USAA secures 100% upsized 40th Residential Re cat bond at $400m

USAA, the primary military mutual insurance company, has successfully doubled in size its 40th catastrophe bond under the Residential Re name, with the company set to benefit from $400 million in multi-peril reinsurance protection from the Residential Reinsurance 2023 Limited (Series 2023-1) issuance.

As we wrote earlier this month, USAA had ventured back to the catastrophe bond market seeking at least $200 million of fully-collateralized multi-peril catastrophe reinsurance on an indemnity and annual aggregate basis.

USAA’s first catastrophe bond of 2023 is the 40th it has sponsored under the Residential Re program of deals, although the carrier has actually sponsored 40 issuances under the Residential Re naming convention and one under Espada Re, all of which are listed in our Deal Directory.

With this Residential Reinsurance 2023 Limited Series 2023-1 cat bond, USAA was targeting $200 million of indemnity and annual aggregate 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) across a four-year term.

That target had subsequently been lifted to between $300 million and $400 million, and we’re now told by sources that the notes have been successfully priced at the upper end of that target, so will provide USAA the full $400 million of reinsurance protection.

The Class 13 tranche of notes has an initial size of $75 million, but that was lifted to between $100 million and $125 million of protection for USAA and we understand this tranche has achieved the upper-end $125 million size.

The Class 13 notes come with an initial base expected loss of 2.11%. They were first offered with price guidance in a range from 10% to 10.75%, which was then narrowed to guidance of 10% to 10.5%, and we’re now told the pricing has been finalised at 10.5%, so in the upper-half of initial guidance.

The Class 14 tranche of notes had originally been launched with a preliminary size of $125 million, which was later increased to between $200 million and $275 million of cover for USAA and we understand that again the upper-target was achieved, at $275 million in size.

The Class 14 notes come with an initial base expected loss of 0.75% and were first offered with price guidance in a range from 6.75% to 7.25%, which was then narrowed to between 6.5% to 6.75%, and we now understand they priced at the low-end of 6.5%, so below the initial price guidance range.

That’s another signal from cat bond investors that the more remote layers are the most appealing in the market right now.

The successful pricing and doubling in size of USAA’s 40th ResRe catastrophe bond will propel the insurer to the top of our leaderboard of sponsors of outstanding catastrophe bonds, moving the company up from fourth.

For a company that has been sponsoring catastrophe bonds since this market began and has one of, if not the most, consistent of track-records as a cat bond sponsor, it’s encouraging to see USAA continuing to place a significant emphasis on the capital markets within its reinsurance program during this hard market.

You can read all about this new Residential Reinsurance 2023 Limited (Series 2023-1) catastrophe bond issuance from USAA, as well as every other cat bond issued in our extensive Deal Directory.