Federal Emergency Management AgencyThe National Flood Insurance ProgramJune 9, 2017 – Presentation to Advisory Committee on Risk Sharing Mechanisms

National Flood Insurance Program…it is not all about flood insurance

2016 Flood policies in Force 5.1 Million

Insurance in Force $1.25 Trillion

Communities 22,235

Cash On Hand $1.08 Billion

Reserve Fund $160 Million

Available to borrow $5.8 Billion

Outstanding borrowing $24.6 Billion

14% 11%31%

5.1m Policies

$1.3 Trillion Insured Limit

3

NFIP

INSURANCE MITIGATION & INCENTIVES

FLOOD INSURANCERATE MAPS

BUILDING CODES &

REGULATIONS

0%

20%

40%

60%

80%

100%

120%

140%

160%

$ M

$500 M

$1000 M

$1500 M

$2000 M

$2500 M

$3000 M

$3500 M

$4000 M

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Cumulative Loss RatioPremium & Losses

Losses Paid Earned Premium Cum. Loss Ratio

$17.77B $9.52B

The 21st Century has brought a new landscape…..

NFIP’s obligation to the US TreasuryEarned Premium & Loss Paid by Year

Source: FEMA website

Katrina Sandy

$-

$5.0

$10.0

$15.0

$20.0

$25.0

$30.0

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016B

illio

ns

2012 NFIP Reauthorization and The Flood Insurance Risk Study (FIRS)

38%

31%

19%

7%5%

Annual Average Loss

Blended Surge

AIR Inland*

HU Precip Loss

Named TS Loss

ALAE-Attritional

* Scaled to reflect NFIP experience

Flood risk analytics (surge, riverine)

Flood modeling study

Reinsurance viability study

Flood privatization study

2016 FEMA becomes first Federal Agency to secure reinsurance

Phase 1 – Administrative Reinsurance Test (ART):

• Execute reinsurance placement per authority granted to FEMA• Test internal processes to ensure smooth reinsurance build-out• Keep it simple, but achieve robust system check

• Term: 9/19/16 – 3/19/17• Reinsured Limit: $1,000,000 with 1 reinstatement

− Limit 1: Aggregate Coverage xs $5.0 Million− Limit 2: Occurrence Coverage xs $5.5 Billion

• Premium mechanics designed to tested billing processes• Program designed to experience loss and test claim reporting

and collection processes

PROGRAM PARAMETERS

MECHANICS

GOALS

2017 NFIP expand reinsurance with its “Cornerstone” Placement

$10Bclaimspaying

capacity

~ $3B from premium net of expenses and normal loss, plus reserve

fund levy

$6B claims paying capacity from authorized

borrowing

Issues & Challenges

• Creating Stakeholder Buy-In & Related Risk Metrics

• Federal Regs v. Market Practice

• Handling Data & Completing Analytics

• Establishing Reinsurer Selection Process

• Determining Appropriate Structure given competing priorities

• Establishing communication protocols as initiative moved through the execution phase

Net Premiums

Available Borrowing Authority

Reserve Fund

Congress

Reinsurance

26% of $4b xs $4b

Summary

• Occurrence based coverage• $150M premium spend• 25 reinsurers on the panel• Very good response in

challenging circumstance

Flooding is a significant challenge that requires more respect The risk goes well beyond the Special Flood Hazard Areas

# of Flood Event by County 1996-2015- Over past 2 decades,

- 80% of counties have seen ≥ 10 floods- 97% have seen at least 2

- >50% of US GDP originates in Gulf-East Coast

- > 50% of population in water-born counties

# of NFIP Policies / Housing Units- 92% of counties see take-up ≤ 5%- 62% of counties see take-up ≤ 1%- NFIP’s portfolio is large but marked by

peak concentrations

NFIP Moonshots

FEMA and the NFIP can not do it alone…all Stakeholders must step-up

Public Sector Distribution Risk

Transfer PPP Choice

Sound Financial Framework

noun cus·tom·er ex·pe·ri·ence\ˈkəs-tə-mər\ \ik-ˈspir-ē-ən(t)s\

A customer’s perception of their interactions with an organization across multiple touchpoints and channels throughout the duration of that relationship.

Customer experience

NFIP Initiatives