USAA’s target dips to $125m for new ResRe cat bond, as zero-coupon tranche dropped

USAA has now lowered the target for its latest catastrophe bond to $125 million, as  a zero-coupon tranche of notes from the Residential Reinsurance 2024 Limited (Series 2024-1) issuance have been dropped, while the other two multi-year tranches look set to price towards the lower-ends of guidance.

This new ResRe catastrophe bond is the 43rd we have tracked from USAA, the most prolific cat bond sponsor, with now 42 issuances under the Residential Re name and one Espada Re transaction all listed in our Deal Directory.

USAA returned with a Series 2024-1 issuance from the Residential Re cat bond program at the beginning of the month, with an initial target to secure $175 million of aggregate multi-peril US reinsurance from the capital markets.

Three tranches of notes were on offer, one of which was a zero-coupon Class 11 tranche and the most junior, or risky, of the three.

The Class 11 notes were targeting a maximum of $50 million of cover, against their expected loss of 5.47%, but we’re now told that this tranche of notes have been dropped from the issuance and will not now be placed.

Because of this, the target size for this latest catastrophe bond from USAA has now shrunk to $125 million, Artemis can report.

As a result, military mutual insurer USAA is now looking to secure $125 million in aggregate fully-collateralized catastrophe reinsurance protection from the capital markets with this Residential Re 2024-1 cat bond issuance.

The remaining two tranches of notes will provide USAA with four years of annual aggregate and indemnity based reinsurance protection against losses from the perils of 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), with a $50 million event deductible enforced.

The Class 13 tranche of notes remain $50 million in size and with their initial base expected loss of 2.04% these notes were initially offered with price guidance of 8.5% to 9.25%, but we’ve now learned this has been narrowed towards the lower-end at 8.5% to 9%.

The Class 14 tranche also remain at their initial target of $75 million in size and with their initial base expected loss of 0.77% these were initially offered with price guidance of 5.5% to 6.25%, but again we understand that to have narrowed towards the lower-end at 5.5% to 6%.

So, it appears the cat bond market may not have had the appetite for the higher-risk, zero-coupon layer of aggregate notes that were on offer from USAA with this Residential Re 2024-1 cat bond issuance.

As a result, the insurer will likely place that layer of risk privately, either with traditional reinsurance or collateralized ILS markets.

You can read all about this new Residential Reinsurance 2024 Limited (Series 2024-1) catastrophe bond from USAA and view details on almost every other cat bond ever issued in our extensive Artemis Deal Directory.