FEMA bolsters reinsurance program with main flood danger switch

The Federal Emergency Administration Company (FEMA) has leveraged the reinsurance markets to reinforce the Nationwide Flood Insurance coverage Program (NFIP).

On March 7, FEMA engaged in its seventh procurement of reinsurance protection by insurance-linked securities (ILS) reinsurance, with the company finalizing a three-year reinsurance settlement with Hannover Re (Eire) Designated Exercise Firm.

The deal sees the switch of $575 million in flood danger from the NFIP to the capital markets through a particular goal insurer, FloodSmart Re Ltd, the entity accountable for sponsoring disaster bonds on FEMA’s behalf.

Beneath the phrases of these agreements, FEMA’s premium funds for the primary yr of protection are estimated to be roughly $85.7 million, excluding preliminary prices. The reinsurance protection delineates particular loss percentages for a single flood occasion, together with 10% for losses starting from $8 billion to $9 billion and 23.75% for losses between $9 billion and $11 billion.

This reinsurance protection can be a part of FEMA’s ongoing technique to shift NFIP’s flood danger to the capital markets, a follow that started in 2018. Every reinsurance placement has a three-year period, with quantities secured in March 2023 ($275 million) and February 2022 ($450 million).

When mixed with present protection by FloodSmart 2022-1 bonds, FloodSmart 2023-1 bonds, and a conventional reinsurance placement in January 2024, FEMA has successfully transferred $1.92 billion of the NFIP’s flood danger to the non-public sector in anticipation of the 2024 hurricane season.

David Maurstad, FEMA’s assistant administrator for the Federal Insurance coverage Directorate and senior govt of the NFIP, expressed satisfaction with the phrases obtained.

“I’m happy that FEMA has efficiently secured favorable phrases for this yr’s capital market reinsurance and retained our present stage of reinsurance protection at acceptable charges,” Maurstad stated.

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