The recent floods in the United States, including the flooding in Kentucky that devastated many areas, are not expected to result in losses that would affect the National Flood Insurance Program’s (NFIP) reinsurance or disaster bonds.
The United States has been affected by many flooding events in recent weeks, Fitch Ratings reports, but despite this damage to property and loss of life, as well as significant economic damage in the affected areas, the credit impact of US P/C insurance companies they are expected to be worthless.
Due to the low level of flood insurance coverage, especially in some of the most affected areas such as Kentucky, Fitch Ratings said that the flood will not affect the capital or profitability of the insurance or restoration companies.
Private market flood insurance coverage is still very low across the US, especially away from the coastal areas, and less than 10% of homeowners buy Learning on average, a percentage that drops much lower in other parts of the world.
But the recent flooding “shows the potential for catastrophic flooding events in areas that were not previously considered to be at high risk,” Fitch explained, emphasizing the need for private security measures.
Insurance and reinsurance market to lose the possibility of flooding is still limited because, with the standard homeowners’ insurance still covers flood damage in most cases.
“Some individual markets offer independent flood and homeowner policy approvals, but given the small size of the market, the overall effect may be limited,” Fitch said.
As a result, the federally funded, FEMA-run, National Flood Insurance Program (NFIP) remains the primary source of flood insurance in many areas.
However, this tends to be where the flood risk is considered the highest and Fitch explained that “much of Kentucky is not considered to be at risk of flooding according to FEMA.”
Of course, the NFIP has a regular revitalization program, having renewed the traditional revitalization platform for $1.064 billion in the January renewal of this year.
The rest of the NFIP’s reinsurance is covered through its FloodSmart Re catastrophe bond series, which has $1.425 billion worth of coverage this year.
But FEMA’s private reinsurance market is actually intended to protect against floods led by hurricanes, which are considered a major event that can lead to real flood deaths for the NFIP.
“For example, for Hurricane Harvey in 2017, the NFIP paid out more than $9.0 billion in claims and returned a total margin of $1.042 billion from those that recovered,” Fitch confirmed.
Although loss estimates are not available for recent floods in the United States, including the Kentucky flood, Fitch says this “may be too low for inclusion in the 2022 catastrophe reinsurance program.”
“Loss starts from the reinsurance program where NFIP insured losses in one event reach $6.0 billion,” Fitch said.
Broker Aon recently estimated that the flooding in Kentucky could cause economic damage of more than $ 1 billion, but he also pointed out the lack of flood insurance coverage in the area.