The new Herbie Re Ltd. (Series 2020-1) catastrophe bond transaction that is sponsored by specialty insurance and reinsurance firm Fidelis Insurance Holdings Limited has successfully been upsized by the target 25% to reach $125 million of coverage for the company.
At the same time, we’re told that the pricing has now been fixed at the top-end of initial guidance, the latest reflection of insurance-linked securities (ILS) investors demand for higher returns.
Fidelis came to the catastrophe bond market for the first time in May, bringing an at the time $100 million Herbie Re 2020-1 transaction to market as its first cat bond sponsorship attempt.
The Herbie Re cat bond will provide Fidelis with a source of capital markets backed multi-peril collateralised retrocessional reinsurance, on a second event basis. Which is a form of coverage not as commonly seen in the cat bond market these days.
In order to be triggered and cause investors to lose any principal, the Herbie Re catastrophe bond will need to face two qualifying catastrophe events that cause an industry loss above a pre-defined level during a single risk period.
Herbie Re will therefore provide similar coverage to a second-event industry loss warranty (ILW), protecting Fidelis against more than one major U.S. natural catastrophe loss event occurring during a single season or year.
The Herbie Re cat bond issuance has now successfully been upsized by 25% and will issue a $125 million tranche of Series 2020-1 Class A notes that will be exposed to industry losses above a certain magnitude from U.S. named storms and U.S. earthquakes, with Puerto Rico, the U.S. Virgin Islands and District of Columbia among the covered areas.
The Herbie Re cat bond will provide Fidelis with reinsurance protection across a four-year term and on an industry loss and per-occurrence basis, for second-events that occur.
The $125 million tranche of Series 2020-1 Class A notes to be issued by Herbie Re Ltd., which have a base expected loss of 2.39%, were initially offered to cat bond funds and investors with coupon price guidance in a range from 8.5% to 9%.
We’re told that the pricing has now been fixed at the top-end of guidance, with the notes set to pay investors a coupon of 9% and that represents a multiple of almost 3.8 times the base expected loss of 2.39%
Accessing the capital markets with this Herbie Re Ltd. catastrophe bond affords Fidelis access to an efficient source of hedging capacity from the capital markets.
Alongside Fidelis’ new capital raise that was announced this week, the cat bond also presents a way to bring more efficient capital within its core business to help it to expand its underwriting capacity, while offsetting the risk of major losses in the key United States marketplace.