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 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.