April 2, 2019

US flood programme in $300m cat bond deal

The Bermuda reinsurance market is about to take more flood risk off the shoulders of US taxpayers.

The US Federal Emergency Management Agency is looking to transfer $300 million of risk from the National Flood Insurance Programme through its second Bermuda catastrophe bond transaction.

The alternative risk transfer website Artemis.bm reported that Fema is seeking at least $300 million of collateralised reinsurance through its Bermudian-based special purpose insurance vehicle, FloodSmart Re Ltd.

The move comes after the Trump Administration announced plans to overhaul the indebted NFIP, increasing policy premiums to more accurately reflect flood risk and home values from October 2020.

Climate change and rising sea levels have worsened the flooding issues and claims have heavily outweighed premiums in recent years. The NFIP’s debt topped $30 billion in 2017.

Bermuda reinsurance industry leaders have long seen US flood risk as a potential growth opportunity and the latest catastrophe bond continues the trend of NFIP seeking more reinsurance coverage from the private sector.

The latest catastrophe bond deal will build on the $1.32 billion of coverage that Fema bought for this year in January from a group of 28 private reinsurance companies.

At the time, David Maurstad, chief executive of the National Flood Insurance Programme, said: “It takes an entire community to prepare for disasters, and that includes participation from the private sector.

“Through reinsurance, Fema partners with private markets to build a pillar that supports a sound financial framework for the NFIP by a meaningful transfer of flood risk.”

The FloodSmart Re Ltd (Series 2019-1) will follow Fema’s FloodSmart Re Ltd (Series 2018-1) deal in July 2018, which was listed on the Bermuda Stock Exchange and secured $500 million of capital markets-backed reinsurance protection for the NFIP.

As with the previous deal, reinsurer Hannover Re is to act as the ceding reinsurer for the transaction, providing reinsurance coverage to Fema and the NFIP, Artemis reported.

The deal provides protection against certain NFIP losses in the US, Puerto Rico, US Virgin Islands, and the District of Columbia.


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