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FEMA announces renewal of NFIP reinsurance program

31st January 2019 - Author: Luke Gallin

The U.S. Federal Emergency Management Agency (FEMA) has announced the renewal of its flood reinsurance program to protect the National Flood Insurance Program (NFIP), securing $1.32 billion of protection.

nfipThe $1.32 billion of traditional flood reinsurance protection was secured from a panel of 28 participating reinsurance companies, and is effective January 1st 2019, to January 1st 2020.

This, combined with the $500 million of capital markets reinsurance protection secured in August 2018 via the issuance of catastrophe bond FloodSmart Re 2018-1, means FEMA has transferred $1.82 billion of the NFIP’s flood risk for the 2019 hurricane season to the private sector.

According to an announcement on the reinsurance renewal, the 2019 placement covers portions of the NFIP’s losses above $4 billion arising from a single flooding event. FEMA states that it paid a total premiums of $186 million for the coverage.

Last year, FEMA secured $1.46 billion of reinsurance protection for the NFIP at a total premium of $235 million, again from a panel of 28 participating reinsurers.

David Maurstad, NFIP Chief Executive Officer (CEO), said: “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.”

Interestingly, FEMA breaks out the structure of the reinsurance renewal, explaining that it covers 14% of losses between $4 billion and $6 billion, 25.6% of losses between $6 billion and $8 billion, and 26.6% of losses between $8 billion and $10 billion.

As with last year, the program was placed by the reinsurance arm of Marsh, Guy Carpenter, with Aon providing advisory services for the placement.

FEMA has been leveraging the private sector for reinsurance protection for a couple of years now, and while this year’s renewal is down in size when compared with last year, this is likely a result of the issuance of its first catastrophe bond transaction.

Frank Nutter, President of the Reinsurance Association of America (RAA), commented: “The RAA has long advocated for the NFIP to utilize private reinsurance, and the successful placement of this reinsurance coverage for the third year is a significant milestone. The placement confirms FEMA’s commitment to expanding reinsurance coverage and the financial protections it will afford American taxpayers.”

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