TEXT - S&P cuts Residential Reinsurance 2011 Ltd

Thu Nov 15, 2012 3:24pm EST

(The following statement was released by the rating agency)
    Nov 15 - Standard & Poor's Ratings Services said today that it lowered its
rating on Residential Reinsurance 2011 Ltd Series 2011-1 (Res Re 2011) Class 5
notes to 'B+(sf)' from 'BB-(sf)'. The notes remain on CreditWatch with negative
implications. The 'BB(sf)' rating on Residential Reinsurance 2012 Ltd. Series
2012-1 (Res Re 2012) Class 5 notes remains on CreditWatch with negative
implications.

Residential Reinsurance is an ongoing natural peril catastrophe bond program 
(since 1997) sponsored by United Services Automobile Association (USAA; 
AA+/Negative/--). Each class of notes covers losses from hurricane, 
earthquake, severe thunderstorm, winter storm, and wildfire on an annual 
aggregate basis. The current risk period began on June 1, 2012, and ends on 
May 31, 2013.

We placed the ratings on CreditWatch on Nov. 6, 2012, due to a loss estimate 
notice related to Catastrophe Series 90 (Hurricane Sandy) submitted by USAA to 
Res Re 2011 and 2012. The estimates of ultimate net losses range from a low of 
$129 million to a high of $363 million, with a point estimate of $291 million.

To date, there have been two covered events: Catastrophe Series 77 (a Colorado 
and Wyoming wind and hail tornado that occurred on June 6) and Catastrophe 
Series 83 (a central and northeast U.S. wind and hail tornado that occurred on 
June 28) that have generated estimated covered losses of $187 million. These 
events plus the losses from Sandy decrease the amount of future losses 
necessary to trigger an event payment and in our view, increase the risk 
associated with these bonds.

We have received from AIR Worldwide Corp. (the reset and calculation agent) 
updated probabilities of attachment for the remaining risk period, using each 
of the lost estimates listed above. The current rating actions are based on 
the point estimate loss amount.

Each issuance was left on CreditWatch with negative implications because there 
is the potential for the ultimate net losses from Sandy to increase. If losses 
from Sandy were to come in at the high estimate, the Res Re 2011 notes could 
be lowered up to two notches and the Res Re 2012 notes could be lowered by one 
notch. We expect to resolve the status of each CreditWatch within 90 days.

To the extent losses accrue through the risk period but do not reach the 
attachment point, then the attachment point is reset on June 1, 2013, the risk 
period starts anew, and all losses from the previous risk period will not 
count for the current risk period.

RELATED CRITERIA AND RESEARCH
     -- Residential Reinsurance 2011 And 2012 Ltd. Class 5 Notes Ratings 
Placed On CreditWatch Negative, Nov. 6, 2012
     -- Residential Reinsurance 2012 Ltd. Variable-Rate Series 2012-1 Notes, 
May 31, 2012
     -- Methodology And Assumptions For Rating Natural Catastrophe Bonds, May 
12, 2009

RATINGS LIST
Ratings Lowered; On CreditWatch  To                  From
Residential Reinsurance 2011 Ltd.
 Series 2011-1 Class 5           B+(sf)/Watch Neg    BB-(sf)/Watch Neg

Ratings Remain On CreditWatch
Residential Reinsurance 2012 Ltd
 Series 2012-1 Class 5           BB(sf)/Watch Neg

 (Caryn Trokie, New York Ratings Unit)
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