The North Carolina Insurance Underwriting Association (NCIUA) latest catastrophe bond has now upsized by 150%, with the Cape Lookout Re Ltd. (Series 2021-1) transaction set to provide it $250 million of reinsurance from the capital markets.
At the same time, the spread on the cat bond notes dropped considerably thanks to ILS investor appetite, with the pricing eventually fixed at the bottom of reduced guidance, indicating a roughly 13% decline in pricing during marketing.
The North Carolina Insurance Underwriting Association (NCIUA) is a coastal property insurance underwriting pool for the state of North Carolina.
As we’ve seen with a number of recent catastrophe bond issues, the new transaction from the NCIUA became the latest cat bond to show strong execution, both in terms of size and pricing.
The target size was lifted by 150% to $250 million of reinsurance coverage, a level that has now been secured.
At the same time the price guidance was reduced significantly and our sources said this has now been fixed at the low-end of the reduced guidance.
Now, on settlement, the NCIUA’s special purpose insurer (SPI), Cape Lookout Re Ltd., will issue a $250 million tranche of Series 2021-1 Class A notes, that will be sold to investors to secure multi-year and multi-peril collateralized reinsurance for the insurance underwriting pool.
The $250 million of reinsurance coverage this will secure, is designed to protect the NCIUA against certain losses from named storms and severe thunderstorms to its portfolio in the state of North Carolina, across a three-year term and on an annual aggregate and indemnity trigger basis.
The $250 million of Series 2021-1 Class A notes have an initial expected loss of 1.04%.
The notes were initially marketed to cat bond investors with coupon guidance in a range from 3.5% to 4%, but that spread guidance dropped and the range was narrowed, to 3.25% to 3.5%.
Now, the pricing has been fixed at the lowest-end of 3.25%, our sources said, representing an approximate price drop of 13% from the original guidance mid-point.
That means the multiple, of coupon to expected loss, for the new Cape Lookout Re 2021-1 catastrophe bond is 3.125 times the EL
For comparison, the Cape Lookout Re 2019-1 cat bond had an initial expected loss of 1.61% and priced at 4.25% (a 2.64 multiple of EL), while the 2019-2 issuance had an initial expected loss of 2.52% and paid investors a 6.75% coupon at launch (a 2.68 multiple of EL).
So the multiple is up for the NCIUA’s latest catastrophe bond deal, but they do tend to be a little higher for more remote risk cat bond deals, suggesting the risk adjusted change is relatively slight.
The NCIUA’s cat bond program has been free from losses in recent years, which will have helped it to secure its latest capital markets backed reinsurance at still attractive pricing despite the harder marketplace.