USAA’s new Residential Re cat bond upsized again to $430m

USAA has further upsized its latest catastrophe bond issuance to $430 million in size, demonstrating that investor appetite remained strong for the higher layers of its new Residential Reinsurance 2022 Limited (Series 2022-1) issuance.

USAA returned to the catastrophe bond market earlier in April, seeking $375 million or more of collateralized multi-peril reinsurance from a five tranche deal targeting aggregate cover for the U.S. primary military mutual insurer.

This new cat bond will afford USAA a layered source of fully-collateralized annual aggregate reinsurance protection against losses from multiple US catastrophe and severe weather perils, across a four-year term.

Then last week we reported that one tranche of the five tranche issuance was pulled from the issuance, the riskiest Class 10 tranche of zero-coupon notes that only had a single year term.

A few days later the issuance was upsized to $415 million, while pricing was elevated to the top of initial coupon guidance for each of the remaining tranches of notes.

All of which was a reflection of broader catastrophe bond market conditions, where prices of new issuances are tending to rise and spread widening is being experienced.

Now, though, it’s clear from how this new USAA cat bond has priced that investors continue to have appetite for higher-layers of risk from recognised and respected cat bond sponsors, as USAA took the opportunity to upsize its latest issuance again.

We’re now told the transaction has priced, with all coupons remaining at the top of guidance, but the two lowest risk layers of notes have increased in size slightly again, to make this Residential Re 2022-1 cat bond now $430 million in size.

So, this cat bond will now provide USAA with $430 million of reinsurance against certain 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 an event deductible of $50 million per event across all tranches of notes issued.

Residential Reinsurance 2022 Limited is going to issue four tranches of Series 2022-1 notes, each providing USAA with annual aggregate reinsurance protection against losses from multiple US perils.

The Class 11 notes, with an initial expected loss of 4.83% have remained at their shrunken $35 million in size, with their coupon fixed at 12.5%.

The Class 12 notes, with an initial expected loss of 2.33%, remained at their upsized $60 million in size, with their coupon fixed at 7.5%.

The Class 13 notes, with an initial expected loss of  1.19%, upsized a little further to $155 million in size, with their coupon fixed at 5.25%.

Finally, the Class 14 notes, with an initial expected loss of 0.61%, upsized a little further as well, to $180 million in size, with their coupon fixed at 4%.

It shows investors are still keen to take on these higher-layer cat bonds, especially from a well-known and respected sponsor like USAA, which will be encouraging for those looking for protection on similar high-layers, although the fact riskier tranches are getting dropped from transactions lately may be a concern for others.

You can read all about this Residential Reinsurance 2022 Limited (Series 2022-1)catastrophe bond from USAA and every cat bond issued in our extensive Artemis Deal Directory.