USAA returns with $175m target for Residential Re 2024-1 aggregate cat bond

USAA, the most prolific and consistent sponsor of catastrophe bonds, has returned for what will be the 43rd issuance we have listed from the company, seeking $175 million or more in aggregate multi-peril US reinsurance from the capital markets through a Residential Reinsurance 2024 Limited (Series 2024-1) issuance.

USAA regularly sponsors catastrophe bonds to augment and diversify its sources of catastrophe reinsurance protection and has been doing so since 1997.

This new ResRe cat bond is the 43rd we have tracked from USAA, with now 42 issuances under the Residential Re name and one Espada Re transaction all listed in our Deal Directory.

Demonstrating its consistency, USAA has for a number of years sponsored two catastrophe bonds, one cat bond that provides aggregate reinsurance protection in May, and a cat bond to provide per-occurrence protection in November.

This issuance is the regular May deal from USAA, seeing the military mutual insurer looking to secure $175 million in aggregate fully-collateralized catastrophe reinsurance protection from the capital markets.

For this issuance, USAA is bringing a zero-coupon tranche of notes that will provide one-year multi-peril aggregate catastrophe reinsurance protection and two tranches that will provide four years of cover.

Residential Reinsurance 2024 Limited has been established in the Cayman Islands to issue these Series 2024-1 catastrophe bond tranches for USAA.

The three tranches of Series 2024-1 notes will be sold to investors and the proceeds used to collateralize the underlying reinsurance agreements between the issuing vehicle and USAA, we understand.

The three tranches will provide USAA with 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).

All three tranches of notes feature a $50 million event deductible, meaning that loss events must cause that much ultimate loss to USAA before they can be counted for aggregation purposes.

The riskier Class 11 tranche of zero-coupon notes will provide USAA with a single year of reinsurance protection to the end of May 2025, while the other two tranches will provide aggregate protection across a four-year term, running to the end of May 2028, we are told.

The zero-coupon Class 11 tranche of notes are targeted at a maximum size of $50 million we understand and will provide one-year of coverage, attaching at $2.45 billion of qualifying losses to USAA up to $3.1 billion, giving them an initial base attachment probability of 8.5%, an initial base expected loss of 5.47% and these are being offered with pricing at 83% to 84% of par, so a rough 16% to 17% spread equivalent.

A Class 13 tranche are targeted at $50 million in size and will provide four-year coverage, attaching at $3.1 billion of qualifying losses to USAA up to $4.1 billion, giving them an initial base attachment probability of 3.47%, an initial base expected loss of 2.04% and these are being offered with price guidance of 8.5% to 9.25%.

The final Class 14 tranche are also preliminarily targeted at $50 million in size and will also provide four-year coverage, attaching at $4.1 billion of qualifying losses to USAA up to $5 billion, giving them an initial base attachment probability of 1.06%, an initial base expected loss of 0.77% and these are being offered with price guidance of 5.5% to 6.25%.

As a result, these three tranches will sit one on top of the other in the USAA aggregate reinsurance tower, taking a share of any aggregated losses from attachment of the riskiest tranche at $2.45 billion right the way up to exhaustion of the most remote tranche at $5 billion.

With 42 transactions now listed in our Deal Directory, the Residential Re cat bond program is the most prolific in the marketplace and has been a regular and consistent feature of the cat bond market since it was first developed.

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.