Swiss Re Insurance-Linked Fund Management

PCS - Emerging Risks, New Opportunities

Residential Reinsurance 2014 Ltd. (Series 2014-2)

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Residential Reinsurance 2014 Ltd. (Series 2014-2) – At a glance:

  • Issuer: Residential Reinsurance 2014 Ltd. (Series 2014-2)
  • Cedent / sponsor: USAA
  • Placement / structuring agent/s: Goldman Sachs and Swiss Re Capital Markets are joint structuring agents and bookrunners. Deutsche Bank is co-manager.
  • Risk modelling / calculation agents etc: AIR Worldwide
  • Risks / perils covered: U.S. tropical storms, earthquakes, severe thunderstorms, winter storms, wildfire, meteorite impact, volcanic eruption
  • Size: $100m
  • Trigger type: Indemnity
  • Ratings: ?
  • Date of issue: Dec 2014

Residential Reinsurance 2014 Ltd. (Series 2014-2) – Full details:

Residential Reinsurance 2014 Ltd., USAA’s latest Cayman Islands domiciled issuance vehicle, will issue its second series of notes this year. The Series 2014-2 issuance is targeting at least $100m of reinsurance protection, we understand, with a deal structured using an indemnity trigger on a per-occurrence basis and with a four-year term to December 2018.

The proceeds from the sale of the notes issued in this deal will be used to collateralize reinsurance agreements between USAA and Residential Re 2014. The reinsurance agreements will provide USAA with fully-collateralized reinsurance protection for certain U.S. tropical storm, earthquake, severe thunderstorm, winter storm, wildfire, volcanic eruption and meteorite impact risks.

Again, the two unusual perils featuring in this deal are the same as in the earlier 2014 issuance, more volcanic eruption and meteorite impact risks. These two perils are again a low contributor to the cat bonds expected loss we understand, but USAA clearly feels that having named protection for these remote risks is worthwhile and that ILS investors will support its needs with attractively priced protection for them.

The cat bond will provide USAA with reinsurance protection for a per-occurrence layer of its reinsurance program, from an attachment point of $2.175 billion to an exhaustion point of $3.188 billion, we understand. The initial attachment probability for the notes will be 2.26% while the initial expected loss will be 1.61%.

In terms of pricing expectations, we understand that the $100m of notes will be marketed to investors with a coupon guide range of 4.5% to 5.25%.

Update 1:

The $100m of Residential Re 2014-2 notes launched to investors with a coupon guide range of 4.5% to 5.25%. We understand that this price guidance range has been narrowed to 4.75% to 5%, so moving towards the mid-point of the initial range. At the low-end of the revised range the multiple would be 2.91 times the expected loss figure of 1.61%.

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