2013 Half Year Review – U.S. Extreme Weather Events

Andy Siffert, BMS’ resident Meteorologist, reviews the first 6 months of 2013 in terms of U.S. extreme weather events and their impact on the industry.

As we round the corner into the second half of 2013 we can now put into perspective some of the U.S. extreme weather events that occurred during the first half of the year. With the tally of some of these disasters still being assessed, the U.S. insurance losses estimated by Property Claims Services (PCS) will continue to rise. As of July 1, 2013 the U.S. has seen $6.8 billion in PCS claimed losses from weather events across the U.S. Considering the expected upward adjustment of claimed weather events, losses reported thus far would fall below the five-year average for first- and second-quarter weather-related losses, which total $13.1 billion. This below-average loss is primarily connected to the current “Tornado Drought” that has been ongoing since the second half of 2012. Severe convective storm outbreaks in May 2013 produced major tornadoes causing widespread damage to properties in Texas, Oklahoma, and other states. But as of July 1, the tornado count is 42% below the five-year average, with a major portion of the tornado activity occurring in the lower Mississippi and Tennessee River valleys. Given that May is peak tornado season in the Central Plains, it should be no surprise that strong and violent tornadoes formed and caused damage there. In Tornado Alley this typically occurs during the second quarter of the year, but the number of tornadic weather events in the Central Plains and Midwest regions has been below normal again this year.

The overall lower PCS loss numbers could also be a result of fewer hail events, which, according to Storm Prediction Center (SPC) storm report data, are currently 21% below normal (with only 3,714 hail reports). With the main drivers of severe convective storm losses resulting from the May 20 tornado in Moore, OK and overall hail reports below the five-year normal trend, it seems that derecho or straight-line wind events are the likely driver of most U.S. weather-related losses to-date. These events appear to be trending with the five-year SPC severe wind reports, which as of July 1 stand at 7,360 vs the five-year mid-year average of 7,369 severe wind reports.

The Black Forest wildfire in Colorado appears to be one of the most destructive fires in Colorado’s history. Because of this, wildfires have been getting a lot of media attention lately and it might be interesting to put the current wildfire season into perspective.

According to the National Interagency Fire Center, the U.S. is about a million acres below the 10-year running mean of 2.4 million acres burned in the 22,050 wildfires that have been reported. This is also 15,000 fires fewer than the 10-year running mean. In fact, in 2013 there have been fewer fires than in any of the last 10 years, and the year stands next to last in terms of acres burned.

Like the tornado season, so far the fire season has been well below normal. The Black Forest wildfire in Colorado and the recent deaths of 19 fire fighters in the Yarnell Hill, Arizona wildfire are examples of fires that stick out like a sore thumb in a below-normal wildfire season – just like the two late-May tornadoes which were exceptions to the trend of the overall tornado season.

It is my understanding that in both the Black Forest and Yarnell wildfires, areas burned that had not burned in the previous 40 years – which has to be a major factor contributing to the wildfire catastrophe. The media would say the fires are due to dry conditions, which definitely exist and in some cases are extreme. But if it had been a wet spring, then more fuel would have been available as the summers always see drier conditions in the southwest. The old saying, “Pay me now or pay me later” applies here: If it’s wet, the resulting new growth will eventually dry out and die. And if it’s dry and dead, it will eventually burn.

Worldwide, recent catastrophes seem to be focused largely on flooding-related events, with the notable events originating from the remnants of Tropical Cyclone Oswald that triggered severe flooding in Queensland and New South Wales in Australia. More recently, flood losses that impacted a large area along the Elbe river basin in Europe will likely surpass the 2002 European flood losses. In North America, heavy rainfall provoked catastrophic flooding in southern Alberta, Canada – which will likely go down as the largest flood-related loss ever experienced in Canada. However, with the 7th-latest start to the typhoon season, few typhoons have resulted in flooding or the kind of disasters typically seen in Asia. In fact, global Accumulated Cyclone Energy (ACE) is still stuck in the lowest range – which began in 2007 and is similar to the 1980s. Before Super Typhoon Soulik was upgraded on July 10 to a major 96+ knots tropical cyclone, the last major tropical cyclone, Sandra hit just east of Australia on March 11. And the clock is still ticking on the 2,811 days since the U.S. was last hit by a Cat3+ hurricane – the longest such period since 1900, if not before.

Overall it would appear there is a silver lining – because extreme weather events could be worse based on past years, plus you can’t control nature. Most often, catastrophic events like the wildfires, tornadoes and floods of 2013 can be tied to events of similar magnitude that occurred in the past. We are building bigger towns in locations where catastrophic events have occurred in the past, and the understanding of changes in population, income and housing units can often explain the increase in loss.

Why was Sandy so unique?

Andrew J Siffert, Assistant Vice President & Meteorologist with the BMS Analytical Services Team discusses the implications of Hurricane Sandy.

Superstorm Sandy made landfall October 29th just south of Atlantic City, New Jersey. Despite land falling as a post-tropical system, it left in its path some impressive weather statistics. Its central pressure was the lowest ever recorded for an Atlantic named storm, north of North Carolina, breaking a record set by the devastating ‘Long Island Express’ hurricane of 1938. It is also the first storm in recorded history to landfall in New Jersey at a perpendicular angle to the coastline. Furthermore, Sandy resulted in record surge heights along many parts of the East Coast including a tide surge reading of 14.60′ at Bergen Point, NJ. Its massive wind field had a diameter of tropical storm-force winds at landfall of 945 miles and is one of the largest ever recorded. Given Sandy’s uniqueness it should be no surprise that the cat models used by the insurance industry to understand hurricane risk would most likely have very few stochastic events that would provide guidance to the expected loss potential and should be used with caution when analyzing this event.

Sandy’s uniqueness has also raised many questions of the damage impact from aspects of the event which are not modeled or not modeled well. The exceptional size of the wind footprint, the scale of storm surge, the large number of lengthy power outages, and the impact to major infrastructure, have added to the considerable amount of uncertainty surrounding the interpretation of insurance coverages, whether in relation to wind versus water, business interruption or windstorm deductibles.

Superstorm Sandy could easily place high on the list of the most costly hurricane losses for the insurance industry with insurance estimates ranging from $7 billion to over $20 billion and economic damage exceeding $50 billion. If Sandy causes $50 billion in economic damage (in 2012 dollars), it would rank as the 7th most damaging hurricane or tropical storm (out of 242) to hit the U.S. since 1900. The wake up factor is Sandy was far weaker than any other storm topping this list. Sandy was not even officially a hurricane when it made landfall along the U.S. coast. If Hurricane Irene in 2011, which impacted the Northeast as only a tropical storm, caused $4.3 billion in insured losses and didn’t raise questions as to how vulnerable the northeast coastline is, Superstorm Sandy will.

To learn more about BMS’ expert Analytical Services Team – click here.

Top 25 EC3 Broker

BMS ranked 8th in the Post Magazine’s Top 25 EC3 Brokers for 2012.

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PIAA Analysis – Unique Update Review

Dave Spiegler, EVP and Head Actuary at BMS, updates his unique analysis report on the profitability of the Physician Insurers Association of America (PIAA) companies and what it means for the MPL market.

Click here to read the full report.

AM Best Video MPL Market – Mike Hollenbach & Sean McDermott

BMS’ EVP Specialty Casualty, Mike Hollenbach and SVP, Sean McDermott featured in an AM Best Video discussing topics around the state of the medical professional liability market, including what consumers are talking about and the implications of the Affordable Care Act on physicians’ practices.

Click here to view the full ‘Regulatory Preview’ video  on the AM Best Video Center.

Click here to view the Specialty Casualty Team Offering

Analytical Feature: Physician Insurer

Dave Spiegler, EVP & Chief Actuary and Mike Larson, EVP, featured in the Foresight feature in the Physician Insurer –  debating the interplay between the financial markets, medical professional liability (MPL) insurance companies’ rates and reserves and how MLP companies should be preparing for the next stage of the insurance cycle.

Click here to view the PDF of the full article

Reprinted from the fourth Quarter 2011 issue of Physician Insurer Magazine, Physician Insurers Association of America. Copyright, 2011.

PCI – RMS model debate

John Faustman, EVP BMS Reinsurance Property & Casualty Team, contributed to the Business Insurance Magazine debate regarding, one of the hottest topics of the PCI conference, the potential impact of the revised RMS model.

John highlighted the need for clients to be offered a variety of analytical options and models. He said: “they need to look at exposure aggregations, not just modeled possibilities.”

To read the full article please go to the Business Insurance Website

Negotiating the re/insurance minefields

EVP BMS Property & Casualty Team, Phil Campbell, featured in Day 1 of The Review PCI Show Daily discussing how the future for the market is one potentially filled with ‘multiple minefields’. He reflected on how re/insurers will have to focus on being increasingly efficient if they are to weather the challenges of the current economic crisis.

Please click here for the full article on page 2.

PCI – Boom time in the ILW market

Stefano Nicolini, SVP BMS Retro, featured in the Reactions PCI Reporter discussing the industry loss warranty (ILW) business and the 1/1 renewals.

Stefano reported that the need for extra retrocessional cover has had a huge impact on the demand for ILW and overall will push up retro prices at January 2012. This alongside fears of the potential impact on pricing of the new RMS 11 catastrophe model and the Japanese earthquake has seen the popularity for buying ILW increase exponentially.

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Baden Baden – Loss reporting debate

Jonathan Morris, Managing Director BMS Retro Team, raised the issue of delayed loss reporting on accurate pricing during an interview with Intelligent Insurer Magazine.

Jonathan discussed how the ‘loss reporting creep’ that is experienced after larger catastrophes, such as the Japanese earthquake, make it difficult to finalise pricing. When full loss figures are not reported until after the renewal season is completed, it can cause numerous problems and is likely to cause global reinsurance premiums to rise in 2012.

Click here for the full article page 2.