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Original Risk: A Society for Change Agents

Residential Re 2012 catastrophe bond completes, takes first-half issuance to $3.338 billion


Regular catastrophe bond sponsor USAA have successfully acquired $200m of fully collateralized cover through the issuance of their latest catastrophe bond, Residential Reinsurance 2012 Ltd. It’s USAA’s 18th cat bond to date, details of each can be found in our Deal Directory, and brings total cat bond and ILS issuance for the year to date to $3.338 billion. The transaction completed yesterday, 31st May, and has been rated by S&P and listed on the Cayman stock exchange.

Residential Reinsurance 2012 is a three tranche cat bond giving USAA a source of capital market funded reinsurance for U.S. hurricane, U.S. earthquake, U.S. severe thunderstorm, U.S. winter storm and U.S. wildfire risks, on both per-occurrence and aggregate basis and using indemnity triggers. The cat bond will provide cover for four years until May 2016.

The transaction completed at the slightly upsized $200m which we revealed a couple of weeks ago. Two of the tranches have now received their official ratings from Standard & Poor’s, the third, more risky tranche of notes were not submitted for rating. All three tranches of notes and the five-year variable rate note program of Residential Reinsurance 2012 Ltd. have now been listed on the Cayman Islands Stock Exchange.

The $50m Class 3, per-occurrence notes which attach at $2 billion of losses, exhaust at $2.8 billion and pay a coupon of 10% above Treasury money market yields have been rated ‘BB-‘. The $110m Class 5 tranche of annual aggregate notes which attach at $1.571 billion of losses, exhaust at $1.975 billion and pay a coupon of 8% have been rated ‘BB’. The $40m Class 7 annual aggregate notes which attach at $900m, exhaust at $1.05 billion and  pay a coupon of 22%, given their much riskier profile these haven’t been rated.

On the two rated tranches, S&P gave a few more details on the percentage of ultimate losses that are covered between the attachment points. The Class 3 notes cover 6.25% of ultimate loss between the attachment point and exhaustion point while the Class 5 notes cover approximately 27.23% of ultimate net loss between the attachment point  and the exhaustion point. We don’t have that detail for the Class 7 notes.

This cat bond completed within the first-half of 2012 and brings the half-year total issuance to $3.338 billion. This is a healthy number and in-line with most predictions for the market to see around $6 billion of issuance this year.

Travelers Long Point Re III Ltd. cat bond will complete next week. However it has now already been priced. If you remember when we wrote about Long Point Re III upsizing we noted that the pricing was expected to drop, we hear due to demand for this cat bond. Well it finally priced right at the bottom end of expectations at 6%, this should have made this cat bond more cost-effective for Travelers, we’ll update your when it closes.

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