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Fidus Re Ltd. (Series 2022-1)

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Fidus Re Ltd. (Series 2022-1) – At a glance:

  • Issuer: Fidus Re Ltd.
  • Cedent / sponsor: Build America Mutual Assurance Company
  • Placement / structuring agent/s: Unknown
  • Risk modelling / calculation agents etc: Unknown
  • Risks / perils covered: Financial guarantee risks
  • Size: $150m
  • Trigger type: Indemnity
  • Ratings: KBRA: 'AA'
  • Date of issue: Nov 2022

Fidus Re Ltd. (Series 2022-1) – Full details:

This is the third securitization of financial guarantee insurance risks and issuance of insurance-linked securities (ILS) notes to be sponsored by specialist financial guarantee insurer Build America Mutual Assurance Company and issued using its Bermuda-based special purpose vehicle Fidus Re Ltd.

BAM has returned again, to place another $150 million of this time Series 2022-1 notes with capital market investors, with the proceeds of that sale collateralizing a reinsurance agreement between its Fidus Re Ltd. special purpose vehicle and the insurer.

Fidus Re Ltd. is a Bermuda-based special purpose insurer (SPI) that issues and sell notes to investors, with the proceeds used to collateralize an excess-of-loss reinsurance agreement between Fidus Re and the sponsor, Build America Mutual Assurance Company.

The $150 million of Series 2022-1 Class A notes are exposed to losses to BAM’s financial guarantee insurance business, on an indemnity trigger basis.

These are long-tenure ILS deals, with this latest Fidus Re 2022-1 issuance having maturity set for the end of 2024, so providing almost 12 years of fully-collateralized financial guarantee reinsurance to sponsor BAM, the same tenure as the previous two Fidus Re deals.

The long-tenure helps Build America Mutual to lock-in reinsurance protection from the institutional markets, as a source of differentiated and efficient risk capital to back its growing financial guarantee underwriting business.

With this latest Fidus Re 2022-1 financial guarantee ILS deal now live, BAM said that its claims-paying resources total more than $1.4 billion.

BAM calls Fidus Re an “innovative tool for mutual insurers to access the capital markets” with trusts fully collateralized by assets held in money market funds, and the coverage funded by the sale of Series 2022-1 insurance-linked notes by Fidus Re.

As with the last Fidus Re issuance in 2021, for the Series 2022-1 notes, BAM has again opted to secure a rating, using rating agency KBRA to secure ‘AA’ ratings for the new $150 million issuance of insurance-linked notes.

For 2022, the Fidus Re transaction structure is materially the same as the prior deals.

Noteholders are exposed to losses above a $110 million retention on a covered portfolio, at which point they share 90% of losses across a $167 million layer of the reinsurance tower above that.

The excess-of-loss reinsurance agreement sees the Fidus Re 2022-1 notes providing cover against aggregate losses which exceed that attachment point, across the pre-defined and importantly static portion of BAM’s inforce financial guarantee portfolio.

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