Residential Reinsurance 2025 Limited (Series 2025-1)

USAA is back in the catastrophe bond market targeting $400 million or more in aggregate reinsurance protection from what will be the 45th catastrophe bond transaction we have tracked from the military mutual insurer which is the most prolific sponsor in the cat bond sector.

USAA tends to sponsor two catastrophe bond issuances each year, one cat bond that provides the insurer with aggregate reinsurance protection in May, and a cat bond to provide per-occurrence coverage in November.

This issuance is the regular May aggregate cat bond deal from USAA and it sees the military mutual insurer looking to secure $400 million or more in multi-year and multi-peril catastrophe reinsurance from the capital markets.

Using a new Residential Reinsurance 2025 Limited special purpose vehicle, USAA is bringing three tranches of Series 2025-1 catastrophe bond notes to investors, we are told.

Each of the three tranches of Series 2025-1 notes will be sold to investors and the proceeds used to collateralize underlying reinsurance agreements between the issuing vehicle and sponsor USAA, as is typical.

The three tranches of notes will provide USAA with roughly four years of annual aggregate and indemnity based reinsurance protection against losses from the usual perils that feature in its catastrophe bond deals, being 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.

All three of the Series 2025-1 tranches of notes feature a $50 million event deductible, meaning that loss events must cause an equivalent or higher ultimate loss to USAA before they can be counted for annual aggregation purposes.

Unlike recent years, all three tranches of this Residential Reinsurance 2025-1 catastrophe bond issuance are set to be coupon bearing notes, where as the insurer has typically featured a zero-coupon tranche in many of its more recent cat bond deals.

A Class 13 tranche are targeted as $50 million in size for the issuance and have an initial attachment point at $3.625 billion of qualifying losses to USAA, exhausting their coverage at $4.425 billion. Which gives them an initial attachment probability of 3.38%, an initial base expected loss of 2.25% and these notes are being offered with price guidance of 12% to 13%.

A Class 14 tranche are targeted to secure $150 million in reinsurance for the sponsor and have an initial attachment point at $4.425 billion of qualifying losses to USAA, exhausting their coverage at $5.525 billion. Which gives them an initial attachment probability of 1.44%, an initial base expected loss of 0.99% and these notes are being offered with price guidance of 7.5% to 8%.

The final Class 15 tranche of notes are targeted to secure $200 million in reinsurance for USAA and have an initial attachment point at $5.525 billion of qualifying losses to the sponsor, exhausting their coverage at $5.975 billion. Which gives them an initial attachment probability of 0.69%, an initial base expected loss of 0.61% and these notes are being offered with price guidance of 5.5% to 6%.

As a result, all three tranches of Residential Re 2025-1 catastrophe bond notes are set to sit on top of each other in the USAA reinsurance tower.

Update 1:

We’re told that USAA’s target for reinsurance from this new Residential Re 2025-1 has now been lifted to as much as $425 million.

The Class 13 tranche of notes still targeted at $50 million, while their price guidance now sits at the upper-end of 13%.

The Class 14 tranche of notes are still targeted at $150 million, while their price guidance sits at the mid-point of 7.75%.

The final Class 15 tranche of notes are now targeted at $200 million to $225 million, while their price guidance now sits at the mid-point of 5.75%.

Update 2:

USAA secured the upsized target of $425 million of aggregate multi-peril reinsurance from its latest Residential Re 2025-1 catastrophe bond.

The riskier Class 13 tranche of notes settled at $50 million, while their pricing was fixed at the upper-end of 13%.

The Class 14 tranche of notes settled at $150 million, while their pricing was finalised at the mid-point of 7.75%.

The final Class 15 tranche of notes upsized from $200 million to $225 million, while their pricing was also finalised at the mid-point of 5.75%.