The initial risk interest spread for Fidelis Insurance’s new Herbie Re Ltd. (Series 2022-1) North America earthquake focused catastrophe bond has been lifted roughly 30% during marketing, in another sign of cat bond investors’ demand for higher returns.
Specialty insurance and reinsurance company Fidelis Insurance Holdings Limited returned to the catastrophe bond market in October, seeking $100 million or more of retrocessional reinsurance against losses from earthquakes in peak regions of North America.
The Herbie Re 2022-1 catastrophe bond aims to secure capital market backed retro reinsurance for the sponsor, to provide Fidelis with industry-loss based risk transfer protection on an annual aggregate basis, against earthquake events in North America, or more specifically California, Oregon, Washington and Canada, across a roughly four-year term.
The $100 million of Series 2022-1 Class A notes being offered have an expected loss of 3.37% and at launch were being offered with spread guidance for investors of between 9.25% and 10%.
But, in another sign of the higher spread and return expectations of catastrophe bond fund managers and investors, that spread guidance has been lifted considerably.
Now, we understand from sources that the initial risk interest spread has been raised roughly 30%, from the initial mid-point, with the notes now offered at 12.5%.
At that level, the multiple-at-market for this new Herbie Re cat bond from Fidelis would be 3.7 times the expected loss.
In addition, sources said that the premium paid for an early redemption of the notes has been raised significantly in the terms, while an extension spread for a first event has also been lifted by 50%.
All of which means higher compensation for those investors taking on the risk of this new cat bond from Fidelis, which aligns with the hardening of reinsurance and retrocession and the elevated spread levels being seen in the cat bond market.