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USAA seeks $175mn from Residential Re cat bond

USAA has launched the $175mn Residential Re 2018-1 cat bond, which will provide US multi-peril cover, sister publication Trading Risk reported.

The cat bond is made up of two tranches, the one-year class 11 notes and the four-year class 13 notes.

The higher-risk class 11 notes are being marketed with an initial size of $75mn and a zero-coupon structure at 86.75 percent to 87.75 percent of par value. This equates to a yield of between 1,396 basis points (bps) and 1,527 bps.

The less risky $100mn class 13 notes are being offered with an initial spread guidance of 350-400 bps.

The annual aggregate indemnity bond covers the usual US multi-peril risks including tropical cyclone, earthquake, severe thunderstorm, winter storm, wildfire and other perils.

AIR Worldwide modelled the bond, while Goldman Sachs and Swiss Re Capital Markets are the joint structuring agents and joint bookrunners.

USAA's Residential Re 2017-2 cat bond, which was one of the first to be launched after the Q3 losses, grew by almost a third over the course of marketing to close at $295mn.

While all of the deal's tranches grew in size, the increase was mostly driven by the lowest-risk class 3 notes, which expanded to $130mn from an initial $75mn.

The insurer recently made $90mn in recoveries from three of its low-lying aggregate tranches following Winter Storm Riley, which struck the US northeast in early March.

USAA told investors it expects to take losses of $140mn-$196mn from Riley.

The $162mn point estimate for this range took USAA's annual covered losses to $1.03bn, up from a tally of around $850mn last November, sources said.

The updated loss figure means that the $50mn Residential Re 2017-1 class 10 notes, which attach at $883mn and exhaust at $983mn, would be a full loss.


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