Reform of a government-run flood insurance programme will bring new opportunities in the US for Bermuda reinsurers.

The National Flood Insurance Programme is $23 billion in debt with the American taxpayer on the hook and legislators are looking for ways to transfer some of the risk burden to the private market.

Yesterday, Representative Blaine Luetkemeyer, chairman of the US House of Representatives Financial Services Committee, released principles intended to guide the debate on reforming the NFIP, which is set to expire at the end of September next year.

Among them were “to provide stronger public/private partnerships, and greater consumer choice to achieve public policy objectives”, signalling an opening of the door to the private sector.

The Association of Bermuda Insurers and Reinsurers, which represents 23 island-based companies, has consistently proposed that the private reinsurance market could shoulder more of the risk currently shouldered by government-run insurance programmes such as the NFIP.

Bradley Kading, Abir’s president and executive director, yesterday welcomed the statement from Washington.

“Abir supports efforts to build more effective risk mitigation into the US National Flood Insurance Programme and to promote alternatives that lead to private-sector sale of flood insurance.

“Flood insurance should be like wind insurance in the US. It can be largely insured in the private market with factors that promote risk mitigation, use of reinsurance and over time devolves the NFIP into a residual market.

“The chairman’s principles are positive and encouraging.”

The Reinsurance Association of America was also positive about the news.

“Embedded in these principles is the requirement that FEMA actively manage the NFIP risk through the use of reinsurance or capital markets alternatives to diversify risk across multiple markets, thus protecting NFIP and American taxpayers from large losses,” the RAA stated.

Frank Nutter, president of the RAA, said: “These principles recognise the value that reinsurance can play in helping the NFIP to manage its financial risks and protect taxpayers, while looking to enhance the development of the private market.

“The steps will ease the financial burden for flood risk now borne by the federal government and ultimately, the American taxpayer. We look forward to working with the next Congress to ensure these principles are a core of the 2017 NFIP reauthorisation.”