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The federal government has contracted with private reinsurers to improve the National Flood Insurance Program’s claims paying ability and reduce the need for the NFIP to borrow from the U.S. Treasury to cover future claims.  The Federal Emergency Management Agency (FEMA), which oversees the flood program, said it is transferring $1 million in NFIP risk to private reinsurers.  The catastrophe property excess of loss reinsurance agreement contains two coverage layers.  Under the first layer, the reinsurers agree to indemnify FEMA $1,000,000 for flood claim losses that exceed $5,000,000.  Under the second layer, the reinsurers agreed to indemnify FEMA $1,000,000 for flood claim losses when the total flood losses from a single event exceeds $5,500,000,000.  Each reinsurer agrees to assume 33 1/3 percent of the total coverage secured under the arrangement, according to FEMA.

“While the early January program will reduce NFIP’s overall risk, the NFIP will continue to bear the majority of its risk. It will take many years to build up a reinsurance program in which the reinsurance markets bear a significant portion of the NFIP risk,” the agency said on its web site. “This program with FEMA is an important first step and reflects the priority to mitigate the impact of natural disasters by building resilient communities and helping Americans recover when damage occurs,” said Tim Brickett, strategic product manager with Munich Re US, one of the reinsurers on the program, in a release. “I commend the Administration and FEMA for creating the NFIP reinsurance program and the financial protections it will afford taxpayers,” Frank Nutter, RAA president, said. “The RAA has long advocated a private reinsurance market for flood, and this is a significant milestone for the industry.”