Caelus Re 2013 cat bond to upsize, drop in price on investor demand

by Artemis on February 26, 2013

Reflecting investors high demand for insurance-linked securities, catastrophe bonds and reinsurance-linked investments, the first natural peril catastrophe bond to be broadly marketed this year looks set to increase in size and reduce in pricing as a response. The cat bond, Caelus Re 2013 Ltd., which is being marketed on behalf of sponsor Nationwide Mutual has been well received according to our sources resulting in it upsizing by 35% during marketing.

Update, pricing dropped again on Caelus Re 2013.

The Caelus Re 2013 cat bond is Nationwide Mutual’s third such deal in the Caelus series and will replace the cover provided by its last Caelus Re II cat bond which matures in May. As we mentioned in our article announcing the deal last week, we suspected that the deal may be coming to market well in advance of the maturity of Caelus II so that Nationwide Mutual could take advantage of a quiet cat bond market combined with high investor demand.

If that was indeed the strategy then it seems to have worked admirably, as sources tell us that the Caelus Re 2013 cat bond has been extremely well received by investors. The transaction started life as a $200m tranche of notes but we’re now told that it’s expected to close around $270m in size, an increase of 35%.

Not only has it increased in size while marketing, we’re also told that high investor demand has helped to put pressure on the expected coupon price for this cat bond. It was originally marketed with price guidance of between 6.75% and 7.75%. According to our sources the latest price guidance suggests that it will complete below the bottom end of that range, with one of our sources suggesting it could be anywhere from 6% to 6.75% by the time it prices.

Increasing the size of the deal at a reduced coupon level means that Nationwide Mutual get more cover for less outlay, meaning much better value for money reinsurance protection, from the cat bond. It clearly shows that appetite remains high for cat bonds as an investment opportunity and it’s likely that this deal will have been oversubscribed as so many investment funds have high cash quotas due to maturities and capital inflows that they are extremely keen to put to work.

The transaction will provide Nationwide Mutual with a fully-collateralized source of reinsurance on an indemnity and per-occurrence basis for two perils, U.S. hurricanes and U.S. earthquakes (including fire-following and sprinkler leakage).

The Caelus Re 2013 cat bond is due to complete next week we understand. We’ll update you on the final size and pricing when we have more information available.

The cat bond market looks to have a strong appetite for new deals but as yet we haven’t heard of anything else being marketed after Caelus. Sponsors take note; if you’re planning a deal in the coming weeks you may want to consider getting it to market early while this kind of healthy investor appetite remains unsatisfied and can be leveraged to achieve cat bond cover at more attractive pricing.

You can read more details about Caelus Re 2013 Ltd. and Nationwide Mutual’s earlier cat bonds, Caelus Re Ltd. and Caelus Re II Ltd., in our catastrophe bond and ILS Deal Directory.

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