Swiss Re Insurance-Linked Fund Management

Original Risk: A Society for Change Agents

Residential Re 2014-2 cat bond price guidance narrows towards middle


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.

We will continue to update you as this catastrophe bond comes to market. You can read all about Residential Reinsurance 2014 Ltd. (Series 2014-2) in our cat bond Deal Directory.

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