Swiss Re Insurance-Linked Fund Management

PCS - Emerging Risks, New Opportunities

Herbie Re Ltd. (Series 2022-1)

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Herbie Re Ltd. (Series 2022-1) – 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: North American earthquake
  • Size: $80m
  • Trigger type: Industry loss index
  • Ratings: NR
  • Date of issue: Nov 2022

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

This is the fourth Herbie Re catastrophe bond transaction to be sponsored by expansive specialty insurance and reinsurance underwriter Fidelis Insurance Holdings Limited.

With its latest cat bond, Fidelis is seeking at least $100 million of retrocessional reinsurance against losses from earthquakes in peak regions of North America.

The firm’s Bermuda-based special purpose insurer Herbie Re Ltd. will seek to issue a single Class A tranche of Series 2022-1 notes, with a preliminary target for $100 million in size.

The notes 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 regionally weighted industry loss index basis, across a roughly four-year term and four individual annual risk periods to the end of December 2026.

The notes will provide Fidelis with industry-loss based risk transfer protection against earthquake events in North America, or more specifically California, Oregon, Washington and Canada.

Previously, Fidelis’ cat bonds have covered worldwide perils, like its 2021 Herbie Re, or US named storm and quakes, like the two cat bonds sponsored in 2020 by the firm.

The $100 million of Class A notes will come with an industry attachment at $12.5 billion and exhaustion at $20 billion, we’re told, giving them a attachment probability of 4.11%, an expected loss of 3.37% and the notes are being offered with coupon guidance of between 9.25% and 10%.

We lack comparisons for earthquake cat bonds that are aggregate retro focused, so it’s hard to tell whether the multiple on offer is much higher than previous deals. But it’s certainly higher than occurrence quake cat bonds we’ve seen over the last few years, suggesting an uplift in spreads.

Update 1:

We’re told that the initial risk interest spread has been raised roughly 30%, from the initial mid-point, with the notes now offered to investors at an updated level of 12.5%.

At that level, the multiple-at-market for this new Herbie Re cat bond from Fidelis would be 3.7 times the expected loss.

In addition, sources said that the premium for an early redemption of the notes has been raised significantly in the terms, while an extension spread for a first event has also been lifted by 50%.

Update 2:

We understand that Fidelis has eventually secured only $80 million of retro reinsurance earthquake coverage from this new Herbie Re 2022-1 catastrophe bond issuance, so below its original $100 million target.

The risk interest spread settled at 12.5%, so at the revised level that is roughly 30% higher than the initially marketed mid-point of pricing.

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