Build America secures $275m Fidus Re financial guarantee ILS, the largest yet

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Build America Mutual Assurance Company, the financial guarantee and municipal bond specialist, has been back in the insurance-linked securities (ILS) market and secured its largest deal yet, with the new Fidus Re Ltd. (Series 2025-1) securitization and note issuance providing it $275 million of collateralized reinsurance.

This is now the fourth securitization of financial guarantee insurance risks sponsored by Build America Mutual, and as the largest yet it shows the insurer placing the capital markets at the heart of its reinsurance arrangements, utilising catastrophe bond technology to achieve it.

Build America Mutual was set up by the National League of Cities with initial capital from White Mountains and is focused on U.S. municipal-only bonds.

The company had opened a new avenue in the ILS market back in 2018 with its first $100 million Fidus Re Ltd. (Series 2018-1) transaction, the debut catastrophe bond structure used for transferring financial guarantee insurance risks to the capital markets.

Build America Mutual (BAM) then came back to the insurance-linked securities (ILS) market in 2021 with a larger $150 million Fidus Re Ltd. (Series 2021-1) issuance, expanding the capital markets participation in its reinsurance tower on a fully-collateralized basis.

Then in 2022 BAM returned again, securing a further $150 million placement of Fidus Re Ltd. (Series 2022-1) securitized notes with capital market investors, with the proceeds of that sale collateralizing a financial guarantee reinsurance agreement between its Fidus Re Ltd. special purpose vehicle and the insurer.

Now, BAM is back again and this time has seen its Fidus Re Ltd. special purpose insurer in Bermuda issuing $275 million of Series 2025-1 Class A notes, the largest deal yet for the company.

Fidus Re Ltd. sold the $275 million of notes to investors and the proceeds have been used to collateralize an excess-of-loss reinsurance agreement between Fidus Re and the sponsor, Build America Mutual Assurance Company.

The $275 million of Series 2025-1 Class A notes are exposed to losses from BAM’s financial guarantee insurance business, on an indemnity trigger basis.

These are long-tenure ILS arrangements, with this latest Fidus Re 2025-1 issuance having maturity set for January 8th 2037, so providing almost 12 years of fully-collateralized financial guarantee reinsurance to sponsor BAM, the same tenure as the previous three Fidus Re deals.

This long-tenure of the notes enables Build America Mutual to lock-in reinsurance protection from the institutional capital markets, as a source of differentiated and efficient reinsurance risk capital to back its growing financial guarantee underwriting business.

For the $275 million of Series 2025-1 notes, BAM has again chosen to secure a rating, using rating agency KBRA, and securing ‘AA’ ratings for the insurance-linked notes.

KBRA noted that concurrently with this new issuance, the Series 2018-1 Fidus Re notes are being called and fully redeemed.

The Fidus Re 2025-1 cat bond like structure will provide BAM with reinsurance protection for aggregate losses exceeding a $190 million attachment point on a defined, static portion of BAM’s in-force financial guaranty portfolio, KBRA explained.

KBRA further stated, “The Covered Portfolio is a static pool comprising policies underwritten by BAM before November 30, 2024, and excludes exposures covered under prior Fidus transactions. Eligible outstanding exposure previously covered by Fidus I is now covered by the excess of loss facility associated with this transaction, following the redemption of Fidus I notes. Over time, the par amount of the Covered Portfolio will decline due to scheduled amortization and redemptions. The portfolio generally includes limited exposure in the healthcare sector (underwritten in primary and secondary markets) and the public student housing sector though the overall credit profile of the portfolio remains largely unchanged.”

KBRA also noted that its analysis found that losses exceeding the $190 million attachment point during the risk period are unlikely, which limits the risk of withdrawals from the Collateral Account.

Losses during the risk period are covered only once they exceed the $190 million attachment point, up to a maximum payout of $275 million, the size and so amount of collateralized reinsurance protection from this latest issuance.

As we always explain, these notes won’t appeal to every ILS fund and investor, as they cannot be said to be as non-correlating as catastrophe risk bonds.

But they still have an appeal for a wide range of institutional investors, as well as some ILS funds and multi-strategy investors with broader mandates.

As rated securities these can also garner plenty of investor attention and given the increased size of the new issuance it seems BAM has been able to capitalise on that this year.

You can read about all of Build America Mutual’s financial guarantee ILS deals under Fidus Re here.

You can read all about this second financial guarantee ILS transaction, Fidus Re Ltd. (Series 2025-1), from Build America Mutual in our comprehensive ILS and catastrophe bond Deal Directory.

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Build America secures $275m Fidus Re financial guarantee ILS, the largest yet

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