Insurer USAA is expected to perform well from its latest catastrophe bond, with significant support shown by the investor base for its new bond. 2023 Residential Reinsurance Limited (Series 2023-2) agreement, of which it is now targeting up to $400 million in multi-risk reinsurance.
USAA is a highly respected and consistent sponsor of catastrophe bonds, the most prolific in the market with over 40 transactions in the Residential Re series.
When this new catalytic bond was launched in October, as we reported at the time the target issue size was $300 million, divided into three tranches of notes on offer.
As is typically the case with USAA’s fourth-quarter catastrophic bond contracts, it seeks per-event, indemnification-based reinsurance protection against losses due to tropical cyclone perils in the United States. United States, earthquakes (plus resulting fires), severe thunderstorms, winter storms, forest fires, volcanic eruptions, meteorite impact, other perils (all including flood losses in policies car insurance and rental) for the insurer.
The overall target size has been increased, with up to $400 million in reinsurance now sought across the three catastrophe bond tranches offered to investors.
At the same time, price forecasts have declined toward the lower end of the marketed range for all three layers of securities on offer, suggesting strong execution of the issuance and support for USAA from investors in catalytic bonds.
The Class 2 note tranche remains $50 million in size and is the riskiest note layer on offer, with an expected initial loss of 5.91%. They were first offered as zero coupon notes with a guide price of 85% to 86% of par, so a rough spread equivalent to 14% to 15%, but this has now narrowed to 86% at 86.5%, so an approximate difference. equivalent of 13.5% to 14%, which means that the price fell when it was marketed.
The size of the Class 3 note tranche has increased from $100 million to now an offering of $150 million. With their initial expected loss of 3.05%, they were first offered with price predictions of 8.5% to 9.25%, but we are now told that this price has also fallen to 8.5%. at 8.75%.
The final tranche of $150 million Class 5 notes is now targeted between that level and $200 million, depending on demand. They have an expected initial loss of 1.25% and were first offered with a forecast price spread of 5.75% to 6.25%, but sources have indicated that this price has also dropped to be set at 5.75%.
All of this means a strong result in the catastrophe bond market for USAA and a rather different experience than some other sponsors who continue to see prices rise more than fall, likely reflecting in part more realistic initial forecasts, as well as respect for the cat bond. investors view USAA as a long-term, regular sponsor.
With 41 transactions now listed in our Deal Directory, the Residential Re cat bond program is the most prolific in the market and has been a regular and consistent feature of the catalytic bond market since its initial development.
You can read everything about this news 2023 Residential Reinsurance Limited (Series 2023-2) USAA Catastrophe Bond and view details of nearly every other Catastrophe Bond ever issued in our extensive Directory of Artemis offers.