FEMA Adds $575M Reinsurance Coverage for NFIP *Centurion Insurance AFS*

The Federal Emergency Management Agency (FEMA) late last week said that for the seventh time it went to the insurance-linked securities reinsurance markets to secure $575 million in coverage for the National Flood Insurance Program (NFIP).

FEMA entered in a 3-year agreement with its transformer reinsurer, Hannover Re (Ireland) Designated Activity Co., who then transferred the NFIP risk to investors through a special purpose insurer, FloodSmart Re, for sponsoring catastrophe bonds.

FEMA said it will pay about $85.7 million in premiums, excluding initial expenses, for the first year of reinsurance coverage. Additionally, the agreements will cover the following losses for any single flood event:

• 10% of losses between $8 billion and $9 billion
• 23.75% of losses between $9 billion and $11 billion

“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,” said David Maurstad, FEMA’s assistant administrator for the Federal Insurance Directorate and senior executive of the National Flood Insurance Program.

This coverage builds on FEMA’s NFIP Reinsurance Program transferring the program’s flood risk to qualified capital market investors since 2018. Each placement is a three-year term:

• $275 million in March 2023
• $450 million in February 2022

Combined with FEMA’s existing reinsurance coverage—FloodSmart 2022-1 bonds, FloodSmart 2023-1 bonds and the January 2024 traditional reinsurance placement—FEMA has transferred $1.92 billion of the NFIP’s flood risk to the private sector ahead of the 2024 hurricane season.

SOURCE: FEMA

Topics
Reinsurance