USAA returns with $325m target for Residential Re 2024-2 occurrence cat bond

Insurer USAA has returned for what will be the 44th catastrophe bond issuance we have tracked from the company, initially targeting $325 million of occurrence reinsurance protection from a new Residential Reinsurance 2024 Limited (Series 2024-2) deal, Artemis has learned.

USAA is the most consistent of catastrophe bond sponsors, that looks to augment and diversify its sources of catastrophe reinsurance protection using the capital markets and has been doing so since 1997.

This new Residential Re cat bond is the 44th we have tracked from USAA, with now 43 issuances under the Residential Re name and one named Espada Re all listed in our extensive Deal Directory.

Demonstrating its consistency, USAA has tended to sponsor two catastrophe bond issuances each year of late, one cat bond that provides aggregate reinsurance protection in May, and a cat bond to provide per-occurrence cover in November.

This issuance is the regular November deal from USAA, seeing the military mutual insurer looking to secure $325 million or more in multi-year and per-occurrence multi-peril catastrophe reinsurance from the capital markets.

Using its Residential Reinsurance 2024 Limited structure located in the Cayman Islands, USAA is bringing three tranches of Series 2024-2 catastrophe bond notes to market, we understand.

All three tranches of notes will provide USAA with per-occurrence and indemnity triggered 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), which are the typical range of perils the insurer seeks cat bond cover for.

Each of the tranches will provide USAA with four years of protection, running from December 1st 2024 through November 30th 2028, we are told.

The first, Class 2 tranche of notes is preliminarily sized at $50 million and would attach at $2 billion of losses to USAA, exhausting at $2.9 billion, giving them an initial attachment probability of 8.21%, an initial expected loss of 6.14% and they are offered with price guidance of 14% to 15%.

The second, Class 3 tranche of notes is preliminarily sized at $125 million and would attach at $2.9 billion of losses to USAA, exhausting at $4.15 billion, giving them an initial attachment probability of 4.52%, an initial expected loss of 3.25% and they are offered with price guidance in a range from 7.75% to 8.5%.

The third and final, Class 4 tranche of notes is preliminarily sized at $150 million and would attach at $4.15 billion of losses to USAA, exhausting at $4.85 billion, which gives them an initial attachment probability of 2.35%, an initial expected loss of 2.05% and they are offered with price guidance of 6% to 6.5%, sources said.

As such, these cat bond tranches from the ResRe 2024-2 issuance cover a relatively small percentage of the reinsurance layer in each case, sitting atop one another to provide layered capital markets diversification to its reinsurance tower, and offering a range of risk-return profiles for cat bond investors.

Comparing this new 2024-2 issuance to last November’s Residential Reinsurance 2023-2 deal, that per-occurrence issuance featured one zero-coupon tranche with a 5.91% expected loss that priced at a rough coupon equivalent of 13.5%, one tranche with an initial EL of 3.05% that priced at 8.5% and one tranche with an initial EL of 1.25% that priced at 5.75%.