Fidus Re Ltd. (Series 2025-1)

This is the fourth 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.

The $275 million in Series 2025-1 notes have been issued by Build America Mutual’s Bermuda-based special purpose insurance vehicle Fidus Re Ltd.

BAM has returned again, to place $275 million of Series 2025-1 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 financial guarantee specialist insurer.

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

The $275 million of Series 2025-1 Class A notes are exposed to losses to BAM’s financial guarantee insurance business, on an indemnity trigger basis, with the structure the same as the previous three Fidus Re ILS deals.

These are long-tenure ILS arrangements, with this latest Fidus Re 2025-1 issuance having maturity set for January 8th 2037, so providing almost 12 years of fully-collateralized financial guarantee reinsurance to sponsor BAM, the same tenure as the previous three Fidus Re deals.

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

For the $275 million of Series 2025-1 notes, BAM has again chosen to secure a rating, using rating agency KBRA, and securing ‘AA’ ratings for the insurance-linked notes.

KBRA noted that concurrently with this new issuance, the Series 2018-1 Fidus Re notes are being called and fully redeemed.

The Fidus Re 2025-1 cat bond like structure will provide BAM with reinsurance protection for aggregate losses exceeding a $190 million attachment point on a defined, static portion of BAM’s in-force financial guaranty portfolio, KBRA explained.

KBRA further stated, “The Covered Portfolio is a static pool comprising policies underwritten by BAM before November 30, 2024, and excludes exposures covered under prior Fidus transactions. Eligible outstanding exposure previously covered by Fidus I is now covered by the excess of loss facility associated with this transaction, following the redemption of Fidus I notes. Over time, the par amount of the Covered Portfolio will decline due to scheduled amortization and redemptions. The portfolio generally includes limited exposure in the healthcare sector (underwritten in primary and secondary markets) and the public student housing sector though the overall credit profile of the portfolio remains largely unchanged.”

KBRA also noted that its analysis found that losses exceeding the $190 million attachment point during the risk period are unlikely, which limits the risk of withdrawals from the Collateral Account.

Losses during the risk period are covered only once they exceed the $190 million attachment point, up to a maximum payout of $275 million, the size and so amount of collateralized reinsurance protection from this latest issuance.