Herbie Re Ltd. (Series 2021-1)

This is the third catastrophe bond transaction to be sponsored by expansive underwriter Fidelis and with this deal the company is seeking to secure collateralized retrocessional reinsurance for a much broader range of perils around the globe.

In fact, this will be one of the most worldwide catastrophe bond transactions in history once completed, given the multi-territory and peril nature of the coverage it will provide to Fidelis Insurance.

Herbie Re Ltd., Fideli’s Bermuda-domiciled special purpose insurer (SPI), will look to issue a single tranche of Series 2021-1 Class A notes that will be sold to cat bond investors and the proceeds used to collateralize retro reinsurance agreements between the SPI and Fidelis Insurance Bermuda, the ceding company.

The single layer of reinsurance protection provided will be structured on an annual aggregate and industry loss index basis, across a four-year term and four individual annual risk periods to the end of May 2025, sources said.

As said, this is a particularly wide-reaching catastrophe bond deal, with the coverage resembling a worldwide industry loss warranty (ILW).

The covered perils and regions included are: North America (inc. Canada) named storm, North America (inc. Canada) earthquake, US severe thunderstorm, US wildfire, US winter storms, US Caribbean earthquake, Japan typhoon, Japan earthquake, Canada severe storm, Canada winter storm, European windstorm, Italy earthquake, Turkey earthquake, Australia earthquake, Australia tropical cyclone, NZ earthquake.

Each peril covered features a franchise deductible, while there are caps for coverage for North America named storm and earthquake, as well as US Caribbean quake risks.

PCS and PERILS are both being used as reporting agencies for this Herbie Re 2021-1 catastrophe bond, with the perils split across the two industry loss data aggregators.

The target is for just $50 million of coverage, but of course that could increase if investor demand allows.

The Series 2021-1 Class A notes will attach at $50 billion of losses, we understand, giving them an initial attachment probability of 11.43% and an initial expected loss of 7.32%, while the notes are being offered to investors with price guidance in a range from 17.75% to 18.5%, we’re told.

The coverage spans industry losses to $70 billion and there is a cap for the contribution of losses for any US named storm event of and for any North America or US Caribbean earthquake of $35 billion.

Update 1:

Fidelis’ target for its latest catastrophe bond has now tripled to $150 million of coverage, while the pricing has fallen to a revised range of 17.25% to 17.75%, we understand.

Update 2:

At pricing, the Herbie Re 2021-1 catastrophe bond was fixed at the upsized $150 million in size, while pricing fell to the bottom-end of the revised guidance, at 17.25%, representing a roughly 5% decline in spread (from the initial mid-point) over the marketing of the deal.

Update – 2024:

Losses from hurricane Ian in September 2022, the Turkey earthquake in Feb 2023 and US severe convective storms (SCS) have taken the aggregate total above the attachment point of $50 billion, we understand.

As a result, there has been a recovery and a principal reduction to $139.74m, while that remaining principal outstanding is now marked for between a 30% to 40% loss as well, suggesting the market anticipates further recoveries are possible.

Later in 2024, the Herbie Re 2021-1 Class A notes saw their principal further reduced to $130.1 million after the aggregate loss total crept higher and triggered a further recovery for Fidelis.

Update – January 2025:

The Herbie Re 2021-1 Class A cat bond notes are exposed to losses due to the Los Angeles, California wildfires that have come on top of some erosion of attachment deductible earlier in the latest annual aggregate risk period for the notes.

The notes were marked down for bids as low as 10 cents on the dollar, implying the market was anticipating a meaningful loss to the notes.

Update – March 2025:

We understand Fidelis is set to make a further recovery from these notes following the wildfires in California in January.

We’re told that $98.1 million of the remaining $130.1 million of principal will be recovered by the company. This is due to loss activity in the fourth risk period, which included hurricanes Helene, Milton and the Jan 2025 wildfires in California.

The notes were marked as low as for bids of just 1 cent on the dollar as of the start of March. Now, there will be $32 million of principal remaining to cover any further increase in the aggregate loss total for the risk period that runs through to May, in case of new events or loss creep related to prior events in the fourth annual risk period.