US flood programme boosts reinsurance coverage by 40%

The US Federal Emergency Management Agency (FEMA) has increased the amount of reinsurance coverage protecting the National Flood Insurance Program (NFIP) by almost 40 percent.

Expanding on its inaugural placement, which occurred last year, FEMA transferred $1.46 billion of the NFIP’s financial risk to the private reinsurance market for the 2018 period with 28 private reinsurance companies participating.

This is a big increase on the $1 billion placement it made the year before, which was completely exhausted due to heavy catastrophe losses mainly associated with Hurricane Harvey.

“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 Wright, director of FEMA’s National Flood Insurance Program.

The 2018 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.

Historically, the NFIP was limited to using flood insurance premiums, available surplus, borrowing capacity from the US Treasury, and in some cases 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. With reinsurance, FEMA strengthened its ability to recover from these flood losses, recovering $1.042 billion from the private markets,” said 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,” Wright added.

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