FEMA targets $350m FloodSmart Re 2024-1 NFIP catastrophe bond

The U.S. Federal Emergency Management Agency (FEMA) is back in the catastrophe bond market, looking to secure at least $350 million of named storm linked flood reinsurance protection for the National Flood Insurance Program (NFIP), with the issuance of a FloodSmart Re Ltd. (Series 2024-1) cat bond.

This is going to be the seventh catastrophe bond issuance to benefit the US National Flood Insurance Program (NFIP), as FEMA continues to place the capital markets at the heart of the Program’s flood reinsurance arrangements.

Read about every NFIP flood catastrophe bond in our Deal Directory.

FEMA has an appetite to cover more of the NFIP’s flood insurance risk with reinsurance, which was evident at this year’s January renewal when the Agency renewed the NFIP traditional reinsurance tower at a larger $619.5 million in size for 2024, a 23% increase on the prior year’s placement.

After that renewal, the NFIP’s reinsurance arrangements amounted to $1.9195 billion, as there were $1.3 billion in reinsurance outstanding from FloodSmart Re catastrophe bonds at that time, back in January.

But, with $575 million of cat bond coverage due to mature at the start of March 2024, with the maturity of the FloodSmart Re Ltd. (Series 2021-1) issuance, FEMA clearly wants to sustain the participation of the capital markets in its reinsurance program, hence this new 2024-1 cat bond, which will act as at least a partial renewal.

With this new FloodSmart Re 2024-1 catastrophe bond, FEMA is seeking at least $350 million of flood reinsurance protection from the NFIP, across two tranches of notes that will be issued, Artemis has learned.

The $350 million of Series 2024-1 notes that FloodSmart Re will issue, will be sold to cat bond funds and investors and the proceeds will be used to collateralise retrocessional reinsurance agreements between special purpose insurer FloodSmart Re and the ceding reinsurer, which is global reinsurer Hannover Re once again fronting the investors for FEMA.

Hannover Re has been involved in every NFIP cat bond so far, passing on the reinsurance protection from FloodSmart Re, via reinsurance agreements entered into with FEMA and the NFIP, the ultimate reinsured party and the beneficiary of the flood reinsurance protection.

As with all of the FloodSmart Re catastrophe bonds, the reinsurance protection secured will 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.

A $300 million Class A tranche of notes are set to cover a percentage of losses from an attachment point of $9 billion of losses, up to $11 billion of losses, resulting in an initial attachment probability of 5.79%, an initial base expected loss of 5.01% and these notes are being offered to investors with spread guidance in a range from 14.5% to 15.5%, we are told.

A $50 million Class B tranche of notes will cover a percentage of losses from an attachment point of $8 billion of losses, up to $9 billion of losses, giving them an initial attachment probability of 6.82%, an initial base expected loss of 6.29% and these notes are being offered to investors with spread guidance in a range from 17.75% to 18.75%, we understand.

The pricing looks unsurprising, in being a little keener than a year ago, but still well up on previous years FloodSmart Re cat bond issues, for the level of risk exposure being ceded.

These notes offer a higher-spread opportunity to investors, so are always likely to experience demand and the fact the NFIP’s cat bond program escaped from any losses with hurricane Ian in September 2022, may also help to build appetite among investors to support this renewal.

There is plenty of scope for FEMA to grow this new FloodSmart Re 2024-1 catastrophe bond and with $575 million of cat bond coverage set to mature soon, we expect the Agency will be keen to maximise the potential of this new deal.

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.