USAA prices, secures $125m agg reinsurance from new Residential Re cat bond

USAA has now successfully priced its latest catastrophe bond to secure it a reduced amount of protection after one tranche of notes from the Residential Reinsurance 2024 Limited (Series 2024-1) issuance were dropped, with the remaining two multi-year tranches now finalised and set to provide it with $125 million of annual aggregate multi-peril reinsurance.

This latest Residential Re catastrophe bond from USAA is the 43rd we have tracked from the insurer, the most prolific sponsor of cat bonds, with now 42 issuances under the Residential Re name and one Espada Re transaction all listed in our Deal Directory.

USAA returned in early April with a Series 2024-1 issuance from the Residential Re cat bond program seeking an initial target of $175 million in aggregate multi-peril US reinsurance from the capital markets.

As we then reported earlier this week, one of the tranches of notes had been dropped, lowing the issuance size to $125 million.

Initially, three tranches of notes were on offer, of which one was a zero-coupon Class 11 tranche and the most junior, or risky, of the Residential Re 2024-1 issuance.

Those Class 11 notes had been targeting a maximum of $50 million of cover, against their expected loss of 5.47%, but as we reported that tranche of notes were dropped from the issuance and so not being placed, meaning the target size for the cat bond shrank to $125 million.

We have now learned that the remaining two tranches of notes have been priced, to secure USAA its targeted $125 million of aggregate reinsurance protection they were initially designed to offer.

Because of this, it can now be confirmed that military mutual insurer USAA has secured $125 million in aggregate fully-collateralized catastrophe reinsurance protection from the capital markets with this Residential Re 2024-1 cat bond issuance.

The two tranches of notes being issued will each provide USAA with four years of annual aggregate and indemnity based reinsurance protection, against losses from the perils of U.S. tropical cyclones, earthquakes (plus fire following), severe thunderstorm, winter storm, wildfire, volcanic eruption, meteorite impact, other perils (all including auto & renter policy flood losses), with a $50 million event deductible enforced.

The Class 13 tranche of notes priced at their initial $50 million in size. With their initial base expected loss of 2.04% these notes were first offered with price guidance of 8.5% to 9.25%, which was then narrowed towards the lower-end at 8.5% to 9% and we’re now told the spread was finalised at 9%, so nearer to the upper-end of the initial range.

The Class 14 tranche also priced at their initial target size of $75 million. With their initial base expected loss of 0.77% these were first offered with price guidance of 5.5% to 6.25%, which narrowed towards the lower-end at 5.5% to 6%, but we’re now told have priced for a spread of 5.75% to be paid to investors, so in this case nearer to the low-end of initial guidance.

As we said before, the dropped Class 11 riskier zero-coupon tranche of cat bond notes will likely be placed privately in either the traditional or alternative reinsurance markets, so USAA won’t go without coverage. It’s just that cat bond investors likely did not have the appetite for aggregate all perils coverage at such a high expected loss level.

It’s good to see USAA pricing and finalising the reinsurance coverage from what is its 43rd catastrophe bond to be listed in our Deal Directory, showing the capital markets remains a key provider for its protection needs.

You can read all about this new Residential Reinsurance 2024 Limited (Series 2024-1) catastrophe bond from USAA and view details on almost every other cat bond ever issued in our extensive Artemis Deal Directory.