US National Flood Insurance Program faces significant losses from Hurricane Sally

Insured losses from Hurricane Sally are likely to be significant for the US National Flood Insurance Program (NFIP), according to AM Best.

“NFIP’s reinsurers and investors on the flood related cat bonds will also be watching closely,” said AM Best in a recent note called Potentially Severe Flood Losses from Hurricane Sally.

Insurers with large private flood exposures in Alabama and Florida could face sizable losses, AM Best noted. However, insured losses will be small compared to events such as the ongoing wildfires in the western US and Hurricane Laura.

Because of the slow pace of the hurricane, some areas in Alabama and Florida have seen more than two feet of rain. The NFIP’s reinsurance programme for 2020 attaches for losses greater than $4 billion, while more than two thirds of flood coverage written in Alabama is federal.

Insurer losses may arise from automobile damage, AM Best noted, though market participants are typically geographically diversified. Homeowners’ losses are likely to be more limited due to Hurricane Sally being more of a flood event than a wind event. However, a standard homeowner’s insurance policy will cover water damage from rain as long as the storm has “opened up” a hole in the roof, AM Best noted.