Swiss Re Insurance-Linked Fund Management

PCS - Emerging Risks, New Opportunities

FEMA’s NFIP flood reinsurance renewal shrinks to $1.064bn for 2022


The National Flood Insurance Program’s (NFIP) traditional reinsurance tower has been renewed by the U.S. Federal Emergency Management Agency (FEMA) at $1.064 billion in size for 2022, a slight downsizing on the prior year.

fema-logoOf course, while the traditional reinsurance program has been shrinking a little in recent years, FEMA’s use of catastrophe bonds has been increasing and so the NFIP’s overall reinsurance risk transfer remains around $2.3 billion.

For 2022, FEMA has secured $1.064 billion of traditional flood reinsurance for the NFIP, through a transfer of risk to the private market to 28 private reinsurance companies.

The 2022 NFIP reinsurance renewal is another annual contract, running the calendar year and so far FEMA has not sought to bring any multi-year coverage into the traditional renewal process.

With $1.064 billion of the NFIP’s financial risk transferred to the private reinsurance market in this renewal, the 2022 reinsurance placement covers some of the NFIP’s flood insurance losses above $4 billion, that arise from a single flooding event.

In return for the coverage, FEMA paid a total premium of $171.9 million at the 2022 renewal.

This year’s NFIP reinsurance renewal covers:

  • 4.163% of losses between $4 billion and $6 billion.
  • 26.565% of losses between $6 billion and $8 billion.
  • 22.453% of losses between $8 billion and $10 billion.

“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,” David Maurstad, FEMA’s senior executive of the National Flood Insurance Program explained. “Our No. 1 job is to provide policyholders peace of mind in knowing that the NFIP will be there when they need it most.”

The $1.064 billion of traditional flood reinsurance is now combined with three catastrophe bond issues, to provide around $2.3 billion of coverage over the coming year to the NFIP.

FEMA’s process to renew traditional reinsurance for the NFIP began back in September last year, and we understood that multi-year cover was a topic of discussion, but it seems this is being left to the catastrophe bond market to provide.

We understand from sources that a new FloodSmart Re catastrophe bond is likely to be seen relatively early this year and we wrote last July about FEMA seeking out new transformer services for its next cat bond last.

From the catastrophe bond market, FEMA’s NFIP currently has $300 million of coverage from a FloodSmart Re Ltd. (Series 2019-1) transaction issued in April 2019, $400 million from a FloodSmart Re Ltd. (Series 2020-1) transaction issued in February 2020 and $575 million from a  FloodSmart Re Ltd. (Series 2021-1) cat bond issued in February 2021.

Which gives FEMA $2.321 billion of total flood reinsurance protection for the NFIP, meaning the catastrophe bond market remains the larger provider of protection.

With another FloodSmart Re catastrophe bond anticipated this year, it is possible the cat bond portion of the program grows again. Although the 2019 cat bond matures in March, so some of its capital market backed reinsurance is scheduled to roll-off risk early this year as well.

The catastrophe bonds only cover flood events occurring from named storms, meaning that for FEMA to be able to claim the full $2.3 billion of reinsurance protection it would take a named storm event that drove NFIP claims exceeding $10 billion.

Guy Carpenter acted as the broker on the 2022 traditional reinsurance renewal placement for FEMA.

A year ago, FEMA procured $1.153 billion of flood reinsurance from 32 counterparties at the January 2021 renewals.

Before that, FEMA renewed its traditional reinsurance program with $1.33 billion of flood reinsurance at the January 2022 renewals, and in January 2019 renewed a $1.32 billion traditional reinsurance placement.

The first full placement was in 2018, when FEMA secured $1.024 billion of traditional reinsurance.

The cost of the 2022 traditional reinsurance placement certainly looks higher and it is interesting to see the number of couterparties decline a little, perhaps suggesting appetite for flood risk remains an area in reinsurance that can be a little more challenged at this time.

Artemis Live - ILS and reinsurance video interviews and podcastView all of our Artemis Live video interviews and subscribe to our podcast.

All of our Artemis Live insurance-linked securities (ILS), catastrophe bonds and reinsurance video content and video interviews can be accessed online.

Our Artemis Live podcast can be subscribed to using the typical podcast services providers, including Apple, Google, Spotify and more.

Print Friendly, PDF & Email

Artemis Newsletters and Email Alerts

Receive a regular weekly email newsletter update containing all the top news stories, deals and event information

  • This field is for validation purposes and should be left unchanged.

Receive alert notifications by email for every article from Artemis as it gets published.