123 Lights Re Ltd. (Series 2026-1)

The Los Angeles Department of Water and Power (LADWP), which is the largest municipal utility operating in the United States, has returned to the catastrophe bond market for its fourth sponsorship as it looks to secure more wildfire protection from the capital markets.

The Los Angeles Department of Water and Power (LADWP) has been accessing the capital markets using cat bonds to source wildfire insurance protection since 2020.

The utility serves millions of residents and has been in operation since 1902, supplying water to homeowners and businesses in Los Angeles and the surrounding communities, while also supplying electricity since 1917.

The municipal utility is again looking to secure catastrophe insurance for wildfire risks in the region of California where it operates, as its infrastructure is exposed to wildfires, with this fourth cat bond.

The LADWP’s infrastructure could also ignite wildfires, so it’s assumed there are elements of wildfire liability protection within its motives for securing more risk capital through this cat bond.

The utility will source its capital markets backed insurance through arrangements with a White Rock captive cell and with global reinsurance company Hannover Re, which intermediate the capital markets protection on its behalf.

Just like the 2025 cat bond, the utility will have an insurance agreement with a cell of Aon’s Vermont-based White Rock cell captive vehicle, while Hannover Re will reinsure White Rock and interface with the capital market investors, fronting the wildfire risks for the LA municipal utility via a retrocessional reinsurance agreement with the SPI named 123 Lights Ltd.

123 Lights Re Ltd. is offering a single $100 million tranche of Series 2026-1 notes to investors, with the proceeds from their sale set to be used to collateralize the retro agreement with Hannover Re, with the coverage then cascading through the reinsurance agreement with the White Rock cell and back to the LADWP via an insurance agreement.

LADWP will benefit from insurance coverage on a county-weighted industry loss index basis covering wildfire events in the state of California over a roughly three year term until the end of August 2029, we understand from sources.

The $100 million of Series 2026-1 Class A notes that 123 Lights Re is offering to investors come with an initial modelled attachment probability of 4.67%, an initial modelled expected loss of 3.07% and that they have price guidance for an initial risk interest spread of between 9% and 10%, we are told.