Fema boosts NFIP reinsurance spend by more than 50%

8 January 2018

US government-run flood cover scheme, the National Flood Insurance Program (NFIP), has upped its spending on private market reinsurance by more than half as the agency bolstered its coverage in the wake of last year's devastating storms.

The Federal Emergency Management Agency (Fema), which runs the heavily-indebted scheme, said it had secured $1.46bn in reinsurance cover for 2018, up 40 percent on the $1.04bn it bought last year - the first time it had transferred risk to the private market.

But the agency, which exhausted its cover last year, faced a rate increase at 1 January, when the programme kicked in.

It paid $235mn for the 2018 cover, up 57 percent on the $150mn it spent on the placement last year.

The programme was also restructured. For 2018, reinsurers will cover 18.6 percent of losses between $4bn and $6bn and 54.3 percent of losses between $6bn and $8bn.

The program’s 28 reinsurers include: Allied World, Gen Re, Hannover Re, Liberty Mutual, Markel, Munich Re, QBE Re, RenaissanceRe, Scor, Swiss Re, Cincinnati Financial, Trans Re, Validus Re and XL Re.

Lloyd’s syndicates Amlin, Apollo, Ariel, Ascot, Brit, Sompo Canopius, Chaucer, Faraday, Hiscox, Liberty, Map, Renaissance and XL Catlin are also on the cover.

Meanwhile, Everest Re, PartnerRe and Berkshire Hathaway’s National Indemnity Company have all dropped off the programme since last year.

Guy Carpenter placed the cover, while Aon Benfield provided financial advisory services for the placement.

Fema said that so far more than 91,000 policyholders have filed claims in the wake of Hurricane Harvey, which battered Texas in August.

The agency has paid over $7.6bn in losses with the private market footing $1.04bn of the bill.

“Recent flooding disasters make even clearer the need for Fema to share more of the financial risk from flood insurance with the private markets,” said Fema’s NFIP director Roy Wright.

“Congress provided us the authority, and Fema is committed to expanding the use of these risk transfer tools,” he went on.

“Expanding the role of the private markets in sharing the nation’s flood risk remains a central tenant of Fema’s move toward a sustainable financial framework for the NFIP.” re