In a clear signal of catastrophe bond market pricing and cat bond investor demand for adequate returns, Fidelis’ new Herbie Re Ltd. (Series 2022-1) catastrophe bond has been priced at a below-target size of $80 million, with the risk interest spread fixed at roughly 30% above the initially marketed mid-point.
Specialty insurance and reinsurance company Fidelis Insurance Holdings had returned to the catastrophe bond market in October, for its fourth issuance and latest Herbie Re cat bond deal.
At launch of this Herbie Re 2022-1 cat bond transaction, Fidelis was seeking $100 million or more of retrocessional reinsurance against losses from earthquakes in peak regions of North America.
But Fidelis has had to adjust its expectations through this cat bond issuance process, with the price rising and the targeted size ultimately falling short.
Now, sources have told us that the Herbie Re Ltd. Series 2022-1 Class A notes have been priced and the deal is now set to provide Fidelis $80 million of retro reinsurance against losses from North American earthquakes.
As a reminder, this Herbie Re 2022-1 cat bond will provide capital market backed retro reinsurance to Fidelis, on an industry-loss and annual aggregate basis, against earthquake events in North America, or more specifically California, Oregon, Washington and Canada, across a roughly four-year term.
The now confirmed as $80 million of Series 2022-1 Class A notes that will be issued come with an expected loss of 3.37%. More details can be found in our Deal Directory entry for this cat bond.
At launch to investors, the Herbie Re 2022-1 Class A notes were marketed with spread guidance for investors of between 9.25% and 10%, but that was lifted significantly to 12.5%, 30% higher than the original mid-point.
We’re now told that this is where the $80 million of notes have been priced, so they will offer investors a multiple of 3.7 times the initial base expected loss.
The $80 million size is above the low-end of the revised target. As we reported last week, sources said that the target offering size was being pitched as $75 million to $100 million in revised offering memoranda.
As well as falling short on size and having priced far above initial targets, recall that other features of the terms related to this cat bond had been adjusted during the marketing process.
We’re told this was in response to cat bond fund manager and investor feedback, as they sought to be better compensated for taking on this risk from Fidelis.
But it’s positive that Fidelis persisted and responded favourably to cat bond investor feedback, resulting in another successful catastrophe bond sponsorship for the re/insurer.