FEMA Places Reinsurance for Flood Risk Third Consecutive Year

For the third consecutive year, the Federal Emergency Management Agency (FEMA) has completed placement of reinsurance coverage to help manage the financial burden of the National Flood Insurance Program (NFIP) catastrophic flood risk. Participating in the $1.32 billion placement were 28 private reinsurers. The agreement is effective from January 1, 2019, to January 1, 2020.

According to FEMA, combined with the $500 million August 2018 capital markets reinsurance placement, it 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 (i.e., a named storm flood event where NFIP claims exceed $5 billion), FEMA would receive payments under both reinsurance agreements.

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 percent of losses between $4 billion and $6 billion,
• 25.6 percent of losses between $6 billion and $8 billion, and
• 26.6 percent of losses between $8 billion and $10 billion.

Historically, the NFIP was limited to using flood insurance premiums, available surplus, borrowing capacity from the US Treasury, and in some cases direct appropriations from Congress to pay flood claims.

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, as further development toward a stronger financial framework.

"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, chief executive of the NFIP.