As investor demand grows for high-spread, diversified risk in a tightening reinsurance environment, Mercury General Corp. has issued $100 million or more in catastrophe bond notes tied specifically to California wildfire and earthquake exposure through its new vehicle, Luca Re Ltd.
The insurer established Luca Re Ltd. in Bermuda as a special purpose insurer for the transaction. The issuance – Luca Re Ltd. Series 2025-1 – represents Mercury’s first 144A catastrophe bond, following four prior private transactions issued under the Randolph Re name.
Proceeds from the bond sale will collateralize a reinsurance agreement that provides three years of indemnity, per-occurrence protection to Mercury General’s subsidiaries: Mercury Casualty Company, Mercury Insurance Company, California Automobile Insurance Company, and California General Underwriters Insurance Company, Inc.
The bond targets at least $100 million in reinsurance, with the potential to increase to $150 million depending on market participation and the size of the covered risk layer. The protection attaches at $1.6 billion in losses and exhausts at $1.75 billion.
The notes carry an initial attachment probability of 1.16% and an expected loss of 1.08%. Investor pricing guidance was issued in the range of 7.25% to 7.75%. A single tranche of Class A notes is being offered to investors.
Mercury General reported estimated gross losses of $1.6 billion to $2 billion from California wildfires that occurred in January 2025. The company also indicated that it anticipated significant reinsurance recoveries.
The new bond follows challenges with Mercury’s most recent private catastrophe bond, Randolph Re (Series 2024-1). That issuance is currently trading at steep discounts in the secondary market—reportedly at around 10¢ on the dollar. As of now, no recovery has been confirmed from that deal. The notes are due to mature in early July 2025, with a possible extension not ruled out.
The Luca Re transaction is the second California wildfire-focused catastrophe bond issued in 2025, after Sutton National’s Greengrove Re Ltd. (Series 2025-1). Both transactions come after a period of elevated catastrophe losses in the region.
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