A bill has been reintroduced to the United States Congress that once again gets in touch with legislators to codify that Federal Emergency Management Agency (FEMA), as the administrator of the U.S. National Flood Insurance Program (NFIP), sets a PML target each year and buys reinsurance and capital market danger transfer solutions accordingly.The Taxpayer Exposure Mitigation Act is one of four costs reintroduced by Congressman Rep. Blaine Luetkemeyer of Missouri and focuses entirely on mandating usage of risk capital to support the NFIPs funding requirements, de-risk it and allow it to pay its claims.
Efforts to preserve in law a requirement for the NFIP to be de-risked with the assistance of the private reinsurance and capital markets have actually been underway some years, however so far these efforts have actually stopped working to gain the required assistance, or have been sidelined as other legislative concerns took precedence.
The Taxpayer Exposure Mitigation Act requires the FEMA to purchase reinsurance or a capital market options to much better safeguard taxpayers from being on the hook for future flood losses that the National Flood Insurance Program (NFIP) suffers.
Disaster bonds, durability bonds, collateralized reinsurance, other insurance-linked securities (ILS) and threat transfer tools, as ways FEMA might meet this objective.
The bill gets in touch with FEMA to deliver NFIP flood danger to reinsurance and capital markets in amounts sufficient to keep its claims paying ability and to handle its direct exposure to a likely optimum loss (PML) target.
This PML target would be set each year and set a maximum level of loss, versus which the NFIPs threat would be managed.
Reinsurance and capital market threat transfer options such as catastrophe bonds would be one part of the NFIPs PML computation and a tool that could be utilized to bring thee PML to the target level each year.
” Since 2005, the NFIP has obtained tens of billions of dollars to weather a series of catastrophic floods. Strengthening FEMAs authority to purchase reinsurance will help move run the risk of far from the taxpayer to the economic sector. Its a favorable step forward and must be considered as part of a comprehensive restructuring of the program to be sustainable over the long term,” Shannon McGahn, Chief Advocacy Officer, National Association of Realtors commented.
” APCIA highly supports the Taxpayer Exposure Mitigation Act and legislation needing using replacement expense value in determining premium rates for flood insurance coverage under the National Flood Insurance Act. Representative Luetkemeyer has actually led the way to provide taxpayer security and permit those impacted by flooding to recover more quickly. We advise Congress to enact these two bills,” included Nat Wienecke, Senior Vice President, Federal Government Relations at American Property Casualty Insurance Association (APCIA).
” As neighborhoods and families throughout the country continue to deal with destructive floods, we thank and commend Congressman Luetkemeyer for his continued leadership, strong support and advocacy for the NFIP Reinsurance Program, and for presenting the Taxpayer Exposure Mitigation Act to enhance it. We highly think in the value of the Reinsurance Program and value that the costs consists of crucial elements for FEMA to consider as part of risk transfer. FEMAs NFIP Reinsurance Program has effectively employed personal reinsurance and capital and strengthened the NFIPs capability to pay policyholder claims after devastating floods and assists to safeguard taxpayers versus NFIP losses following an extreme flooding event. The fantastic advantage of the Reinsurance Program appeared when over $1 billion in reinsurance was recovered by FEMA to pay claims arising from Hurricane Harvey in 2017,” Frank Nutter, President, Reinsurance Association of America said.
Congressman specified, “The NFIP has been mismanaged for decades, and in spite of bipartisan calls for comprehensive reform, rewarding action has yet to be taken in Congress. These expenses would bring meaningful, irreversible modification to the program and make the NFIP more economically sound, enable back to the regional officials it affects, and safeguard American taxpayers from spending for future flood losses.”
Earlier this year, FEMA sponsored a $575 million FloodSmart Re Ltd. (Series 2021-1) cat bond, which lifted its reinsurance program for the National Flood Insurance Program (NFIP) to a brand-new high at $2.925 billion in size.
The NFIP flood reinsurance program will fall back to $2.425 billion for the majority of the 2021 US cyclone season however, as its $500 million FloodSmart Re Ltd. (Series 2018-1) is due to mature in August.
” Since 2005, the NFIP has actually borrowed tens of billions of dollars to weather a series of devastating floods.” As neighborhoods and households throughout the nation continue to face disastrous floods, we commend and thank Congressman Luetkemeyer for his ongoing management, strong support and advocacy for the NFIP Reinsurance Program, and for introducing the Taxpayer Exposure Mitigation Act to improve it. FEMAs NFIP Reinsurance Program has effectively gotten private reinsurance and capital and enhanced the NFIPs capability to pay insurance policy holder claims after catastrophic floods and helps to protect taxpayers against NFIP losses following a severe flooding event. The great advantage of the Reinsurance Program was evident when over $1 billion in reinsurance was recuperated by FEMA to pay claims resulting from Hurricane Harvey in 2017,” Frank Nutter, President, Reinsurance Association of America stated.