The Federal Emergency Management Agency (Fema) paid just over 10 percent more for the traditional reinsurance placement bought on behalf of the National Flood Insurance Program (NFIP) at 1.1 despite securing less limit on the lower layer of the cover.
According to details released by the US government agency today, the NFIP paid $205mn of total premium for the $1.33bn of 1 January 2020-incepting reinsurance it bought through broker Guy Carpenter.
That compares to the $186mn it paid for around the same amount of coverage ($1.32bn) last year as part of its traditional placement.
The cover has run clean for the last two years, but was totalled in 2017 by Hurricane Harvey, with $1.04bn reclaimed from reinsurers.
The broad structure at this year’s renewal is the same as the 2019 placement, with three part-placed layers of $2bn attaching at $4bn and topping out at $10bn. The $8bn to $10bn stretch was added to the programme last year for the first time.
But this year’s tower sees less limit placed in the first layer, with 10.25 percent, or $205mn, of the stretch between $4bn and $6bn ceded to the 27 reinsurers signed up to the 2020 reinsurance agreement.
Last year that layer was placed at 14 percent, for $280mn of limit.
The second $2bn xs $6bn layer placement increased, however, from 25.6 percent, or $512mn, to 34.68 percent, or $694mn.
The top layer was placed at 21.8 percent, for $436mn of limit, down from 26.6 percent, or $532mn of limit.
Fema worked with Guy Carpenter as its broker and Aon for financial advisory services for the 2020 placement.
Reinsurance panel changes
There were also a number of changes to the make-up of the reinsurance panel this year, with Axis Re and TransRe both coming off. With TransRe’s exit, the line written on behalf of Gen Re under the companies’ five year broker market treaty business agreement was also absent from this year’s final placement. QBE Re and Managing Agency Partners Syndicate 2791 both returned to the placement, however.
Other Lloyd’s participants include Antares Syndicate 1274, Apollo Syndicate 1969, Ariel Re Syndicate 1910, Ascot Syndicate 1414, Brit Syndicate 2987, Canopius Syndicates 1861/4444, Chaucer Syndicate 1084, Faraday Syndicate 0435, Hiscox Syndicate 0033, Liberty Syndicate 4472, MS Amlin Syndicate 2001, RenaissanceRe Syndicate 1458 and XL Catlin Syndicate 2003.
Non-Lloyd’s reinsurers include Allied World, Hannover Re, Liberty Mutual, Markel Global Re, Munich Re America, Navigators, RenaissanceRe Europe, Scor, Swiss Re America, The Cincinnati Insurance Co and Validus.
The traditional reinsurance placement is supplemented by two in-force FloodSmart Re catastrophe bonds, which together add $800mn of protection for the NFIP.
Last April $300mn of NFIP risk was transferred to the capital markets at a cost of $32mn for the first year of coverage. It provides protection for 2.5 percent of losses between $6bn and $8bn, and 12.5 percent of losses between $8bn and $10bn.
And in August 2018 Fema entered the cat bond market for the first time with a $500mn issue that provides 3.5 percent of limit between $4bn and $10bn, and 13 percent between $7.5bn and $10bn at a cost of $62mn for the first year of coverage.
Both cat bonds run for three years and were structured using Hannover Re as a transformer.
At the time of its first cat bond, Fema said: “By engaging both the traditional reinsurance markets and the capital markets, the NFIP can reduce risk transfer costs, access greater market capacity, and further diversify its risk transfer partners.”
The traditional reinsurance programme applies to all flood losses covered under the NFIP, while the cat bonds only cover risk from named storms.
The heavily in debt NFIP was reauthorized by Congress last month for a further nine months through to the end of September 2020.