Swiss Re Insurance-Linked Fund Management

Original Risk: A Society for Change Agents

High demand pushes Caelus Re 2013 cat bond pricing down again


The Caelus Re 2013 Ltd. catastrophe bond which has been doing the rounds of the ILS investment market for the last week or so has been so well received that its pricing has dropped for the second time, finishing at a coupon level of just 5.25% above the collateral investment yield. This cat bond has clearly demonstrated the appetite investors have for reinsurance and catastrophe risk as an asset class as the pricing has dropped by approximately 2% all told.

The Caelus Re 2013 cat bond looks to have been a resounding success for sponsor Nationwide Mutual as a new source of fully-collateralized reinsurance. The transaction began marketing as a $200m cat bond with price guidance of 6.75% to 7.75%. Then, as we wrote here last week, the deal upsized by 35% to $270m and the price guidance dropped to between 6% to 6.75%. Now, with pricing having decreased again to the new level of 5.25%, Caelus Re 2013 is a great example of the value sponsors can find in the cat bond market currently.

The cat bond transaction will provide Nationwide Mutual with a fully-collateralized source of reinsurance on an indemnity and per-occurrence basis for two perils, U.S. hurricanes and U.S. earthquakes (including fire-following and sprinkler leakage). The final pricing for the notes is low for those two perils for an insurer with the exposures that Nationwide Mutual has.

It really demonstrates the strong appetite for risk in cat bond form and the reductions in pricing and increase in size are testament to the strong capital inflows into the space resulting in high demand. The transaction was oversubscribed significantly we hear and we’re told by sources that the deal arrangers and bookrunners decided to shorten the marketing period for the transaction as it was felt that the deal could be completed more quickly thanks to investor appetites.

The success of this cat bond deal, which is due to settle next week, should help to encourage other sponsors to bring transactions to market soon. The conditions for cat bond issuance appear extremely favourable for sponsors and with a number of repeat sponsor deals maturing in April some of them may choose to issue replacement transactions sooner rather than later.

We’ll update you when the Caelus Re 2013 cat bond completes next week.

You can read more details about Caelus Re 2013 Ltd. and Nationwide Mutual’s earlier cat bonds, Caelus Re Ltd. and Caelus Re II Ltd., in our catastrophe bond and ILS Deal Directory.

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