NFIP reinsurers may face total loss due to Harvey

Reinsurers providing the US National Flood Insurance Program (NFIP) with flood reinsurance protection could suffer a total loss given the magnitude of Harvey flooding, Fitch said on Aug. 30.

Hurricane Harvey developed into a Category 4 and made landfall near Rockport, Texas on Friday, Aug. 25. In addition to direct losses, the storm is causing heavy rainfall and storm surge-related losses along coastal Texas.

The NFIP placed its first significant reinsurance programme in January 2017, ceding $1.04 billion of coverage to a group of 25 private reinsurers and Lloyd's syndicates in an effort to reduce the accumulation of future debt to the Treasury. NFIP's pre-Harvey projections suggested there was a 17.2 percent chance of losses from an event exceeding the attachment level of $4 billion in 2017.

Reinsurers take part in the NFIP programme by covering 26 percent of NFIP losses between $4 billion and $8 billion.

As there are 25 carriers on the program, the loss should be manageable for each reinsurer, Fitch noted.

Flood risk for homeowners in the US is almost entirely assumed by the NFIP, with the private market for primary flood coverage limited to a handful of surplus lines writers, admitted companies, and Lloyd's of London syndicates. Figures from the NFIP indicate that most homes in counties affected by Harvey do not have flood insurance, but the event is still expected to generate a meaningful loss for the organization.

The NFIP currently has $23 billion of debt owed to the US Treasury with a total borrowing capacity of $30.4 billion, which could be reached with losses related to Harvey. The program is up for renewal in 2017, and additional debt and funding needs for NFIP to meet obligations relating to Harvey would create additional legislative and public policy uncertainty, Fitch said.

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