FloodSmart Re Ltd. (Series 2024-1)

This is the seventh catastrophe bond issuance that the U.S. Federal Emergency Management Agency (FEMA) has sponsored to secure named storm linked flood reinsurance protection for the National Flood Insurance Program (NFIP) from the capital markets.

With this new FloodSmart Re 2024-1 catastrophe bond, FEMA is seeking at least $350 million of flood reinsurance protection from the NFIP, across two tranches of notes that will be issued, Artemis has learned.

The $350 million of Series 2024-1 notes that FloodSmart Re will issue, will be sold to cat bond funds and investors and the proceeds will be used to collateralise retrocessional reinsurance agreements between special purpose insurer FloodSmart Re and the ceding reinsurer, which is global reinsurer Hannover Re once again fronting the investors for FEMA.

Hannover Re has been involved in every NFIP cat bond so far, passing on the reinsurance protection from FloodSmart Re, via reinsurance agreements entered into with FEMA and the NFIP, the ultimate reinsured party and the beneficiary of the flood reinsurance protection.

As with all of the FloodSmart Re catastrophe bonds, the reinsurance protection secured will cover the NFIP against flood losses arising from US named storm events, across a three-year term and on an indemnity and per-occurrence trigger basis.

A $300 million Class A tranche of notes are set to cover a percentage of losses from an attachment point of $9 billion of losses, up to $11 billion of losses, resulting in an initial attachment probability of 5.79%, an initial base expected loss of 5.01% and these notes are being offered to investors with spread guidance in a range from 14.5% to 15.5%, we are told.

A $50 million Class B tranche of notes will cover a percentage of losses from an attachment point of $8 billion of losses, up to $9 billion of losses, giving them an initial attachment probability of 6.82%, an initial base expected loss of 6.29% and these notes are being offered to investors with spread guidance in a range from 17.75% to 18.75%, we understand.

FEMA’s $575m FloodSmart Re Ltd. (Series 2021-1) issuance is scheduled to mature around the time this new 2024-1 cat bond settles, so this looks to be an at least partial renewal, suggesting there will be an appetite to upsize the issuance should investor demand support that.

Update 1:

FEMA’s target for its new FloodSmart Re 2024-1 catastrophe bond has been lifted to between the original $350 million and $575 million, so enough to replace the maturing 2021 cat bond.

What was a $300 million Class A tranche of notes are now being offered at up to $475 million in size, we understand.

The Class A notes will come with an initial base expected loss of 5.01% and were first offered to investors with spread guidance in a range from 14.5% to 15.5%, but we’re now told that price guidance has dropped to between 14% and 14.5%.

What was a $50 million Class B tranche of notes are now being offered at up to $100 million in size, we’re told.

The Class B notes come with an initial base expected loss of 6.29% and were first offered to investors with spread guidance in a range from 17.75% to 18.75%, but here too the spread guidance range has been lowered to now between 17.25% and 17.75%.

Update 2:

FEMA secured the upsized $575 million target for this FloodSmart Re 2024-1 cat bond issuance.

The Class A notes settled at $475 million in size, with pricing of 14%, so the low end of reduced guidance.

The Class B notes settled at $100 million in size, with pricing of 17.25%, so also the lowest end of the reduced guidance.