The U.S. Federal Emergency Management Agency (FEMA) has secured a 2018 flood reinsurance program, increasing the amount of coverage for the National Flood Insurance Program (NFIP) by 40% to $1.46 billion of protection, secured from a panel of 28 private market reinsurers.
FEMA placed its first major reinsurance program in January 2017 with a NFIP flood reinsurance arrangement that provided it with $1.024 billion of coverage, supplied by a panel of 25 reinsurers.
That program was completely exhausted due to the $7.6 billion in losses that the NFIP suffered and paid out to policyholders due to hurricane Harvey’s impacts in Texas, which resulted in the full $1.024 billion of limit being recovered.
FEMA was always set to return to the reinsurance market for a renewal of the program, but the market will have been encouraged to find an upsized appetite for coverage for the 2018 year.
At the renewal FEMA has secured a $1.46 billion flood reinsurance program, to cover any qualifying flood losses that occur during the 2018 calendar year.
The 2018 flood reinsurance program will indemnify FEMA for flood losses on a per-occurrence basis through protection structured to cover 18.6% of losses from $4 billion up to $6 billion, and 54.3% of losses from $6 billion up to $8 billion.
In return for the $1.46 billion of 2018 flood reinsurance protection FEMA has paid a premium of $235 million.
Broker Guy Carpenter has placed the 2018 NFIP flood reinsurance program for FEMA, while fellow reinsurance broker Aon Benfield was contracted to provide financial advice for the January 2018 flood reinsurance program renewal.
There were 28 private reinsurance markets involved in underwriting the 2018 FEMA flood reinsurance program, with many of the industry’s largest firms featuring. The reinsurance markets writing the flood risk program for 2018 were:
Allied World Insurance Company, Amlin (Lloyd’s Syndicate No. 2001 AML), Apollo (Lloyd’s Syndicate No. 1969 APL), Ariel (Lloyd’s Syndicate No. 1910 ARE), Ascot (Lloyd’s Syndicate No. 1414 ASC), AXIS Reinsurance Co US, Brit (Lloyd’s Syndicate No. 2987 BRT), Canopius (Lloyd’s Syndicate No. 4444 CNP), Chaucer (Lloyd’s Syndicate No. 1084 CSL), Faraday (Lloyd’s Syndicate No. 0435 FDY), General Reinsurance Corporation, Hannover Ruck SE, Hiscox (Lloyd’s Syndicate No. 0033 HIS), Liberty Mutual Insurance Company, Lloyd’s Syndicate 4472 Liberty Specialty Markets, Managing Agency Partners (Lloyd’s Syndicate No. 2791 MAP), Markel Global Reins Co, Munich Reinsurance America, Inc., QBE Reinsurance Corporation, Renaissance (Lloyd’s Syndicate No. 1458 RNR), Renaissance Reinsurance U.S. Inc., SCOR Reinsurance Company, Swiss Re Underwriters Agency, Inc. o/b/o Swiss Reinsurance America Corporation, The Cincinnati Insurance Co, Transatlantic Reinsurance Company, Validus Reinsurance (Switzerland) Ltd., XL Catlin (Lloyd’s Syndicate No. 2003 XLC), and XL Reinsurance America, Inc.
FEMA’s administrator for the NFIP Roy Wright suggested that the reinsurance program will likely grow further in years to come, saying that the renewal, “Demonstrates our commitment to expand reinsurance coverage as part of a multi-year strategy.”
Much of the risk has flowed to underwriters in the Lloyd’s of London reinsurance market it seems and none of the participants are dedicated insurance-linked securities (ILS) fund managers or collateralized underwriters of reinsurance.
However, there could be some risks that flow through to ILS and capital market underwriters, perhaps through some of the syndicates which have reinsurance sidecar arrangements, or those which have ILS fund operations such as Hiscox.
It’s perhaps still too early for FEMA to be looking for its flood catastrophe bond, but with the reinsurance program growing it stands to reason that the capital markets will ultimately begin to take a larger share of the flood risks ceded.
Any major reinsurance program now sees some of its risk flowing into the capital markets and it’s safe to assume that some of the FEMA flood reinsurance program for 2018 will do so as well. In years to come the ILS specialists could find they have a direct role in this program, either by collateralized underwriting or through rated reinsurance vehicles, while the cat bond market remains a willing home for a portion of this program’s risk, once it is large enough for FEMA to require the diversified sources of capital.
Join us in New York in February 2018 for our next ILS conference