Cape Lookout Re Ltd. (Series 2024-1)

The North Carolina Insurance Underwriting Association (NCIUA) is back seeking more capital markets backed reinsurance protection with what will be its sixth catastrophe bond under the Cape Lookout Re Ltd. program of deals.

Cape Lookout Re Ltd., the NCIUA’s Bermuda special purpose insurer, is aiming to issue a single, preliminarily sized at $250 million, tranche of Series 2024-1 Class A notes, we understand.

The notes are being offered for sale to cat bond investors and the proceeds will be used to collateralize a retrocessional reinsurance agreement between Cape Lookout Re Ltd. and fronting reinsurer Hannover Re.

That reinsurance firm, in fronting the capital markets for the insurer of last resort, will then enter into a reinsurance agreement with the North Carolina Insurance Underwriting Association (NCIUA) to pass on the named storm coverage.

The $250 million or more in notes will provide the NCIUA with a source of indemnity and annual aggregate reinsurance protection against named storm losses from the capital markets, covering the insurer across a three year term, with qualifying losses needing to drive a $25 million or greater impact to the insurer of last resort to count towards the aggregated total.

The Cape Lookout Re Series 2024-1 Class A cat bond notes will sit at an attachment of $2.43 billion of losses, covering a layer of the reinsurance tower to $2.88 billion, giving them an initial attachment probability of 2.93%, an initial expected loss of 2.56% and coming with price guidance in a range from 8% to 9%, we are told.

These new Series 2024-1 notes will sit between two other cat bonds sponsored by the NCIUA, the $330 million Cape Lookout Re Ltd. (Series 2022-1) sitting beneath the 2024-1 notes and the Cape Lookout Re Ltd. (Series 2023-1) sitting directly above it.

Update 1:

The target size of this issuance has increased 80% to $450 million, while the price guidance range has dropped and been narrowed to 8% to 8.25%, so the NCIUA is aiming to price its latest cat bond at or near the bottom of initial guidance.

Update 2:

We are told that the NCIUA has secured the upsized $450 million of reinsurance from this Cape Lookout Re 2024-1 catastrophe bond, while the Class A notes will price at the bottom of initial guidance to pay investors a spread of 8%.