FEMA submits $1 billion flood reinsurance claim
The Federal Emergency Management Agency submitted a $1.042 billion full-limit claim to reinsurers of the National Flood Insurance Program for Hurricane Harvey losses on Tuesday.
In January 2017, FEMA executed the reinsurance agreement with 25 reinsurers to transfer more than $1 billion of the NFIP’s financial risk, for which FEMA paid a total premium of $150 million, FEMA said in a statement.
The coverage was placed by Guy Carpenter & Co. L.L.C. with reinsurers across the in global reinsurance market.
Under the agreement, reinsurers agreed to indemnify FEMA for flood claims on an occurrence basis. It is structured to cover 26% of losses between $4 billion and $8 billion, up to a maximum of $1.042 billion.
On Nov. 6, 2017, FEMA surpassed $4 billion in paid claims related to flooding from Hurricane Harvey, triggering the NFIP reinsurance program. While FEMA is “working diligently” to understand the full extent of losses to the program, 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 on Tuesday.
To date, hurricanes Harvey, Irma and Maria generated more than 120,000 NFIP claims, marking the second largest claims year in NFIP history. NFIP has paid over $6.69 billion in claims so far, with processing ongoing.
“FEMA’s 2017 reinsurance placement was a cornerstone for a multi-year strategy that promotes private sector participation in flood risk management,” the agency said in its statement.
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,” the agency said in its statement.