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Insurance And Reinsurance 2017

The National Flood Insurance Program (NFIP) Reinsurance Program helps FEMA manage the future exposure of the NFIP through the transfer of risk to private reinsurance companies and capital market investors. The NFIP Reinsurance Program promotes private sector participation in flood-risk management. By securing reinsurance at a fair and reasonable cost, FEMA has an additional method to fund payment of flood claims after catastrophic flood events.

Insurance and Reinsurance 2017

Congress granted FEMA authority to secure reinsurance from the private reinsurance and capital markets through the Biggert-Waters Flood Insurance Reform Act of 2012 (BW-12) and the Homeowner Flood Insurance Affordability Act of 2014 (HFIAA).

FEMA is continuing its reinsurance program and secured a new reinsurance placement in January 2023. The Reinsurance Program transfers financial flood risk to private markets to help strengthen the financial framework of the National Flood Insurance Program. This traditional reinsurance placement is in effect from Jan. 6, 2023, to Jan. 1, 2024. Read more about the Trade Agreement Announcement notice of intended reinsurance procurement and how to submit a request for participation on this informational fact sheet.

Reinsurance is an important risk management tool used by insurance companies to protect themselves from large financial losses. In other words, reinsurance is insurance for insurance companies. Insurance providers, such as the National Flood Insurance Program, pay premiums to reinsurers. In exchange, reinsurers provide coverage for losses incurred by insurance providers up to a specified amount negotiated by both parties. Similar to insurance for your home, reinsurance acts as a safety net by transferring risk to another party.

Private insurance companies around the world commonly use reinsurance as a tool to manage risk. Public entities also secure reinsurance. Several U.S. states operate insurance providers that utilize reinsurance, including the Citizens Property Insurance Corporation of Florida, the California Earthquake Authority, and the Texas Windstorm Insurance Association.

As of July 31, 2021, FEMA has paid NFIP policyholders over $9.03 billion for claims resulting from Hurricane Harvey. Therefore, FEMA recovered the entire $1.042 billion in reinsurance under the 2017 traditional reinsurance coverage.

After this initial capital market placement, FEMA transferred additional flood risk to the capital markets with additional multi-year ILS reinsurance agreements in February 2020, February 2021 and February 2022. 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 capital market reinsurance placements cover the 50 U.S. states, the District of Columbia, Puerto Rico, and the U.S. Virgin Islands. The National Flood Insurance Program has few policies in additional U.S. territories and will have no issues paying flood claims in those territories. As a result, American Samoa, Guam and Northern Mariana Islands are not included in the geographic scope of these placements.

Reinsurance has a cost, but the seven traditional reinsurance placements in January 2017-2023 and five capital market placements between August 2018 - February 2022 did not result in an increased rate for NFIP policyholders. As the NFIP Reinsurance Program expands, FEMA will work with the Administration and Congress to determine how to cover the costs of a larger program.

FEMA is committed to paying claims to policyholders quickly and fully. The timing of reinsurance payments to FEMA under any reinsurance agreement does not impact claims payments to insured flood survivors.

Find reports on the National Flood Insurance Program's financials, review rules and guidance, access the flood insurance manuals, check actuarial rates, reference definitions for commonly used terms, and more.

This transaction sees USAA with a new special purpose insurer, Residential Reinsurance 2017 Limited, which will seek to issue $300 million at least of Series 2017-1 notes to collateralize a multi-peril reinsurance arrangement for the insurer, we understand.

Residential Re 2017-1 will feature three tranches of notes all of which will provide USAA with reinsurance protection against losses from U.S. tropical cyclones, earthquakes, severe thunderstorm, winter storm, wildfire, volcanic eruption, meteorite impact, and other perils.

All three tranches of notes will provide USAA with annual aggregate reinsurance protection on an indemnity trigger basis and two tranches will provide four years of cover, with the other structured as a zero-coupon note providing just a single year of reinsurance.

The Class 10 tranche of notes to be issued by Residential Reinsurance 2017 are now targeting between $40 million and $50 million of coverage, and this zero-coupon slice of cover has actually seen its pricing move out. This tranche was initially targeting $50 million at an offering price of 82.5% to 83.5% of par, but we now understand the price to have been fixed at 82.5%, equating to a 17.5% coupon.

The Class 10 zero-coupon tranche of notes to be issued by Residential Reinsurance 2017 are set to complete at their initial target size of $50 million, while final pricing is set at 82.5%, equating to a 17.5% coupon. This is actually the upper end of initial guidance, as the tranche was offered with a discount range of 82.5% to 83.5%.

Updates to loss estimates will change this and the notes will remain on risk until end of May 2018. That means there is plenty of time for the 2017/18 winterstorm season and 2018 convective storm season to add additional aggregate losses, potentially wiping out this tranche of notes.

Go back to the Catastrophe Bond Deal DirectoryHelp us keep this valuable resource up to date. If you have information on a catastrophe bond or insurance-linked security deal we have not covered or can see something that we should change, please contact us to let us know.

Our primary focus is on catastrophe bonds, insurance-linked securities, alternative reinsurance capital, insurance & reinsurance linked investments. We also cover life, weather risk and longevity risk transfer.

After several relatively quiet years for the insurance industry, Hurricane Harvey hit Texas on August 25, 2017, as a powerful Category 4 hurricane on the Saffir-Simpson hurricane wind scale, which ranks hurricanes from 1 to 5. It was the day after the 25th anniversary of Hurricane Andrew; this storm devastated Florida and was, at the time, the most expensive insured disaster ever at $40 billion.1 1.Figures in this paragraph were adjusted for inflation. In 2005, Hurricane Katrina far outpaced Andrew, costing about $160 billion.

The following focus on the economic impact these disasters will have on the insurance industry, as well as the role of the industry in this and future natural disaster recoveries. Is the insurance industry ready?

It is important to provide an initial diagnosis of the impact of these disasters on the insurance industry, recognizing that the situation will continue to evolve and that it will take months to determine the full extent of the losses.

As a reference point, Katrina, the most expensive disaster in recent US history, killed more than 1,300 people and cost about $160 billion.4 4.Adjusted for inflation. Of that amount, just $50 billion was insured by the insurance and reinsurance industry and another $20 billion was insured by the NFIP, which is run by FEMA. Combined, we estimate recovery from the three 2017 hurricanes will cost around $200 billion.

HIM will mostly affect three insurance segments: homeowners, auto, and commercial/specialty. Given the scale and duration of the flooding, we anticipate many total losses on auto insurance. Business interruption is likely to add to the losses for commercial lines.

The impact on each company will depend on its risk exposure, underwriting policies, reinsurance program, and balance sheet strength. The third-quarter earnings, released in October by insurers showed that several of them, including some seen as fairly sophisticated players, were surprised by the scale of the losses.

Harvey and Irma hit the two largest markets for the program in terms of NFIP policies in force. As of September 2017, Florida had 1.7 million policies, or 35 percent of the program, followed by Texas with 590,000, or 12 percent. Puerto Rico had only about 5,000 NFIP policies in place; with more than three million residents affected by Maria, flood insurance is likely to play a minimal role in economic recovery.

Contrary to private insurers who can select who to insure or not, the NFIP must insure everyone who purchases coverage, independent of the risk level of his or her residence. Before the start of the 2017 hurricane season, the program was already $24 billion in debt, mostly due to paying out catastrophic claims for Hurricanes Katrina, Rita, and Wilma in 2005, Ike in 2008, and Sandy in 2012.

Claim effectiveness is measured in decimal points. A few percentage points of overpayment, and the portfolio turns from profitable to unprofitable. In a highly competitive market like property P&C insurance, tolerance for mistakes is razor thin.

The P&C insurance industry is a mature, competitive, and fragmented industry. Customers have ample choice and risk coverage that are standard across carriers. More demanding customers also put pressure on insurers to offer a different value proposal, and branding has been a key driver of new business.

While HIM will initially keep teams of actuaries busy stress testing their pricing and underwriting models, we argue that the maturity of the P&C insurance industry means it has the opportunity to reconsider its value proposition and explore new ways of differentiation. For example, P&C insurers could consider adapting their strategic posture from simply being a payer of claims to being a true partner, working with many more clients before, during, and after a loss. 041b061a72


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