Swiss Re Insurance-Linked Fund Management

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One of BAM’s Fidus Re financial guarantee ILS has ratings upgrade


One of the insurance-linked securities (ILS) sponsored by financial guarantee and municipal bond specialist Build America Mutual Assurance Company has had its ratings upgraded, while another has been affirmed, as the chance of losses being faced has decreased on quicker than scheduled amortisation of the underlying business.

build-america-mutual-logoBuild America Mutual has accessed the capital markets for a securitization of financial guarantee insurance risks three times now, with financial guarantee ILS transactions issued in 2018, 2021 and 2022.

With these securitized arrangements, the insurer has put the capital markets at the heart of its reinsurance arrangements and utilised catastrophe bond technology to achieve that.

A bit like the mortgage ILS deals we cover, the underlying book of business amortises down over-time with the Fidus Re series of transactions, meaning the potential risk associated with an investment in the ILS notes issued declines over-time.

Now, Kroll Bond Rating Agency has upgraded its rating on the Fidus Re Ltd. (Series 2018-1) issuance to AA+ and at the same time affirmed its AA rating on the Fidus Re Ltd. (Series 2021-1) transaction.

Each were issued and sold to investors to fund collateralized excess-of-loss reinsurance agreements that provide additional claims-paying resources for Build America Mutual, the rating agency noted.

KBRA also said that the upgrade of the 2018-1 notes, “primarily reflects actual amortization of the financial guarantee portfolio at a rate which exceeds the scheduled amortization at transaction issuance.”

Meaning, “the likelihood or probability that the modeled stress losses on the insured credit risk will exceed the attachment point has decreased, even at a higher confidence interval.”

At this time, BAM has paid no losses on the credits covered by the Fidus reinsurance agreements, KBRA said.

The Fidus Re 2018-1 deal provides BAM with reinsurance cover against losses in excess of $165 million on a covered portfolio that includes most transactions insured through December 31, 2017. While the Fidus Re 2021-1 deal provides reinsurance against losses in excess of $135 million on a covered portfolio that primarily includes transactions insured by BAM between January 1, 2018 and October 31, 2020.

Read about all of the Fidus Re financial guarantee insurance-linked securities (ILS) in our Deal Directory.

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