PUBLIC NOTICE OF FEMA’S INTENDED PROCUREMENT OF REINSURANCE
FEBRUARY 2020
[https://www.fema.gov/fact-sheet/public-notice-femas-intended-procurement-reinsurance-february-2020]


Release date: 

May 2, 2020

AGENCY: FEDERAL EMERGENCY MANAGEMENT AGENCY, U.S. DEPARTMENT OF
HOMELAND SECURITY

ACTION: NOTICE REPORTING ON FEMA’S PROCUREMENT OF REINSURANCE FOR
THE NATIONAL FLOOD INSURANCE PROGRAM PURSUANT TO THE REVISED AGREEMENT
ON GOVERNMENT PROCUREMENT (April 6, 2014) .

SUMMARY NOTICE: 
The Federal Emergency Management Agency (“FEMA”) has obtained
collateralized reinsurance for the National Flood Insurance Program
(“NFIP”) effective on February 21, 2020 through February 20, 2023
from its transformer reinsurer, Hannover-Re (Ireland) DAC (“Hannover
Re”).  Following on FEMA’s April 16, 2019 insurance-linked
securities (ILS) reinsurance placement , FEMA’s original supplier,
Hannover Re used its special purpose insurer (SPI), FloodSmart Re Ltd.
(“FloodSmart”) to issue a third series of catastrophe bonds to
144A investors, transferring additional federal flood risk to the
capital markets.  
FOR FURTHER INFORMATION CONTACT: FEMA’s Reinsurance Broker, Guy
Carpenter and Company, LLC, or GC Securities, a division of MMC
Securities LLC, at FEMA.GC@guycarp.com; or a FEMA representative at
FEMA-NFIP-REINSURANCE@fema.dhs.gov.

NOTICE:
Pursuant to the Revised Agreement on Government Procurement (April 6,
2014) (herein “GPA”), Articles XIII (2) and XVI (2), and the
National Flood Insurance Act of 1968, 42 U.S.C. 4001 et seq., FEMA
hereby provides notice of its additional placement of collateralized
reinsurance for NFIP flood risk from its original supplier, Hannover
Re (Ireland) DAC.  The following information is provided pursuant to
GPA, Articles XIII and XVI (April 6, 2014):

(A) Description of the goods or services procured: FEMA has obtained
$400 million in collateralized reinsurance transferring additional
NFIP flood risk to the capital markets (144A investors) via its
transformer reinsurer effective February 21, 2020 – February 20,
2023;

(B) The name and address of the procuring entity: The Federal
Emergency Management Agency, a component of the U.S. Department of
Homeland Security, on behalf of the National Flood Insurance Program,
500 C St. SW, Washington D.C. 20472;

(C) The original supplier: Hannover Re (Ireland) DAC, No. 4 Custom
House Plaza, I.F.S.C, Dublin I Ireland, a transformer reinsurer
utilizing the special purpose insurer, FloodSmart Re Ltd, established
for the purpose of transferring NFIP flood risk to the capital
markets;

(D) The value of the successful tender: $400 million of
collateralized reinsurance from Hannover Re, transferred through the
special purpose insurer, FloodSmart Re Ltd. to the capital markets;

(E) The date of the award: February 20, 2020;

(F) Statement on the type of procurement method used and a
description of the circumstances: Limited Tendering.  FEMA used its
existing supplier because FEMA could not use a new supplier for
economic and technical reasons.  If FEMA had used a new supplier,
this would have caused significant inconvenience and substantial
duplication of costs for FEMA.  This is because FloodSmart Re’s
Series 2018-1 issuance was the first 144A catastrophe bond ever issued
for the single peril of flood risk in the United States involving
federal flood insurance.  By obtaining additional reinsurance
coverage through the same supplier as FEMA did with its second
reinsurance procurement, FEMA is able to minimize duplication of
efforts for ongoing contract maintenance responsibilities.  FEMA’s
placement of insurance-linked-securities reinsurance involved complex
and novel establishment of services developed for transforming NFIP
flood risk.  By utilizing its original supplier to transfer
additional NFIP flood risk through FloodSmart Re Ltd., FEMA benefited
from the use of existing resources developed to transfer NFIP flood
risk, resulting in significant costs savings.  Particularly, the
additional reinsurance services reduced costs and time by optimizing
the use of the existing SPI established for NFIP flood risk transfer,
and enabling the use of existing third-party contracts, limiting the
significant inconvenience and inefficiency of duplicating the efforts
to recreate the reinsurance placement process and establishment of an
SPI needed to transfer additional flood risk.

By extending a limited tendering to its original supplier, FEMA
ensured its placement of additional collateralized reinsurance prior
to the onset of the 2020 hurricane season and minimized impacts
associated with the uncertainty that might otherwise have affected the
project’s success.   

See GPA Articles XIII and XVI (2).  Article XIII allows limited
tendering provided it is not used to avoid competition among suppliers
or in a manner that discriminates against suppliers of any other Party
or protects domestic suppliers.  A procuring entity using limited
tendering may choose not to apply GPA Articles VII through IX, X
(paragraphs 7 through 11), XI, XII, XIV and XV under certain
circumstances.  See GPA Article XIII. Circumstances for limited
tender under Article XIII include but are not limited to “for
additional deliveries by the original supplier of goods or services
that were not included in the initial procurement may be used where a
change in supplier for such additional goods or services: (i) cannot
be made for economic or technical reasons such as requirements of
interchangeability or interoperability with existing equipment,
software, services or installations procured under the initial
procurement; and (ii) would cause significant inconvenience or
substantial duplication of costs for the procuring entity.”  Id. at
Article XIII (c).

This reinsurance placement was conducted pursuant to the National
Flood Insurance Act of 1968, 42 U.S.C. 4001 et seq.; see also 42
U.S.C. 4081.  FEMA obtained collateralized reinsurance for NFIP flood
risk on August 1, 2018 through its original supplier, transformer
reinsurer Hannover Re (Ireland) DAC (“Hanover Re”), utilizing the
original supplier for the additional 2019 and 2020 reinsurance
procurements.  Hannover Re collateralized the flood risk for each
reinsurance placement by retroceding it to the special purpose
insurer, FloodSmart Re Ltd. (“FloodSmart Re”), established by
Hannover Re solely to collateralize the NFIP flood risk by issuing
catastrophe bonds to 144A capital market investors.

For other information on FEMA’s ILS Reinsurance Program, see
https://www.fema.gov/nfip-reinsurance-program. 

END OF NOTICE