U.S. primary mutual insurer USAA continues to make reinsurance recoveries under its Residential Re catastrophe bond program, with the latest loss payments to come to light amounting to almost $62.6 million.
USAA’s Residential Reinsurance catastrophe bonds were exposed to a range of catastrophe loss events over the course of 2017 and 2018, with events including hurricane Irma and the California wildfires seemingly the tipping point that triggered a number of exposed tranches.
Investors have been gradually seeing draw downs of principal on the exposed ResRe cat bond tranches, as USAA’s ultimate losses are finalised and it is able to make recoveries under the associated reinsurance agreements that were in place between it and the cat bond issuing special purpose vehicles.
So far, USAA has made a number of recoveries from some of its outstanding catastrophe bonds that have had their maturity dates extended.
The insurer has already been able to claim back almost $210 million across its various outstanding and at-risk cat bonds, with a slight reduction in principal of its Espada Reinsurance Limited (Series 2016-1) catastrophe bond transaction and a number of Residential Re tranches paying out and seeing their principal reduced as a result.
In the latest round of reinsurance recoveries and maturity extensions, which were notified to the market just this week, USAA has recouped another almost $62.6 million, taking its total recoveries to just over $270 million.
First, USAA’s Residential Reinsurance 2014 Limited (Series 2014-1) Class 10 tranche of cat bond notes, which were drawn-down in full to zero of principal (an $80 million recovery) earlier this year, has now had its final maturity extended through till March 6th 2020, with the remaining principal still recorded as nil dollars.
Next, is USAA’s Residential Reinsurance 2015 Limited (Series 2015-1) aggregate cat bond transaction, and its Class 10 notes that already had their net principal amount of $50 million reduced by almost half to $26,511,039 is also extended to March 6th 2020.
But the Class 11 tranche of the ResRe 2015-1 cat bond deal, which were originally $100 million in size, but saw reductions in principal of $40 million and then another $10 million, leaving $40 million still outstanding, have now seen another reduction in net principal taking the outstanding notes left down to just $20 million, while also being extended until March 6th 2020.
Finally, the originally $100 million Residential Reinsurance 2018 Limited (Series 2018-1) Class 11 tranche of notes which had previously been extended, as considered at-risk, but with full principal still intact, have now seen a principal reduction.
This tranche has now recorded a loss payment under its reinsurance agreement and as a result a principal reduction of $42,596,036, leaving the tranche with now $57,403,964 of principal left outstanding and also extended through to March 6th 2020.
It’s important to stress that while these are all recoveries of capital, we cannot always confirm that they are losses, as the available information is limited. We know that the almost $42.6 million recovery from the ResRe 2018-1 Class 11 notes is definitely a recovery, but details are less clear about the Series 2015-1 Class 11 notes $20 million principal reduction.
USAA’s catastrophe bond coverage continues to work as designed though, with its layered approach through multiple issuances each year meaning it has significant reinsurance support from the capital markets that is now paying out to its benefit.