The latest and 33rd ever catastrophe bond from U.S. primary military mutual insurer USAA has now been sized at $135 million of collateralised reinsurance protection for the firm, with pricing for both tranches that has moved towards the upper-end of guidance.
USAA returned to the catastrophe bond market with what is its 33rd deal in April, bringing an at the time unsized Residential Reinsurance 2019 Limited (Series 2019-1) multi-peril cat bond to market.
Now, sources said that the deal size has been revealed as $135 million, which will make it the smallest ResRe cat bond from USAA in a number of years.
It’s likely this is due to investor price expectations, as pricing for each of the two tranches of notes being issued has moved higher than the mid-point, which may have pushed USAA to explore other sources of reinsurance capacity perhaps.
The new Residential Re 2019-1 cat bond will have a four-year terms and provides USAA with collateralised reinsurance against losses from multiple perils, on an indemnity trigger and annual aggregate basis.
The cat bond will be exposed to losses from U.S. tropical cyclones, earthquakes (plus fire following), severe thunderstorm, winter storm, wildfire, volcanic eruption, meteorite impact, and so-called other perils (with other perils all including auto & renter policy flood losses). The same group of perils as USAA’s previous cat bond transaction in 2018.
The Class 12 tranche of notes have now been sized at $60 million, we understand. This is the riskier layer in the transaction, with an initial expected loss of 3.61%. These notes were offered to investors with initial price guidance ranging from 7.75% to 8.5% and we’re told pricing looks set to settle at 8.25%, so just below the upper-end.
The second tranche, a Class 13 set of notes, has now been sized at $75 million. This tranche is lower risk, with an initial expected loss of 0.98%. These were offered to investors with initial price guidance in a range from 4% to 4.5% and we’re now told the pricing looks likely to end up at the top-end, of 4.5%.
So clearly this cat bond issuance has seen ILS funds and investors once again demanding a certain level of return from the cat bond market and the sponsor has responded by allowing pricing to tick up.
However the smaller size of this latest USAA cat bond may suggest that the insurer has looked to other reinsurance markets for more of its coverage in this case than it may have had the tranches pricing looked lower.
But that’s no bad thing, as supply and demand dynamics drive allocation of risk in the marketplace and sponsors like USAA have options for where to place their programs, to gain the most efficient execution for themselves.
We understand the placement of this latest Residential Re cat bond from USAA will price later this week and be completed later this month.
You can read all about this Residential Reinsurance 2019 Limited (Series 2019-1)catastrophe bond and every other transaction USAA has ever sponsored in the Artemis Deal Directory.
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