USAA’s commercial risk expansion may be relevant to future ResRe cat bonds

U.S. primary mutual insurer USAA has announced its first expansion into small commercial business insurance, with a new offering targeting its core market of military veterans.

For around 30 years, USAA has offered small business insurance through unaffiliated insurance companies, but this new expansion will see the carrier offering its own small business insurance product, underwritten against its own balance-sheet.

As a result, USAA’s portfolio of risk will be expanding and adding new exposures, from the commercial property and business coverage side, which of course has potential ramifications for how the company buys its reinsurance protection going forwards.

While this is likely to be a relatively slow shift in the USAA portfolio and homeowners and rental property, as well as personal auto insurance, are likely to remain the dominant components of USAA’s book, the addition of commercial property risks may in years to come influence the companies use of catastrophe bonds and other reinsurance products.

The small business insurance product will be made immediately available to USAA members in five states – Arizona, Colorado, Illinois, South Carolina and Tennessee, with a broader nationwide roll-out planned through 2021.

The standard small business product includes property insurance protection, so with this move USAA is also going to be increasing its property catastrophe exposure over time.

Residential Re catastrophe bonds are central to USAA’s catastrophe reinsurance program, with the carrier having sponsored 36 issuances since we began tracking USAA specific cat bond transactions in our Deal Directory.

These are largely exposed to losses to USAA’s residential property book, with some auto exposures in the more recent Residential Re cat bonds of the last few years.

As USAA expands its commercial property related catastrophe exposures, through writing this small business product for its own book, it will be interesting to see whether the terms of future ResRe cat bonds could be adjusted to include some of this new commercial property exposure, within their defined subject business.

Or could USAA establish a Commercial Re, or similar, catastrophe bond issuance vehicle instead, if its commercial property exposures grew quickly?

It would seem more likely any growth in catastrophe exposure through the small business product would be better included in its existing catastrophe bond transactions, ramifications for the issuing vehicle name aside.

USAA said that the shift into small business insurance was driven by increasing demand from its members for this product.

As a result, if the carrier elects to transfer renewal business from the unaffiliated carriers it was working with to its own book, the growth of this component of USAA’s business has the potential to be meaningful for the carrier over time.