Herbie Re Ltd. (Series 2024-2)

Fidelis Insurance is back in the catastrophe bond market seeking to sponsor issuance of its sixth Herbie Re cat bond, as the company looks to expand its capital markets backed sources of industry-loss based retrocessional reinsurance.

Using its Bermuda-based special purpose insurer Herbie Re Ltd., Fidelis is targeting the issuance of three tranches of Series 2024-2 cat bond notes, with a preliminary target to secure at least $300 million in retro protection from the deal, we understand.

Using its Bermuda-based special purpose insurer Herbie Re Ltd., Fidelis is targeting to secure at least $300 million of retro protection through the issuance of three tranches of Series 2024-2 cat bond notes, we are told.

The cat bond notes will be sold to funds and investors, while the proceeds will be used to collateralize retrocessional reinsurance agreements between the SPI Herbie Re and ceding company, which is Fidelis Insurance Bermuda.

All three tranches of notes will provide Fidelis with a multi-year source of annual aggregate and territory weighted industry loss index triggered protection, we understand.

While the $300 million or more in industry-loss based risk transfer protection will be for the perils of US named storm and US earthquake risks, including DC, Puerto Rico and the US Virgin Islands, which is the same group of perils as Fidelis’ last cat bond that it sponsored in February 2024.

Two of the tranches of notes will provide Fidelis with roughly four years of coverage, running from issuance to the end of 2028, while the third tranche will cover just over two years, running to the end of 2026, sources said.

Being annual aggregate and industry loss in nature, we’re told the cat bond notes will require a franchise deductible of $20 billion per-event to be breached for a catastrophe industry loss event to qualify under the terms of the transaction.

Each of the three tranches of Series 2024-2 notes that Herbie Re Ltd. is offering will cover a different layer of risk for Fidelis and so this transcation will provide investors with a range of options, depending on their risk appetites.

A $150 million Class A tranche of notes will provide four years of protection to the end of 2028, attaching at $110 billion of aggregate industry losses and exhausting at $150 billion, giving them an initial attachment probability of 3.89%, an initial expected loss of 3.09% and initial price guidance of 7.5% to 8.25%, we understand.

An also $150 million Class B tranche of notes will also provide Fidelis with four years of protection to the end of 2028, but would attach lower down at $78 billion of aggregate industry losses and exhaust at $121 billion, giving them an initial attachment probability of 6.56%, an initial expected loss of 4.7% and initial price guidance of 11% to 12%, we are told.

The final Class C tranche of notes are as yet unsized and will provide just two years of cover to the end of 2026, with a lower still attachment point at $38 billion of aggregate industry losses and exhaustion at $78 billion, giving them an initial attachment probability of 15.21%, an initial expected loss of 10.42% and initial price guidance of 22% to 23%, so being the riskiest of the three tranches of notes on offer.

Update 1:

Fidelis is now targeting $375 million of retrocessional reinsurance from this new cat bond, making it the largest it has sponsored yet.

A $150 million Class A tranche of notes remain at that size, but their price guidance has now fallen to between 7.25% and 7.5%, we understand.

A $150 million Class B tranche of notes also remain the same size, but their pricing too has fallen to a range of 10.75% to 11%.

The final Class C tranche of notes are now sized at $75 million and their pricing has now been fixed at the upper-end of 23%.

Update 2:

Fidelis is now targeting $375 million of retrocessional reinsurance from this new cat bond, making it the largest it has sponsored yet.

A $150 million Class A tranche of notes priced to pay investors a spread of 7.25%, so below the initial guidance.

A $150 million Class B tranche of notes priced to pay investors a risk interest spread of 10.75%, again below the initial guidance.

A $75 million Class C tranche of notes priced to pay investors 23%, which was the top-end of initial guidance.