USAA returns with $275m aggregate Residential Re 2021-1 cat bond

USAA, the U.S. primary mutual insurance company, is back in the catastrophe bond market for yet another transaction, as it looks to secure $275 million or more of multi-year, fully collateralized, multi-peril aggregate reinsurance from the capital markets with a Residential Reinsurance 2021 Limited (Series 2021-1) deal.

USAA continues to be the single most prolific and consistent sponsor of catastrophe bonds in the market’s history.

Typically this involves two issues per-year, the first of which is structured to provide annual aggregate reinsurance protection, the second per-occurrence.

Being the first issuance of 2021, from USAA, this Residential Reinsurance 2021-1 catastrophe bond is an aggregate deal, sources told us.

In fact, this new $275 million Residential Re 2021 Limited (Series 2021-1) cat bond will be the 37th transaction sponsored by USAA that we have listed in our extensive Artemis Deal Directory.

36 of the cat bonds that USAA has sponsored since 1997 have taken the Residential Re name, making it the longest running and most consistent name of a structure in the cat bond and broader insurance-linked securities (ILS) market.

For 2021, USAA is beginning with a new issuance vehicle, having registered Residential Reinsurance 2021 Limited in the Cayman Islands, the insurers usual domicile of choice for its catastrophe bonds.

Residential Reinsurance 2021 Limited will seek to issue four classes of notes that will be sold to cat bond investors and the proceeds used to collateralize reinsurance agreements between the issuer and USAA itself.

The coverage from this Residential Re 2021-1 cat bond will run across a four-year term and provide USAA with annual aggregate reinsurance protection covering losses from the same range of perils as its recent cat bonds, 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).

We understand that the communicable disease exclusion persists in the “other perils” category, something investors pushed into USAA’s first cat bond of 2020, to ensure no exposure to the COVID-19 pandemic was possible.

The targeted $275 million of reinsurance protection from its latest cat bond will be provided on an indemnity trigger and annual aggregate basis, across the four year term.

Residential Reinsurance 2021 will issue a Class 11 tranche of notes, currently with a target of $50 million in terms of size. This Class 11 tranche is the riskiest in the issuance, with an initial expected loss of 4.32% and being offered to cat bond investors with price guidance in a range from 10% to 10.75%, we understand.

A Class 12 tranche targets $75 million of coverage and the notes have an initial expected loss of 2.35%, while being offered to cat bond investors with price guidance in a range from 6.5% to 7.25%.

A Class 13 tranche targets another $75 million of coverage, but this time with the notes having an initial expected loss of 1.31% and being offered to investors with price guidance of 4.75% to 5.25%.

The final Class 14 tranche of notes are the lest risky, also targeting $75 million of reinsurance protection for USAA, but with an initial expected loss of 0.61% and price guidance of 3.5% to 4%. This Class 14 tranche also has a preliminary rating from S&P on ‘BB- (sf)’.

USAA brings this new aggregate catastrophe bond to market at a time when some of its already in-force deals are in-focus once again on the recent US winter storms.

USAA’s catastrophe bond program has provided the carrier with valuable reinsurance recoveries in recent years and may continue to if its losses from the Texas freeze prove to trigger any additional coverage.

We understand this new Residential Reinsurance 2021 Limited (Series 2021-1) catastrophe bond is targeting a mid-May settlement and you can read about this and every other cat bond in our Artemis Deal Directory.