BAM obtains $150 million in Fidus Re 2022 ILS financial guarantee

Build America Mutual Assurance Company, the financial guarantee and municipal bond specialist, has returned to the insurance-linked securities (ILS) market and secured an additional $150 million of secured reinsurance through a new securitization and note from Fidus Re Ltd. (series 2022-1) broadcast.

This is the third financial guarantee insurance risk securitization sponsored by Build America Mutual, as the insurer continues to put capital markets at the heart of its reinsurance arrangements and uses catastrophe bond technology to support them. to arrive at.

Build America Mutual was created by the National League of Cities with initial capital from White Mountains and focuses on US municipal bonds only.

The company broke new ground in the ILS market in 2018 with its first $100 million transaction Fidus Re Ltd. (Series 2018-1), the first catastrophe bond as a vehicle to transfer financial guarantee insurance risks to capital markets.

Build America Mutual (BAM) returned in 2021 with a larger $150 million deal with Fidus Re Ltd. (series 2021-1), expanding capital markets participation in its reinsurance tower on a fully collateralized basis.

Now BAM is back, to place an additional $150 million this time of Series 2022-1 notes with capital market investors, with proceeds from that sale securing a reinsurance deal between its special purpose vehicle Fidus Re Ltd. and the insurer.

Fidus Re Ltd. is a Bermuda-based special purpose insurer (SPI) that issues and sells notes to investors, with proceeds used to underwrite an excess of loss reinsurance agreement between Fidus Re and sponsor, Build America Mutual Assurance Company.

The $150 million Series 2022-1 Class A Notes are exposed to losses from BAM’s financial guarantee insurance business, based on an indemnity trigger.

These are long-duration ILS agreements, with this latest Fidus Re 2022-1 issue maturing at the end of 2024, thus providing almost 12 years of fully guaranteed financial guarantee reinsurance to sponsor BAM, the same duration than the two previous Fidus Re offers.

The long term helps Build America Mutual lock in reinsurance protection from institutional markets, as a differentiated and effective source of risk capital to support its growing financial guarantee underwriting business.

With this latest Fidus Re 2022-1 ILS Financial Security Agreement now in effect, BAM said its claims payment resources total over $1.4 billion.

BAM calls Fidus Re an “innovative tool for mutual insurers to access capital markets” with trusts fully backed by assets held in money market funds and coverage funded by the sale of insurance-linked notes from the 2022-1 series by Fidus Re.

Similar to the last issue of Fidus Re in 2021, for series 2022-1 notes, BAM again chose to obtain a rating, using rating agency KBRA to obtain “AA” ratings for the new issuance of $150 million of insurance-linked notes.

Seán W. McCarthy, CEO of BAM, explained: “Fidus Re’s latest transaction demonstrates BAM’s focus on serving our issuer members and investors while maintaining excellent financial strength.

For 2022, the structure of the Fidus Re transaction is substantially the same as the previous transactions.

Noteholders are exposed to losses in excess of a $110 million hold on a hedged portfolio, in which case they share 90% of the losses on a $167 million layer of the tower above.

The excess of loss reinsurance agreement provides that the Fidus Re 2022-1 notes offer coverage against global losses that exceed this attachment point, on the predefined and above all static part of BAM’s in-force financial guarantee portfolio.

Each of the three ILS transactions of Fidus Re financial guarantee covers a different predefined and static portfolio of activities in question composed of a scheduled payment of principal and interest on certain obligations which have already been insured by BAM.

It’s good to see Build America Mutual persist in its use of insurance-linked securities (ILS) technology to tap capital markets’ appetite for insurance risk and secure collateral reinsurance.

As we’ve said before, these aren’t going to appeal to all ILS funds and investors, given that they can’t be said to be as uncorrelated as catastrophe bonds, but they have still appealing to institutional investors and some ILS. funds with broader mandates and rated securities may attract investor attention.

You can find out all about this second ILS financial guarantee transaction, Fidus Re Ltd. (series 2022-1), from Build America Mutual in our comprehensive directory of ILS and catastrophe bond transactions.

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