FEMA secures flood coverage with $1bn placement

The Federal Emergency Management Agency (FEMA) has finalised a deal involving some 25 reinsurers brokered by Guy Carpenter in order to secure more than $1 billion of reinsurance coverage for the National Flood Insurance Program (NFIP) for 2017.

Under the agreement, reinsurers agreed to indemnify FEMA for flood claims on an occurrence basis. The layer is structured to cover 26 percent of losses between $4 billion and $8 billion. A combined total of $1.042 billion of the NFIP’s flood risk was transferred to the private reinsurance market through this agreement.

Historically, the Federal Insurance and Mitigation Administration (FIMA) 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 claims.

Over the past 11 years, the US has experienced many devastating flooding disasters, including Hurricanes Katrina, Ike, and Sandy. Flood insurance claims far exceeded the amount of funds available to pay for the insured losses.

Congress provided FEMA the authority to secure reinsurance from the private reinsurance and capital markets.

“Securing reinsurance through the NFIP Reinsurance Program is a key step towards achieving the NFIP’s long-term vision of building a stronger financial framework,” said Roy Wright, deputy associate administrator of FIMA. “This reinsurance agreement places the NFIP in a better position to manage losses incurred from major events like Hurricane Sandy.”

FEMA received the 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). The 2017 reinsurance placement is an expansion of a smaller placement made by FEMA in September of 2016.