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FEMA updates NFIP hurricane Ian loss estimate. Cat bonds look a little safer


The U.S. Federal Emergency Management Agency (FEMA) has adjusted its estimate of flood insurance claims losses for the National Flood Insurance Program (NFIP) from hurricane Ian slightly, raising the lower-end of the range to $3.7 billion, but dropping the top-end slightly to $5.2 billion at the same time, putting it a little further from where catastrophe bonds attach.

fema-logoGreater clarity is emerging over the eventual impact of hurricane Ian and FEMA has updated its loss estimate as it gets a better picture for where the NFIP’s claims burden will settle.

At first, FEMA issued an estimate on November 10th, of the flood insurance claims it expected the NFIP to pay from hurricane Ian, giving a range of $3.5 billion to $5.3 billion.

Now, the range has been updated to between $3.7 billion and $5.2 billion, with these adjustments perhaps suggesting an increased chance that the lower-layers of the NFIP’s traditional reinsurance come into play, but at the same time suggesting the FloodSmart Re catastrophe bond program looks a little safer from the chance of facing losses.

As a reminder, the NFIP’s traditional reinsurance program pays for a percentage of flood insurance losses above a $4 billion trigger per-event.

Meanwhile, the lowest down of the FloodSmart Re catastrophe bond program only attaches and begins paying out at $5.32 billion of losses to the NFIP.

So with the lower-end of the range getting a little closer to the $4 billion traditional reinsurance trigger, those layers may be considered slightly more at-risk.

But the reduction in the top-end seems like further positive news for the catastrophe bond market, as the risk falls a little for the lowest attaching of the FloodSmart Re cat bonds.

FEMA said that there are now over 46,000 filed NFIP flood insurance claims related to hurricane Ian, with more than $1.2 billion already paid out.

With the new $3.7 billion to $5.2 billion hurricane Ian loss estimate, FEMA notes that claims come from across five states, but with the majority in Florida.

It’s still a little too early to know whether the NFIP’s losses from hurricane Ian could rise above this range, but the fact the top-end has been reduced does provide more comfort for holders of the FloodSmart Re catastrophe bonds and we could see some more recovery in value across those issuances.

For reinsurers on the hook for the NFIP’s lowest-layer of reinsurance cover, the risk has perhaps risen a little that claims eventually attach one or more of the traditional reinsurance program layers.

It could be some weeks or months before that becomes clearer, but at this stage FEMA has not mentioned any expectation of making reinsurance recoveries.

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