RAA hopes for flood market boost

The Reinsurance Association of America (RAA) is hopeful that banking regulators in the US will clarify guidelines relating to mortgage products and make it clear that banks can accept flood insurance policies from the private insurance market—something that would help the private flood insurance market to grow.

That is according to Frank Nutter, president of the RAA, who said that such a move would potentially override the need for Congress to clarify the situation, as it has been bogged down by the delay in potentially changing the form of the National Flood Insurance Program (NFIP).

The US Federal Emergency Management Agency (FEMA) increased the size of its reinsurance placement covering the NFIP to $1.4 billion in January, up from just over $1 billion in 2017.

It also completed its first catastrophe bond in July, a $500 million placement transferring flood risk into the capital markets.

The RAA is targeting changes to accelerate this process. At a federal level, it is seeking the long-term reauthorisation of the NFIP with amendments that would mean that mortgage lenders could accept flood insurance policies underwritten by private sector companies.

It appears Congress is now most likely to grant another short-term extension of the programme, delaying any wider changes to its form until 2019, but Nutter said that the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency have both issued notices for rule-making. The final rule is expected in early 2019.

“The RAA has been lobbying for this to happen and we are hopeful that the regulators will move to clarify this issue,” Nutter said. “The banks accept that this would be helpful and it could help to grow the private flood insurance market in the US.”

The devil is somewhat in the detail. Specifically, the RAA wants the regulators to accept policies written by surplus lines insurers, which has not been the case before, and to accept the role of State Insurance Commissioners in validating policies, speeding the process up.

“It is our hope they will accept both these things,” he said.

Nutter noted that another issue starting to loom on the radar of the RAA is the renewal of the Terrorism Risk Insurance Act, which is set to expire—or be reauthorised—in 2020. He said the body is waiting to see if any amendments to the act are proposed, or whether it becomes a political issue.

From the perspective of RAA members, he said, essentially they want it renewed as it is. “There could be potential changes requiring companies to pay or perhaps restricting the definition of terrorism risk. But the industry wants a straight reauthorisation of the programme.

“Although there are some reinsurers that have an appetite for terrorism risk, the majority of insurers do not and the sense of our members is to do what is right by their clients on this.”

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