U.S. primary mutual insurer USAA has added another just more than $57.4 million to the reinsurance recoveries made under its Residential Re catastrophe bond program, as it continues to benefit from the catastrophe protection the program has provided it through recent heavy loss years.
The last time we covered USAA and its Residential Re catastrophe bond program we highlighted loss payments amounting to almost $62.6 million across two of its outstanding at-risk transactions.
USAA’s Residential Reinsurance catastrophe bond program was exposed to a range of catastrophe loss events that impacted the insurer over the course of 2017 and 2018.
Catastrophe events such as hurricane Irma and the California wildfires were seemingly the tipping point for the program, resulting in a number of exposed tranches being triggered and subsequently awaiting losses to accumulate and be counted to define any final loss payments that were due.
As a result, draw-downs of principal on exposed Residential Reinsurance cat bond tranches began to flow through, as USAA’s ultimate losses were finalised and it has been able to make recoveries under the associated reinsurance agreements that were in place between it and the cat bond issuing special purpose vehicles.
As mentioned, the last time we covered the USAA cat bond program the company was benefiting from $62.6 million of loss payments, with the originally $100 million Residential Reinsurance 2018 Limited (Series 2018-1) Class 11 tranche of notes seeinga principal reduction of $42,596,036 due to a reinsurance recovery being made.
That left the 2018 ResRe cat bond tranche with $57,403,964 of principal left outstanding, which it now transpires is also being collected by USAA as another reinsurance recovery under that layer of its program.
That remaining just over $57.4 million of principal is now being recovered by USAA under the reinsurance agreement and so this tranche of notes balance is reduced to nil and will be matured.
This latest payout now takes USAA’s reinsurance recoveries under the Residential Re cat bond program to at least $327.4 million at this time.
At the same time as this latest USAA cat bond reinsurance recovery has come to light, we’re also aware that another of its loss hit bonds has had its maturity extended again.
USAA’s Residential Reinsurance 2014 Limited (Series 2014-1) Class 10 tranche of cat bond notes, which were already drawn-down in full to zero of principal (an $80 million recovery) last year, has now had its final maturity extended through till June 6th 2020, with the remaining principal still recorded as nil dollars. We’re not absolutely clear why the continued extension if the notes have already paid their balance out, so this is likely a contractual formality.
USAA’s catastrophe bond program has worked as designed, with its layering of coverage approach through the multiple issuances made each year meaning it has significant reinsurance support from the capital markets that continues to pay out to the insurers benefit.
More recoveries are likely as well, as some of the at-risk tranches remain significantly marked down to levels suggesting more loss payments may be expected in months to come.