Luca Re Ltd. (Series 2025-1)

This is the first full Rule 144A catastrophe bond to be sponsored by Mercury General Corporation, the California headquartered insurance company.

Mercury is seeking $100 million or more in fully-collateralized reinsurance from the capital markets through this Luca Re Ltd. (Series 2025-1) catastrophe bond sponsorship.

Mercury has established Luca Re Ltd. in Bermuda to become a special purpose insurer (SPI) for the issuance of catastrophe bond notes to benefit the company, sources said.

Luca Re Ltd. is targeting issuance of a single tranche of Series 2025-1 Class A notes, that will be sold to investors and the proceeds used to collateralize a reinsurance agreement between the SPI and Mercury underwriting entities.

The issuance has an initial target to secure $100 million of reinsurance for Mercury, but we understand that could grow given the layer the cat bond notes will occupy is larger.

We’re told the Luca Re 2025-1 notes will provide reinsurance to protect Mercury’s losses under subsidiaries Mercury Casualty Company, Mercury Insurance Company, California Automobile Insurance Company and California General Underwriters Insurance Company, Inc.

The $100 million or more in notes will provide Mercury with a three-year source of collateralized reinsurance against wildfire and fire-following earthquake losses in the state of California.

That protection will be on an indemnity and per-occurrence basis, with the notes having an initial attachment point of $1.6 billion and an exhaustion point at $1.75 billion of losses, we hear. As a result if the layer is to be filled this cat bond would need to upsize by 50% to $150 million.

The $100 million of Series 2025-1 Class A notes that Luca Re is offering to investors come with an initial attachment probability of 1.16%, an initial expected loss of 1.08% and are being offered with spread price guidance in a range from 7.25% to 7.75%, we are told.

Update 1:

We understand that Mercury Insurance is now targeting between the initial $100 million and as much as $150 million of limit from this debut 144A Luca Re Ltd. catastrophe bond for the company.

At the same time the spread guidance for the notes has been narrowed towards the lower-end, revised to 7.25% to 7.5%, we are told.

Update 2:

Mercury secured its upsized $150 million target for fire reinsurance from this Luca Re Ltd. catastrophe bond

The Series 2025-1 Class A notes were eventually priced at 7.25%, so the low-end of the initial guidance.