Britain’s ultimate backstop against flood damage is planning to rely more heavily on capital markets, after its first disaster bond attracted interest from specialist investors including hedge fund Fermat Capital Management.
Chief Executive Officer Perry Thomas said Flood Re, a state-backed insurance program, now plans to “layer up” on cat bonds. He said the aim was to create a pipeline of bonds that would follow the model used by Pol Re, the UK’s terror recovery programme.
Flood Re’s £140 million ($190 million) cat bond, sold last March, reflects the program’s efforts to tap new sources of financing as flood risk is forecast to become more pronounced. The UK government estimates that there are 6.3 million properties across England that are currently in flood risk areas, which is set to increase significantly in the coming years.
Read more: Hedge fund Fermat says the growth in cat bond sales has been ‘breathtaking’
Against this backdrop, FloodRe faces a “capacity problem,” Thomas said. “So you go out and find more capacity elsewhere” and “that’s where Cat Bond came in very handy,” he said in an interview in London.
As commercial insurers and reinsurers face rising costs amid increasingly catastrophic weather patterns, flood re has come up against financial challenges. Thomas said it is now trying different options to cover the moment.
Flood is “exploring the markets” for traditional forms of reinsurance and is now looking for other types of investors, Thomas said. The goal is to “go and try and find different people to provide money, and we’re seeing a lot of that.”
Flood Re was one of several new issuers to tap the market for cat bonds for the first time last year. Fermat managing director and co-founder John Siew told Bloomberg earlier this month that he is aware of 16 new cat bond issuers in 2025. This is eight times higher than the historical average.
Of Flood Re’s bond, Seo said, “We don’t normally comment on explicit investments, but this is such an important issue that I don’t mind saying, yes, we absolutely invested.”
Thomas said the need for cat bonds stems from the fact that “there’s only a certain amount of capacity.” “If you’re trying to hit a market that has a lot of buyers, you pay a price. If you have to start cornering the market to get that last capability, the price really, really goes up.”
Investors in cat bonds make money if a predetermined disaster does not occur, and lose money if it does. In recent years, bondholders have generally come out on top. Gains on disaster bonds have matched the MSCI World Index of global stocks over the past half-decade, and profits on U.S. corporate bonds have suffered.
Fermat’s Seo said he expects cat bond sales of about $24 billion this year, testing last year’s record. Thomas said between 10 and 20 investors participated in Flood Re’s 2025 cat bond issuance.
Of Flood Re’s Kate Bond last year, Thomas said “there were people who said they wanted 50% of it.” “For the next one, I’m going to build that investor base. It’s going to get bigger and bigger, I hope.”
Image: A house affected by flooding in the village of Wycroft on January 27, 2026. Photo credit: Finbar Webster/Getty Images
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