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U.S. Department of Homeland Security
Office of External Affairs
January 2, 2020
Stakeholder Advisory
FEMA Continues Reinsurance Program;
Transfers $1.33 Billion of Flood Risk to Private Market
On January 1, 2020, FEMA completed its calendar year placement of reinsurance, continuing National Flood Insurance Program (NFIP) support of resiliency and protection against future flood loss. As a result, effective January 1, 2020 – January 1, 2021, FEMA transferred an additional $1.33 billion of the NFIP financial risk to the private reinsurance market.
The Agreement
In this year’s Reinsurance Agreement, 27 reinsurer companies agreed to indemnify FEMA for flood losses from individual flood events. FEMA paid a total premium of $205 million for the coverage. The agreement is structured to cover:
- 10.25 percent of losses between $4 and $6 billion,
- 34.68 percent of losses between $6 and $8 billion, and
- 21.80 percent of losses between $8 and $10 billion.
FEMA transferred $2.13 billion of the NFIP flood risk for the 2020 hurricane season to the private sector. This yearly traditional reinsurance placement supplements the multi-year capital markets reinsurance placements for $800 million which occurred in 2018-2019.
In the event a named storm flood event is large enough to trigger all reinsurance agreements (flooding which results in NFIP claims that exceed $6 billion), FEMA would receive qualifying payments under all reinsurance agreements. Should a named storm event result in NFIP claims exceeding $10 billion, FEMA would receive the full $2.13 billion of reinsurance coverage from the private markets.
FEMA executed this agreement with 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, 2020, reinsurance placement.
Reinsurance Program Highlights available on FEMA website: FEMA.gov/reinsurance.
Insurance companies rely on reinsurance is an important risk management tool 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.
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 2020 reinsurance placement builds upon its 2017-2019 placements, as further development toward a stronger financial framework.
For more information, visit FEMA NFIP Reinsurance Program webpage at: https://www.fema.gov/nfip-reinsurance-program.
Please direct your questions to FEMA Office of External Affairs, Congressional and Intergovernmental Affairs Division at (202) 646-3444 or at FEMA-IGA@fema.dhs.gov.
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