USAA is marketing another catastrophe bond under its Residential Re platform.
The notes transfer the risk of insured losses in all 50 states and the District of Columbia from tropical cyclones (including flood coverage for renters' policies), earthquakes (including fire following), severe thunderstorms, winter storms, wildfires, volcanic eruption, meteorite impact, and other perils on an annual aggregate basis.
According to website Artemis, the deal consists of three tranches of $50 million each for a total of $150 million, but has been upsized to $250 million in response to strong demand from investors.
Standard & Poor’s expects to assign a ‘BB-‘ to a single tranche of class 13 notes, which will cover a portion of losses between the attachment point of $1.918 billion and the exhaustion point of $2.638 billion.
The risk period will begin on June 1, 2016, and end May 31, 2020. The transaction could extend the maturity date by up to 36 months beyond the scheduled redemption date to allow for loss development and reporting; however, it will not extend the risk period.
Goldman Sachs and Swiss Re Capital Markets are the joint structuring agents and joint book runners; Citigroup Global Markets is also a joint book runner.
According to S&P, USAA's proximity to the military communities exposes it to natural catastrophic risks. Its top-five states (Texas, California, Florida, Virginia, and Georgia) represent 45% of its premiums.
Based on AIR's analysis, on a historical basis, there haven't been any years where the aggregate loss totals for a given year reached the attachment point. The two years with the greatest modeled aggregate ultimate net loss were 1811-1812 (the New Madrid sequence) and 1954 (hurricanes Carol, Edna, and Hazel).
USAA will retain at least 5% of the ultimate loss from each covered event.
The note proceeds will be invested in funds rated 'AAA’
This is the 26th Residential Reinsurance catastrophe bond sponsored by USAA. To date, no bonds have resulted in losses to the investors.