USAA marketing $150m Residential Re 2009 cat bond

by Artemis on May 7, 2009

USAA, who specialise in providing insurance to those in the U.S. military and long time sponsor of catastrophe bonds, is returning to the market once again and is currently marketing it’s 13th issuance in the Residential Re series.  Residential Reinsurance Ltd is their Cayman Islands based special purpose vehicle, it issued it’s first cat bond way back in 1997 so it’s great to see their confidence in the market still exists.

This latest deal from from USAA totals $150m split into three equal tranches of $50m and is designed to provide USAA with three years of cover against U.S. windstorms and earthquakes. USAA are being assisted by Goldman Sachs, BNP Paribas and Aon Benfield who are all involved in managing the transaction to bring it to market. The deal is expected to complete before the end of May.

Reuters quote an unnamed investor as saying that this deal will not employ a total return swap counterparty and instead will have it’s collateral invested in low risk and highly rated money market funds. This is a similar arrangement to the recent Blue Fin Ltd deal from Allianz which shunned having a counterparty and in it’s place used highly rated debt. This is a further sign that even those who access the capital markets on a regular basis are having to change their practices in order to keep investors happy and make certain deals make it to the market.

That makes seven cat bonds so far this year which is healthy issuance given the market conditions of late and the gloom and doom surrounding insurance linked securities in the second half of 2008. With rumours of more deals in the pipeline and attempts underway to structure cat bonds to cover different types of risks (such as supply chain) it’s certainly looking good for 2009. One thing which would be a great indicator of market health would be to see some deals covering risks in countries other than the U.S. as so far this year, all have a U.S. focus.

We’ll bring you further details on the structure of Residential Re 2009 and the risks it covers as they become available. You can read about previous deals from USAA in the Artemis Deal Directory.

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Boslino May 8, 2009 at 9:27 am

But what spread are they paying? The investors will charge them an arm and a leg for this cover!

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