Herbie Re cat bonds critical to capital management & protection: Fidelis CUO Houston
With the recent successful completion of its fifth catastrophe bond in the Herbie Re series of deals, Fidelis Insurance Group finds the cat bonds offer a “critical component” of its capital management and protection arrangements, Ian Houston, Chief Underwriting Officer has said.
As Artemis has reported, Fidelis recently secured its latest catastrophe bond, Herbie Re Ltd. (Series 2024-1), with the deal now providing the company a targeted $150 million source of fully-collateralized industry-loss triggered retrocessional reinsurance.
Fidelis has, as ever, been very price conscious through the sponsorship of its fifth Herbie Re catastrophe bond, with the target size not changing from the initial $150 million, but the price dropping considerably for the sponsor.
Read about all of Fidelis Insurance Group’s Herbie Re catastrophe bonds in our extensive Deal Directory.
The new Herbie Re 2024-1 cat bond was successfully priced on Feb 15th and settled yesterday, Feb 22nd, to now provide Fidelis with $150 million of collateralized annual aggregate reinsurance protection covering insured industry loss events caused by Named Storm and Earthquakes across the United States, District of Columbia, Puerto Rico and the U.S. Virgin Islands, as reported by PCS.
As we explained in our first article about Fidelis’ latest catastrophe bond on Jan 30th, the latest Herbie Re cat bond features a non-renewal clause to enable the sponsor 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 Fidelis the flexibility to cancel the coverage and renew it elsewhere, with a redemption premium to be paid, should it choose.
Interestingly, Fidelis positions this more as a renewal clause, than non-renewal, saying, “Fidelis has the option to renew the Series 2024-1 Notes on an annual basis, up to a maximum of four complete annual risk periods.”
For Fidelis, the cat bonds are an important piece of its capital management strategy, while providing a robust source of protection from diversifying sources.
However, the company is particularly price conscious and the renewal/non-renewal clause does suggest the sponsor plans to be very tactical in its cat bond purchases, depending on the state of market pricing and its cycle management strategy.
The price focus of Fidelis was very evident in how this latest Herbie Re cat bond was marketed, with the spread guidance range on offer reduced twice and then the notes pricing at the bottom of that twice reduced guidance.
As a result, the spread multiples-at-market achieved were low, at around the 2 times expected loss level for each tranche, while the lower-risk $100 million Class A notes saw their spread drop by around 26%, the $50 million Class B tranche experienced a roughly 19% price decline while being marketed.
However, it is worth noting that the franchise deductible for this latest aggregate index cat bond from Fidelis is now at $20 million, where the last comparable bond with named storm included from 2021 only had a $10 million deductible, while the attachment levels are relatively high as well.
Commenting on the successful placement of its latest Herbie Re catastrophe bond, Ian Houston, Chief Underwriting Officer of Fidelis Insurance Group, said, “Fidelis Insurance Group is excited to have in place the latest issuance under the Herbie Re Catastrophe Bond program.
“These bonds remain a critical component of our comprehensive capital management and outwards protection strategy, providing important capital relief and downside protection.
“They complement our other purchases such as quota share, excess of loss and ILWs to support the work of Fidelis MGU.”
Richard Coulson, Deputy Group Chief Underwriting Officer at Fidelis MGU, added, “We have worked in close alignment with the Fidelis Insurance Group to bring this series to market which builds on their current Herbie Re Catastrophe Bond program.
“This tranche of cover is the latest tool employed by Fidelis Insurance Group to enable us to capitalize on opportunities across catastrophe exposed lines of business in 2024 and beyond.”
Read all about 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.
