Loss figures belie truth behind 2007 hurricane season
4 December 2007
Friday December 1 marked the traditional end of the hurricane season, and 2007 will be remembered as a year when underwriters were saved by the Atlantic winds going left (into Latin America) instead of right (into the Gulf of Mexico).
But the insurance industry has been warned not to breathe too easily after research from Risk Management Solutions (RMS) found that the risk of landfalling hurricanes in the Atlantic basin for the next five years remains significantly above the historical average.
Two benign years of hurricane-related insurance losses in the US has fuelled debate over whether the increased activity seen in 2004 and 2005 was a sign of a long-term trend of high hurricane activity.
But RMS revealed that it is retaining its modelled hurricane rates from last year, meaning that the current activity rates lead to estimates of average annual insured losses that will be 40% higher than those predicted by the long-term mean of hurricane activity for the Gulf coast, Florida and the south-east of the US.
Average annual insured losses are estimated to be 25% to 30% higher than the long-term average for the mid-Atlantic and north-east coastal regions, the modelling firm added.
Seven experts from North America, Europe and Asia recently participated in the annual elicitation in Miami, where they reviewed a range of statistical models representing alternative perspectives on potential hurricane activity in the Atlantic, including the possibility for decreasing activity over the next five years. The experts were then asked to weight the various models to provide their best estimate of the landfalling hurricane risk in the US and Caribbean from 2008 to 2012.
As a result of the research, medium-term hurricane activity rates in the 2008 version of the RMS’s US hurricane model will remain unchanged from the existing 2007 version.
“Although US hurricane-related losses have been low since 2004 and 2005, it was apparent from the views expressed among the experts that we are still in a period of elevated hurricane activity that started in 1995 and that this is likely to continue for at least several more years,” explained Claire Souch, Senior Director of Model Management at RMS.
“But there remains disagreement and uncertainty about what is driving the change in hurricane frequency, with some researchers believing it is mainly due to natural cycles in oceanic circulation and others arguing it is primarily caused by human-induced climate change.”
And insurers should be aware that despite a lack of claims coming in from this year’s hurricane season, the numbers still make interesting reading.
The 2007 hurricane season has seen 14 named storms, which is close to the annual average of 14.7 since 1995. However, Paul Nunn, Head of Exposure Management, Lloyd’s Franchise Performance, believes the comparison should be extended to the longer term average (1950-2000) of 9.6, recorded by Klotzach & Gray from Colorado State University.
This was the first season ever recorded in which 40% of hurricanes reached Category 5 status, and the only one in which two maximum strength storms struck land. The US coast was spared the potential devastation of these Cat 5s – Dean and Felix – due to a high pressure system off Florida that steered the storms south to sparsely populated areas of Mexico and Nicaragua. Had this high-pressure system been in its typical position farther north near Bermuda, the hurricanes may have taken a different track, potentially causing catastrophic damage to the US.
Hurricane Humberto, the first hurricane to make landfall in the US since Wilma in 2005, became the fastest developing storm on record to be so close to land, having strengthened from a 35 mph tropical depression to an 90 mph hurricane in just 14 hours while 15 miles off the coast of Texas, while September had a record tying eight storms, although their strengths and durations were low.
Last updated on 10 Mar 2008
