03 Mar NFIP Flood Reinsurance Renewal 2020
Upon completion of its annual flood reinsurance program renewal, FEMA has secured $1.33 billion dollars to cover the National Flood Insurance Program (NFIP) for the year 2020.
This is only marginally higher than FEMA’s $1.32 billion reinsurance program renewal for the NFIP in 2019.
In November 2019, FEMA made a return to the more traditional reinsurance market in order to seek stern orders and authorizations for reinsurance renewal. Now that this process is complete, the secured limit of reinsurance has not changed much, but where it sits in the NFIP reinsurance tower has changed.
To compare, FEMA secured $1.33 billion of one-year per occurrence flood reinsurance from a panel of 27 international reinsurance companies, whereas in January 2019 they secured $1.32 billion from a panel of 28 private reinsurers.
In 2020, the NFIP traditional reinsurance program will offer coverage for 10.25% of NFIP flood insurance losses ranging between $4-$6 billion, 25.6% between $6-$8 billion, and 26.6% between $8-$10 billion for FEMA.
This is a change from last year, where the NFIP reinsurance covered 14% of losses between $4-$6 billion, 34.68% of losses between $6-$8 billion, and 21.8% of losses between $8-$10 billion for FEMA.
Because of the changes in terms and where the reinsurance coverage sits in the NFIP tower, along with commonly higher prices in U.S. property catastrophe reinsurance, flood reinsurance costs have increased for FEMA in 2020. As an example, FEMA has paid a total premium of $205 million for this coverage, as opposed to 2019 where the reinsurance premium only cost $186 million.
Market trends have definitely driven this increase to certain degrees, because more of the coverage has breached the $6 billion flood loss event attachment mark.
Back in 2019, FEMA tested the reinsurance market with a small acquisition of $1 million in flood coverage for the NFIP. This ran from September 19th 2016 to March 19th, 2017.
In 2018, FEMA swung toward the capital market for the first time ever, resulting in a successful settlement of a $500 million catastrophe bond. This signified the first multi-year flood reinsurance protection that the Agency had ever bought.
Then it bounced back in January 2019 for the afore-mentioned $1.32 billion traditional reinsurance renewal placement, sponsoring a second catastrophe bond issuance through a $300 million April transaction.
There is no doubt that FEMA will return to the catastrophe bond market to extend coverage in 2020, because ILS investor appetite for new cat bonds is stronger than ever, especially with hurricane season on the horizon in Florida and other southern states, and the Agency might find execution rather lucrative for this year.
According to David Maurstad, Deputy Associate Administrator of the NFIP, the entire market sector—private and public—has to chip in to adequately prepare for disasters. By securing the reinsurance renewal, FEMA is able to combine forces with private markets to ensure that the NFIP has a firm financial foundation to complete its goal of providing a “meaningful transfer of flood risk.”
The NFIP traditional reinsurance placement was supported by many markets, among them Allied World Insurance Company, Renaissance, and Validus Americas.