Caelus Re V Ltd. (Series 2018-1)

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Caelus Re V Ltd. (Series 2018-1) - At a glance:

  • Issuer / SPV: Caelus Re V Ltd. (Series 2018-1)
  • Cedent / Sponsor: Nationwide Mutual Insurance Co.
  • Placement / structuring agent/s: Goldman Sachs and Aon Securities are joint structuring agents & bookrunners. Deutsche Bank Securities and BNP Paribas are co-managers
  • Risk modelling / calculation agents etc: AIR Worldwide
  • Risks / Perils covered: U.S. named storm, earthquake (inc. fire following), severe thunderstorm, winter storm, wildfire, meteorite impact, volcanic eruption, other perils
  • Size: $450m
  • Trigger type: Indemnity
  • Ratings: NR
  • Date of issue: May 2018

Caelus Re V Ltd. (Series 2018-1) - Full details

This is a new multi-peril catastrophe bond from Nationwide Mutual Insurance Company, the insurers seventh cat bond deal in the Caelus series since it first entered the ILS market back in 2008.

For this issuance, Cayman Islands special purpose insurer (SPI) Caelus Re V Ltd. has been established to issue to issue four tranches of notes which will be sold to ILS and capital market investors in order to fully collateralize multi-peril reinsurance agreements between the SPI and sponsor Nationwide Mutual.

The reinsurance coverage from this Caelus Re V 2018-1 cat bond will benefit Nationwide Mutual and its subsidiaries including Titan Insurance Company which is a dedicated auto insurer of the firm.

This Caelus Re V 2018-1 cat bond will supply fully-collateralized multi-peril reinsurance coverage to Nationwide Mutual and subsidiaries including auto insurer Titan Insurance Company, to protect them against certain losses from multiple U.S. perils, including U.S. named storm, earthquake (with fire following), severe thunderstorm, winter storm, wildfire, meteorite impact, volcanic eruption, and other perils.

The reinsurance protection that Nationwide Mutual will benefit from, through the reinsurance agreements with Caelus Re V, will all be provided on an indemnity and annual aggregate basis across a three-year term.

The four tranches of notes will cover different layers of risk within Nationwide Mutual's reinsurance tower, running from the most risk-remote to the riskiest layer.

Caelus Re V Ltd. will issue a $75 million Series 2018-1 Class A tranche of notes that will have an initial attachment probability of 1.02%, expected loss of 0.63% and will be offered to investors with coupon price guidance of 3.25% to 3.75%, we understand.

An also $75 million Class B tranche of notes will have an initial attachment probability of 2.02%, expected loss of 1.48% and will be offered to investors with coupon price guidance of 4.75% to 5.25%.

A $100 million Class C tranche of notes will have an initial attachment probability of 4.23%, expected loss of 2.94% and will be offered to investors with coupon price guidance of 7.75% to 8.5%.

Finally, a $50 million Class D tranche of notes are the riskiest, with an initial attachment probability of 5.41%, expected loss of 4.8% and will be offered to investors with coupon price guidance of 10.75% to 11.5%.

All four tranches of notes will cover losses to personal, commercial, excess & surplus and specialty lines business underwritten by Nationwide Mutual, we're told.

Update 1:

Most of the tranches have increased in size and the majority have also seen their pricing drop to the bottom or below of the initial coupon guidance range, taking the targeted size now to $450 million.

The Caelus Re V Series 2018-1 Class A tranche of notes began at $75 million in size, but have now grown to $125 million thanks to the demand shown by investors. However, this tranche, the least risky with an initial expected loss of 0.63% were initially offered with coupon price guidance of 3.25% to 3.75%, but this has looks set to price at the middle or above, as the guidance is now 3.5% to 3.75%, we understand.

It’s possible that the pricing on this tranche is a reaction to the fact investors are expecting to pay for some of Nationwide’s losses this year, meaning their minimum return requirements are perhaps higher than they would have been otherwise.

The Class B tranche of notes also began at $75 million in size and that hasn’t changed, but the notes with their initial expected loss of 1.48% and initial coupon price guidance of 4.75% to 5.25%, are set to price down, with guidance now lowered to 4.5% to 4.75%, we hear.

The initially $100 million Class C tranche of notes have grown the most, now offering $175 million of notes to investors. With their initial expected loss of 2.94%, we understand that the launch price guidance of 7.75% to 8.5% is falling to 7.5% to 7.75%, reflecting strong demand for this layer of Nationwide’s reinsurance tower.

The last Class D tranche that was targeting $50 million has also grown to $75 million, with an initial expected loss of 4.8% this is the riskiest tranche, but we understand investor appetite has helped to lower the launch with coupon price guidance of 10.75% to 11.5% down to a new range at 10.5% to 10.75%.

At $450 million in size, this Caelus Re V 2018-1 catastrophe bond from Nationwide Mutual is set to be the insurers largest.

Update 2:

Nationwide Mutual's Caelus Re V 2018-1 catastrophe bond completed at $450 million in size, with pricing on three tranches falling to below the initial guidance, while the fourth settled at the mid-point. However, all four tranches have priced slightly higher than their equivalents from Nationwide's 2017 cat bond, as investors sought higher rates in return for having taken losses due to the major hurricanes and wildfires in the prior year.

The $125 million Caelus Re V Series 2018-1 Class A tranche of notes priced at the mid-point of 3.5%, we're told.

The $75 million Class B tranche of notes priced at the lowest end of reduced guidance of 4.5%.

The $175 million Class C tranche of notes priced at the lowest end of 7.5%.

The final $75 million Class D tranche saw pricing has been fixed again at the low-end of already reduced guidance at 10.5%.




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