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NFIP trims reinsurance cover by 13% in $1.15bn renewal

The US National Flood Insurance Program (NFIP) has secured $1.15bn of reinsurance cover for 2021, down about 13% or $180mn from last year, with a lower premium spend and less risk being transferred to the private market through all levels of the tower.

A number of new reinsurers joined the panel for the first year this time, including Convex, Fidelity, Odyssey and the Lloyd’s syndicates of Lancashire, Beazley and Hamilton. Everest also participated for the first time since 2017.

Some 32 reinsurance companies took part in this year’s contract, compared with 27 in 2020. Markel, Validus and the Canopius Lloyd’s syndicate all dropped out.

The organisation spent $195.8mn on this year's premium, down 4.8% from last year’s $205mn, according to a statement published this week by the Federal Emergency Management Agency (Fema).

This implies the programme-wide rate-on-line (RoL) rose to 17% from 15% in 2020, a 13% year-on-year shift. The underlying RoLs were not disclosed and risk-adjusted changes cannot be estimated without exposure information, while some slight changes were made to the co-participations and placements of the three layers.

The new contract transfers 9.4% of losses between $4bn and $6bn to the private carriers, a slight drop from 10.3% last year.

Meanwhile private markets will take on 28.1% of losses in the $6bn-$8bn range, down 6.6 percentage points from 2020, while the NFIP will cede 20.2% of claims in the highest layer from $8bn-$10bn, versus 21.8% in 2020, according to the new contract.

Fema also has $1200mn of flood coverage through three FloodSmart Re cat bonds, although one $500mn bond comes to maturity in August this year. The remaining bond, for $300mn, will remain on risk until April 2022.

Altogether this takes the organisation's total reinsurance to $2.35bn.

Guy Carpenter was the broker, financial adviser and modeller for the deal.

Senior NFIP executive David Maurstad said the organisation valued the role of private insurance companies and investors in assuming a portion of the NFIP’s flood-risk exposure from catastrophic flood events.

“The NFIP reinsurance program helps the NFIP to better prepare financially for potential losses from significant flooding events similar in size to hurricanes Harvey (2017), Sandy (2012) and Katrina (2005), bolsters our claims paying capacity and reduces the reliance on the need to borrow from the US Treasury.”

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