FEMA raises FloodSmart Re 2024-1 cat bond target, now up to $575m

The U.S. Federal Emergency Management Agency (FEMA) has raised its target for flood reinsurance from its latest visit to the catastrophe bond market, now aiming to secure up to $575 million of protection for the National Flood Insurance Program (NFIP), with the FloodSmart Re Ltd. (Series 2024-1) cat bond issuance.

FEMA returned to the cat bond market earlier this month, 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.

As a reminder, there is $575 million of cat bond coverage due to mature at the beginning of March 2024, with the maturity of the FloodSmart Re Ltd. (Series 2021-1) issuance.

So, it’s perhaps no surprise that FEMA is now looking to fully replace that capacity, albeit they sit at different levels in the NFIP’s flood reinsurance tower.

We also understand that FEMA is targeting reduced pricing for its latest catastrophe bond, with the spread guidance dropping to the bottom-end or lower of the initial ranges on offer.

At first, with this new FloodSmart Re 2024-1 catastrophe bond, FEMA was seeking at least $350 million of flood reinsurance protection from the NFIP, across two tranches of notes that will be issued.

Now, we understand the target is for between that initial target and up to $575 million of protection to be secured.

The up to $575 million of Series 2024-1 notes that FloodSmart Re will issue will provide a source of reinsurance to cover the NFIP 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 are now being offered at up to $475 million in size, we understand.

The Class A notes will come with an initial base expected loss of 5.01% and were first offered to investors with spread guidance in a range from 14.5% to 15.5%, but we’re now told that price guidance has dropped to between 14% and 14.5%.

What was a $50 million Class B tranche of notes are now being offered at up to $100 million in size, we’re told.

The Class B notes come with an initial base expected loss of 6.29% and were first offered to investors with spread guidance in a range from 17.75% to 18.75%, but here too the spread guidance range has been lowered to now between 17.25% and 17.75%.

So, with its latest FloodSmart Re cat bond, FEMA looks to be targeting a relatively significant upsizing, while seeking pricing at the bottom ends of initial guidance or even lower.

At the top-end target of $575 million, FEMA would at least sustain the size of its reinsurance tower for 2024, fully-replacing the maturing cat bond so that the NFIP’s reinsurance arrangements for 2024 would still amount to $1.9195 billion, $1.3 billion of which would 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.