Swiss Re Insurance-Linked Fund Management

Xactanalysis Insights and PCS

Residential Re 2015-2 cat bond prices at upper end of tightened range


U.S. military mutual insurer USAA’s Residential Reinsurance 2015 Ltd. (Series 2015-2) catastrophe bond transaction has now been priced at the top end of the tightened coupon range, while still remaining at the upsized $125 million.

The cat bond launched 10 days ago, seeking $100 million of collateralized reinsurance protection for USAA, through the issuance and sale of a single tranche of notes.

The notes will protect USAA against losses from U.S. tropical cyclones, earthquakes (plus fire following), severe thunderstorm, winter storm, wildfire, volcanic eruption and meteorite impact, on a per-occurrence basis and using an indemnity trigger over a four-year term.

The transaction launched with pricing guidance of 7% to 7.75%, but quickly saw the transaction price guidance narrow towards the lower end at 7% to 7.25%.

Following that the Residential Re 2015-2 cat bond upsized by 25%, to offer investors $125 million of Series 2015-2 notes, a size it has stayed at we understand.

At pricing today, we’re told that the coupon settled at the upper end of the tightened range, so will offer investors in the cat bond a 7.25% return above the collateral assets.

The $125 million of Residential Re 2015-2 cat bond notes have an initial expected loss (EL) of 3.26% at the base case or 3.65% on a sensitivity case basis. With pricing now set at 7.25%, that results in a multiple of 2.22 times the base EL, or 1.97 times the EL for the WSST sensitivity case.

Those multiples are aligned with other recent cat bond transactions.

The Residential Re 2015-2 cat bond is slated to complete in the first week of December we understand.

Read all about USAA’s 25th catastrophe bond Residential Reinsurance 2015 Ltd. (Series 2015-2) and the previous 24 cat bonds sponsored by USAA in the Artemis Deal Directory.

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