Fidelis could get Herbie Re cat bond recoveries for Ian & Turkey quake

The market is anticipating specialty insurance and reinsurance company Fidelis will benefit from recoveries under two of its Herbie Re catastrophe bonds, as losses from hurricane Ian and the Tukey earthquake are expected to erode some of the principal of two tranches of notes.

We’d previously reported that the cat bond market was expecting a loss to the Class C tranche of notes from Fidelis’ Herbie Re Ltd. (Series 2020-2) issuance due to hurricane Ian.

These notes had been a $25 million layer, but that has been reduced to roughly $18.7 million and the remaining notes are marked down for bids of 40 to 50 cents on the dollar.

It remains uncertain whether there has been a recovery already, or a small redemption and the remainder of the notes left outstanding and extended.

Either way, it’s clear the cat bond market continues to anticipate facing a relatively small loss, while Fidelis looks set to benefit from at least some level of reinsurance recovery under that tranche of notes.

Now, we’ve also learned that a second Herbie Re catastrophe bond is expected to face some loss of principal, with hurricane Ian one of the catastrophe events concerned, but also some erosion anticipated due to the Turkey earthquake.

This is the $150 million Class A tranche of notes from the Herbie Re Ltd. (Series 2021-1) cat bond issuance.

As we explained before, this tranche was already known to be exposed to hurricane Ian, as they provide aggregate coverage with franchise deductibles and certain loss caps in place, and the hurricane Ian contribution had clearly provided the $35 billion per-event loss cap for named storm events.

That meant other qualifying loss events, that saw their industry losses surpassing the deductibles, could contribute towards the total industry impact and progress towards attaching the cat bonds retro reinsurance coverage once the aggregate total reached $50 billion.

The Turkey earthquake event from February 2023 is one such catastrophe loss that will have easily surpassed the deductible and added another roughly $5 billion to the total.

While these two events alone could still fall short of the trigger, it’s seems there could be other qualifying events, as this cat bond also covered US severe thunderstorm risks, for example.

Sources tell us that the market is anticipating as much as a 40% to 50% loss of principle to the Herbie Re 2021-1 cat bond, which given the $150 million size of the coverage involved, suggests a recovery is indicated by the secondary market at as much as $75 million.

Both of these cat bond tranches sponsored by Fidelis remain marked down to levels indicating these sorts of loss levels, although with development continuing it could still be some time before final reinsurance recoveries are made and investors realise the loss of principle.

Details of catastrophe bonds facing losses, deemed at risk, or already paid out, can be found in our cat bond losses Deal Directory here.