Swiss Re Insurance-Linked Fund Management

Original Risk: A Society for Change Agents

Caelus Re 2013-2 cat bond settles and lists on CSX


U.S. mutual insurer Nationwide Mutual’s second catastrophe bond issuance of the year settled on Thursday of last week. The transaction, Caelus Re 2013 Ltd. (Series 2013-2), grew in size by 42% during marketing of the deal to settle at $320m, bringing the total reinsurance protection that the insurer has secured via cat bond sales this year to $590m, including its earlier $270m Caelus Re 2013 Ltd. (Series 2013-1) which completed in March.

The final terms of the Caelus Re 2013 Ltd. (Series 2013-2) cat bond are as follows. The transaction provides Nationwide Mutual with $320m of reinsurance cover over a four-year term for U.S. hurricanes and earthquakes on a per-occurrence basis using an indemnity trigger.

The deal provides cover from an attachment point of $1.5 billion up to an exhaustion point of $1.9 billion, after which the Caelus Re 2013-1 notes take over. This equates to an attachment probability of 1.93% for the Caelus Re 2013-2 notes and an expected loss of 1.59%.

Pricing dropped as the deal was marketed, beginning with a range of 6.25% to 7.25%, but finally pricing at 6.85%.

The notes issued in this transaction were not rated.

The Cayman Islands Stock Exchange admitted the $320m of Caelus Re 2013 Limited Series 2013-2, Class A Principal-at-Risk Variable Rate Notes due April 7, 2017 to the exchanges official list on the 4th April.

Nationwide Mutual have clearly taken advantage of the pricing in the cat bond market to increase the amount of reinsurance it receives from investors in the capital markets this year. Nationwide is not a newcomer to the cat bond market, having issued a $250m Caelus Re Ltd. deal in june 2008 and a $185m Caelus Re II Ltd. in May 2010.

However Nationwide has near tripled the reinsurance protection it receives from the capital markets this year. This is another clear demonstration of the way cat bond cover has been fully accepted by sponsors over the last few years. Now that the price is so competitive with traditional reinsurance cover, sponsors are appearing willing to make maximum use of this form of alternative reinsurance capital which can only bode well for the market.

Now this deal has settled officially it takes 2013 issuance of completed catastrophe bonds and insurance-linked securities listed in our Deal Directory to $1.351 billion. That number will officially jump to over $1.85 billion tomorrow as Tar Heel Re Ltd. (Series 2013-1) is due to settle on the 9th April bringing another $500m of risk to the market.

Two more deals are being actively marketed as well in the parametric Turkish earthquake cat bond Bosphorus 1 Re Ltd. and a new cat bond from Louisiana Citizens, Pelican Re Ltd. 2013-1.

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