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Nationwide Mutual seeks $300m Caelus Re V 2017 cat bond


U.S. primary insurer Nationwide Mutual Insurance Company is seeking to sponsor a $300 million Caelus Re V Ltd. (Series 2017-1) catastrophe bond, which will provide it with a new multi-year source of capital market backed catastrophe reinsurance protection.

This will be Nationwide Mutual’s sixth catastrophe bond issue since it first entered the insurance-linked securities (ILS) market in 2008.

For this issuance, a new Cayman Islands special purpose insurer (SPI) Caelus Re V Ltd. has been established to issue to issue four tranches of notes which will be sold to ILS and capital market investors in order to fully collateralize reinsurance agreements between the SPI and sponsor Nationwide Mutual.

We understand from sources that the reinsurance coverage from this Caelus Re V 2017-1 cat bond will benefit Nationwide Mutual and its subsidiaries including Titan Insurance Company which is a dedicated auto insurers for the firm.

The four tranches of Series 2017-1 notes issued by Caelus Re V will provide Nationwide and its subsidiaries with a $300 million three-year source of collateralized reinsurance protection against losses from multiple U.S. perils, including U.S. named storm, earthquake, severe thunderstorm, winter storm, wildfire, meteorite impact, volcanic eruption, and other perils.

This is the first cat bond from Nationwide that has expanded its coverage to include other perils, which are identified as any other catastrophe event causing a loss to the firm that a reporting agency identifies as qualifying, we’re told.

Coverage from the four tranches of Caelus Re V cat bond notes will be on an indemnity trigger and annual aggregate basis, sources said, and the subject business includes personal, commercial and excess & surplus or specialty risks.

A currently $60 million tranche of Class A notes will cover losses from an attachment point of $2.5bn of losses to an exhaustion at $2.75bn, giving them an initial attachment probability of 1.01% and expected loss of 0.78%. This tranche of notes are offered to investors with coupon price guidance of 3.25% to 3.75%.

A $120 million Class B tranche would attach at $2bn of losses and exhaust at $2.5bn, with an attachment probability of 2.33% and expected loss of 1.58%. This tranche has price guidance of 4.5% to 5%.

A $60 million Class C tranche covers losses from $1.75bn to $2bn, with an initial attachment probability of 3.58% and an expected loss of 2.98%. This tranche is offered to investors with price guidance of 6.5% to 7.25%.

Finally, the riskiest tranche is a $60 million Class D, which would attach at $1.5bn of losses and exhaust at $1.75bn. This tranche has an attachment probability of 6.32% and an expected loss of 4.86%. These notes are marketed with coupon guidance of 9.25% to 10%, we understand.

So given the size of the layers covered this cat bond has plenty of room to upsize, should Nationwide Mutual choose to. With cat bond market pricing extremely attractive right now there is every chance the insurer could elect to increase its capital markets reinsurance coverage with this Caelus Re V issuance.

We understand that this Caelus Re V Ltd. (Series 2017-1) catastrophe bond is targeted for settlement in early May. We’ll keep you updated as it comes to market and you can read all about Nationwide Mutual’s other cat bonds in the Artemis Deal Directory.

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