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Updated US National Flood Insurance Program - Lloyd's
President Obama on July 6, 2012 passed a bill that provides for a five-year renewal of the US National Fund Insurance Program. It is the basic aim to shift flooding risks away from taxpayer-funded programmes towards privately financed riskstransfer markets. It also provides for the abolition of grants and for interest rates to be brought to the level subsidised by actuarial methods.
For Lloyd's, the most important law refers to demands for personal protection against flooding and written reinsured coverage for NFIP. The NFIP Reassurance Act contains a clause authorizing the NFIP to acquire personal reassurance in the US instead of depending on loans from the US Treasury. Specifically, the NFIP will be allowed to acquire personal high water reinsurances from: (i) approved insurers; (ii) re-insurers covered by the Securities Exchange Act of 1934; and (iii) re-insurers approved by the Federal Emergency Management Agency ("FEMA").
Lloyd's plans to obtain FEMA approval so that the industry will be able to provide this service. Personal Water Protection Insurance - The law stipulates that non-NFIP mortgages must be accepted by non-NFIP mortgages as long as they are similar to NFIP secured insurance. In the past, many creditors demanded NFIP protection and would not tolerate personal flooding protection.
Excess policyholders such as Lloyd's are now clearly entitled to offer personal high water protection cover for corporate real estate. It is only those who are " licenced, authorised or otherwise authorised to conduct business in the State in which the real estate is situated " that can offer a privately owned supply of water for housing.
Use of the sentence "otherwise authorised to carry on assurance business" is somewhat equivocal as to whether this also applies to excess underwriters. Lloyd's is taking action to achieve legal clarity that excess policyholders may offer personal protection against flooding for housing in excess of providing cover for industrial property.
End of subsidy - The Act provides for an end to subsidy for industrial real estate and heavy, recurring losses as well as a ban on subsidy for new or expired policyholders. Tariff reforms - The Act requires FEMA to include historic flooding claims commitments in its calculation to establish how it can establish its technical premium.
In addition, an upward revision of the ceiling for the premium rates from 10 to 20 per cent per year is foreseen. Reporting - FEMA is obliged to prepare a number of reporting documents, among them reporting on option payments to eliminate NFIP's debts owed and a plan to repay these debts, as well as an annuity reporting on new standard practice for flooding cartography.
Lloyd's will continue to interact with the NFIP as soon as Lloyd's has been FEMA certified as an authorised NFIP reinsurance company. 1 ] The special invoice terminology relates to "any persons authorised to carry on assurance activities under the law of a State".