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USAA tops up cat bond cover as hurricane bonds expand cover

USAA is set to close its 20th Residential Re cat bond at $300mn after final pricing settled at the lower end of revised guidance.

The deal increased from an initial $250mn target after USAA added $50mn to the class 11 aggregate notes, taking the layer to $205mn.

The tranche of class 3 per-event notes closed on target at $95mn.

Final pricing on the deal was set at the lower end of the revised guidance range, sources said.

However, pricing only declined by 10 percent on average from the mid-point of original guidance, which is less significant than some reductions experienced during marketing on bonds earlier in the year.

Pricing on the class 3 layer fell by 8.6 percent from the mid-point of original guidance to the final 925 basis point (bps) insurance-linked coupon.

Pricing on the lower-risk class 11 notes settled 11 percent below the mid-point of original guidance at 800 bps above benchmark Treasury money market rates.

Residential Re covers multiple US perils, including hurricane and earthquake, as well as fire following, severe thunderstorm, winter storm and wildfire over four years.

Goldman Sachs and Swiss Re Capital Management acted as joint structuring agents and book runners and Deutsche Bank was co-manager on the deal.

Residential Re 2013 takes total cat bond issuance for the year to date to $3.75bn.

Meanwhile, two recent US wind cat bonds, the Long Point Re III bond for Travelers and the Blue Danube 2013 deal for Allianz, have included widened definitions of hurricane events to cover all named storms.

Last year Superstorm Sandy caused issues for the insurance industry when it was declared by regulators to be a storm rather than a hurricane, which meant that insurers were not able to apply hurricane deductibles to policyholders.

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