More than half the losses caused by this year’s unprecedented string of natural catastrophes are uninsured. In many cases, taxpayers and international aid will pick up part of the tab. To decrease this burden, many governments have become much more proactive, taking steps to ensure at least some loss funding is in place before catastrophes occur, whether through state-backed insurance plans, government insurance buying or other structures that aim to ease the costs of relief and reconstruction.

The dynamics of Florida’s homeowners insurance market have changed significantly over the 25 years since Hurricane Andrew battered Miami-Dade County. National insurers and many international reinsurers drew back their coverage. Citizens was created under state legislation in 2002 to provide competitively priced cover for consumers who were seeing insurance prices shoot upward, and the Florida Hurricane Catastrophe Fund (FHCF), another state-backed body, was launched to provide reinsurance to all carriers with homeowners wind exposure.

Citizens has released an initial estimate of Irma losses of $1.23 billion from 70,000 claims but has “ample resources to pay claims,” according to a company statement. If its estimate is correct, Citizens will retain a surplus of $6.4 billion after collecting $193 million in reinsurance from the FHCF. However, had Irma held to its original course, the story would be much different.

Some of Citizens’ losses are ceded. It is required to purchase reinsurance for 100-year events. Its disclosures show it has various reinsurance protections in the private market, alongside Everglades Re, a capital-markets catastrophe bond. Together they protect Citizens’ various risk portfolios with more than $3.6 billion of cover, but currently only the FHCF reinsurance is expected to be drawn down. A cautious approach and a lack of major events for many years has allowed Citizens to accumulate very healthy reserves.

Florida’s hurricane reinsurance facility covers 159 Florida insurers for hurricane wind losses, although it does not reinsure storm surge. Buying FHCF reinsurance for a fixed share of Florida homeowners premium income is mandatory for insurers with exposures there, although the level and structure of the cover purchased is flexible. Under statute, it pays claims when industry losses from a Florida hurricane exceed $7 billion and will pay up to $17 billion in total. After more than a decade without major hurricane claims in the state, the FHCF has $14.9 billion in cash and $2.7 billion in catastrophe bond cover.

It also has private-market reinsurance of $1 billion, which kicks in after claims against the fund exceed $11.5 billion. This is provided by leading reinsurers, including Bermuda’s Renaissance Re with $375 million, Swiss Re with $175 million, and numerous others with much smaller lines. For the program to be hit, total hurricane losses from Irma will have to reach $18.5 billion. Modelers put Irma losses in the United States as high as $35 billion, so FHCF’s reinsurers may be called upon.

Another government-backed insurance facility to take a beating—or, in this case, a drowning—is the National Flood Insurance Program, run by the Federal Emergency Management Agency. It is technically insolvent after the losses it incurred when Harvey poured four feet of rainwater into the homes and businesses of Texas. The final count is not yet in, but NFIP faces claims in the region of $11 billion from Harvey alone, which has so far pounded the program with more than 88,000 claims. Irma sent NFIP another 25,000-plus claims. With $24.6 billion in debts to the Treasury and only $1.5 billion in the bank, the organization—which has received widespread criticism for undercharging for its coverage—must seek Congressional permission to borrow even more from the federal government. Washington is already considering a new, private-market approach to flood insurance, but initial efforts have been blocked by Congress. No one doubts, however, that U.S. flood insurance needs a serious rethink.

NFIP is not entirely reliant on government largesse. It has some open-market reinsurance, a proportional layer of $1.024 billion, which attaches after its first $4 billion in claims and pays 26% up to $8 billion. The reinsurance is placed with 25 global reinsurers and looks set to be entirely exhausted (modeler RMS put the burn rate at 75% to 100%). However, that risk sharing will still leave the federal program with a $10 billion tab. And that’s just from Harvey.

For more on NFIP, see “Under Water: Government Thwarts Private Participation in Flood Insurance” in the October issue of Leader’s Edge.

Another quite different facility will ease some of the most drastic costs faced by hard-pressed governments. The Caribbean Catastrophe Risk Insurance Facility (now called CCRIF SPC) is a sovereign disaster risk financing vehicle (or “cat pool”) supported by 16 Caribbean and Central American states. The world’s first multi-country risk pool, it covers earthquakes, hurricanes and excess rainfall. Several of its member countries have been hit hard by the hurricanes. So far it has announced payments to six countries, including $13.6 million to Turks & Caicos, $6.8 million to Antigua & Barbuda, $6.5 million to Anguilla, $2.3 million to St. Kitts & Nevis, and $19.3 million to Dominica.
More payments are almost certain to follow. The indemnities can be announced very quickly because policies issued by CCRIF pay out when a parametric threshold is triggered, such as wind speed of a land-falling storm, so actual damage need not be measured. The cash CCRIF provides is intended to provide governments swift liquidity rather than cover all the losses.

Across the Atlantic, state-owned French catastrophe reinsurer Caisse Centrale de Réassurance (CCR) has said Irma, which pounded the French Caribbean islands of Saint Martin and Saint Barthélemy, will cost an estimated $1.4 billion. Homeowners, auto, commercial property and business interruption will be covered under the French catastrophe reinsurance facility. CCR says the loss is one of the most expensive natural catastrophe events for France in 35 years.