You know, I don't think Nico even knew why he was afraid of water in general.
It's easy to come with ideas, but it might have not even been something to do with experience, just part of the way dem genes made him. Then again, it might have been emotional trauma, not litterally with water, but loosing a dad at such a young age, and later a mom. He may have been nervous to begin with, but the death/loss could have intensified it. Those experiences can enrage demons and fears within you. Then again, just a speculation. I totally agree that the day he died, it was panic. But as for Michael's reason throughout his life, it's one of those things we can't know while curving at this point in time.