NCIUA targets $250m Cape Lookout Re 2024-1 named storm cat bond

The North Carolina Insurance Underwriting Association (NCIUA) has returned to sponsor another catastrophe bond to source more named storm reinsurance protection, seeking $250 million or more in aggregate cover from a Cape Lookout Re Ltd. (Series 2024-1) transaction.

This new 2024-1 issuance will be the North Carolina Insurance Underwriting Association’s (NCIUA) sixth catastrophe bond under the Cape Lookout Re Ltd. program of deals.

The NCIUA has now sponsored catastrophe bonds since at least 2009, when the first cat bond to benefit the Association, Parkton Re Ltd, came to market.

The property insurer of last resort for North Carolina, the NCIUA, is again targeting just named storm and hurricane reinsurance with its latest cat bond deal, with an initial target to secure $250 million or more in protection from this 2024-1 deal, sources have told Artemis.

Previously the NCIUA had also secured severe thunderstorm protection from its cat bonds, but since last year this has been reduced to just the single peak peril of hurricane risk.

Cape Lookout Re Ltd., the NCIUA’s Bermuda special purpose insurer, is aiming to issue a single, preliminarily sized at $250 million, tranche of Series 2024-1 Class A notes, we understand.

The notes are being offered for sale to cat bond investors and the proceeds will be used to collateralize a retrocessional reinsurance agreement between Cape Lookout Re Ltd. and fronting reinsurer Hannover Re.

That reinsurance firm, in fronting the capital markets for the insurer of last resort, will then enter into a reinsurance agreement with the North Carolina Insurance Underwriting Association (NCIUA) to pass on the named storm coverage.

The $250 million or more in notes will provide the NCIUA with a source of indemnity and annual aggregate reinsurance protection against named storm losses from the capital markets, covering the insurer across a three year term, with qualifying losses needing to drive a $25 million or greater impact to the insurer of last resort to count towards the aggregated total.

The Cape Lookout Re Series 2024-1 Class A cat bond notes will sit at an attachment of $2.43 billion of losses, covering a layer of the reinsurance tower to $2.88 billion, giving them an initial attachment probability of 2.93%, an initial expected loss of 2.56% and coming with price guidance in a range from 8% to 9%, we are told.

These new Series 2024-1 notes will sit between two other cat bonds sponsored by the NCIUA, the $330 million Cape Lookout Re Ltd. (Series 2022-1) sitting beneath the 2024-1 notes and the Cape Lookout Re Ltd. (Series 2023-1) sitting directly above it.

Which means that, across the NCIUA’s roughly $2.1 billion of reinsurance, catastrophe bonds are set to make up at least $930 million of it.

What’s particularly interesting though, is that the NCIUA has purchased its cat bonds to sit directly above its retention and member assessments, while traditional reinsurance arrangements sit above the cat bonds, meaning the cat bonds are effectively at the bottom of the reinsurance component of its funding tower.

That’s a little unusual, as cat bonds are often thought to sit best at higher layers, but these aggregate named storm cat bonds appear to be an efficient purchase lower down for the NCIUA.

You can read all about this new Cape Lookout Re Ltd. (Series 2024-1) transaction and every other cat bond ever issued in our Artemis Deal Directory.