FEMA secures $575m FloodSmart Re 2024-1 cat bond for NFIP at reduced pricing
The U.S. Federal Emergency Management Agency (FEMA) has now successfully priced its latest FloodSmart Re Ltd. (Series 2024-1) catastrophe bond issuance, with the deal set to provide the upsized target of $575 million of flood reinsurance protection for the National Flood Insurance Program (NFIP).
FEMA has had a strong result in the catastrophe bond market in 2024, with the pricing of the notes of its latest FloodSmart Re cat bond being at the bottom end of reduced guidance and below the originally marketed range of spreads that were on offer.
It’s the latest cat bond to price down, as demand for cat bond investments continues to pressure pricing.
FEMA returned to the cat bond market earlier in February, seeking $350 million in named storm flood reinsurance from the insurance-linked securities (ILS) market with this new FloodSmart 2024-1 catastrophe bond.
It will be the seventh catastrophe bond issued to benefit the US National Flood Insurance Program (NFIP), as FEMA continues to place capital market investors at the heart of the Program’s flood reinsurance arrangements.
Read about every NFIP flood catastrophe bond in our Deal Directory.
We then reported that FEMA’s target for the new FloodSmart Re cat bond was lifted, to $575 million, while at the same time the spread guidance was updated and lowered for the two tranches of Series 2024-1 cat bond notes on offer.
Recall that, there is $575 million of the NFIP’s flood cat bond coverage due to mature at the beginning of March 2024, with the maturity of the FloodSmart Re Ltd. (Series 2021-1) issuance.
As a result, now this 2024-1 cat bond has been priced, FEMA is set to fully-replace that expiring coverage.
The now confirmed as $575 million of Series 2024-1 notes that FloodSmart Re is set to issue, will provide the NFIP with a fully-collateralized source of reinsurance against flood losses arising from US named storm events, across a three-year term and on an indemnity and per-occurrence trigger basis.
What was a $300 million Class A tranche of notes have now priced at the upsized target of $475 million, we are told.
The Class A notes have an initial base expected loss of 5.01%, were first offered to investors with spread guidance in a range from 14.5% to 15.5%, which was then lowered to an updated range of between 14% and 14.5%. We have now learned that these notes have priced to pay investors a spread of 14%, so the bottom of the reduced guidance and a roughly 7% decline in price while marketing.
What was a $50 million Class B tranche of notes have been secured at the upsized target of $100 million, we understand.
The Class B notes come with an initial base expected loss of 6.29%, were first offered to investors with spread guidance in a range from 17.75% to 18.75%, which was then lowered to between 17.25% and 17.75%. We now understand these Class B notes have also priced at the bottom of reduced guidance, for a spread of 17.25% to be paid, reflecting a roughly 6% decline in price while marketing.
As said, this is a strong result for FEMA, securing its latest FloodSmart Re cat bond significantly upsized to provide $575 million of reinsurance to the NFIP, while securing the coverage at pricing below the initial guidance.
In multiple-at-market terms, the prices are well down on the prior year cat bond, but not as low as FloodSmart Re cat bonds have seen in the past.
With the top-end target for coverage of $575 million now secured, FEMA is set to sustain the size of its reinsurance tower for 2024, fully-replacing the maturing cat bond so that the NFIP’s reinsurance arrangements for 2024 will still amount to $1.9195 billion, $1.3 billion of which will still be from FloodSmart Re catastrophe bonds.
You can read all about this new FloodSmart Re Ltd. (Series 2024-1) catastrophe bond and every other cat bond ever issued in our extensive Artemis Deal Directory.
