regular further payouts continuing to-date.

The Class B tranche has had its principal reduced six times so far, which in each case we assume to be a recovery under the related reinsurance protection terms of the notes.

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

With the industry loss for hurricane Irma still not finalised, there is every chance that losses continue for the Class B tranche noteholders.

In fact the secondary market has the remaining $11.91 million of notes marked at around a 50% loss, which suggests further reductions in principal will likely be seen.

The last we knew, both the Class A and Class B tranches of this Blue Halo Re 2016-1 cat bond had their maturities extended to September 23rd. Given neither have matured yet and a further reduction in principal occurred at the end of last month, it’s safe to assume the extensions of maturity continue.

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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