The US Federal Emergency Management Agency (FEMA) has returned to the capital markets to secure another $275 million of reinsurance protection for the National Flood Insurance Program (NFIP).
The FloodSmart Re Ltd. (Series 2023-1) deal marks the sixth time that FEMA has utilised Hannover Re to access reinsurance capital via a three-year cat bond arrangement.
Combined with FEMA’s existing bond reinsurance coverage from 2021, 2022 and the 2023 traditional reinsurance placement, the Agency has now transferred $1.8 billion of the flood insurance program’s risk to the private sector ahead of the 2023 hurricane season.
Full details of the latest FloodSmart catastrophe bond issuance can be viewed in the Deal Directory of our ILS-focused sister publication, Artemis.
As part of the capital markets agreements, FEMA will pay approximately $50.4 million in premiums for the first year of reinsurance coverage.
Additionally, the agreements will cover 5% of losses between $7 billion and $8 billion for any single flood event, and 11.25% of losses between $8 billion and $10 billion.
“I’m pleased that FEMA has successfully secured favorable terms for this year’s capital market reinsurance despite the tough market conditions of 2022,” said David Maurstad, FEMA’s Acting Associate Administrator for Resilience and Senior Executive of the NFIP.
“The investment is vital to FEMA’s ability to transfer risk in order to stabilize the program’s claims paying capacity as the country continues to adjust to more intense and frequent flooding events.”
This coverage builds on FEMA’s earlier transferals of flood risk to capital markets investors, through which it secured $400 million of coverage in 2020, $575 million in February 2021, and $450 million in February 2022.
Again, full details of all FEMA cat bonds, as well as all other cat bond deals since the inception of the market, can be viewed in the Artemis Deal Directory.
