Herbie Re Ltd. (Series 2020-1)

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Herbie Re Ltd. (Series 2020-1) – At a glance:

  • Issuer: Herbie Re Ltd.
  • Cedent / sponsor: Fidelis Insurance
  • Placement / structuring agent/s: Aon Securities is sole structuring agent and bookrunner
  • Risk modelling / calculation agents etc: AIR Worldwide
  • Risks / perils covered: U.S. named storm, U.S. earthquake
  • Size: $125m
  • Trigger type: Industry loss index (second event)
  • Ratings: NR
  • Date of issue: Jun 2020

Herbie Re Ltd. (Series 2020-1) – Full details:

This the first catastrophe bond transaction to be sponsored by Fidelis Insurance Holdings Limited, the specialty insurance and reinsurance firm launched by Richard Brindle.

Fidelis Insurance Holdings is seeking a capital markets backed, multi-year source of collateralised multi-peril U.S. catastrophe reinsurance coverage with this Herbie Re Ltd. catastrophe bond.

The Herbie Re Ltd. catastrophe bond will provide a form of reinsurance coverage akin to a second event industry loss warranty (ILW), protecting Fidelis against more than one major U.S. natural catastrophe loss event occurring during a single year.

Herbie Re Ltd. has been established as a Bermuda based special purpose insurer for the issuance of series of catastrophe bond notes.

For its first issuance, Herbie Re Ltd. will bring to market a single Class A tranche of Series 2020-1 notes, which will be sold to investors and the proceeds used to collateralise reinsurance agreements between the SPI and Fidelis’ subsidiary Fidelis Insurance Bermuda Limited.

Herbie Re will issue a currently $100 million tranche of Series 2020-1 Class A notes that will be exposed to potential industry losses from U.S. named storms and U.S. earthquakes, with Puerto Rico, the U.S. Virgin Islands and District of Columbia also covered areas.

The reinsurance protection that the Herbie Re cat bond will provide to Fidelis will run across a four-year term and coverage is on an industry loss and per-occurrence basis, but with a twist.

We understand that the Herbie Re catastrophe bond can only be triggered if two qualifying industry loss events occur during a single risk period, making this transaction a second-event reinsurance cover for Fidelis.

There is an underlying industry loss index trigger based on PCS data and a qualifying threshold of a $20 billion event, we understand, and only if the two events each surpass this pre-defined index level would they qualify and cause a payout.

If that occurs though, the catastrophe bond has a binary payout structure, with all of its principal set to be lost if the two qualifying catastrophe losses are above the industry loss trigger level.

Second-event covers in the catastrophe bond market are actually relatively rare, with most sponsors preferring aggregate structures.

But as aggregate retrocession and reinsurance has moved out of favour a little and has been subject to higher and still rising pricing, this second-event industry loss trigger approach may gain a better reception from cat bond investors, given it would be easier to price and analyse.

We understand that the Series 2020-1 Class A notes to be issued by Herbie Re Ltd. will have an initial attachment base expected loss of 2.39% and are being offered to cat bond funds and investors with coupon price guidance in a range from 8.5% to 9%.

Update 1:

Thanks to investor support, we now understand that Fidelis is seeking to upsize its first catastrophe bond by as much as 25%, with Herbie Re set to issue up to $125 million of Series 2020-1 Class A notes.

We’re told that at the same time as targeting an increase in size for the issuance, the pricing has moved to the top-end of that guidance, with the notes likely to pay investors a coupon of 9%.

Update 2:

The Herbie Re cat bond issuance has now successfully been upsized by 25% and will issue a $125 million tranche of Series 2020-1 Class A notes that will be exposed to industry losses above a certain magnitude from U.S. named storms and U.S. earthquakes, with Puerto Rico, the U.S. Virgin Islands and District of Columbia among the covered areas.

We’re told that the pricing has now been fixed at the top-end of guidance, with the notes set to pay investors a coupon of 9% and that represents a multiple of almost 3.8 times the base expected loss of 2.39%

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