LONDON, Nov 12 (Reuters) - U.S. insurer USAA has launched a new series of notes to boost the coverage of U.S. earthquake, severe thunderstorm, winter storm and wildfire exposures in its recent Residential Reinsurance 2010 Ltd transaction.
The new Class 1 Series 2010-11 notes have been given a BB rating by S&P — the same rating as S&P assigned to the company’s Class 1 Series 2010-I notes because both have the same risk profile, said the rating agency on Thursday.
The U.S. insurer closed its four-tranche bond Res Re 2010 in May at an upsized $405 million. Classes 1 to 3 of the bond were calculated on a per-occurrence basis and were rated BB, B-plus and B-minus by rating agency Standard and Poor’s (S&P). The fourth tranche, based on annual aggregate, was not submitted to S&P and not given a rating.
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The 2010 bond is another layer of USAA’s Res Re programme, but this year it expanded its coverage to include storm and wildfire exposure for the first time.
According to investors, the structure of the bond is comparable to the ten previous Res Re bonds issued by USAA, but the pricing on the new series of notes are lower.
“The market conditions mean it is a good opportunity for USAA to secure good pricing,” said one broker familiar with the transaction.
The series of notes are separated into three classes of risk. The Class 1 notes are being marketed at $110 million, with a pricing guide of 575 - 600 basis points above U.S. money market fund yields. The Class 2 notes is $50 million and priced at 750-825 bp, and Class 3 initial size is $40 million, and priced at 100-1200 bp, according to investors.
Ten bonds closed before the start of the U.S. hurricane season, all with exposure to U.S. wind - causing some investors to reach their capacity limits for this particular peril. But now, investor appetite is back for U.S. wind, market participants say.
“This series of notes are well timed,” said one UK-based investor. “Investors have had the opportunity to balance their portfolio of risk with other diversifying transactions, such as European wind.”
So far this year, 14 cat bonds have closed, bringing the issuance total up to $3.147 billion.
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Editing by Toby Chopra