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Public finance issuer ratings to remain stable following Ian: Fitch

4th October 2022 - Author: Jack Willard

According to a new report from Fitch Ratings, the ratings of US public finance issuers affected by Hurricane Ian will largely remain stable, but the credit quality of some issuers with lesser resources and financial flexibility could weaken.

While the full extent of property damage in Florida, Georgia and the Carolinas will not be known for a number of weeks, Fitch is monitoring a range of US public finance credits in the wake of Hurricane Ian, one of the largest storms to hit the US.

Fitch noted that private insurance and federal and state relief funds will support rebuilding and drive post-disaster economic activity. However, analysts warned that they expect to see a slower pace of recovery compared with previous hurricanes due to the greater numbers of uninsured homeowners and businesses, as a result of the higher cost of insurance coverage/policy non-renewals, tight labor market conditions, inflationary pressures and supply chain issues.

Additionally, analysts at KBW recently stated that they expect Hurricane Ian to represent a very expensive earnings event, following new re/insurance industry loss estimates of $63 billion by KCC and $42-57 billion by Verisk.

Furthermore, Fitch said that it expects local government ratings in Florida affected by Hurricane Ian to remain stable as most of Fitch’s rated municipalities have a “high degree of fiscal resilience and robust reserves” to manage storm expenses as they await reimbursement from federal and state disaster aid programs.

Stratumn, by SIA Partners

At the same time, homeowner insurance coverage, or lack thereof, may play a greater role in community recovery than in prior hurricanes. Blanket homeowner policies do not cover flood damage, and many homeowners do not carry flood insurance. With increasing hurricane risk, property insurers have left the Florida market, and remaining insurers have raised premiums or are not renewing policies as they expire.

Fitch also warns that tax base growth in high-risk areas could be tempered if hurricane damage leads to permanent relocations, or if homeowners and businesses decide not to rebuild with exorbitant insurance costs or insurance unavailability.

Fitch also states that while it is still assessing their rated not-for-profit hospital and life plan community (LPC) exposure, it appears that facilities within the hurricane zone have generally seemed to have avoided taking significant damage.

Nevertheless, Fitch expects some business disruption with any necessary clean up or repair efforts. Hospitals and LPCs will benefit from Federal Emergency Management Agency aid and business interruption insurance, however receipt of these funds could take time.

Of the over 50 Fitch-rated water and sewer utilities in Florida, most should be able to absorb initial storm costs due to generally well-maintained systems, comprehensive emergency planning and robust liquidity.

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