Swiss Re Insurance-Linked Fund Management

PCS - Emerging Risks, New Opportunities

Herbie Re Ltd. (Series 2020-2)

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Herbie Re Ltd. (Series 2020-2) – 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: $275m
  • Trigger type: Industry loss index
  • Ratings: NR
  • Date of issue: Oct 2020

Herbie Re Ltd. (Series 2020-2) – Full details:

Fidelis has returned to the catastrophe bond market for the second time, seeking to extend its collateralised and capital markets backed multi-peril reinsurance protection with this Herbie Re Ltd. 2020-2 transaction.

Earlier this year, Fidelis secured a $125 million source of collateralised multi-peril reinsurance protection with the Herbie Re Ltd. (Series 2020-1) catastrophe bond deal and now returns looking to upsize on that with this second 2020 issuance.

Using the same Herbie Re Ltd. Bermuda-domiciled special purpose insurer (SPI), Fidelis is seeking to secure three layers of reinsurance coverage, all on an industry loss trigger basis against losses from named storms or earthquakes across the United States and territories including Puerto Rico, the U.S. Virgin Islands, and District of Columbia.

The Herbie Re 2020-2 cat bond will provide Fidelis with aggregate retro reinsurance coverage, where as the first 2020-1 transaction provides the company with second-event protection.

For this second Herbie Re catastrophe bond, the special purpose insurer will seek to issue three tranches of notes, two of which will provide coverage across a four-year term and the other across two-years.

All three tranches of notes will be sold to cat bond funds and investors, with the proceeds used to collateralise the underlying reinsurance agreements between the SPI and Fidelis’ Bermuda underwriting entity, we understand.

All three tranches of Series 2020-2 notes will provide annual aggregate named storm and earthquake reinsurance protection, using a territory weighted industry loss index reported by PCS.

Coverage is after a $20 billion per-event franchise deductible for each tranche, while the three will provide layers of coverage, sitting on top of each other in Fidelis’ reinsurance tower.

Herbie Re Ltd. will issue a $75 million tranche of Class A notes that have an initial expected loss of 2.07%, will provide four years of reinsurance protection and are being offered to cat bond investors with price guidance of 6.75% to 7.5%.

An also $75 million tranche of Cklass B notes have an initial expected loss of 3.61%, also provide four years of reinsurance coverage and are being offered to investors with coupon price guidance of 9% to 9.75%.

The final Class C tranche of notes are $25 million in size and these will provide Fidelis with reinsurance across just a two year term. They have an initial expected loss of 7.59% and are being offered to investors with price guidance of 16.25% to 17.25%.

All three tranches will therefore provide ILW-like coverage, stacked one on top of the other, for Fidelis.

Update 1:

Fidelis is now hoping to secure somewhere between $225 million and $300 million from this cat bond deal.

The Class A tranche is now targeting from $100 million to $125 million of limit and the price guidance has now been lowered significantly to a range of 6.25% to 6.75%.

The Class B tranche is now also targeting $100 million to $150 million of limit for Fidelis and pricing has been lowered to the bottom-end of guidance at 9%.

The Class C notes remain at $25 million in size and their price guidance has been reduced to 16% to 16.25%.

Update 2:

At final pricing the Herbie Re 2020-2 catastrophe bond issuance was fixed at $275 million in size for sponsor Fidelis.

The Class A tranche settled at $100 million in size, with pricing at 6.25%.

The Class B tranche settled at $150 million in size, with pricing at 9%.

The Class C tranche settled at $25 million in size, with pricing at 16%.

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