The US Federal Emergency Management Agency (FEMA) has successfully transferred $400 million of the National Flood Insurance Program’s (NFIP) flood risk to the capital markets through the issuance of its third catastrophe bond transaction, Reinsurance News reports.
Under the terms of the latest agreement, FEMA is set to pay $50.28 million in premiums for the first year of reinsurance protection. At the same time, FEMA states that the agreement will cover 33.3% of losses for any single flood event with losses between $6 billion and $9 billion, and 30% if that same event has losses of between $9 billion and $10 billion.
David Maurstad, FEMA’s Deputy Associate Administrator for Insurance and Mitigation, and the senior executive in charge of the NFIP, commented: “Reinsurance is a lynchpin to help strengthen the financial framework of the flood insurance program. By engaging capital markets, FEMA is able to access alternative capital and grow its reinsurance program in a way that benefits policyholders and taxpayers, and expands the role of the private markets in managing flood risk in the United States.”
After the NFIP’s short-term extension, the next steps will be reforming the program. In a report by Christa Nadler, EVP of Risk Placement Services, she dives into what problems the NFIP has faced, and what the future of the program looks like.
According to Nadler, open-market flood coverage is becoming more and more vital, and “data is king.” With additional sources of data available, more carriers than the NFIP alone are looking at providing insurance.
Part of the next steps for the NFIP involves private sector reinsurance. As part of the next steps for NFIP, the Federal Emergency Management Agency announced earlier this month that 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.