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.

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.

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.

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.

Hurricane Wilma’s 8th Anniversary

As we approach the end of the 2013 Atlantic hurricane season and take in the media attention around the anniversary of Superstorm Sandy, it is also important to mark the 8th anniversary of Hurricane Wilma’s landfall, which occurred October 24, 2005. This was the last major hurricane to make landfall on the U.S. coastline. It has now been 2,938 days without a major landfalling hurricane – remarkable given the changes scientists said might result from warmer sea-surface temperatures in the Atlantic Ocean. The U.S. landfalling hurricane event data set is one of the best meteorological records that exist in the U.S. In looking at the historical landfall record, the longest period without a major landfalling hurricane stands at 3,316 days (August 11, 1860 – September 8, 1869). If a major hurricane doesn’t make landfall in the U.S. next year, we will surpass the longest period without one.

Unless we are in some very unusual climate state that has not been discovered, there is a growing disconnect between overall Atlantic Basin activity and landfalling named storms. While the average overall Basin numbers are higher than normal since 2006, with every passing year since then the U.S. has seen only 19 named storms make landfall, and only six hurricanes – with no major hurricanes making landfall. This translates to a landfall rate of 0.75.

Using the landfall data from 1900, in a given year the expected landfall rate of a hurricane impacting the U.S. coastline is 1.5, with a 77% probability of at least one hurricane impacting the U.S. coastline. For major hurricanes the rate is 0.5 with a 40% probability – so the U.S. landfall rate is significantly below average.

Given this landfalling hurricane drought, the United States coastline has been lucky. Although insurance companies have been suffering losses of other types over it, the average annual hurricane loss during this drought has been just $4.9 billion, according to Property Claims Services. This is below the long-term average annual loss of $6.4 billion as calculated using the insured historical loss data from Dr. Pielke Jr., a database that attempts to normalize hurricane damages in the United States. Accounting for Superstorm Sandy in 2012, which was not a hurricane at landfall, this average annual loss since 2006 would increase to $7.7 billion.

With a below normal landfall rate of only 0.75 hurricanes since 2006, in the future the trend for more landfalls should correct back closer to the long-term rate if we assume that hurricane landfalls follow a poisson distribution and we are not in some unknown climate regime. After all, the probability of not having a major hurricane make landfall over a 9-year period is a very low 1%, meaning insurance companies should expect an increase in losses from hurricanes in the future. Something to ponder as we await next year’s forecast.

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.