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Nationwide’s $450m Caelus 2018 cat bond priced mostly below guidance


We understand that the pricing has now been set for U.S. primary insurance firm Nationwide Mutual’s latest catastrophe bond issuance, the recently upsized to $450 million Caelus Re V Ltd. (Series 2018-1), with three of the four tranches priced below initial guidance and the fourth at the mid-point.

Considering that Nationwide Mutual is set to benefit from a payout of its older catastrophe bond coverage, after the impact of 2017 hurricanes and wildfires, the result of securing a larger layer of fully collateralized reinsurance at keen pricing is clearly a sign of ongoing strong investor appetite for new cat bond issues.

However, the pricing is above where the insurers 2017 cat bond came in, demonstrating that ILS investors do want to be compensated for having supported a counterparties losses in the prior year.

Nationwide’s Caelus Re V 2018-1 cat bond will now secure the insurer a $450 million source of multi-year collateralized reinsurance protection, to cover it and subsidiaries including auto insurer Titan Insurance Company against losses from multiple U.S. perils, including U.S. named storm, earthquake (with fire following), severe thunderstorm, winter storm, wildfire, meteorite impact, volcanic eruption, and other perils.

The reinsurance agreements with Caelus Re V will provide Nationwide Mutual with their $450 million of coverage on an indemnity and annual aggregate basis across a three-year term, thanks to the sale of four different tranches of notes to investors, each with different risk and return profiles.

Investor appetite increased the target size of this cat bond issuance by 50% for Nationwide Mutual, as three of the four tranches expanded so the offering grew from its initial $300 million to end up securing the company $450 million of reinsurance protection.

That same investor appetite has helped the pricing to be fixed at low levels across three of the tranches and the middle of guidance for the fourth.

Interestingly, it is the least risky tranche that saw its pricing settle at the mid-point, suggesting investors were not prepared to go any lower for a similar layer of risk to one that they are currently facing losses on.

Although, despite the price declines on the other three tranches, overall it looks like pricing is up very slightly for Nationwide Mutual, as investors demanded a certain level of return for supporting its reinsurance needs again this year.

The now $125 million Caelus Re V Series 2018-1 Class A tranche of notes, with an initial expected loss of 0.63%, were at first offered with coupon price guidance of 3.25% to 3.75%, which then narrowed to 3.5% to 3.75%, and has been fixed at the mid-point of 3.5%, we’re told

The $75 million Class B tranche of notes, with their initial expected loss of 1.48%, launched with initial coupon price guidance of 4.75% to 5.25%, which was subsequently lowered to 4.5% to 4.75%, and pricing has now been set at the lowest end of reduced guidance of 4.5%.

The upsized $175 million Class C tranche of notes, with an initial expected loss of 2.94%, were offered with price guidance of 7.75% to 8.5%, which then fell to 7.5% to 7.75%, and has now been fixed at the lowest end of 7.5%.

The final $75 million Class D tranche, with an initial expected loss of 4.8%, was at first offered with coupon guidance of 10.75% to 11.5%, but that was slashed to 10.5% to 10.75% and now pricing has been fixed again at the low-end of already reduced guidance at 10.5%, we understand.

These price levels are higher than those seen in Nationwide’s loss threatened Caelus Re V 2017 cat bond, reflecting investors appetite for improved returns if they are to support the insurers reinsurance needs again in 2018.

That now appears to have been achieved and Nationwide Mutual will have an enlarged portion of its reinsurance program ceded to the capital markets through its Caelus catastrophe bond for 2018.

You can read all about the Caelus Re V Ltd. (Series 2018-1) catastrophe bond and each of Nationwide Mutual’s previous cat bonds in the Artemis Deal Directory.

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