Nationwide Mutual brings third catastrophe bond to market

LONDON Wed Feb 20, 2013 11:41am EST

LONDON Feb 20 (Reuters) - U.S. insurer Nationwide Mutual Insurance Company is seeking to raise $200 million protection for hurricanes and earthquakes in the United States by selling a catastrophe bond through Cayman Islands-based vehicle Caelus Re.

Standard & Poor's assigned a BB- rating to the notes to be issued by Caelus Re 2013 Ltd, the credit rating agency said on Wednesday.

Catastrophe bonds allow insurers to pass on extreme risks, such as those related to earthquakes or hurricanes, to financial market investors, and are seen as an alternative to reinsurance.

Catastrophe bond issuers make regular interest payments to the bondholders, and, if no catastrophe-related losses are incurred, return the principal once the notes expire.

The transaction is the second to be issued this year, following a deal from U.S. health insurer Aetna, which sold $150 million of protection for medical benefit claims.

Caelus Re 2013 is the third to be issued by Nationwide, which last sold a transaction in 2010.

The notes will cover any losses from hurricane and earthquakes in the United States, including any damage caused by fires and water damage, S&P said.

Any losses that Nationwide incur from a hurricane or earthquake will need to reach $1.90 billion before a payout is triggered. If the bond is activated, the investors who brought the bonds will need to pay out all or part of the amount they purchased.

S&P said it expects Nationwide pay the first 10 percent of any claims.

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