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National Flood Insurance Program’s (NFIP) Reinsurance Program

The National Flood Insurance Program (NFIP) Reinsurance Program helps FEMA manage the future exposure of the NFIP through the transfer of risk to private reinsurance companies and capital markets investors. The NFIP Reinsurance Program promotes private sector participation in flood-risk management. By securing reinsurance at a fair and reasonable cost, FEMA has an additional method to fund payment of flood claims after catastrophic flood events.

2012 - 2014: Legislative AuthorityCongress granted FEMA authority to secure reinsurance for the National Flood Insurance Program (NFIP) from the private reinsurance and capital markets. Biggert-Waters Flood Insurance Reform Act of 2012 Homeowner Flood Insurance Affordability Act of 2014 2015 – early 2016: Flood Insurance Risk Study (FIRS) FEMA completed this study to determine the feasibility and benefits of a reinsurance program for the NFIP. 2016: Reinsurance Test Placement FEMA transferred $1 million of the NFIP’s financial risk to three reinsurance companies to test the implementation of the agency’s authorities and systems. 2017: Cornerstone Reinsurance Placement FEMA secured $1.042 billion in traditional reinsurance from 25 reinsurance companies. Effective from January 1, 2017 to January 1, 2018. FEMA paid a reinsurance premium of $150 million for this coverage. The agreement was structured to cover, for a given flood event, 26 percent of losses between $4 billion and $8 billion. 2017: Hurricane Harvey As of May 31, 2018, FEMA has paid NFIP policyholders over $8.6 billion for claims resulting from Hurricane Harvey. Therefore, FEMA recovered the entire $1.042 billion in reinsurance as of December 15, 2017. 2018: Expanded Traditional Reinsurance FEMA secured $1.46 billion in traditional reinsurance coverage from 28 reinsurance companies. Effective January 1, 2018 to January 1, 2019, FEMA paid a reinsurance premium of $235 million for this coverage. The agreement is structured to cover, for a given flood event, 18.6 percent of losses between $4 billion and $6 billion, and 54.3 percent of losses between $6 billion and $8 billion. 2018: Reinsurance Backed by Capital Markets FEMA secured reinsurance that for the first time engages the capital markets, complemeting the NFIP’s existing traditional reinsurance coverage. Effective on August 1, 2018, FEMA entered into a three-year reinsurance agreement with reinsurance company, Hannover Re (Ireland) Designated Activity Company (DAC). Hannover Re acted as a “transformer,” transferring $500 million of the NFIP’s financial risk to capital markets investors by sponsoring the issuance of a catastrophe bond through a special purpose reinsurer. FEMA will pay $62 million in premium for the first year of coverage. FEMA secured $1.32 billion in traditional reinsurance coverage from 28 reinsurers. FEMA entered into a 3 year reinsurance agreement that transfers $300 million in NFIP risk to the capital markets.
<p>Timeline history of NFIP Reinsurance Program</p> Download Original

Congress granted FEMA 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 April 2019 capital markets placement is the next step of a multi-year strategy towards achieving a stronger and more resilient NFIP, and promoting 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 April 2019 Capital Markets Placement


Effective April 17, 2019, for period of three years, this reinsurance placement transfers $300 million in NFIP risk from a qualifying catastrophic flood event to Hannover Re (Ireland) Designated Activity Company (DAC), a reinsurance company. Hannover Re acted as a “transformer,” transferring $300 million of the NFIP’s financial risk to capital markets investors by sponsoring the issuance of a catastrophe bond through a special purpose reinsurer.

  • FEMA will pay $32 million in premium for the first year of coverage. The agreement is structured to cover:
  • 2.5 percent of losses between $6 billion and $8 billion, and
  • 12.5 percent of losses between $8 billion and $10 billions

Summary of the January 2019 Traditional Reinsurance Placement

On January 1, 2019, FEMA secured $1.32 billion in reinsurance to cover any qualifying flood losses occurring in calendar year 2019.

Under the January 1, 2019, Reinsurance Agreement, 28 reinsurance companies agreed to indemnify FEMA for flood losses from individual flood events (as opposed to aggregate losses from multiple flood events). 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. FEMA paid a total premium of $186 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 reinsurance placement. FEMA contracted with Aon for financial advisory services for the January 2019 placement of reinsurance.

The 28 private reinsurance markets under FEMA’s 2019 Reinsurance Agreement are:

  • Allied World Insurance Company
  • Antares (Lloyd’s Synd. No. 1274 AUL)
  • Apollo (Lloyd’s Synd. No. 1969 APL)
  • Ariel Re (Lloyd’s Synd. No. 1910 ARE)
  • Ascot (Lloyd’s Synd. No. 1414 ASC)
  • AXIS Reinsurance Co
  • 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)
  • Hannover Ruck SE
  • Hiscox (Lloyd’s Synd. No. 0033 HIS)
  • Liberty Mutual Insurance Company
  • Liberty Specialty Services Ltd. Paris o/b/o (Lloyds Synd. No. 4472 LIB)
  • Markel Global Reinsurance Co
  • MS Amlin (Lloyd’s Synd. No. 2001 AML)
  • Munich Reinsurance America, Inc.
  • Navigators US
  • Renaissance (Lloyd’s Synd. No. 1458 RNR)
  • Renaissance Reinsurance U.S. Inc.
  • SCOR Reinsurance Company
  • Swiss Reinsurance America Corporation
  • The Cincinnati Insurance Co
  • Transatlantic Re o/b/o General Reinsurance Corporation
  • Transatlantic Reinsurance Company
  • Validus Americas o/b/o 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.

Summary of the August 2018 Reinsurance Placement Engaging the Capital Markets

To complement the NFIP’s existing traditional reinsurance coverage, for the first time, FEMA completed an additional reinsurance placement through a transaction that engages the capital markets. FEMA entered into a three-year reinsurance agreement, effective August 1, 2018, with Hannover Re (Ireland) Designated Activity Company (DAC), a reinsurance company. Hannover Re acted as a “transformer,” transferring $500 million of the NFIP’s financial risk to capital markets investors by sponsoring issuance of a catastrophe bond through a special purpose reinsurer.

Under the August 2018 reinsurance agreement, Hannover Re will indemnify FEMA for a portion of flood claims that result from a qualifying flood event that occurs between the dates of August 1, 2018 and July 31, 2021. The agreement is structured to cover, for a given flood event, 3.5 percent of losses between $5 billion and $10 billion, and 13 percent of losses between $7.5 billion and $10 billion. FEMA will pay $62 million in premium for the first year of coverage.

Combined with the January 2018 reinsurance placement, FEMA transferred $1.96 billion of the NFIP’s flood risk for the 2018 hurricane season to the private sector. The August 2018 placement is significant because, for the first time, capital markets investors are directly backing NFIP reinsurance coverage. By engaging both the traditional reinsurance markets and the capital markets, the NFIP can reduce risk transfer costs, access greater market capacity, and further diversify its risk transfer partners.

For the August 2018 placement, FEMA contracted with Guy Carpenter and GC Securities, a division of MMC Securities LLC, which is a subsidiary of Marsh & McLennan Companies, to serve as structuring agent and with Aon for financial advisory services. GC Securities and Aon Securities Inc. served as book runners, marketing the catastrophe bond to capital markets investors. KatRisk LLC, a catastrophe modeler, analyzed NFIP risk and its analysis was provided to investors.

Congress granted FEMA 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 Homeowner Flood Insurance Affordability Act of 2014 (HFIAA).

Summary of the January 2018 Traditional Reinsurance Placement

For 2018, continuing this risk management practice, FEMA secured $1.46 billion in reinsurance to cover any qualifying flood losses occurring in calendar year 2018.

Under the 2018 Reinsurance Agreement, 28 reinsurance companies agreed to indemnify FEMA for flood losses from individual flood events (as opposed to aggregate losses from multiple flood events). The agreement was 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 reinsurance placement. FEMA contracted with Aon for financial advisory services for the January 2018 placement of reinsurance.

The 28 private reinsurance markets under FEMA’s 2018 Reinsurance Agreement were:

  • 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.

Summary of the 2017 Traditional 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 were:
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 Renaissance Re, 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 companies around the globe.
As of May 31, 2018, FEMA has paid NFIP policyholders over $8.6 billion for claims resulting from Hurricane Harvey. Therefore, FEMA recovered the entire $1.042 billion in reinsurance as of December 15, 2017.

Public Notice Of The FEMA Intended Procurement of Reinsurance for NFIP

 

AGENCY: FEDERAL EMERGENCY MANAGEMENT AGENCY, U.S. DEPARTMENT OF HOMELAND SECURITY

ACTION: NOTICE REPORTING ON FEMA’S PROCUREMENT OF REINSURANCE FOR THE NATIONAL FLOOD INSURANCE PROGRAM PURSUANT TO THE REVISED AGREEMENT ON GOVERNMENT PROCUREMENT (April 6, 2014).

SUMMARY NOTICE: 
The Federal Emergency Management Agency (“FEMA”) has obtained collateralized reinsurance for the National Flood Insurance Program (“NFIP”) effective on April 16, 2019 through February 28, 2022 from its transformer reinsurer, Hannover-Re (Ireland) DAC (“Hannover Re”).  Following on FEMA’s August 1, 2018 insurance-linked securities (ILS) reinsurance placement, FEMA’s original supplier, Hannover Re used its special purpose insurer (SPI), FloodSmart Re Ltd. (“FloodSmart”) to issue a second series of catastrophe bonds to 144A investors, transferring additional federal flood risk to the capital markets.  
FOR FURTHER INFORMATION CONTACT: FEMA’s Reinsurance Broker, Aon Securities Inc.: Zachary Breslin at zach.breslin@aon.com or a FEMA representative at FEMA-NFIP-REINSURANCE@fema.dhs.gov.
NOTICE:
Pursuant to the Revised Agreement on Government Procurement (April 6, 2014) (herein “GPA”), Articles XIII (2) and XVI (2), and the National Flood Insurance Act of 1968, 42 U.S.C. 4001 et seq., FEMA hereby provides notice of its additional placement of collateralized reinsurance for NFIP flood risk from its original supplier, Hannover Re (Ireland) DAC.  The following information is provided pursuant to GPA, Articles XIII and XVI (April 6, 2014):

  • (a) Description of the goods or services procured: FEMA has obtained $300 million in collateralized reinsurance transferring additional NFIP flood risk to the capital markets (144A investors) via its transformer reinsurer effective April 16, 2019 – February 28, 2022;
  • (b) The name and address of the procuring entity: The Federal Emergency Management Agency, a component of the U.S. Department of Homeland Security, on behalf of the National Flood Insurance Program, 500 C St. SW, Washington D.C. 20472;
  • (c) The original supplier: Hannover Re (Ireland) DAC, No. 4 Custom House Plaza, I.F:S:C, Dublin I Ireland, a transformer reinsurer utilizing the special purpose insurer, FloodSmart Re Ltd, established for the purpose of transferring NFIP flood risk to the capital markets;
  • (d) The value of the successful tender: $300 million of collateralized reinsurance from Hannover Re, transferred through the special purpose insurer, FloodSmart Re Ltd. to the capital markets;
  • (e) The date of the award: April 16, 2019;
  • (f) Statement on the type of procurement method used and a description of the circumstances: Limited Tendering.  FEMA used its existing supplier because FEMA could not use a new supplier for economic and technical reasons.  If FEMA had used a new supplier, this would have caused significant inconvenience and substantial duplication of costs for FEMA.  This is because FloodSmart Re’s Series 2018-1 issuance was the first 144A catastrophe bond ever issued for the single peril of flood risk in the United States involving federal flood insurance.  FEMA’s placement of insurance-linked-securities reinsurance involved complex and novel establishment of services developed for transforming NFIP flood risk. By utilizing its original supplier to transfer additional NFIP flood risk through FloodSmart Re Ltd., FEMA benefited from the use of existing resources developed to transfer NFIP flood risk, resulting in significant costs savings.  Particularly, the additional reinsurance services reduced costs and time by optimizing the use of the existing SPI established for NFIP flood risk transfer, and enabling the use of existing third-party contracts, limiting the significant inconvenience and inefficiency of duplicating the efforts to recreate the reinsurance placement process and establishment of an SPI needed to transfer additional flood risk.

By extending a limited tendering to its original supplier, FEMA ensured its placement of additional collateralized reinsurance prior to the onset of the 2019 hurricane season and minimized impacts associated with the federal government shutdown that might otherwise have affected the project’s success.  
 
See GPA Articles XIII and XVI (2).  Article XIII allows limited tendering provided it is not used to avoid competition among suppliers or in a manner that discriminates against suppliers of any other Party or protects domestic suppliers.  A procuring entity using limited tendering may choose not to apply GPA Articles VII through IX, X (paragraphs 7 through 11), XI, XII, XIV and XV under certain circumstances.  See GPA Article XIII. Circumstances for limited tender under Article XIII include but are not limited to “for additional deliveries by the original supplier of goods or services that were not included in the initial procurement may be used where a change in supplier for such additional goods or services: (i) cannot be made for economic or technical reasons such as requirements of interchangeability or interoperability with existing equipment, software, services or installations procured under the initial procurement; and (ii) would cause significant inconvenience or substantial duplication of costs for the procuring entity.”  Id. at Article XIII (c).

This reinsurance placement was conducted pursuant to the National Flood Insurance Act of 1968, 42 U.S.C. 4001 et seq.; see also 42 U.S.C. 4081.   FEMA obtained collateralized reinsurance for NFIP flood risk on August 1, 2018 through its original supplier, transformer reinsurer Hannover Re (Ireland) DAC (“Hanover Re”). Hannover Re collateralized the flood risk by retroceding it to a special purpose insurer, FloodSmart Re Ltd. (“FloodSmart Re”), established by Hannover Re solely to collateralize the NFIP flood risk by issuing catastrophe bonds to 144A capital market investors.

For other information on FEMA’s ILS Reinsurance Program, see https://www.fema.gov/nfip-reinsurance-program

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 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) secures “catastrophe property excess of loss” reinsurance. 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 operate insurance providers that utilize reinsurance, 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 NFIP Reinsurance Program?
A: The 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 flood insurance claims far exceeded premium revenues 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), Congress authorized FEMA to secure reinsurance from the private reinsurance and capital markets. In response, FEMA created the NFIP Reinsurance Program to better prepare financially for potential losses from significant flooding events similar to Hurricanes Harvey (2017), Sandy (2012), and Katrina (2005).

In 2017, the NFIP Reinsurance Program:

  • Secured traditional reinsurance in January 2017 at a fair and reasonable cost, providing an additional method to fund payment of flood claims following catastrophic flood events;
  • Laid the cornerstone for a multi-year reinsurance program; and
  • Promoted private sector participation in flood-risk management.

In 2018, the NFIP Reinsurance Program:

  • Expanded its cornerstone traditional reinsurance placement by 40 percent; and
  • Secured an additional reinsurance placement through a transaction that, for the first time, engages the capital markets, adding a new “building block,” enabling FEMA to transfer risk through two avenues – the traditional reinsurance markets and the capital markets.

Q:  What reinsurance did FEMA buy for the NFIP in 2019?

A: On January 1, 2019, FEMA secured $1.32 billion in traditional reinsurance coverage from 28 reinsurance companies. FEMA paid a reinsurance premium of $186 million for this coverage, effective January 1, 2019 to January 1, 2020. The agreement is structured to cover, for qualifying flood losses,

  • 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.


On April 16, 2019, for period of three years, FEMA transferred $300 million in NFIP risk from a qualifying catastrophic flood event to Hannover Re (Ireland) Designated Activity Company (DAC), a reinsurance company. Hannover Re acted as a “transformer,” transferring $300 million of the NFIP’s financial risk to capital markets investors by sponsoring the issuance of a catastrophe bond through a special purpose reinsurer.

FEMA will pay $32 million in premium for the first year of coverage. The agreement is structured to cover:

  • 2.5 percent of losses between $6 billion and $8 billion, and
  • 12.5 percent of losses between $8 billion and $10 billion.

 

Q:  What reinsurance did FEMA buy for the NFIP in 2018?
A: In January 2018, FEMA secured $1.46 billion in traditional reinsurance for the NFIP from 28 reinsurance companies. FEMA paid a reinsurance premium of $235 million for this coverage, effective January 1, 2018 to January 1, 2019. The reinsurance agreement is structured to cover, for qualifying flood losses, 18.6 percent of losses between $4 billion and $6 billion, and 54.3 percent of losses between $6 billion and $8 billion.
Effective August 1, 2018, FEMA entered into a three-year reinsurance agreement with Hannover Re to transfer $500 million in flood risk to the capital markets. The placement is structured to cover, for a given flood event, 3.5 percent of losses between $5 billion and $10 billion, and 13 percent of losses between $7.5 billion and $10 billion. FEMA will pay $62 million in premium for the first year of coverage.

Q:  What reinsurance did FEMA buy for the NFIP in 2017?
A: In 2017, FEMA secured $1.042 billion in traditional reinsurance coverage from 25 reinsurance companies. FEMA paid a reinsurance premium of $150 million for this coverage, effective January 1, 2017 to January 1, 2018. The agreement was structured to cover, for qualifying flood losses, 26 percent of losses between $4 billion and $8 billion.
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 major flood events by transferring exposure to reinsurers.

Q: What types of flood events and what geographic areas does the August 2018 reinsurance placement cover?

A:  Whereas the NFIP’s January 2019 traditional reinsurance placement applies to all flood losses covered under the NFIP, the August 2018 reinsurance placement only covers risk from “named storms.” A named storm is a storm or storm system that the National Weather Service’s National Hurricane Center has declared to be a tropical cyclone, tropical depression, tropical storm, or hurricane. The August 2018 placement applies to flooding resulting directly or indirectly from a named storm. However, a major flood event that is not a named storm would not trigger the August 2018 placement. Catastrophe modeling and historical experience indicate that the vast majority of the NFIP’s risk of single flood events causing losses greater than $5 billion (the level at which the August 2018 placement would trigger) stem from named storms.

Likewise, the NFIP’s January 2019 traditional reinsurance placement covers all geographic areas where the NFIP writes flood insurance, including all U.S. territories. In contrast, the August 2018 placement covers the 50 U.S. states, the District of Columbia, Puerto Rico, and the U.S. Virgin Islands. The NFIP has few policies in U.S. territories not included in the geographic scope of the August 2018 placement, and will have no issues paying flood claims in those territories.

Q: How does securing reinsurance affect the NFIP’s current debt? 

A: FEMA secured reinsurance in 2017, 2018, and 2019 to protect itself against a portion of its potential flood claim liability and provide an additional method to fund payment of flood claims after a catastrophic event. 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: Do the NFIP’s reinsurance placements affect policyholders?

A: Reinsurance agreements are between FEMA and reinsurers, and do not impact the NFIP’s contracts with its policyholders. Rather, reinsurance provides the NFIP an additional method to fund payment of flood claims to policyholders, and decreases the likelihood that the NFIP will need congressional action to increase its borrowing authority with the U.S. Treasury.

Reinsurance has a cost, but the January 2017, January 2018, August 2018, and January 2019 reinsurance placements did not result in an increase in NFIP policyholders’ rates. 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 a larger program.

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 risk management practice, FEMA secured $1.46 billion in traditional reinsurance to cover any qualifying flood losses occurring in calendar year 2018. In August 2018, FEMA entered into a three-year reinsurance agreement to transfer $500 million in flood risk to the capital markets.

Next steps include expanding the NFIP Reinsurance Program and preparing for future engagements with the reinsurance markets. In practice, this looks like:

  • Clarifying the Reinsurance Program’s vision, strategy and operations based on lessons learned to build a multi-year strategy;
  • Expanding the NFIP’s flood modeling capabilities to inform pricing and business strategies;
  • Exploring additional forms of reinsurance; and
  • Engaging industry partners to better inform the NFIP as it continues to build the reinsurance program.

Q: How much money did FEMA recover under the 2017 reinsurance placement as a result of the 2017 hurricane season?

A:  As of May 31, 2018, FEMA has paid NFIP policyholders over $8.6 billion for claims resulting from Hurricane Harvey. Therefore, FEMA recovered the entire $1.042 billion in reinsurance 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:

Last Updated: 
07/11/2019 - 14:53