FEMA Expands Reinsurance Program for Flood Claims

FEMA Expands Reinsurance Program for Flood Claims

FEMA transferred $1.46 billion of the NFIP’s financial risk to the private reinsurance market, increasing the NFIP’s flood claims-paying ability.

The Federal Emergency Management Agency announced Friday its 2018 reinsurance placement for the National Flood Insurance Program (NFIP). FEMA transferred $1.46 billion of the NFIP’s financial risk to the private reinsurance market, increasing the NFIP’s flood claims-paying ability.

This new Reinsurance Agreement is effective from January 1, 2018, to January 1, 2019, with 28 private reinsurance companies. This placement of reinsurance 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 total premium of $235 million for the coverage.

“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 Director of FEMA’s National Flood Insurance Program Roy E. Wright.

In the past, the NFIP was limited to using flood insurance premiums, available surplus, borrowing capacity from the U.S. treasury, and sometimes direct appropriations from Congress to pay flood claims.

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

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