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Rollback of NFIP reforms has reinsurers re-evaluating private market


The rollback of reforms to the debt-ridden National Flood Insurance Program may make reinsurers reconsider seeking a broader private-market role.

Earlier this year, President Barack Obama signed into law a measure rolling back many reforms to the National Flood Insurance Program contained in the Biggert-Waters Flood Insurance Reform Act of 2012.

The Homeowner Flood Insurance Affordability Act repealed requirements that certain properties have their flood insurance premium adjusted or set under the NFIP to accurately reflect that property's current risk of flood. It holds to 18% the maximum rate at which insurance premiums may be increased each year and requires the NFIP to impose an annual surcharge on all newly issued or renewed flood insurance to help subsidize other NFIP policies.

Private reinsurers have spoken in favor of at least partially privatizing the NFIP, which is about $24 billion in debt. But the reform rollback may hamper enthusiasm for doing so, at least for the time being.

“I'm concerned that this undermines the ability of the NFIP to fund reinsurance risk transfer,” said Frank Nutter, president of the Washington-based Reinsurance Association of America.

“The whole move toward risk-based rates was generating some interest among some primary insurance companies about writing the risk, and that's usually good news for the reinsurance companies,” Mr. Nutter said. “But my sense is that the primary companies are probably re-evaluating that. They can't compete against government-subsidized rates.”


“Anything that causes the slowdown of getting rates to a risk-based level is going to make it more difficult for risk to be transferred in an economical way to the private market, whether it's insurance or reinsurance,” said James Hole, managing director of global business development at JLT Towers Re in Philadelphia.

But some experts say the rollback could have been worse had Congress approved a measure that passed the Senate rather than the House bill that ultimately became law.

“I think the impact is that it does provide certainty. In that sense the House bill that was signed into law was a better approach than the Senate bill, which delayed things,” said Brad Kading, president of the Association of Bermuda Insurers and Reinsurers. “At least there's certainty.”

“The way the latest bill took shape could have been worse,” said Sam Friedman, insurance research leader at Deloitte Services L.P.'s Deloitte Center for Financial Services. “Had the Senate version passed, the attempt to transition to risk-based rates would have been put off for upward of four years. The House version slowed the transition and scaled it back a little, but at least it left the way open for risk-based rates over the course of time.”