Monthly Archives: August 2011

Did Irene fizzle?

Daily Beast media columnist Howard Kurtz leads the charge against how the media covered Hurricane Irene:

. . . the apocalypse that cable television had been trumpeting had failed to materialize. And at 9 a.m., you could almost hear the air come out of the media’s hot-air balloon of constant coverage when Hurricane Irene was downgraded to a tropical storm.

After acknowledging that a lot of people lost power (five million) and there have been some deaths (40), Kurtz continues:

. . . the tsunami of hype on this story was relentless, a Category 5 performance that was driven in large measure by ratings. Every producer knew that to abandon the coverage even briefly—say, to cover the continued fighting in Libya—was to risk driving viewers elsewhere. Websites, too, were running dramatic headlines even as it became apparent that the storm wasn’t as powerful as advertised.

The fact that New York, home to the nation’s top news outlets, was directly in the storm’s path clearly fed this story-on-steroids. Does anyone seriously believe the hurricane would have drawn the same level of coverage if it had been bearing down on, say, Ft. Lauderdale?

Armed with facts, Nate Silver blogging for The New York Times, says coverage was fairly typical for a landfalling hurricane. He assembles a statistic (the “News Unit”), which tracks mentions of hurricanes in news stories. Irene was No. 10 all time:

As a measure, it’s a bit flawed – it’s not standardized for the number of publications in the region the storm is projected to hit. But that bias would skew to show overcoverage of Irene which hit three of the nation’s largest media markets.

But Silver’s methodology seems to undercount TV coverage of the storms, which is what Kurtz is upset about.

Kurtz is right about the storm, I think, but he’s wrong about the coverage.

Irene did not pack the punch forecast. It brought sheets of rain, but it lacked the windspeed to do the damage forecast. Cat modeler AIR Worldwide points out the windspeeds that the National Hurricane Center measured didn’t match what was measured on the ground:

. . . while the NHC was reporting sustained winds of 85 miles an hour in North Carolina on Saturday, onshore instruments (anemometers) were reporting sustained winds only in the 50- to 60-mile-an-hour range. A similar disparity was observed along the length of the East Coast.

I’ll vouch for that. At my home (Montclair, NJ), sustained winds were forecast to peak at 55-75 mph – the cusp of Cat 1. They actually peaked at 23 mph, with gusts to 45.

We were supposed to receive sustained winds above 40 miles an hour for more than 10 hours. We never received winds that speed.

At 6:30 p.m. Saturday, winds were supposed to be blowing 20 mph+. The air barely stirred. I remember thinking, “Where is the wind?”

Well, the wind didn’t show up – even as meteorologists said it was happening.

Here’s a screen grab from the NWS site for Central Park on Sunday as the eye of the hurricane passed OVER Central Park. It’s from the three day history of zip code 10005 at this general address.

Wind speeds are in the third column. The eye of the storm passed over New York beginning at 9 a.m. Moments before (8:51), winds were blowing from the northeast at 18, with gusts to 25.

An hour later, 8:51, the eye of the storm had passed over. Winds came from the southwest, the opposite direction of an hour earlier. (Wind direction shifts when a hurricane passes.)

And those winds were blowing at 9 mph.

Why the disparity? I don’t know. I doubt the National Weather Service knows, either. Hurricanes are complex, just like any other 800-mile wide object that moves.

We’ve learned a lot in recent years.

We knew four days in advance that Irene would strike the Northeast. In 1992, Miamians had 36 hours notice before Andrew struck. Sixty extra hours of warning – that’s a lot of progress in 20 years.

But there’s still a lot to learn. And clearly, we have to learn why wind speeds in the air diverged so much from what was on the ground.

Had the wind blown as hard as predicted, damages would have soared. Strong, sustained winds blowing over saturated land would have toppled tens of thousands of trees onto power lines and into homes. Millions would have been without power, most for more than a week.

As it is, AIR estimates insured losses between $3B and $6B. The storm as forecast would probably have sent losses past $10 billion.

It’s pretty clear the media reported the storm they had been led to believe would hit. They can’t be blamed that it didn’t.

 

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Irene’s predecessors: Gloria and Hugo

Here’s a storm track of 1985 Hurricane Gloria, via Stormpulse:

Eerie, huh?

Strolling around the internet, I’ve seen a lot of Northeasterners pooh-poohing Irene’s threat, reasoning that Gloria hit about the same way. Gloria didn’t destroy much, so Irene and its lower windspeeds will be a popgun by contrast.

Here‘s Wikipedia on Gloria:

Gloria’s high winds caused significant damage across Long Island and southeastern New York. The area hit the worst was eastern Long Island, where high wind gusts blew thousands of trees into buildings and across roads. The broadcast tower of WBLI-FM toppled on Bald Hill in Farmingville. In addition, the winds ripped roofs off of many buildings, including hangars at the MacArthur Airport and the roof of the Islip Police Station.[12] Prolonged exposure to high winds and waves led to moderate beach erosion, washing away several piers and docks.[12] The storm surge, though relatively weak, destroyed 48 houses on the ocean side of the island. Gloria’s high winds left 683,000 people in New York without power, with some lacking electricity for over eleven days. . .

So Gloria was no picnic. But Irene is different from Gloria.

It is slower. Gloria got from the Outer Banks to Long Island in 10 hours. That means more rain to weaken the base that trees sit on (Gloria left about 4″).
It has a wider wind field, so more people are likely to feel hurricane force winds – like Essex County, NJ, where I live – maybe 40 miles from Irene’s eye. We’re going to have 40 mph winds for 12 hours – nine from the east and three from the west.
The storm I think about: Hurricane Hugo hitting Charlotte in 1989. Hugo was remarkable because it was powerful enough to bring tropical storm winds far inland, hitting trees that had never known that sort of force. Again, Wikipedia:

By the time it reached Charlotte, North Carolina, Hugo was still a fairly strong tropical storm with sustained winds of 54 mph (87 km/h) and gusts of 87 mph (140 km/h).[15] This was enough to topple trees across roads and houses, leaving many without power, closing schools for as long as two weeks, and spawning several tornadoes. Hugo reached the city of Charlotte only six hours after landfall, and the City of Conover around 7:00 am causing heavy rain and tearing down hundreds of trees. which is roughly 200 mi (320 km) inland.[16]

In all, 29 counties in North Carolina were declared federal disaster areas, with damages in that state alone estimated at $1 billion (1989 USD, $1.77 billion 2011 USD).[17]

New Jersey, for example, hasn’t been hit by anything like this since 1903. There are a lot of big old trees in New Jersey, even near the Shore in towns like Avon, Belmar and Spring Lake. Those mighty oaks were eight-foot saplings the last time they got so battered.

Lots of wind + different directions + soft ground + old trees = toppled trees. Lots and lots of them.

I worry that the field will be wide enough to damage tens of thousands of trees along the east coast, with those trees striking homes and power lines, causing so many outages that it could be a week, maybe more before power is restored.

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Irene: How bad?

No doubt now that Irene will pass just east of NYC, and first and foremost, I urge everyone to batten down the hatches.

This is an insurance blog, so it focuses on the economic threat from the storm. On which, NYT blogger Nate Silver posted this:

Apart from the potential loss of life in the most densely populated part of the country, history suggests that the economic damage could run into the tens of billions of dollars, depending on the severity of the storm and how close it comes to the city. Unlikely but theoretically plausible scenarios could have the damage entering the realm of the costliest natural disasters of all time, and perhaps being large enough to have a materially negative effect on the nation’s gross domestic product.

From his list, I’ll point out Hurricane Gloria ($900M) had a track eerily similar to Irene. This weather-geek thread points out Gloria hit Long Island with higher winds but had a smaller storm field and moved quickly. That = less area hit by big wind and less rain to soften up the ground.

According to the geeks, Gloria hit at low tide, minimizing storm surge. Irene seems likely to come into the NY area close to high tide.

The link in Nate’s quote takes you to Accuweather’s top five, which are measured by economic losses, not insurance losses:

  • 2011 Tohuku earthquake and tsunami: $235B
  • 1995 Kobe earthquake: $100B
  • 2005 Hurricane Katrina: $81B
  • 1994 Northridge earthquake: $42B
  • 2008 Sichuan earthquake: $29B

Insurance Information Institute lists the worst insurance natural catastrophes of all time through February 2011. I’ve added the March Japan quake/tsunami and the September 11 attacks, which of course were not natural catastrophes:

  • 2005 Hurricane Katrina: $62.2B.
  • 2001 World Trade Center terrorist attacks: $40B (in today’s dollars)
  • 2011 Tohuku earthquake/tsunami: $30B.
  • 2008 Hurricane Ike: $18B.
  • 1994 Hurricane Andrew: $17B.

As I write this (early Saturday), Irene has already hit the Bahamas. AIR’s early estimate is $1.1B there. Eqecat put its estimate at $300M to $600M. Fortunately, according to AIR, the most densely populated islands only got clipped by tropical storm winds.

Artemis, the cat bond guru site, had this to say on Wednesday:

Any landfall made by hurricane Irene on the U.S. east coast could result in billions of dollars of insured losses, potentially enough to increase the upward pressure on re/insurance rates. A worst case scenario of hurricane Irene coming ashore on a major population centre could result in the biggest U.S. insured loss so far this year.

Well that makes sense. This year’s Alabama tornadoes and Joplin tornadoes each posted around $5B in losses.

Late Friday, Kinetic Analysis put up a $3.5B insured loss estimate. I’m not familiar with the company. Its web site is here.

All of that seems to make a $3B insured loss the lower bound.

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Thoughts on Irene

Given the pace of events, I’m tweeting fairly regularly on Hurricane Irene. (See the column near the top left of this page, or check out http://twitter.com/#!/jimlynch9999.) All week I’ve tried to keep up-to-date on the path and intensity of this one.

I’m concerned. Right now, the heart of the tropical storm looks like it will pass just west of my home (Montclair, NJ).

But I’m not freaked because a storm is bearing down. I’ve been through hurricanes before (Andrew).

I’m concerned because, as of now (10 p.m. Thursday), NOAA forecasts a Cat 1 hit on New Jersey, a state that hasn’t been hit by a hurricane since, I think, 1903. There are a lot of old trees throughout the state. When hurricanes go far inland, those older trees can’t handle the winds. They fall and damage a lot of homes, especially in wealthy areas – rich people like big old trees around. If a lot of them topple onto power lines, there could be astounding power outages, triggering business interruption coverage.
I’d love to be wrong, but I sense a lot of damage and another multibillion-dollar event.

  • #Irene could be multibillion-dollar insurance event http://ow.ly/6dbmA || Similar to Floyd ($3.5B) and Jeanne ($4.15B).

But I think it could be much, much worse than either of those two.

Would love to be wrong.

 

 

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Q2 reserve releases: Not much left

Fitch estimates that P/C reserves were redundant by $6B to $16B at year-end, according to this P/C 360 report. So far this year, insurers have pushed prior-year reserves down $7.4B, which indicates the well must be about dry.

The $7.4B takedown comes via Quarterly Statement data released last week (gathered by SNL). The table breaks down the change by company focus, with a negative number being a takedown of reserves.

Looking at individual lines, Fitch says, “The biggest change in reserve adequacy in recent years has taken place in the workers’ compensation lines, which currently looks deficient. Other segments that are estimated to be understated in aggregate are product liability–occurrence, and to a lesser degree, commercial multiperil.”

Medical malpractice–claims made and occurrence, as well as “other liability–occurrence” were shown to be the most redundant lines, according to Fitch. Private passenger auto liability was listed as slightly redundant, while homeowners’ and commercial auto liability were adequate.

Workers comp appears deficient, according to Fitch. Product liability-occurrence reserves and commercial multiperil might be weak as well.

A recent Keefe, Bruyette and Woods study indicated recent accident years (2008-2010) were deficient $6.4B, but Fitch thinks recent-year reserves are about where they should be.

Update: SNL did its own analysis (sub. req.) of prior-year development:

  • $7.4B first half reserve release is down from $9.1B in first half 2010.
  • Q2 favorable development of $2.8B is 16% less than the $3.3B favorable in Q2 2010.
  • Mortgage insurers have an outsize impact on development. That’s best seen from the table above, with financial lines unfavorable $1.6B while the rest of the industry is favorable around $9B. That $9B is less than the $10.5B favorable that non-financial writers posted in first half 2010.
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East Coast quake: Some facts

  • Epicenter near Charlottesville VA, 5.9 with a depth of “more than three miles.” That’s the worst quake since 1897 in Virginia, not as bad as the 6.3 in New Zealand in February and far short of the 9.0 quake in Japan. (Each increase of a single point is an increase of about 30-fold in shaking intensity.)
  • Initial reports – minimal damage at Charlottesville and Richmond. (These links have probably updated since I posted them, so the story may have changed. Lots of buildings shaking farther away, Boston to South Carolina.
  • Epicenter near the North Anna nuclear power plant, which shut down automatically. Backup generators switched on safely. (Remember it was the failure of backup generators that accelerated the Fukushima nuclear disaster.)
  • Virginia Tech has an important seismological research site here.
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Whoops! Almost forgot to include a headline – 1st pass

This week the Wall Street Journal’s data geek looks at data goofs throughout the ages: (Added “data” before “goofs” to clarify – 2nd pass.) (Put quotes around the term “goofs” that appears in italics – 5th pass.)

  • This month, the U.K. Office of National Statistics calculated construction output for the three-month period ending in May instead of June. Diagnosis – failure to update the spreadsheet properly. (Added periods to U.K. and put a period at end of sentence – 1st pass.)
  • In 2004, the U.S. Bureau of Labor Statistics couldn’t produce the producer price index. Its computer feed crashed.
  • More recently, BLS misreported the number of mass layoffs because of an error in Arizona data. The bureau had to file a correction. (Revised to make clear it was an error in Arizona data, not an error in what was reported for Arizona – 1st pass.) (Made paragraph into two sentences to heighten clarity – 2nd pass.)
  • And the classic – in 1999, NASA lost a $125M Mars orbiter because software failed to convert from English units to metric. As Homer would say: “D’oh!” (Aside: To emphasize the importance of units in an answer, my brother’s first tech teacher insisted all answers be given in furlongs per fortnight.) (Made it “$125M” instead of “$125 million” to follow style I prefer in this blog – 2nd pass.)

Somehow, the WSJ report omitted Standard & Poor’s $2 trillion error in projecting U.S. budget deficits. (Replaced “he” with “the WSJ report” to make it clear that the omission was by the WSJ reporter. Otherwise it reads like my brother’s tech teacher made omitted the error – 2nd pass.) (Changed “made” to “omitted” – 4th pass.)

As actuaries, we’ve all been there. The WSJ article gives the common prescrpitives:

  • Automate wherever you can. A standardized data feed will always err less than a person typing into a spreadsheet.
  • Double- and triple-check. Quadruple-check if you can get away with it. When I want to make sure something is right, for example, I go over it in detail from beginning to end. If I find a mistake, I go through it again, top to bottom. If I find another mistake, I go through it again. And again and again and again, until I find no more mistakes. The last pass is a perfect one. (Added “The last pass is a perfect one” to emphasize the point of the paragraph – 3rd pass.)

That doesn’t eliminate errors, as any careful reader of this blog will know. And sometimes I don’t check as thoroughly as I’d like. But it does get rid of the worst of them. (Added “And sometimes I don’t check as thoroughly as I like” to make it clear that sometimes I fall short of the standard I set for myself – 2nd pass.)

(No errors discovered – 6th pass.)

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SNL: Q2 P-C underwriting result is worst since 2001

The P/C industry is reporting a 117.7 combined ratio for Q2, SNL Financial reports (sub. req., I think). That’s the worst result since third and fourth quarters of 2001, when the industry booked 121 and 120, respectively.

How bad?

The second-quarter combined ratio easily topped that of other problematic periods for the industry in recent years. The same group of companies produced combined ratios of 112.7% in the third quarter of 2008 [ed. note: Hurricane Ike] and 113.6% in the third quarter of 2005 [Katrina], but the former was inflated by dismal results by bond insurers and the latter was suppressed to a lesser extent by strong bond insurer results.

The industry’s underwriting loss approached $19B. State Farm alone booked an underwriting loss of $2.5B. Clearly the awful tornado season took its toll.

SNL’s chart tells the story:

The industry booked $2.88B in favorable development on prior-year losses, a 37% dip from $4.58B in Q1.

  • Personal lines writers suffered $10B in underwriting losses.
  • Commercial property writers posted $3.7B in underwriting losses.
  • Companies that focus more broadly on all commercial coverages posted underwriting losses of $2.8B.
  • Financial writers, led by poor results at mortgage writers, booked $1.4B in underwriting losses.
  • Medmal writers posted a modest $161M gain.

SNL’s analysis is based on statutory data and represents 98% of expected statutory filers.

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TweetWeek through Aug. 21, 2011

  • AccuWeather.com | Irene Destined for Southeast US as a Hurricane http://ow.ly/68V1Q || Path aims at Dade/Broward as Cat 1 storm
  • Tropical Storm Irene: Critical days ahead, its hurricane may take aim at Florida http://ow.ly/68tYc
  • Harvey Named Eighth Storm, not Expected to Intensify to a Hurricane http://ow.ly/683SF || I have nothing to add. . .
  • RT @BerkowitzRtrs: AIG repaid the gov’t $2.15B from Nan Shan proceeds. The $182B bailout is down to $51B (77% common stock stake + AIA SPV)
  • QBE dropping General Casualty name – The Business Journal http://ow.ly/6705N || And no more Winterthur or Unigard
  • Disasterproofing Social Media » Insurance Industry Blog http://ow.ly/65lVW || Can one shout ‘riot’ in a crowded Twitter feed?1 retweets
  • Insolvency: What was the actuary’s role? « Actuarial Opinions http://ow.ly/65lN6 || Or, what insolvency isn’t caused by under-reserving?
  • RT @GuyCarpenter: Subdued merger and acquisition (M&A) activity in the first 6 months of 2011: bit.ly/nQI2mR

The Week in a Minute: Aug. 19, 2011

News

  • Everyone has reported earnings (links to major U.S. insurer results here), and Moody’s calculates net income for Q2 fell 68% from a year earlier, to $1.38B. The May tornadoes were the big reason: $5.5B in pre-tax cat losses, vs. $2B in Q2 2010.
  • Other than that, crickets.

Viral

Cookie Monster-Tom Waits mashup: