Cape Lookout Re Ltd. (Series 2026-1)

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

The property insurer of last resort for North Carolina, the NCIUA, is again looking to source annual aggregate named storm and hurricane reinsurance with its latest cat bond deal, with an initial target for $400 million or more in fully-collateralized protection from this Cape Lookout Re 2026-1 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 aiming to issue two tranches of Series 2026-1 notes under this new cat bond, we understand.

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

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

The $400 million or more in notes will provide the NCIUA with indemnity and annual aggregate reinsurance protection from the capital markets, covering losses from named storms.

The notes will have a three year term to protect the NCIUA across three annual aggregate risk periods up to a date in March 2029, we are told and, as with other recent Cape Lookout Re cat bonds, qualifying loss events must exceed a $25 million or greater ultimate net loss impact to the insurer of last resort in order to count towards the aggregated totals for each tranche of notes.

A currently $100 million tranche of Cape Lookout Re Series 2026-1 Class A cat bond notes will sit at an attachment of $2.95 billion of losses, participating in a layer of the reinsurance tower to $3.25 billion, giving them an initial attachment probability of 2.19%, an initial expected loss of 2.04% and coming with price guidance in a range from 5.5% to 6%, we are told.

A currently $300 million tranche of Cape Lookout Re Series 2026-1 Class B cat bond notes are riskier and will sit at an attachment of $2.65 billion of losses, participating in a layer of the reinsurance tower to $2.95 billion, giving them an initial attachment probability of 2.57%, an initial expected loss of 2.37% and coming with price guidance in a range from 6.25% to 7%, we understand.

We understand that this new Cape Lookout Re 2026-1 catastrophe bond again comes with a resilience trigger, with the NCIUA set to pay a resilience spread that can be allocated to a fund for installing fortified roofs, much like the 2025-1 issuance.