Aquila Re I Ltd. (Series 2023-1)

Long-standing catastrophe bond sponsor Nationwide Mutual Insurance Company has returned to the catastrophe bond market for the first time since 2020.

With a new Bermuda based company that will be licensed as a special purpose insurer (SPI) named Aquila Re I Ltd., Nationwide is seeking a new $150 million or larger multi-year source of collateralized reinsurance against multiple US catastrophe perils.

With this first Series 2023-1 issuance, Aquila Re I Ltd. will look to issue three tranches of notes, with a target to raise at least $150 million, and these notes to be sold to investors and the proceeds collateralize reinsurance agreements with Nationwide.

The Aquila Re I 2023-1 catastrophe bond is designed to provide Nationwide Mutual and subsidiaries including auto insurer Titan Insurance Company, with reinsurance protection against losses from multiple U.S. perils, including U.S. named storm, earthquake, severe thunderstorm, winter storm, wildfire, meteorite impact, and volcanic eruption, we’re told.

The coverage is expected to be provided across three layers of notes issued, with each structured on an indemnity trigger and per-occurrence basis, to provide Nationwide reinsurance across a three-year term to the end of May 2026.

Each of the tranches of notes are currently $50 million in size, we understand, but with ample room to grow should demand from cat bond investors allow and pricing be conducive, it seems.

A Class A tranche of notes would attach at $3.15 billion of losses to Nationwide, covering a percentage of losses to $3.4 billion.

That gives the Class A notes an initial attachment probability of 0.41%, an initial base expected loss of 0.37% and we’re told the price guidance for this tranche is between 5.75% and 6.5%.

A Class B tranche of notes would attach at $1.95 billion of losses to Nationwide, covering a percentage of losses to $2.35 billion.

The riskier Class B notes come with an initial attachment probability of 1.27%, an initial base expected loss of 1.03% and we’re told the price guidance for this tranche is between 8% to 8.75%.

Finally, the riskiest layer, a Class C tranche of notes, have an attachment point lower down still at $1.55 billion of losses to Nationwide, covering a percentage of losses to $1.95 billion, so sitting directly below Class B.

As a result, the Class C notes will have an initial attachment probability of 1.93%, an initial base expected loss of 1.57% and we’re told the price guidance for this tranche is between 9.75% and 10.5%.

Update 1:

We understand that the target size for this Aquila Re I catastrophe bond has doubled to now provide $300 million of protection to Nationwide, while at the same time all three tranches of notes look like they could price at lower than guidance levels.

The Class A tranche of notes are still targeted at $50 million in size, the only layer not to have grown. The Class A notes have an initial base expected loss of 0.37% and were first offered with price guidance of between 5.75% and 6.5%, but we’re now told that spread guidance has been lowered to 5.25% to 5.75%.

The Class B tranche of notes are now targeted at $125 million in size. These notes have an initial base expected loss of 1.03% and were offered with price guidance of 8% to 8.75%, but that has also been reduced to 7.5% to 8%, we’re told.

Finally, the riskiest Class C tranche of notes have also grown to $125 million in size. These notes have an initial base expected loss of 1.57% and were offered with initial price guidance of 9.75% to 10.5%, which has also been lowered to 9.25% to 9.75%, we understand.

Update 2:

This new Aquila Re I catastrophe bond issuance has now secured the upsized $300 million of protection for sposnor Nationwide Mutual.

The Class A tranche of notes settled at $50 million in size, with pricing finalised below-guidance at 5.25%.

The Class B tranche of notes settled at $125 million in size, again with pricing finalised below-guidance at 7.5%.

Finally, the riskiest Class C tranche of notes settled at $125 million in size, with their pricing also finalised below-guidance at 9.25%.