Fidelis to get $98m from Herbie Re 2021-1 cat bond for CA wildfire, 2024 hurricane losses

Fidelis is set to benefit from a roughly $98 million additional retrocessional reinsurance recovery from its aggregate industry-index trigger Herbie Re Ltd. (Series 2021-1) catastrophe bond, as losses from the California wildfires, added to those from hurricanes Helene and Milton earlier in the risk period, have eaten into the remaining principal of these notes.

Catastrophe bond investors will therefore play a role in supporting Fidelis’ recovery from some of the major losses that impacted the industry in 2024 and 2025, just as they had done previously after the second risk period through the same catastrophe bond deal.

The Herbie Re 2021-1 catastrophe bond initially provided Fidelis with $150 million of broad, global peak peril focused industry-loss based retrocessional reinsurance.

Sponsored in May 2021, the annual aggregate coverage runs across four risk periods, with the final one complete at the end of May 2025.

Previously, this Herbie Re 2021-1 Class notes had seen their principal reduced twice over losses from the June 2022 to end of May 2023 risk period, as aggregate losses from a range of catastrophe events caused reinsurance recoveries to come due for Fidelis.

The upshot was a reduction in principal of the notes to $130.1 million, which is where the outstanding had sat through until this month, we understand.

We’re told an event notice was filed at the end of February 2025 that explained how aggregate industry losses from hurricanes Helene and Milton in 2024, as well as from the California wildfires (both Eaton and Palisades) in January 2025, had fully-eroded the aggregate deductible and attached the coverage of the Herbie Re 2021-1 cat bond notes again.

As a result, we’re told the additional principal reduction is going to be made soon, amounting to a further roughly $98 million reinsurance recovery for Fidelis, which will leave just $32 million of the Herbie Re 2021-1 cat bond remaining outstanding.

We understand that the attachment had not been reached prior to the wildfires, meaning they are the driver of the recoveries set to be made. But without the occurrence of the two hurricanes in 2024, it seems likely these notes may not have attached for as much of a recovery to be due after the wildfires, according to our sources.

In fact, prior to the wildfires these notes were marked for bids around 85 to 90 cents on the dollar against the $130.1 million of remaining principal at the time, but recently by the end of February they had been marked down to single digits, as low as bids of just 1 cent as the cat bond market anticipated these losses, we are told.

The Herbie Re 2021-1 Class A cat bond notes and their now remaining $32 million of principal will remain on-risk until the end of May this year, after which they will mature.

Should Fidelis’ aggregate loss tally (applicable to these notes) for the current risk period rise further, it could drive additional recoveries up to that time, when the fourth risk period ends. As a result, that should cover any loss creep related to the wildfires, the 2024 hurricanes and also any new losses by perils that occur through the next few months.

Fidelis could extend the maturity, of course, to retain the remaining principal in case of additional loss creep.

Finally, given the Eaton fires in Los Angeles have been named as one of the events that have driven the rise in aggregate losses under this cat bond, there could be a chance of subrogation. Although it is not clear to us whether that has already been taking into account.

We suspect not though, as it’s more typical for recoveries to be made and then for subrogation to flow back after, which could have the potential to reduce the principal loss for cat bond investors, although there is no certainty on this fact at this time.

Read all about Fidelis’ Herbie Re Ltd. (Series 2021-1) catastrophe bond and every other cat bond deal in the Artemis Deal Directory.

Details of catastrophe bonds facing losses, deemed at risk, or already paid out, can be found in our cat bond losses Deal Directory here.