Cape Lookout Re Ltd. (Series 2021-1)

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Cape Lookout Re Ltd. (Series 2021-1) – At a glance:

  • Issuer: Cape Lookout Re Ltd.
  • 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: $250m
  • Trigger type: Indemnity
  • Ratings: NR
  • Date of issue: Mar 2021

Cape Lookout Re Ltd. (Series 2021-1) – Full details:

In 2019, the NCIUA sponsored two catastrophe bonds, a $450 million Cape Lookout Re Ltd. (Series 2019-1) cat bond that sat higher up in its reinsurance tower and then a $100 million Cape Lookout Re Ltd. (Series 2019-2) cat bond that sat lower down and so was riskier.

For its first visit to the cat bond market for 2021, the NCIUA’s special purpose insurer (SPI) Cape Lookout Re Ltd. will seek to issue a $100 million or larger tranche of notes, which will be sold to investors to secure multi-year and multi-peril collateralized reinsurance for the insurance underwriting pool.

The NCIUA is once again working with the support of global reinsurance firm Hannover Re, who will front the capital markets on its behalf as ceding reinsurer for the transaction.

Cape Lookout Re Ltd. will issue a $100 million or larger tranche of Series 2021-1 notes, that will be sold to investors and the proceeds used to collateralize a retrocessional reinsurance agreement between the issuer and Hannover Re, who will in turn pass on the reinsurance to the NCIUA.

The coverage is for losses from named storms and severe thunderstorms to the NCIUA’s portfolio in the state of North Carolina, across a three-year term and on an annual aggregate and indemnity trigger basis, we’re told.

This new Cape Lookout Re 2021-1 catastrophe bond is particularly remote risk, as it will attach at $2.35 billion of losses and exhaust at $2.85 billion of losses, so covering a percentage of a $500 million layer of the NCIUA’s reinsurance program, giving ample room to upsize if market conditions are conducive.

The $100 million of Series 2021-1 Class A notes will have an initial expected loss of 1.04% and are being marketed to cat bond investors with coupon guidance in a range from 3.5% to 4%, we understand.

For comparison, the Cape Lookout Re 2019-1 cat bond had an initial expected loss of 1.61% and priced at 4.25%, while the 2019-2 issuance had an initial expected loss of 2.52% and paid investors a 6.75% coupon at launch.

Update 1:

The target size for this issuance has been more than doubled to $250 million, while at the same time the price guidance was reduced to 3.25% to 3.5%.

Update 2:

The pricing for these cat bond notes was fixed at 3.25%, so the lowest-end of already reduced guidance and representing an approximate price drop of 13% from the original guidance mid-point.

That means the multiple, of coupon to expected loss, for the new Cape Lookout Re 2021-1 catastrophe bond is 3.125 times the EL

For comparison, the Cape Lookout Re 2019-1 cat bond had an initial expected loss of 1.61% and priced at 4.25% (a 2.64 multiple of EL), while the 2019-2 issuance had an initial expected loss of 2.52% and paid investors a 6.75% coupon at launch (a 2.68 multiple of EL).

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