FEMA Seeking to Renew Its Private Reinsurance for Flood Insurance Program

The Federal Emergency Management Agency (FEMA) has begun the process of renewing its private market reinsurance for the National Flood Insurance Program for 2019, a purchase that could encompass $2 billion of reinsurance.

FEMA said it intends to procure reinsurance with private reinsurers on or about January 1, 2019, to be effective for one or more years.

As in previous procurements, Guy Carpenter will act as the broker for the reinsurance. FEMA said it is seeking quotes from a select group of reinsurers as it has done in the past. To participate reinsurers must submit a request to participate by Nov. 19, 2018, and final tenders by Nov. 29, 2018.

For 2017, FEMA worked through Guy Carpenter to buy $1 billion worth of reinsurance from 25 carriers for the flood insurance program. Following Hurricane Harvey, FEMA recovered the full $1.042 billion from its reinsurers.

This year, FEMA expanded its reinsurance placement by 40 percent. Effective January 1, 2018, for a term of one year, FEMA secured $1.46 billion in traditional reinsurance coverage from 28 reinsurance companies to cover any qualifying NFIP flood losses in excess of $4 billion per event.

In August of this year, FEMA secured a reinsurance placement that for the first time was directly backed by capital markets investors. FEMA entered into a three-year reinsurance agreement, effective August 1, 2018, with a subsidiary of Hannover Re (Ireland), which transferred $500 million of the NFIP’s financial risk to capital markets investors by sponsoring the issuance of a catastrophe bond through a special purpose reinsurer.

This placement complemented the NFIP’s existing traditional reinsurance coverage for calendar year 2018.

Combined with the January 2018 traditional reinsurance placement, the August 2018 placement enabled FEMA to transfer $1.96 billion of the NFIP’s flood risk for the 2018 hurricane season to the private sector.

By engaging both the traditional reinsurance markets and the capital markets, the NFIP has said it can reduce risk transfer costs, access greater market capacity, and further diversify its risk transfer partners.

Topics Flood Reinsurance