NCIUA returns for $100m Cape Lookout Re 2021 cat bond

The North Carolina Insurance Underwriting Association (NCIUA) is back in the catastrophe bond market with its first issuance of 2021, a currently $100 million Cape Lookout Re Ltd. (Series 2021-1) transaction that will sit in the higher layers of its reinsurance tower.

The North Carolina Insurance Underwriting Association (NCIUA) is a coastal property insurance underwriting pool for the state of North Carolina.

The NCIUA has been visiting the capital markets to source catastrophe reinsurance for over a decade, with relatively regular issues since its first cat bond Parkton Re Ltd., which it had sponsored alongside the states Joint Underwriting Association.

In 2019, the NCIUA sponsored two catastrophe bonds, a $450 million Cape Lookout Re Ltd. (Series 2019-1) cat bond that sat higher up in its reinsurance tower and then a $100 million Cape Lookout Re Ltd. (Series 2019-2) cat bond that sat lower down and so was riskier.

For its first visit to the cat bond market for 2021, the NCIUA’s special purpose insurer (SPI) Cape Lookout Re Ltd. will seek to issue a $100 million or larger tranche of notes, which will be sold to investors to secure multi-year and multi-peril collateralized reinsurance for the insurance underwriting pool.

The NCIUA is once again working with the support of global reinsurance firm Hannover Re, who will front the capital markets on its behalf as ceding reinsurer for the transaction.

Cape Lookout Re Ltd. will issue a $100 million or larger tranche of Series 2021-1 notes, that will be sold to investors and the proceeds used to collateralize a retrocessional reinsurance agreement between the issuer and Hannover Re, who will in turn pass on the reinsurance to the NCIUA.

The coverage is for losses from named storms and severe thunderstorms to the NCIUA’s portfolio in the state of North Carolina, across a three-year term and on an annual aggregate and indemnity trigger basis, we’re told.

This new Cape Lookout Re 2021-1 catastrophe bond is particularly remote risk, as it will attach at $2.35 billion of losses and exhaust at $2.85 billion of losses, so covering a percentage of a $500 million layer of the NCIUA’s reinsurance program, giving ample room to upsize if market conditions are conducive.

The $100 million of Series 2021-1 Class A notes will have an initial expected loss of 1.04% and are being marketed to cat bond investors with coupon guidance in a range from 3.5% to 4%, we understand.

For comparison, the Cape Lookout Re 2019-1 cat bond had an initial expected loss of 1.61% and priced at 4.25%, while the 2019-2 issuance had an initial expected loss of 2.52% and paid investors a 6.75% coupon at launch.

So it looks like there is a definite pricing uptick in this latest NCIUA cat bond, given the much higher attachment point.

We’ll keep you updated as this latest catastrophe bond comes to market and you can read all about the Cape Lookout Re Ltd. (Series 2021-1)  transaction and every other cat bond in our Artemis Deal Directory.