The U.S. Federal Emergency Management Agency (FEMA) has reinforced its dedication to enhancing the National Flood Insurance Program (NFIP) by securing $575 million in reinsurance coverage from insurance-linked securities (ILS).
FEMA’s strategy involves paying approximately $85.7 million in premiums for the first year of coverage, not counting initial expenses.
The agreement covers 10% of losses for any single flood event that incurs damages between $8 billion and $9 billion, and 23.75% for losses in the $9 billion to $11 billion range.
The U.S. Congress passed a short-term reauthorization of NFIP through Feb. 2 2024, its also was included in the U.S. House of Representatives continuing resolution.
This initiative represents FEMA’s seventh foray into reinsurance agreements and establishes a three-year collaboration with transformer reinsurer, Hannover Re (Ireland) Designated Activity Company.
Through this partnership, FEMA has transferred $575 million of NFIP’s financial flood risk to capital market investors using a special purpose insurer, FloodSmart Re Ltd, to sponsor catastrophe bonds.
This transaction increases FEMA’s transferred flood risk to the private sector to $1.92 billion, including previous reinsurance coverages from FloodSmart 2022-1 and FloodSmart 2023-1, as well as traditional reinsurance placements in January 2024.
This move is part of FEMA’s strategy to strengthen the NFIP’s financial base and promote private sector participation in flood risk management ahead of the 2024 hurricane season.
David Maurstad, FEMA’s Assistant Administrator for the Federal Insurance Directorate and Senior Executive of the NFIP, expressed satisfaction with the terms of this year’s capital market reinsurance.
He highlighted the investment as a significant step towards achieving a financially robust framework for the NFIP and improving its capacity to handle claims after severe flooding incidents.
I’m pleased that FEMA has successfully secured favourable terms for this year’s capital market reinsurance and retained our current level of reinsurance coverage at acceptable rates
David Maurstad, FEMA’s Assistant Administrator
Speaking about the decision, David Maurstad, FEMA’s Assistant Administrator for the Federal Insurance Directorate and Senior Executive of the National Flood Insurance Programme, said:
He added: “This latest investment in our reinsurance program reinforces FEMA’s objectives to expand financial tools to achieve a sound financial framework and bolster the programs’ claims paying capacity following extreme flooding events.”
National Flood Insurance Program paid $2.2 bn in claims for Hurricane Ian an increase of almost 28% from the figure reported by on January 18th, 2023.
US Federal Emergency Management Agency (FEMA) has now provided $896 million to households impacted by Ian, and $504 million to the State of Florida for emergency response to the storm.
U.S. Small Business Administration has provided $1.47 billion in disaster loans, while the NFIP has now paid $2.2 billion in claims to survivors, having received more than 45,800 flood insurance claims.
On December 12th, 2022, FEMA reported that $1.2 billion has gone to NFIP policyholders to help their Hurricane Ian recovery, with over 46,000 policyholders having filed claims following the storm’s landfall.
by Yana Keller
