On March 18, Brookings Institution and The Hamilton Project have released a new white paper, proposing a federal reinsurance entity to be known as “US Re.”  US Re would “help private insurers manage their disaster tail risk and smooth reinsurance cycles by offering a stable, low-cost supply of capital” by selling “reinsurance contracts to private (re)insurers covering aggregate portfolio losses that exceed some amount (attachment point).”  Authors Benjamin Collier, Benjamin Keys, and Philip Mulder suggest that “US Re would not replace private reinsurance,” and “by protecting against tail risk, US Re could ‘crowd in’ private (re)insurers—in other words, spur new entry and investment.”

• Between 2017 and 2024 average inflation-adjusted homeowners insurance premiums rose by 28 percent, from about $2,100 to $2,700.
• The price of U.S. catastrophe reinsurance has roughly doubled since 2017.
• The recent peak occurred in 2023 and 2024, when reinsurance prices were 280 percent of the 1990 price.
• 2024 average inflation-adjusted homeowners insurance premiums rose by 28 percent, from about $2,100 to $2,700
• When reinsurers attempt to raise funds in the midst of losses, the costs of external capital become highly convex. Reinsurance capital frictions add to the cost of reinsurance and make it more volatile. For example, reinsurance prices in 1993, the year following Hurricane Andrew, were between five and seven times the historical average from the prior two decades.
• Doubling of reinsurance costs between 2017 and 2024 increased average annual homeowners insurance premiums by approximately 15 percent above and beyond the rise in expected losses over this period and policy nonrenewals by 30 percent among markets in the top decile of catastrophe exposure.
• Studying the roll-out of Australia’s public cyclone reinsurance, Solomon (2024) finds that the program reduced premiums by 21 percent and increased availability by 11 percent.
• In 1995 Representative Bill Emerson (R-Mo.) introduced the Natural Disaster Protection Partnership Act, which proposed creating the Natural Disaster Insurance Corporation, a federal entity that would provide insurance and reinsurance.

You may watch the recorded launch event, “reimagining homeowners insurance amid growing climate risk,” online.  The event featured panelists including Minnesota Commerce Commissioner Grace Arnold and Colorado Insurance Commissioner Michael Conway, David Wessel of Brookings, and Roy Wright of IBHS, and other esteemed researchers and insurance experts.

This new paper complements CSFI‘s white paper on “Policy Options for a Natural Catastrophe Insurance Program” and mirrors our federal reinsurance backstop considerations (option 1B).   However, unlike CSFI’s proposal, “US Re would not cover perils that are generally excluded from U.S. homeowners insurance contracts, such as flood and earthquake.”