Swiss Re Insurance-Linked Fund Management

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Caelus Re IV Ltd. (Series 2016-1)

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Caelus Re IV Ltd. (Series 2016-1) – At a glance:

  • Issuer: Caelus Re IV Ltd. (Series 2016-1)
  • Cedent / sponsor: Nationwide Mutual Insurance Co.
  • Placement / structuring agent/s: Goldman Sachs, Aon Securities & Deutsche Bank Securities are joint structuring agents & bookrunners. BofA Merrill Lynch, BNP Paribas & GC Securities are co-managers
  • Risk modelling / calculation agents etc: AIR Worldwide
  • Risks / perils covered: U.S. named storm, earthquake, severe thunderstorm, winter storm, wildfire, meteorite impact, volcanic eruption
  • Size: $300m
  • Trigger type: Indemnity
  • Ratings: NR
  • Date of issue: Feb 2016

Caelus Re IV Ltd. (Series 2016-1) – Full details:

Nationwide Mutual is back with a newly registered Cayman Islands domiciled Class C insurance vehicle, Caelus Re IV Limited, through which a single tranche of notes will be issued, the same of which will collateralise a reinsurance agreement, sources familiar with the deal said.

Caelus Re IV Ltd. will issue a single tranche of Series 2016-1 Class A notes, currently targeting $225m in size, with the ultimate reinsurance protection covering a Nationwide subsidiaries losses under personal, commercial and excess & surplus specialty lines, sources said.

Interestingly we understand that the cat bond will cover a wide range of property damage type risks, including such items as auto physical damage, inland marine vehicles, commercial agricultural business risks and more.

So Nationwide is seeking a much broader coverage than just its property policies, with the E&S and specialty lines also broadening the subject business covered considerably.

The notes will provide Nationwide Mutual with a four-year source of multi-year reinsurance protection, on an indemnity and per-occurrence basis for losses from the perils of U.S. named storm, earthquake, severe thunderstorm, winter storm, wildfire, meteorite impact and volcanic eruption across the United States. The term of the cover is slated to begin on 1st March 2016.

The Class A notes feature an attachment point of $1.915 billion and cover a layer of losses up to $2.252 billion. The layer covered is $337m in size, leaving room for the tranche to grow from the initial $225m size mooted.

This equates to an attachment probability of 1.82%, an exhaustion probability of 1.43% and an expected loss of 1.58%. The Caelus Re IV 2016-1 Class A notes are being marketed with price guidance of 5.5% to 6.25%, we’re told.

That is a high multiple, likely reflecting the broader range of subject business that this catastrophe bond will cover. At the base case the multiple of expected loss to coupon would be 3.5x even at the lower end of price guidance. At the sensitivity case expected loss, which is 1.94%, the multiple is reduced to 2.8x, still higher than the average (again at the lower end of the coupon range).

Given the broader coverage being sought, which is similar to some of AIG’s Tradewynd cat bonds we understand, it will be interesting to see how the ILS investor community supports the deal and where the pricing settles. Cedents are looking for broader cover from the cat bond market, so transactions like this are a good test of appetite.

Update 1:

The Caelus Re IV 2016-1 cat bond looks set to upsize to $300m, while the pricing dropped to the low-end of guidance.

he price guidance fell right to the bottom of the guidance range, to settle at 5.5%, which with the expected loss of 1.58% at the base case would provide a multiple of expected loss to coupon of 3.5x. At the sensitivity case expected loss, which is 1.94%, the multiple is reduced to 2.8x.

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