Residential Reinsurance 2021 Limited (Series 2021-2)

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Residential Reinsurance 2021 Limited (Series 2021-2) – At a glance:

  • Issuer: Residential Reinsurance 2021 Limited
  • Cedent / sponsor: USAA
  • Placement / structuring agent/s: Goldman Sachs and Swiss Re Capital Markets are joint structuring agents and bookrunners
  • Risk modelling / calculation agents etc: AIR Worldwide
  • Risks / perils covered: 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)
  • Size: $225m
  • Trigger type: Indemnity
  • Ratings: NR
  • Date of issue: Nov 2021

Residential Reinsurance 2021 Limited (Series 2021-2) – Full details:

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.

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