USAA seeks $600m Res Re 2026-1 cat bond. Could be its largest ever & first Florida tranche

US military mutual insurer USAA is back in the catastrophe bond market for its 47th sponsorship that we have analysed and tracked, with an initial target for $600 million of reinsurance from this Residential Reinsurance 2026 Limited (Series 2026-1) issuance that could make it the largest ever in the series.

To be clear, according to our records in the Artemis Deal Directory, at $600 million this would equal USAA’s largest cat bond sponsorship from way back in 2007.

But there is every chance it upsizes, given market conditions and USAA’s appetite for reinsurance, if pricing and execution in the cat bond market proves attractive to the sponsor.

Which would be notable for such a prolific and long-term sponsor of cat bonds if this becomes its largest ever, given USAA now has 46 issuances under the Residential Re name, as well as one named Espada Re cat bond, all of which are listed in our extensive Deal Directory.

There is another notable feature to this latest Residential Re Series 2026-1 catastrophe bond. We believe it could be the first to have a tranche of notes solely focused on Florida, although it’s important to note data is lacking on some of the ResRe cat bonds sponsored more than two decades ago so it is hard to be certain of that fact.

It is also worth highlighting a slight change to USAA’s strategy with this latest catastrophe bond sponsorship.

USAA has typically sponsored two catastrophe bond deals each year. One cat bond that provides the insurer with aggregate reinsurance protection issued around May, and a cat bond to provide per-occurrence coverage around November.

In this case, while this is the May issuance, there are two tranches to provide USAA with aggregate cover across the United States, but an additional one that will provide the insurer with occurrence cover just for the state of Florida.

Which shows USAA adjusting its capital markets reinsurance strategy this year, perhaps seeing an opportunity to lock-in attractively priced Florida focused reinsurance, or perhaps a signal of growing exposure to that state.

Using a newly established Residential Reinsurance 2026 Limited special purpose vehicle, USAA is bringing three tranches of Series 2026-1 catastrophe bond notes to investors with this sponsorship, we are told.

Each of the three tranches of Series 2026-1 notes that are being offered will be sold to investors and the proceeds used to collateralize underlying reinsurance agreements between the issuing vehicle and sponsor USAA, as is typical.

The three tranches of notes will provide USAA with roughly four years of indemnity based reinsurance protection against losses from the same range of perils that feature in its catastrophe bond deals, being U.S. tropical cyclones, earthquakes (plus fire following), severe thunderstorm, winter storm, wildfire, volcanic eruption, meteorite impact and other perils, we understand.

Two tranches, Class 14 and Class 15, will provide annual aggregate protection across the US and feature a $60 million event deductible (that deductible is higher than the $50 million in USAA’s 2025-1 aggregate cat bonds), while the third Class A tranche will provide per-occurrence protection in Florida only, sources said. Auto and renter policy flood losses are included under the aggregate tranche coverage, while only renter policy flood losses are included under the Florida occurrence tranche, we hear.

It’s also worth highlighting that sources said this new cat bond comes with multiple versions of key risk metrics, given the adoption of a new model version covering severe convective storm (SCS) risk. We wrote about how USAA is managing that model change within some of its earlier outstanding cat bonds here.

The Class 14 tranche of aggregate notes are targeted as $150 million in size for the issuance and have an initial attachment point at $4.975 billion of qualifying losses to USAA, exhausting their coverage at $5.975 billion.

Which gives the Class 14 notes an initial base attachment probability of 9.04% and an initial base expected loss of 6.1% under the new model version. We’re told the base expected loss would be 0.98% under the older risk model version. These notes are being offered with price guidance of 5.75% to 6.5%.

A Class 15 tranche of aggregate notes are also targeted to secure $150 million in reinsurance for the sponsor and have an initial attachment point at $5.975 billion of qualifying losses to USAA, exhausting their coverage at $7.075 billion.

Which gives the Class 15 notes an initial base attachment probability of 3.87% and an initial base expected loss of 2.71% under the new model version. We’re told the base expected loss would be 0.59% under the older risk model version. These notes are being offered with price guidance of 4.75% to 5.5%.

The final Class A tranche of notes are the Florida focused occurrence tranche and target $300 million of reinsurance for USAA. These have an initial attachment point of $1.1 billion and would exhaust at $2.1 billion of losses.

Which gives the Class A notes an initial base attachment probability of 4.06% and an initial base expected loss of 2.51% under the new model version. We’re told the base expected loss would be 2.52% under the older risk model version. These notes are being offered with price guidance of 7% to 7.75%.

The risk model update certainly inflates some of the metrics considerably, particularly for the annual aggregate nationwide tranches, so it makes sense this offering comes with comparable risk metrics from the previous risk model version as well.

It is encouraging to see such a long-standing catastrophe bond sponsor as USAA looking to evolve its capital markets strategy and also looking to secure what could become the most reinsurance limit from any of the cat bonds it has sponsored in the past.

You can read all about this new Residential Reinsurance 2026 Limited (Series 2026-1) catastrophe bond from USAA and view details on almost every other cat bond ever issued in our extensive Artemis Deal Directory.