FEMA renews reinsurance program to manage future flood risk
FEMA transferred $1.32 billion of the NFIP’s financial risk to the private reinsurance market.
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The Federal Emergency Management Agency (FEMA) has renewed its reinsurance placement for the National Flood Insurance Program (NFIP).
FEMA transferred $1.32 billion of the NFIP’s financial risk to the private reinsurance market.
The reinsurance agreement is effective from January 1, 2019 to January 1, 2020, with 28 private reinsurance companies.
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Combined with the $500 million August 2018 capital markets reinsurance placement, FEMA has transferred $1.82 billion of the NFIP’s flood risk for the 2019 hurricane season to the private sector. If a named storm flood event is large enough to trigger both reinsurance agreements (that is, a named storm flood event where NFIP claims exceed $5 billion), FEMA would receive payments under both reinsurance agreements.
‘Meaningful transfer of flood risk’
“It takes an entire community to prepare for disasters, and that includes participation from the private sector. Through reinsurance, FEMA partners with private markets to build a pillar that supports a sound financial framework for the NFIP by a meaningful transfer of flood risk,” said David Maurstad, the NFIP’s chief executive.
The 2019 placement of reinsurance covers portions of NFIP losses above $4 billion arising from a single flooding event. FEMA paid a total premium of $186 million for the coverage.
The agreement is structured to cover:
- 14% of losses between $4 billion and $6 billion.
- 25.6% of losses between $6 billion and $8 billion.
- 26.6% of losses between $8 billion and $10 billion.
Historically, the NFIP was limited to using flood insurance premiums, available surplus, borrowing capacity from the U.S. Treasury, and in some cases direct appropriations from Congress to pay flood claims.
Broker services provided by Guy Carpenter & Company
FEMA contracted with Guy Carpenter and Company, a subsidiary of Marsh & McLennan Companies, to provide broker services to assist in securing the reinsurance placement. FEMA also contracted with Aon for financial advisory services for the placement.
FEMA received authority to secure reinsurance through the Biggert-Waters Flood Insurance Reform Act of 2012 and the Homeowner Flood Insurance Affordability Act of 2014. FEMA’s 2019 reinsurance placement builds upon its 2017 cornerstone placement and 2018 placements.
Related: FEMA is exploring expansion of its reinsurance program
Steven A. Meyerowitz, Esq., (smeyerowitz@meyerowitzcommunications.com) is the director of FC&S Legal, the editor-in-chief of the Insurance Coverage Law Report, and the founder and president of Meyerowitz Communications Inc. This story is reprinted with permission from FC&S Legal, the industry’s only comprehensive digital resource designed for insurance coverage law.