Caelus cat bond losses expanding as Nationwide’s aggregates grow

A second tranche of U.S. primary insurer Nationwide Mutual Insurance Company’s catastrophe bond has now been triggered as its aggregated natural catastrophe losses have eaten further into the capital market backed reinsurance provision that the $375 million Caelus Re V Ltd. (Series 2017-1) catastrophe bond provides.

Nationwide’s aggregated natural catastrophe losses, from events including hurricanes Harvey and Irma, as well as severe thunderstorms and Californian wildfires, had already eaten almost all the way through the riskiest tranche of Caelus Re V cat bond notes back in December 2017.

But now, data from the latest loss report from the sponsor, shows that the $75 million riskiest tranche of notes will be a total loss and that losses are now eating their way through the next layer of cat bond notes above that.

The latest loss report, which was published on February 15th and features loss data up to the end of 2017, shows that Nationwide’s groun-up losses have now reached roughly $1.91 billion, with increases from the California wildfires largely the reason for the rise, especially the Thomas wildfire in December.

The riskiest $75 million Class D tranche of notes issued by Caelus Re V are now set to become a total loss, as they attach at $1.5 billion and covered losses up to $1.75 billion for Nationwide.

Investors in the Class C tranche of Caelus Re V notes, which sit directly above Class D, are now also set to experience losses, with the ground-up loss tally now having eaten roughly 63% through that layer, which attached at $1.75 billion and cover losses to $2 billion.

The ground-up loss total suggests that currently the also $75 million Class C tranche of Caelus Re V notes now face around a $47 million loss of principal.

With further development expected for the qualifying catastrophe events and the current aggregate risk period running through till the end of May 2018, there is plenty of time for the layer above, the Class B notes, to be impacted as well.

The $150 million Class B tranche of Caelus Re V cat bond notes attaches at $2 billion and provides Nationwide with reinsurance protection for losses up to $2.5 billion.

Right now, with the ground-up losses at roughly $1.91 billion that means Nationwide’s loss experience is already 96% of the way to the trigger for the Class B tranche of notes.

With the U.S. severe thunderstorm season set to threaten the rest of the current annual risk period it is by no means certain that the Class B tranche of Caelus Re notes won’t be impacted and under severe circumstances the $75 million Class A tranche that sit above them as well.

Investors will be watching future loss reports closely, to see which direction Nationwide Mutual’s loss reports for specific events go, as these remain estimates and can go up or down in the months following loss events, meaning the final loss determinations could be different (both higher or lower).