Fidelis is now set to secure $275 million of fully collateralised property catastrophe reinsurance from its second visit to the catastrophe bond market, as the Herbie Re Ltd. (Series 2020-2) issuance was priced at attractive levels and the sponsor seemed to value price over size in the end.
Specialty insurance and reinsurance company Fidelis Insurance Holdings Limited returned to the catastrophe bond market earlier this month for its second transaction, looking to secure a $175 million additional slice of capital markets backed reinsurance coverage for its program from insurance-linked securities (ILS) investors.
After a positive initial reception from ILS funds and investors, Fidelis’ ambitions increased, with the carrier targeting up to $300 million of coverage from the issuance and pricing declining on all tranches, as we explained in our last update on this cat bond deal.
Now, it appears Fidelis has looked to maximise on the efficiency of its second catastrophe bond placement, securing $275 million of catastrophe reinsurance limit from the capital markets at very attractive pricing levels.
So, the Herbie Re 2020-2 cat bond transaction will now provide Fidelis with $275 million of additional collateralized reinsurance on an industry loss trigger basis, against first-event losses from named storms or earthquakes across the United States and territories including Puerto Rico, the U.S. Virgin Islands, and District of Columbia.
At launch the new cat bond featured a $75 million tranche of Class A notes with an initial expected loss of 2.07% that will provide four years of reinsurance protection.
The target for this Class A tranche rose to between $100 million and $125 million of limit, but we’re told eventually settled at $100 million for Fidelis.
The Class A note pricing was offered to cat bond investors at 6.75% to 7.5%, but this guidance was lowered significantly to a range of 6.25% to 6.75% and has now settled at the bottom-end of guidance, at 6.25%.
The second tranche originally featured $75 million of Class B notes with an initial expected loss of 3.61% are also set to provide four years of reinsurance coverage.
The Class B tranche target lifted to between $100 million and $150 million of limit for Fidelis and we’re told that here the carrier has opted for the upper-end of coverage, securing $150 million from the Class B layer.
Coupon price guidance for the Class B notes began at 9% to 9.75%, which was subsequently lowered to the bottom-end of guidance at 9% and this is where pricing was fixed in the last couple of days, we understand.
The final Class C tranche of notes remained at $25 million in size. These will provide Fidelis with reinsurance across just a two year term and have an initial expected loss of 7.59%.
At first, the Class C notes were offered to investors with price guidance of 16.25% to 17.25%, which was reduced to 16% to 16.25% and at final pricing we’re told this settled at 16%.
So Fidelis has secured its $275 million of catastrophe reinsurance limit at what looks to be extremely good pricing and execution, given the declines in guidance and final pricing seen.
The company has leveraged the appetite of the capital markets very well here, to gain the greatest efficiencies from the coverage, in terms of reinsurance limit secured versus price paid for it.
Fidelis secured $125 million of collateralised multi-peril reinsurance protection with its Herbie Re Ltd. (Series 2020-1) cat bond deal earlier this year.
With this new $275 million of coverage from Herbie Re 2020-2, Fidelis will now benefit from $400 million of reinsurance backed by catastrophe bonds.