Nationwide’s Caelus Re VI 2020 cat bond could reach $500m in size

The latest catastrophe bond to be sponsored by Nationwide Mutual Insurance Company could turn out to be the U.S. primary insurers largest ever, as the target for the deal has grown with $500 million now seen as the upper-end goal for the Caelus Re VI Ltd. (Series 2020-1 & 2020-2) issuance.

Nationwide returned to the catastrophe bond market earlier this month in search of a $340m or greater source of capital market’s backed U.S. multi-peril reinsurance protection, on both a per-occurrence and aggregate basis.

Nationwide is a regular cat bond sponsor and has also benefited from reinsurance recoveries under the program, so it is encouraging to see the insurer back in the market and looking to expand on its activities in the insurance-linked securities (ILS) space.

We’re now told that the issuance looks set to upsize from the initial $340 million goal, with the target for the Caelus Re VI 2020 catastrophe bond issuance now lifted to up to $500 million in size.

That would make this new cat bond the largest Nationwide Mutual Insurance has ever sponsored, a record currently held by the insurers 2018 deal that settled at $450 million.

At the same time, all of the tranches have seen their pricing guidance shifted towards the mid to upper-ends of the initial ranges.

Nationwide’s eighth Caelus Re catastrophe bond looks set to be a successful one for the insurer, no matter what size it reaches or where it prices, as it will provide the most holistic protection the insurer has ever benefited from with its cat bonds.

This cat bond deal 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.

Two series of notes are being issues, split into five tranches and at the moment each of them looks to have a chance of upsizing somewhat, depending on cat bond investor appetites.

The cat bond is a more complex structure as a result, with two tranches of Series 2020-1 notes being issued to provide per-occurrence indemnity reinsurance protection to Nationwide Mutual, while three Series 2020-2 tranches of notes will provide annual aggregate indemnity reinsurance protection to the sponsor.

On the 2020-1 per-occurrence side of the issuance, 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 structured 2020-2 tranches of notes will run across a three-year term.

All five of the tranches of notes issued by Caelus Re VI will provide Nationwide Mutual and certain subsidiaries with reinsurance protection 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.

The first Series 2020-1 Class A-1 tranche of per-occurrence notes that will provide three years of coverage are now targeting between $100 million and $150 million in terms of issuance size. With an initial expected loss of 1.3% at the base case, these notes were offered to cat bond investors with price guidance in a range from 5.25% to 6% to begin, but we’re now told this has tightened to 5.5% to 5.75%

The Series 2020-1 Class B-1 tranche of per-occurrence notes, providing four years of protection,  are also now targeting between $100 million and $150 million of cover for Nationwide. This tranche of notes have an initial expected loss of 1.3% at the base case and were offered to cat bond investors with the same price guidance, so 5.25% to 6%, which again has now tightened to 5.5% to 5.75%.

The Series 2020-2 Class A-2 notes, set to provide three years of aggregate reinsurance protection, are now targeting between $50 million and $75 million in terms of size. These notes have an initial expected loss of 0.97% at the base case and were at first offered with price guidance of 5% to 5.75%, but this has now shifted to 5.5% to 5.75%, we’re told.

The Series 2020-2 Class B-2 notes, also annual aggregate and providing three years of protection, are also now aiming for an issuance size of between $50 million and $75 million. These notes have an initial expected loss of 1.7% at the base case and were marketed with price guidance of 7% to 8%, which we now understand towards the upper-end at guidance of 7.5% to 8%.

The final Series 2020-2 Class C-2 tranche of notes, also annual aggregate and covering three years, are now looking to secure. between $40 million and $50 million of cover for the sponsor. These notes have an initial expected loss of 4.1% at the base case and were at first marketed with price guidance of 12% to 13%, but this has now shifted upwards again to 12.75% to 13%, sources said.

While there’s been a definite upwards shift in terms of pricing for this latest catastrophe bond from Nationwide, the fact the targeted amount has increased as well suggests the insurer is comfortable with the price indications shown by cat bond investors.

Given the support the cat bond market has shown Nationwide’s reinsurance program over the years, particularly in the last year or so when some losses have been ceded through Caelus Re cat bonds to investors, this is encouraging as it shows a sponsor keen to continue to tap the capital markets and an investor-base ready to continue supporting that.

We’ll update you as any further information becomes available.

You can read all about this Caelus Re VI Ltd. (Series 2020-1 & 2020-2) catastrophe bond transaction and every other cat bond since 1996 in the Artemis Deal Directory.