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BMS Atlantic Hurricane Seasonal Forecast

The Official Start to Atlantic Hurricane Season?

In theory, the Atlantic hurricane season started late last week with the naming of subtropical storm Alberto. However, interestingly, prior to 2002, subtropical storms were not given names, even though the National Hurricane Center would issue forecasts and warnings for them. Since 2002, such storms have been given names from the tropical cyclone list (Gustav in 2002 was the first). Taking that into consideration, and since no tropical storm days and no Accumulated Cyclone Energy (ACE) have been recorded yet this year, the season, perhaps, has not quite begun.

Regardless, June 1 is the official start of the season and, therefore, providing a bit more detail in regard to expectations for the 2018 Atlantic hurricane season and its impact on the insurance industry is timely. As I mentioned in the closing of the last BMS Tropical Update, there is no relationship between the date of the first Atlantic named storm formation and overall Atlantic seasonal hurricane activity.

Since 1950, there is no relationship between date of first Atlantic named storm formation and overall Atlantic seasonal hurricane activity. Source: CSU

Over 18 different companies and organizations produce seasonal forecasts for the Atlantic hurricane season and are tracked by the Barcelona Super Computing Center. Just last week, NOAA issued its outlook for the season, with a wide range of a 70% likelihood of 10-16 named storms for the 2018 season. When reviewing the historical record, 55% of all hurricane seasons fall into this range, however, which doesn’t provide much informational value to the insurance industry.

Seasonal hurricane forecasts generally come in one of two methodologies: statistical/dynamical models vs. educated guesses from people interpreting the models that produce analog years. The models can be trained and tested against previous years to provide either uncertainty or confidence. The educated guessing is prone to human bias, rules of thumb and big wins or losses. Although there is a general correlation between the greater number of named storms that occur in the Atlantic Basin and the higher chance of landfall, very few forecasts go beyond producing Basin-wide activity to predicting specific impacts or landfall forecasts. To illustrate this point, even if 16 hurricanes were to develop in a season, but none ever hit land, the hurricane season would be classified as above-average, but one that costs the insurance industry nothing in paid losses. Conversely, if three hurricanes develop and all hit land, it’s a below-average hurricane season that could cost the insurance industry millions. I believe there needs to be some attempt to connect the basin activity with landfalls in order to increase the value of utilizing such forecasts.

Where could storms track this season?

One of the most common climate forcers used for seasonal Atlantic Hurricane activity is the El Niño Southern Oscillation (ENSO) and, this year, there appears to be agreement that a weak El Niño event will take hold during the summer, which historically suppresses hurricane activity in the Main Development Region (MDR) of the Atlantic Basin due to higher wind shear. If the El Niño is weak, it could shift development of named storms further north and into the western part of the Atlantic basin near the U.S. East Coast thus increasing landfall chances. Historically El Niño, has little to do with activity in the Western Caribbean / Gulf of Mexico, and any activity in this region increases the chances of U.S. landfall.

Various models from IRI and NOAA CPC on the SST prediction in the Central Pacific ENSO region 3.4. Notice the ASO forecast suggest a weak El Niño should be developed with SST anomaly at 0.5C.

View from NOAA CPC ENSO analysis of subsurface temperature anomalies across the Central Pacific showing overall anomaly below the surface at 150m.  This warm water should rise to the surface over the next few months building the chances of an El Niño during the season.

The subsurface water temperature anomalies across the Central Pacific are warm, suggesting a developing El Niño similar to a Modoki-like Niño, which also points to higher landfall chances during a hurricane season.

Yet another climate forcer taking center stage in early season hurricane forecasts is the cool Atlantic Sea Surface Temperature (SST). In fact, the current North Atlantic SST anomaly pattern looks to be the opposite of an SST pattern which, historically, would be associated with an active Atlantic hurricane season, and could potentially be the coldest since the summer of 2015. However, in the plot below, the warmest SST relative to the average temperature is observed above 30 degrees north latitude and warms closer to the eastern coast of the U.S. This type of pattern suggests that development of stronger named storms might not occur this season in the MDR, but instead north and closer to the U.S. coastline or in the Bermuda Triangle Region of the Atlantic. It should be noted, however, that the MDR Atlantic SST will ultimately trend warmer; almost every year since 1995, the general SST in the MDR has warmed by August regardless of how cold it was in May.

Left is the current SST anomaly and the right the current SST. Reminder, named storms need at least 26C to maintain development.  Currently these types of temperatures are hard to find and likely not a great depth below the surface.

While acknowledging that global weather patterns can change toward the peak of the hurricane season, we can, at a minimum, surmise what the current named storm tracks might be based on the current position of the Bermuda – Azores high pressure center across the Atlantic Ocean. Named storms will often traverse the Bermuda – Azores, and this might provide some clues about the track of future hurricanes in the Atlantic. In its current state, we can see that storms will steer further west, increasing U.S. landfall chances. But if the high weakens to the east, storms may track off shore.

An enormous blocking atmospheric pressure ridge over the Atlantic Ocean stayed resilient for days, which prevented precipitation systems from propagating east. Source NASA GES DISC

Two other climate forcers to watch this Atlantic hurricane season will be Saharan dust and the Madden Julian Oscillation (MJO). Both of these climate forcers are difficult to predict seasonally, but understanding the phases during the season could help determine when storm development will occur. Saharan dust can be an inhibitor of Atlantic hurricane activity, but often moves away from Africa in waves.

Current level of dust off the coast of Africa. Breaks in this dust need to be watched over the given season. Source: http://tropic.ssec.wisc.edu/real-time/salmain.php?&prod=splitE&time

During the breaks in dust, the potential for the genesis of named storms is likely and, if combined with a positive phase of the MJO, could pose a threat to the insurance industry. In fact, I would speculate that the MJO was recently in a state that enhanced tropical convection, which assisted Alberto’s movement across the southwest Caribbean last week. If the MJO was in a favorable state, then we are just moving out of a positive phase for the Atlantic Basin, the next one not occurring for another 45 days. Therefore, this cycle is something to watch closely during the 2018 season, as both of these climate forcers could be the catalysts for named storm development.

The MJO can also considerably influence hurricanes in the Gulf of Mexico, Caribbean Sea, and tropical Atlantic. More hurricanes tend to occur in MJO phases 2 and 3 than in phases 6 and 7. Differences in major hurricane numbers and hurricane days in the main development region are a factor of 3. Source: https://journals.ametsoc.org/doi/pdf/10.1175/BAMS-D-12-00026.1

Summary:
It seems that, based on the information above, the forecasts from various organizations show a reduction in the overall numbers of named storms and hurricanes, thus indicating a less active season. However, even in quieter years like 1989 (Hugo) and 1992 (Andrew), there can be storms that have great impact on the insurance industry. The climate forcers and analog years (1934, 1951, 1996, 2002, 2006, 2009, and 2011) suggest less strong storms over the MDR, but as named storms or tropical waves track out of the MDR the could become stronger as they more reach northern latitudes.  The climate forcers and analog currently indicate named storms could track closer to the U.S. coastline increasing the chances of insured loss.    However, since 1920 there are only 16 years in which two or more hurricane made landfall in one season that have resulted in two or more landfalls the next season.

Given the state of the MJO and the cooler Atlantic SST, I don’t expect a lot of new named storm activity for the month of June. But, during the first part of the July, the MJO could return to a more favorable state over the Atlantic Basin, which will allow for a reassessment of future hurricane landfall possibilities.

Resources:
Barcelona Supercomputing Center has a nice summary of the various Atlantic Hurricane Forecasts
http://www.bsc.es/seasonalhurricanepredictions
NOAA Climatology Products – Avg Start Dates, Return Periods, Develop Origin by Date, Strike Density
http://www.nhc.noaa.gov/climo/
CSU U.S. Landfalling Hurricane Probability Project
http://www.e-transit.org/hurricane/welcome.html

BMS Tropical Update 5/24/2018

It’s that time of year

We have reached the time of year when the insurance industry starts paying attention to potential tropical troubles. In fact, over the last two weeks many media outlets have been focusing on possible development in the Gulf of Mexico. There was a weak area of disturbed weather that brought tropical rains to much of Florida last week, and now there is a new weather disturbance in the western Caribbean that is forecasted to move into the Gulf of Mexico for the upcoming Memorial Day weekend.

How common is a named storm in May?
In each of the last three years, the Atlantic Basin has seen some form of named storm development prior to May 24, so we are bucking the current trend with no named storm development yet in 2018. However, with the official start of the Atlantic hurricane season being June 1, it’s not too far-fetched to expect some type of named storm development by the end of May. In fact, 32 named storms have occurred during the month of May since 1851, with most of them forming in the western Atlantic or Caribbean and just a handful in the Gulf of Mexico. Of these 32 named storms, only 4 went on to become hurricanes, with no hurricanes actually making landfall in the U.S. during the month of May.   The table from the NOAA Hurricane Research Division website counts the number of tropical storms and hurricanes, and it is clear that May storms are somewhat rare but not impossible.

This table shows the total and average number of tropical storms, and those which became hurricanes, by month, for the period 1851-2015. It also shows the monthly total and average number of hurricanes to strike the U.S. since 1851.

Is Alberto brewing for Memorial Day weekend?
Alberto would be the first name of the Atlantic hurricane season if the current weather disturbance off the Yucatan Peninsula gets named. However, regardless of whether this particular system gets a name or not, the threat of heavy rainfall is significant. The latest NOAA Weather Prediction Center 5-day Quantitative Precipitation Forecast suggests another 3 to 5 inches of rainfall for Florida and parts of the southeastern United States. Some parts of Florida have already received up to 5 to 12 inches of rainfall over the period from May 13 to May 25, so the soil is already saturated over much of the area which could raise flooding concerns for the insurance industry.

This product from the National Weather Service is the Flash Flood Guidance. This is an estimate of the amount of rainfall required over a given area in a given duration to cause flash flooding to small streams and rivers.

The current model war between the American (GFS) and the European (ECMWF) weather models currently disagree on how far west or east the disturbance will track as the system moves north into the Gulf of Mexico. The GFS model appears to be moving the system over the Florida Peninsula, with the ECMWF model sending it towards the central Gulf Coast and Louisiana. Based on the overall track record of the GFS, the model of choice at this point would be the ECMWF track because of what appears to be ongoing issues with the GFS model being too progressive with developing tropical systems and tracking them to the east. However, given the broad and disorganized nature of the system at this time, there is a fair amount of uncertainty in its eventual track, but given the NHC current probability of formation, a subtropical or tropical depression is likely to form by late Saturday over the southeastern Gulf of Mexico.

Shown above are the  32 Atlantic tropical cyclones during the month of May since 1851.  Most have formed in the western Atlantic or Caribbean, with very few in the Gulf. Here I have outlined where Alberto will likely form this weekend and make landfall during the long weekend.

Over the busy 2017 Atlantic hurricane season, the landfall of hurricane Nate is often forgotten. Nate made landfall around the mouth of the Mississippi River, impacting the Southeast states and resulting in $108 million in insured loss. Very few model runs develop the current disturbance into a hurricane, so the insured impact should be well below any level of loss experienced from Nate last year. Based on the current forecast, gusty winds, large waves and very wet conditions should occur over much of the central Gulf Coast and Florida over the upcoming Memorial Day weekend.

Regardless of whether this system develops into something more significant, the tropical troubles we’re now seeing are a sign that we’re approaching another hurricane season. However, don’t get too anxious due to an early season of tropical development. History has shown us that it tells us nothing about the season ahead. The 2017 season was close to the median of climatology until the end of August, when the season ended up going near the climatological maximum in terms of Accumulated Cyclone Energy (ACE).

ACE as measured during 2017 vs climatology from @wx_Tiger.  There is no correlation to early season activity and how the season will end up.  2017 is a great example of this.   https://twitter.com/wx_tiger/status/998967095286206465

BMS builds its Australian operation as Andrew Godden starts as CEO and Dylan Wilkinson is appointed COO

BMS Group Limited (“BMS”), the independent specialist insurance and reinsurance broker, today announces that Andrew Godden has taken up his role as CEO of Australia. Based in Sydney, he reports directly to Nick Cook, CEO of BMS Group. Dylan Wilkinson has been appointed as COO of BMS Australia reporting to Godden.

Godden has spent 30+ years in the insurance industry and has an established, outstanding reputation in local markets, based on an entrepreneurial track record of building insurance businesses. Most notably, in 2003, he co-founded Specialist Broking Associates. Since its 2010 purchase by Arthur J. Gallagher, Mr Godden was CEO of Australia for the combined business.

Wilkinson was latterly Director of Operations at The Corporate Playground, having previous held similar senior roles with wealth manager AMP.

Godden’s appointment will further enhance the significant reach BMS has already developed in Australia and across the Asia Pacific region. The addition of Dylan Wilkinson demonstrates the commitment BMS has to building a formidable organisation able to offer outstanding client service.

Andrew Godden, CEO of BMS Australia, said:

“Clients in the Australian and Asia Pacific markets have long needed a broker that can provide a full suite of risk products while retaining the distinctiveness of an independent, entrepreneurial business. BMS recognised early on the attractiveness of its commitment to offering its clients an individually focused level of service and tailored products, and has been developing its regional network. We see a fantastic opportunity here for BMS to grow, and I am therefore ready and excited to begin our work with Nick and the team.”

Nick Cook, CEO of BMS Group, said:

“BMS has been building its reputation in Australia and Asia Pacific as an independent, employee-owned broker that provides an outstanding level of tailored services to clients. That an individual of Andrew’s calibre has joined our efforts is testament to BMS’s success. BMS is absolutely committed to developing an impressive client led operation throughout the region and we are demonstrating this with our investment in an operational leader of Dylan’s experience. I am very pleased to welcome both Andrew and Dylan to BMS and look forward to continuing our successful build-out together.”

2017 losses, long-term weather trends and their insurance consequences

Catastrophic weather events in 2017 left the re/insurance business with a conundrum. Record-breaking insured catastrophe losses exceeded any previous year. However, the impact of those unprecedented losses on re/insurance pricing has been less than many had hoped for or expected. Claims of nearly $140 billion have not delivered a traditional hard market.

To solve the conundrum and learn the year’s lessons, we must view the storms, fires, and floods of 2017 in a long-term historical perspective. We should not use loss data alone to define weather and climate trends; we need to also understand the impact of the growth of global wealth, as well as patterns of weather extremes.

When we do so, we find that the record-breaking losses were not so enormous, and could have been worse.  About $92 billion of 2017’s insured catastrophe losses arose from three major hurricanes according to the latest Swiss Re Sigma Report. When indexed to 2017 values, Hurricanes Katrina, Rita, and Wilma in 2005 caused insured losses of $112 billion.

We also need to consider that extreme weather memories are typically short. Catastrophe models that simulate the impact of historic storms in today’s built-up environments show that  events such as 1926’s Miami Hurricane or the 1928 Okeechobee Hurricane would cause insured losses that surpass those of 2005 and 2017 hurricane losses. When other named storms and natural catastrophes that occurred worldwide during those years are included, the insured impact on our modern built environment would easily exceeds $140 billion.

Bay Shore Drive in Miami then 1926 after Hurricane and Now. Source NOAA and Google Street View

Meanwhile there is a perception that extreme weather patterns may be changing.  In some cases the data supports this perception.  It is likely that, since 1951, the number of statistically significant regional increases in heavy precipitation events is greater than the number of declines. Strong regional and sub-regional variations modify the trend, but in short, when it rains it often rains more. However, despite the increase in these extreme precipitation events, little evidence suggests the rainwater has led to an increase in floods, with lots of regional variations.

The U.S. Climate Extreme Index quantifies the observed changes in one-day precipitation extremes across the U.S. Since 1990, there has been an increase in the area of the U.S. that has experienced a one-day extreme rainfall.

Tropical cyclones seem not to be changing. After accounting for past shifts in observational capabilities over time, the best records that started in the 1970’s suggest, globally, there are currently no significant observed trends in the number of named tropical cyclones, but the data is suggesting that, when named storms form, they have become stronger in recent years.

2017 had 18 total landfalling named storms. 14 of these had a category 1 or 2 and four of the three major categories were in North America.

As for severe weather, poor data quality makes conclusions about long-term trends problematic. Observed trends in small spatial-scale phenomena such as tornadoes and hail can be made with only low confidence levels, but more recently the data is suggesting clearly a downward trend in the number of occurrences of major tornadoes.

With all this in mind, we should learn lessons from the 2017 experience.

  • Whether it was the major wildfires in California, flooding of Harvey, the extreme winds of Irma over south Florida, or one of the many damaging hail storms; exposure management is very important and there needs to be a refocus on this simple task to limit losses.
  • Valuable data will be collected from the 2017 events, especially from the high wind speeds from HIM. This data will fill critical gaps in the historical record and will be valuable both meteorologically and financially, as it will help insurers and customers by providing better loss models, and lessons for loss mitigation and resilience.
  • Building codes matter. When wind-speed data is combined with claims data, we get critical knowledge of how high winds damage different types of construction. We now have validation for some wind-tunnel testing which has been lacking due to the lack of hurricane landfalls over the last decade.
  • Hurricane forecast track and intensity still have a great deal of uncertainty. The 2017 landfalls raised questions about the value of early landfall loss projections, and how they could be used.
  • Effectively, the people who need flood insurance do not have it.  How many more flood events like Harvey and Katrina do we need before more action is taken?
  • Companies with the best business interruption (BI) insurance came out on top after an event, but few small businesses don’t have enough BI.
  • Demand for certain post-event services seriously tested supply. The lack of adjusters, for example, created a major bottleneck that led to very high loss adjustment expenses.
  • Given the long 10 years without major hurricane landfalling activity, 2017 was a great systems test for InsurTech.  It would appear no major lapses in these new technologies have occurred which should further expedite system enhancements in InsurTech.