Residential Reinsurance 2022 Limited (Series 2022-1)

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Residential Reinsurance 2022 Limited (Series 2022-1) – At a glance:

  • Issuer: Residential Reinsurance 2022 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: $430m
  • Trigger type: Indemnity
  • Ratings: S&P: Class 14 BB- (sf)
  • Date of issue: May 2022

Residential Reinsurance 2022 Limited (Series 2022-1) – Full details:

This new Residential Re deal will be the 39th issuance from the company that we have listed in our extensive Artemis Deal Directory and the 38th to use the Residential Re name (with one Espada Re cat bond sponsored in 2016).

This first Residential Reinsurance catastrophe bond of 2022 has the potential to be a relatively large issuance for USAA, with the target said by our sources to be at least $375 million across four tranches of notes, with a fifth tranche currently unsized as well.

USAA has formed a new Cayman Islands special purpose vehicle Residential Reinsurance 2022 Limited for this first cat bond of the year.

Residential Reinsurance 2022 Limited will look to issue five tranches of Series 2022-1 notes, each of which will provide USAA with annual aggregate reinsurance protection against losses from multiple US perils.

One as yet unsized tranche of notes will provide one year of annual aggregate and indemnity trigger based reinsurance protection, while the other four will cover USAA across a four-year term again on an aggregate indemnity basis.

The notes will cover USAA for certain losses from the perils of 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’re told there will be an event deductible of $50 million per event across all five tranches of notes issued.

An as yet unsized Class 10 tranche of notes will provide one year of coverage and are the riskiest layer in this cat bond issuance, having an initial expected loss of 8.24%, would attach at $1.575 billion of losses and being offered as zero-coupon discount notes with price guidance of 82.5% to 83.5% of par, a rough coupon equivalent being 16.5% to 17.5%.

A $50 million Class 11 tranche of notes will have an initial expected loss of 4.83%, would attach at $1.775 billion of losses and are being offered with price guidance of 11% to 11.75%.

A $75 million Class 12 tranche of notes will have an initial expected loss of 2.33%, would attach at $2.125 billion of losses and are being offered with price guidance of 6% to 6.75%.

A $125 million Class 13 tranche of notes will have an initial expected loss of 1.19%, would attach at $2.475 billion of losses and are being offered with price guidance of 4.25% to 4.75%.

A $125 million Class 14 tranche of notes will have an initial expected loss of 0.61%, would attach at $3.175 billion of losses and are being offered with price guidance of 3% to 3.5%.

This layered approach to securing annual aggregate reinsurance protection is core to USAA’s use of catastrophe bonds and this year each of these layers will provide coverage for a percentage of losses from its attachment up to the next layer, leaving plenty of room for upsizing should the insurer choose.

Update 1:

We’re told the Class 10, riskiest layer of USAA’s latest catastrophe bond was pulled from the issuance, so these notes are no longer being offered.

Price guidance was lifted across the other four tranches, to the following ranges:

  • Class 11 – 11.75% to 12.5%
  • Class 12 – 6.75% to 7.5%
  • Class 13 – 4.75% to 5.25%
  • Class 14 – 3.5% to 4%

Update 2:

This latest catastrophe bond issuance from USAA is set to be upsized to $415 million, while pricing is settling at the top-end of revised guidance in all cases.

The tranches now look as follows:

  • Class 11 – $35 million; coupon 12.5%.
  • Class 12 – $60 million; coupon 7.5%.
  • Class 13 – $150 million; coupon 5.25%.
  • Class 14 – $170 million; coupon 4%.

Update 3:

At final pricing, USAA’s latest Residential Reinsurance catastrophe bond increased in size slightly again, while the pricing remained at the previously fixed levels.

The final tranch sizes are as per the below, making the overall issuance size $430 million:

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  • Class 11 – $35 million; coupon 12.5%.
  • Class 12 – $60 million; coupon 7.5%.
  • Class 13 – $155 million; coupon 5.25%.
  • Class 14 – $180 million; coupon 4%.
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