The U.S. Federal Emergency Management Agency (FEMA) has completed its 2024 traditional reinsurance placement for the National Flood Insurance Program (NFIP), transferring an additional $619.5 million of the NFIP’s financial risk to the private reinsurance market, for a total premium of $121.1 million for the coverage.
The placement covers portions of NFIP losses above $7 billion arising from a single qualifying flood event. The agency’s agreement is structured in a way to cover 8.9125% of losses between $7 billion and $9 billion, and 22.0625% of losses between $9 billion and $11 billion.
When combined with the three capital markets reinsurance placements through 2021-23, FEMA has now transferred $1.9195 billion of the NFIP’s flood risk to the private reinsurance sector.
The annual reinsurance agreement is effective for the calendar year and is supported through 18 private reinsurance companies.
David Maurstad, FEMA’s assistant administrator for the Federal Insurance Directorate and the senior executive of the National Flood Insurance Program, commented, “With continued difficult market conditions this year, FEMA remains committed to long-term use of private sector reinsurance.
“However, the program will adjust NFIP reinsurance investments whenever necessary to reflect market conditions as we did again this year.”
When compared to the 2023 renewal, when FEMA shrunk the NFIP reinsurance program by over 50% amid hard market conditions, this year there hasn’t been a change in the attachment point.
Compared year over year the number of reinsurers participating in the renewals remains unchanged at 18 whereas 28 reinsurers had participated in 2022.
In March 2023, FEMA returned to the capital markets to secure another $275 million of reinsurance protection for the NFIP.
If a named storm flood event triggers all reinsurance agreements, FEMA will receive qualifying payments.
For this agreement, FEMA contracted reinsurance broker Guy Carpenter, a subsidiary of Marsh McLennan, to provide broker services to assist in securing the reinsurance placement. Guy Carpenter has been serving as the broker for renewals for FEMA for several years now.
The agency started the process of this 2024 placement in September of 2023 when it asked reinsurers to send in a request for participation.
FEMA has been procuring reinsurance for the NFIP for numerous years, after testing the market with a limited placement in 2016, before securing its first full placement ahead of the January 2017 renewals.
The agency received authority to secure reinsurance through the Biggert-Waters Flood Insurance Reform Act of 2012 and the Homeowner Flood Insurance Affordability Act of 2014.
The agency’s 2024 reinsurance placement builds upon its previous reinsurance placements as further development toward a stronger financial framework.
