The U.S. Federal Emergency Management Agency (FEMA) has completed its 2023 traditional reinsurance placement for the National Flood Insurance Program (NFIP), transferring an additional $502.5 million of flood risk to the private reinsurance market for a total premium of $90.2 million.
Together with its three in-force catastrophe bond transactions, FEMA has transferred $1.9275 billion of the NFIP’s flood risk to the private sector.
The latest traditional placement is effective throughout the calendar year with 18 private reinsurers, and covers portions of NFIP losses above $7 billion arising from a single flooding event.
The agreement is structured to cover 8.5625% of losses between $7 billion and $9 billion, and 16.5625% of losses between $9 billion and $11 billion.
When compared with its 2022 January renewal, FEMA’s 2023 placement is actually more than 50% smaller, while the attachment point has risen, year-on-year, from $4 billion to $7 billion. At the same time, the premium paid by FEMA has come down by almost half, while 10 fewer reinsurers participated this year than in the 2022 renewal.
So, the effects of the hardening reinsurance market are clear to see in FEMA’s renewal for the year ahead. It’s also likely that the current tower is considered at potential risk from Hurricane Ian, while the traditional market might have less appetite for this risk now and price was also likely a factor in deciding to buy less coverage.
In December, FEMA provided an updated estimate for NFIP claims arising from Hurricane Ian to somewhere between $3.7bn and $5.2bn. At this time, the NFIP had received 44,000 claims from Ian and had paid almost $437m to policyholders.
David Maurstad, FEMA’s senior executive of the NFIP, commented: “FEMA remains committed to reinsurance as a risk transfer measure to ensure the NFIP has the capacity to pay claims, especially now with the growing intensity and frequency of weather patterns brought on by climate change.
“Our No. 1 job is to provide policyholders peace of mind in knowing that the NFIP will be there when they need it most.”
FEMA contracted reinsurance broker Guy Carpenter, part of Marsh McLennan, to provide broker services to assist in securing the 2023 reinsurance placement.
If a named storm flood event is large enough to trigger all reinsurance agreements, FEMA receives qualifying payments. For named storms resulting in NFIP claims exceeding the $11 billion mark, FEMA will receive the full $1.9275 billion of reinsurance coverage from the private markets.
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.