Residential Reinsurance 2021 Limited (Series 2021-1)

For 2021, USAA is beginning with a new issuance vehicle, having registered Residential Reinsurance 2021 Limited in the Cayman Islands, the insurers usual domicile of choice for its catastrophe bonds.

Residential Reinsurance 2021 Limited will seek to issue four classes of notes that will be sold to cat bond investors and the proceeds used to collateralize reinsurance agreements between the issuer and USAA itself.

The coverage from this Residential Re 2021-1 cat bond will run across a four-year term and provide USAA with annual aggregate reinsurance protection covering losses from the same range of perils as its recent cat bonds, so 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).

We understand that the communicable disease exclusion persists in the “other perils” category, something investors pushed into USAA’s first cat bond of 2020, to ensure no exposure to the COVID-19 pandemic was possible.

The targeted $275 million of reinsurance protection from its latest cat bond will be provided on an indemnity trigger and annual aggregate basis, across the four year term.

Residential Reinsurance 2021 will issue a Class 11 tranche of notes, currently with a target of $50 million in terms of size. This Class 11 tranche is the riskiest in the issuance, with an initial expected loss of 4.32% and being offered to cat bond investors with price guidance in a range from 10% to 10.75%, we understand.

A Class 12 tranche targets $75 million of coverage and the notes have an initial expected loss of 2.35%, while being offered to cat bond investors with price guidance in a range from 6.5% to 7.25%.

A Class 13 tranche targets another $75 million of coverage, but this time with the notes having an initial expected loss of 1.31% and being offered to investors with price guidance of 4.75% to 5.25%.

The final Class 14 tranche of notes are the lest risky, also targeting $75 million of reinsurance protection for USAA, but with an initial expected loss of 0.61% and price guidance of 3.5% to 4%. This Class 14 tranche also has a preliminary rating from S&P on ‘BB- (sf)’.

Update 1:

USAA’s target for this new catastrophe bond has upsized to $400 million, with all four tranches increasing to $100 million in size and the price guidance being revised downwards for each as well.

A Class 11 tranche of notes has doubled from $50 million to $100 million in terms of size. This Class 11 tranche is the riskiest in the issuance, with an initial expected loss of 4.32% and was at first offered to cat bond investors with price guidance in a range from 10% to 10.75%. That price guidance has now fallen to 9.25% to 10%.

A Class 12 tranche has grown from $75 million of coverage to $100 million, with its notes having an initial expected loss of 2.35%, and was first offered to cat bond investors with price guidance in a range from 6.5% to 7.25%. The price guidance for this tranche has now dropped to 5.75% to 6.5%.

A Class 13 tranche has also grown from $75 million to $100 million of coverage, but this time with the notes having an initial expected loss of 1.31% and first having been offered to investors with price guidance of 4.75% to 5.25%. The revised price guidance is again below the initial, at 4.25% to 4.75%

The final Class 14 tranche of notes are the least risky, and grew from an initial target of $75 million of reinsurance protection for USAA also to $100 million, but with an initial expected loss of 0.61%. Initial price guidance was 3.5% to 4%, but again this has dropped to below the initial range at 3% to 3.5%.

So USAA’s new catastrophe bond looks set to follow in the footsteps of all recent deals, with an increase in size and pricing looking set for the bottom of initial guidance or lower in the case of all tranches.

Update 2:

At final pricing, the Class 11 notes were priced to pay investors a 9.25% risk interest spread, an 11% drop from the initial mid-point.

The Class 12 notes saw the risk interest spread fixed at 5.25%, which represents a near 24% decline from the initial mid-point.

The Class 13 notes saw the risk interest spread fixed at 3.75%, representing a 25% decline from the initial mid-point.

The Class 14 notes saw the risk interest spread fixed at 2.5%, again representing a steep fall of 33% from the initial mid-point of guidance.

Update – April 2025:

On rising aggregate losses from the 2024/2025 risk period the Class 11 notes from this cat bond have marked down for bids as low as 1 cent on the dollar, implying a chance of total loss for that $100 million tranche. The $100 million Class 12 tranche of notes are marked down for bids as low as 25.

Update – June 2025:

USAA opted to return $175 million of capital and extend the maturity on $225 million at the end of the final risk period.

The $100 million of Class 14 notes were redeemed in full by investors, while $75 million of the Class 13 notes was returned to investors as well.

The remaining $25 million from the Class 13 notes and the full $100 million each of the Class 11 and 12 notes was all put on an extended maturity out to June 2028, thereby retaining $225 million of capital for USAA in case reinsurance recoveries came due.

Update – August 2025:

The extended $25 million of capital from the Class 13 notes was also returned to investors, reducing the amount retained by USAA to $200 million from this deal with just the Class 11 and 12 notes now extended, still to June 2028.