Fidelis seeks $150m of retro with Herbie Re 2024-1 industry-loss cat bond
Specialty insurance and reinsurance company Fidelis Insurance is back in the catastrophe bond market, seeking $150 million or more in capital markets backed and industry-loss triggered retrocessional reinsurance, with a Herbie Re Ltd. (Series 2024-1) cat bond issuance.
This is set to become the fifth Herbie Re catastrophe bond transaction to be sponsored by Fidelis Insurance since it first entered the cat bond market in 2020.
As with all of its previous Herbie Re cat bonds, this new deal for 2024 sees Fidelis Insurance looking to expand its sources of industry-loss based retrocessional reinsurance from the capital markets.
Using its Bermuda-based special purpose insurer Herbie Re Ltd., Fidelis is targeting the issuance of two tranches of Series 2024-1 cat bond notes, with a preliminary target to secure at least $150 million in protection from the deal, we are told.
The notes will be sold to cat bond investors and the proceeds used to collateralize retro reinsurance agreements between the SPI and ceding company Fidelis Insurance Bermuda.
Both tranches of notes will provide their protection to Fidelis on an annual aggregate and regionally weighted industry loss index basis.
The notes will provide Fidelis with a targeted $150 million in industry-loss based risk transfer protection, for the perils of US named storm and US earthquake risks, including DC, Puerto Rico and the US Virgin Islands.
The coverage will be over an almost four year term, to the end of 2027, but we understand that there is a non-renewal clause in this cat bond, which would allow Fidelis to redeem the cat bond at the end of each annual risk period, which will be January of each year from 2025. That will give the re/insurer the flexibility to cancel the coverage and renew it elsewhere, with a redemption premium to be paid, should it choose.
We are also told that the aggregate industry loss trigger cat bond structure features a $20 million franchise deductible before loss events can qualify under its terms.
As said, Herbie Re Ltd. will issue two tranches of Series 2024-1 cat bond notes, each providing protection to Fidelis at different industry-loss trigger levels.
A $100 million Class A tranche of notes will have an initial attachment probability of 3.78%, an initial expected loss of 2.92% and are being offered to cat bond investors with spread guidance in a range from 7.75% to 8.5%, sources said.
The second tranche, of $50 million Class B notes, will have an initial attachment probability of 6.36% so are the riskier layer, an initial expected loss of 4.51% and are being offered to cat bond investors with spread guidance in a range from 10.75% to 11.5%.
It’s good to see Fidelis returning to the catastrophe bond market, to further expand its capital markets backed retro reinsurance on an industry-loss trigger basis.
The company has benefited from its cat bond coverage in the past. As we reported last year, the market is anticipating 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.
The two cat bonds in question remain marked down in the secondary pricing sheets, although pricing has recovered a little suggesting the loss expectations may be settling. The latest on these can be seen in our directory containing details of cat bonds deemed to be facing losses, or that have paid out.
We’ll keep you updated as this Herbie Re Ltd. (Series 2024-1) catastrophe bond comes to market and you can read about this and every other cat bond deal in the Artemis Deal Directory.
