The Federal Emergency Management Agency (FEMA) has reacquired private sector reinsurance from more than 30 carriers for the National Flood Insurance Program (NFIP) to protect the government program from major losses.
Under the 2021 reinsurance program, FEMA transferred an additional $ 1.153 billion of the NFIP's financial risk to the private reinsurance market. This annual reinsurance agreement is effective in 2021.
The 2021 reinsurance placement will cover portions of NFIP losses in excess of $ 4 billion from a single flood. FEMA said it paid a total premium of $ 195.8 million for the coverage.
The agreement is structured to:
- 9.43% of losses between $ 4 billion and $ 6 billion.
- 28.084% of losses between $ 6 billion and $ 8 billion.
- 20.168% of losses between $ 8 billion and $ 10 billion.
“We appreciate the role of private insurance companies and investors in taking on some of the NFIP's flood risk from catastrophic flooding, which improves long-term financial results for FEMA, the US Treasury and federal taxpayers,” said David Maurstad , FEMA & # 39; s senior executive of the NFIP.
He said the NFIP reinsurance program is helping the NFIP better financially prepare for potential losses from significant flooding similar in magnitude to Hurricanes Harvey (2017), Sandy (2012) and Katrina (2005), its ability to make claims to pay strengthened and dependence on the need to borrow from the US, Treasury in the event of large losses.
Combined with the three 2018-2020 capital markets reinsurance placements, FEMA has transferred $ 2.35 billion of the NFIP's flood risk to the private sector.
FEMA's traditional reinsurance placement in 2020 was worth $ 1.33 billion in coverage and in 2019 it was $ 1.32 billion.
If a named storm surge event is large enough to trigger all reinsurance deals, FEMA will receive eligible payments. For said storms resulting in NFIP claims in excess of $ 10 billion, FEMA will receive the full $ 2.35 billion in reinsurance coverage from the private markets.
FEMA has signed a contract with reinsurance brokers Guy Carpenter, a subsidiary of Marsh & McLennan, and Aon Reinsurance Solutions, to help secure the reinsurance placement.
FEMA has been empowered to purchase reinsurance through the Biggert-Waters Flood Insurance Reform Act of 2012 and the Homeowner Flood Insurance Affordability Act of 2014. FEMA's reinsurance placement in 2021 builds on previous reinsurance placements as a further development towards a stronger financial framework .
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