Nationwide returns to cat bond market with $150m Aquila Re I issuance

U.S. primary insurer Nationwide Mutual Insurance Company has returned to the catastrophe bond market for the first time since 2020, seeking $150 million or more in multi-peril US catastrophe reinsurance from the capital markets, with an Aquila Re I Ltd. (Series 2023-1) transaction.

Nationwide Mutual Insurance Company is a long-standing sponsor of catastrophe bonds, having first benefited from a 144a cat bond back in 2008.

In fact, we have eight Nationwide sponsored catastrophe bond issues, all under a range of Caelus Re names, listed in our extensive Deal Directory.

For 2023, Nationwide has changed the naming convention for its new catastrophe bond, to Aquila Re I Ltd., we’ve learned from sources.

This is possibly down to the fact Nationwide has made some recoveries under the Caelus Re catastrophe bond program in recent years, with a number of those transactions affected by certain catastrophe loss events that have occurred since 2017.

With this backdrop, of a major US insurer that has benefited from the reinsurance provided by its cat bonds, it’s particularly encouraging to learn that Nationwide Mutual is back in 2023.

Aquila Re I Ltd. has been established in Bermuda and will be licensed as a special purpose insurer for issuing catastrophe bonds, to benefit Nationwide Mutual and some of its subsidiaries.

With this first Series 2023-1 issuance, Aquila Re I Ltd. will look to issue three tranches of notes, with a target to raise at least $150 million, and these notes to be sold to investors and the proceeds collateralize reinsurance agreements with Nationwide.

The Aquila Re I 2023-1 catastrophe bond is designed to provide Nationwide Mutual and subsidiaries including auto insurer Titan Insurance Company, with reinsurance protection against losses from multiple U.S. perils, including U.S. named storm, earthquake, severe thunderstorm, winter storm, wildfire, meteorite impact, and volcanic eruption, we’re told.

The coverage is expected to be provided across three layers of notes issued, with each structured on an indemnity trigger and per-occurrence basis, to provide Nationwide reinsurance across a three-year term to the end of May 2026.

Each of the tranches of notes are currently $50 million in size, we understand, but with ample room to grow should demand from cat bond investors allow and pricing be conducive, it seems.

A Class A tranche of notes would attach at $3.15 billion of losses to Nationwide, covering a percentage of losses to $3.4 billion.

That gives the Class A notes an initial attachment probability of 0.41%, an initial base expected loss of 0.37% and we’re told the price guidance for this tranche is between 5.75% and 6.5%.

A Class B tranche of notes would attach at $1.95 billion of losses to Nationwide, covering a percentage of losses to $2.35 billion.

The riskier Class B notes come with an initial attachment probability of 1.27%, an initial base expected loss of 1.03% and we’re told the price guidance for this tranche is between 8% to 8.75%.

Finally, the riskiest layer, a Class C tranche of notes, have an attachment point lower down still at $1.55 billion of losses to Nationwide, covering a percentage of losses to $1.95 billion, so sitting directly below Class B.

As a result, the Class C notes will have an initial attachment probability of 1.93%, an initial base expected loss of 1.57% and we’re told the price guidance for this tranche is between 9.75% and 10.5%.

Each tranche has room to upsize and this first Aquila Re I cat bond from Nationwide provides a range of risk and return opportunities for cat bond investors, so it will be interesting to see how demand splits across the different layers of risk on offer.

You can read all about this new Aquila Re I Ltd. (Series 2023-1) catastrophe bond transaction and every other cat bond ever issued in our Artemis Deal Directory.