Farmers’ Topanga Re cat bond maturity extended as losses near attachment

Artemis has learned that one tranche of the Topanga Re Ltd. (Series 2021-1) catastrophe bond that was sponsored by Farmers Insurance Group has had its maturity date extended, as qualifying losses under the aggregate reinsurance contract are now approaching the attachment point for the notes.

Farmers Insurance Group is a US domestic market insurer that also operates across a number of reciprocal insurer brands and has broad exposure across many states of the country.

The insurer secured $160 million of collateralized reinsurance protection from the Topanga Re cat bond back in 2021, which was its debut cat bond sponsorship.

The Topanga Re cat bond provided Farmers a multi-year source of both per-occurrence and annual aggregate catastrophe reinsurance protection, covering losses from named storms, earthquakes, severe weather and wildfires affecting the United States.

A $60 million Class B tranche of notes provided annual aggregate reinsurance protection to Farmers and it is this tranche of notes that have now had their maturity date extended, while the $100 million tranche of per-occurrence focused Class A notes from the deal have look set to still mature on schedule in the coming days, as they do not face any risk of loss, we are told.

We understand that it is the aggregation of severe weather losses that has raised the qualifying loss tally for the Topanga Re 2021-1 Class B notes close to their attachment point.

The United States experienced the highest level of insured losses from the severe convective storm peril in 2023 and it seems this has been a major contributor to the rising losses of Farmers that have qualified under the terms of these aggregate Topanga Re cat bond notes.

We understand that the attachment point for the notes sits at $2.6 billion and we’re told the latest update on qualifying losses shows the total rising to $2.5 billion by December, with a few weeks still left to run of the year.

The $60 million of reinsurance the notes provide cover losses across a $200 million layer, above the $2.6 billion attachment, sources said.

The notes had a $10 million deductible per-event and a cap of $400 million for any qualifying loss, but in this case it seems the numerous smaller to mid-sized losses from severe weather, hail storms and convective weather are the major culprit for the rising total across the annual aggregate period that ran through calendar year 2023.

We are told that the Topanga Re Series 2021-1 Class B aggregate cat bond notes have had their maturity date extended from the scheduled January 8th 2024 to January 1st 2028, so by almost four years.

That should allow ample time for losses to develop and for any December qualifying losses to be added as well. December has seen some severe weather in the US, so it will be interesting to see if the full-year total gets even closer to attaching the coverage from these cat bond notes for Farmers and triggers any reinsurance recoveries.

We understand that the Topanga Re cat bond Class B notes are now marked down on broker pricing sheets for bids of 65 to 80 cents on the dollars, indicating there is an expectation the coverage could attach and some loss of principal be faced.

So that equates to a mark to market implied 20% to 35% loss of principal, at the moment.

But it will take time for that to become clear and with this extension Farmers is ensuring the coverage remains available, as its losses develop and are finalised.

We’ve added the Topanga Re cat bond to our directory of cat bonds facing losses or at-risk of loss.

You can read all about the Topanga Re Ltd. (Series 2021-1) catastrophe bond and every other cat bond ever issued in the comprehensive Artemis Deal Directory.