USAA Raises 2021-2 Catastrophic ResRe Bond Target to $ 300 Million As Prices Fall

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U.S. primary mutual insurance company USAA hopes to increase its latest catastrophe bond, with the new Residential Reinsurance 2021 Limited (Series 2021-2) transaction now seeking up to $ 300 million in P&C reinsurance of guaranteed property for the ‘insurer, while the price guidance has been lowered.

USAA returned to the catastrophe bond market earlier this month with its regular November issue of a catastrophe bond by occurrence and the initial goal was to get $ 225 million or more in reinsurance in the capital markets. from the agreement.

This new residential reinsurance cat bond will be the 38th USAA transaction that we have listed in our extensive Artemis transaction directory.

Interestingly, it’s the higher-risk tranche of the ResRe 2021-2 catastrophe bond that looks likely to rise the most, sources tell us, perhaps reflecting investor demand to access certain bonds. higher yielding, in a market that has recently featured a number of catastrophic low yield diversified bond trades.

For example, USAA’s latest Cayman Islands cat special-purpose bond issuance vehicle, Residential Reinsurance 2021 Limited, will now seek to issue up to $ 300 million in notes on two tranches of the 2021-2 series. .

This Residential Re 2021-2 catastrophic bond will provide the USAA with four-year reinsurance protection per event against the capital markets, covering some losses of the typical range of risks covered by its recent catastrophic bonds, including tropical cyclones in the States. – United, earthquakes (plus subsequent fires), severe thunderstorm, winter storm, forest fire, volcanic eruption, meteorite impact, other perils (all including flood loss related to auto police and tenants).

The coverage will cover all 50 states of the United States, as well as the District of Columbia, and the cat bond will have an indemnity trigger, as does the entire USAA reinsurance tower.

With this likely increase in mind, Residential Reinsurance 2021 will now issue a Class 2 tranche of catastrophic bonds in the amount between $ 125 million and $ 175 million, which will represent $ 1.177 billion in losses, with a initial modeled expected loss of 6.6%.

This higher risk tranche was initially offered to investors with coupon forecasts in a range of 11.75% to 12.5%, but has now been set at the low end of 11.75%, we are told. .

The low-risk Class 3 note tranche is now targeting $ 125 million, up from $ 100 million, which will represent a loss of $ 2.125 billion, with an expected modeled initial loss of 2.96%.

This class 3 tranche was initially offered with a price orientation in a range of 6.25% to 6.75% and the price has now been lowered between 5.5% and 6.25%.

It therefore appears that the USAA can guarantee its protection against this new cat bond at a multiple of 1.78 times the expected loss for the tranche of class 2 notes at higher risk and at a multiple of 1.95 times the loss. expected for the lower risk class 3 tranche.

These lower price points are certainly slightly lower than the 2020 USAA cat bond, on a multiple to market basis.

This transaction included a tranche with an expected loss of 3.53 which was priced at 8.25, a multiple of 2.34 times EL, and a tranche with an expected loss of 2.32 and a price of 6.25. , or a multiple of 2.7 times the EL.

Thus, pricing is expected to be better than a year ago, reflecting the slowdown that occurred in the catastrophe bond market in 2021 as investor demand increased and funds raised new capital, demonstrating clearly that, at least for the regular and trusted sponsors of cat bonds, there is a capacity for reinsurance or retrocession at an attractive price to be secured.

This new Residential Reinsurance 2021 Limited Catastrophe Bond (Series 2021-2) is expected to be settled in November.

We will keep you posted and you can read more about this and all other Catastrophe Bonds in our Artemis Deal Directory.

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