Fidelis returns for second Herbie Re cat bond, a $175m multi-peril deal

Fidelis has returned to the catastrophe bond market for its second transaction, as the company looks to embed the capital markets more deeply within its reinsurance program arrangements with a $175 million Herbie Re Ltd. (Series 2020-2) issuance.

Fidelis Insurance Holdings Limited, the specialty insurance and reinsurance company launched by industry veteran Richard Brindle, sponsored its first catastrophe bond earlier this year.

The company secured a $125 million source of collateralised multi-peril reinsurance protection with the Herbie Re Ltd. (Series 2020-1) cat bond deal and now returns looking to upsize on that with a second 2020 issuance.

Using the same Herbie Re Ltd. Bermuda-domiciled special purpose insurer (SPI), Fidelis is seeking to secure three layers of reinsurance coverage, all on an industry loss trigger basis against losses from named storms or earthquakes across the United States and territories including Puerto Rico, the U.S. Virgin Islands, and District of Columbia, sources told us.

The Herbie Re 2020-2 cat bond will provide Fidelis with first-event coverage, where as the first 2020-1 transaction provides the company with second-event protection.

For this second Herbie Re catastrophe bond, the special purpose insurer will seek to issue three tranches of notes, two of which will provide coverage across a four-year term and the other across two-years.

All three tranches of notes will be sold to cat bond funds and investors, with the proceeds used to collateralise the underlying reinsurance agreements between the SPI and Fidelis’ Bermuda underwriting entity, we understand.

All three tranches of Series 2020-2 notes will provide named storm and earthquake reinsurance protection, using a territory weighted industry loss index reported by PCS.

Coverage is after a per-event franchise deductible for each tranche, while the three will provide layers coverage, sitting on top of each other in Fidelis’ reinsurance tower.

Herbie Re Ltd. will issue a $75 million tranche of Class A notes that have an initial expected loss of 2.07%, will provide four years of reinsurance protection and are being offered to cat bond investors with price guidance of 6.75% to 7.5%.

An also $75 million tranche of Cklass B notes have an initial expected loss of 3.61%, also provide four years of reinsurance coverage and are being offered to investors with coupon price guidance of 9% to 9.75%.

The final Class C tranche of notes are $25 million in size and these will provide Fidelis with reinsurance across just a two year term. They have an initial expected loss of 7.59% and are being offered to investors with price guidance of 16.25% to 17.25%.

All three tranches will therefore provide ILW-like coverage, stacked one on top of the other, for Fidelis.

It’s encouraging to see Fidelis looking to the catastrophe bond market and insurance-linked securities (ILS) investors as capital support for its growing business.

Having raised new capital this year, Fidelis is primed for further growth and property catastrophe risks is a clear area of opportunity in the currently hardening reinsurance market.

As a result, locking in multi-year cat bond coverage against its peak perils is a shrewd move, providing Fidelis with the capacity support from the capital markets that can assist it as its underwriting portfolio expands.

We’ll keep you updated as this second catastrophe bond from Fidelis comes to market.

Read all about this Herbie Re Ltd. (Series 2020-2) transaction from Fidelis and every other catastrophe bond issued in the history of the market in our Deal Directory.