Nationwide gets another $10.3m Caelus Re V cat bond loss payment

U.S. primary insurer Nationwide Mutual Insurance Company has made a second reinsurance recovery from its Caelus Re catastrophe bond series, adding a further $10.3 million to its claims from the highest risk Caelus Re V Ltd. (Series 2017-1) Class D tranche of notes.

Back in July we revealed that Nationwide had made a claim for a $10.73 million reinsurance recovery, or loss payment, from its Caelus Re V Series 2017-1 Class D tranche of catastrophe bond notes.

That first claim from the tranche left just slightly under $64.27 million of the notes net principal still outstanding.

Now, Nationwide has claimed a further $10.3 million of principal under another reinsurance recovery loss payment from the tranche of Caelus Re V 2017-1 Class D cat bond notes.

So with roughly $21.03 million now recovered under its reinsurance protection from the capital markets, the remaining principal outstanding for this Caelus Re V Series 2017-1 Class D tranche of catastrophe bond notes has now fallen to just under $53.98 million.

Nationwide has a number of tranches of the $375 million Caelus Re V Ltd. Series 2017-1 catastrophe bond issuance that are anticipated to suffer some level of loss, having been priced down in the secondary market for a while now.

It has been the aggregate impacts of catastrophe loss events occurring in 2017, including hurricanes Harvey & Irma, as well as severe thunderstorms, California wildfires and winter storms, which increased Nationwide’s estimated aggregate ultimate net losses over the last year or so.

With the result being a strong chance of full default and significant reinsurance recoveries for Nationwide to some of the tranches.

The riskiest tranche of the Caelus Re V 2017 cat bond issuance is this previously $75 million of Class D notes, which at issue had an expected loss of 4.86%.

Nationwide’s reported estimate of aggregate UNL for the risk periods in question now stands far beyond where the exhaustion point for this tranche of notes is, suggesting these loss payments will continue as further reinsurance recoveries from this tranche are made.

At some point other tranches are also expected to face losses, as the aggregate UNL is finalised.

The cat bond market is expecting a total loss of principal for the $75 million Class C notes as well as this Class D tranche, while in addition, our sources suggest the Class B notes are also at risk, with the $150 million tranche of notes currently looking likely to lose as much as one-third of their outstanding principal.

In total it’s expected Nationwide could claim around $200 million from these cat bond tranches, based on its current loss estimates.

Nationwide’s 2018 Caelus cat bond is also exposed and could face some losses, as aggregate UNL rises for the 2018 risk period as well. More on that in our previous article.

You can read all about the catastrophe bonds that have defaulted, faced a loss of principal, or that are considered at risk of loss in our directory detailing catastrophe bond defaults and potential payouts.