U.S. Department of Homeland Security
Federal Emergency Management Agency
Office of External Affairs – Private Sector Engagement Team
Private Sector Advisory
FEMA Renews its Reinsurance Program by Transferring $1.32 Billion of Flood Risk to the Private Market
January 30, 2019
On January 1, 2019, FEMA completed its calendar year placement of reinsurance, continuing the National Flood Insurance Program’s (NFIP) support of resiliency and protection against future flood losses. In this reinsurance placement, FEMA transferred $1.32 billion of the NFIP’s financial risk to the private reinsurance market effective January 1, 2019 to January 1, 2020.
Under the January 1, 2019, Reinsurance Agreement, reinsurers agreed to indemnify FEMA for flood losses from individual flood events. 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.
To date, FEMA has transferred $1.82 billion of the NFIP’s flood risk for the 2019 hurricane season to the private sector. This yearly traditional reinsurance placement is in addition to the multi-year capital markets reinsurance placement for $500 million which occurred in August 2018.
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.
FEMA executed the reinsurance agreement with 28 reinsurance markets representing some of the largest insurance and reinsurance companies 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 placement. FEMA also contracted with Aon for financial advisory services for the January 1, 2019, reinsurance placement.
Reinsurance is an important risk management tool used by insurance companies to protect themselves from large financial losses. Public entities also secure reinsurance. Examples of several U.S. states that use reinsurance programs, include the Citizens Property Insurance Corporation of Florida, the California Earthquake Authority, and the Texas Windstorm Insurance Association. Numerous countries also rely on reinsurance to manage their disaster risk programs, including the United Kingdom’s Flood Re program, New Zealand’s Natural Disaster Fund, and the Philippines’ National Reinsurance Corporation.
FEMA first purchased reinsurance for the NFIP in 2017 and recovered $1.042 billion from the private markets due to losses from Hurricane Harvey. In 2018, FEMA expanded its cornerstone reinsurance placement by 40 percent. Effective January 1, 2018, for a term of one year, FEMA secured $1.46 billion in traditional reinsurance coverage from 28 reinsurance companies to cover any qualifying NFIP flood losses in excess of $4 billion per event.
FEMA received 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). FEMA’s 2019 reinsurance placement builds upon its 2017 cornerstone placement and 2018 placements, as further development toward a stronger financial framework.
Later today, more information will be posted on the NFIP Reinsurance Program webpage at: https://www.fema.gov/nfip-reinsurance-program.
If you have any questions, please contact FEMA’s Office of External Affairs – Private Sector Engagement Team at FEMA-Private-Sector-Communications@fema.dhs.gov.
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