2014 Atlantic Hurricane Forecasted Activity

The 2014 Atlantic hurricane season officially begins on June 1. A lot of preseason forecasts are hyping the importance a developing El Niño will have on the overall tropical activity in the Atlantic Basin, which should lead to less storm formation. However, a word of caution: there are plenty of examples of years with El Niños that had significant landfall activity across the U.S. Below is a list of the climate forcers that can influence named storm activity and how they will impact the 2014 season.

  • A weak to moderate El Niño is expected to develop, reducing named storm activity across the main development region in the Atlantic Basin.
  • A westerly to neutral Quasi-Biennial Oscillation will likely result in increased named storm development closer to the U.S. coastline, versus the development of Cape Verde-type storms.
  • Saharan dust can limit overall development of named storms, but conditions across North Africa are not favorable for large Saharan dust outbreaks and should not reduce named storm activity this year, but this climate forcer can change rapidly over the season.
  • Atlantic sea surface temperatures are warmer than the long-term average, but this temperature is slightly below-average relative to the current period of heightened sea surface temperatures that began in the mid-1990s. This will likely reduce activity in the main development region.
  • The sea surface temperatures are significantly above normal along the East Coast, which could increase development of named storms closer to the East Coast, increasing the threat of landfall.

The climate forcers above can provide an idea on the overall hurricane season activity, but, truthfully, there is little skill in predicting the total number of named storms and where they might make landfall. The best way for the insurance industry to prepare is to carefully consider the risks and their potential impact. BMS’ new weather risk management module in iVision can help carriers better understand their risk and manage portfolio accumulation in areas prone to hurricanes. iVision also has tools to track forecasted hurricanes, including detailed hurricane wind fields, which can help carriers understand the range of potential loss outcomes from landfalling hurricanes.  Learn more about the Hurricane Risk Management Module.

BMS Associates announces $50.7 million investment agreement with Capital Z

BMS Associates (“BMS” or “the Group”) is pleased to announce an agreement with Capital Z Partners Management, LLC (“Capital Z”).

The management of BMS has recently undertaken a review to determine the Group’s strategic approach to both broking and underwriting opportunities across the market. Part of this review has been to investigate potential third party investment to further the Group’s ambitions for future growth.

Under the agreement announced today, which is subject to shareholder approval, Capital Z will invest $50.7m into the Group’s holding company through the acquisition of preference shares and warrants over a minority interest in the Group’s ordinary share capital. The investment will provide the Group with significant capital to support the expansion of the BMS broking business and the underwriting activity of Pioneer.

Upon completion of the transaction, Robert Spass, Managing Partner and co-founder of Capital Z, will join the Group’s board.

Christopher Hopton, Group Chairman, said:

“This investment is a highly significant event for the Group. I am particularly pleased to welcome Bob Spass to our board. His experience in our industry is extraordinary and his participation, together with the involvement of Capital Z, places the Group in an exceptionally strong position to accelerate our growth and command further market share.”

Robert Spass said:

“I have been impressed with the strength and depth of the management team at BMS, their vision for the future and their opportunities to generate significant growth. Capital Z is pleased to have reached this agreement which makes us strategically and economically part of the Group’s future success and I look forward to working with the team.”

Dane Douetil, Group Chief Executive Officer of BMS Associates, said:

“Over the last three years we have invested in 18 new teams across the Group and our continued successful growth is underpinned by Capital Z’s investment, which I consider to be pivotal in our development. We have been absolutely determined to maintain the owner/manager ethos of the Group while finding a partner who can bring in depth knowledge of the industry which will be helpful in our growth. In Capital Z we have found that partner.”

The Group was advised by Canaccord Genuity as financial adviser.

2014 Atlantic Hurricane Season and an El Niño

When the 2014 hurricane season officially starts on June 1, it will have been 3,142 days since the last Category 3 hurricane made landfall along the U.S coastline (Hurricane Wilma, 2005). This shatters the old record for the longest stretch between U.S. intense hurricanes since 1900. In fact, landfalls in general have been down since 2005, with a rate of 0.75 landfalls occurring per year since 2006, versus the rate of 1.78 that had been experienced since the warming of the Atlantic Multidecadal Oscillation in 1995.

Although Superstorm Sandy is still fresh in the minds of many insurers in the Northeast, insurers in hurricane-prone states could become complacent due to the lack of storms since 2005. The “doom and gloom” forecasts for the 2013 hurricane season failed to materialize, and early predictions for 2014 have already hinted at below-normal named storm activity, contributing to such complacency. These Atlantic hurricane forecasts call for hostile conditions across the deep tropics due to the development of an El Niño, which brings increased wind shear across the Main Development Region (MDR) of the Atlantic and could lead to less overall named storm formation.

There is a lot of chatter about the possible development of a “super El Niño” similar to that which occurred in 1997–1998. This type of event would drastically limit overall hurricane development. However, the Pacific Ocean is in an overall cold phase (the Pacific Decadal Oscillation (PDO)), a state which often makes it difficult to have strong, long-lived El Niño events. Instead, the PDO suggests a short-lived El Niño, but the specific manifestations of any given El Niño event greatly depend on its strength. Every El Niño event is different, but overall the phenomenon has become associated with the following:

* An uptick in the average global temperature

* Increased rainfall in Peru

* Drought in Australia

* Warmer than average temperatures in Alaska

* Elevated rainfall in California during moderate and strong events

* Dry weather in the Pacific Northwest states

* Increased snowfall in the Mid-Atlantic, especially for moderate El Niño events

* Cooler and wetter than average conditions in the Southeast U.S.

* Increased hurricane activity in the eastern tropical Pacific basin

* Depressed hurricane activity in the tropical Atlantic

While El Niño years generally have lower instances of named storms that make landfall, there are plenty of examples of El Niño-influenced hurricane seasons that have impacted the U.S. coast. Below is a look at such years, as well as the number of storms that made landfall and the adjusted insured loss in 2014 dollars.

Year # of Landfalling Storms Adjusted 2014 Insurance Loss
1957 2 $1,489,000,000
1965 2 $11,177,500,000
1969 1 (Camille) $8,250,000,000
1976 5 $300,000,000
1991 1 (Bob) $1,730,000,000
1992 1 (Andrew) $28,005,000,000
2002 6 $902,050,000
2004 6 $28,387,500,000

As we learned last year, seasonal forecasting has its challenges. Currently, there is a 75% chance of an El Niño developing this summer during the peak of the Atlantic hurricane season. However, in 2012 when an El Niño watch was issued, an El Niño never formed. In fact, since 1997 there have been five threats of a super El Niño that never developed. Therefore, taking into account the uncertainty in any seasonal climate forecast and the history as shown in the chart above, there can be an increased threat from tropical storms even in El Niño years. The 2014 seasonal forecast might also focus on other regional climate forces. One of these forces might be that the Sea Surface Temperatures (SST) off of the Eastern Seaboard of the U.S. are warmer than normal, which not only adds fuel to storms like Superstorm Sandy, but also could lead to deepening of pressures if any tropical disturbances tap into this potential fuel source later this summer. This warmer water also likely means that storms could develop closer to the U.S. coastline.

The new seasonal hurricane forecasts, which will roll out around June 1, tend to have increased accuracy as compared to the spring projections. These forecasts will continue to reflect the evolution of the El Niño, which can be followed on the Climate Prediction Center’s website (El Niño/La Niña Current Conditions and Expert Discussions). BMS will also provide updates throughout the season, but expect new seasonal forecasts to call for named storm formation to be below normal for the 2014 Atlantic hurricane season.