Herbie Re Ltd. (Series 2024-1)

Fidelis Insurance has returned to the catastrophe bond for what will be its fifth issuance of a Herbie Re cat bond, as the company seeks to expand its sources of industry-loss based retrocession from the capital markets.

Using its Bermuda-based special purpose insurer Herbie Re Ltd., Fidelis is targeting the issuance of two tranches of Series 2024-1 cat bond notes, with a preliminary target to secure at least $150 million in protection from the deal, we are told.

The notes will be sold to cat bond investors and the proceeds used to collateralize retro reinsurance agreements between the SPI and ceding company Fidelis Insurance Bermuda.

Both tranches of notes will provide their protection to Fidelis on an annual aggregate and regionally weighted industry loss index basis.

The notes will provide Fidelis with a targeted $150 million in industry-loss based risk transfer protection, for the perils of US named storm and US earthquake risks, including DC, Puerto Rico and the US Virgin Islands.

The coverage will be over an almost four year term, to the end of 2027, but we understand that there is a non-renewal clause in this cat bond, which would allow Fidelis to redeem the cat bond at the end of each annual risk period, which will be January of each year from 2025. That will give the re/insurer the flexibility to cancel the coverage and renew it elsewhere, with a redemption premium to be paid, should it choose.

We are also told that the aggregate industry loss trigger cat bond structure features a $20 million franchise deductible before loss events can qualify under its terms. It’s worth noting that this franchise deductible is double the $10m that was in place on the last comparable cat bond with named storm aggregate cover that Fidelis sponsored.

As said, Herbie Re Ltd. will issue two tranches of Series 2024-1 cat bond notes, each providing protection to Fidelis at different industry-loss trigger levels.

A $100 million Class A tranche of notes will have an initial attachment probability of 3.78%, an initial expected loss of 2.92% and are being offered to cat bond investors with spread guidance in a range from 7.75% to 8.5%, sources said.

The second tranche, of $50 million Class B notes, will have an initial attachment probability of 6.36% so are the riskier layer, an initial expected loss of 4.51% and are being offered to cat bond investors with spread guidance in a range from 10.75% to 11.5%.

Update 1:

Fidelis is targeting to secure its latest catastrophe bond with pricing at the bottom of initial spread guidance or even lower, we understand, although the size target remains $150 million with no change to the individual tranche sizes so far.

The Class A notes spread guidance has been lowered to a new range of 6.75% to 7.75%, at the mid-point of which would equate to a roughly 11% drop in pricing for these notes from the mid of initial guidance.

The Class B notes spread guidance has also been lowered, to a new range of 9.75% to 10.75%, which again at the mid-point of which would represent a roughly 8% drop in pricing from the mid of initial guidance.

Update 2:

Fidelis reduced the price guidance even further for its new Herbie Re 2024-1 catastrophe bond while it was being marketed, seeking to improve further on the execution.

The latest update shows that the spread guidance for the $100 million Class A notes has now been lowered to a new range of 6% to 6.75%. Should the Class A notes be priced at the mid-point of this latest guidance it would represent a roughly 22% decline from the initial guidance mid-point.

The spread guidance for the $50 million Class B notes has now been reduced to between 9% and 9.75%. Should the Class B notes be priced at the mid-point of this latest guidance it would represent a nearly 16% decline from the initial guidance mid-point.

Update 3:

Fidelis secured the targeted $150m of retro with its latest Herbie Re 2024-1 catastrophe bond, while the pricing was finalised at the bottom ends of the twice reduced guidance, for a particularly strong execution.

The final pricing for the $100m Class A notes is at the bottom of the twice reduced range, for a spread of 6%, representing a roughly 26% drop in price for these notes.

The final pricing for the Class B notes has been fixed at the bottom end of the twice reduced range, as well for a spread of 9% to be paid, representing a 19% drop in price for these notes.

The spread multiples-at-market are relatively low at around 2 times the expected loss.