Nationwide’s Caelus Re V cat bond recoveries continue, near $25m

Reinsurance recoveries from one of its catastrophe bonds have continued for U.S. primary insurer Nationwide Mutual Insurance Company, which has now recovered almost $25 million in loss payments from its Caelus Re V Ltd. (Series 2017-1) Class D tranche of notes.

These recoveries began back in July, as the impacts of catastrophe loss events that occurred in 2017, including hurricanes Harvey & Irma, severe thunderstorms, California wildfires and winter storms, all pushed insurer Nationwide’s estimated aggregate ultimate net losses higher and into the reinsurance layer covered by this cat bond tranche.

In July, we revealed Nationwide had made a first recovery of a $10.73 million loss payment, from its Caelus Re V Series 2017-1 Class D tranche of catastrophe bond notes.

That first claim from the originally $75 million cat bond tranche left just slightly under $64.27 million of the notes net principal still outstanding.

It was followed up quickly by a second reinsurance recovery from the cat bond tranche, as Nationwide also received a $10.3 million loss payment from this tranche of Caelus Re V 2017-1 Class D cat bond notes, reducing the outstanding principal further to just under $53.98 million, with roughly $21.03 million recovered under the cat bond backed reinsurance protection.

Now we can reveal that a third loss payment has now been made, as Nationwide continues to draw-down on the reinsurance protection this riskiest tranche of cat bond notes provides it.

The latest loss payment is for just under $3.54 million, which when added to the other’s already made takes Nationwide’s reinsurance recoveries under this Class D tranhce of the Caelus Re V 2017-1 cat bond to almost $25 million.

After this latest loss payment, the remaining principal outstanding for the Caelus Re V Series 2017-1 Class D tranche of catastrophe bond notes has fallen to just over $50.4 million.

We expect that reinsurance recoveries will continue, as this particular tranche of notes is marked down as likely to suffer a total loss of principal on secondary pricing sheets.

Nationwide’s reported estimate of aggregate UNL for the risk period relevant to this 2017-1 Caelus Re V cat bond now stands far above where the exhaustion point for this Class D tranche of notes is and also for the slightly less risky Class C tranche, suggesting that loss payments will continue as additional reinsurance recoveries from this cat bond are likely.

Cat bond investors continue to anticipate a total loss of principal for the $75 million Class D and Class C tranches of notes, while the $150 million Class B notes are also considered at risk and are marked down by over 55% in the secondary market.

In total secondary pricing suggests that Nationwide could end up claiming over $225 million from these three cat bond tranches, based on its current loss estimates and how the market has priced for them.

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.

In fact, the Caelus Re V Ltd. (Series 2018-1) $75 million riskiest Class D tranche are marked down for potential losses of as much as 40% of principal, while the $175 million Class C tranche are marked down by roughly 15% so far.

This suggests investors anticipate some further reinsurance recoveries being made by Nationwide under its 2018 Caelus cat bond as well.

If that ends up being the case and the secondary market has them marked accurately, then it suggests Nationwide’s overall cat bond reinsurance recoveries for 2017 and 2018 losses could reach somewhere around the $280 million mark.

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.