FEMA has completed its 2023 traditional reinsurance placement for the National Flood Insurance Program (NFIP), transferring an additional $502.5 million of flood risk to the private reinsurance market for a total premium of $90.2 million.
FEMA has transferred $1.9275 billion of the NFIP’s flood risk to the private sector through three active catastrophe bond transactions.
The most recent traditional placement, with 18 private reinsurers, is effective throughout the calendar year and covers portions of NFIP losses exceeding $7 billion from a single flooding event.
The agreement provides for 8.5625% coverage of losses between $7 billion and $9 billion, and 16.5625% coverage of losses between $9 billion and $11 billion.
FEMA’s 2023 placement is actually more than 50% smaller than its 2022 January renewal, while the attachment point has increased from $4 billion to $7 billion year on year. At the same time, FEMA’s premium has been reduced by nearly half, and 10 fewer reinsurers have participated this year than in the 2022 renewal.
As a result, the effects of the hardening reinsurance market are visible in FEMA’s renewal for the coming year. The current tower is also likely to be considered at risk from Hurricane Ian, whereas the traditional market may have less appetite for this risk now, and price was likely a factor in deciding to buy less coverage.
In December, FEMA provided an updated estimate for NFIP claims arising from Hurricane Ian to somewhere between $3.7bn and $5.2bn. At this time, the NFIP had received 44,000 claims from Ian and had paid almost $437m to policyholders.
David Maurstad, FEMA’s senior executive of the NFIP, commented: “FEMA remains committed to reinsurance as a risk transfer measure to ensure the NFIP has the capacity to pay claims, especially now with the growing intensity and frequency of weather patterns brought on by climate change.
“Our No. 1 job is to provide policyholders peace of mind in knowing that the NFIP will be there when they need it most.”
FEMA contracted reinsurance broker Guy Carpenter, part of Marsh McLennan, to provide broker services to assist in securing the 2023 reinsurance placement.
If a named storm flood event is large enough to trigger all reinsurance agreements, FEMA receives qualifying payments. For named storms resulting in NFIP claims exceeding the $11 billion mark, FEMA will receive the full $1.9275 billion of reinsurance coverage from the private markets.
FEMA has been procuring reinsurance for the NFIP for numerous years, after testing the market with a limited placement in 2016, before securing its first full placement ahead of the January 2017 renewals.