USAA targets $300m multi-peril reinsurance with Residential Re 2023-2 cat bond

USAA, likely the most prolific and consistent of sponsors of catastrophe bonds, is back with what will be the 42nd we have listed from the company, seeking $300 million or more in multi-peril US reinsurance protection from the capital markets through a Residential Reinsurance 2023 Limited (Series 2023-2) issuance.

USAA has been a regular sponsor of catastrophe bonds to augment its catastrophe reinsurance protection since 1997 and this new one is the 42nd we have tracked, with now 41 issuances under the Residential Re name and one Espada Re transaction all listed in our Deal Directory.

USAA has consistently sponsored two catastrophe bonds each year for a while now, a cat bond that provides aggregate reinsurance protection in May and a cat bond to provide occurrence protection in November.

Staying true to form, this new Residential Re 2023-2 cat bond issuance sees the insurer targeting at least $300 million of per-occurrence collateralized and indemnity trigger based reinsurance protection to cover its usual wide range of natural perils.

Cayman Islands based structure Residential Reinsurance 2023 Limited will seek to issue three tranches of Series 2023-2 notes, that will be sold to investors and the proceeds used to collateralize underlying reinsurance agreements between the vehicle and USAA, we understand.

The three tranches will provide USAA with 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).

One riskier and also zero-coupon tranche will provide USAA with a single year of reinsurance protection to the end of November 2024, while the other two will provide protection across a four-year term, running to the end of November 2027.

A Class 2 tranche of notes are $50 million in size and the zero-coupon layer set to provide a single year of protection to USAA. As said, these are riskier, attaching at $1.75 billion of losses to USAA, so have an initial attachment probability of 7.84%, an initial expected loss of 5.91% and are offered with price guidance of 85% to 86% of par, so a rough spread equivalent would be 14% to 15%.

A $100 million Class 3 tranche of notes would offer four years of reinsurance protection, attaching at $2.45 billion of losses to USAA, so have an initial attachment probability of 4.43%, an initial expected loss of 3.05% and are offered with price guidance of 8.5% to 9.25%, we’re told.

The final $150 million Class 5 tranche of notes will also have a four year term, but are the most remote attaching at $4.35 billion of losses to USAA, so have an initial attachment probability of 1.49%, an initial expected loss of 1.25% and are offered with spread price guidance of 5.75% to 6.25%.

It’s worth comparing to last November’s Residential Reinsurance 2022-2 issuance, which had one tranche with a 2.72% expected loss that priced at 10%, while its second tranche had an initial EL of 1.34% and priced at 7%.

Last November was roughly the peak of hard market pricing for cat bonds, so it’s not surprising to see the evident tighter spreads on offer with this new 2023-2 deal.

With now 41 transactions 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.