Residential Reinsurance 2026 Limited (Series 2026-2)

USAA has returned to the catastrophe bond market in search of more fully-collateralized reinsurance protection, with what will become the 48th catastrophe bond transaction we have tracked from the military mutual insurer, the most prolific sponsor in the cat bond sector.

USAA has, in recent history, always tended to sponsor a new catastrophe bond to provide per-occurrence reinsurance coverage around November time, which this seems to be the latest iteration of.

This new Residential Re Series 2026-2 catastrophe bond offering sees the military mutual insurer initially looking to secure $225 million or more in multi-year and multi-peril catastrophe reinsurance from the capital markets.

Using its Residential Reinsurance 2026 Limited special purpose vehicle, USAA is now bringing three tranches of Series 2026-2 occurrence catastrophe bond notes to investors, we’ve learned from our market sources.

All three tranches of Series 2026-2 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 normally seen.

The three 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 of the insurers 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 understand.

Each of the Residential Reinsurance 2026-2 cat bond tranches will provide USAA with four years of per-occurrence reinsurance protection on an indemnity trigger basis, running from December 1st 2026 through November 30th 2030.

A Series 2026-2 Class 2 tranche of notes is preliminarily sized at $50 million and would attach their coverage at $2.45 billion of losses to USAA, exhausting at $3.45 billion, which gives them an initial base attachment probability of 8.24%, an initial base expected loss of 6.04% and they are being offered to cat bond investors with price guidance of 8.5% to 9.25%, sources said.

An also $50 million Series 2026-2 Class 3 tranche of notes would see their coverage attach at $3.45 billion of losses to USAA, exhausting at $4.6 billion making them less risky as they sit on top of the Class 2 notes, which results in an initial base attachment probability of 4.4%, an initial base expected loss of 3.34% and they are being offered to cat bond investors with price guidance of 5% to 5.5%.

The third and final Class 5 tranche of Series 2026-2 notes are larger at $125 million in size and would attach their coverage at $5.6 billion of losses to USAA, exhausting at $6.5 billion, which makes them the least risky layer with an initial base attachment probability of 1.72%, an initial base expected loss of 1.43% and they are being offered to cat bond investors with price guidance of 2.5% to 3%, we understand.

The price multiples look relatively low, which is to be expected as the market moves into the busier issuance fourth-quarter after further reinsurance rate softening around the mid-year.

At their mid-points of price guidance, the Class 2 riskiest tranche would have a multiple of 1.47 times the expected loss, the Class 3 tranche would have a multiple of 1.57 times EL and the least risky Class 5 notes would have a multiple of 1.92 times EL.

Update 1:

USAA is now targeting a roughly 56% upsized $350 million of multi-peril collateralized catastrophe reinsurance from this new Residential Re 2026-2 catastrophe bond sponsorship, with all three tranches of notes increasing in size and seeing their price guidance ranges lowered.

The Series 2026-2 Class 2 tranche of notes have doubled in size to $100 million, while their price guidance has been updated lower at between a 7.75% and 8.5% spread.

The Series 2026-2 Class 3 tranche of notes have also doubled to $100 million in size, while their price guidance has also been adjusted down to between 4.25% and 5%.

The Class 5 tranche of Series 2026-2 notes have increased slightly to $150 million in size, while their price guidance has again been reduced to an updated range of between 2% and 2.5%.

Update 2:

The target size of this Residential Re 2026-2 catastrophe bond issuance remains $350 million, but the price guidance has been lowered a second time.

The Series 2026-2 Class 2 tranche of notes remain $100 million, but now with price guidance of between a 7.25% and 7.75% spread.

The Series 2026-2 Class 3 tranche of notes remain $100 million in size, but with price guidance now at between 3.75% and 4.25%.

The Series 2026-2 Class 5 tranche of notes remain $150 million in size, with pricing now guided lower still at between 1.75% and 2%.

Update 3:

USAA secured its upsized target of $350 million of multi-peril and multi-year, fully-collateralized catastrophe reinsurance from this new Residential Reinsurance 2026 Limited (Series 2026-2) cat bond issuance.

The company has successfully priced all three tranches of notes at spread levels below their initial guidance in each case.

The Series 2026-2 Class 2 tranche of notes priced to provide $100 million of protection and will pay investors a spread of 7.25%, so the low-end of twice reduced guidance.

The Series 2026-2 Class 3 tranche of notes priced to provide  $100 million of reinsurance and will pay investors a 4% spread, so at the mid-point of the twice reduced guidance range.

The Series 2026-2 Class 5 tranche of notes priced to provide $150 million of cover and will pay investors a spread of 2%, so pricing at the upper-end of the twice-reduced range.