Details emerge on Residential Reinsurance 2010 catastrophe bond

by Artemis on May 25, 2010

Further details have now emerged on the latest catastrophe bond transaction (which we wrote about earlier this month) to be issued under the Residential Reinsurance name. Residential Reinsurance 2010 has been given a preliminary size of $375m, split over three tranches, although we believe that amount could grow due to demand for this the 14th cat bond issuance from USAA.

Residential Re 2010, a Cayman Islands based SPV, has been designed to provide USAA with three years of per-occurrence coverage for a portion of some of it’s subsidiaries U.S. hurricane, earthquake, severe thunderstorm, winter storm and wildfire exposure. It’s not often that a cat bond includes coverage for perils such as U.S. thunderstorm, winter storm and wildfire so we expect investors to have a strong appetite for this deal as a way to diversify their insurance-linked security portfolio.

  • Hurricane risks are covered in the following U.S. States: District of Columbia and the following states: Alabama, Arkansas, Connecticut, Delaware, Florida, Georgia, Hawaii, Illinois, Indiana, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Mississippi, Missouri, New Hampshire, New Jersey, New York, North Carolina, Ohio, Oklahoma, Pennsylvania, Rhode Island, South Carolina, Tennessee, Texas, Vermont, Virginia, and West Virginia.
  • Earthquake risks are covered in all 50 states and the District of Columbia, although losses arising out of property damage caused by fire following will not be covered in Hawaii or Alaska.
  • Severe thunderstorm and winter storm risks are covered in the 48 contiguous states and also the District of Columbia.
  • Wildfire coverage is for California only.

The notes in this transaction provide cover for USAA’s personal lines exposure only. USAA retains at least 10% of losses in each layer of the transaction. The deal is currently split into three tranches of equal value (a preliminary $125m). The transaction can be extended by up to 18 months to allow for loss development and reporting. The risk period itself will not be extended.

Collateral for the transaction is to be invested in highly rated U.S. treasury bills and the like. The Bank of New York Mellon is acting as indenture trustee.

Other companies assisting USAA in getting Residential Re 2010 to market include Goldman Sachs as structuring agent and book runner, Aon Benfield Securities as joint book runner and Deutsche Bank Securities as co-manager. AIR Worldwide are providing risk modelling and analysis services. National Hurricane Centre data is to be used for hurricane risks, U.S. Geological Survey for earthquake and Property Claims Services (PCS) for thunderstorm, winter storm and wildfire risks.

Standard & Poor’s have given the deal a preliminary rating; Class A notes are rated ‘BB’, Class B are rated ‘B+’ and Class C are rated ‘B-‘.

We’ll bring you more details on the actual value of this transaction once it has completed successfully. Full details will be available in our catastrophe bond deal directory.

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