Nationwide opts for longer extension for at-risk Caelus Re VI cat bond notes

US primary insurance giant Nationwide Mutual Insurance Company has now opted for a longer extension of two tranches of its Caelus Re catastrophe bonds that have been considered at-risk of facing a complete loss since 2021, but were only recently extended as their scheduled maturity date neared, Artemis understands.

As we reported back in June, the two Caelus Re catastrophe bond tranches had their maturity date extended by one month, as the carrier looked to finalise its reinsurance recoveries from prior years.

The tranches of notes in question are the $75 million each in size Series 2020-2 Class A-2 and Class B-2 cat bonds issued under the Caelus Re VI Ltd. (Series 2020-1 & 2020-2) issuance.

Both annual aggregate in their nature, providing Nationwide three years of reinsurance protection, as we explained, the Class A-2 notes attach at around $1.575 billion of losses to Nationwide, a level that we understand the market assumes was reached.

The Class B-2 tranche of notes, which were the most remote from this Series, attach at $1.775 billion of losses, and we’re told are also considered primed to face a loss, with some marking this tranche down significantly as well.

At their scheduled maturity, Nationwide opted to extend each of these tranches by just one-month to July 7th 2023, in the reinsurance recovery could be finalised sooner than later.

But, now we’re told the full $75 million of principal from each of these tranches of Caelus Re cat bond notes have had their maturity dates extended out to June 7th 2027, a much longer extension to allow plenty of time for the expected reinsurance recoveries to be finalised.

Both of these tranches remain marked down for a total loss on some of the cat bond broker pricing sheets we’ve seen.

Nationwide’s Caelus Re aggregate catastrophe bonds originally came under severe pressure at the end of Q1 or start of Q2 2021, after the carriers’ aggregate risk period losses rose significantly on the back of winter storm Uri and the Texas freeze in February of that year.

Reinsurance recoveries have already been made from the Caelus Re VI 2020-2 Class C-2 notes, a $40 million layer that had an aggregate attachment point set at $1.28 billion.

Recall, there are also still Caelus 2017, 2018 and other 2020-1 cat bond tranches outstanding, because the ultimate losses and any reinsurance recoveries have not been finalised yet. There is a chance that further extensions may be warranted in due course.

Nationwide provided a statement to Artemis, saying, “While we do not make public comments about the performance of specific catastrophe bonds, Nationwide employs a very sophisticated risk management program to protect our members and to be there when they need us most. This program is working as intended.

“We generate significant capital from our core business operations and utilize reinsurance and catastrophe bonds to ensure we are well-prepared for these types of events. Nationwide’s history of financial strength and disciplined risk management allows it to issue catastrophe bonds to diversify our risk profile and to bolster its ability to pay claims through an efficient use of capital.”

Details of many catastrophe bonds facing losses, deemed at risk, or already paid out, can be found in our Deal Directory.