The North Carolina Insurance Underwriting Association (NCIUA) is seeking capital markets support for its reinsurance program with the issuance of a $250 million Cape Lookout Re Ltd. (Series 2019-1) catastrophe bond that will be exposed to name storm and thunderstorm risks.
The North Carolina Insurance Underwriting Association (NCIUA) is no stranger to the catastrophe bond market, having been a beneficiary of four previous cat bond deals.
In each of those previous cat bonds, the NCIUA came to market in a joint issuance along with the North Carolina Joint Underwriting Association, the states FAIR plan provider. The first cat bond to benefit the NCIUA came to market a decade ago, in 2009 (Parkton Re).
The Cape Lookout Re Ltd. catastrophe bond sees the NCIUA returning to the capital markets for the first time since 2013’s Tar Heel Re Ltd. transaction, so it’s encouraging to see the Association looking for support for its reinsurance program from the capital markets once again.
Cape Lookout Re Ltd. is a newly formed Bermuda special purpose insurer and our sources say it will seek to issue a single $250 million tranche of Series 2019-1 Class A cat bond notes which will be sold to capital market investors.
The proceeds from the sale of these notes will be used to collateralize the NCIUA’s underlying reinsurance needs.
The reinsurance will be serviced via Hannover Re as ceding reinsurer. The German reinsurer will enter into a reinsurance agreement with the NCIUA and then enter into a retrocession agreement with Cape Lookout Re Ltd. to complete the financing of the coverage.
The NCIUA will benefit from $250 million (or more) of reinsurance coverage across a three-year term, on an indemnity trigger and annual aggregate basis, against losses from named storms and severe thunderstorms to its portfolio in the state of North Carolina, under this Cape Lookout Re cat bond deal.
We’re told the protection from this cat bond will attach at $1.75 billion of losses to the NCIUA and cover losses across a $500 million layer of its reinsurance program, up to $2.25 billion.
This layer is set to be split between the Cape Lookout Re cat bond coverage and aggregate reinsurance, but if the cat bond market pricing is conducive it seems likely this transaction could upsize.
The Series 2019-1 Class A notes that are issued by Cape Lookout Re Ltd. will have an initial attachment probability of 1.95% and an initial expected loss of 1.61%, we’re told.
The notes are being offered to investors with price guidance of 3.75% to 4.25%, it is understood.
It’s encouraging to see the NCIUA back in the catastrophe bond market after a brief hiatus since its Tar Heel Re transaction matured in 2016.