Insurer USAA has extended the maturity for $225 million of catastrophe bond notes issued under its originally $400 million aggregate cat bond issuance, allowing for further development of losses to identify if any reinsurance recoveries become due.Recall that a number of aggregate catastrophe bonds sponsored by USAA under its Residential Re programmes of deals have been marked down and are viewed as being at-risk of potential losses from the latest annual risk period.All of USAA’s aggregate Residential Reinsurance catastrophe bonds that provide aggregate coverage have annual risk periods that run through until late, or the end of, May.There have been numerous catastrophe events in the last risk period, including from 2024 hurricane season activity, wildfires including the Los Angeles outbreak earlier this year, plus severe convective storms (SCS) and tornado outbreaks, as well as other severe and winter weather.

Impacts from the LA wildfires and from severe convective storm (SCS) outbreaks in 2025 have driven a number of tranches of USAA’s cat bonds much closer to attaching their coverage, which would result in reinsurance recoveries coming due.Because of the risk periods now ending, Artemis has learned that tranches from the 2021-1 issuance under Residential Re 2021 have now been either extended to allow for loss development to continue, or had some or all of their principal returned to investors.The $400 million aggregate cat bond featured four tranches of notes, each at $100 million in size.

The notes effectively sat on top of one another, running up the side of USAA’s aggregate reinsurance tower, sharing differing percentages of their relevant layers.Now, we’re told that the lowest risk tranche of the Residential Re Series 2021-1 cat bond issuance, the Class 14 notes, has been allowed to mature.But the next lowest risk, the Class 13 tranche, has seen $75 million of principal returned to investors, but the remaining $25 million retained with its maturity extended to June 2028.

While at the same time, the next two tranches, Class 12 and the riskiest Class 11 notes, each $100 million in size, have both seen their maturity extended for their full principal, out to the same June 2028 date.Making for $175 million of the outstanding principal from the four tranches having been returned to investors in the cat bonds, while $225 million is retained for USAA in case loss development attaches any of those three Classes.At this stage we do not know for sure whether any reinsurance recoveries are likely under the Class 11, 12 or 13 notes, but they are marked down still in secondary cat bond broker pricing sheets.

The riskiest Class 11 tranche are marked down into the low single digit cents on the dollar range, implying these are considered highly likely to face a pay out, perhaps of a meaningful amount of the outstanding $100 million.The next riskiest Class 12 notes are marked down as low as 25 cents on the dollar, again suggesting a market implied loss of as much as 75%.The final Class 13 tranche were marked down in the 90’s, which suggests a lower implied risk of payout is the market view at thsi time.

As a reminder, that there are other tranches of aggregate catastrophe bonds sponsored by USAA that are marked down, including from the Residential Reinsurance 2022 Limited (Series 2022-1) issuance, the issuance and the Residential Reinsurance 2024 Limited (Series 2024-1) issuance.Some of these are also heavily marked down at this time, but all remain on-risk through the next year so there is no need for a maturity extension at this time, however cat bond investors are on-watch for potential payouts coming due...

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