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FEMA Expands Its Reinsurance Program To Manage Future Flood Risk

Flooded Residential Street 480x377
January 11, 2018

The Federal Emergency Management Agency (FEMA) has revealed its 2018 reinsurance program placement for the National Flood Insurance Program (NFIP).

FEMA transferred $1.46 billion of the NFIP's financial risk to the private reinsurance market as an expansion of its inaugural placement last year. Effective from January 1, 2018, to January 1, 2019, the reinsurance agreement includes 28 private reinsurance companies.

"Recent flooding disasters make even clearer the need for FEMA to share more of the financial risk from flood insurance with the private markets. Congress provided us the authority, and FEMA is committed to expanding the use of these risk transfer tools," said Roy E. Wright, director of FEMA's NFIP.

The 2018 reinsurance placement covers portions of NFIP losses above $4 billion arising from a single flooding event. 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 premium of $235 million for the coverage.

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

"As of January 1, 2018, more than 91,000 survivors filed claims for Hurricane Harvey, and FEMA has paid over $7.6 billion in losses to those policyholders. With reinsurance, FEMA strengthened its ability to recover from these flood losses, recovering $1.042 billion from the private markets," continued Mr. Wright.

"Expanding the role of the private markets in sharing the nation's flood risk remains a central tenant of FEMA's move toward a sustainable financial framework for the NFIP," Mr. Wright added.

The agency 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 2017 reinsurance placement was a cornerstone placement for a multiyear strategy that promotes private sector participation in flood-risk management.

For additional information about this year's reinsurance placement, read the director's blog post, "Public and Private Partnerships Strengthen Flood Protection with Reinsurance."

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