Canadian Underwriter

Sea level rise may challenge some local governments in U.S., spur higher insurance rates for citizens: Fitch Ratings

September 17, 2015   by Canadian Underwriter

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The rise in sea levels in the long term – made worse by event risks such as hurricanes and storm surges – may pressure the operations, capital funding requirements and indebtedness of some local governments in the United States, Fitch Ratings suggests in a new report issued Wednesday.

Already having an impact on some U.S. communities, rising sea levels present risks that include “heightened damage from episodic events such as hurricanes and storm surges (event risks) in addition to more chronic damage from pervasive flooding and permanent loss of land,” Fitch Ratings notes in a statement announcing the availability of the report.

Sea level rise may challenge some U.S. local governments, drive up federal flood insurance rates

In addition, Fitch reports that “citizens living in flood plains are facing higher federal flood insurance rates.”

To date, the rating agency reports that the sea level rise has not played a material role in its assessment of the fundamental credit characteristics of any of its rated issuers. That said, Fitch argues that there are real threats faced by governments in coastal areas.

“As the effects of sea level rise upon issuers’ credit fundamentals become known and measurable, over time, these considerations may take on greater importance as a credit factor in Fitch’s rating decisions,” the statement adds.

Fitch points out that measures – such as revising zoning ordinances to impose moratoriums on development in coastal or low-lying areas, or mandating that existing housing be modified to better withstand expected storm surges – this will change the nature of shoreline development.

In turn, this “may negatively affect local government operations as homeowner cost increases and restrictions on new development place limits upon taxable resource growth,” Fitch cautions.

In an assessment of six U.S. coastal cities, risk management firm RMS reported in August that rising sea levels are driving up expected economic and insurance losses from hurricane-driven storm surge in coastal cities. Due to sea-level rise, storm surge is expected to generate more than half of the economic losses from hurricane in the U.S. across hurricane-exposed states by 2100.

But the analysis also shows investments in improved flood defences and reduced exposures has lowered the annual chance of a storm surge today causing at least US$15 billion in economic loss – the amount caused by Hurricane Katrina in 2005 – in Orleans Parish than for Miami, New York and Tampa.

Related: U.S. coastal flood risk on the rise 10 years after Hurricane Katrina: RMS

And in September, National Oceanic and Atmospheric Administration (NOAA) reported that many mid-Atlantic and West Coast communities south of the border saw the highest number of nuisance flooding days on record through April. This is the result of higher sea levels and more frequent storm surge, compounded by the strengthening El Niño.

Related: El Niño may accelerate “nuisance flooding”: NOAA

Nuisance flooding causes public inconveniences such as frequent road closures, overwhelmed storm water systems, and compromised infrastructure, although the extent of such flooding depends on multiple factors, including topography and land cover. NOAA noted that the communities may experience a 33% to 125% increase in the number of nuisance flooding days.

“The forecast for more nuisance flooding is problematic for these regions as it comes on top of the high nuisance flooding rates they experienced during 2014 and which continue to move upwards as predicted by 1950-2013 trends,” the NOAA report states.