FEMA Expands Its Reinsurance Program to Manage Future Flood Risk

WASHINGTON, Jan. 5 -- The U.S. Department of Homeland Security's Federal Emergency Management Agency issued the following news release:

Continuing the practice of resiliency and protection against future floods, the Federal Emergency Management Agency (FEMA) announced today its 2018 reinsurance placement for the National Flood Insurance Program (NFIP).

Reinsurance increases the NFIP's flood claims-paying ability by transferring a portion of the NFIP's potential losses to the private reinsurance markets. 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. This Reinsurance Agreement is effective from January 1, 2018, to January 1, 2019, with 28 private reinsurance companies.

"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.

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 U.S. 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," continued 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.

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 Benfield for financial advisory services for the placement.

FEMA received authority to secure reinsurance through the Biggert-Waters Flood Insurance Reform Act of 2012 (BW-12) (https://www.fema.gov/media-library-data/20130726-1912-25045-8239/bw_timeline_table_04172013.pdf), and the Homeowner Flood Insurance Affordability Act of 2014 (HFIAA) (https://www.fema.gov/media-library/assets/documents/93074). FEMA's 2017 reinsurance placement was a cornerstone placement for a multi-year strategy that promotes private sector participation in flood-risk management.

For additional information about this year's reinsurance placement, read the Director's blog post, "Public and Private Partnerships Strengthen Flood Protection with Reinsurance" at FEMA.gov/blog.