The Federal Emergency Management Agency said it plans to submit a claim to recover $1.042 billion in reinsurance coverage under its 2017 Reinsurance Program.
FEMA also is working to nail down a new reinsurance placement for 2018.
FEMA’s 2017 claim is based upon the National Flood Insurance Program’s (NFIP) losses associated with Hurricane Harvey. Those paid losses exceeded the minimum threshold for the NFIP’s reinsurance coverage.
Earlier this year, the NFIP transferred $1.042 billion of its financial risk to the private reinsurance markets in an effort to build a stronger and more resilient program. FEMA’s January 2017 Reinsurance Agreement involved 25 reinsurance markets representing some of the largest insurance and reinsurance groups around the globe. The 2017 placement of reinsurance will cover a portion of NFIP losses above $4 billion arising from Hurricane Harvey, saving taxpayers almost $1 billion, FEMA said.
Under the 2017 Reinsurance Agreement, reinsurers agreed to indemnify FEMA for flood claims on an occurrence basis. It is structured to cover 26 percent of losses between $4 billion and $8 billion, up to a maximum of $1.042 billion. FEMA paid a total premium of $150 million for the coverage.
On Nov. 6, 2017, FEMA said it surpassed $4 billion in paid claims to insured flood survivors of Hurricane Harvey, triggering the NFIP reinsurance placement. FEMA said it is working to understand the full extent of losses to the 2017 NFIP, though loss estimates range between $8.5 billion and $9.5 billion, which would mean that FEMA will recover the entire $1.042 billion in reinsurance. FEMA sent initial bills to reinsurers on Dec. 5.
So far, the trifecta of Hurricanes Harvey, Irma and Maria generated more than 120,000 NFIP claims, marking the second-largest claims year in NFIP history. NFIP has paid over $6.687 billion in claims so far, with processing ongoing. Reinsurance will not impact claims payments to insured flood survivors.
FEMA’s 2017 reinsurance placement was part of a multiyear strategy that promotes private-sector participation in flood-risk management.
FEMA gained the ability to pursue reinsurance through the Biggert-Waters Flood Insurance Reform Act of 2012 and the Homeowner Flood Insurance Affordability Act of 2014. Hurricane Sandy claims ($8.3 billion) in October 2012 and Hurricane Katrina claims ($16.3 billion) in August 2005 resulted in program debt when the cost of flood policy claims far exceeded the NFIP’s premium revenues.
Congress is working on reforming and revamping the NFIP.
Source: Federal Emergency Management Agency