Cape Lookout Re Ltd. (Series 2023-1)

The North Carolina Insurance Underwriting Association (NCIUA) has returned to the catastrophe bond market, seeking its fifth cat bond under the Cape Lookout Re Ltd. program of deals.

The property insurer of last resort for North Carolina, the NCIUA is seeking $200 million or more in named storm reinsurance protection with its latest cat bond deal.

That’s a departure from its previous Cape Lookout Re cat bonds, which had all provided the NCIUA with multi-year North Carolina named storm & severe thunderstorm reinsurance protection.

Cat bond investors are less keen to take on attritional loss exposure to severe thunderstorms these days, meaning it’s likely the NCIUA can get better execution by keeping this cat bond just focused on named storms (so hurricanes and tropical storms).

Cape Lookout Re Ltd., the Bermuda special purpose insurer used by NCIUA for its catastrophe bonds, is targeting issuance of a single, preliminarily sized at $200 million, tranche of Series 2023-1 Class A notes, we understand.

These notes will be sold to cat bond investors, with the proceeds to be used to collateralize a retrocessional reinsurance agreement between Cape Lookout Re Ltd. and fronting reinsurer Hannover Re, with the reinsurance firm then entering into a reinsurance agreement with the North Carolina Insurance Underwriting Association (NCIUA) to pass on the coverage.

The $200 million or more in notes will provide the NCIUA with a capital markets backed source of indemnity and annual aggregate reinsurance protection against named storm losses, over a three year term, with qualifying losses needing to drive a $25 million or greater impact to the insurer of last resort to qualify.

The Series 2023-1 Class A notes will sit at an attachment of $2.88 billion of losses, covering a $500 million layer to $3.38 billion, giving them an initial attachment probability of 1.55%, an initial expected loss of 1.37% and coming with price guidance in a range from 7% to 7.75%, we’re told.

Once issued, this new Cape Lookout Re 2023-1 cat bond will sit higher in its reinsurance tower than other in-force cat bond coverage the NCIUA has.

Update 1:

The NCIUA’s target has lifted to $350 million of reinsurance for this Cape Lookout Re 2023-1 catastrophe bond issuance.

At the same time the price guidance has been lowered, to a revised range of 6.5% to 7%.

Update 2:

The NCIUA secured its new Cape Lookout Re 2023-1 catastrophe bond issuance at the 75% upsized target to provide $350 million of reinsurance protection.

The notes were priced with a spread of 6.5%, so the low-end of already reduced range and a roughly 12% drop from the initial mid-point of guidance.