U.S. Flood Program to Collect $1 Billion in Reinsurance for Hurricane Harvey Claims
The Federal Emergency Management Agency (FEMA) is seeking to recover the full $1.042 billion of its reinsurance coverage to help pay the federal flood insurance program’s losses from Hurricane Harvey. Those paid losses exceeded the minimum threshold for the NFIP’s reinsurance coverage.
Earlier this year, the National Flood Insurance Program (NFIP) transferred $1.042 billion of the NFIP’s financial risk to the private reinsurance markets, marking a key step towards a stronger and more resilient program.
In January 2017, FEMA executed the 2017 reinsurance agreement with 25 reinsurance markets representing some of the largest insurance and reinsurance groups around the globe. The 2017 placement of reinsurance will cover a portion of NFIP losses above $4 billion arising from Hurricane Harvey, saving taxpayers almost $1 billion.
Under the 2017 reinsurance agreement, reinsurers agreed to indemnify FEMA for flood claims on an occurrence basis. It is structured to cover 26 percent of losses between $4 billion and $8 billion, up to a maximum of $1.042 billion. FEMA paid a total premium of $150 million for the coverage.
On November 6, 2017, FEMA surpassed $4 billion in paid claims to insured flood survivors of Hurricane Harvey, triggering the NFIP reinsurance placement. While FEMA is working diligently to understand the full extent of losses to the 2017 NFIP, loss estimates range between $8.5 billion and $9.5 billion, which would mean that FEMA will recover the entire $1.042 billion in reinsurance. FEMA sent initial bills to reinsurers today.
Thus far, the trifecta of Hurricanes Harvey, Irma and Maria generated more than 120,000 NFIP claims, marking the second largest claims year in NFIP history. NFIP said it has paid over $6.687 billion in claims so far, with processing ongoing.
FEMA’s 2017 reinsurance placement was part of a strategy promoting private sector participation in flood-risk management. FEMA is in the process of securing a new reinsurance placement for 2018.
FEMA received the authority to secure reinsurance through the Biggert-Waters Flood Insurance Reform Act of 2012, and the Homeowner Flood Insurance Affordability Act of 2014. Hurricane Sandy claims ($8.3 billion) in October 2012 and Hurricane Katrina claims ($16.3 billion) in August 2005 resulted in program debt when the cost of flood policy claims far exceeded the NFIP’s premium revenues; reinsurance places the NFIP in a better position to manage losses incurred from similar major events.
According to FEMA, these 25 reinsurers are participating in the 2017 program:
Swiss Reinsurance America Corp., Munich Reinsurance America Inc., National Indemnity (U.S.), Everest Reinsurance Co., Validus Reinsurance (Switzerland) Ltd., XL Reinsurance America Inc., Lloyd’s Synd. No. 0033 HIS, Axis Reinsurance Co. U.S., Liberty Mutual Insurance Co., Renaissance Reinsurance U.S. Inc., Transatlantic Reinsurance Co., Hannover Ruck SE, Lloyd’s Synd. No. 1414 ASC, Partner Reinsurance Co. of the U.S., SCOR Reinsurance Co., General Reinsurance Co., Lloyd’s Synd. No. 2001 AML, Market Global Reinsurance Co., Lloyd’s Synd. No. 4444 CNP, Lloyd’s Synd. No. 0435 FDY, QBE Reinsurance Corp., Lloyd’s Synd. No. 1686 AXS, Lloyd’s Synd. No. 2987 BRT, Liberty Synd. 4472 LIB, and Lloyd’s Synd. No. 1458 RNR.