Category Archives: hurricanes

No insurance losses expected from Saturn hurricane

By Saturn hurricane, I mean a hurricane on the planet Saturn. Here are some details.

Saturn hurricane The eye, all by itself, would swallow up all of Superstorm Sandy – 1,250 miles across. Winds at the outer edge were blowing 330 mph – call it a Category 12. (I just extended the Saffir-Simpson scale linearly.)

Perhaps scariest of all – the storm sat at the planet’s north pole for more than five years.

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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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Storm season starts spinning

As the stock market kind of, you know, melts, the Atlantic hurricane season appears to be heating up. Artemis channels Accuweather:

So far, a high over Bermuda and a high over the U.S. have formed – in football terms – a blocking wall that has suppressed potential hurricanes off Africa, steering them too far south or spinning them too far east. The easternmost one will move east next week (the 17th), and the westernmost one will move west. To carry on the football metaphor, that leaves a gap in protection over the Southeast U.S.

Meanwhile, the typical developments that make August nail-biting time are spinning out storms with their usual efficiency. Accuweather says three could emerge by Aug. 25. But there are pockets of wind shear that will likely inhibit the Cape Verde storms from turning outrageous for the next couple weeks.

 

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Citizens Property and investment income

Actuarial Outpost has picked up my post about how Florida’s state HO insurer, Citizens Property, can’t remain solvent through a substantial storm. The very sensible Outpost question  – what about the investment income?

Unfortunately, as this snip from the 2011 budget (around page 12 of this pdf) shows, Citizens posts net investment losses:

Going the wrong wayThat line that says assessment refers to a 1.4% surcharge to cover the last time Citizens went bust, in 2005. More about that in a minute.

The insurer is paying off its loans at interest rates between 1.28% and 5.3074% – not bad, but you can’t get that on short-term paper these days. I glanced at Schedule D of the 2010 Annual Statement (pdf), and it looks like the majority of the bonds Citizens holds mature in less than a year, which you’d expect from an organization that needs all its surplus handy for the Big One.

Unfortunately, the bulk of what Citizens owes is due after 2015, as Outposter silverfox documented. So Citizens is borrowing long and investing short, which is a hard way to make money.

But if the Big One hits, they apparently won’t be borrowing more. Poking around a bit more on the Citizens web site, I found this 2009 presentation to rating agencies that says “Post‐event bonding unlikely for Citizens even in a 1‐100 year loss scenario.”

The statement appears to reflect Citizens’ “sales-tax like assessment capability” – their words, not mine – on most insurance premiums in the state for 30 years.  But I don’t see how that would keep them from borrowing to make sure they had the cash to pay claims. Knowledgeable comments would be welcome.

As for me, I’ll take them at their word. You don’t lie to the rating agencies.

Of course, Citizens’ PMLs have been rising, as I said a couple of days ago. In the presentation to the ratings agencies the 1-in-100 event storm was $13.9B then (slide 30). Now it is over $20B gross and about $17B net, according to this presentation (pdf) the insurer made to the state House Banking Committee in January. Here’s a nifty snip from slide 23 showing how a 1-in-100 storm would be paid for:

Paying for it

(HRA is high-risk wind. PLA and CLA are personal and commercial accounts that have less wind exposure.)

As you can see, surplus gets depleted first. For the rest, the Florida cat fund (FHCF) steps up, then Citizens customers get dunned, followed by the assessments.

Of course, if the storm hits, say, this year, there will be another round of assessments on top of the ones from 2005. And the underlying rates could rise too, so Floridians would be paying for the last two storms while buying insurance against the next one. Sounds expensive to me.

I prefer the system where you pay premium up front. Then, if tragedy strikes you are covered – not taxed.

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Cat (model) fighting

Guy Carpenter recently had a nice briefing on RMS’s movement to version 11 of its North America hurricane model. RMS is the market leader in cat modeling and its changes will influence what reinsurers charge for property covers. That, in turn, will affect the consumer price for homeowners and commercial property insurance.

According to the conventional wisdom – well, RMS’s own wisdom – the new model should decrease losses close to shore while increasing them inland – a bit of a reaction to Hurricane Ike in 2008. Cat costs in Texas and the Carolinas were projected to rise while Florida would catch a break.

In a bit of death by meta-ing, the reality of what the models actually revealed often differed from what RMS said the models would reveal. A company’s Texas portfolio might fail to show the predicted increase while its Florida portfolio would see model losses increase. GC’s brief basically says that RMS projected a broad result and your mileage may vary.

As evidence, GC publishes two graphics that compare the two leading models – RMS’s latest and AIR Classic – in estimating losses in Florida’s portfolio. (GC got the data from the Florida Commission on Hurricane Loss Projection Methodology.)

Continue reading

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Hurricane forecast summary

The Colorado State University hurricane predictions were released today. Guy Carpenter rounds up the picks so far:

CSU is Colorado State – the most famous forecasters. WSI is Weather Services International. NOAA is yet to weigh in.

Last year the numbers were 19/12/5, but of course you only need one big one to do real damage.

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The year-end catastrophe scorecard

Today, in words, I got nothin’. Fortunately, Aon has released its encyclopedic analysis (pdf) of 2010 catastrophes, which caused $38 billion in insurance losses. So I got this chart:

Well predicted.It compares the pre-season hurricane forecasts of Colorado State, the federal government (NOAA) and Tropical Storm Risk, an Aon-sponsored forecaster. All in all, three accurate forecasts. Fortunately, the storms tended to stay at sea.

I also have this time series from Swiss Re, whose 2010 cat overview put insured losses at $36 billion:

Inclining upwards

Insured cat losses have been creeping upward steadily the past three decades. (The chart is inflation-adjusted.) Not sure why Swiss Re charts losses from manmade disasters and earthquakes but not hurricanes, which is obviously providing the contours to the top line.

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