FEMA continues to engage reinsurance markets to strengthen the financial framework of the National Flood Insurance Program (NFIP) and promote private sector participation in flood-risk management.
On, April 16, 2019, FEMA entered into a three-year reinsurance agreement, effective April 17, 2019, with Hannover Re (Ireland) Designated Activity Company (DAC). Hannover Re acted as a transformer, transferring $300 million of the NFIP’s financial risk to capital markets investors by sponsoring the issuance of a catastrophe bond through a special purpose reinsurer.
This placement builds on the first transfer of NFIP flood risk to capital markets investors in August 2018, which transferred $500 million in flood risk for three years. These capital market placements complement the NFIP’s existing traditional reinsurance coverage, allowing FEMA to grow the NFIP Reinsurance Program that protects against future flood losses. Combined with the August 2018 capital market and January 2019 traditional reinsurance placements, ahead of the 2019 hurricane season, FEMA has transferred $2.12 billion of the NFIP’s flood risk to the private sector.
Congress granted FEMA authority to secure reinsurance from the private reinsurance and capital markets through the Biggert-Waters Flood Insurance Reform Act of 2012 and the Homeowner Flood Insurance Affordability Act of 2014.
For additional information about this traditional reinsurance placement, you can read Frequently Asked Questions (FAQs) and other details about this reinsurance placement, available at https://www.fema.gov/nfip-reinsurance-program.