Caelus Re 2013 cat bond completes, gets rated, lists on Cayman exchange

by Artemis on March 8, 2013

U.S. insurer Nationwide Mutual’s latest catastrophe bond, Caelus Re 2013 Ltd., has now completed successfully, received its final rating from Standard & Poor’s and the notes and five-year shelf programme have been admitted for listing on the Cayman Islands Stock Exchange. It’s only the third cat bond or ILS deal we’ve seen complete and have added to our Deal Directory so far in 2013, but the way this deal priced could stimulate more issuance.

The notes issued by Caelus Re 2013 provide Nationwide Mutual with a $270m source of fully-collateralized reinsurance on an indemnity and per-occurrence basis for two perils, U.S. hurricanes and U.S. earthquakes (covering shaking, fire-following and sprinkler leakage) via the cat bond.

Coverage is for a 90% share of any ultimate net losses affecting Nationwide Mutual resulting from the covered perils between an initial attachment point of $1.9 billion and an initial exhaustion point of $2.2 billion. Any losses will be based on the paid losses and loss reserves of Nationwide, as adjusted by the related adjustment factors as applicable to this transaction. Nationwide are themselves expected to retain at least a 10% share of the ultimate net loss from any qualifying event.

Standard & Poor’s said today that it has assigned a ‘BB-’ rating to the cat bond notes issued by Caelus Re 2013 Ltd. The Cayman Islands Stock Exchange admitted the five-year specialist debt programme of issuer Caelus Re 2013 Limited and the $270m Series 2013-1, Class A Principal-at-Risk Variable Rate Notes due March 7, 2016 to its official list today as well.

This Caelus Re 2013 cat bond, the third cat bond Nationwide Mutual has sponsored, has been extremely effective for the insurer. The deal upsized by 35% during the marketing phase of the transaction thanks to over-subscription by investors due to high demand. It also reduced significantly in price, dropping by around 2% points to finish with a coupon of 5.25%, a reduction in pricing of around 27.5% all told.

The pricing is actually a little contentious and some investors we have spoken with chose not to deploy capital to the Caelus Re 2013 deal as they felt it was getting a little too cheap for the risk profile of the notes. For Nationwide of course the fact pricing dropped so much is a bonus and makes the issuance even more cost-effective for them.

It will be interesting to see how the two new cat bonds in the market, Tar Heel Re Ltd. and Merna Re IV Ltd., are accepted by investors, price and complete in the next couple of weeks.

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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