NU Online News Service, July 2, 12:58 p.m.EDT

The Reinsurance Association of America said it will start workimmediately with the Federal Emergency Management Agency toimplement a flood-law provision authorizing the federal agency tobuy reinsurance to reduce the costs of funding the National FloodInsurance Program.

The provision was among a number of changes to the NFIP imposedthrough legislation that reauthorizes the program through Sept. 30,2017.

The reinsurance provisions are aimed at reducing the overallcosts of the program as well as seeking to prevent the kinds oflosses that have left the current program owing the U.S. Treasurymore than $18 billion, most of it stemming from the huge costs ofpaying claims for hurricanes in 2005 that devastated the GulfCoast.

In addition to allowing the NFIP to secure reinsurancecoverage from the private market, the law requires areinsurance assessment report to Congress no later than 12months after the date of enactment. The report will include, amongother things, an assessment of the capacity of the privatereinsurance, capital and financial markets.

The law also calls for the NFIP to conduct an annual assessmentof its claims-paying capacity, including the role privatereinsurance could play.

Frank Nutter, president of the Reinsurance Association ofAmerica, says, “The RAA has consistently lobbied for the NFIP toaddress its volatility, exposure to extreme events, and significantdependence on taxpayer-funded federal debt through risk transfer toreinsurance and capital markets.”

Nutter adds, “we are extremely pleased with this outcome and thesignificant market opportunities for reinsurers.”

The final NFIP reauthorization bill rejected proposals thatwould have wiped out the program's debt, which most peopleacknowledge is beyond the ability of the program to repay, while atthe same time keeping rates affordable for those most in need offlood insurance.

Besides the reinsurance provisions, the final bill seeks to dealwith the program's cost issues by requiring FEMA to establish a newreserve fund in a separate Treasury account and maintain abalance of at least 1 percent of the total program's potential lossexposure to decrease the likelihood of future borrowing fromtaxpayers.

It also requires FEMA to submit a report to Congress on variousoptions for eliminating the NFIP's outstanding debt within 10years, as well as create a repayment schedule for retiring thatdebt and report on its progress towards that goal every sixmonths.

The NFIP was reauthorized, ending a legislative effort thatbegan in 2007, through legislation included in the H.R. 4348, theSurface Transportation Extension Act of 2012.