USAA secures $400m reinsurance from new Residential Re 2023-2 cat bond

USAA, the primary military mutual insurance company, has now successfully secured its latest catastrophe bond, the Residential Reinsurance 2023 Limited (Series 2023-2) deal, one-third larger than the initial target, to provide it $400 million of multi-peril and multi-year collateralized catastrophe reinsurance protection.

USAA one of the most respected and regular sponsors of catastrophe bonds, having the most prolific program in the market with its more than 40 deals under the Residential Re series.

When this new cat bond launched in October, as we reported at the time the target issuance size was $300 million, across three tranches of notes on offer.

As we then reported in our next update as this new Residential Re cat bond proceeded to market, that the target size had been raised by one-third to $400 million, while at the same time the price guidance fell for all three tranches of cat bond notes on offer.

Now, we’ve learned that USAA has secured the upsized $400 million target for reinsurance from this Residential Re 2023-2 catastrophe bond, while also securing the lower pricing for all three layers of risk being transferred to the capital markets.

As a result, this Residential Re 2023-2 cat bond will provide USAA with $400 million of per-occurrence 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) for the insurer.

The majority of the coverage will be for a four year period, although one layer, the riskiest, will provide USAA with just a single year of catastrophe reinsurance protection.

With this cat bond now priced, the final details for each tranche are below.

The Class 2 tranche of notes, which are a zero-coupon layer set to provide a single year of protection to USAA, were finalised at their original $50 million in size, having an initial expected loss of 5.91%, with the price fixed at 86.5% of principal, so being zero-coupon discount notes a rough spread equivalent of 13.5%, which is below the initial guidance range.

The Class 3 tranche of notes were finalised at an upsized $150 million in size and have an initial expected loss of 3.05%, while their spread was fixed at the low-end of 8.5%.

The final Class 5 tranche of notes were finalised at an upsized $200 million, with their initial expected loss of 1.25%, the spread pricing was fixed again at the low-end of guidance, at 5.75%.

As we said before, this has been a very strong result for USAA, going out to market with pricing that ended up being more than sufficient to secure investor interest, resulting in a pricing down and an upsizing for its latest cat bond deal, reflecting the market’s perception of the long-standing cat bond market participant.

With 41 transactions now listed in our Deal Directory, the Residential Re cat bond program is the most prolific in the marketplace and has been a regular and consistent feature of the cat bond market since it was first developed.

You can read all about this new Residential Reinsurance 2023 Limited (Series 2023-2) catastrophe bond from USAA and view details on almost every other cat bond ever issued in our extensive Artemis Deal Directory.