In the 1960's, the United States government decided to use the 1-percent annual exceedance probability (AEP) flood as the basis for the National Flood Insurance Program. The 1-percent AEP flood was thought to be a fair balance between protecting the public and overly stringent regulation. Because the 1-percent AEP flood has a 1 in 100 chance of being equaled or exceeded in any 1 year, and it has an average recurrence interval of 100 years, it often is referred to as the "100-year flood".
Scientists and engineers frequently use statistical probability (chance) to put a context to floods and their occurrence. If the probability of a particular flood magnitude being equaled or exceeded is known, then risk can be assessed. To determine these probabilities all the annual peak streamflow values measured at a streamgage are examined. A streamgage is a location on a river where the height of the water and the quantity of flow (streamflow) are recorded. The U.S. Geological Survey (USGS) operates more than 7,500 streamgages nationwide (see map) that allow for assessment of the probability of floods. Examining all the annual peak streamflow values that occurred at a streamgage with time allows us to estimate the AEP for various flood magnitudes. For example, we can say there is a 1 in 100 chance that next year's flood will equal or exceed the 1-percent AEP flood.
More recently, people talk about larger floods, such as the "500-year flood," as tolerance for risk is reduced and increased protection from flooding is desired. The "500-year flood" corresponds to an AEP of 0.2-percent, which means a flood of that size or greater has a 0.2-percent chance (or 1 in 500 chance) of occurring in a given year.