Residential Reinsurance 2021 Limited (Series 2021-2)

This is USAA’s 38th catastrophe bond issuance and 37th under the Residential Re naming.

Now, the insurer is back for its per-occurrence coverage and the Cayman Islands special purpose vehicle Residential Reinsurance 2021 Limited will seek to issue two tranches of Series 2021-2 cat bond notes, to secure USAA a targeted $225 million or more of protection.

The Residential Re 2021-2 cat bond will provide USAA with four-years of per-occurrence reinsurance protection against losses from the typical range of perils as its recent cat bonds, so it covers 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).

Coverage is across the 50 states of the US, as well as the District of Colombia, while the cat bond will feature an indemnity trigger, as all of USAA’s reinsurance tower does.

It’s notable that again, a communicable disease exclusion continues to be in place against the “other perils” category of covered risks, something ILS investors pushed USAA’s to include in its first cat bond of 2020, to ensure there couldn’t be any exposure to the COVID-19 pandemic.

Residential Reinsurance 2021 will issue a targeted $125 million Class 2 tranche of cat bond notes, that will attach at $1.177 billion of losses, have an initial modelled expected loss of 6.6% and are being offered to investors with coupon guidance in a range from 11.75% to 12.5%.

Also being offered are a targeted $100 million Class 3 tranche of notes, that will attach at $2.125 billion of losses, having an inital modelled expected loss of 2.96% and price guidance in a range from 6.25% to 6.75%.

Interestingly, those pricing levels, on a multiple of expected loss basis, are comparable to USAA’s per-occurrence cat bond issuances from 2017 and 2018, but appear a little lower than the price guidance on the insurers 2020 per-occurrence issuance.

Update 1:

The target for USAA’s latest cat bond has now been lifted to as much as $300 million, while at the same time price guidance has been lowered across both tranches of notes.

With this likely upsizing in mind, Residential Reinsurance 2021 will now issue a Class 2 tranche of cat bond notes sized at between $125 million and $175 million, that will attach at $1.177 billion of losses, have an initial modelled expected loss of 6.6%.

This higher-risk tranche were initially offered to investors with coupon guidance in a range from 11.75% to 12.5%, but this has now been fixed at the low-end of 11.75%, we’re told.

The lower-risk Class 3 tranche of notes is now targeted at $125 million in size, up from $100 million, that will attach at $2.125 billion of losses, having an initial modelled expected loss of 2.96%.

This Class 3 tranche were initially offered with price guidance in a range from 6.25% to 6.75% and the pricing has now been lowered to between 5.5% and 6.25%.

Update 2:

USAA secured the upsized target of $300 million of reinsurance from this new Residential Re deal.

The pricing settled at the lower-ends of guidance, with the now $175 million of Class 2 notes priced at 11.75% and the $125 million of Class 3 notes priced at 5.5%.