Residential Reinsurance 2025 Limited (Series 2025-2)

USAA has returned to the catastrophe bond market with an initial target to secure $300 million or more in per-occurrence reinsurance protection from what will be the 46th catastrophe bond transaction we have tracked from the military mutual insurer, the most prolific sponsor in the cat bond sector.

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

This issuance is the regular fourth-quarter occurrence cat bond deal from USAA and it sees the military mutual insurer looking to secure $300 million or more in multi-year and multi-peril catastrophe reinsurance from the capital markets.

Using the Residential Reinsurance 2025 Limited special purpose vehicle that was established for a $425 million aggregate cat bond issuance earlier this year, USAA is now bringing two tranches of Series 2025-2 occurrence catastrophe bond notes to investors, we’ve learned from market sources.

Both of the tranches of Series 2025-2 cat bond 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 two tranches of notes will provide USAA with four years of indemnity per-occurrence based reinsurance protection against losses from the typical perils that feature across all its catastrophe bond deals in recent years, 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 are told.

Each of the tranches will provide USAA with four years of per-occurrence reinsurance protection running from December 1st 2025 through November 30th 2029.

USAA has come to market a little earlier than it typically does for its regular fourth-quarter occurrence catastrophe bond deal, perhaps looking to capitalise on the market being quiet at this time, but investor demand being high for new paper still.

That is also evident in the comparatively, compared to USAA’s cat bond a year ago, tight spread multiples on offer, that indicate strong execution is anticipated with this deal thanks to the spread tightening seen in the catastrophe bond market since the insurer’s last occurrence deal.

The first, Series 2025-2 Class 2 tranche of notes is preliminarily sized at $150 million and would attach their coverage at $2.25 billion of losses to USAA, exhausting at $3.2 billion, which gives them an initial base attachment probability of 8.87%, an initial base expected loss of 6.47% and they are being offered to cat bond investors with price guidance of 11.75% to 12.5%.

The second, Series 2025-2 Class 5 tranche of notes is also preliminarily sized at $150 million and their coverage would attach at $4.5 billion of losses to USAA, exhausting at $6.1 billion making them less risky, which results in an initial base attachment probability of 2.45%, an initial base expected loss of 1.82% and they are being offered to cat bond investors with price guidance of 4% to 4.5%.

Update 1:

We understand that USAA is now looking to upsize this catastrophe bond issuance to $400 million in size, while the price guidance for both tranches of Residential Re 2025-2 notes has been lowered.

The first, Series 2025-2 Class 2 tranche of notes are now targeted as a $200 million issuance. The Class 2 notes have seen their price guidance range lowered to between 10.75% and 11.75%, we are told.

The second, Series 2025-2 Class 5 tranche of notes are now targeted at $200 million as well. The Class 5 notes have a revised price guidance range for a spread of between 3.5% and 4%.

Update 2:

The price guidance has been lowered for a second time for both tranches of notes of this Residential Re 2025-2 catastrophe bond.

The $200 million Series 2025-2 Class 2 notes are now offered with spread guidance of 10.25% to 10.75%.

The $200 million Series 2025-2 Class 5 notes are now offered with spread guidance of 3.25% to 3.5%.

Update 3:

USAA secured the upsized target of $400 million of fully-collateralized multi-peril per-occurrence reinsurance protection from its latest Residential Re 2025-2 catastrophe bond. Both tranches of notes on offer priced at the bottom of their lowered price guidance.

The $200 million Series 2025-2 Class 2 notes priced to pay investors a spread of 10.25%.

The $200 million Series 2025-2 Class 5 notes priced for a spread of 3.25%.