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Residential Reinsurance 2022 Limited (Series 2022-2)

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Residential Reinsurance 2022 Limited (Series 2022-2) – 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 AIR Worldwide
  • 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: $195m
  • Trigger type: Indemnity
  • Ratings: NR
  • Date of issue: Nov 2022

Residential Reinsurance 2022 Limited (Series 2022-2) – Full details:

USAA has returned to the catastrophe bond market with what will be the insurers’ 40th cat bond issuance that we have listed in our extensive Artemis Deal Directory and the 39th to use the Residential Re name (having sponsored one Espada Re cat bond in 2016).

This is the second Residential Re cat bond from USAA in 2022 and the first cat bond deal of the fourth-quarter of the year, also the first to come to market after hurricane Ian and the effects of that storm and its losses are evident in the multiples and spread on offer.

Using its Cayman Islands based special purpose vehicle, Residential Reinsurance 2022 Limited, USAA is seeking $150 million or more in multi-year and multi-peril catastrophe reinsurance protection from the capital markets for its exposures.

As is typical with its fourth-quarter cat bonds, that tend to be finalised and issued in November, this new Residential Re deal will provide USAA with per-occurrence reinsurance protection.

Residential Reinsurance 2022 Limited will look to issue two tranches of Series 2022-2 notes, each of which will provide USAA with indemnity and per-occurrence based reinsurance protection from the capital markets, covering it against losses from multiple US perils across a four-year term.

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).

A $50 million tranche of Class 3 notes will have an initial base expected loss of 2.72%, would attach at $2.3 billion of losses and are being offered to cat bond investors with price guidance of 9.25% to 10%.

A larger, $100 million tranche of Class 5 notes will have an initial base expected loss of 1.34%, would attach higher up at $3.475 billion of losses to USAA and are being offered to cat bond investors with price guidance of 6.25% to 7%.

Which means the Class 3 notes would have a multiple at the mid-point of price guidance of 3.54 times the expected loss, while the Class 5 notes would have a multiple at the mid-point of 4.94 times the base EL.

Update 1:

USAA has successfully upsized this catastrophe bond issuance to provide the carrier $195 million of multi-year and multi-peril catastrophe reinsurance protection.

The Class 3 tranche of notes has been upsized to $60 million, while the pricing settled with a coupon spread of 10% to be paid to investors, so offering a multiple of almost 3.7 times the expected loss.

The Class 5 tranche of notes has also grown in size to offer USAA $135 million of reinsurance protection, while the pricing settled for a spread of 7%, offering investors a multiple of 5.2 times the expected loss.

Being the first cat bond in the market after 2022’s hurricane Ian, this is a strong result for USAA, in securing more coverage than targeted, while achieving pricing within guidance, albeit at the top-end.

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