Some nerves evident as Helene’s Florida claims outpace Idalia, State Farm’s outpace Ian, & on NFIP

In conversations with sources in the reinsurance, catastrophe bond and insurance-linked securities (ILS) investments space, it seems some nerves are beginning to emerge over hurricane Helene’s potential to attach certain contracts, as data points begin to suggest a growing claims burden that could result in industry losses creeping higher.

While we’ve started to see some initial insurance industry loss estimates from catastrophe risk modellers, such as CoreLogic estimating the insured wind/surge property loss in Florida/Georgia initially would be between $3bn and $5bn and more recently Karen Clark & Company (KCC) saying it would be around $6.4 billion based on wind, storm surge, and inland flooding impacts across nine states, some sources are already suggesting these could be too low.

It’s been interesting to watch how the ILS market’s sentiment on potential losses from hurricane Helene has adjusted this week. It’s not been a dramatic shift, but data points are emerging perhaps more slowly than with storms where the bulk of the damage is at the coast, which has made understanding the potential impacts of Helene more of a challenge.

Still, as we reported this week, investment manager Twelve Capital issued an updated event report related to hurricane Helene’s impacts, saying that it still believes direct losses to per-occurrence catastrophe bonds are unlikely, although further erosion of deductibles for some aggregate cat bonds is expected.

In the updated event report, Twelve Capital also noted that it is closely monitoring the NFIP FloodSmart Re cat bonds that cover named storm induced flooding.

As we reported on Monday, the significant flooding from rains associated with hurricane Helene throughout southeastern parts of the United States were starting to bring FEMA’s National Flood Insurance Program (NFIP) reinsurance tower and catastrophe bonds into some focus with investors.

Last Friday Fitch Ratings had said, “The expected levels of flooding and storm surges associated with Hurricane Helene may trigger private market reinsurance coverage of the NFIP.”

As yet there is no clarity over the potential claims burden for the National Flood Insurance Program (NFIP), so its reinsurance remains one are being watched by the industry, although we can say that so far we’ve not seen or heard of any trading or low bids for FloodSmart Re catastrophe bonds, suggesting the market is not overly concerned at this time.

As we also explained in our previous article, it seems likely hurricane Helene’s flooding could become a top-5 loss event for the NFIP, but it would need to eclipse the loss currently ranked 4th (hurricane Ian at $4.3 billion) by over $1.7bn to actually begin attaching the cat bonds, with just one small tranche exposed at $6 billion of losses, and then reach $7 billion to attach the traditional reinsurance.

So, the NFIP reinsurance and cat bonds are one area where we’re hearing of some nerves emerging, but it’s still far too early for a clearer picture of the potential NFIP exposure levels and whether any of these instruments are truly at-risk from Helene.

It is worth noting though, that in the 100 US counties most affected by power outages from Helene, only around 2% of homes have taken up flood insurance, according to some reports. In the most flood affected of NC and TN, it is less than 1% per-county impacted.

Aside from this, State Farm is one major US insurance carrier where some are pointing to its recent claims disclosure as a potential area to watch for reinsurance attaching.

State Farm disclosed that, as of October 2nd, the insurer had received more than 69,400 claims across 14 states that have been impacted by Helene.

The majority of State Farm’s auto claims are related to flood and rising waters, and the majority of homeowner claims are related to wind damage, the insurer continued, with the highest claim counts seen (in order) in GA, SC, FL and NC.

The reason some are watching State Farm on the back of this is that the company has a significant market share in most all of the states impacted by hurricane Helene, so it is a good bellwether to watch for escalating claims counts.

However, amplifying that is the fact that at more than 69,400 claims, perhaps 70k by today, State Farm has already received more claims from hurricane Helene than it received from 2022’s hurricane Ian, which was reported around the 59,000 mark almost a year after that storm.

With Ian, State Farm was said to have expected its gross losses to rise above $1 billion even without the auto claims.

At this point in time, it is still too early to have any visibility of the insurer’s losses from Helene, but the fact its reported claims burden looks quite high quite quickly is raising some nerves and both reinsurers and some cat bond investors may begin to watch State Farm closely for any developments.

As part of a significant multi-billion dollar reinsurance tower, State Farm has numerous outstanding catastrophe bonds in-force, some of which cover Florida only, some multiple states, as well as some that exclude Florida.

State Farm sits at fourth in our catastrophe bond sponsor leaderboard, with $2.25 billion of cat bond coverage outstanding.

It seems approximately $1.45 billion of those cat bonds could have some exposure to the footprint of a storm like Helene, but some are more remote than others and even the Merna Re cat bond with the highest expected loss is a Florida only tranche with an expected loss of 3%, which means its attachment would be quite high up we believe.

So, while some are citing nerves over the fact State Farm’s claims burden seems already higher than with Ian, the fact the burden is spread across many states and also factors in auto and flood, while the cat bonds that cover multiple states have lower expected losses, would seem to suggest it would need a big gross loss surprise for the cat bonds to come properly into any focus, we believe.

Another data point making some in the market a little nervous is the fact very early data on claims reported to the Florida Office of Insurance Regulation suggests a relatively high burden ahead.

Under the FLOIR catastrophe reporting, claims typically take quite some time to build up and are reported over a relatively long period, but already with hurricane Helene the total number of claims reported has exceeded the latest total with 2023’s Idalia.

With Helene, estimated insured losses is already at $777.8 million from a reported 79,360 claims as of October 2nd.

Idalia hit Florida in August 2023 and as of the last report in November, only just over 25,000 claims had been reported from that storm.

It’s worth also noting that while the Helene claims reports have come in thick and fast so far, 2022’s hurricane Ian drove almost 777,000 claims so far, as of the last FLOIR report.

The real story with the FLOIR data is that it provides the only available early glimpse of how fast claims are coming in in Florida, so the fact it has already eclipsed the total for Idalia has raised some nerves. But it’s important not to read too much into this, as everyone was aware hurricane Helene would be more costly than Idalia, despite the fact they hit similar areas and at relatively similar wind speeds.

The much larger size of Helene and its wind-field, as well as the additional 15 mph of wind speeds at landfall, have created a much wider damage footprint, so the fact claims are piling up faster should not be a surprise.

That said, the FLOIR data is another point to watch and again might suggest this could be another storm where early estimates prove to be a little on the low-side. Time will tell.

Finally, one other useful bit of information we heard from sources is that the Blue Ridge Re 2023-1 catastrophe bond sponsored by the North Carolina Farm Bureau has also come in for some focus.

We’re told a speculative bid in the 70’s was put out for this bond yesterday, although that quickly changed to the 90’s. Which comes on the back of these notes trading at 102 on Sept 30th, after Helene had hit.

All of which suggests there was someone keen to sell their Blue Ridge Re position and an investor or fund manager decided a low bid was worth a try.

With the Blue Ridge Re cat bond, it seems to us that its flood exposure is actually not as significant as one might think, as flood is excluded for many homeowners policies written by the NC Farm Bureau, although included in auto, mobile homes and some inland marine, while flood is also generally excluded from commercial package policies it offers as well.

As a result, currently we’d side with the seller here, that this isn’t a bond that should be trading 30% below par at this time, given the limited information available still.

As data points come in, it can move investor and reinsurance company sentiment.

A great example of this happened just after Helene, when in publishing a stochastic model output figure for a potential hurricane Helene loss, one publisher called it wind-only and insured, while another cited the figure as economic. That alone raises uncertainty and makes for challenging conversations in the market.

At this early stage, it’s still hard to say where the claims and industry loss burden will land, although it’s clear from the catastrophic impacts that the economic and human costs of Helene are very high. Now early official estimates are beginning to provide a little more clarity to the industry and this should help to settle some nerves.

Also read:

– Hurricane Helene insurance industry loss estimated close to $6.4bn by KCC.
– Direct cat bond losses still seen unlikely from Helene, but NFIP bonds monitored: Twelve Capital.
– Hurricane Helene floods over 100k buildings, at least 10k to over 5 feet: ICEYE.
– Hurricane Helene insured losses anywhere from mid-single to even double-digit billions: RBC.
– Florida reinsurance dependency in focus after Helene, with $5bn+ loss expected: AM Best.
– FEMA’s NFIP reinsurance & cat bonds in focus after catastrophic flooding from Helene.
– Hurricane Helene private insurance loss seen mid-to-high single-digit billions: Bowen, Gallagher Re.
– Hurricane Helene economic loss in $20bn – $34bn range: Moody’s Analytics.
– Hurricane Helene insured wind/surge property loss in Florida/Georgia initially said $3bn – $5bn: CoreLogic.
– Losses to per-occurrence cat bonds from hurricane Helene currently seen as unlikely: Twelve Capital.
– Hurricane Helene landfall at Cat 4 140mph winds, Tampa Bay sees historic surge flooding.
– Hurricane Helene industry loss seen $3bn to $6bn if Tampa avoided: Gallagher Re.
– Minimal to no cat bond impact expected from hurricane Helene if track unchanged: Plenum.