Mercury targets $100m California fire reinsurance with second Luca Re catastrophe bond

Mercury General Corporation (Mercury Insurance), the California headquartered insurer, is back in the catastrophe bond market seeking additional fire reinsurance protection, with an initial $100 million target for its second 144A cat bond sponsorship of a Luca Re Ltd. (Series 2026-1) issuance, Artemis has learned.

Mercury Insurance sponsored its first 144A catastrophe bond last year, securing $150 million in California fire reinsurance protection from the capital markets with its debut Luca Re 2025-1 deal.

Mercury was already familiar with private cat bonds, having previously sponsored four private catastrophe bonds under the Randolph Re name, with a partial recovery made from the Randolph Re 2024-1 issuance after the devastating Los Angeles wildfires in early 2025.

Having secured $150 million of California wildfire and fire following earthquake protection from the capital markets with its first Luca Re cat bond a year ago, we’ve learned that Mercury is now back and looking to extend that reinsurance with its second 144A cat bond sponsorship.

The company is again utilising its Luca Re Ltd. special purpose insurer (SPI) based in Bermuda for its second cat bond.

Read about all of Mercury Insurance’s catastrophe bonds in our extensive Deal Directory.

Luca Re Ltd. is offering a currently $100 million tranche of Series 2026-1 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.

We’re told the Luca Re 2026-1 cat bond notes will provide reinsurance to protect Mercury’s losses under the same range of subsidiaries as its first cat bond, being Mercury Casualty Company, Mercury Insurance Company, California Automobile Insurance Company and California General Underwriters Insurance Company, Inc.

The $100 million or more in Series 2026-1 notes that Luca Re is offering are designed to provide Mercury with a roughly three-year source of collateralized reinsurance protection against wildfire and fire-following earthquake losses in the state of California, again the same as the first deal.

The notes will provide their reinsurance on an indemnity trigger and per-occurrence basis, again like the first Luca Re cat bond.

We’re told the notes will have an initial attachment point of $1.75 billion and cover a share of losses up to $2 billion, suggesting there is room for this second cat bond from Mercury to upsize to as much as $250 million if investor appetite supported it.

The currently $100 million of Series 2026-1 Class A notes that Luca Re is offering to investors come with an initial attachment probability of 1.23%, an initial expected loss of 1.09% and are being offered with price guidance for an initial risk interest spread in a range from 6.25% to 6.75%, we are told by sources.

For comparison, the Series 2025-1 cat bond notes issued by Luca Re came with an initial expected loss of 1.08%, so only slightly lower, but priced to pay investors a higher spread of 7.25%.

So the price indications for its second catastrophe bond suggest Mercury Insurance will benefit from the softer pricing and elevated investor appetite environment, to secure the reinsurance at a lower price than it did a year ago if this new offering is successful.

As a reminder, you can read all about this Luca Re Ltd. (Series 2026-1) catastrophe bond and every other cat bond deal in the extensive Artemis Deal Directory.