FEMA got “favorable terms” for new $575m flood catastrophe bond: Maurstad
Having recently settled its latest and seventh catastrophe bond issuance, securing more flood reinsurance protection for the National Flood Insurance Program (NFIP), David Maurstad of the U.S. Federal Emergency Management Agency (FEMA), said the cat bond coverage was secured at “favorable terms”.
As we reported earlier this month, FEMA successfully priced its latest FloodSmart Re Ltd. (Series 2024-1) catastrophe bond issuance to provide an upsized $575 million of flood reinsurance protection to the NFIP.
That fully replaces the maturing $575 million FloodSmart Re Ltd. (Series 2021-1) issuance, so allowed FEMA to keep the NFIP’s flood reinsurance program stable.
As we had been reporting, the initial target size for the FloodSmart 2024-1 catastrophe bond was $350 million, so FEMA successfully harnessed cat bond investor demand to upsize it to $575 million.
At the same time, FEMA’s seventh cat bond was priced at the bottom end of a reduced guidance range, which was ultimately below the originally marketed range of spreads that were on offer.
Read about every NFIP flood catastrophe bond in our Deal Directory.
On the settlement of FEMA’s latest cat bond last week, the organisation noted that it “continues to engage reinsurance markets to help strengthen the financial framework of the National Flood Insurance Program and promote private sector participation in flood-risk management.”
FEMA said that, for this new $575 million of protection, it will pay around $85.7 million in premiums, excluding initial expenses, for the first year of reinsurance coverage.
The reinsurance agreements underpinning the cat bond cover 10% of losses between $8 billion and $9 billion and 23.75% of losses between $9 billion and $11 billion.
Remember though, that the FEMA FloodSmart Re cat bonds only provide flood reinsurance for named storm related flooding events.
David Maurstad, FEMA’s Assistant Administrator for the Federal Insurance Directorate and senior executive of the National Flood Insurance Program, commented, “I’m pleased that FEMA has successfully secured favorable terms for this year’s capital market reinsurance and retained our current level of reinsurance coverage at acceptable rates.”
Maurstad went on to say that, “This latest investment in our reinsurance program reinforces FEMA’s objectives to expand financial tools to achieve a sound financial framework and bolster the programs’ claims paying capacity following extreme flooding events.”
Thanks to the completion of its latest cat bond at the same size as the soon to mature notes from the 2021 issuance, FEMA will still have $1.3 billion of catastrophe bond backed reinsurance protection available to it for this coming named storm season, from this new 2024-1 cat bond as well as the 2022 and 2023 issuances.
Read about every NFIP flood catastrophe bond in our Deal Directory.
As a result, FEMA has sustained 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 almost $1.92 billion, $1.3 billion of which is 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.
