FEMA Increases NFIP Reinsurance Program
The Federal Emergency Management Agency (FEMA) has announced that it entered into a three-year reinsurance agreement with Hannover Re (Ireland) Designated Activity Company, effective April 17, 2019.
Hannover Re transferred $300 million of the National Flood Insurance Program’s (NFIP) financial risk to capital markets investors by sponsoring the issuance of a catastrophe bond. Under the agreement, FEMA will pay $32 million in premium for the first year of reinsurance coverage.
FEMA has secured reinsurance for the NFIP since 2017. The current agreement also builds on a $500 million transfer of flood risk for three years that the program entered into in August 2018. Among its reinsurance transactions, FEMA has transferred $2.12 billion of the NFIP’s flood risk to the private sector in 2019.
“Our continued engagement with the capital markets contributes to FEMA’s commitment to strengthening the financial framework of the NFIP, is beneficial to policyholders and taxpayers, and is a viable example of the role private markets can play in managing U.S. flood risk,” said David Maurstad, chief executive of the NFIP.
The agreement covers 2.5% of losses between $6 billion and $8 billion and 12.5% of losses between $8 billion and $10 billion for a given flood event. By engaging with the private market, the NFIP reduces risk transfer costs, has access to increased market capacity, and diversifies its risk transfer partners.