The Federal Emergency Management Agency (FEMA) has returned to the traditional market and begun its procurement of reinsurance for the National Flood Insurance Program (NFIP), to be effective on or about January 1st, 2021.
After testing the market with a limited placement in 2016, FEMA’s NFIP has been leveraging reinsurance protection, from both traditional and alternative sources, consistently.
The first full placement took place ahead of the January 1st, 2017 renewals, with FEMA securing $1.024 billion of flood reinsurance for the NFIP.
This was followed by a larger and restructured renewal for 2018, a year in which FEMA also looked to the capital markets for additional protection. In 2018, the catastrophe bond FloodSmart Re Ltd. (Series 2018-1) launched, the first to provide reinsurance coverage solely for flood risks.
In 2019, FEMA returned to the traditional reinsurance market, securing $1.32 billion of protection for the renewal of its flood reinsurance program to protect the NFIP. Additionally, FEMA returned to the insurance-linked securities (ILS) space in 2019, sponsoring its second cat bond issuance, a $300 million FloodSmart Re Ltd. (Series 2019-1) transaction.
At the start of 2020, FEMA announced the renewal of its NFIP flood reinsurance protection, a $1.33 billion program secured from a panel of 27 reinsurers. Then, towards the end of February, FEMA announced its third entry into the cat bond space, with the issuance of a $400 million FloodSmart Re Ltd. (Series 2020-1) transaction. This took FEMA’s total flood reinsurance cover for the NFIP to $2.53 billion for 2020.
Now, FEMA has returned to the traditional marketplace to commence its procurement process for the renewal of its $1.33 billion program. According to our sister site, Artemis, FEMA could look to increase the size of the program for 2021, and with its 2018 cat bond set to mature later in the year, it could also return to the capital markets for its fourth catastrophe bond issuance.
Of course, the reinsurance market continues to harden so FEMA will have to consider price. Cat bond rates are also firmer in the current market environment, so it will be interesting to see what mix of traditional and alternative protection FEMA selects for its 2021 NFIP flood reinsurance program.
FEMA notes that to participate in the reinsurance procurement, vendors must submit a request to participate by November 24th, 2020, which is the date on or about it expects firm order terms to be issued, with final tenders by December 4th, 2020.
Guy Carpenter, the reinsurance arm of Marsh, alongside Aon Benfield, will serve as FEMA’s brokers and will act as third-party intermediaries for the procurement of reinsurance.
FEMA says that it intends to procure reinsurance on or about January 1st, 2021, to be effective for one or more years.