USAA gets upsized $400m Res Re 2025-2 cat bond with meaningfully reduced pricing

Insurer USAA has secured its upsized $400 million target for multi-peril per-occurrence reinsurance from its latest catastrophe bond issuance, as the Residential Reinsurance 2025 Limited (Series 2025-2) deal has now been priced with its spreads finalised at the low-ends of their twice-reduced guidance.

USAA ventured back into the cat bond market at the end of September, initially seeking $300 million or more in multi-peril per-occurrence catastrophe reinsurance protection.

It was an earlier entry than is typically expected from the insurer, as it has tended to bring its second cat bond of the year to market in October for a November issuance. But this year it seems USAA might have been looking to capitalise on market conditions and investor appetite for new paper issuance, at a time when the market is typically less congested with new deals.

This new Residential Re 2025-2 cat bond will soon become the 46th settled transaction we have tracked from long-standing sponsor USAA. In fact there are now 45 issuances under the Residential Re name, as well as one named Espada Re cat bond, listed in our extensive Deal Directory.

Having initially sought $300 million of per-occurrence multi-peril reinsurance from its latest cat bond, as we reported in our first update on this deal, the insurer was looking to upsize the transaction to provide $400 million of cover, while also seeking a lower price point through a reduced spread.

Then, in a second update, the size target remained for the increased $400 million of reinsurance across the two tranche cat bond issuance, but the price guidance for both of the tranches of notes on offer was reduced for a second time, as the insurer looked to close the deal at even tighter spreads.

Now, sources have told us that USAA has secured the upsized target of $400 million of reinsurance from this Residential Re 2025-2 cat bond, so one-third more than the initial offering target size.

While we also understand from sources that both tranches of notes have now been priced at the lowest-end of their twice-revised and reduced guidance, indicating very strong execution in the catastrophe bond market and a good result for the sponsor USAA.

So, the two tranches of notes will now provide USAA with a $400 million source of four years of indemnity per-occurrence based reinsurance protection against losses from multiple US catastrophe perils, with the term of coverage set to run from December 1st 2025 through November 30th 2029.

Both classes of notes to be issued will now settle at $200 million in size, which was a $50 million upsize for each.

The Residential Re 2025-2 Class 2 notes come with an initial base expected loss of 6.47%. They were initially offered to cat bond investors with price guidance of 11.75% to 12.5%. The price guidance was first reduced to between 10.75% and 11.75% and then reduced again, to between 10.25% and 10.75%.

We’re now told the $200 million of Class 2 notes have been priced to pay investors a spread of 10.25%, so at the bottom of the twice reduced guidance.

The Class 5 tranche of notes come with an initial base expected loss of 1.82%. Initially these notes were offered to cat bond investors with price guidance of 4% to 4.5%, which was subsequently first lowered to between 3.5% and 4% and then fell further to a revised range of 3.25% to 3.5%.

We now understand that the $200 million of Class 5 notes have been priced to pay investors a spread of 3.25%, so again the bottom end of twice reduced guidance.

When this cat bond began marketing, the multiple-at-market at the mid-point of guidance for the higher risk Class 2 tranche of notes would have been 1.87 times their expected loss (EL), while the multiple-at-market at the mid-point would have been almost 2.34 times EL for the lower risk Class 5 tranche.

Now, after the price guidance had been lowered twice and the notes have priced at the lowest-ends, the multiple for the Class 2 notes will be 1.58 times their initial base expected loss, while for the Class 5 notes it will be 1.79 times their EL.

The spread declined from the initial guidance mid-point by roughly 15% for the higher risk Class 2 notes and by 24% for the lower risk Class 5 notes.

We can compare this to last year’s issuance of an occurrence cat bond for USAA, that saw Class 2 notes with an initial expected loss of 6.14% priced at 13.25% for a multiple-at-market of 2.16 times EL, Class 3 notes with an initial expected loss of 3.25% that priced at 7% for a multiple of 2.15 times, and Class 4 notes with an initial expected loss of 2.05% that priced at 5.25% for a multiple of 2.56 times EL.

So, this Residential Re 2025-2 catastrophe bond has priced with meaningfully lower spread multiples of expected loss for USAA (compared to a year ago), indicating strong execution in a cat bond market where investor demand remains high and reinsurance price softening has reduced the cost of risk transfer for sponsors. It also reflects the fact cat bond investors see USAA as a core and particularly high-quality sponsor in the marketplace.

With 46 catastrophe bond transactions from USAA now detailed in our Deal Directory, the insurer and its now 45 deal strong Residential Re cat bond program is the most prolific sponsor and program in the market, a regular and consistent feature since the cat bond instrument was first seen in late 1996 when USAA’s first began marketing.

You can read all about this new Residential Reinsurance 2025 Limited (Series 2025-2) catastrophe bond from USAA and view details on almost every other cat bond ever issued in our extensive Artemis Deal Directory.