USAA, the U.S. primary mutual insurance company, is now set to secure an upsized $400 million of multi-year, fully collateralized, multi-peril aggregate reinsurance from the capital markets with its latest Residential Reinsurance 2021 Limited (Series 2021-1) cat bond deal.
As we reported ten days ago, USAA returned to the market with a new Residential Re cat bond, which will be its 37th transaction that we have listed in our extensive Artemis Deal Directory.
Newly registered Cayman Islands vehicle Residential Reinsurance 2021 Limited will 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).
The communicable disease exclusion continues to be evident for 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.
At launch, USAA was targeting $275 million of reinsurance from this latest visit to the cat bond market, but now, thanks to positive cat bond market issuance conditions, the insurer has upsized its target to $400 million, sources told us today.
All four tranches of notes now target $100 million of coverage each, so all four have increased in size, At the same time, the price guidance has been lowered for each tranche and the deal now looks like the below.
A Class 11 tranche of notes has doubled from $50 million to $100 million in terms of size. This Class 11 tranche is the riskiest in the issuance, with an initial expected loss of 4.32% and was at first offered to cat bond investors with price guidance in a range from 10% to 10.75%. That price guidance has now fallen to 9.25% to 10%.
A Class 12 tranche has grown from $75 million of coverage to $100 million, with its notes having an initial expected loss of 2.35%, and was first offered to cat bond investors with price guidance in a range from 6.5% to 7.25%. The price guidance for this tranche has now dropped to 5.75% to 6.5%.
A Class 13 tranche has also grown from $75 million to $100 million of coverage, but this time with the notes having an initial expected loss of 1.31% and first having been offered to investors with price guidance of 4.75% to 5.25%. The revised price guidance is again below the initial, at 4.25% to 4.75%
The final Class 14 tranche of notes are the least risky, and grew from an initial target of $75 million of reinsurance protection for USAA also to $100 million, but with an initial expected loss of 0.61%. Initial price guidance was 3.5% to 4%, but again this has dropped to below the initial range at 3% to 3.5%.
So USAA’s new catastrophe bond looks set to follow in the footsteps of all recent deals, with an increase in size and pricing looking set for the bottom of initial guidance or lower in the case of all tranches.
Which signals that cat bond investor appetite remains very strong, which bodes well for sponsors execution as the mid-year renewals approach.
Read about this new Residential Reinsurance 2021 Limited (Series 2021-1) catastrophe bond and every other cat bond in our Artemis Deal Directory.