US flood programme NFIP cuts cat bond issuance to $275m in 2023

The US catastrophe response agency FEMA confirmed sale of $275 million in cat bonds in its latest annual move to share risk from the National Flood Insurance Program (NFIP) with capital markets, a notable decline on prior coverage from the group’s Floodsmart Re programme.

FEMA will pay approximately $50.4 million in premiums for the first year of reinsurance coverage in the three-year programme. That matches the cost of 3Y papers just matured, while offering only 2/3 the limit with higher attachment points.

Bonds will offer coverage for 5% of losses between $7 and 8 billion and 11.25% of any losses between $8 and 10 billion, FEMA said. Attachment points had started at $6 billion over the prior three years.

“I’m pleased that FEMA has successfully secured favourable terms for this year’s capital market reinsurance despite the tough market conditions of 2022,” FEMA acting associate administration for resilience and senior executive of the NFIP, David Maurstad, said of the deal.

The sale represents a decline in NFIP's overall cat bond coverage as it falls short of the $400 million tranche sold in 2020, which matured this year. FEMA also sold $575 million in February 2021 and $450 million in February 2022.

That decline follows a similar slashing of the traditional reinsurance programme. FEMA placed a $502.5 million programme with 18u reinsurers at a cost of $90.2 million in premium, down from the prior year's $1.06 billion for $1271.9 million in premium.

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