By: Andrew J Siffert - July 10th, 2015
After the long winter much of Eastern North America experienced, it is sad to say we are rapidly approaching mid-summer. This also means we are past the climatological peak of the U.S. severe weather season, and fast approaching the peak of the Atlantic hurricane season which occurs around September 10th. To many it may seem that the severe weather season has been an active one, while the hurricane season, to this point, has been a yawner. The data suggests, however, that the complete opposite has occurred.
U.S. Severe Weather Season
In terms of local storm report counts from the Storm Prediction Center, this year’s severe weather season has been below normal. The most noteworthy events are attributed to the above normal, and sometimes record breaking, precipitation in the Central Plains and Ohio River Valley which resulted in widespread flooding. In a normal severe storm season, defining events would be attributed to hail/wind/tornado events and not large precipitation events. According to one source, the number of flood losses, or more specifically sewer backup claims, are outpacing hail claims this season.
For the 1st time, Water Damage leads Hail in Claims Opened for the 1st half of a year. Combo of sewer probs, flood & frozen pipes.
— Bryan Wood (@bryanwx) June 9, 2015
As many of us know, flood damage is often excluded under standard homeowners, renters, and business insurance policies. Due to this and the overall lack of severe weather, it is not surprising that insured losses to date are also below normal. In fact, PCS wind and thunderstorm insured losses are still falling below the 10 year average ($9.3 billion) by 53.5%. As of July 9th, $5 billion in insured losses have been reported with two outstanding wind and thunderstorm events. This season, we have yet to see a marque severe weather event causing over $1 Billion in insured loss. Comparing to previous storm seasons, one has to go back to 2005 to be this late into the severe weather season without experiencing a $1 Billion dollar insured loss event.
The severe weather outbreaks this season have been limited due to fluctuating weather patterns, resulting in below normal insured loss. A similar pattern, if it persists, should provide more episodes of severe weather, with less risk of tornadoes and a higher risk of high wind events (derechos) across northern states. This suggests that a marque severe weather event ($1 billion or larger insured loss) is unlikely as we finish out the season. Since 2001, only one marque event has occurred after July 10th which was the Phoenix hail storm in the Fall of 2010.
Atlantic Hurricane Season
Although North Atlantic hurricane activity has been quiet since Tropical Storm Bill (Texas landfall, June 16th), the development of named storms is a major weather concern for the insurance industry. This year, there has already been two named landfalling storms with Bill being the first PCS hurricane event since Sandy in 2012. To see a similar landfall activity before June 16th, one has to go back to 1871.
In terms of Accumulated Cyclone Energy (ACE) year to date, as of Monday July 6th , the basin was running 314% above normal. As we approach the peak of hurricane season, every day that passes without activity will decrease what started out to be a very above normal year statistically. As of July 10th, the North Atlantic ACE is already down to 157% above normal.
All forecasts continue to point to a below normal season with many negative factors weighing in on why named storms will have a difficult time developing in the Atlantic basin. Namely,
- Lowest 12 month running average of the Atlantic Multi-decadal Oscillation since 1995. This would suggest that the presence of cold seas surface temperatures in the main development region of the Atlantic basin results in less energy for named storms.
- The developing El Nino in the Central Pacific has created some of the highest wind shear values in the Caribbean since 1979. As a result, tropical convection is not sustainable.
- The Saharan Air Layer (Dust) has been very strong so far this season and should continue to be strong into the heart of the hurricane season. This will limit tropical convection development.
Insurance Industry Action Items
Long range seasonal forecasts still call for named storm development regardless of the negative factors listed above. In fact, some forecasts call for the expected development of named storms closer to the U.S. coastline, similar to areas impacted by Tropical Storm Bill and Ana. In an El Nino year, insured losses are typically lower than average; however, it only takes one significant event to impact the industry.
The insurance industry should keep an eye on the Madden-Julian Oscillation (MJO), which is a large scale oscillation that propagates eastward across tropics of the globe. When an area of the tropics is under the influence of the MJO, it tends to enhance tropical activity. This year already, we have seen two strong MJO pulses partially trigger two different clusters of named storm development in the West and East Pacific. Carriers can track the MJO to get a better idea of when heighten activity could start to occur in the tropical Atlantic basin. The current MJO appears to be moving into the East Pacific region now, and if it sustains itself, could enhance tropical convection in the Atlantic basin toward the second half of July. This could allow the insurance market to take advantage of LiveCAT markets to protect specific programs.
The other area of concern for U.S. carriers could be Hawaii which has seen an unusual amount of hurricane activity over the past three years. Tropical Storm Flossie passed within 100 miles of the islands in 2013, and an unprecedented three hurricanes in one year passed within 200 miles of Hawaii in 2014. Statically speaking, named storms are about 3 times more likely to come within 100 miles of Hawaii in El Nino year versus in a La Nina year. Keep this in mind knowing that there is an El Nino strengthening in the Pacific.