U.S. primary mutual insurance company USAA is hoping to upsize its latest catastrophe bond, with the new Residential Reinsurance 2021 Limited (Series 2021-2) transaction now seeking up to $300 million of collateralized multi-peril property catastrophe reinsurance for the insurer, while price guidance has been lowered.
USAA returned to the catastrophe bond market earlier this month with its regular November issuance of a per-occurrence catastrophe bond and the initial target was to secure $225 million or more of reinsurance from the capital markets from the deal.
This new Residential Reinsurance cat bond will be the 38th transaction from USAA that we have listed in our extensive Artemis Deal Directory.
Interestingly, it’s the higher risk tranche of the ResRe 2021-2 catastrophe bond that looks likely to upsize the most, sources told us, reflecting investor demand for access to some higher-yielding notes perhaps, in a market that lately has featured a number of lower-yielding diversifying cat bond deals.
So, USAA’s latest Cayman Islands special purpose cat bond issuance vehicle Residential Reinsurance 2021 Limited will now seek to issue up to $300 million of notes across two Series 2021-2 tranches.
This Residential Re 2021-2 cat bond will offer USAA four-years of per-occurrence reinsurance protection from the capital markets, covering certain losses from the typical range of perils its recent cat bonds cover, so U.S. tropical cyclones, earthquakes (plus fire following), severe thunderstorm, winter storm, wildfire, volcanic eruption, meteorite impact, other perils (all including auto & renter policy flood losses).
Coverage will be across the 50 states of the US, as well as the District of Columbia, and the cat bond will feature an indemnity trigger, as all of USAA’s reinsurance tower does.
With this likely upsizing in mind, Residential Reinsurance 2021 will now issue a Class 2 tranche of cat bond notes sized at between $125 million and $175 million, that will attach at $1.177 billion of losses, have an initial modelled expected loss of 6.6%.
This higher-risk tranche were initially offered to investors with coupon guidance in a range from 11.75% to 12.5%, but this has now been fixed at the low-end of 11.75%, we’re told.
The lower-risk Class 3 tranche of notes is now targeted at $125 million in size, up from $100 million, that will attach at $2.125 billion of losses, having an initial modelled expected loss of 2.96%.
This Class 3 tranche were initially offered with price guidance in a range from 6.25% to 6.75% and the pricing has now been lowered to between 5.5% and 6.25%.
So that looks like USAA could secure its protection from this new cat bond at a multiple of 1.78 times expected loss for the higher risk Class 2 tranche of notes and at a multiple of 1.95 times expected loss for the lower-risk Class 3 tranche.
These lower pricing levels are definitely slightly down on the 2020 occurrence cat bond from USAA, on a multiple-at-market basis.
That transaction had a tranche with an expected loss of 3.53 that priced at 8.25, so a multiple of 2.34 times EL, and a tranche with an expected loss of 2.32 and pricing of 6.25, so a multiple of 2.7 times the EL.
So the pricing looks set to come in better than a year ago, reflecting the softening that has happened across the catastrophe bond market in 2021 as demand from investors has grown and funds raised fresh capital, clearly demonstrating that, at least for regular and trusted sponsors of cat bonds there is attractively priced reinsurance or retrocession capacity to be secured.
This new Residential Reinsurance 2021 Limited (Series 2021-2) catastrophe bond is targeted for a November settlement.
We’ll keep you updated and you can read about this and every other catastrophe bond in our Artemis Deal Directory.