Ebene News – United States – FEMA’s new flood cat bond to settle at $ 575 million, prices drop – Artemisbm

The US Federal Emergency Management Agency (FEMA) will be delighted with the outcome of its latest visit to the catastrophe bond market, as FloodSmart Re Ltd issue (series 2021-1) will now guarantee the oversized target of $ 557 million in reinsurance protection, while pricing was set at the low end of an already narrow rangeFEMA returned to the catastrophe bond market in late January seeking an additional source of flood reinsurance of at least $ 350 million from the capital market for its National Flood Insurance Program (NFIP )

But with a $ 500 million FloodSmart Re Ltd (Series 2018-1) Cat Bond maturing before the start of this year’s U named Storm Season, as we told the At that time, it still seemed likely that FEMA would look to increase its initial target of $ 350 million from the 2021 deal, if market conditions and investor appetites allowed

As we were the first to report earlier this week, the target size has been increased for this latest Cat FloodSmart Re bond issue, with FEMA setting $ 500 million to $ 575 million in guaranteed reinsurance protection against flooding

At the same time, the price predictions for the location of the coupons of both tranches have been significantly reduced and now we are told that price has been set at the low end of the already reduced ranges below the initial forecast

So FEMA will now guarantee $ 575 million in flood reinsurance protection from its fourth Cat FloodSmart Re bond, sources tell us, making it its largest reinsurance issue on financial markets to date

The cat bond will cover $ 575 million of National Flood Insurance Program (NFIP) losses caused by named storms, thus tropical depressions, storms and hurricanes, as in other FloodSmart cat bonds, the protection s’ extending across the United States , Puerto Rico, US Virgin Islands and DC

The $ 575 million reinsurance protection offered by FEMA’s new catalytic bond will be on an indemnity and per event basis, over a period of three years

Cat FloodSmart Re 2021 bond deal first marketed to ILS investors with $ 275 million Class A Series 2021-1 tranche, pegging at $ 7 billion in losses to the NFIP, amounting to $ 9 billion, and with an initial expected loss of 547%

In terms of size, the target has increased to $ 400 million to $ 450 million in reinsurance protection for these Class A tickets and we are told that FEMA has now secured the premium size of 450. million dollars from this layer

The Class A tranche was offered to investors in cat bonds with initial coupon indications ranging from 135% to 1425%, but this was then lowered to 13% to 135% and now we are told that has been corrected to the low end of a 13% coupon

First, the second tranche included a tranche of $ 75 million Series 2021-1 Class B Notes, attaching to $ 6 billion in losses and covering a percentage of up to $ 7 billion. dollars, with an expected initial loss of 723%

The proposed size has increased to between $ 100 and $ 125 million and we are now told that this has been corrected in the high end, from $ 125 million for Class B tickets

The class B tranche was initially marketed to investors with a price orientation of between 17% and 17%75%, but that number then dropped to 1675% to 17% and we’re told it has now been set at the low end at 1675%

While the price has fallen significantly when this catastrophe bond is marketed, indicating investor demand for the notes (as well as the rise), prices still appear higher on a risk-adjusted basis than FEMA’s previous FloodSmart Re bond, therefore reflects the broader strengthening of reinsurance market pricing

This 2021-1 transaction is therefore now FEMA’s largest flood bond to date, far more than the replacement of its Cat 2018 FloodSmart Re bond contract due in size of $ 500 million. dollars

For now, FEMA still has $ 1. $ 2 billion catastrophe bond coverage is also in effect, on all of the $ 500 million FloodSmart Re Ltd (Series 2018-1), the FloodSmart $ 300 million Re Ltd (Series 2019-1) and FloodSmart Re Ltd $ 400 million (Series 2020-1) transactions

But with the 2018 cat bond due to expire in late July 2020, coverage will drop at this point, where this new cat bond kicks in with its $ 575 million in reinsurance protection for the NFIP.

The reinsurance program of the NFIP is therefore currently around $ 2.35 billion and after the end of this new cat bond, it will reach a new high at $ 2.925 billion, then fall back to $ 2.425 billion for the majority of the hurricane season in the US 2021, that is, at that time, these cat bonds are exposed to the risk of storm-related flood loss events

It is encouraging to see FEMA continue its close relationship with the catastrophe bond market and cat bonds continue to play a key role in its flood reinsurance arrangements for the NFIP

You can read all about this FloodSmart Re Ltd (Series 2021-1) and all other FEMA sponsored catalytic bonds for NFIP in our extensive Cat Bonds directory

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Tagged As: Cat bond, Catastrophe bond, FloodSmart Re Ltd, FloodSmart Re Ltd Series 2021-1, Insurance-related securities, reinsurance

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Cat bonds and insurance-related securities are one of the “very few asset classes that are truly structurally diversified”, according to the Neuberger

FEMA

Ebene News – United States – FEMA’s new flood bond to settle at $ 575 million, prices drop – Artemisbm

Source: https://www.artemis.bm/news/fema-floodsmart-catastrophe-bond-2021/