Flood Re targets debut £100m Vision 2039 UK flood catastrophe bond

Flood Re, the state-backed flood reinsurance pool in the United Kingdom, has entered the catastrophe bond market in search of £100 million in fully-collateralized UK flood retrocessional reinsurance, with a London Bridge 2 PCC Limited (Vision 2039 – 2025-1) transaction.

Flood Re is utilising the Lloyd’s insurance-linked securities (ILS) transformer structure London Bridge 2 PCC Limited, to sponsor its first ever catastrophe bond.

London Bridge 2 PCC Limited will issue the cat bond notes that will be sold to capital markets investors and those funds used to collateralize reinsurance agreements to protect Flood Re against losses from significant flooding events in the UK.

This is the first ever indemnity catastrophe bond to protect against flood losses in the UK on an indemnity trigger basis.

It is not the first ever UK flood cat bond though, that honour goes to Allianz’s Blue Wings Ltd. deal from 2007 that included parametric UK flood risk protection.

In terms of other flood cat bonds, the best known are the FloodSmart Re series for the US National Flood Insurance Program, but of course those protect against flood events linked only to named tropical storms and hurricanes.

Elsewhere, flood risk has been a feature of a number of Japanese catastrophe bonds in the past, as well as numerous US multi-peril cat bond deals.

So flood risk is certainly not an unknown in the cat bond market, but being a standalone flood risk bond focused on a country like the UK, this will be a very notable deal for the market.

We are told that London Bridge 2 PCC Limited is set to offer and issue a single, currently targeted at £100 million, tranche of  notes via a protected cell named Vision 2039 (Series 2025-1).

The cell has been named Vision 2039 because, Flood Re aims to ensure that most households at risk of flooding have access to affordable flood insurance, without the need for Flood Re and so the entities goal is to stop operating in 2039.

The Vision 2039 – Series 2025-1 catastrophe bond notes will provide Flood Re with three years of retrocessional UK flood reinsurance to the end of March 2028, on an indemnity trigger and annual aggregate basis, we are told.

UK flood losses will be covered across the countries of England, Wales, Scotland and Northern Ireland only.

The £100 million of Vision 2039 cat bond notes that are being offered would attach their coverage above £800 million of aggregate flood losses to Flood Re and exhaust at £1.4 billion, we understand.

Sources said the notes will come with an initial attachment probability of 2.8%, an initial expected loss of 1.7% and are being offered to cat bond investors with price guidance in a range from 5% to 5.75%.

It’s encouraging to see yet another new sponsor in the catastrophe bond market and especially as this offers a new and diversifying peril for investors, in UK flood risk, that does not exist in the cat bond space at this time.

You can read all about this London Bridge 2 PCC Limited (Vision 2039 – 2025-1) catastrophe bond transaction in our Deal Directory, where you can analyse details of almost every cat bond ever issued.