U.S. primary insurer USAA’s latest and 22nd catastrophe bond issuance, Residential Reinsurance 2014 Ltd. (Series 2014-1), will complete at $130m in size while the deals pricing remained at mid and upper levels for the two tranche’s to be issued.
USAA’s Residential Re 2014-1 was launched targeting between $100m and $150m of protection for the insurer. At pricing the cat bond was $130m in size, perhaps surprisingly small for such a large insurer. However USAA has always been prudent in its use of cat bonds and this deal is likely just to top up areas of its reinsurance program at the currently attractive pricing, given it already has a number of cat bonds in effect.
The Residential Re 2014-1 cat bond will provide USAA with fully-collateralized reinsurance protection across a range of U.S. perils, including tropical cyclones, earthquakes, severe thunderstorms, winter storms, wildfire, meteorite impact and volcanic eruption, on an annual aggregate basis and using an indemnity trigger.
At launch the two tranches of notes issued by Residential Re 2014 in this Series 2014-1 issuance were said to be sized at $50m each. The Class 10 tranche of notes, the higher risk of the two, finally grew to $80m in size while the Class 13 tranche of notes remained at $50m.
The Class 10 tranche has priced at the mid-point of the guidance range, at 15%, making them the highest returning tranche of cat bond notes issued this year and perhaps since USAA’s Residential Reinsurance 2013 Ltd. (Series 2013-2) cat bond deal. You would assume that investors would be crying out for access to risk with a return like this in the current depressed price environment, so it’s interesting to see this tranche not grow larger.
The Class 13 tranche of notes which are much lower risk priced at 3.5% which is the top of the launch guidance, showing again that investors have limits on pricing below which they will not accept cat bonds.