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Cat bond pipeline shows no sign of slowing down

Cat bond launches are showing no sign of slowing down, with a further three deals with an initial combined size of $675mn being launched in the past week.

Favourable pricing conditions in the cat bond market means the cover is becoming increasingly attractive to sponsors, sources told sister publication Trading Risk.

Cat bond regulars Nationwide Mutual, Florida Citizens and USAA have all launched new cat bonds.

Nationwide Mutual is seeking $300mn for its new Caelus Re cat bond, which will help to replace insurance-linked securities (ILS) cover that is expected to be drawn down by nearly $150mn following last year's catastrophe activity.

Like last year's transaction, the deal will provide it with annual aggregate indemnity cover against natural perils including named storms, thunderstorms, wildfire and earthquakes.

Last year was the first time Nationwide Mutual opted to purchase annual aggregate cat bond cover, having previously raised per-occurrence ILS protection. It was a move which served it well given the 2017 catastrophes.

The 2018 bond is split into four layers, with each tranche showing an increase in yield compared to last year's loss-hit cover. The pricing targets on the higher-risk layers have been set notably above the levels that Nationwide Mutual was paying last year.

Meanwhile, Florida's state-backed carrier Citizens has launched a $200mn Everglades Re cat bond which will provide it with protection against named storms.

The Everglades Re II 2018-1 deal will sit alongside the Everglades Re II 2017-1 cat bond and will form part of an $880mn reinsurance layer which attaches at $1.7bn and exhausts at $2.6bn.

The single-tranche class A notes are being marketed with an initial spread guidance of 475-525 basis points (bps).

Finally, USAA is targeting $175mn from its Residential Re 2018-1 cat bond, which will provide protection against US multi-peril risk.

The cat bond is made up of two tranches, the high-risk class 11 notes, which cover one year, and the less-risky class 13 notes, which cover four years.

The class 11 notes are being marketed with an initial size of $75mn and a zero-coupon structure at 86.75-87.75 percent of par value. This equates to a yield of between 1,396 bps and 1,527 bps.

The less-risky $100mn class 13 notes are being offered with an initial spread guidance of 350-400 bps.

The annual aggregate indemnity bond covers the usual US multi-peril risks including tropical cyclone, earthquake, severe thunderstorm, winter storm, wildfire and other perils.

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