USAA, the military mutual insurer, has now successfully priced its largest catastrophe bond sponsorship ever at attractive spreads, with the Residential Reinsurance 2026 Limited (Series 2026-1) cat bond now set to provide the company a meaningful $825 million in additional catastrophe reinsurance limit, Artemis can report.
USAA sponsored its first catastrophe bond way back in 1997, with that first Residential Re deal becoming only the second Rule 144A cat bond transaction we had ever seen.
Now, fast-forward roughly 29 years and USAA has just priced its 47th catastrophe bond sponsorship, which continues to make it the most prolific cat bond sponsor in the market’s history.
USAA came back to the catastrophe bond market for this issuance at the beginning of April with an initial target to secure $600 million source of reinsurance from this Residential Re 2026-1 issuance.
We explained at the time that, at $600 million in size, this would have already equalled USAA’s largest cat bond sponsorship from back in 2007.
In our first update on the new deal, we reported that USAA had increased the target size for this Residential Re 2026-1 issuance to between $800 million and as much as $825 million, with some adjustments made to the size and pricing for each of the three tranches of notes on offer
In our second update we reported that USAA had set its sights on the upper-end issuance size of $825 million for its latest catastrophe bond, while making further pricing adjustments to two of the tranches of notes on offer as it looked to capitalise on investor appetite and market conditions to secure some of the reinsurance at reduced pricing.
Now, we’re told USAA has priced the offering and so secured the $825 million of reinsurance, which will come into force after settlement later this month.
Which means the Residential Re 2026-1 catastrophe bond will become USAA’s largest cat bond sponsorship ever.
You can read about every one of USAA’s 46 issuances under the Residential Re name, as well as one named Espada Re cat bond, in our extensive Deal Directory.
As a result, Residential Reinsurance 2026 Limited will issue $825 million of notes to provide USAA with roughly four years of indemnity based reinsurance protection against losses from the same range of perils that typically feature in its catastrophe bond deals, these being U.S. tropical cyclones, earthquakes (plus fire following), severe thunderstorm, winter storm, wildfire, volcanic eruption, meteorite impact and other perils.
Both the Class 14 and Class 15 tranches will provide USAA with annual aggregate protection across the U.S. and feature a $60 million event deductible, while a third Class A tranche of notes will provide per-occurrence protection in Florida only, a notable inclusion for USAA in its latest cat bond. Both auto and renter policy flood losses are included under the aggregate tranche coverage, while only renter policy flood losses are included under the Florida occurrence tranche.
As we’ve been reporting, this Residential Re 2026-1 cat bond comes with multiple versions of key risk metrics, given the adoption of a new model version covering severe convective storm (SCS) risk. We previously reported that USAA is managing that model change within some of its earlier outstanding cat bonds, which you can read more about here.
A $150 million Class 14 tranche of aggregate notes have an initial base expected loss of 6.1% under the new model version and 0.98% under the older risk model version.
These notes were initially offered to cat bond investors with price guidance of 5.75% to 6.5%, which was then later revised to a single figure of 6.5%, which is where they have now been priced, so at the upper-end of guidance.
An upsized $175 million tranche of aggregate Class 15 notes have an initial base expected loss of 2.71% under the new model version and 0.59% under the older risk model version.
These notes were originally offered to cat bond investors with price guidance of 4.75% to 5.5%, which then lowered to a tighter spread of 4.5% to 4.75% and the spread fell further to 4.5%, so below the initial guidance range.
The final Class A tranche of notes are the Florida focused per-occurrence tranche.
These notes were initially $300 million in size, but upsized meaningfully to $500 million, which is where they remained.
The Class A notes have an initial attachment initial base expected loss of 2.51% under the new model version, or 2.52% under the older risk model version.
These notes were originally offered to cat bond investors with price guidance of 7% to 7.75%, which then reduced to between 6% and 7%, but the range fell further to 5.75% to 6%. We’re now told the Florida notes priced to pay a spread of 5.75%, so well below the initial guidance range.
USAA has maximised its opportunity for Florida focused reinsurance coverage it seems and secured that layer at very attractive pricing, while one tranche of the nationwide aggregate notes also priced down, the other seeing the spread settling at the top-end of guidance.
It demonstrates USAA’s reliance on the catastrophe bond market as a core component of its reinsurance arrangements, as well as its liking for the long-standing partnership it has developed with capital market investors and ILS fund managers.
We currently have USAA with $2.775 billion of risk capital outstanding from its Residential Re catastrophe bond program, however it’s always a little challenging to be 100% accurate with those deals, given some are in extension.
Of that, there is around $430 million of cat bonds set to mature this June, if they are not extended again in some cases.
Which means, USAA will build out its cat bond risk capital outstanding further, as the capital markets become an increasingly key component of its reinsurance arrangements.
You can read all about this new Residential Reinsurance 2026 Limited (Series 2026-1) catastrophe bond from USAA and view details on almost every other cat bond ever issued in our extensive Artemis Deal Directory.
