Primary mutual insurer USAA continues to benefit from reinsurance recoveries under its catastrophe bond program, with another small loss payment made from its Espada Reinsurance Limited (Series 2016-1) catastrophe bond transaction.
USAA’s Espada Re catastrophe bond transaction came to market in 2016, securing the carrier multi-year and peril reinsurance protection from the capital markets.
The only issuance from the insurer that did not use the Residential Re nomenclature, the Espada Re cat bond issuance secured USAA $50 million of multi-peril U.S. catastrophe reinsurance protection on an annual aggregate basis and across a four-year term.
The Espada Re cat bond transaction was one of a number sponsored by USAA that found itself exposed to losses due to the numerous catastrophes that USAA paid claims for over the course of 2017 into 2018.
As USAA’s qualifying aggregate losses from catastrophe events through 2017 and 2018, the annual aggregate risk period began in June, this Espada Re cat bond was among the transactions that were viewed as at-risk of triggering.
First, the $50 million of principal-at-risk from the Espada Re cat bond was reduced to $47,794,184, in 2019, after which USAA received a further reinsurance recovery loss payment of almost $2.97 million from Espada Re, so the remaining principal was reduced further to $44,823,653 in June 2020.
At the same time, roughly a year ago, USAA released $35 million of the remaining trapped Espada Re collateral to investors in the notes, leaving some $9,823,653 of the original principal left outstanding at that time and maturity extended.
That’s how the situation remained until now, with almost $5.2 million recovered through loss payments under its Espada Re cat bond and USAA extending maturity on the remaining notes.
But we’re now told that USAA has recovered another $716,734 from the Espada Re cat bond, which reduced its outstanding to $9,264,853 as of yesterday.
This remaining principal amount from the notes has now had its maturity extended further to September 6th 2021, we’re told.
So, in total, USAA has made reinsurance recoveries amounting to close to $6 million from the Espada Re catastrophe bond to-date and that remaining remains on-risk in case of further degradation in the aggregate loss amounts the insurer reports.
At the same time, another of the outstanding Residential Reinsurance catastrophe bonds has also been further extended,
USAA has been making recoveries under its Residential Re cat bonds for its aggregate catastrophe losses in recent years.
One of those, USAA’s Residential Reinsurance 2016 Limited (Series 2016-1) cat bond, saw its Class 10 notes considered a total loss at first, but then wildfire related subrogation reduced the loss attributed to this layer driving a $19,083,604 return of principal, related to a previously made loss payment under the related reinsurance agreement.
As a result, the ResRe 2016-1 Class 10 notes net principal was raised to that level and the notes remained with their maturity extended, in case other development of losses drove further reinsurance recoveries for USAA.
That hasn’t been the case yet and now the ResRe 2016-1 Class 10 notes have had their $19,083,604 of remaining principal extended for maturity again through to September 6th 2021, the same as the Espada Re notes.
Other tranches of ResRe notes were also extended through June 6th, but as yet have not been extended further, suggesting it is not as clear-cut at this stage whether USAA can hold onto that trapped collateral as well.
Chiefly, the remaining $49,844,508 of the Residential Reinsurance 2015 Limited (Series 2015-1) aggregate cat bond transactions Class 10 Notes, which is the largest chunk still on-risk it seems.
In total, USAA has made well over $500 million of recoveries from across its catastrophe bonds, although with some returned under subrogation and some still mark-to-market implied, it’s harder to give a definitive figure.
It clearly shows the benefit of the catastrophe bond for USAA, as the structures have provided valuable reinsurance to help the carrier pay its catastrophe claims, while behaving as expected and allowing the company to retain the collateral until losses become developed enough to define whether a recovery is due.