Was NFIP’s FloodSmart Re cat bond sold at 80 on Florence threat?

by Artemis on September 14, 2018

As we explained earlier today, a handful of catastrophe bonds are changing hands due to the threat from hurricane Florence and now for the first time the National Flood Insurance Program’s recently issued $500 million FloodSmart Re Ltd. (Series 2018-1) cat bond appears to be among them.

Update: It was confirmed to Artemis that this trade was actually cancelled.

Original article:

The FloodSmart Re cat bond was the first time the U.S. Federal Emergency Management Agency (FEMA) had expanded its NFIP flood reinsurance program to include a securitisation into the capital markets.

The flood reinsurance program had been growing and FEMA slotted the FloodSmart Re cat bond into its reinsurance tower, as it begins to diversify its sources of claims paying capacity to include ILS funds and investors from the capital markets.

The NFIP’s reinsurance program provides $1.46 billion of flood reinsurance coverage and attaches covering 18.6% of losses between $4 billion and $6 billion, and 54.3% of losses between $6 billion and $8 billion.

With roughly 450,000 NFIP flood insurance policies in force in North Carolina, South Carolina, and Virginia alone. Florence’s wide impact could see significant payouts for the Program it seems.

The NFIP’s new $500 million FloodSmart Re catastrophe bond sits higher up in the reinsurance program, covering 3.5% of its losses between an attachment point of $5 billion and exhaustion of $10 billion through a riskier $175 million tranche of Class B notes, and 13% of its losses between $7.5 billion and $10 billion through a $325 million tranche of Class A notes.

Hence, given the flood threat from Florence, which is now coming ashore in North Carolina, the FloodSmart Re could be considered the most at risk cat bond in the market right now.

But we hadn’t seen any trading until yesterday, when a Trace entry for a $1 million trade of FloodSmart Re notes popped up on the system

The entry shows that the trade was made at 80 cents on the dollar, suggesting a 20% exposure for the flood cat bond.

However, the Trace entry currently is marked as ‘cancel’ which leaves some uncertainty as to whether it actually took place and was completed.

Our sources said that they have heard of this trade and that it is possible that the marking as cancelled is an error in the system. But it’s impossible for us to know.

So whether an ILS fund or investor did sell $1 million of the FloodSmart Re cat bond at 80 or not is uncertain. But the fact the trade was entered at all suggests it may well have done and reflects the uncertainty in the future for this cat bond at this time, as well as one fund or investors fear that it could be triggered by hurricane Florence.

Also read:

Model mean projects $3bn to $3.5bn wind loss from Florence.

Hurricane Florence re/insurance losses will be manageable: S&P.

Hurricane Florence wind & surge insured loss potential put at $3bn to $5bn: Corelogic.

Hurricane Florence pounds Carolina coast, 10ft storm surge reported.

A handful of cat bonds traded on hurricane Florence approach.

ILS fund values fluctuate on Florence, threat now reduced.

Subscribe for free and receive weekly Artemis email updates

Sign up for our regular free email newsletter and ensure you never miss any of the news from Artemis.

← Older Article

Newer Article →