The National Flood Insurance Program (NFIP) Reinsurance Program helps FEMA manage the future exposure of the NFIP through the transfer of risk to private reinsurers. The NFIP Reinsurance Program promotes private sector participation in flood-risk management. By securing reinsurance at a fair and reasonable cost, NFIP’s claims-paying ability is extended.
FEMA gained the authority to secure reinsurance from the private reinsurance and capital markets through the Biggert-Waters Flood Insurance Reform Act of 2012 (BW-12) and the Homeowners Flood Insurance Affordability Act of 2014 (HFIAA). The January 2017 placement of reinsurance marked a key step towards achieving a stronger and more resilient NFIP. Additionally, it set the foundation for a multi-year strategy that promotes private sector participation in flood-risk management. FEMA is committed to growing the NFIP Reinsurance Program to protect against future flood losses.
Summary of the 2018 Reinsurance Placement
As of April 2, 2018, FEMA has paid over $8.6 billion in losses to policyholders as a result of Hurricane Harvey. Because FEMA purchased reinsurance in 2017, FEMA recovered $1.042 billion from its reinsurers.
For 2018, continuing this practice of resiliency and protection against future flood losses, FEMA secured $1.46 billion in reinsurance to cover any qualifying flood losses in excess of $4 billion per event occurring in calendar year 2018.
Under the 2018 reinsurance agreement, reinsurers agreed to indemnify FEMA for flood claims on an occurrence basis. The agreement is structured to cover 18.6 percent of losses between $4 billion and $6 billion, and 54.3 percent of losses between $6 billion and $8 billion. FEMA paid a total premium of $235 million for the coverage.
FEMA contracted with Guy Carpenter and Company, a subsidiary of Marsh & McLennan Companies, to provide broker services to assist in securing the 2018 reinsurance placement. Additionally, FEMA contracted with Aon Benfield for financial advisory services for the January 2018 placement of reinsurance.
The 28 private reinsurance markets under FEMA’s 2018 Reinsurance Agreement are:
Allied World Insurance Company, Amlin (Lloyd’s Synd. No. 2001 AML), Apollo (Lloyd’s Synd. No. 1969 APL), Ariel (Lloyd’s Synd. No. 1910 ARE), Ascot (Lloyd’s Synd. No. 1414 ASC), AXIS Reinsurance Co US, Brit (Lloyd’s Synd. No. 2987 BRT), Canopius (Lloyd’s Synd. No. 4444 CNP), Chaucer (Lloyd’s Synd. No. 1084 CSL), Faraday (Lloyd’s Synd. No. 0435 FDY), General Reinsurance Corporation, Hannover Ruck SE, Hiscox (Lloyd’s Synd. No. 0033 HIS), Liberty Mutual Insurance Company, Lloyd’s Syndicate 4472 Liberty Specialty Markets, Managing Agency Partners (Lloyd’s Synd. No. 2791 MAP), Markel Global Reins Co, Munich Reinsurance America, Inc., QBE Reinsurance Corporation, Renaissance (Lloyd’s Synd. No. 1458 RNR), Renaissance Reinsurance U.S. Inc., SCOR Reinsurance Company, Swiss Re Underwriters Agency, Inc. o/b/o Swiss Reinsurance America Corporation, The Cincinnati Insurance Co, Transatlantic Reinsurance Company, Validus Reinsurance (Switzerland) Ltd., XL Catlin (Lloyd’s Synd. No. 2003 XLC), and XL Reinsurance America, Inc.
These reinsurers represent some of the largest insurance and reinsurance companies around the globe.
Public Notice of FEMA's Intended Procurement of Reinsurance for the NFIP
AGENCY: FEDERAL EMERGENCY MANAGEMENT AGENCY, U.S. DEPARTMENT OF HOMELAND SECURITY
ACTION: NOTICE ANNOUNCING INTENDED PROCURMENT OF REINSURANCE FOR THE NATIONAL FLOOD INSURANCE PROGRAM AS REQUIRED UNDER THE AGREEMENT ON GOVERNMENT PROCUREMENT (MAR. 30, 2012).
The Federal Emergency Management Agency (“FEMA”) intends to pursue procurement of reinsurance for the National Flood Insurance Program (“NFIP”) via a reinsurer that will act as a transformer and transfer flood risk using a 144A catastrophe bond. 17 C.F.R. 230.144. Should FEMA elect to proceed with the procurement of reinsurance via a transformer reinsurer, the reinsurance is expected to be effective on or about July 1, 2018, one day after the transformer reinsurer completes the issuance of the 144A catastrophe bond. To participate in the reinsurance procurement as a transformer reinsurer, eligible vendors must submit a request to participate by 5:00 pm Eastern Time on April 6, 2018, and submit final tenders by 5:00 pm Eastern Time on April 13, 2018.
FOR FURTHER INFORMATION CONTACT: FEMA’s reinsurance broker, Guy Carpenter and Company, LLC, or GC Securities, a division of MMC Securities LLC, at FEMA.GC@guycarp.com; or a FEMA representative at FEMA-NFIP-REINSURANCE@fema.dhs.gov.
Pursuant to the World Trade Organization (“WTO”), Agreement on Government Procurement (“GPA”), as amended on March 30, 2012, FEMA, the procuring entity, is hereby providing notice of its intended procurement of reinsurance for the NFIP. For more information, refer to Art. VII of the GPA, Exhibit A. FEMA intends to procure reinsurance via a reinsurer that meets the requirements of the Trade Agreements Act of 1979 (TAA), 19 U.S.C. § 2501-et seq., and that will act as a transformer to transfer NFIP-insured United States flood risk through the issuance of a 144A catastrophe bond, and transfer the proceeds from such offering into a reinsurance trust account with FEMA as the sole beneficiary of such trust account for satisfying claims under the reinsurance agreement between the NFIP and transformer reinsurer. Should FEMA elect to proceed with the procurement of reinsurance via a transformer reinsurer, the reinsurance is expected to be effective on or about July 1, 2018, one day after the transformer reinsurer completes the issuance of the 144A catastrophe bond. Through market research, FEMA became aware of potentially-eligible entities that may be interested in participating in this effort. FEMA, Guy Carpenter and Company, LLC, or GC Securities will send interested entities additional information following the publication of this notice. Any entity that meets the conditions for participation in Section (j) below and that is interested in receiving additional information should notify GC Securities (FEMA.GC@guycarp.com) or a FEMA representative (FEMA-NFIP-REINSURANCE@fema.dhs.gov) by 5:00 pm Eastern Time on April 6, 2018. FEMA is not
securing reinsurance through the Federal Acquisition Regulations (“FAR”) and reinsurers will not be considered federal contractors.
FEMA provides Notice on the following:
- The name and address of the procuring entity and other information necessary to contact the procuring entity and obtain all relevant documents relating to the procurement, and their cost and terms of payment, if any;
FEMA intends to procure reinsurance for flood risk in the United States insured by the NFIP. Guy Carpenter and Company, LLC and GC Securities will act as FEMA’s reinsurance broker for the intended procurement of reinsurance referenced in this notice between a transformer reinsurer and FEMA. Guy Carpenter and GC Securities can be contacted at FEMA.GC@guycarp.com for any information and relevant documentation relating to the procurement and to indicate interest in participating and/or submitting a final tender.
In addition, you may contact a representative of FEMA regarding this procurement at FEMA-NFIP-REINSURANCE@fema.dhs.gov.
b. A description of the procurement, including the nature and the quantity of the goods or services to be procured or, where the quantity is not known, the estimated quantity;
FEMA intends to procure reinsurance via a transformer reinsurer on or about July 1, 2018, to be effective for a term of likely three years. The procurement of reinsurance will be an agreement of indemnity between FEMA and the transformer reinsurer. FEMA will pay a reinsurance premium to the transformer reinsurer (that meets the requirements of the TAA) to assume a portion of the NFIP’s flood risk that will be transferred to capital markets investors. The transformer reinsurer will transfer flood risk through, or by means of, a 144A catastrophe bond. The transformer reinsurer’s responsibilities will include engagement of third-party service providers and arrangement of a trust account in the United States in a bank domiciled within the United States funded with the 144A catastrophe bond proceeds and naming FEMA as the sole beneficiary. FEMA will require that payment for any reinsurance claims (based on potential NFIP losses as defined by the reinsurance agreement) under the reinsurance agreement between the NFIP and the transformer reinsurer be paid from this trust account. FEMA will provide guidelines as to the minimum size and other qualifications to serve as a trustee bank. The amount of reinsurance and the design of the reinsurance placement will remain undisclosed until determined otherwise by FEMA; however, FEMA is committed to making a significant placement if market capacity, pricing and other relevant terms are suitable. For reference, FEMA’s January 1, 2017 and January 1, 2018 traditional reinsurance placements resulted in flood risk transfer of approximately $1 billion and $1.5 billion, respectively.
c. For recurring contracts, an estimate, if possible, of the timing of subsequent notices of intended procurement;
This provision is not applicable to this reinsurance procurement.
d. A description of any options;
This provision is not applicable to this reinsurance procurement.
e. The time-frame for delivery of goods or services or the duration of the contract;
The duration of the reinsurance agreement will likely be for three years to begin on or about July 1, 2018.
f. The procurement method that will be used and whether it will involve negotiation or electronic auction;
FEMA intends to procure reinsurance by following standard industry practices in the private reinsurance and capital markets through a reinsurance agreement with a reinsurer that will operate as a transformer reinsurer to transfer flood risk through, or by means of, a 144A catastrophe bond. Under such a catastrophe bond structure, FEMA will require that the proceeds from the 144A catastrophe bond placement be ultimately deposited into a trust account located in the United States in a bank domiciled within the United States with FEMA being the sole beneficiary. If FEMA elects to proceed to procure reinsurance with a transformer reinsurer that meets the minimum criteria listed in Section (j) and such transformer reinsurer provides sufficient additional information as FEMA requests, the reinsurance agreement may include additional terms subject to further negotiations. This reinsurance procurement will not be available through Federal Business Opportunities, because FEMA will secure reinsurance outside the FAR.
g. Where applicable, the address and any final date for the submission of requests for participation in the procurement;
The final date for the submission of requests for participation will be 5:00 pm Eastern Time on April 6, 2018. Refer to Section (a) for contact information.
h. The address and the final date for the submission of tenders;
The final date for the submission of tenders is 5:00 pm Eastern Time on April 13, 2018. Refer to Section (a) for contact information.
i. The language or languages in which tenders or requests for participation may be submitted, if they may be submitted in a language other than an official language of the Party of the procuring entity;
The notice and intended procurement will be in English (United States).
j. A list and brief description of any conditions for participation of suppliers, including any requirements for specific documents or certifications to be provided by suppliers in connection therewith, unless such requirements are included in tender documentation that is made available to all interested suppliers at the same time as the notice of intended procurement;
Below is a list and brief description of conditions and requirements:
I. Conditions to Participate:
A. Experience writing property catastrophe excess of loss reinsurance in the United States, experience with issuance of a 144A catastrophe bond as a transformer reinsurer, and ability to serve in this role;
B. Fulfillment of minimum financial requirements measured by an:
a.) A.M. Best rating of A- or better,
b. ) For Underwriting Members of Lloyd’s, Lloyd’s market rating of A- or better,
c. ) S&P rating of BBB+ or better, and
d. ) Policyholder Surplus of at least $350 million;
C. Satisfactory outcome of appropriate financial analyses (e.g., measurements of liquidity, leverage, capital adequacy);
D. Payment of taxes pursuant to country or jurisdiction in which the reinsurance company operates;
E. Ability to meet FEMA’s time constraints for the planned placement;
F. Ability to demonstrate that the transformer reinsurer meets the requirements of the TAA; and
G. Ability to certify that third-party service providers meet the conditions and restrictions in Section (j)(II).
II. Conditions and Restrictions:
A. Office of Foreign Assets Control
Except as authorized by the Office of Foreign Assets Control (OFAC) in the Department of the Treasury, potential reinsurance companies shall not acquire, for use in the performance of the intended NFIP reinsurance treaty, any supplies or services if any proclamation, Executive Order, or statute administered by OFAC, or if OFAC’s implementing regulations at 31 CFR Chapter V, would prohibit such a transaction by a person subject to the jurisdiction of the United States.
Except as authorized by OFAC, most transactions involving Cuba, Iran, and Sudan are prohibited, as are most imports from Burma or North Korea, into the United States or its outlying areas. Lists of entities and individuals subject to economic sanctions are included in OFAC’s List of Specially Designated Nationals and Blocked Persons at www.treas.gov/offices/enforcement/ofac/sdn. More information about these restrictions, as well as updates, is available in the OFAC’s regulations at 31 CFR Chapter V and/or on OFAC’s website at www.treas.gov/offices/enforcement/ofac.
B. Prohibition on Conducting Restricted Business Operations in Sudan
Pursuant to the Sudan Accountability and Divestment Act of 2007, potential reinsurance companies must not conduct any restricted business operations in Sudan. For more information, refer to Pub. L. No. 110-174.
C. Prohibition on Engaging in Certain Activities or Transactions Related to Iran
Potential reinsurance companies, and any person owned or controlled by the potential reinsurance companies, must not engage in the following:
- Export any sensitive technology to the government of Iran or any entities or individuals owned or controlled by, or acting on behalf or at the direction of, the government of Iran;
- Any activities for which sanctions may be imposed under section 5 of the Iran Sanctions Act. These sanctioned activities are in the areas of development of the petroleum resources of Iran, production of refined petroleum products in Iran, sale and provision of refined petroleum products to Iran, and contributing to Iran's ability to acquire or develop certain weapons or technologies; and
- Any transaction that exceeds $3,500 with Iran’s Revolutionary Guard Corps or any of its officials, agents, or affiliates, the property and interests in property of which are blocked pursuant to the International Emergency Economic Powers Act (50 U.S.C. 1701 et seq.). Refer to OFAC’s Specially Designated Nationals and Blocked Persons List at http://www.treasury.gov/ofac/downloads/t11sdn.pdf.
D. Prohibition on Inverted Domestic Corporations
FEMA will not secure reinsurance from reinsurance companies that are inverted domestic corporations or subsidiaries of an inverted domestic corporation as defined in 6 U.S.C. § 395(b)-(c).
E. Delinquent Tax Liability or a Felony Conviction under Federal Law
FEMA will not secure reinsurance from reinsurance companies that have unpaid U.S. federal tax liability, for which all judicial and administrative remedies have been exhausted or have lapsed, and that is not being paid in a timely manner pursuant to an agreement with the authority responsible for collecting the tax liability.
FEMA will not secure reinsurance from a reinsurance company where the entity has been convicted of a felony criminal violation under any federal law in the preceding twenty four (24) months.
F. Other Tax Matters
Pursuant to section 522 of Division B, Title V, of the Consolidated Appropriations Act, 2018 (Pub. L. 115-141), and similar provisions, if contained in subsequent appropriations acts, FEMA will not secure reinsurance from reinsurance companies that have:
- Not filed all federal tax returns required during the three years preceding the certifications;
- Been convicted of a criminal offense under the Internal Revenue Code of 1986; and
- More than 90 days prior, been notified of any unpaid federal tax assessment for which the liability remains unsatisfied, unless the assessment is subject to an installment agreement or offer in compromise that has been approved by the Internal Revenue Service and is not in default, or the assessment is the subject of a non-frivolous administrative or judicial proceeding.
G. Prohibition on Requiring Certain Internal Confidentiality Agreements or Statements
Pursuant to section 743 of Division E, Title VII, of the Consolidated Appropriations, Act, 2018 (Pub. L. 115-141) and its successor provisions in subsequent appropriations acts (and as extended in continuing resolutions), FEMA will not secure reinsurance from reinsurance companies that require employees or subcontractors seeking to report waste, fraud, or abuse to sign internal confidentiality agreements or statements prohibiting or otherwise restricting such employees or subcontractors from lawfully reporting such waste, fraud, or abuse to a designated investigative or law enforcement representative of a federal department or agency authorized to receive such information. This prohibition does not contravene requirements applicable to Standard Form 312 (Classified Information Nondisclosure Agreement), Form 4414 (Sensitive Compartmented Information Nondisclosure Agreement), or any other form issued by a federal department or agency governing the nondisclosure of classified information.
III. Trade Agreements Act of 1979 and WTO GPA Conditions:
A. Pursuant to the Trade Agreements Act of 1979 (TAA), 19 U.S.C. § 2501, and the WTO GPA, FEMA will only secure reinsurance from reinsurance companies that meet the following criteria:
- The reinsurance company must be established in a TAA-designated country, and its activities with respect to this Reinsured must comply with the TAA. A list of TAA-designated countries may be found at http://gsa.federalschedules.com/resources/taa-designated-countries/. This list may be amended from time to time or be superseded by international agreements or events. The country in which a potential reinsurance company is “established” means the country in which it is incorporated and maintains its principal place of business or headquarters.
- The reinsurance company must perform the following tasks under such reinsurance agreement entirely within a TAA-designated country:
- underwriting, including any decisions and activities necessary to making the underwriting decision concerning the reinsurance (including for example, if applicable, modeling, pricing, quoting, and review of the terms and conditions of the reinsurance agreement);
- accept and execute the reinsurance agreement;
- accept payment of premiums from FEMA under the reinsurance agreement;
- administer the reinsurance agreement; and
- adjust and pay claims under the reinsurance agreement.
- Potential transformer reinsurers will be evaluated during the procurement process for their compliance with the conditions for participation under the standards set forth in the GPA and other TAA-related requirements.
- Once selected, the chosen transformer reinsurer must certify that it complies with the conditions for participation under the standards set forth in the GPA and other TAA-related requirements, and will maintain its compliance with said standards and requirements throughout the term of the placement.
- A reinsurance company may be disqualified and excluded from participation if any of the following occur at any time prior to or while an entity has responsibilities under such reinsurance agreement:
- false declarations;
- significant or persistent deficiencies in performance of any substantive requirement or obligation under a prior reinsurance-related contract or contracts;
- final judgments in respect of serious crimes or other serious offenses;
- professional misconduct or acts or omissions that adversely reflect on the commercial integrity of the entity;
- failure to pay taxes; or
- violation of or failure to comply with any TAA-related requirements or any other laws or regulations applicable either to such a reinsurance agreement or to the potential reinsurance company.
k. Where, pursuant to Article IX, a procuring entity intends to select a limited number of qualified suppliers to be invited to tender, the criteria that will be used to select them and, where applicable, any limitation on the number of suppliers that will be permitted to tender.
If FEMA elects to proceed with procurement of reinsurance through a transformer reinsurer, FEMA will select only one reinsurer from the eligible reinsurers meeting the minimum requirements described in Section (j). If more than one eligible reinsurer is willing to participate, then FEMA will evaluate various attributes (including but not limited to the following items) with the key attributes utilized in the sole discretion of FEMA:
A. Strong financial metrics as measured by A.M. Best ratings, S&P ratings, Lloyd’s market ratings (as applicable), Policyholder Surplus and financial ratio tests;
B. Strong investment and/or history in flood reinsurance;
C. Expertise in reinsurance flood underwriting;
D. Experience with issuance of a 144A catastrophe bond as a transformer reinsurer;
E. Pricing and other applicable terms and conditions as evaluated in the sole discretion of FEMA;
F. Amount of limit that the transformer reinsurer can facilitate and overall support of NFIP reinsurance placements; and
G. Such other terms and conditions favorable to FEMA.
l. An indication that the procurement is covered by this Agreement.
Reinsurance is a service covered by the WTO GPA.
END OF NOTICE
Summary of the 2017 Reinsurance Placement
In January 2017, FEMA made a cornerstone placement of reinsurance for the 2017 calendar year, transferring $1.042 billion of the NFIP’s financial risk to 25 reinsurers through January 1, 2018. FEMA contracted with Guy Carpenter and Company, a subsidiary of Marsh & McLennan Companies, to provide broker services to assist in securing the reinsurance placement.
When FEMA signed the 2017 reinsurance agreement with 25 private reinsurance markets, this laid the cornerstone for a multi-year strategy to diversify the tools FEMA uses to manage the financial consequences of major flood risk.
The 25 private reinsurance markets under FEMA’s 2017 Reinsurance Agreement are:
Axis Reinsurance Company U.S., Everest Reinsurance Company, General Reinsurance Company, Hannover Ruck SE,Liberty Mutual Insurance Company, Lloyd’s Syndicate 2001 Amlin, Lloyd’s Syndicate 1414 Ascot, Lloyd’s Syndicate 2987 Brit, Lloyd’s Syndicate 435 Faraday, Lloyd’s Syndicate 033 Hiscox, Lloyd’s Syndicate 4472 Liberty Specialty Markets, Lloyd’s Syndicate 1458 RenaissanceRe, Lloyd’s Syndicate 4444 Sompo Canopius, Lloyd’s Syndicate 2003 XL Catlin, Market Global Reinsurance Company, Munich Reinsurance America Inc., National Indemnity (U.S.), Partner Reinsurance Company of the U.S., QBE Reinsurance Corporation, Renaissance Reinsurance U.S. Inc., SCOR Reinsurance Company, Swiss Reinsurance America Corporation, Transatlantic Reinsurance Company, Validus Reinsurance (Switzerland) Ltd., and XL Reinsurance America Inc.
These reinsurers represent some of the largest insurance and reinsurance groups around the globe.
On November 6, 2017, FEMA surpassed $4 billion in paid claims to insured flood survivors of Hurricane Harvey, triggering its NFIP 2017 reinsurance placement. Under this agreement, the reinsurers cover 26 percent of losses between $4 billion and $8 billion arising from Hurricane Harvey.
NFIP Reinsurance Program FAQs
Q: What is reinsurance?
A: Reinsurance is an important risk management tool used by insurance companies to protect themselves from large financial losses. In other words, reinsurance is insurance for insurance companies. Insurance providers pay premiums to reinsurers. In exchange, reinsurers provide coverage for losses incurred by insurance providers up to a specified amount that is negotiated by both parties. Similar to insurance for your home, reinsurance acts as a safety net by transferring risk to another party.
There are many different types of reinsurance. The National Flood Insurance Program (NFIP) secured “catastrophe property excess of loss” reinsurance. Similar to a homeowner’s insurance policy, the reinsurance company reimburses an insurer for a share of losses above an agreed-upon deductible. Reinsurance serves an important function as protection against losses from a natural disaster or other catastrophe.
Private insurance companies around the world commonly use reinsurance as a tool to manage risk. Public entities also secure reinsurance. Several U.S states have reinsurance programs, including Florida (the Citizens Property Insurance Corporation of Florida), California (the California Earthquake Authority), and Texas (the Texas Windstorm Insurance Association).
Q: What is FEMA’s National Flood Insurance Program (NFIP) Reinsurance Program?
A: The National Flood Insurance Program (NFIP) Reinsurance Program helps FEMA manage the future exposure of the NFIP through the transfer of risk to private reinsurers. With the impacts of several large flood disasters over the past years, the NFIP experienced situations where the cost of policy claims far exceeded the amount of premiums and accumulated surplus. This resulted in the NFIP incurring debt to the U.S. Treasury.
Through the Biggert-Waters Flood Insurance Reform Act of 2012 (BW-12) and the Homeowner Flood Insurance Affordability Act of 2014 (HFIAA), FEMA received authority to secure reinsurance from the private reinsurance and capital markets. In response, FEMA created the NFIP Reinsurance Program to be financially prepared for potential losses from significant flooding events similar to Hurricanes Harvey, Katrina and Sandy.
In 2017, the NFIP Reinsurance Program:
- Diversified the tools FEMA uses to manage the financial consequences of major flood risk by obtaining reinsurance in January 2017;
- Laid the cornerstone for a multi-year program;
- Extended the NFIP’s claims-paying ability to avoid adverse outcomes by securing reinsurance at a fair and reasonable cost; and
- Promoted private sector participation in flood-risk management.
Q: What reinsurance coverage did FEMA buy for the NFIP in 2018?
A: In 2018, FEMA entered into agreements with 28 reinsurers to transfer up to $1.46 billion in flood risk. The reinsurance premium was $235 million, which provides coverage from January 1, 2018 to January 1, 2019. The agreement is structured to cover 18.6 percent of losses between $4 billion and $6 billion, and 54.3 percent of losses between $6 billion and $8 billion.
Q: What reinsurance coverage did FEMA buy for the NFIP in 2017?
A: In 2017, FEMA entered into agreements with 25 reinsurers to transfer up to $1.042 billion in flood risk. The reinsurance premium was $150 million, which provides coverage from January 1, 2017 to January 1, 2018. Under this agreement, the reinsurers covered 26 percent of losses between $4 billion and $8 billion that arose from Hurricane Harvey.
The 2017 placement was a key step towards achieving the NFIP’s long-term vision of building a stronger financial framework and placed the NFIP in a better position to manage losses incurred from catastrophic flood events by transferring exposure to reinsurers.
Q: How does securing reinsurance affect the current National Flood Insurance Program’s debt?
A: One of the reasons FEMA secured reinsurance in 2017 and 2018 was to increase the NFIP’s flood claims-paying ability by protecting itself against a portion of its potential losses. Securing reinsurance does not reduce the size of NFIP’s current debt to the U.S. Treasury; rather, it is intended to reduce the accumulation of future debt.
Q: Does the placement of reinsurance affect policyholders?
A: No, with the placement of reinsurance, the NFIP retains its ability to pay out claims to policyholders quickly and fully, and it is less likely to need congressional action to increase its borrowing authority. Reinsurance has a cost, but the January 2017 and the January 2018 reinsurance placements did not result in an increase to flood insurance policyholders’ rates.
Reinsurance agreements are between FEMA and reinsurers, and do not impact the NFIP’s policy with its policyholders.
As the NFIP Reinsurance Program expands in the future, FEMA will work with the Administration and Congress to determine how to cover the costs of additional risk transfer.
Q: What is FEMA’s multi-year reinsurance strategy?
A: In January 2017, FEMA made a cornerstone placement of reinsurance to establish a multi-year NFIP Reinsurance Program. Continuing this practice of resiliency and protection against future floods, FEMA secured $1.46 billion in reinsurance to cover any qualifying flood losses in excess of $4 billion per event occurring in calendar year 2018.
Next steps include expanding the NFIP Reinsurance Program and preparing for future engagements with the reinsurance markets.
In practice, this looks like:
- Upgrading the NFIP Reinsurance Program’s vision, strategy and operations based on lessons learned to optimize a multi-year strategy;
- Expanding the NFIP’s flood modeling capabilities to inform pricing and business strategies;
- Exploring possible expansion of risk transfer mechanisms; and
- Engaging industry partners as FEMA continues to build the NFIP Reinsurance Program.
Q: How much money did FEMA recover under the 2017 reinsurance agreement as a result of the 2017 hurricane season?
A: Losses associated with Hurricane Harvey triggered the 2017 NFIP reinsurance placement. FEMA recovered the entire $1.042 billion from its reinsurers as of December 15, 2017.
Q: Does the timing of reinsurance payments affect policyholders receiving claim payments from FEMA?
A: No, FEMA is committed to paying claims to policyholders quickly and fully. The timing of reinsurance payments to FEMA under any reinsurance agreement does not impact claims payments to insured flood survivors.
Additional Resources and Information
Testing a New Tool to Strengthen Flood Insurance – September 2016