Residential Reinsurance 2026 Limited (Series 2026-1)

USAA is back in the catastrophe bond market with an initial target to secure $600 million or more in fully-collateralized reinsurance protection from what will be the 47th catastrophe bond transaction we have tracked from the military mutual insurer, the most prolific sponsor in the cat bond sector.

Notably, at a $600 million start this already equals USAA’s largest single cat bond sponsorship, so could easily become its largest yet.

Also notable is the fact that USAA has tended 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.

In this case, while this is the May issuance, there are two tranches to provide aggregate cover across the United States, but an additional one that will provide occurrence cover just for the state of Florida.

We believe this could be the first Florida only cat bond tranche ever sponsored by USAA, although historical data is less available on older deals the insurer had sponsored, so it’s impossible to be certain.

Using a newly established Residential Reinsurance 2026 Limited special purpose vehicle, USAA is bringing three tranches of Series 2026-1 catastrophe bond notes to investors with this sponsorship, we are told.

Each of the three tranches of Series 2026-1 notes that are being offered 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 indemnity based reinsurance protection against losses from the same range of 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 and other perils, we understand.

Two tranches, Class 14 and Class 15, will provide annual aggregate protection across the US and feature a $60 million event deductible (that deductible is higher than the $50 million in USAA’s 2025-1 aggregate cat bonds), while the third Class A tranche will provide per-occurrence protection in Florida only, sources said. Auto and renter policy flood losses are included under the aggregate tranche coverage, while only renter policy flood losses are included under the Florida occurrence tranche, we hear.

It’s also worth highlighting that sources said this new cat bond comes with multiple versions of key risk metrics, given the adoption of a new model version covering severe convective storm (SCS) risk. We wrote about how USAA is managing that model change within some of its earlier outstanding cat bonds here.

The Class 14 tranche of aggregate notes are targeted as $150 million in size for the issuance and have an initial attachment point at $4.975 billion of qualifying losses to USAA, exhausting their coverage at $5.975 billion.

Which gives the Class 14 notes an initial base attachment probability of 9.04% and an initial base expected loss of 6.1% under the new model version. We’re told the base expected loss would be 0.98% under the older risk model version. These notes are being offered with price guidance of 5.75% to 6.5%.

A Class 15 tranche of aggregate notes are also targeted to secure $150 million in reinsurance for the sponsor and have an initial attachment point at $5.975 billion of qualifying losses to USAA, exhausting their coverage at $7.075 billion.

Which gives the Class 15 notes an initial base attachment probability of 3.87% and an initial base expected loss of 2.71% under the new model version. We’re told the base expected loss would be 0.59% under the older risk model version. These notes are being offered with price guidance of 4.75% to 5.5%.

The final Class A tranche of notes are the Florida focused occurrence tranche and target $300 million of reinsurance for USAA. These have an initial attachment point of $1.1 billion and would exhaust at $2.1 billion of losses.

Which gives the Class A notes an initial base attachment probability of 4.06% and an initial base expected loss of 2.51% under the new model version. We’re told the base expected loss would be 2.52% under the older risk model version. These notes are being offered with price guidance of 7% to 7.75%.

The risk model update certainly inflates some of the metrics considerably, particularly for the annual aggregate nationwide tranches, so it makes sense this offering comes with comparable risk metrics from the previous risk model version as well.