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USAA finalises reinsurance recoveries from two of its cat bonds


USAA, the military mutual insurance firm and long-time catastrophe bond sponsor, has continued to benefit from its capital markets backed reinsurance coverage, with two more recoveries amounting to roughly $5.5 million coming from two of its 2016 vintage cat bond deals in recent weeks.

usaa-logoUSAA has been making reinsurance recoveries from some of its catastrophe bonds for a number of years now, with loss events from the 2017 and 2018 underwriting years having driven the majority of them.

Alongside recoveries, USAA has also been returning capital to investors in the cat bonds, as and when allowable, showing the insurer is working through the claims process and ensuring it releases trapped collateral in a timely manner to help investors free their investments where losses aren’t going to apply.

The latest reinsurance recoveries we’ve learned about are related to the Espada Reinsurance Limited (Series 2016-1) and the Residential Reinsurance 2016 Limited (Series 2016-1) Class 10 notes.

Back in December 2022, USAA freed up some of the remaining collateral associated with these cat bonds and returned it to investors.

After recoveries and returns of collateral to investors, the outstanding Espada Re cat bond notes had been reduced to just $318,182 in December.

Now, we’re told that USAA has made a further $302,129 in reinsurance recoveries from the Espada Re cat bond notes, while the $16,053 remaining is now set to be returned to noteholders in a further recovery of value for the investors.

The Residential Re 2016-1 Class 10 cat bond notes, which had previously been considered a total loss based on aggregate estimates of USAA’s losses from a range of catastrophe events but then recovered thanks to subrogation related to the California wildfires, the December return of collateral to investors had reduced the outstanding to $5,591,255.

With this ResRe 2016-1 Class 10 tranche of notes, USAA has made a $5,168,313 reinsurance recovery at the end of February, we’re told, reducing the principal to just $422,942 remaining, all of which is now also set to be returned to the investors.

With these final reinsurance recoveries and returns of collateral to the cat bonds holders, both of these 2016 vintage deals of USAA’s are now reduced to zero.

The process to get to the final reduction of principal to zero for these catastrophe bonds has been a long one for USAA, with recoveries and also returns of capital to investors in both cases.

In the end, the originally $50 million Espada Re cat bond delivered just over $6 million in reinsurance recoveries to USAA, while the majority of the remaining ~$44 million was returned as collateral to investors.

The Residential Re 2016-1 Class 10 notes were thought a total loss, until the subrogation recovered some more value, since when the originally $65 million of cat bond notes have now returned around $14 million of collateral to investors, with the rest recovered under the reinsurance by USAA.

USAA has actively released capital back to investors whenever it was able to, which for investors is key and can only help to boost USAA’s profile as the longest-standing cat bond sponsor.

There are other USAA sponsored cat bonds that still remain at-risk, extended and in partial states of payout.

You can read details of many catastrophe bonds that have been triggered and made payouts, as well as those cat bonds currently at-risk, since the market began in our Deal Directory.

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