A new catastrophe bond that will transfer some US flood risks from the public sector to the private market is being hailed as “another significant first for the Bermuda market”.

The bond will be issued through FloodSmart Re, a Bermudian special purpose insurer, and will seek to provide $275 million of reinsurance protection.

A report on the alternative risk transfer website Artemis said the FloodSmart Re bond was the first to be launched by the US Federal Emergency Management Agency to cover certain risks of the National Flood Insurance Programme.

FloodSmart Re will also be the first catastrophe bond to solely provide reinsurance coverage for flood risks. According to Artemis, the reinsurance coverage will apply only to FEMA and the NFIP’s exposure to flood events caused by US named storms.

The news was welcomed yesterday by John Huff, chief executive officer of the Association of Bermuda Insurers and Reinsurers.

Mr Huff said: “Another significant first for the Bermuda market. Bermuda is the world’s leader in property-catastrophe reinsurance expertise.

“Fema and NFIP should be applauded for their efforts to begin de-risking the US federal government from disaster risks.

“There is much more work to be done with abundant private-market capital available through traditional reinsurance, partner capital and capital markets.

“The US Congress should do more too and give consumers lower premiums by allowing private flood insurance options.”

Artemis reported that Hannover Re is acting as the ceding reinsurance firm for the transaction, fronting the coverage for the NFIP.

Fema also purchased $1.46 billion of private reinsurance on January 1, 2018, having benefited from the $1.04 billion of private coverage in bought in 2017, when hurricanes Harvey, Irma and Maria caused major damage in the US and its Caribbean territory, Puerto Rico. The NFIP paid out $8 billion in flood claims last year.

The Reinsurance Association of America also welcomed the news yesterday.

“The RAA has long advocated for the NFIP to utilise the private market to provide financial backing for the government’s flood risk,” Frank Nutter, president of the RAA, said.

“Along with its second successful placement of reinsurance coverage earlier this year, the cat bond issuance confirms Fema’s continued commitment to expanding private sector backing and the financial protections it will afford the NFIP and American taxpayers.”

Mr Nutter added: “Fema recovered the full $1.042 billion of reinsurance coverage it placed with the private reinsurance sector in January 2017.”

The notes are due to be sold in two tranches, according to Artemis, each of which will offer double-digit coupons to investors.