FEMA grows NFIP flood reinsurance to $2.12bn with new $300m cat bond

The US Federal Emergency Management Agency (FEMA) has secured a $300 million reinsurance placement for the National Flood Insurance Program (NFIP) from the capital markets investors, brings the total flood cover to $2.12 billion.

FEMA has entered into a three-year reinsurance agreement with Hannover Re (Ireland) Designated Activity Company (DAC), which acted as a “transformer”, transferring the NFIP’s financial risk to capital markets investors by sponsoring the issuance of a catastrophe bond through a special purpose reinsurer FloodSmart Re.

The first flood catastrophe bond, FloodSmart Re (Series 2018-1), was issued in August last year, when the agency secured $500 million of reinsurance from the capital markets.

Combined with the August 2018 capital market and January 2019 traditional reinsurance placements, ahead of the 2019 hurricane season, FEMA has transferred $2.12 billion of the NFIP’s flood risk to the private sector.

FEMA said it will pay $32 million in premium for the first year of coverage.

The agreement is structured to cover 2.5 percent of losses between $6 billion and $8 billion, and 12.5 percent of losses between $8 billion and $10 billions.

“Our continued engagement with the capital markets contributes to FEMA’s commitment to strengthening the financial framework of the NFIP, is beneficial to policyholders and taxpayers, and is a viable example of the role private markets can play in managing U.S. flood risk,” said David Maurstad, chief executive of the NFIP.

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