Nationwide Mutual returns for $340m Caelus Re VI 2020 catastrophe bond

Nationwide Mutual Insurance Company has returned to the catastrophe bond market looking for a $340m or greater source of capital market backed U.S. multi-peril reinsurance protection, issuance, on both a per-occurrence and aggregate basis, with a twin Caelus Re VI Ltd. (Series 2020-1 & 2020-2).

This is the insurers first cat bond issuance since May 2018 and comes on the heel of loss-related pressure on a number of its older transactions, some of which are still exposed to potentially ongoing loss development from prior year catastrophe events.

We understand from sources that this new transaction, the eighth to take the Caelus Re moniker, is the first from Nationwide Mutual to seek both per-occurrence and aggregate catastrophe reinsurance for the insurer and its subsidiaries in a single visit to the capital markets.

A new special purpose Class C insurer named Caelus Re VI Limited, has been registered in the Cayman Islands for this transaction, we’re told.

Caelus Re VI Ltd. is going to issue two series of notes at the same time for this deal, with five classes of notes, all of which will be sold to investors and the proceeds used to collateralise underlying reinsurance agreements between the issuing vehicle and Nationwide Mutual.

Two Series 2020-1 tranches of notes amounting to $200 million aim to provide per-occurrence indemnity reinsurance protection to Nationwide Mutual, while three Series 2020-2 tranches of notes amounting to $140 million are targeting annual aggregate indemnity reinsurance protection for the sponsor.

All five tranches of notes will cover Nationwide Mutual and certain subsidiaries against certain losses caused by the U.S. multiple perils of named storm, earthquake, severe thunderstorm, winter storm, wildfire, meteorite impact, volcanic eruption, as well as other perils.

On the 2020-1 per-occurrence side, Nationwide Mutual is looking to secure one tranche of coverage for a three year term and the other for four years, while all three of the annual aggregate 2020-2 tranches of notes will run for a three-year term.

It’s a more complex layering of notes than is typical of the previous Caelus Re cat bonds, but the reinsurance protection it affords to Nationwide will be much more substantial as a result.

A $100 million Series 2020-1 Class A-1 tranche of per-occurrence notes will provide three years of coverage, attaching at $1.95 billion of losses to Nationwide and covering up to $2.35 billion. This tranche of notes will have an initial expected loss of 1.3% at the base case and are offered to cat bond investors with price guidance in a range from 5.25% to 6%, we’re told.

A $100 million Series 2020-1 Class B-1 tranche of per-occurrence notes will provide four years of protection, covering the same layer as the A-1’s. This tranche of notes will have an initial expected loss of 1.3% at the base case and are also offered to cat bond investors with the same price guidance, so 5.25% to 6%.

A $50 million tranche of Series 2020-2 Class A-2 notes, the first aggregate tranche, will provide three years of protection attaching at $1.775 billion and covering losses to $1.88 billion, with events needing to surpass a $50 million franchise deductible. These notes will have an initial expected loss of 0.97% at the base case and have price guidance of 5% to 5.75%.

A $50 million tranche of Series 2020-2 Class B-2 notes, also annual aggregate and providing three years of protection, would attach at $1.575 billion and covering losses to $1.775 billion, again after a $50 million franchise deductible per event. These notes will have an initial expected loss of 1.7% at the base case and have price guidance of 7% to 8%.

The final $40 million tranche of Series 2020-2 Class C-2 notes, also annual aggregate and providing three years of protection, would attach at $1.28 billion and covering losses to $1.575 billion, again after a $50 million franchise deductible per event. These notes will have an initial expected loss of 4.1% at the base case and have price guidance of 12% to 13%.

So the two Series 2020-1 per-occurrence tranches of notes will together cover a $400 million layer of Nationwide Mutual’s reinsurance tower, while the three Series 2020-2 tranches will stack one on top of the other, covering a percentage of a $600 million layer of the sponsors aggregate reinsurance program.

The size of the layers mean there is room for each tranche of notes to upsize, should pricing and ILS investor appetites prove accommodating.

If successful with this issuance it will be the most all-encompassing protection that Nationwide Mutual has ever had with a catastrophe bond issuance and it’s encouraging to see the insurer putting this reliance on the capital markets for its protection.

We’ll update you as the mooted $340 million Caelus Re VI Ltd. (Series 2020-1 & 2020-2) catastrophe bond arrangement comes to market and you can read about this alongside every other cat bond in the Artemis Deal Directory.