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Cat bond investors force pandemic exclusion into new ResRe deal from USAA


In a show of discipline by the catastrophe bond investor base, we’re told that the new cat bond from USAA, the $100 million or greater Residential Reinsurance 2020 Limited (Series 2020-1) deal, has now had a pandemic exclusion forced into its documentation.

coronavirus-covid19-pandemic-worldUSAA returned to market just this week with the Residential Re 2020-1 catastrophe bond transaction, with the deal set to add to the insurers capital markets backed sources of reinsurance and become its 35th cat bond issuance if successfully completed.

Some catastrophe bonds feature a covered peril bucket titled “other perils,” one of which are recent issues from USAA.

This bucket is designed to expand the reinsurance coverage an indemnity cat bond provides to make it more similar to all natural perils coverage traditionally seen in the reinsurance market.

Back at the beginning of April we highlighted the fact this could be a source of uncertainty as it relates to the Covid-19 pandemic or future outbreaks, unless the “other perils” bucket came with well-worded and strong exclusions.

This “other perils” bucket was originally introduced to catastrophe bonds by the most prolific sponsor of those bonds, USAA itself, back in 2016, we believe.

Other perils as a bucket features in the insurers’ latest Residential Re catastrophe bond, which we specifically highlighted in relation to pandemic risks on Monday in our first article about the new cat bond deal.

Now, our sources tell us that cat bond investors have raised the lack of any specific pandemic or communicable disease exclusion with the deal team behind the new USAA sponsored catastrophe bond.

As a result of the raising of this issue, we’re told that the Residential Re 2020-1 cat bond deal documents have been revised and a suitable exclusion added to give investors comfort that no pandemic coverage could be forced under the reinsurance protection the Residential Re 2020-1 catastrophe bond will provide to USAA.

That’s a positive sign, in terms of the ILS investment community demonstrating its discipline at this time, protecting itself and its investors from any potential future surprises.

You can read all about this Residential Reinsurance 2020 Limited (Series 2020-1)catastrophe bond and every other cat bond transaction USAA has ever sponsored in the Artemis Deal Directory.

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