U.S. insurer Nationwide Mutual’s first visit to the catastrophe bond market in almost three years is looking promising for the firm, as it looks set to upsize the Caelus Re IV Ltd. (Series 2016-1) U.S. multi-peril cat bond to $300m at the low-end of initial price guidance.
When Nationwide launched its fifth visit to the catastrophe bond market over a week ago it was seeking $225m of collateralized capital markets backed reinsurance protection from the Caelus Re IV 2016-1 cat bond issue.
Now, thanks to investor demand the cat bond looks set to upsize sources told us, with the insurer now targeting securing $300m of cover which would more than replace the reinsurance its soon to mature Caelus Re 2013 Ltd. (Series 2013-1) cat bond provided.
As ever it’s good to see a sponsor return and even better to see them find market conditions and investors response to their transaction so positive that they elect to upsize the capital market participation in their reinsurance program as a result.
The Caelus Re IV 2016-1 cat bond 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.
As we wrote in our article at the time of the cat bond’s launch, the Caelus Re IV 2016-1 cat bond also extends the perils and classes of subject business covered for Nationwide. So to see investor support strong enough to upsize the deal while reducing the pricing is encouraging, as investment managers become increasingly comfortable with more complex transactions.
The single tranche of Class A notes being issued by Caelus Re IV were originally sized at $225m and marketed with price guidance of 5.5% to 6.25%.
We understand that the price guidance has now moved right to the bottom of that guidance range, to 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.
Both multiples are higher than the average for a cat bond with a return around 5.5%, reflecting the more complex nature of the expanded and broader coverage this transaction provides, as we described in our previous article. So investors appear to be happy with the level of compensation they will receive.
The Caelus Re IV 2016-1 cat bond is due to be priced today, at which point the final size will be known, but we understand that the $300m is expected to be achieved at the coupon of 5.5%. The deal is slated for completion at the end of February.