USAA’s latest and 34th sponsorship of a catastrophe bond looks set to complete at a slightly upsized $160 million, with the multi-peril Residential Reinsurance 2019 Limited (Series 2019-2) deal now priced.
USAA returned to the cat bond market just over a fortnight ago with the Residential Re 2019-2 deal initially looking for a $150 million source of collateralized multi-peril reinsurance capacity for the carrier.
The deal will provide the insurer with a four-year source of per-occurrence collateralised indemnity reinsurance protection, covering a full range of natural perils, as many of USAA’s recent cat bonds have.
Split into two tranches, the latest USAA Res Re cat bond features one much riskier tranche of notes, that has a one-year tenure and one a little less risky to provide the four years of coverage.
The transaction launched with a $50 million Class 1 tranche of notes which has not changed in size, to provide the one year and lower down layer of reinsurance protection for USAA.
With an expected loss of 14.31% at the base case, this tranche was marketed to investors as a zero-coupon layer, offering pricing of between 79% and 76% of par value, so a coupon equivalent spread in a range from 21% to as high as 24%.
This layer has now priced at 77.25%, so a coupon equivalent of 22.75% which is around the middle of guidance.
The second tranche was launched as a $100 million Class 2 for the four-year layer of reinsurance protection, but upsized to $110 million we understand.
With an initial expected loss of 5.87%, this tranche of notes were offered to investors with coupon price guidance in a range from 11.25% to 12.25%.
At pricing the coupon of this tranche has been fixed at 11.5%, we’re told, so towards the lower-end of guidance, but not quite at the bottom.
The multiples are up on previous USAA cat bond deals and the riskier tranche will be one of the highest paying seen in a Residential Re issuance for the insurer.
We understand that transaction is due to settle later in November. You can read all about this Residential Reinsurance 2019 Limited (Series 2019-2) catastrophe bond and every other transaction USAA has ever sponsored in the Artemis Deal Directory.