Cape Lookout Re Ltd. (Series 2025-1)

The North Carolina Insurance Underwriting Association (NCIUA) has returned to the capital markets seeking named storm reinsurance protection from what will become its seventh catastrophe bond sponsorship under the Cape Lookout Re Ltd. program of deals.

The property insurer of last resort for North Carolina, the NCIUA, is once again aiming to secure annual aggregate named storm and hurricane reinsurance with its latest cat bond deal, with an initial target for $350 million or more in protection from this Cape Lookout Re 2025-1 deal, sources have told Artemis.

In the past, the NCIUA had also benefitted from severe thunderstorm protection through its cat bonds, but since 2023 this has been reduced to just the single peak peril of hurricane risk.

Cape Lookout Re Ltd., the NCIUA’s Bermuda-based special purpose insurer (SPI), is targeting issuance of a single, preliminarily sized at $350 million, tranche of Series 2025-1 Class A notes, we understand.

The cat bond notes are being offered for sale to investors and the proceeds will be used to collateralize a retrocessional reinsurance agreement between Cape Lookout Re Ltd. and fronting reinsurer Hannover Re, who is supporting the NCIUA’s latest issuance again.

That reinsurance company, 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 protection to it.

The $350 million or more in notes will provide the NCIUA with a source of indemnity and annual aggregate reinsurance protection from the capital markets, covering named storm losses.

This will protect the insurer across a three year term and, as in other recent Cape Lookout Re cat bonds, qualifying losses must exceed a $25 million or greater impact to the insurer of last resort in order to count towards the aggregated total.

The Cape Lookout Re Series 2025-1 Class A cat bond notes will sit at an attachment of $2.8 billion of losses, participating in a layer of the reinsurance tower to $3.4 billion, giving them an initial attachment probability of 2.6%, an initial expected loss of 2.24% and coming with price guidance in a range from 6.75% to 7.25, we understand.

Update 1:

We’re told that the NCIUA is now seeking to almost double the size of this new Cape Lookout Re Series 2025-1 catastrophe bond, with the target raised to $600 million.

At the same time, we’re told the price guidance for the Class A notes has now narrowed to 6.9% to 7.25%.

Update 2:

The NCIUA secured its new Cape Lookout Re Series 2025-1 catastrophe bond at the raised size of $600 million, making this its largest cat bond yet.

The Class A notes priced to pay investors a spread of 6.9%, so just below the mid-point of initial guidance.