NFIP’s Helene loss estimate rises to $6.75bn. Two cat bonds prolonged with partial repayment

Artemis has learned that FEMA has increased its estimate for National Flood Insurance Program (NFIP) losses from hurricane Helene, raising the figure to $6.75 billion and consequently two FloodSmart Re catastrophe bond tranches have had their maturity dates prolonged, with partial repayments of principal to be made.

The U.S. Federal Emergency Management Agency’s (FEMA) initial estimate for NFIP claims from hurricane Helene’s flooding was put in a variety from $3.5 billion to as much as $7 billion back in November.

Now, sources have told us that the NFIP’s ultimate net loss from the hurricane event has been updated to an estimate for $6.75 billion of losses to the flood insurance program.

Because of this, this estimate is at a level that might cause some small losses to one among the FloodSmart Re catastrophe bond tranches, while it’s also nearing the attachment point for FEMA’s traditional flood reinsurance program.

The maturity extensions relate to the FloodSmart Re Ltd. (Series 2022-1) cat bond issuance from February 2022.

That cat bond was scheduled to mature in February 2025, but with FEMA’s estimate for hurricane Helene losses to the NFIP now at $6.75 billion, the choice has been taken to increase maturity for 2 of the three tranches of this FloodSmart Re 2022-1 cat bond.

This cat bond featured three tranches of notes and the extensions of maturity only apply to the 2 riskier tranches of notes.

A $325 million Class A tranche of notes had an initial attachment point at $9 billion of losses to the NFIP, which we understand is now a bit higher after resets, so these notes appear secure and are prone to mature on schedule in late February and return their capital to investors, we hear.

But a $100 million Class B tranche of the FloodSmart Re 2022-1 cat bond have an attachment at across the $7.4 billion mark (it was $7bn at issuance), we understand, which implies they’re closer to the present UNL estimate of $6.75 billion for the NFIP. Once an estimate rises above a certain percentage of the attachment, it allows a sponsor to increase maturity for cat bond notes to retain the coverage and canopy any future potential loss developments.

With this Class B tranche of notes, we’re told some $80.9 million of the outstanding principal is about to be repaid to investors, leaving just $19.1 million retained and with its maturity date set to be prolonged, to permit for development of the NFIP’s hurricane Helene flood losses.

The riskiest layer of this FloodSmart Re 2022-1 cat bond is the $25 million Class C tranche of notes. These have an attachment at across the $6.52 billion level (it was $6bn at issuance), which is already lower than the newest NFIP loss estimate for Helene.

At this stage no loss notice has been filed, we’re told, but these notes have also had their maturity date prolonged out to permit for ongoing development, while with the Class C notes just $2.7 million of the unique $25 million of principal is about to be repaid to investors, leaving $22.3 million outstanding and still on-risk for a possible loss because of Helene.

In recent cat bond pricing sheets, the FloodSmart Re 2022-1 Class B notes were marked for bids of around 90 cents on the dollar, while the Class C notes were marked at around 50 cents. It’s likely these marks will decline further once this latest loss estimate and extension/repayment information is factored in.

It’s essential to notice that the $6.75 billion latest estimate for the NFIP’s ultimate net loss from hurricane Helene is just that, an estimate, so there isn’t any guarantee losses shall be faced. Estimates can often decline, just as readily as they rise.

But, with that figure being above the attachment point for the Class C notes and approaching the attachment for the B’s, it appears there’s a growing likelihood that some principal losses may occur, not less than to the Class C tranche.

It’s also price noting that the explanation for the extension is because of the approaching maturity of this particular FloodSmart Re cat bond.

One other cat bond within the series, the FloodSmart Re Ltd. (Series 2023-1) deal, has a $50 million Class B tranche of notes that also had an initial attachment point at $7 billion of NFIP losses from a named storm related flood event. We aren’t certain where the attachment sits now, after annual resets, but when it stays the identical then these notes appear to be as at-risk from Helene losses because the 2022-1 Class B tranche.

Nevertheless, with the 2023-1 FloodSmart Re cat bond not set for maturity until March 2026, there was no have to issue any extension notice for them, given they continue to be on-risk to cover any additional loss development (depending on their attachment point, after all).

Finally, as we said above, the NFIP’s traditional reinsurance tower for calendar 12 months 2024 provides $619.5 million in coverage above a $7 billion attachment point.

Because of this, with the hurricane Helene loss estimate now said to be at $6.75 billion, the NFIP’s traditional reinsurance tower could possibly be at-risk should the UNL creep further and find yourself higher.

It’s price noting though, that the normal reinsurance only covers 8.9125% of losses between $7 billion and $9 billion for the NFIP, so any erosion of this and losses to reinsurers are prone to be minimal at this stage.

We’ll update you as and when any further information emerges.

Read all about FEMA’s NFIP catastrophe bonds under the FloodSmart Re series of deals.

We’ve included the FloodSmart Re 2022-1 issuance in our Directory of catastrophe bonds facing losses, deemed in danger, or already paid out.

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