USAA have successfully issued their 16th natural catastrophe bond recently through their latest Cayman Islands domiciled special purpose vehicle Residential Reinsurance 2011 Ltd. The four year deal was marketed at around $200m in size but USAA have managed to secure $250m of cover through this their latest cat bond demonstrating that despite a quiet market at the moment, issuing cat bonds is still possible.
Residential Re 2011 will provide USAA (and certain subsidiaries) with reinsurance cover for a portion of their U.S. hurricane, U.S. earthquake, severe thunderstorm, winter storm, and wildfire exposure over a four year period with maturity expected by June 2015.
The transaction is split into three tranches; with $57m of Series 2011-1 Class 1 notes and $33m Class 2 notes which both provide protection on a per-occurrence basis while the $160m of Class 5 notes protect them on an annual aggregate basis. We understand that it was the Class 5 tranche which grew as the deal upsized allowing USAA to secure additional aggregate protection for the covered perils.
Standard & Poor’s has given the tranches of notes ratings of; ‘B+’ and ‘B-‘ for the Class 1 and 2 notes and ‘B+’ for the Class 5. The Class 5 notes had their preliminary rating upgraded last week after S&P reported that they didn’t take the full benefit of reinsurance maintained by USAA when making their preliminary assessment of this tranche.
Now that this transaction has officially completed the cat bond market pipeline is empty although we have heard that there are a number of sponsors who would like to issue deals but aren’t sure how well received they will be. With hurricane season starting tomorrow market participants we’ve spoken with say that we are unlikely to see much activity in new (public) cat bond issuance for a couple of months.