The latest catastrophe bond from U.S. primary insurer USAA, the Residential Reinsurance 2014 Ltd. (Series 2014-2) deal, has not increased in size while being marketed, we understand, but the price guidance range has been narrowed towards the mid-point.
This points towards another of the fourth-quarter catastrophe bonds pricing towards the middle or upper end of the initial guidance, as investors continue to demonstrate that there is a point beyond which they will not continue to support price decreases.
In this deal, Residential Reinsurance 2014 Ltd. will issue a single Class 4 tranche of $100m of notes, a number that has not increased since launch we understand. The notes will provide USAA with a source of reinsurance protection on indemnity trigger and per-occurrence basis and with a four-year term to December 2018.
The underlying reinsurance agreements will provide USAA with fully-collateralized reinsurance protection for certain U.S. tropical storm, earthquake, severe thunderstorm, winter storm, wildfire, volcanic eruption and meteorite impact risks.
The $100m of Residential Re 2014-2 notes launched to investors with a coupon guide range of 4.5% to 5.25%. We understand that this price guidance range has been narrowed to 4.75% to 5%, so moving towards the mid-point of the initial range. At the low-end of the revised range the multiple would be 2.91 times the expected loss figure of 1.61%.
We understand that the deal will price tomorrow and settlement of the transaction is expected in the first week of December.