U.S. primary military mutual insurance group USAA is now set to secure $425 million of fully-collateralized reinsurance coverage through its new Residential Reinsurance 2017 Ltd. (Series 2017-1) catastrophe bond, with pricing settling at the bottom end of reduced guidance for two tranches, but at the top for a zero-coupon, riskier layer.
The deal launched about a fortnight ago targeting just a $300 million source of fully collateralized U.S. all natural perils reinsurance protection for USAA, across a four-year total term.
That target size was subsequently lifted by 50%, with USAA seeking up to $450 million from what will be the prolific sponsors 29th Residential Re cat bond, while at the same time the pricing on all two of the tranches of notes fell to the bottom-end of initial coupon guidance.
The Residential Re 2017-1 cat bond transaction is now set for completion with finalised tranche sizes and pricing now released to the market, we’re told, with the total deal-size now set to be $425 million.
The Class 10 zero-coupon tranche of notes to be issued by Residential Reinsurance 2017 are set to complete at their initial target size of $50 million, while final pricing is set at 82.5%, equating to a 17.5% coupon. This is actually the upper end of initial guidance, as the tranche was offered with a discount range of 82.5% to 83.5%.
The Class 11 notes, which began their life with a preliminary size of $150 million and then targeted $200 million to $250 million, have settled at $225 million, we understand. The pricing was initially 4.75% to 5.25%, then narrowed to 4.75% to 5% and has now been finalised at the low-end of that range, at 4.75%.
The final Class 13 tranche of notes was initially a $100 million layer with coupon price guidance of 3% to 3.5%, then targeted $125 million to $150 million and we are told is set to complete at $150 million. The pricing will complete at the bottom end of the narrowed 3% to 3.25% range, to offer investors a 3% coupon.
This isn’t the largest catastrophe bond USAA has ever sponsored, but out of the 29 it will be one of their largest in the 20 years the insurer has been tapping the capital markets for securitized reinsurance coverage.