Swiss Re Insurance-Linked Fund Management

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Caelus Re 2013-2 catastrophe bond grows to $320m


The second Caelus Re 2013 catastrophe bond issuance from U.S. insurer Nationwide Mutual has grown in size to $320m before close, according to our sources. The transaction, Caelus Re 2013 Ltd. (Series 2013-2), has been marketed quickly for Nationwide Mutual, having only first come to light a week ago. The transaction is very similar to the recently completed Caelus Re 2013 Ltd. (Series 2013-1) except it is slightly riskier, providing cover for the same perils but from a lower attachment point.

The Caelus Re 2013-2 cat bond will secure Nationwide Mutual another source of fully collateralized reinsurance from capital markets investors. It has a four-year term, a year longer than the 2013-1 deal, and provides U.S. hurricane and earthquake protection on a per occurrence basis using an indemnity trigger.

We’re told that the single tranche of notes has grown in size by 42% from the $225m it began marketing it to now sit at $320m. Pricing wise, the transaction began marketing with a range of 6.25% to 7.25% and we’re told it is likely to complete offering a coupon in the middle of that range, at 6.85%.

While this second Caelus Re 2013 cat bond has not seen the huge drop in pricing that the 2013-1 deal saw, pricing dropped by 2% on that deal, it has secured a riskier tranche of cover for Nationwide for a longer term and at a coupon that sits towards the lower end of the range that the 2013-1 deal began marketing at. We feel that this cat bonds pricing was initially pitched just around the right level commensurate with the deals risk profile and the investor markets current appetite.

Once again this shows the demand that investors have for cat bond risk at the moment. This Caelus Re 2013-2 cat bond attaches at $1.5 billion of losses to Nationwide Mutual, which equates to an attachment probability of 1.93%. The pricing of 6.85% seems good value for this level of risk, in line with all other recent cat bonds that have largely priced downwards.

With the two cat bonds it has issued this year, Nationwide Mutual has successfully placed almost $600m of its reinsurance coverage with the capital markets. The insurers decision to return to the cat bond market so quickly after its first issuance this year appears to have been vindicated with attractive pricing and an upsized deal.

With other insurers looking to emulate this in the coming months, with Allstate being one recently rumoured to be seeking to tap the capital markets, the 2013 cat bond market volume is starting to look more healthy currently sitting at $1.85 billion of cat bond issuance according to our Deal Directory.

We’ll update you should we hear anymore when this deal closes. You can read more about this latest Nationwide Mutual cat bond, Caelus Re 2013 Ltd. (Series 2013-2), and about the recent Caelus Re 2013 Ltd. (Series 2013-1) as well as the insurers two earlier cat bonds, Caelus Re Ltd. and Caelus Re II Ltd., in our catastrophe bond and ILS Deal Directory.

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