2017 Atlantic Hurricane Season Outlook

With the official opening of 2017 Atlantic hurricane season fast approaching, researchers appear cautiously optimistic the relatively quiet streak will continue.

Today, Colorado State University’s Tropical Meteorology Project released the extended range forecast of 2017 Atlantic seasonal hurricane activity, predicting slightly below-average activity in the Atlantic basin, with a forecast of 11 named storms, four hurricanes, and two major hurricanes.

Philip Klotzbach, CSU

The probability of at least one major (Category 3+) hurricane making landfall on the entire U.S. coastline is 42%, compared to an average of 52% over the past century. The probability of such a storm hitting the East Coast, including peninsula Florida is 24%, compared to an average of 31%. Thus, CSU noted, the estimated probability of a major hurricane making landfall in the U.S. this season is approximately 80% of the long-period average.

Hurricane activity may not be as critical a determinant for how insurers and property-owners will fare, however. Aon Benfield’s Global Catastrophe Recap reports have consistently noted the rising toll of economic and insured losses due to severe weather events including severe thunderstorms, hailstorms, and flash flooding. In Texas alone, for example, Aon Benfield reports the state incurred record thunderstorm-related losses for the year, with insurers citing costs exceeding $8.0 billion.

Other recent studies support this trend. In the Willis Re and Columbia University report Managing Severe Thunderstorm Risk, researchers found the risk to U.S. property from thunderstorms is just as high as from hurricanes. Their review of Verisk Analytics loss statistics for 2003 to 2015 found the average annual loss from severe convective storms including tornadoes and hailstorms was $11.23 billion, compared to $11.28 billion from hurricanes. Considering the past decade alone, severe convective storms posed the largest annual aggregated risk peril to the insurance industry.

willis re severe convective storms

KCC Estimates $7B Insured Damages from Hurricane Matthew

Based on high-resolution storm surge, inland flooding and wind models, Karen Clark & Co. said today that it estimates insurers will pay $7 billion for damages in the United States resulting from Hurricane Matthew.

The storm weakened and stayed further off the Florida coast than was initially projected by the National Hurricane Center (NHC). While it stayed offshore, other than a brief landfall in South Carolina, Hurricane Matthew caused extensive wind, storm surge, and inland flooding damage.
kcc-totals

KCC said in a flash bulletin that it tracked the event using forecast data from the NHC and RiskInsight’s advanced module, WindfieldBuilder, which automatically creates a high-resolution wind footprint for each storm advisory so that losses and numbers of claims can be estimated for specific portfolios along with the likely locations of claims.

Hurricane-force winds of more than 74 mph were experienced along limited sections of Florida’s coastline, most notably areas between Cape Canaveral and St. Augustine, damaging residential and commercial structures including roofs, windows, awnings, and signage.

As the track of the storm veered closer to the coastline near Savannah, hurricane-force winds again impacted properties along the coast, KCC said. The most impacted coastal areas include:

  • Daytona Beach, Florida
  • Tybee Island, Georgia
  • Hilton Head Island, South Carolina

kcc-surge-map

Along the coast there were isolated pockets of significant storm surge and resulting property losses. As Matthew tracked parallel to the coastline for a distance, many other areas experienced minor storm surge damage.

The table below shows the measured precipitation for a few cities in North Carolina, where water levels are expected to exceed the 500-year flood levels for the second time in 20 years:
kcc-flood-totals

Hurricane Matthew Could Impact Renewals, Reinsurers

Downgraded to a post-tropical cyclone on Sunday, Hurricane Matthew proceeded to work its way north, pummeling coastal regions of Georgia, South Carolina and North Carolina, where rivers are overflowing and flooding continues. So far, Matthew has killed nearly 900 people in Haiti and 17 in the United States. More than 2 million U.S. homes and businesses lost power over the weekend, according to Reuters.

CoreLogic said today that it anticipates hurricane-related insured property losses for both residential and commercial properties to be between $4 billion and $6 billion from wind and storm surge damage. The amount does not include insured losses related to additional flooding, business interruption or contents.

CoreLogic: Hurricane Matthew Loss Contribution by County in Florida, Georgia and South Carolina
lorelogic-losses

Willis Towers Watson said on Friday that the storm’s losses are not expected to adversely affect the insurance industry, due to abundant capacity. Organizations with upcoming renewals, however, may be impacted, the company warned.

“There will still be upset for the next couple of weeks, and underwriters will be skittish about renewing business until they calculate their losses,” Gary Marchitello, head of property broking at Willis Towers Watson, said in a statement. “Anyone with the misfortune of renewing programs with East or Gulf coast exposures over the next 4 to 6 weeks will be challenged to secure property coverage at favorable terms.”

Despite the excess capacity, the market is “ripe for an opportunity to turn,” and an event or aggregated events “will drive pricing adjustments,” he said.

Fitch Ratings said Hurricane Matthew will put pressure on earnings of some insurance underwriters in Florida and other southeast states but is “not expected to present a major capital challenge.” If storm insured losses exceed $10 billion, Fitch said a greater proportion of the losses will be borne by reinsurers as opposed to primary companies.

According to Fitch, the homeowner’s market share has shifted away from large national writers and the state-sponsored Citizens Property Insurance Corp. to a number of smaller Florida homeowners specialists. “A lack of storm activity over the last decade has substantially increased the claims paying resources to meet catastrophe losses, such as those arising from Matthew, of both Citizens and state-sponsored reinsurer, the Florida Hurricane Catastrophe Fund (FHCF),” Fitch said.

Primary insurers with the largest exposure in Florida are: Universal Insurance Holding Group, Tower Hill Group, State Farm Mutual Group, Citizens Property Insurance Corporation and Federated National Insurance Company.

Property insurers writing business in Florida rely heavily on reinsurance protection and other methods to mitigate their risk of extreme loss. “As a result, the FHCF, the traditional and collateralized reinsurance markets and the catastrophe bond market could have meaningful exposure to losses from Matthew,” Fitch said. Fitch estimates that FHCF has assumed the largest level of premiums by a wide margin. Among private entities, Lloyd’s of London appears to be the next largest reinsurer followed by Allianz SE; Tokio Marine Holdings, Inc.; Everest Re Group, Ltd.; and XL Group Plc., Fitch said.

Natural Barriers Promote Coastal Resilience, Reduce Costs

WetlandsNEW YORK—Hurricane Irene and Superstorm Sandy had devastating impacts on the northeast coastline, debilitating parts of New York and New Jersey. While also in the path of the storms, Delaware saw minimal impact, which the state’s former head of natural resources and environmental control, Colin O’Mara, attributed to its conservation efforts.

Now president and chief executive officer of the National Wildlife Federation, O’Mara spoke at the New York Recovery and Resilience Leadership Forum here June 2, explaining that the state had been building up natural barriers and testing its resilience with various resources.

“During the storm we were checking sandbags and making sure systems were in place and I was wondering if these systems were going to hold,” he said. “What we found was that the system did work.” He noted, “One of the reasons you haven’t heard much about what happened in Delaware, compared to New Jersey and New York, is the state’s investments in wetlands, living shoreline projects and oyster beds. These natural systems can absorb the shock of crashing waves and absorb water.”

A living shoreline is a habitat-friendly alternative to rip rap, bulkhead or stone revetments, creating wetland habitat that supports blue crabs, oysters, fish, birds and plants. They can also stop erosion, increase water quality and protect the shoreline from erosion, according to the state of Delaware’s website.

A number of municipalities across the country are making significant advances in natural infrastructure, O’Mara said, “and you are not seeing big taxpayer bailouts of those communities because these systems work.”

At the same time, he noted, many areas do not encourage these types of investments. “In fact, there are a number of policies that are actually putting people in harm’s way,” he said. “We’ve been trying to think through how to have traditional market forces work to the advantage of resilience, instead of having a massive bailout after an event, which is a liability to the taxpayer.”

Conversations about mitigating with natural resources, however, often get nowhere because people believe their insurance programs will bail them out. “Because of government programs, people are actually paying so much less than the insurance value they are receiving, that natural resources as a solution will lose,” O’Mara said. As a result, “All of a sudden that coast seems more developable because the landowner developing it isn’t actually bearing the cost.” The real problem is that, after the money has been made and a homeowner is living in the house, the risk is still there. “So you’ve privatized the problem, but you have socialized all of the risk,” he said.

Instead, O’Mara believes it is critical that information about the real costs of destroying a dune, along with the protections it brings be available. “This isn’t an easy conversation, but it is actually an area of commonality,” he said. “Whether you want to reduce government spending, reduce liability or foster more private sector activity, this is an area that shouldn’t be partisan at all.”

Projects of this nature are currently in the works in New York City; Cape May, New Jersey; and Boston, Massachusetts. Such spending on the front end produces much higher savings in the long run, O’Mara said, noting that putting natural resources to work can lower insurance rates and generate private sector involvement.

“We can do things a lot smarter and be a lot safer than we are right now,” O’Mara said. “This should be as bipartisan as anything we do in this country. The economics make sense, the science makes sense and the social science makes sense.” After all, at the end of the day, “people just want to be safe,” he said.