Kentucky flooding to have limited impact on reinsurers, private insurance
Although private flood insurance has grown in recent years, it remains less than 1% of direct premiums written, Fitch Ratings reported.
Although recent inland flooding has resulted in nearly 40 deaths and significant economic loss in areas of Kentucky, the events are expected to have a minimal credit impact on U.S. property and casualty insurers, Fitch Ratings reported. The events are also unlikely to affect the capital or earnings of individual insurers or reinsurers.
“Loss estimates for the recent individual flood losses in the U.S. are not yet available but would likely be considerably below the 2022 catastrophe reinsurance program attachment. Losses begin to cede to the reinsurance program when insured NFIP (National Flood Insurance Program) losses for an individual event reach $6 billion,” Fitch Ratings stated in a release.
The biggest threat to the NFIP’s catastrophe reinsurers, according to Fitch Ratings, would be a major hurricane that resulted in significant precipitation and storm surge. Following Hurricane Harvey, for example, the NFIP paid policyholders more than $9 billion and recovered the full $1.042 billion limit from reinsurers. The NFIP reinsurance program is comprised of a panel of traditional reinsurance companies, including some of the largest global reinsurers.
Limited adoption, less private market exposure
Although private market flood insurance has grown in recent years, it remains less than 1% of direct premiums written, Fitch reported. Further, less than 10% of homeowners buy coverage and adoption is lower away from coastal regions. Most flood insurance policies are written through NFIP, which is administered by the Federal Emergency Management Agency (FEMA) and continually sees underwriting losses.
The floods highlight the potential devastation that can impact communities that have not traditionally been considered at high risk for flooding. While most of Kentucky is not considered a high flood risk, according to FEMA flood maps, several areas of Eastern Kentucky are under a flood watch or advisory as of August 8, 2022. Rain is anticipated throughout the week of August 8.
Some parts of the state are in FEMA’s Special Flood Hazard Area (SFHA), according to CoreLogic, which gave hard hit Jackson, Kentucky, as an example. Flood waters reached the roofs of many homes in Jackson and most (if not all) of the structures were within the SFHA. However, a “stark boundary” exists between high risks areas and parts of the state deemed to have no flood risk.
On Saturday, Aug. 6, 2022, President Joseph Biden increased federal funding for disaster response and emergency protective measures, including direct federal assistance to “100% of the total eligible costs for a 30-day period of the Commonwealth’s choosing within the first 120 days of the declaration,” according to a release from the White House.
Related: