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USAA targets $225m+ ResRe 2021-2 per-occurrence catastrophe bond


U.S. primary mutual insurance company USAA is back in the catastrophe bond market for its regular November issuance of a per-occurrence catastrophe bond, targeting at least $225 million of multi-peril reinsurance protection from this Residential Reinsurance 2021 Limited (Series 2021-2) transaction.

USAA logoUSAA continues to be the most prolific catastrophe bond sponsor in the market, with this new Residential Re deal set to be the 38th transaction from the insurer that we have listed in our extensive Artemis Deal Directory and the 37th to use that name (with one Espada Re cat bond in 2016).

Each year, going back a decade or more, USAA has come to the cat bond market in the second-quarter to secure annual aggregate reinsurance protection and then again in the fourth-quarter for per-occurrence coverage.

Over that period the scope of coverage has expanded, as new perils were added, but USAA’s strategy has remained the same, of layering capital market backed reinsurance protection from the catastrophe bond market throughout its aggregate and per-occurrence reinsurance towers.

In 2021, USAA already secured $400 million of aggregate multi-peril reinsurance from a Residential Re 2021-1 cat bond sponsored in May.

Now, sources tell us the insurer is back for its per-occurrence coverage and the Cayman Islands special purpose vehicle Residential Reinsurance 2021 Limited will seek to issue two tranches of Series 2021-2 cat bond notes, to secure USAA a targeted $225 million or more of protection.

The Residential Re 2021-2 cat bond will provide USAA with four-years of per-occurrence reinsurance protection against losses from the typical range of perils as its recent cat bonds, so it covers 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 is across the 50 states of the US, as well as the District of Colombia, while the cat bond will feature an indemnity trigger, as all of USAA’s reinsurance tower does.

It’s notable that again, a communicable disease exclusion continues to be in place against the “other perils” category of covered risks, something ILS investors pushed USAA’s to include in its first cat bond of 2020, to ensure there couldn’t be any exposure to the COVID-19 pandemic.

Residential Reinsurance 2021 will issue a targeted $125 million Class 2 tranche of cat bond notes, that will attach at $1.177 billion of losses, have an initial modelled expected loss of 6.6% and are being offered to investors with coupon guidance in a range from 11.75% to 12.5%.

Also being offered are a targeted $100 million Class 3 tranche of notes, that will attach at $2.125 billion of losses, having an inital modelled expected loss of 2.96% and price guidance in a range from 6.25% to 6.75%.

Interestingly, those pricing levels, on a multiple of expected loss basis, are comparable to USAA’s per-occurrence cat bond issuances from 2017 and 2018, but appear a little lower than the price guidance on the insurers 2020 per-occurrence issuance.

According to our sources 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.

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