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Perspective

Flood insurance losses

Entity: US Federal Emergency Management Agency (FEMA)

Issue: After Hurricane Katrina caused $160 billion damage in 2005, the financial burden on the Federal Emergency Management Agency (FEMA) increased immensely. One component of FEMA, the National Flood Insurance Program (NFIP), alone faced a deficit of $24 billion as a result of flood claims.

Solution: FEMA turned to the reinsurance market to offset mounting losses. In early 2017, լи McLennan reinsurance brokerage Guy Carpenter placed reinsurance for the NFIP, marking the first time a US federal agency purchased private reinsurance. Months later Hurricane Harvey struck Houston, Texas and NFIP policyholders suffered $10 billion in losses. A full reinsurance payout of $1 billion triggered a savings of over $850 million for US taxpayers. The partnership between Guy Carpenter and FEMA has continued, with the placement of $800 million of catastrophe bonds to further reduce FEMA’s exposure to catastrophic losses.

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