8
SHIFTING
FINANCIAL RISK
e Federal Emergency Management
Agency announced it has transferred an
additional $1.33 billion of the NFIP's
financial risk to the private reinsurance
market in its 2020 reinsurance placement for
the program.
Reinsurance is a financial risk
management tool used by private insurance
companies and public entities to protect
themselves from large financial losses. is
annual reinsurance agreement from FEMA is
in effect from January 1, 2020, to January 1,
2021, with 27 private insurance companies.
e newest reinsurance covers portions
of NFIP losses above $4 billion from a single
flood event. e Agency paid a total premium
of $205 million for the coverage.
e agreement is structured to cover:
» 10.25% of losses between $4 billion and $6
billion
» 34.68% of losses between $6 billion and $8
billion
» 21.80% of losses between $8 billion and
$10 billion
Combing the $500 million allocated in
August 2018 and the $300 million from April
2019, FEMA has transferred $2.13 billion of
the NFIP's flood risk for the 2020 hurricane
season to the private sector.
If a storm is large enough to trigger all
reinsurance agreements (NFIP claims exceed
$6 billion), FEMA would receive qualifying
payments under all reinsurance agreements.
In the event a storm results in NFIP claims
over $10 billion, FEMA would receive the
full $2.13 billion of coverage form the private
markets.
"It takes the whole community to prepare
for disasters, and that includes participation
from the private sector. rough reinsurance,
FEMA partners with private markets to
build a pillar that supports a sound financial
framework for the NFIP by a meaningful
transfer of flood risk," said David Maurstad,
Deputy Associate Administrator of the NFIP.
e U.S. government avoided another
shutdown in November 2019 and the NFIP
was refunded through December 20. e
NFIP was set to expire on November 21.
President Donald Trump signed
legislation in December that extends the
program's authorization to September 30,
2020. Congress must now reauthorize
the NFIP by no later than 11:59 p.m. on
September 30, 2020.
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