Another USAA aggregate cat bond at-risk, as just 50% of principal returned

Artemis has learned that another catastrophe bond from the Residential Re series that provided USAA with a collateralized source of aggregate catastrophe reinsurance protection has had its maturity date extended, following a return of half the outstanding principal to investors that totalled $30 million.

The at-risk USAA sponsored catastrophe bond is the originally $60 million Class 12 tranche of notes from the Residential Reinsurance 2019 Limited (Series 2019-1) issuance.

They were the lowest-attaching aggregate cat bond tranche that used a franchise deductible, rather than the now more common event deductible we see in later issues from USAA’s Residential Re cat bond program.

They attached at around $2.125 billion of aggregate qualifying catastrophe losses for the risk period that ran from June 1st 2022 to May 31st 2023, we believe, while covering losses from the full range of perils that USAA typically seeks its cat bond reinsurance for.

Presumably it is the aggregation of catastrophe losses, after the franchise deductible had been applied, from that most recent risk period that now threatens to trigger these catastrophe bond notes.

The notes had already been slightly marked down in some cat bond secondary market pricing sheets, with them cited at anything from 75 to 85 cents on the dollar, so a 15% to 25% mark-down.

But now we’ve learned that USAA has opted to extend the maturity of the Residential Re 2019-1 Class 12 tranche of notes, which had been due to mature on June 6th.

The maturity date has now been extended by three months to September 6th 2023, we’re told.

At the same time, USAA has allowed half of the outstanding $60 million of notes principal to be returned to investors, with a $30 million partial return of principal to noteholders having been actioned.

As a result, there is $30 million of principal remaining from the Class 12 notes of the Residential Re 2019-1 catastrophe bond issuance, with these remaining marked down to around the same levels they were at, prior to this action, at this time.

That remaining $30 million will be retained to allow for development of aggregate losses suffered in the final risk period, we assume.

USAA has benefited from a number of reinsurance recoveries from its catastrophe bonds over the years, with the instruments repeatedly demonstrating their value for the most prolific of cat bond sponsors.

2022/23 saw a significant number of catastrophe loss events and USAA’s bonds cover tropical storms and hurricanes, including in Florida, so hurricane Ian will have been a contributor to the aggregate loss tally for the final risk period.

We’ve added the Residential Re 2019-1 Class 12 cat bond notes to our directory of cat bonds defaulted, triggered or deemed at-risk of attaching.