The North Carolina Insurance Underwriting Association (NCIUA) has returned to the catastrophe bond market for its first issuance of 2022, seeking $300 million or more in collateralized reinsurance protection from a Cape Lookout Re Ltd. (Series 2022-1) issuance.
This is the fourth in the Cape Lookout Re series of catastrophe bonds for the North Carolina Insurance Underwriting Association (NCIUA), which is a coastal property insurance underwriting pool for the state of North Carolina.
The NCIUA has been a regular visitor to the capital markets for catastrophe reinsurance for over a decade, since its first cat bond Parkton Re Ltd. in 2009, 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.
The NCIUA then sponsored another $250 million Cape Lookout Re Ltd. (Series 2021-1) cat bond last year.
The $450 million Cape Lookout Re 2019-1 cat bond matured in February this year, so with this new Series 2022-1 issuance it appears the NCIUA is looking to replace some of that coverage.
Cape Lookout Re Ltd., the Bermuda special purpose insurer, will issue a single, preliminarily sized $300 million tranche of Series 2022-1 Class A notes, sources told Artemis.
These notes will be sold to cat bond investors and the proceeds used to collateralize a retrocessional reinsurance agreement between Cape Lookout Re Ltd. and fronting reinsurer Hannover Re, which will in turn enter into a reinsurance agreement with the NCIUA to pass on the coverage.
The cat bond will ultimately provide the NCIUA with a three year source of collateralized reinsurance against losses from named storms and severe thunderstorms that impact the state of North Carolina.
The coverage will be structured using an indemnity trigger and be afforded on an annual aggregate basis.
This new Cape Lookout Re 2022-1 catastrophe bond will see its reinsurance coverage attach at $1.85 billion of losses and exhaust at $2.55 billion of losses, so covering a percentage of a wide $700 million layer of the NCIUA’s reinsurance program, offering ample room for this issuance to upsize, if market conditions are conducive.
As a result, the currently $300 million of Series 2022-1 Class A notes will come with an initial attachment probability of 1.97%, an initial expected loss of 1.54% and they are being offered to cat bond investors with price guidance in a range from 4.5% to 5%, we’re told.
That’s a relatively similar level of risk to the recently matured 2019-1 cat bond from Cape Lookout Re, so this new issuance should fill gaps in the NCIUA reinsurance tower that its maturity created.
The pricing also looks a little higher than the 2019 cat bond, which should please investors and cat bond fund managers.
For comparison, the Cape Lookout Re 2019-1 cat bond had an initial expected loss of 1.61% and priced at 4.25%, so offered investors a multiple-at-market of 2.64 times the EL.
This new 2022-1 cat bond, with its expected loss of 1.54% and coupon at the mid-point of 4.75% could offer a base multiple of around 3 times, reflecting the fact the cat bond market is a little firmer now than in 2019, but still offering well-priced coverage.
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 2022-1) transaction and every other cat bond in our Artemis Deal Directory.
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