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FEMA Buys $500 Million Cat Bond for NFIP

The Federal Emergency Management Agency (FEMA) has used the capital markets for the first time to access reinsurance cover for the National Flood Insurance Program
August 7, 2018

The Federal Emergency Management Agency (FEMA) has used the capital markets for the first time to access reinsurance cover for the National Flood Insurance Program with a three-year, $500 million catastrophe bond, known as FloodSmart Re. The deal is structured to cover, for a given flood event, 3.5 percent of losses between $5 billion and $10 billion, then 13 percent of losses between $7.5 billion and $10 billion. FEMA will pay $62 million in premium for the first year of coverage.

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“Reinsurance is a linchpin to help strengthen the financial framework of the NFIP,” David Maurstad, chief executive of the NFIP, said in the statement. “Engaging capital markets was the logical next step in maturing the NFIP Reinsurance Program in a way that benefits policyholders and taxpayers, and expands the role of the private markets in managing flood risk in the United States.”

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