Fidelis sponsoring first catastrophe bond, a $100m Herbie Re Ltd. deal

A new catastrophe bond sponsor is coming to market in the shape of Fidelis Insurance Holdings Limited, the specialty insurance and reinsurance firm launched by Richard Brindle, which has launched its first transaction, a $100 million Herbie Re Ltd. (Series 2020-1) multi-peril cat bond deal.

Fidelis’ first catastrophe bond will provide it with collateralised reinsurance on a second event basis, we understand from sources, with the transaction only able to be triggered by two qualifying catastrophe events causing an industry loss index trigger to rise above a certain level during a single risk period.

In this way, the first Herbie Re Ltd. catastrophe bond provides a form of reinsurance coverage akin 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 year.

Herbie Re Ltd. has been established as a Bermuda based special purpose insurer for the issuance of series of catastrophe bond notes.

For its first issuance, Herbie Re Ltd. will bring to market a single Class A tranche of Series 2020-1 notes, which will be sold to investors and the proceeds used to collateralise reinsurance agreements between the SPI and Fidelis’ subsidiary Fidelis Insurance Bermuda Limited.

Herbie Re will issue a currently $100 million tranche of Series 2020-1 Class A notes that will be exposed to potential industry losses from U.S. named storms and U.S. earthquakes, with Puerto Rico, the U.S. Virgin Islands and District of Columbia also covered areas.

The reinsurance protection that the Herbie Re cat bond will provide to Fidelis will run across a four-year term and coverage is on an industry loss and per-occurrence basis, but with a twist.

We understand that the Herbie Re catastrophe bond can only be triggered if two qualifying industry loss events occur during a single risk period, making this transaction a second-event reinsurance cover for Fidelis.

There is an underlying industry loss index trigger based on PCS data and a qualifying threshold of a $20 billion event, we understand, and only if the two events each surpass this pre-defined index level would they qualify and cause a payout.

If that occurs though, the catastrophe bond has a binary payout structure, with all of its principal set to be lost if the two qualifying catastrophe losses are above the industry loss trigger level.

Second-event covers in the catastrophe bond market are actually relatively rare, with most sponsors preferring aggregate structures.

But as aggregate retrocession and reinsurance has moved out of favour a little and has been subject to higher and still rising pricing, this second-event industry loss trigger approach may gain a better reception from cat bond investors, given it would be easier to price and analyse.

We understand that the Series 2020-1 Class A notes to be issued by Herbie Re Ltd. will have a base expected loss of 2.39% and are being offered to cat bond funds and investors with coupon price guidance in a range from 8.5% to 9%.

It’s encouraging to see another new sponsor entering the catastrophe bond market, especially a company such as Fidelis that is highly respected in the market as an underwriter and a growing user of third-party reinsurance capital as well.

Tapping the catastrophe bond market with this Herbie Re Ltd. deal is likely both an efficient source of hedging capacity for the re/insurer, as well as a way to bring more efficient capital within its core business to expand its underwriting capacity and ability to do more in the United States market, a key source of growth for Fidelis.

You can read all about this new Herbie Re Ltd. (Series 2020-1) catastrophe bond in the Artemis Deal Directory and we’ll update you as the transactions proceeds to market.