The Federal Emergency Management Agency announced Friday it has transferred an additional $1.33 billion of the NFIP’s financial risk to the private reinsurance market in its 2020 reinsurance placement for the program.
Reinsurance is a financial risk management tool used by private insurance companies and public entities to protect themselves from large financial losses. This annual reinsurance agreement from FEMA is in effect from January 1, 2020, to January 1, 2021, with 27 private insurance companies.
The newest reinsurance covers portions of NFIP losses above $4 billion from a single flood event. The Agency paid a total premium of $205 million for the coverage.
The agreement is structured to cover:
- 10.25 percent of losses between $4 billion and $6 billion,
- 34.68 percent of losses between $6 billion and $8 billion, and
- 21.80 percent of losses between $8 billion and $10 billion.
Combing the $500 million allocated in August 2018 and the $300 million from April 2019, FEMA has transferred $2.13 billion of the NFIP’s flood risk for the 2020 hurricane season to the private sector.
If a storm is large enough to trigger all reinsurance agreements (NFIP claims exceed $6 billion) FEMA would receive qualifying payments under all reinsurance agreements. In the event a storm results in NFIP claims over $10 billion, FEMA would receive the full $2.13 billion of coverage form the private markets.
“It takes the whole community to prepare for disasters, and that includes participation from the private sector. Through reinsurance, FEMA partners with private markets to build a pillar that supports a sound financial framework for the NFIP by a meaningful transfer of flood risk,” said David Maurstad, Deputy Associate Administrator of the NFIP.
The U.S. government avoided another shutdown in November 2019 and the NFIP was refunded through December 20. The NFIP was set to expire on November 21.
President Donald Trump signed legislation in December that extends the program’s authorization to September 30, 2020. Congress must now reauthorize the NFIP by no later than 11:59 p.m. on September 30, 2020.