R Street praises expanded private reinsurance deal for National Flood Insurance Program

WASHINGTON (Jan. 8, 2018) – The R Street Institute welcomes today’s news that the Federal Emergency Management Agency has executed an expanded reinsurance placement for the National Flood Insurance Program that will protect taxpayers and shift more risk to the private market.

After a pilot $1 million reinsurance placement in 2016 made possible by the Biggert-Waters Flood Insurance Reform Act of 2012, the NFIP transferred $1.04 billion of risk to the private reinsurance market in 2017. The 2018 placement is expanded to $1.46 billion, purchased for $235 million in premium. It will cover 18.6 percent of losses in excess of $4 billion up to $6 billion and 54.3 percent of losses in excess of $6 billion up to $8 billion.

“Risk transfer by the NFIP proved a great investment for taxpayers in 2017, as the program got back more than $1 billion in reinsurance in exchange for only $150 million in premium,” R Street Senior Fellow R.J. Lehmann said. “This year’s placement shows that, even in the wake of a record $135 billion in disaster-related insurance losses, the private market remains very interested in taking on flood risk. We’re pleased to see FEMA take advantage.”

Lehmann also implored the U.S. Senate to act quickly to take up H.R. 2874, the 21st Century Flood Reform Act, which passed the U.S. House in November by a 237-189 vote. One provision of the comprehensive flood insurance reform legislation would require FEMA to cede a portion of its risk every year to private reinsurance and/or capital markets and to establish a probable maximum loss target each fiscal year.

At the outset of the 2017 storm season, the NFIP owed $24.6 billion to the U.S. Treasury to cover claims from past storms. In October, President Donald Trump signed legislation that would forgive $16 billion of the program’s debt, but that figure is expect to cover only new claims the program experienced, largely stemming from Hurricanes Harvey and Irma.

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