About | HeinOnline Law Journal Library | HeinOnline Law Journal Library | HeinOnline
LOG IN
LOG IN

1 1 (April 17, 2020)

handle is hein.crs/govdacm0001 and id is 1 raw text is: The National Flood Insurance Program (NFIP), Reinsurance, and Catastrophe Bonds Updated April 17, 2020 Insurance transfers risk from one entity who does not want to bear that risk to another entity that does. An initial insurance purchase, such as homeowners buying a policy to cover damage to their home, is often only the first transfer of that risk. The initial (or primary) insurer may then transfer (or cede) some or all of this risk to another company or investor, such as a reinsurer. Reinsurers may also further transfer (or retrocede) risks to other reinsurers. Such transfers are, on the whole, a net cost for primary insurers, just as purchasing insurance is a net cost for homeowners. The Homeowner Flood Insurance Affordability Act of 2014 (RL. 113-89) revised the authority of the National Flood Insurance Program (NFIP) to secure reinsurance from private reinsurance and capital markets. Risk transfer to the private market could rcd.ucc the likelihood of the Federal Erne gency NManqgemcnk AgeCcy (FEMA) borrowing from the -f'rcasur, to pay claims. In addition, it could allow the NFIP to recognize some of its flood risk up front through premiums it pays for risk transfers rather than after-the-fact borrowing, and could help the NFIP to reduce the olatilitv of its losses over time. However, because reinsurers charge premiums to compensate for the assumed risk as well as the reinsurers' costs and profit margins, the primary benefit of rensurancv is to manage risk, not to reduce the NFIP's long- term fiscal Cxposurc. Reinsurance The most common form of risk transfer is a primary insurer purchasing coverage for its risks from another (re)insurer. Restrancec is particularly important to smaller insurers who may not be large enough to spread correlated local risks, such as a storm hitting a specific area. Reinsurers generally have the size to diversify risks globally. NFIP Reinsurance Purchases The NFIP's first large reinsurance purchase was in 2017, with additional purchases in 2018, 2019, and 2020. The details of these purchases hav e varied, but they have all covered losses from a single flooding event starting at $4 billion and going up to $8-$10 billion, with potential payouts of $1.042-$1.46 billion and premiums of $150-$235 million. Claims from Hurricane Harvey exceeded $10 billion, triggering a Congressional Research Service https://crsreports.congress.gov IN10965 CRS INSIGHT Prepared for Members and Com m i::ttees ot Co gr ess ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

What Is HeinOnline?

HeinOnline is a subscription-based resource containing thousands of academic and legal journals from inception; complete coverage of government documents such as U.S. Statutes at Large, U.S. Code, Federal Register, Code of Federal Regulations, U.S. Reports, and much more. Documents are image-based, fully searchable PDFs with the authority of print combined with the accessibility of a user-friendly and powerful database. For more information, request a quote or trial for your organization below.



Short-term subscription options include 24 hours, 48 hours, or 1 week to HeinOnline.

Purchase Access

Already a HeinOnline Subscriber?

Log In

profiles profiles most