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Cape Lookout Re Ltd. (Series 2019-1)

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Cape Lookout Re Ltd. (Series 2019-1) – At a glance:

  • Issuer: Cape Lookout Re Ltd. (Series 2019-1)
  • Cedent / sponsor: North Carolina Insurance Underwriting Association
  • Placement / structuring agent/s: GC Securities is sole structuring agent and sole bookrunner
  • Risk modelling / calculation agents etc: RMS
  • Risks / perils covered: North Carolina named storm & severe thunderstorm
  • Size: $450m
  • Trigger type: Indemnity
  • Ratings: NR
  • Date of issue: Feb 2019

Cape Lookout Re Ltd. (Series 2019-1) – Full details:

This new Cape Lookout Re Ltd 2019-1 catastrophe bond is the first to cat bond to solely benefit the North Carolina Insurance Underwriting Association, which is the coastal property insurance underwriting pool for the state.

Previously the North Carolina Insurance Underwriting Association (NCIUA) has been a sponsor and beneficiary of four catastrophe bonds, but in each case that was alongside the North Carolina Joint Underwriting Association, the states FAIR plan provider. This is the first time the NCIUA has sought reinsurance from the catastrophe bond market on its own.

Cape Lookout Re Ltd. is a newly formed Bermuda special purpose insurer and our sources say it will seek to issue a single $250 million tranche of Series 2019-1 Class A cat bond notes which will be sold to capital market investors.

The proceeds from the sale of these notes will be used to collateralize the NCIUA’s underlying reinsurance needs.

The reinsurance will be serviced via Hannover Re as ceding reinsurer. The German reinsurer will enter into a reinsurance agreement with the NCIUA and then enter into a retrocession agreement with Cape Lookout Re Ltd. to complete the financing of the coverage.

The NCIUA will benefit from $250 million (or more) of reinsurance coverage across a three-year term, on an indemnity trigger and annual aggregate basis, against losses from named storms and severe thunderstorms to its portfolio in the state of North Carolina, under this Cape Lookout Re cat bond deal.

We’re told the protection from this cat bond will attach at $1.75 billion of losses to the NCIUA and cover losses across a $500 million layer of its reinsurance program, up to $2.25 billion.

This layer is set to be split between the Cape Lookout Re cat bond coverage and aggregate reinsurance, but if the cat bond market pricing is conducive it seems likely this transaction could upsize.

The Series 2019-1 Class A notes that are issued by Cape Lookout Re Ltd. will have an initial attachment probability of 1.95% and an initial expected loss of 1.61%, we’re told.

The notes are being offered to investors with price guidance of 3.75% to 4.25%, it is understood.

Update 1:

The Cape Lookout Re 2019-1 cat bond deal has upsized by 80% to provide the sponsor with $450 million of reinsurance protection at pricing.

At the same time, the pricing settled at the top-end of guidance, at 4.25%.

As the first U.S. hurricane exposed cat bond of 2019 the Cape Lookout Re provides an insight into appetite for risk and also pricing, with the fact it has upsized showing that appetite remains strong, but the pricing indicating that rate increases look likely.

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