With the National Flood Insurance Program’s (NFIP) latest loss estimate for 2024’s hurricane Helene understood to be standing higher than the attachment levels for a number of its FloodSmart Re catastrophe bonds, we have learned of further extensions of maturity and one tranche being allowed to mature as now deemed not at-risk.
Tranches remain marked down on secondary cat bond pricing sheets, with some ranging as low as between 20 and 40 cents on the dollar at this time.
Recall that, the U.S. Federal Emergency Management Agency (FEMA) had issued an initial estimate for NFIP flood insurance claims from hurricane Helene in a range from $3.5 billion to as much as $7 billion back in November 2024.
In January 2005 we reported that sources had told us the NFIP’s ultimate net loss from the hurricane event had been updated to an estimate for $6.75 billion of losses to the flood insurance program.
That was already at a level where one tranche of FloodSmart Re cat bond notes could have faced a small loss of principal.
FEMA then updated its estimate for NFIP losses from hurricane Helene, putting it at between $6.4 billion and as high as $7.4 billion in February 2025.
Once a loss estimate rises above a certain percentage of the attachment point for a cat bond, a sponsor can opt to extend the maturity for the cat bond notes to retain the coverage in order to cover any future potential loss developments. This happened with the FloodSmart Re notes, as we reported roughly one year ago.
At the same time some principal had been returned to cat bond investors as well.
Now, we’ve learned that the hurricane Helene loss estimate for the NFIP stands at over the $7 billion mark still, although we are told it has come down slightly through recent loss reporting. It’s not immediately clear to us if the estimate remains in a range, with the mid-point still higher than that level.
As a result, it seems greater clarity is now emerging as to the eventual final loss quantum, which has now resulted in one additional tranche of FloodSmart Re cat bond notes being allowed to mature and their principal being returned to investors.
We understand that the $225 million FloodSmart Re Ltd. (Series 2023-1) Class A notes, which had an attachment point at $8 billion of losses, have now been allowed to mature.
Notably, these notes had been priced in the secondary market at above par, indicating cat bond investors had no concerns they could be affected by losses from Helene.
However, the $50 million of FloodSmart Re Ltd. (Series 2023-1) Class B notes, which were riskier and had an attachment point at $7 billion of losses have now had their maturity extended out to March 11th 2030, we are told.
The 2023-1 Class B notes are currently marked down for bids around the 40 to 50 cents on the dollar level, we understand.
At the latest Helene loss estimate from the NFIP, it seems the tranches of notes with attachments at $7 billion could face some principal loss, although it requires the estimate to be finalised before any losses would actually be paid, it appears.
With another of FEMA’s cat bonds, the FloodSmart Re Ltd. (Series 2022-1) issuance, there had already been some extensions of maturity and also some partial repayments of principal with the Class B and C notes, while the least risky Class A tranche had been matured on schedule.
As we reported here, the Class B and C tranches of notes from the FloodSmart Re 2022-1 cat bond had their maturity dates extended out to February 25th 2026.
The riskiest tranche of the FloodSmart Re 2022-1 cat bond issuance is the $25 million Class C notes, which have an attachment at around the $6.52 billion level, while the $100 million Class B tranche of the FloodSmart Re 2022-1 cat bond have an attachment at around the $7.4 billion mark.
There are still, after the partial principal repayments, roughly $19.1 million of Class B notes and $22.3 million of Class C notes outstanding and now both have had their maturity dates extended further out to February 26th 2029, we understand.
The Class B notes are considered at some risk of loss, being marked for bids of around 50 to 75 cents on the dollar, while the Class C notes are seen as at higher risk, being marked at around 20 to 40 cents on pricing sheets.
FEMA’s other cat bond for the NFIP, the FloodSmart Re Ltd. (Series 2024-1) issuance, is not considered at any risk given its attachment point starts at $8 billion of losses, it seems.
With the NFIP’s loss estimate for hurricane Helene said to be over $7 billion still, but having been decreasing slightly over recent months, it remains uncertain how much additional lost principal there will actually be across the 2022-1 and 2023-1 FloodSmart Re notes and with long extensions of maturity now in place it could be some time before the ultimate net loss is finalised. As a result, any actual losses still need to be confirmed and the impact to these tranches remains mark-to-market for now.
It’s worth also remembering that FEMA stopped sponsoring catastrophe bonds in 2025, having begun work on a FloodSmart Re 2025-1 issuance.
In addition, so far no information has come to light on any 2026 traditional reinsurance program for the NFIP, suggesting risk transfer remains off the agenda for the flood insurance provider for now.
Read all about FEMA’s NFIP catastrophe bonds under the FloodSmart Re series of deals.
