Fema cuts NFIP reinsurance programme for 2023

FEMA has announced its 2023 traditional reinsurance placement for the National Flood Insurance Program.

The agency has transferred an additional $502.5m of the NFIP’s financial risk to the private reinsurance market. This annual reinsurance agreement is effective throughout the calendar year with 18 private reinsurance companies. 

It compares with a reinsurance placement of $1.064 billion a year ago, which was split between 28 private reinsurance companies. The agency’s decision to shrink its reinsurance programme comes at a time when rates on line are hardening substantially.

Average renewal pricing for US property catastrophe reinsurance was up by 50% at 1 January, according to Howden. “The sector is experiencing its most acute, cyclical price increases since the 2001-2006 period if not before,” said the broker’s head of analytics David Flandro.

The 2023 reinsurance placement covers portions of NFIP losses above $7 billion arising from a single flooding event. FEMA paid a total premium of $90.2m for the coverage, compared to $171.9m a year ago. 

The agreement is structured to cover:  

• 8.5625% of losses between $7 billion and $9 billion  
• 16.5625% of losses between $9 billion and $11 billion  

For named storms resulting in NFIP claims exceeding $11 billion, FEMA will receive the full $1.9275 billion of reinsurance coverage from the private markets. 

Guy Carpenter provided broker services to assist in securing the reinsurance placement.

“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,” said David Maurstad, FEMA’s senior executive of the National Flood Insurance Program. “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 began its traditional reinsurance program in January 2017. If a qualifying catastrophic flood event occurs, reinsurance companies cover a portion of the NFIP’s losses to enhance FEMA’s ability to pay flood insurance claims without borrowing from the U.S. Treasury. 

Combined with the three capital markets reinsurance placements in 2020-22, the agency has transferred $1.9275 billion of the NFIP’s flood risk to the private sector.