Despite the fact the initial risk interest spread offered for Fidelis’ new Herbie Re Ltd. (Series 2022-1) catastrophe bond had been raised roughly 30% above the initial mid-point of price guidance, the targeted size has been reduced somewhat in the final stage of marketing the deal, Artemis is told.
Recall that specialty insurance and reinsurance company Fidelis Insurance Holdings 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.
This Herbie Re 2022-1 catastrophe bond issuance targets capital market backed retro reinsurance for 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 $100 million of Series 2022-1 Class A notes that were being offered come with an expected loss of 3.37% and at launch to investors were marketed with spread guidance for investors of between 9.25% and 10%.
That initial risk interest spread was subsequently raised roughly 30%, from the initial mid-point, as we reported at the time, with the notes then offered at 12.5%, which we understand to have been raised following investor feedback.
The latest we’ve heard from sources is that the targeted issuance size is now from $75 million to $100 million, which is likely another signal of investor appetite not being particularly strong for the new Herbie Re 2022-1 cat bond, which is likely both a function of elevated risk aversion in the wake of another major loss from hurricane Ian, plus many cat bond funds only having so much available investable cash at the current time and wanting to spread that across a number of new deals.
We’re also told that alongside the raising of a premium paid for an early redemption of the notes and the lifting of an extension spread for a first event by 50%, there have been other changes to the terms and conditions of the cat bond, again after feedback from investors.
It’s good to see Fidelis working through these items of feedback and given its constructive response, in terms of raising the risk interest spread and amending a variety of terms, the company may well end up being rewarded and could still secure the initial minimum target size of $100 million, we’ll update you when any information becomes available on the final pricing and execution of this deal.