WASHINGTON – The Federal Emergency Management Agency (FEMA) announced today that it secured reinsurance for the National Flood Insurance Program (NFIP) effective January 1, 2017 through January 1, 2018.
Historically, the Federal Insurance and Mitigation Administration (FIMA) was limited to using flood insurance premiums, available surplus, borrowing capacity from the U.S. Treasury, and in some cases direct appropriations from Congress to pay claims.
In the past 11 years, the United States has experienced many devastating flooding disasters, particularly in Hurricanes Katrina, Ike, and Sandy. Flood insurance claims far exceeded the amount of funds available to pay for the insured losses.
Congress provided FEMA the authority to secure reinsurance from the private reinsurance and capital markets. Reinsurance is an important financial risk management tool used by private insurance companies and public entities to protect themselves from large financial losses, by diversifying risk across multiple markets.
“Securing reinsurance through the NFIP Reinsurance Program is a key step towards achieving the NFIP’s long-term vision of building a stronger financial framework,” said Deputy Associate Administrator of FIMA, Roy Wright. “This reinsurance agreement places the NFIP in a better position to manage losses incurred from major events like Hurricane Sandy.”
FEMA executed the 2017 reinsurance agreement with a consortium of 25 reinsurers representing some of the largest insurance and reinsurance groups around the globe. FEMA contracted with Guy Carpenter and Company, a subsidiary of Marsh & McLennan Companies, to provide broker services to assist in securing the reinsurance placements.
Under the agreement, reinsurers agreed to indemnify FEMA for flood claims on an occurrence basis. The layer is structured to cover 26 percent of losses between $4 billion and $8 billion. A combined total of $1.042 billion of the NFIP’s flood risk was transferred to the private reinsurance market through this agreement.
FEMA received the authority to secure reinsurance through the Biggert-Waters Flood Insurance Reform Act of 2012 (BW-12), and the Homeowner Flood Insurance Affordability Act of 2014 (HFIAA). The 2017 reinsurance placement is an expansion of a smaller placement made by FEMA in September of 2016.
Additional information about the NFIP’s Reinsurance Program is available at FEMA.gov.
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