Flood Re secures £2.1bn reinsurance programme

Flood Re, the UK Government’s scheme to pool flood risk, has successfully secured a £2.1 billion multi-year reinsurance programme.

In an oversubscribed second phase of the tender process, Flood Re successfully bound the additional capacity required to complete the placement. The three-year programme is one of the five largest ‘natural peril’ reinsurance deals secured globally and the second biggest in Europe.

The second phase saw 45 entities offer capacity to meet the required amount to complete the programme, with 38 of those parties ultimately securing a share of the placement. In phase one, which concluded in late 2015, some of the industry’s leading reinsurers collectively offered nearly £1.29 billion of multi-year coverage – with leaders Munich Re and Swiss Re contributing very significant support.

The process – a first in the UK for reinsurance cover under European Public Procurement regulations – was conducted with the assistance of reinsurance broker Guy Carpenter.

Brendan McCafferty, chief executive officer of Flood Re, said: “Securing £2.1 billion in annual protection is an important milestone towards Flood Re being ready to accept policies for flood risk households.

“The reinsurance programme has been significantly oversubscribed and we are pleased by the strong demand from the reinsurance market. This is an innovative solution that demonstrates the thought leadership only found in the UK insurance industry.

“Although the reinsurance process has now been completed on time and ahead of planned budget, there is still a lot of work to be done. We are testing our systems with insurers to ensure they work effectively and will also continue to work closely with the financial regulators to obtain the authorisation we need to operate.”

Charles Whitmore, head of property solutions group, Guy Carpenter, added: “The reinsurance market has proved incredibly supportive of Flood Re from the outset, acknowledging both the opportunity and the level of professionalism running through the whole process.

“As a result the final placement was relatively straightforward with the world’s largest reinsurers providing the majority of the capacity.”

In June 2015 Flood Re submitted an application for authorisation to the UK’s financial regulators – the Prudential Regulatory Authority (PRA) and Financial Conduct Authority (FCA) – for their assessment. Flood Re is required to be authorised by the financial regulators before it can start accepting business.

Until this point, the current Statement of Principles agreement between Association of British Insurers (ABI) members and government will remain in place for households at risk of flooding.