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50th Anniversary – Insurance Retrospective of May 6, 1965 MSP Tornadoes

50 years ago today, the upper Midwest was devastated by an outbreak of severe weather. A similar storm today would result in what might be one of the largest-ever severe thunderstorm losses to the insurance industry. For four consecutive days in May 1965, severe weather, including 37 significant tornadoes, of which at least nine were major tornadoes, affected much of the central United States. The most devastating part of the outbreak occurred when six tornadoes swept across the western and northern portions of Minneapolis/St. Paul. Of the six tornadoes that swept the seven-county region, four were rated F4, one was rated F3, and the other produced F2 damage.

ChanhassenTornado_Milligan

Shown is a photo of a tornado crossing to the west of the junction of highways 7 and 101 on May 6, 1965 (taken by Minnetonka resident. H. B. Milligan). It is believed that this was the tornado that touched down in Chanhassen at 6:27 p.m. and dissipated in Deephaven at 6:43 pm.

The outbreak was significant in several ways. First, it occurred just three weeks after the historic Palm Sunday tornado outbrea, which no doubt left local residents feeling a heightened sense of alarm about storms. Second, it was the first time in Minneapolis/St. Paul history that civil defense sirens, now used nation-wide, were used to warn people about severe weather. The U.S. Weather Bureau issued quick and successful warnings that were widely communicated by local radio and television stations. These significant new communication methods likely saved many lives, despite the fact that the storms killed 13 and injured 683. Finally, the tornadoes served as yet another example that helped dispel the myth that tornadoes won’t hit a city, a lake or a river.

Historical accounts have focused mostly on the tornadoes during the outbreak because of their remarkable pattern: at a single point in time three tornadoes were on the ground, and two tornadoes hit the same location just hours apart. Some of the hardest-hit cities included Chanhassen, Deephaven, Fridley, Mounds View and the Spring Lake Park suburbs, all of which have undergone tremendous growth since 1965. It is estimated that 600 homes were destroyed during the series of storms, and over a thousand more were damaged. Today, the affected suburbs have expanded from what was farmland 50 years ago, to what is now primarily residential.

The increased number of homes and the increased value of homes in Minneapolis/St. Paul suburbs also increase the potential for catastrophic damage from a similar future event. In some cities, the type of housing exposed to storm perils affects the potential loss severity. Two of the F4 tornadoes touched down in the west suburbs, and these suburbs have seen explosive growth since 1965. For example, one of the 1965 F4 tornadoes reportedly impacted 35 homes on Lotus Lake and 50 homes on Christmas Lake. This area now hosts many multi-million dollar lake homes. Home values in other nearby neighborhoods have grown significantly as well, including multi-million dollar homes that line the expansive shores of Lake Minnetonka. Fridley, Mounds View and Spring Lake Park were impacted by two F4 tornadoes that touched down just hours apart and crossed paths. Those cities may not include as many high-value homes, but the number of residential properties has grown, and now includes not only more residential properties, but high-value commercial properties as well. For example, one of the 1965 tornadoes tracked less than a mile from what is now the Medtronic world headquarters campus.

Despite the loss of life and property damage caused by the May, 1965 storms, it’s important to note that the historical data includes only limited reports of hail and damaging winds. These perils most likely also impacted the area 50 years ago, and arguably, including damage from these lesser-reported perils would increase the financial impact of the storms.

Although there are large uncertainties on exact track, width, and strength of all the tornadoes that occurred 50 years ago across the seven-county metro region, BMS Analytics digitized these historic tracks to create a deterministic scenario in an attempt to understand the potential impact of a similar storm today. The scenario suggests an insurance industry loss between $10 – $14 billion dollars. This is equivalent to a return period of 2,500 – 7,500 years according to various catastrophe models.

1965_TornadoTrack_Analysis

BMS Analytics digitized deterministic tornado scenarios with four perturbation to account for track uncertainty

Recently we have seen images of single tornadoes hitting cities like Tuscaloosa, AL; Joplin, MO; and Moore, OK and causing billions of dollars worth of insured damages ($6 Billion in total insured loss). Recalling the events of early May, 1965, is a reminder that several major tornadoes can hit a large metropolitan area such as Minneapolis/St. Paul on the same day. Although unlikely, a similar event would be extremely damaging due to the ongoing population and wealth growth described above. And if such an event occurred, it is likely a similar outbreak would have a large impact on the insurance industry.

Moore, OK Tornado Frequency

Over the last two days, severe weather has returned to the Central Plains in the U.S. This recent outbreak was by no means historic but it has become the most active severe weather outbreak thus far in 2015, with eight tornadoes, 31 wind reports and 162 hail reports, 13 of which were reported as 2″or larger.  Given the tornado wind damage that occurred in the towns of Moore and Sand Springs, OK, it comes as no surprise that PCS issued its first Wind and Thunderstorm CAT bulletin of the year, although it is abnormally late for such an issuance, due to the lack of severe weather.  In fact, since 2000, typically the insurance industry would have experienced just over 3, nearly 4 PCS loss events with an average of $1.3B in losses by the end of the first quarter.

BMS iVision March 25 Hail Analysis

BMS iVision March 25 Hail Analysis

Above is a look at the BMS iVision Verisk Climate hail size swath overlaid with the various Storm Prediction Center Local Storm Reports from the March 25 severe weather outbreak over the south-central plains.

There are no official tracks or ratings of the two tornadoes that impacted the cities of Moore and Sand Springs yet – those will come later today from the Tulsa and Norman, OK National Weather Service (“NWS”) offices – but, sadly, it has been verified that the Sand Springs tornado was the first deadly storm of the season. This comes later than the 20-year average for the first killer tornado of a given season (typically, February 11), but one month earlier than that of the 2014 season, which occurred on April 25.

The tornado that hit Moore, thankfully, looks to be not nearly as devastating as the same tornadoes that hit the city in 1999 (F5), 2003(F4) and 2013(F5). It is interesting, nonetheless, because it is not only the fourth tornado to hit the same general area in the last 17 years, but it also tracked in an unusual direction.

OKC Tornado Track 1880 - 2013

OKC Area Tornado Track 1880 – 2013

The image above, created by the NWS office in Norman from the work of Tom Grazulis, a tornado historian, shows many tornadoes that track over the Moore/Oklahoma City area travel in a northeast direction. The tornado yesterday, however, tracks in an atypical southeast direction, as the preliminary NWS map below illustrates.

Prelimimary NWS March 25 Moore, OK Tornado Track

Preliminary NWS March 25 Moore, OK Tornado Track

The other thing that becomes apparent from analysis of the 156 documented tornadoes that have occurred in the Oklahoma City metro area (OKC), is this location appears to be a magnet for tornadoes – it experiences an average of just over one each year. Since weak tornadoes were not always documented prior to 1950, this number is likely well underestimated, according to NWS. In fact, Grazulis’ study confirms the OKC region has experienced 13 violent tornadoes (F/EF4 or stronger) since 1880, including the May 19, 2013 and May 20, 2013 tornadoes in Shawnee and Moore, respectively. Also through 2013, OKC experienced two or more tornadoes on the same day 26 separate times, with only three time periods since 1950 with an over two-year lapse between tornadoes.

However, OKC and Moore are not the only areas that have experienced similar tornado frequency. Statistical work from Florida State University’s Jim Elsner suggests there are many areas comparable to the size of Moore with just as many or more tornadoes occurring since 1950, as shown in the image below.

FSU Jim Elsner  analysis of areas comparable to the size of Moore, OK with as many or more tornadoes than Moore since 1950.

FSU Jim Elsner analysis of areas comparable to the size of Moore, OK with as many or more tornadoes than Moore since 1950.

So, as the insurance industry prepares for the severe weather season, it is already apparent that Tornado Alley is appropriately named, since there are many areas within this region that experience the same tornado frequency as Moore. But, there is still no clear reason why, in recent years, Moore keeps getting hit by tornadoes. Studies have shown the affects of urban environments can sometimes enhance rain from thunderstorms downwind of cities (and Moore is just south of OKC), but little work has been done to determine if cities actually impact tornado formation.  Future work in the insurance industry might answer these questions.

 

Northeast snowfalls and insured losses

Over a decade ago, there were several claims that “snowfalls are now just a thing of the past.”  Even as recently as February of last year, The New York Times published an article titled “The End of Snow.” These commentaries predicted that snow would soon be a distant memory, and our children and grandchildren would never see it, except in photographs.  These claims may alarm people, but the data suggests otherwise, particularly along the East Coast of the United States.

One of the most common methods to examine the impact of a winter storm is NOAA’s National Climatic Data Center Regional Snowfall Index (RSI), which uses the area of snowfall, the amounts of snowfall and the number of people living in the snowfall area to quantify the societal impact of a snowstorm.  In the Northeast, the RSI is also known as the Northeast Snowfall Impact Scale (NESIS), and the values are both a raw index value and a categorical value from 0 through 5, much like the Saffir-Simpson Hurricane Scale or Fujita Tornado Scale (i.e., the more snow that falls over a large populated area, the greater the impact on a population and the larger the number.)  This data shows that, over the last decade, there has been a trend toward an increase in high-impact snowstorms along the East Coast.

NESIS Events

Northeast Snowfall Impact Scale (NESIS) Events

The New York City metropolitan area has the largest population in the U.S., and this area has experienced five of the top 10 snowfalls on record dating back to 1869.  However, not all large East Coast snowstorms result in large insured losses.  For example, New York City’s biggest snowfall occurred on February 11 and 12 of 2006, dumping a total of 26.9 inches.  Yet this event was never declared a PCS event (insured losses over $25 million).  Long Island’s biggest snowstorm in history was the result of a Nor’easter on February 8, 2013 that dropped 33.5 inches of snow in Medford, NY, but this storm did not receive a PCS designation either.  Of the 84 documented NESIS events since 1960, 34 have been a Category 3 (Major), 4 (Crippling) or 5 (Extreme), but only 50% have resulted in PCS losses.  The extent of the losses from the latest snowstorms that have impacted the Northeast, which were preliminarily rated between a Category 2 (Significant) and 3 on the NESIS scale, have yet to be determined.  However, we do know that winter losses are a growing area of concern for the insurance industry due to the fact that, typically, the first quarter is a stable period with little catastrophe loss.

There appears to be a continued lack of understanding around winter storm losses, which is why I am speaking on the subject at the RAA Cat Risk Management Conference in Orlando, FL.  In this presentation, I will dive deeper into the topic and provide insight into the trends and hidden issues that often result when winter storm losses fall below the retention of a normal catastrophe program.  Some of these same issues might emerge due to the latest Nor’easter/blizzard of January 26 – 27, which presented cases for business interruption insurance, CBI coverage loss, and insured loss around ingress/egress and civil authority actions due to shutdowns.

Insurance Industry Takeaways from 2014 Tropical Season

2014HurricaneSeason

Sourc:e NOAA 2014 Atlantic Storm Tracks

Now that Arctic air has made its way across a good deal of the lower 48 states and snow had already covered 50% of the nation, the Atlantic hurricane season, and the threat of landfall along the U.S. coastline, is effectively over.
The season was forecast to be below the long-term average, and that is exactly what happened, for the most part. We will likely end up with a total of eight named storms, six of which became hurricanes. Two out of the six hurricanes made it to Category 3 or higher, with one, Gonzalo, reaching Category 4 – the strongest storm in the basin since the 2011 season. While we fell short of the average number of named storms (usually 10 per year), the number of hurricanes and major hurricanes is on par with what is expected in a typical season.

A better method of gauging seasonal activity, in my opinion, is the Accumulated Cyclone Energy index (“ACE”). By measuring the proportional energy of a named storm, it provides an accurate picture of how active a season might be and puts greater weight on the severity of the season as stronger storm accumulate a higher ACE than weaker storms. A typical season has an ACE value of around 104. This year the ACE score was 65.1, 62.5% of which was produced by the two major hurricanes of the season (Edouard and Gonzalo). This below-normal ACE activity follows the predictions made by most of the reliable agencies that produce seasonal hurricane forecasts. It should be noted, however, that the El Niño, which many of these forecasts believed would be the cause for a below-normal season, also failed to materialize. So, as discussed in previous postings, other factors that can lead to less storm activity, like African dust and cooler sea surface temperatures, actually did occur.

As I had previously blogged, Hurricane Arthur ended the absence of a hurricane stronger than a Category 1 hitting the U.S. coastline that had existed since 2008, and came close to ending the long-standing major hurricane drought, which has lasted 3,317 days and counting. However, many have already forgotten about Arthur due to its low impact. It is also worth noting that Florida alone has not had a hurricane of any intensity since October of 2005. This is simply an incredible statistic that, unfortunately, could negatively affect the Sunshine State if and when a hurricane hits in the future due to the fact that many may have become complacent regarding hurricane risk.

No other Atlantic hurricanes threatened the United States this season. However, there were indirect effects, such as high surf and rip currents from Bertha and Cristobal east of Cape Hatteras. Amazingly, at odds of 500-1, the small 20 square mile island of Bermuda was the unlikely recipient of two direct hits from named storms this season. Fay and Gonzalo both passed right over the island, causing power outages and some damage to buildings. Bermuda fared very well considering the impact from two systems less than a week apart, partially due to the strict building codes that have been followed and enforced, which is an important lesson for the insurance industry.

Another lesson from this event is that hurricane clustering is real, as was also the case during the 2004 hurricane season. At any time during a given season, prevailing wind currents that steer storms in a direction can get locked in place. This may cause storms to track repeatedly over or near the same area, triggering multiple storm losses in a given season. This storm clustering was also experienced in the East Pacific hurricane basin, which was exceptionally busy and produced a few hurricanes that impacted the Baja Peninsula and Mexico with either direct hits or leftover moisture. Three of these events, Norbert, Odile, and Polo, provide another great example of storm clustering. Storm clustering also occurred near the Hawaiian Islands and the south coast of Japan, which saw four typhoons this season.

Important insurance lessons also come from Hurricane Odile, a major hurricane that directly hit the resort city of Cabo San Lucas, Mexico. Although the overall wind swath and configuration of the Baja Peninsula seemed to minimize Odile’s impact, resulting in an industry event below $1B USD, there is a likelihood that the storm’s strength, with a preliminary pressure of 930 mb, will trigger the MultiCat 2012 cat bond, making it only the second cat bond to be triggered due to a tropical cyclone. This shows that alternative risk transfer products can work given the right insurance structure. The other insurance lesson learned from Odile is related to losses that go beyond basic building damage. There were numerous examples of looting in big box stores like Costco and Wal-Mart, as well as other small stores.

Walmart_Looting2  Walmart_Looting

Looting of Cabo San Lucas Wal-Mart after Hurricane Odile

The business interruption also was significant. I personally canceled a holiday in the beginning of October because of a lack of facilities, which adds up when thousands of others do the same, resulting in hundreds of millions of dollars in lost income to the tourism industry.

HotelDamage_Cabo  HyattPlace_Cabo (2)

Riu and Hyatt Hotel Damage from Hurricane Odile

While it’s too early to suggest what might occur during the 2015 Atlantic hurricane season, and although the current hurricane drought is exceptional, it is important to remember the long-term hurricane risk remains the same as it has been over the last century. BMS Analytics is here to help clients prepare for an active season by providing the newest tools and knowledge gained from past seasons, regardless of the overall low impact the past several seasons have had on the industry.

Unusual Weather we’re Having, Ain’t It?

I have been saving this title for awhile, and with the recent 75th anniversary of the release of The Wizard of Oz, in which the cowardly lion says this line as he notices the fallen snow on the poppy field, I find it a fitting start to a discussion about extreme weather. Interestingly, this might also be the first case where a blockbuster movie promotes the idea that average weather can manifest into “extreme weather,” such as a garden-variety tornado in Kansas turning ugly and transporting people to alternate universes.

Images courtesy of Warner Bros. Entertainment

As a meteorologist, I often run into self-proclaimed armchair meteorologists all the time. It has never been easier to get weather information via a blog, Twitter, or on television, which now has at least four cable channels devoted solely to weather. Because weather impacts almost everyone on a daily basis and changes often, it is closely watched. However, with this accessibility of information, one can easily become brainwashed with the idea that normal weather is somehow extreme.

The Media Research Center has just released what I think is fascinating research. The Center analyzed broadcast television network transcripts for morning and evening shows looking for stories using the phrase “extreme weather” between July 1, 2004 and July 1, 2005, and also between July 1, 2013 and July 1, 2014. Ten years ago, ABC, CBS, and NBC barely used the phrase. Now, its use is prolific, despite scientific disagreement regarding extreme weather trends, as discussed in the most recent Intergovernmental Panel on Climate Change Fifth Assessment Report (Chapter 2).

According to the Media Research Center, between July, 2004 and July, 2005, the three networks only used the phrase “extreme weather” in 18 stories on morning and evening news shows in that entire year, even though there were several opportunities to use the phrase when reporting on the 13 named storms that impacted the U.S. during that period.

Now, the familiar phrase of the networks, “if it bleeds, it leads” has taken a backseat to “extreme weather.” In the past year (July, 2013 through July, 2014), the same network news shows discussed extreme weather 988 percent more often, in a whopping 196 stories. That is more than enough stories to see, on average, one every other day. Here is a short video montage to illustrate:

This is despite lower occurrences of severe weather (e.g., hail, wind, tornado) and hurricanes than were observed during the same period 10 years ago.

The Media Research Center study states that “extreme weather” was frequently used by the networks to describe fairly normal weather events, such as heat waves, droughts, tornadoes, hurricanes and winter storms, and they often included the phrase in onscreen graphics or chyrons during weather stories. ABC even has an extreme weather team, dedicated to covering such events. We also get footage from storm chasers that make a living driving into the worst weather.

Since some people still read the old-fashioned newspaper, let’s analyze the 162-year history of the New York Times, which can be done using a tool for graphing the frequency of use of certain words and phrases called the Chronicle.

It is interesting to note that the 1933 hurricane on Long Island or a major drought in 1988 were not considered extreme weather events. The disproportionally high use of the phrase “extreme weather” started after 2005.

The publishing of news is inherently an ephemeral act. A big story will consume public attention for a day, a month or a year, only to fade from memory as quickly as it erupted. There is no doubt that weather events get more attention in this day and age of instant communication and technology, and the speed with which this information is shared certainly has an influence on how people think. It is important to remember that extreme weather is completely natural and there will always be extreme weather somewhere, as the atmosphere is in a constant battle to reach equilibrium. In fact, it is less likely to have a day that is perfectly average than to have one that is one or two standard deviations above or below the average. However, the use of the phrase “extreme weather” in the media occurs with alarming regularity and is undoubtedly influencing the insurance industry.

Magnitude 6.0 Is Not The Big One

A magnitude 6.0 earthquake is big, but not “The Big One.” This blog looks at some interesting aspects of the recent California earthquake, as well as general issues the insurance industry should consider as we await “The Big One.”

The strongest earthquake to strike San Francisco’s Bay Area in 25 years was recorded on Sunday morning. The U.S. Geological Survey (“USGS”) registered a magnitude 6.0 tremor at 3:20 a.m. local time, with an epicenter located 5 miles south/southwest of Napa, California at a depth of 6.6 miles.

The insurance industry is just starting to grasp the complex nature of the Napa earthquake losses, but it is important to note that this might be the first earthquake in California to utilize some of the newest geospatial technologies, allowing companies to immediately understand the risks exposed and produce damage estimates based on the magnitude of shake intensity.

USGS ShakeMap within BMS iVision

Despite the shaking, damage, injuries, and fear, thankfully this earthquake wasn’t “The Big One.” But, the South Napa earthquake provides a good example of how magnitude is important when analyzing an earthquake’s impact to the insurance industry. Earthquake magnitudes are on a logarithmic scale. Each integer number increase in magnitude reflects 10 times more ground motion and 32 times more energy released. While it sounds like a magnitude 6.0 and a magnitude 6.9 are close enough to get lumped into the same category of earthquakes, the impacts of each are dramatically different. For example, the Loma Prieta earthquake (M6.9) of 1989 was more than 22 times stronger than Sunday’s magnitude 6.0 event, illustrated below in a comparison of two ShakeMaps from the USGS.

ShakeMaps from Loma Prieta Earthquake vs. South Napa Earthquake.

All the Potential Faults

It was only 20 years ago, but we often forget that the 1994 Northridge earthquake was on an unknown fault system. Early reports suggest the South Napa earthquake could have come from an unknown fault as well, which emphasizes that the focus should not always be placed solely on the well-known San Andreas Fault.

According to the California State Geologic Survey Map within the Bay Area, the main San Andreas Fault cuts through San Francisco and sections off Point Reyes. However, many other faults within the zone are also prominent and active enough to earn names. The Hayward Fault, Rodgers Creek, San Joaquin and Green Valley are the structural underpinnings of the long valleys characteristic to the region. What may be surprising, however, is that many of the small faults don’t have names at all, especially if they haven’t had major damaging activity in the recent past. These faults should also be considered by not only the modeling companies, but the insurance companies that write the risks. Further, the industry needs to keep in mind that the location of the epicenter is critical to determining expected damage and, so far, most of the major quakes in our lifetime have not been located under major population centers.

Sunday’s earthquake appears to have ruptured on or just west of mapped traces of the West Napa Fault, which has ruptured sometime in the past 11,000 years. The most seismically active areas have been between the longer Rodgers Creek Fault on the west and the Concord-Green Valley Fault to the east. It’s entirely possible that this earthquake occurred where the fault was covered by sediments, with recent movement that we didn’t know about until today. It’s important to reiterate that many faults have been active in the past 2.6 million years. However, numerous more are inactive and countless are still unknown.

California State Geologic Survey Map of Faults.

Massive Flooding

Early reports suggest damage is localized in the region surrounding Napa due to the rupture directivity to the northwest. River valley sediments in Napa Valley likely contributed to the amplification of shaking around Napa. Major river systems in the area are another factor that should be considered when analyzing the potential consequences of California earthquakes. While it seems unfair that California is getting hit with two disasters – the ongoing extreme drought and now a substantial earthquake – this overlap may actually be a good thing. As mentioned in other studies, if this earthquake had happened when water was more abundant, the aging levee system protecting islands within the Sacramento Delta would have been saturated and vulnerable to liquefaction during the earthquake. If those levees succumbed, their inundation would have drawn saltwater from the bay up into the delta system, which could have caused saltwater to reach the California State Water Project intakes. Considering the Delta is the water supply for two-thirds of Californians and supports central valley agriculture, contaminating the water intake would have been disastrous. That’s not the only relationship between the drought and earthquakes. Recently published research suggests that groundwater depletion in the San Joaquin Valley is linked to crustal flexing in the adjacent mountain ranges, potentially increasing seismicity of the region.

“The Big One”

Now, as a forecaster of the weather, sometimes I get asked “what is the latest state of forecasting earthquakes?” This is a common question, particularly after an earthquake such as this. There are currently various unknowns when trying to determine if this earthquake adds or reduces stress for “The Big One.” The bottom line is that it is impossible to predict the exact timing of an earthquake.

About every six years, the USGS updates its hazard maps to incorporate the latest geoscience research. The new USGS hazard map reveals that 16 states are at high risk of damaging earthquakes over the next 50 years, and these states have all historically experienced earthquakes with a magnitude 6.0 or higher. Some of the biggest changes have come in the Pacific Northwest and in California, where research has identified several areas capable of having the potential for larger and more powerful earthquakes than previously believed. A 2008 USGS study determined that the probability of a magnitude 6.7 or larger earthquake occurring within the greater Bay Area in the next 30 years was 63%. When the impact of the South Napa earthquake is included in the next batch of geophysical models for the region, those probabilities are likely going to stay the same. The earthquake released energy, but not enough to appreciably relieve tectonic stress within the region. It would take many more earthquakes of similar magnitude 6.0 to relieve the same amount of energy as just one magnitude 6.7 earthquake.

Arthur’s Amazing Facts Are a Positive for the Insurance Industry

Two weeks ago, Hurricane Arthur made landfall along the North Carolina Outer Banks. Arthur was the strongest hurricane to make U.S. landfall since Hurricane Ike in 2008 and was just 13 mph shy of ending the U.S. major hurricane drought. However, the overall impact of Hurricane Arthur was diminished due to the strongest winds being on the right side of the storm as it crossed eastern North Carolina, as discussed in my previous blog post, resulting in less overall damage. While damage was reported, and up to six feet of storm surge was observed in parts of the Outer Banks, most damage seemed to be flood-related and will be picked up by the NFIP, resulting in a loss level that falls below PCS CAT designation guidelines. This is notable for several reasons.

When reviewing the extensive PCS records of both U.S. hurricane landfall and hurricane loss, Hurricane Arthur is the second Category 2 hurricane to make landfall and not have a PCS designation. The only other storm in which this situation occurred was Hurricane Gerda, which made landfall in the extreme northeast portion of Maine in 1969, making the lack of designation understandable given the limited exposure across this region. However, according to Corelogic, there are an estimated 23,215 residential properties in Kill Devil Hills and Morehead City, NC where Arthur made landfall, with a total replacement cost of $4.7 billion. Based on Verisk Climate Respond weather data found in the BMS iVision Historical Events Library and using the unique PCS shapefile for Arthur, it is remarkable that a Category 2 hurricane in this area that had three-second wind gusts over 70 mph would not cause a PCS loss of at least $25 million. Particularly since there have been previous storms that have taken similar tracks and caused PCS-designated losses in the past.

BMS iVision with Arthur’s track and estimated three-second wind gust swath.

Although each named storm has special attributes that may cause insured loss, the general characteristics that drive loss are similar. However, as the image below illustrates, there were five hurricanes that occurred between 1955 and 2012 that tracked within 30 miles of Arthur’s path across North Carolina’s Outer Banks. These five storms all produced PCS losses, even though they had similar or weaker storm strengths than Arthur at landfall.

Five historical storms that have tracked within 30 miles of Arthur’s track and caused PCS loss.

More significantly, when looking at the past named storms from 1955 to 2012, 35 have caused PCS losses in North Carolina, with many of the named storms making impact at or below a Category 2, and several storms tracking hundreds of miles away from North Carolina, such as Hurricane Sandy (2012), which tracked 273 miles east of the Outer Banks. Click here for a linked table to these storms, which can be reviewed using NOAA’s Historical Hurricane Tracks tool. The image below provides a view of four of the named storms that caused PCS losses in North Carolina.

Tracks of four of the 35 historical storms that have caused PCS to North Carolina according to PCS data.

The examples above illustrate that North Carolina’s Outer Banks are no stranger to named storm activity, with the expected landfall return period for this area being five years, and major hurricane return period being 16 years, according to the National Hurricane Center. This has allowed the Outer Banks to better prepare for future named storm losses. The good news is that after years of storms, a Category 2 hurricane making U.S. landfall and having minimal impact demonstrates that insurance companies are becoming more risk-averse and policyholders are either constructing or reconstructing buildings at standards that reduce loss. One can only hope that future hurricanes making landfall along the U.S. coast will produce similar results.

PIAA Reserve and Profitability Update

In our fourth annual review of the Physician Insurers Association of America (“PIAA”) companies, BMS continues to look at:

1.   how the profitability of member companies has changed over the past decade;

2.   the profitability of their current business;

3.   the level of redundancies in loss and loss adjustment expense reserves that has been released in recent years; and

4.   how much redundancy remained as of December 31, 2013.

Click here to read the full article

The Right Side of a Storm

The insurance industry often focuses on media graphics that depict a storm’s path and the “cone of uncertainty,” but many of these graphics fail to explain the physical structure of a hurricane. The extent of hurricane damage doesn’t solely depend on the strength of the storm. It is also greatly influenced by the way the storm makes contact with land, and whether the left or right side of a hurricane strikes a given area.

The “right side of the storm” refers to the storm’s motion. For example, if the hurricane is moving to the west, the right side would be to the north of the storm; if the hurricane is moving to the north, the right side would be to the east of the storm. In the Northern Hemisphere, the strongest winds in a hurricane are generally found on the right side of the storm because the motion of the hurricane contributes to its swirling winds. Therefore, the right side of a hurricane packs more punch, since the wind speed and the hurricane’s speed of motion align. Conversely, on the left side, the hurricane’s speed of motion subtracts from the wind speed. The National Hurricane Center (“NHC”) forecasts take this asymmetry into account and often predict that the highest winds are generated on the right side of the storm.

The image above illustrates why the strongest winds in a hurricane are typically on the right side of the storm.

Hurricane Arthur is now less than 12 hours from impacting the North Carolina coastline, with a forecasted intensity of a strong Category 2 storm. Knowing the exact track of Arthur is critical to predicting the expected damage. If Arthur follows a more easterly track and skirts North Carolina’s Outer Banks, as suggested by the Geophysical Fluid Dynamics Laboratory (“GFDL”) model and current NHC forecast, it would mean the strongest winds (i.e., the right side) would remain away from the Outer Banks and offshore. However, forecast adjustments have been increasingly trending to the west, and with most U.S. models favoring a landfall near Morehead City, NC, the worst possible conditions would hit the Outer Banks as the storm tracks up Pamlico Sound.

Above is a view from BMS iVision, which, using model guidance from Verisk Respond, currently puts the right side of the storm and the strongest winds directly over the Outer Banks. This real-time wind forecasting information within iVision will enable clients to view the effect of Hurricane Arthur’s wind swath on their policy base, therefore providing a better estimate of exposed locations and possible losses. This westward track also increases concern for storm surge. The islands of the Outer Banks flood very easily, and the latest forecast by the NHC suggests up to three feet of water over US-64, which is one of two roads crossing the Outer Banks. However, Arthur’s forecasted approach along the North and South Carolina coastlines should limit the impact of a large storm surge.

While the Outer Banks is no stranger to hurricane-force winds, or even storms named Arthur (which occurred in both 1996 and 2002), this storm is forecasted to be one of the strongest to impact the area since Hurricane Emily in 1993. With an estimated return period of a hurricane passing within 50 miles of the Outer Banks occurring every five years, property has generally been upgraded to withstand such storms. However, the strongest winds staying to the right side of the current NHC track will determine the final outcome of damage and loss.

Tropical Update: Arthur

With a month of the Atlantic hurricane season in the books, one might think that the quiet Atlantic hurricane season is unusual. Historically, however, the year-to-date Atlantic hurricane season typically only experiences an Accumulated Cyclone Energy (ACE) index value of 1, based on the 1981 – 2010 climatology. Also, on average the first named storm typically does not form until the first week in July, with the first hurricane not showing up until mid-August. According to Roger Pielke Jr.’s normalized economic hurricane loss dataset, when looking at damage from tropical cyclones, historically only 2% of hurricane damage occurs in July, with 95% occurring in August and September. In fact, with the development of the first named tropical storm of the 2014 Atlantic hurricane season (Arthur) off the southeast coast of the U.S., the 2014 season is matching nicely with climatology, and by July 4 it should be ahead of climatology.

Earlier this spring, in our first look at the 2014 hurricane season, it was mentioned that not all El Niño seasons are the same. Even if an El Niño develops, it does not mean that the Atlantic hurricane season will have limited impact. In that post we highlighted past seasons, such as 2004, where El Niño had a high impact and we further detailed the importance the warmer- than-normal Sea Surface Temperatures (SST) off the East Coast could have on the upcoming season. Arthur is currently centered over these warmer-than-normal SSTs and is expected to strengthen into the first hurricane of the 2014 season.

Above is the National Hurricane Center (NHC) official track and intensity forecast, as of 11 AM EDT, showing Arthur tracking along the southeast coast of the U.S. over waters of at least 26 degrees Celsius. This water temperature is warm enough to support hurricane development. According to the NHC, Arthur is expected to just by pass the Outer Banks of North Carolina as a category 1 hurricane on Friday July 4th.

Another factor that will aid in hurricane development is the natural curve of the southeast coastline. Historically, the curve of the coastline has helped similar storms develop in this area, by providing a natural pressure/wind gradient that allows for counter-clockwise rotation. In 2004, Hurricane Alex battered the outer banks and strengthened in a 42-hour period from a minimal 35 kts tropical storm to a 85 kts hurricane, as it tapped into the warm waters of the Gulf Stream. Hurricane Alex produced light damage in the Outer Banks, primarily from flooding and high winds. Over 100 houses were damaged and damage totaled approximately $7.5 million (2004 USD) in economic loss.

As Arthur develops, an approaching trough of low pressure that is moving into the central U.S. will provide an atmospheric pattern conducive to low pressure development on the southeast side of the trough; this low pressure will allow for further intensification later this week. However, this approaching trough will not only keep the upper Midwest and parts of the East Coast cool for the July 4th holiday weekend, it will likely provide the steering flow to push Arthur off shore and provide minimal impact to insured property along the East Coast. This would be similar to the impact of Alex in 2004.

The greatest threat will be to the North Carolina Outer Banks on the 4th of July, as the storm tracks 50 – 100 miles east as a possible strong category 1 hurricane. It has been 1 year, 10 months and 1 day since the last hurricane hit the U.S. (Hurricane Isaac). With the understanding that Superstorm Sandy was officially downgraded miles off the NJ coastline, keep in mind that hurricane Sandy rapidly strengthened, due to a warm gulf stream and Arthur has access to similar warm waters to spur it on. It is these warmer-than-normal SSTs that need to be watched all season.