The Federal Emergency Management Agency has for the first time used capital markets to access reinsurance cover for the National Flood Insurance Program with a three-year, $500 million catastrophe bond, the agency said Tuesday.

The FloodSmart Re $500 million Series 2018-1 Notes, issued through Hannover Re (Ireland) DAC, a reinsurance company, secures three years of flood coverage for the flood program, FEMA said in a statement.

The deal is structured to cover, for a given flood event, 3.5% of losses between $5 billion and $10 billion, then 13% of losses between $7.5 billion and $10 billion. FEMA will pay $62 million in premium for the first year of coverage, according to the statement.

FEMA used Guy Carpenter & Co. L.L.C. and GC Securities, a division of MMC Securities L.L.C., itself a subsidiary of Marsh & McLennan Cos. Inc., to serve as structuring agent, and Aon Benfield for financial advisory services, the statement said.

GC Securities and Aon Securities Inc. served as book runners, and KatRisk L.L.C., a catastrophe modeler, analyzed NFIP risk for investors, the statement said.

“Reinsurance is a linchpin to help strengthen the financial framework of the NFIP,” David Maurstad, chief executive of the National Flood Insurance Program, 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.”

In 2018, FEMA increased its one-year reinsurance placement to $1.46 billion from 28 reinsurance companies from $1.042 billion of traditional reinsurance coverage from 25 reinsurance companies to cover any qualifying NFIP flood losses in excess of $4 billion per event. 

The agency announced its intention to access the capital markets in April. 

“More than 35 capital markets investors provided fully-collateralized protection to FEMA/NFIP on the landmark and first-ever indemnity-triggered catastrophe bond, FloodSmart Re’s $500 million Series 2018-1 Notes,” Cory Anger, global head of ILS origination and structuring at GC Securities, another division of MMC Securities, said in a separate statement.

Meanwhile, the Senate voted 86-12 on Tuesday to extend the National Flood Insurance Program for four months.