Europe’s Winter Windstorms – the Only Certainty is Uncertainty

The annual damage from European windstorms can range significantly: from years when there are clusters of severely damaging storms to other years with almost no windstorm loss. How much of this volatility can we predict, and how much remains a roll of the dice? And more specifically, what storm activity can we expect over the next few months?

Forecasting Storminess

Our understanding of the drivers of annual storminess has increased greatly in recent years, allowing us to provide more forecasting insight than ever before. However, there is a cautionary tale for the industry, one that shows the limitations of even the most sophisticated seasonal forecasts.

The Atlantic Multidecadal Oscillation (AMO) is a pattern of long-duration variability in sea surface temperature in the North Atlantic. It is known to influence the climate over much of the northern hemisphere including the level of storminess in Europe1. As north-south gradients of heat in the Atlantic act to fuel extra-tropical storms2 these longer term changes in sea surface temperature tend to alter the odds of extreme storm occurrence over timescales of 60-80 years. Today, the ongoing positive (warm) phase of the AMO favors lower than average storminess this winter.

Annual average values for the AMO Index, 1856-2015 (data from NOAA ESRL3). Positive values (red bars) indicate warmer sea surface temperatures across the North Atlantic, while negative values (blue bars) indicate cooler temperatures.

That’s the multi-decadal perspective. But it will come as no surprise for Europeans to hear that as well as these longer phases of relative activity and inactivity, the continent also experiences variability of storminess from year to year. We know that the jet stream is a main ingredient of storms, and that in turn these storms strengthen the jet itself, in a positive feedback loop that leads to the term “eddy-driven jet.”  This “storms-beget-storms” mechanism typically plays out over a few weeks, and more severe storms are likelier to occur during these periods. The positive feedback between jet and storms amplifies swings in annual damage, and explains a substantial amount of the storm clustering found in longer range historical weather records4. This coupling between storms and jet is reflected in the version 16.0 of the RMS Europe Windstorm Clustering Model.

Researchers have identified various drivers of seasonal storminess in the North Atlantic which, for the coming winter, are ambiguous. For instance: we are three years after the peak of a prolonged but subdued solar cycle and this timing suggests less forcing of storminess. But in contrast the predictions are for neutral to weak La Niña phases of the El Niño–Southern Oscillation (ENSO) which points to a chance of increased forcing of North Atlantic storminess. Whilst, to complicate things further, the anticipated values of tropical stratosphere winds, linked to the Quasi-Biennial Oscillation (QBO), are related to less storminess in the mid-latitude Atlantic – with the caveat that they are in an unusually disrupted pattern.

So is it possible to get off the meteorological fence and make a call? Yes: overall, the multi-decadal and seasonal drivers indicate slightly below average storminess.

Severe Events Can Occur During Any Season

But this does not mean that we as an industry should be entirely relaxed about the new storm season, as the outlook for annual storm damage is blurred by the vagaries of local weather. This is exemplified by storm Kyrill in January 2007.

Then, ahead of the 2006/07 winter, the seasonal and multi-decadal drivers indicated below average storminess, just as they do today. But Kyrill occurred and turned an otherwise innocuous season into a bad one for many. The gusts and damage during this storm were much more extreme than its general circulation, because convection cells embedded in the cold front contributed to extreme damage intensity in some areas5. Storm Kyrill showed how processes on small space and time scales can dominate annual storm damage. These drivers have seriously short predictability windows of just a few hours.

More generally, some of the past variations in annual storminess have no known driver. We are not quite sure how much, but a reasonable ball-park figure is one half. This random part is found in climate models, where the tiniest possible changes at the start of a forecast often grow into large changes in seasonal average storminess.

Although our understanding of the drivers of storminess has greatly increased over the past few years and the odds do favor less storm damage this winter, we should not be complacent. As its tenth anniversary approaches, Storm Kyrill reminds us that major losses can happen in any season, regardless of the forecast.

Web links to references above

1Peings and Magnusdottir (2014)  [ ]

2Shaffrey and Sutton (2006)  [ ]

3NOAA ESRL AMO data [ ]

4Cusack (2016)  [ ]

5Fink et al. (2009)  [ ]

This post was co-authored by Peter Holland and Stephen Cusack.

Updates from RMS on Major Hurricane Matthew

Monday, October 10

Matthew has now made its exit and work begins on the RMS loss estimate

By Tom Sabbatelli, RMS hurricane risk expert

Although it may be too soon to define Hurricane Matthew’s legacy, it will surely be remembered for keeping the insurance industry on tenterhooks for a few days. Having eschewed the U-turn that had been anticipated by many forecast models, Matthew adopted post-tropical characteristics early on Sunday morning, while tracking due eastward off the North Carolina coast. With Matthew’s exit, the fears of another blow to the regions that had already been hit hard by its first impact were put to bed.

So now we have initiated the next phase of RMS Event Response operations, with our attention shifting from the regular, reactive stochastic event selections to a comprehensive interrogation of all causes of loss – both modeled and unmodeled. It is this work that will form the basis of the RMS official  industry loss estimate.

Our vulnerability modelers, who make up our reconnaissance teams for Matthew, are on their way to southeast U.S. and The Bahamas. The team traveling to the southeast U.S. are likely to find the damage there is less severe than many forecasters feared prior to landfall. The fact that the storm stayed offshore for so long undoubtedly helped to reduce the potential losses across the region. Nonetheless, Matthew’s high moisture content and slow movement up the coast has caused significant and widespread flooding, driven by a powerful combination of heavy rainfall, historic wave heights, and significant storm surge.

Observations from Jacksonville, Florida and Charleston, South Carolina, as the storm passed over each city, revealed record-setting precipitable water levels.  Supported by this unprecedented atmospheric moisture, Matthew produced rainfall totals in excess of one foot in many areas, including up to 15 inches of rain in Cumberland County, North Carolina.

Here the antecedent conditions were already at their peak even before the storm, due to recent heavy rain events that had deluged the region. The combination of rivers in the area already near flood stage level and the already heavily saturated soils, produced an increased susceptibility for each nuanced type of surface flooding to occur.

The antecedent conditions are essential inputs to defining the flood waters associated with this event.

While the damageable surge and wave will make up a large proportion of our modeled flood hazard, the modeled impacts of the inland flooding will be difficult to fully differentiate until our reconnaissance team have collated more observational data. Some features of this event such as dam breakage are considered a non-modeled component of this event, despite their ongoing impacts to the damage still occurring in the area.

Commercial Versus Residential Losses

RMS expects that the losses to commercial lines will be the primary driver of total flood insured losses, predominately through multi-peril or all-risks policies. We expect that the contribution to insured losses by residential claims will be limited because a proportion of the residential property losses will be covered by the National Flood Insurance Program (NFIP).

As of July 31, 2016, there were approximately 417,000 NFIP policies in-force in Georgia, South Carolina, and North Carolina. Penetration of NFIP coverage varies significantly by distance to the coastline. In coastal regions it can be as high as 25 per cent in some areas, while inland participation can be less than 1 percent.  This means that although much of the storm surge-driven coastal flood losses will be covered to some extent by the NFIP, many flood-related losses further inland are expected to be uninsured.

Damage and Loss in the Caribbean

Although Matthew’s strongest winds stayed offshore in the U.S., which is likely to limit economic and insured losses, the same cannot be said for parts of the Caribbean, notably Haiti, Cuba, and The Bahamas. The RMS reconnaissance team visiting The Bahamas expect to see damage caused by high winds, storm surge, and record rainfall.

Based on reports and observation data to-date, storm surge and rainfall-induced flooding will likely drive damage in The Bahamas and other parts of the Caribbean, such as Cuba and Haiti – although for Haitians, obviously, the main concern at the moment is the terrible loss of life. Insurance penetration rates in The Bahamas are lower than those of the U.S.; however, the RMS reconnaissance team will be paying particular attention to the hard-hit islands of New Providence and Grand Bahama, home to approximately 85 per cent of the country’s insured exposure.

Calculating the RMS Loss Estimate

The insights gleaned from our reconnaissance trips will prove extremely valuable in complementing our work towards developing an industry loss estimate.

As the Event Response team now transitions from producing real-time event updates, the instrumental observations of wind and flood depth measurements they will continue to gather in the coming days will be fed into the reconstruction of Matthew’s wind and storm surge footprints. And the thorough investigation into Matthew’s damage begins as we aim to provide the insurance industry with a comprehensive review of Hurricane Matthew’s impact.

(end of Monday update 1)


Saturday, October 8

Today’s RMS response to Hurricane Matthew

By Ben Brookes, head of the RMS capital markets team; Emily Paterson, head of RMS event response; Dr Paul Wilson, RMS expert in hurricane and storm surge risk.

All times in this post are London, England

06:45 –

It’s not been often in the last 10 years that any of us have needed to set a Saturday morning alarm to catch the early National Hurricane Center (NHC) advisory for a powerful storm close to land.   Thankfully, we’ve had a long streak of no major hurricanes hitting the U.S., so it’s something of a blast from the past to be back in major hurricane response mode over a weekend!

A minute or two of hitting the f5 key, and the latest is in. While the loss of life in Haiti is sobering reminder of the power of these storms, it seems the drought of major Florida landfalls continues: Matthew has continued to “stalk” the Florida coastline as the more dramatic headlines report, but it has not come ashore in the state.  The track has taken it further north overnight, as anticipated, and now all eyes are on whether Matthew might have become the first land-falling hurricane in Georgia since the late 1800s


As hurricane modelers gather in the office this morning, many of whom look like they may not have been home, but revitalized by a large tray of coffees, the storm appears to be coming ashore in South Carolina. But it’s going to need a clearer picture of the inner structure of the storm before we know for sure.  As yet the NHC is not reporting a landfall, but the Hwind snapshots should give us clarity soon.   Whether we see a landfall next week after a loop back around is also the source of much debate.  And a point of interest for the industry too – will this be one loss or two?  (See yesterday’s Q&A further down this blog thread for more on this).

Our collective task this morning is to update our stochastic selection – choosing scenarios from the model that continue to represent the range of possible outcomes from Matthew, to help our clients understand the range of possible outcomes for their businesses.  Once again, we’re not attempting to estimate the industry loss that this storm has caused (or more accurately, is continuing to cause), that process will begin when the storm has passed, and we can gather and collect all possible data sets, and perform detailed reconnaissance of the areas impacted, both remote and in person.  RMS reconnaissance has already begun, with our remote sensing experts in full swing, and a team of our modelers headed to the affected region.  On the ground inspections and observations will need to wait until the storm has passed, including any looping around that might be to come.

We begin by looking at the NHC track and cone of uncertainty, and define “gates” for each point along the track and the projected path.  The set of candidate tracks is then any that pass through these same gates, with wind speeds within a defined range of the values reported by the NHC in each case.  We assemble a big list of candidate scenarios, and begin to review each one in turn, discussing the pros and cons of inclusion in our selection for the day.

This morning’s NHC Advisory

This morning’s NHC Advisory

First up is the Caribbean update. Even though Matthew has been out of the Bahamas for the best part of 24 hours, new information is available. Our Caribbean selection can now benefit from the work the RMS Hwind team is doing to generate a complete wind swath for Matthew.  The preliminary swath proves hugely useful to make sure we don’t include modeled events with winds too far east in our set.   As this work continues, it will inform our complete track selection for Matthew’s impact in the US as well. Remember to keep an eye on the @Hwind Twitter feed for rolling updates.

We spend some time debating the fact that our Caribbean track selection representing loss in the Bahamas contains numerous modeled events that do go on to cause a major disaster in Florida (and hence why these tracks do not represent what is happening in Florida) – the high pressure over the Carolinas that has steered Matthew along its unusual path has averted something far worse.


Our Caribbean scenarios are finalized, with a candidate set of 29 narrowed down to 13, the smallest modeled scenario at less than $1bn, and the largest just over $5bn (wind only).

We move on to discussing the ongoing situation in the U.S.  An hour of healthy debate ensues, and from our candidate set of 20 modeled storms with U.S. impact, we settle on five that our hurricane experts feel are Matthew-like, each in different ways: track similarity, parameter similarity (Vmax, Rmax, pressure), windfield similarity, onshore impact, and various other dimensions.

Our five modeled storm scenarios range from $2bn to $8bn (wind only) – considerable uncertainty remains.  It is however becoming clear that Florida at least has dodged the bullet that was heading its way on Thursday.

And as we always advise our clients, these are potential scenario losses, they represent a wide range consistent with the ongoing uncertainty, and they are not industry loss estimates of the storm itself.  An industry loss estimate will be provided as fast as possible, but requires much more interrogation of many more data sources, as well as sifting through all the damage and reconnaissance reports.

Hwind preliminary Caribbean footprint for the portion of track from Haiti into the Southern Bahamas.  Note the highest wind gust marker, on the South coast of Haiti, consistent with the reports of extreme damage now emerging.

Hwind preliminary Caribbean footprint for the portion of track from Haiti into the Southern Bahamas.  Note the highest wind gust marker, on the South coast of Haiti, consistent with the reports of extreme damage now emerging.


So, with today’s event selection complete, our team shifts gears again to package up the event selections to deliver to our clients via the RMS Event Response outreach process, with all associated insights and commentary.  We’re already receiving inbound requests from our clients, asking when this information will be made available – looks like lunch might have to get cold – time and (storm) tide wait for no modeler!

(end of Saturday update 1)

Friday, October 7 – update 2

1800 UTC

As Hurricane Matthew continues up the Florida coast, we’ve been putting some questions to RMS experts:

Q: Florida’s facing wind damage and flooding from rain and sea storm surges – which is likely to be worst?

RMS Meteorolgists and hurricane risk experts Tom Sabbatelli and Jeff Waters

“The potential for significant wind impact is decreasing, as Matthew has remained further offshore than anticipated and the strongest winds remain tightly packed around its center. However, forecasts have the storm coming close the Georgia/South Carolina coast. The principle concern turns to the north for significant flood risk in the southeast U.S., including high storm surge risk from Jacksonville northward to Charleston, SC. As a large, slow moving storm, Matthew has been absorbing a lot of tropical moisture and building up a lot of rising water over its lifecycle. This increases the potential for heavy rainfall and significant build-up of water along the southeast coastline, which features greater storm surge potential than eastern Florida due to local bathymetry (contours of the sea bed). The size and extent of storm surge-driven coastal flooding could be worsened as it phases with the normal, daily high tide.  Rainfall estimates in excess of one foot (30 cm) are expected along the coast of South and North Carolina, two areas where soils are already heavily saturated and river levels are high based on significant rainfall over the last few weeks.”

Q: How should insurers expect losses to be split between commercial and personal lines?

Tom Sabbatelli and Jeff Waters again:

“If Matthew ultimately turns out to be a flood-driven event, the insurance industry is more likely to be impacted by private commercial flood policies than residential flood, which is primarily covered by the National Flood Insurance Program (NFIP). Florida has the highest number of NFIP policies in-force (1.7 million), but there are only approximately 417,000 NFIP policies in-force combined for Georgia, South Carolina, and North Carolina.  In residential areas where both wind and storm surge have occurred, we do expect some degree of what we call “coverage leakage,” a claim’s adjuster’s inability to distinguish whether damage was caused by wind or storm surge. This effect tends to increase wind policy losses, as the flood loss “leaks” into the wind payout.”

Q: What causes most damage – the hurricane making landfall or tracking up the coast?

Brian Owens, RMS expert in tropical cyclones

“This depends on a number of factors – if Matthew were to make landfall as a major hurricane and track across Florida you could get significant damage; making landfall would weaken the storm but the core of the strongest winds would definitely pass over land. If the storm tracks the coast and the eye remains offshore this would cause Matthew to maintain its intensity as it has continuing access to its primary source of energy – warm sea water. The critical factors in this second scenario are how close to the shore Matthew tracks, for how long, and how far the strongest winds extend out from the centre of Matthew. What makes Matthew particularly unusual is that it is forecast to track along the coast of four states (FL, GA, SC and NC) as a hurricane. This could accumulate damage along hundreds of miles of coastal property.”

Dr Mike Kozar, expert in hurricane risk at the RMS Hwind high definition hurricane mapping center in Florida, adds:

“The center of Hurricane Matthew has remained just offshore this morning. Based on measurements from the Hurricane Hunter aircraft, peak winds were estimated to be around 115mph at 1200 UTC. These peak winds, are found on the northeastern eyewall, approximately 40km northeast of the center. So right now it looks unlikely that the strongest part of Matthew’s wind field will come ashore in Florida, although by definition hurricanes are extremely dynamic phenomena. However, the western eyewall, and with it hurricane force winds, is located just offshore, and wind gusts have already exceed 50mph along Florida’s Space Coast.”

Q: Hurricane Nicole is having an effect – how – and is it strange that we’re seeing two cyclones in the same area at once?

Brian Owens, RMS expert in tropical cyclones

“While unusual, this has been seen before in the tropical Atlantic. Hurricanes have large atmospheric circulations and when hurricanes are close those circulations can move around each other, interfere with each other, or even merge.”

Q: Matthew is a relatively small hurricane in terms of its surface area – does this have implications for its strength and intensity?

Brian Owens, RMS expert in tropical cyclones

“There are no set rules here: you can have large intense storms and smaller intense storms too. The core of the strongest winds is generally in a small area around the eye wall. Matthew has been through its lifetime on the smaller end of size range, which has implications for the geographic scale of the damaging winds and rain. It was very intense and destructive as it tracked through the Caribbean, and while weaker now, we need to remember that, regardless of size, Matthew will potentially impact a lot of coastal regions of the U.S.”


Western eyewall continues to skirt Florida coastline as Hurricane Matthew pushes northward. Peak winds still near 115mph well offshore.

(end of Friday update 2)

Friday, October 7 – update 1

1000 UTC

As Hurricane Matthew has developed we’ve been keeping you up to date all week with insights from RMS experts. As the storm moves up the Florida coast, here’s the latest:

Emily Paterson, head of RMS event response

“According to the 06:00 UTC National Hurricane Center (NHC) advisory, Matthew is currently impacting Florida as a Category 3 storm, with tropical storm force winds impacting Miami and south east Florida through last night. Matthew has started to accelerate and its closest approach is forecast for Cape Canaveral at 12:00 UTC. Although the NHC does not forecast a direct landfall at this time hurricane-force winds are expected to be felt along the East Coast.

Hurricane Matthew is forecast to continue to track extremely close to Florida and Georgia through Friday as it moves towards the north-northeast. The storm is forecast to weaken Friday night into Saturday while moving along the U.S. southeast coast, impacting portions of Georgia, South Carolina, and North Carolina.”

Ben Brookes, head of RMS capital markets team on the possible impacts

“Having strengthened to category four status on its approach to Florida, Matthew has now weakened again but there is still significant risk to communities in its path – hence the evacuations.

It’s still a highly dynamic situation – Matthew could yet take a more easterly path, and bypass the U.S. without major areas of hurricane force winds over land – yet even in this scenario, high winds, heavy rainfall, and a large storm surge are all possible and expected. A small difference in storm track, perhaps only in the tens of miles, could bring the center of the storm on land and significantly change the storm’s impact on Florida and the southeast U.S..”

Brian Owens, RMS expert in tropical meteorology commented on the weakening of Matthew:

“From radar you can see the eyewall became more disorganised as it left the Bahamas and moved towards the coast of Florida. This was consistent with the weakening of the storm back to Cat 3 overnight. The NHC has discussed that the hurricane may be going through an eye-wall replacement cycle, which typically leads first to a weakening of the storm, followed by possible further strengthening.”

Dr Paul Wilson, expert in hurricane risk added an update on the storm surge

“Should Matthew continue to track parallel to the east coast of Florida, catastrophic damage from storm surge is less likely than a similar-sized event in the Gulf of Mexico, because the bathymetry (contours of the sea bed) off the east coast of Florida is at a steep gradient, falling away quickly. However, Matthew’s size and speed, two very important factors in determining the expected amount of surge, will ultimately influence the amount of coastal flooding. It looks like there’s a possibility Matthew might be speeding up which would reduce the risk of prolonged winds causing damage along the coast.

In some areas, Florida’s east coast contains densely populated bays and rivers that may sit at greater risk to storm surge. If winds become aligned with the orientation of a bay or river over a period of hours, it can cause the water to pile up at the end of the waterway.”

(end of Friday update 1)

Thursday, October 6 – update 3

1430 UTC

As well as monitoring the likely impacts on Florida, RMS is also analyzing the continuing impacts on the Caribbean. Dr. Paul Wilson is an expert in hurricane and storm surge risk:

 “Today there’s understandably a lot of focus on how Matthew’s going to affect the U.S. But it’s still having major impact on the Bahamas.

Some commentators have been looking for historical comparisons and Hurricane Hazel in 1954 was a remarkable analogue for Matthew’s track across Haiti and Cuba. But Hazel passed through the Bahamas further to the east. A better analogue for Matthew’s current track in the Bahamas would be a storm like the 1899 San Ciriaco Hurricane which tracked further to the west.

Against today’s exposure RMS modeling would put Hazel at under US$1 billion in the Bahamas primarily from storm surge damages, while the San Ciriaco Hurricane would have been in excess of $5bn in the Bahamas. The range of losses from the pre-landfall analyses that RMS has made for Matthew encompass this range of historical loss.”

(end of Thursday update 3)

Thursday, October 6 – update 2

 1330 UTC

Dr. Mark Powell and Dr. Mike Kozar are RMS hurricane risk specialists based in Florida. Mark pioneered Hwind real-time analysis of hurricanes with observational data from instruments in the air, in the sea and on land – including aircraft reconnaissance, GPS dropsonde instruments, sea buoys and satellites. As the storm heads towards Florida, here is Mark and Mike’s latest take on Matthew, in light of the current forecast:

 “Given that Matthew’s strongest winds are confined to a very small area within its inner core, a difference of track in the tens of miles would translate to a substantial change in wind impacts both along the coastline and in interior cities such as Orlando.

Currently, landfall is most likely to occur between, West Palm Beach and St. Augustine early Friday morning. Winds will likely approach and possibly exceed hurricane force across much of this stretch of coastline, with localized flooding from storm surge, and heavy rainfall. The storm will gradually weaken as it remains very close to if not over land for much of Thursday night and Friday.

Nonetheless, other parts of the state will see effects too. Although hurricane force winds may be confined to coastal areas, torrential downpours and wind gusts will likely stretch across more than half of the peninsula as the storm progresses northward. On Friday night, Matthew is expected to continue north of this area approaching Jacksonville, as it slowly starts to curve back towards the northeast, roughly following the shape of the coastline in Georgia and South Carolina. Eventually on Saturday a subtropical ridge to the north will force Matthew to turn to the east, and potentially southeast, away from the coast into a more hostile environment that will cause Matthew to weaken more rapidly.”

(end of Thursday update 2)

Thursday, October 6 – update 1

Good morning. We’ve been asking experts from across RMS for their observations as Hurricane Matthew develops.

At 1100 UTC on Thursday 6 October, this is the first of today’s updates, from the RMS event response team:

Major Hurricane Matthew is forecast to continue tracking through the Bahamas on Thursday while intensifying from a Category 3 to a Category 4 hurricane.

At this stage there’s not complete agreement between forecasts on whether there’ll be a direct landfall in Florida, but the all projections indicate that impacts in the state could be significant. Currently, the National Hurricane Center (NHC) forecasts Matthew to track up the east coast within 30 miles (48km) of the shore with a closest approach of under 5 miles (8km) from land at Cape Canaveral.  Whilst, the Global Forecasting System (GFS) and European Centre for Medium-Range Weather Forecasts (ECMWF) indicate a potential landfall somewhere between Port St. Lucie and Cape Canaveral.

It’s also set to get stronger, developing from a Cat 3 to a Cat 4 storm as it tracks towards Florida. Hurricane force winds are expected to extend 45-60 miles (75-95 km) north of the eye, which could therefore affect the entire Florida coast as the system tracks alongside it. According to the NHC, there is a greater than 40% chance of hurricane force winds affecting the coast between Boca Raton and Daytona Beach and a greater than 80% chance of tropical storm winds affecting the entire east coast of Florida north of Miami.

Both the GFS and ECMWF expect Hurricane Matthew to make a southward turn early on Sunday October 9. There is some disagreement between the forecasts for Matthew’s track into next week; GFS indicates that Matthew may make a westward turn with a potential second landfall in Florida whilst the ECMWF has the storm remaining in the Atlantic before moving out eastwards by Wednesday next week.

U.S. Tropical storm warnings are now in effect for the Florida Keys and Florida Bay whilst hurricane warnings are in place for the entire east coast north of Miami. Hurricane watches are also now in effect for the entire coast of Georgia and parts of South Carolina.

(end of Thursday update 1)

Wednesday, October 5 – update 2

We’ve been asking experts from across RMS for their observations as they monitor the progress of Hurricane Matthew. This is the second update for today – please read further down this thread for the first.

At 1600 UTC on Wednesday, here’s the latest commentary:

Emily Paterson – head of RMS event response – on the current forecast:

“Matthew is expected to track through the Bahamas as a Category 4 storm through tomorrow, Thursday October 6, before tracking 45 miles (72 km) offshore parallel to the Florida coastline on Friday October 7. A Florida landfall as a Category 3 or 4 storm is possible under the current forecast, with the interaction with Tropical Storm Nicole and a mid to upper level high pushing Matthew further west. There are large amounts of insured exposure along the eastern Florida coast, which have the potential to be impacted by the storm.”

Tom Sabbatelli – RMS meteorologist and hurricane risk modeler – on the characteristics of Hurricane Matthew

“While its cloud structure may appear symmetrical, a hurricane does not feature a symmetrical wind field. In the northern hemisphere the portion of a hurricane to the right of its track typically features the strongest winds and storm surge. While still a powerful hurricane, Florida is expected to not fall within Matthew’s right hand side, as the current forecast track parallels its east coast.

If current forecasts turn out to be accurate, a movement along Florida’s east coast would make catastrophic damage from sea storm surge less likely because the east coast is ocean-facing and shelves off deeply. If it was a more gentle sloping coastal incline, like on the Gulf of Mexico, this would allow larger surges to build up. However, we are still intently watching the evolution of Matthew’s size and speed, two very important factors in determining the expected amount of surge.”

On this point, Dr Mark Powell – RMS hurricane and storm surge risk specialist – added

“The exception to this could be the densely populated bays and rivers along the East Coast. Examples would include Biscayne Bay, which extends north and south of Miami, the Indian River Lagoon system that comprises 30% of Florida’s central east coast, the Halifax River near Daytona Beach,  and the St. Johns River near Jacksonville, which can be more vulnerable to storm surge especially for a slow moving storm like Matthew. If winds become aligned with the orientation of the bay/river over a period of hours, it can cause the water to pile up at the end of the bay.”

Ben Brookes – head of the capital markets team at RMS – has been continuing to assess the potential impact on catastrophe bonds and other insurance-linked securities:

“If anything, things are more uncertain today than they were yesterday – the range of forecasts seems to have widened, with everything from West Palm Beach landfall to a complete Florida bypass, or landfall in the Carolinas. There are even models predicting Matthew will make a loop in the Atlantic and further impact Florida next week.

Potential market impacts are therefore still very broad – if Matthew makes landfall in a densely populated area, or closely skirts the Florida coastline around Cape Canaveral through to Jacksonville, we could still be looking at losses that would rival anything in recent history. But that’s a big “if.” In a scenario like this, we could see the ILS market impacted, and with significant bond exposure in Florida, a major industry loss would be highly likely to also mean losses to outstanding cat bond principal.

On the other hand, it remains quite possible for Matthew to stay further offshore, or for the damaging winds to affect less populated areas.  As yet we could still be looking at a low-single-digit billions industry loss event, which would mean very little impact to the ILS market.

What’s clear is that the uncertainty that’s unfolding is likely to create trading interest – the market is closely monitoring what’s going on, and in some cases actively hedging.”

Aircraft data from NOAA Hurricane Hunter and the Hurricane Hunter Association indicates that western eyewall of Hurricane Matthew has weakened from its landfall in Cuba.


Wednesday, October 5 – update 1

Latest update from Dr Mike Kozar and Dr Mark Powell, experts in hurricane risk based in Tallahassee, Florida – RMS’ center for HWind high definition hurricane impact mapping.

There was a possibility that Hurricane Matthew might have weakened yesterday as it travelled over Hispaniola, the large island comprised of Haiti and the Dominican Republic. But Matthew’s center only skirted Haiti’s mountainous terrain and quickly returned over water, and so its strength did not diminish much. The storm continued northward through the Windward Passage during the afternoon, maintaining its intensity between 130 mph and 140 mph according to measurements from the U. S. Air Force Reserve Hurricane Hunters.

The 0000 UTC Wednesday morning HWind analysis indicated that Matthew made landfall on the eastern tip of Cuba with hurricane force winds extending about 50 miles westward.  Matthew’s short time over land will limit the interaction with Cuba’s terrain so the storm is expected to regain intensity shortly after emerging back over the ocean near the southern Bahamas. The storm is expected to continue generally northward through the Bahamas on Wednesday before threatening the United States on Thursday and Friday.

In the last 24 hours, model consensus has shifted the effects of the storm westward, making impacts along the Southeast coast of the United States more likely.  As Matthew approaches Florida, the storm is expected to slowly weaken in the next day or two, owing to increased vertical wind shear. Overall, the threat to Florida, Georgia, and the Carolinas will be determined by the exact track of the storm, particularly how far west it reaches as it interacts with the subtropical ridge while moving northward up the coast.

The general model consensus suggests that Matthew will slide northward very near, if not scraping along, the Florida coastline as a strong hurricane, making at least tropical storm force winds, high surf, and heavy rain likely for most of the cities along Florida’s East Coast, which has not seen a direct landfall from a hurricane since Katrina in South Florida in August 2005 (Hurricane Wilma struck the Gulf coast in later in 2005 and more recently Hermine struck the panhandle earlier this year).

Beyond potential impacts to Florida, the forecast into the weekend is still quite uncertain, as the position and strength of the subtropical ridge will determine whether or not Matthew will continue up the coast or meander off of the Southeast coast before heading out to sea.


Tuesday, October 4

Major Hurricane Matthew is one of the most powerful North Atlantic hurricanes in recent history, having briefly reached Category 5 strength on Saturday October 1 and the strongest hurricane anywhere in the Atlantic since Hurricane Felix in 2007, which also tracked through the Caribbean Sea.

Below we have expert commentary on the storm from Ben Brookes, Emily Paterson, and Dr. Michael Kozar, and we will be posting further updates here on the RMS Blog as the event unfolds over the next few days.

Ben Brookes, Vice President, Capital Markets at RMS, said: “There are a number of public catastrophe bonds exposed to Caribbean windstorm, the vast majority of which only have exposure in Puerto Rico. At this time Hurricane Matthew is far enough from Puerto Rico to be unlikely to cause a significant impact. There are no publicly issued catastrophe bonds on risk solely covering Caribbean exposures. If present, Caribbean exposure typically makes up a small proportion of exposed limit alongside U.S. and Canadian exposure.

NHC hurricane watches or warnings are in effect for Jamaica, Haiti, Turks and Caicos and certain regions of Cuba and the Bahamas, all of which except Cuba are member nations of the Caribbean Catastrophe Risk Insurance Facility (CCRIF). CCRIF provides insurance coverage on a parametric modeled loss basis to member countries and sponsored a catastrophe bond in 2014 issued from the World Bank’s Global Debt Issuance Facility alongside its traditional reinsurance program.”


“Flooding and landslides are a big concern from Hurricane Matthew in the Caribbean, and are likely to be a major contributor to damage from the storm. The slow-moving nature of Matthew is allowing the storm to build up moisture, which can result in heavy rainfall as the system passes over land,” said Emily Paterson, head of event response at RMS.

While Matthew is still a Category 4 major hurricane, the wind-field is relatively small, with hurricane force winds only extending 40 miles (65 km) from the center. Matthew is making landfall along the edges of Haiti and Cuba, and therefore we expect wind damage to be relatively localized.

Storm surge from Matthew is another concern. Matthew’s strong winds can cause significant storm surge in the Caribbean. Many of the islands in Matthew’s track have multiple bays, which have the potential to amplify storm surge by not allowing the water to flow away to the side. Furthermore, as Matthew has a fairly linear track, this also amplifies the risk of high waves and storm surge. 

We are keeping a close eye on Matthew’s extended 4-5day forecast, which has the storm tracking very close to the U.S. coastline off Florida and the southeastern states, before making landfall in the U.S. in the Carolina region at Category 2 strength. There’s still a fair amount of uncertainty at this lead time though.”


Dr. Michael Kozar, hurricane risk specialist at RMS, notes: “Matthew has a thermodynamic environment that could potentially support a very intense hurricane as it moves up the Gulf Stream over water with sea-surface temperatures of above 28°C.

With respect to the slow forward speed of Matthew, if a storm sits on top of its own cold wake it can weaken. However, in Matthew’s case, the sea surface temperatures across the northern Caribbean and around the Bahamas are well above 28°C. Furthermore, warm water seems to exist well below the surface, based on maps of various isotherm depths and ocean heat content. Given how shallow water is near the Caribbean Islands, upward mixing of cold water may not be a huge limiting factor on the storm’s intensity, until it pulls further north into colder waters or northeast off the continental shelf.

A more significant factor for a cap in Matthew’s intensity, besides the amount of time it spends near/over land such as Hispaniola and Cuba, is wind shear and dry air. Forecasting the impact of wind shear on Matthew has been quite tricky thus far as Matthew has been located just south of an area of moderate to high shear for quite some time. If the shear north of the system holds its ground, Matthew very likely will weaken.

Furthermore, there also appears to be some dry air in the mid-levels that could suppress intensity as Matthew pulls poleward away from the Caribbean and into the Western Atlantic. All of this does point to weakening as the storm moves northward, but keep in mind the model consensus has been calling for some degree of weakening for a day or two. Yet Matthew’s intensity largely just oscillated up and down over the course of the weekend and into today.

Regardless, the inner core of Matthew is quite small, so the large scale impacts from wind may be secondary to the impacts from rainfall, save for within about 50 miles of the center.”


Based on RMS reconnaissance trips to the area in 2015 as part of the research conducted to update the RMS North Atlantic Hurricane Model in 2017, the RMS view of vulnerabilities by island is below: 

Haiti: In Haiti the main concern is rainfall, since with steep terrain much of the country is exposed to flooding and landslides which could be the biggest source of issues in the most populated areas if they aren’t hit by high winds. And certainly the most exposed areas along the southern coast look like they will be hit hard. It is expected that much of the local building stock has been built in recent years, following the 2010 earthquake that devastated the country. The Haitian government instituted a new building code in 2012, in direct response to the earthquake, but it is unclear to what extent this new building code is being enforced. RMS research does, however, indicate that buildings in Haiti are expected to perform worse than most Caribbean islands, although this varies by individual construction type. Insurance penetration in Haiti is expected to be low.

Cuba: While market knowledge of vulnerability in Cuba is low, research into the area by RMS shows us that, despite being older on average, the building stock performs well overall due to the high presence of concrete construction. Insurance penetration is also expected to be low.

Jamaica: Building codes in Jamaica have not had a major revision since the first building code was enacted in 1908. However, RMS reconnaissance and research shows that single-family homes are built by local engineers to high standards; reinforced concrete construction is very prevalent across the island. In 2012, Jamaican engineers adopted many practices outlined in recent International Building Code (IBC) standards, which are likely to be enacted in newer commercial construction.

Bahamas: Insurance Penetration in the Bahamas is understood to be higher than other Caribbean islands, although lower than hurricane-exposed regions of the U.S. However, RMS analysis suggests that the Bahamas, with a long history of building codes, exhibit better construction quality than most of the Caribbean. The predominant construction material is reinforced concrete, although amongst the Family Islands there is a higher proportion of wood construction, leaving these islands potentially more vulnerable to wind damage. Despite being well attached to the walls, roofs in the Bahamas often feature asphalt shingles, which can increase the vulnerability of the roof and the entire structure. RMS reconnaissance shows that insured property accounts for less than 40 percent of all homes; one estimate places single-family dwelling insurance penetration at near 20 percent. Commercial exposures are more likely to be insured than residential exposures.

What a Difference a Day Makes

Hurricane Matthew has tracked most of the way up the Florida coastline as a Category 3 major hurricane. Matthew tracked further offshore than previously forecast, placing the worst of the storm’s winds and storm surge offshore of Florida. While there have been hurricane force winds onshore and some damage from Matthew along portions of Florida’s east coast, thankfully the levels of damage in Florida that we are seeing are lower and less widespread than we expected just 24 hours ago.

As Matthew continues to track along the coastline, our focus shifts north towards Georgia and South Carolina, with a potential landfall near Charleston, South Carolina as a Category 2 hurricane. Even if landfall does not occur, there is significant flood risk in the southeast U.S., including high storm surge risk from Jacksonville northward to Charleston, SC. As a large, slow moving storm, Matthew has been absorbing a lot of tropical moisture and building up a lot of rising water over its lifecycle. This increases the potential for heavy rainfall and significant build-up of water along the southeast coastline, which features greater storm surge potential than eastern Florida due to local bathymetry. The magnitude and extent of storm surge-driven coastal flooding, exacerbated by the occurrence of astronomical high tide cycles, is expected to rival that of Hurricane Hugo (1989).  

Bands of heavy rain are extending as much as 500 miles north-northeast of Matthew into Georgia and the Carolinas, suggesting that the storm could cause excessive rainfall and precipitation-induced flooding over the next few days. Rainfall estimates in excess of one foot (30 cm) are expected along the coast of South and North Carolina, two areas where soils are already heavily saturated and river levels are high based on significant rainfall over the last few weeks. According to the National Weather Service in Charleston, South Carolina, coastal and inland flooding impacts could be comparable or worse than the October 2015 flood event.  

A shift in Matthew’s movement could have a large influence on the impacts both along the coast and further inland. 

Over the past several days, Matthew’s forecast has changed significantly.

To assist our clients in understanding the full range of potential outcomes from Matthew, we continue to select stochastic events from our North Atlantic Hurricane model to represent the range of potential scenarios as the situation evolves. These have been provided to our clients on a daily basis, along with information regarding the modeled losses of these scenarios from our Industry Loss Curves. As the forecasts have evolved, so have the events we selected to represent the range of scenarios. As would be expected with a shift in forecast away from the Florida coast over the past 24 hours, today’s event selection saw a significant reduction in losses. 

As a measure of the change in just 24 hours, the average industry loss of the 15 selected events yesterday was $20bn, with losses from the individual scenarios ranging from $7bn to $54bn.  Today, the average loss of the 10 selected events was just $6bn, with losses from the individual scenarios ranging from less than $1bn to $19bn. This illustrates that the range of potential outcomes has shifted significantly, but it still remains wide – and continues to evolve.

But these are just modeled scenarios, chosen based on track parameters that are already out of date.  

Just as the average loss from the range of scenarios doesn’t mean much, individual scenario losses shouldn’t be viewed as loss estimates for Matthew: they are chosen to help our clients make sense of what’s happening. Tomorrow these will change yet again as the official forecasts are updated and our understanding of the storm evolves. 

Efforts towards determining RMS’ official loss estimate for a hurricane begin once the storm has fully passed.

This is when our modelers can begin producing reconstructions of the hurricane’s windfield and storm surge extent. In significant hurricane events, such as Matthew, RMS modelers and experts are also deployed to survey damage on the ground. Matthew’s ultimate behavior, including a possible recurvature towards The Bahamas and Florida next week, could potentially delay these efforts.

In the meantime, as Matthew is still evolving, so is our response.

The RMS Event Response team will continue to provide daily event reports with updates to the stochastic event selections daily through the weekend. The RMS Knowledge Center will also be on hand through the weekend should any questions arise.

Let’s see what tomorrow brings.

This post was co-authored by Emily Paterson, Tom Sabbatelli, Ben Brookes, and Paul Wilson.

What could be your exposed limit loss to Major Hurricane Matthew?

Hurricane Matthew is currently moving along the Florida coast with high winds, heavy rain, and a large surge. But as early as three days ago RMS clients were estimating their exposed limit in the path of the storm. How was that analysis generated?

On Thursday October 6 an RMS Exposure Manager analysis of the RMS 2011 Industry Exposure Database (IED) was performed. It found approximately $2.77 trillion of total insured value (TIV) exists within ZIP codes that had a five percent likelihood of experiencing hurricane-force winds – as forecast by the National Hurricane Center (NHC) while the storm was still a long way from the U.S. coast.

Clients were able to feed in insights from the RMS Event Response team to understand the breadth of potential industry losses. Even based on these early forecasts, it was clear this could be a significant event, as you can see from these videos.

Description:  An accumulation analysis is performed against the RMS Wind IED based upon a view of postal codes, as of October 6, that have 5% probability or greater of experiencing hurricane force wind.

But whilst understanding how much the industry is exposed is important to a portfolio manager, understanding how much their own organization could lose is critical. This next video shows how clients used RMS Event Response output on October 6, two days before projected landfall, to quickly produce a range of exposed limit estimates by applying varying damage factors.  With this insight, clients could understand how much exposure they have within the path of the storm using the RMS Financial Model in Exposure Manager.

Description:  An accumulation analysis is performed against an E&S portfolio to calculate exposed limits using various damage ratios based upon a view of postal codes, as of October 6, that have 5% probability or greater of experiencing hurricane force wind.

Description:  An accumulation analysis is performed against an E&S portfolio to calculate exposed limits using a shape file from the National Hurricane Center, which shows areas potentially affected by hurricane force surface winds (1-minute average <= 74mph) banded by probability.

Integrating Catastrophe Models Under Solvency II

In terms of natural catastrophe risk, ensuring capital adequacy and managing an effective risk management framework under Solvency II, requires the use of an internal model and the implementation of sophisticated nat cat models into the process. But what are the benefits of using an internal model and how can integrated cat models help a (re)insurer assess cat risk under the new regulatory regime?

Internal Model Versus the Standard Formula

Under Pillar I of the Directive, insurers are required to calculate their Solvency Capital Requirement (SCR), which is used to demonstrate to supervisors, policyholders, and shareholders that they have an adequate level of financial resources to absorb significant losses.

Companies have a choice between using the Standard Formula or an internal model (or partial internal model) when calculating their SCR, with many favoring the use of internal models, despite requiring significant resources and regulatory approval. Internal models are more risk-sensitive and can closely capture the true risk profile of a business by taking risks into account that are not always appropriately covered by the Standard Formula, therefore resulting in reduced capital requirements.

Catastrophe Risk is a Key Driver for Capital Under Solvency II

Rising insured losses from global natural catastrophes, driven by factors such as economic growth, increasing property values, rising population density, and insurance penetration—often in high risk regions, all demonstrate the value of embedding a cat model into the internal model process.

Due to significant variances in data granularity between the Standard Formula and an internal model, a magnitude of difference can exist between the two approaches when calculating solvency capital, with potentially lower SCR calculations for the cat component when using an internal model.

The application of Solvency II is, however, not all about capital estimation, but also relates to effective risk management processes embedded throughout an organization. Implementing cat models fully into the internal model process, as opposed to just relying only on cat model loss output, can introduce significant improvements to risk management processes. Cat models provide an opportunity to improve exposure data quality and allow model users to fully understand the benefits of complex risk mitigation structures and diversification. By providing a better reflection of a company’s risk profile, this can help reveal a company’s potential exposure to cat risk and support companies in making better governance and strategic management decisions.

Managing Cat Risk Using Cat Models

A challenging aspect of bringing cat models in-house and integrating them into the internal model process is the selection of the ”right” model and the “right” method to evaluate a company’s cat exposure. Catastrophe model vendors are therefore obliged to help users understand underlying assumptions and their inherent uncertainties, and provide them with the means of justifying model selection and appropriateness.

Insurers have benefited from RMS support to fulfil these requirements, offering model users deep insight into the underlying data, assumptions, and model validation, to ensure they have complete confidence in model strengths and limitations. With the knowledge that RMS provides, insurers can understand, take ownership, and implement a company’s own view of risk, and then demonstrate this to make more informed strategic decisions as required by the Own Risk and Solvency Assessment (ORSA), which lies at the heart of Solvency II.

The Cure for Catastrophe?

On August 24, 2016 – just a few weeks ago – an earthquake hit a remote area of the Apennine mountains of central Italy in the middle of the night. Fewer than 3000 people lived in the vicinity of the strongest shaking. But nearly 1 in 10 of those died when the buildings in which they were sleeping collapsed.

This disaster, like almost all disasters, was squarely man-made. Manufactured by what we build and where we build it; or in more subtle ways – by failing to anticipate what will one day inevitably happen.

Italy has some of the richest and best researched disaster history of any country, going back more than a thousand years. The band of earthquakes that runs through the Apennines is well mapped – pretty much this exact same earthquake happened in 1639. If you were identifying the highest risk locations in Italy, these villages would be on your shortlist. So in the year 2016, 300 people dying in a well-anticipated, moderate-sized earthquake, in a rich and highly-developed country, is no longer excusable.

Half the primary school in the town of Amatrice collapsed in the August 24th earthquake. Very fortunately, it being the middle of the night, no children were in class. Four years before, €700,000 had been spent to make the school “earthquake proof.” An investigation is now underway to see why this proofing failed so spectacularly. If only Italy was as good at building disaster resilience as mobilizing disaster response: some 7000 emergency responders had arrived after the earthquake – more than twice as many as those who lived in the affected villages.

The unnatural disaster

When we look back through history and investigate them closely we find that many other “natural disasters” were, in their different ways, also man-made.

The city of Saint-Pierre on the island of Martinique was once known as the “little Paris of the Caribbean.” In 1900 it had a population of 26,000, with tree-lined streets of balconied two and three story houses. From the start of 1902 it was clear the neighbouring volcano of Mont Pelée was heading towards an eruption. The island’s governor convened a panel of experts who concluded Saint-Pierre was at no risk because the valleys beneath the volcano would guide the products of any eruption directly into the sea. As the tremors increased, the Governor brought his family to Saint-Pierre to show the city was safe, and therefore, likely all but one of the city’s inhabitants, died when the eruption blasted sideways out of the volcano. There are some parallels here with the story of those 20,000 people drowned in the 2011 Japanese tsunami, many of whom had assumed they would be protected by concrete tsunami walls and therefore did not bother to escape while they still had time. We should distrust simple notions of where is safe, based only on some untested theory.

Sometimes the disaster reflects the unforeseen consequence of some manmade intervention. In Spring 1965, the U.S. Army Corps of Engineers completed the construction of a broad shipping canal – known as the Mississippi River Gulf Outlet (“Mr Go”) linking New Orleans with the Gulf of Mexico. Within three months, a storm surge flood driven by the strong easterly winds ahead of Hurricane Betsy was funnelled up Mr Go into the heart of the city. Without Mr Go the city would not have flooded. Four decades later Hurricane Katrina performed this same trick on New Orleans again, only this time the storm surge was three feet higher. The flooding was exacerbated when thin concrete walls lining drainage canals fell over without being overtopped. Channels meant for pumping water out of the city reversed their intended function and became the means by which the city was inundated.

These were fundamental engineering and policy failures, for which many vulnerable people paid the price.


My new book, “The Cure for Catastrophe,” challenges us to think differently about disasters. To understand how risk is generated before the disaster happens. To learn from countries, like Holland, which over the centuries mastered their ever-threatening flood catastrophes, through fostering a culture of disaster resilience.

Today we can harness powerful computer technology to help anticipate and reduce disasters. Catastrophe models, originally developed to price and manage insurance portfolios, are being converted into tools to model metrics on human casualties or livelihoods as well as monetary losses. And based on these measurements we can identify where to focus our investments in disaster reduction.

In 2015 the Tokyo City government was the first to announce it aims to halve its earthquake casualties and measure progress by using the results of a catastrophe model. The frontline towns of Italy should likewise have their risks modeled and independently audited, so that we can see if they are making progress in saving future lives before they suffer their next inevitable earthquake.


The Cure for Catastrophe is published by Oneworld (UK) and Basic Books (US)

The Rise and Stall of Terrorism Insurance

In the 15 years since the terrorist attacks of September 11, 2001, partnerships between the public sector and private industries have yielded more effective security and better public awareness about the threat of terrorism. We may never come to terms with the sheer volume of human loss from that day and among the hundreds of attacks that continue every year. But we have achieved greater resilience in the face of the ongoing realities of terrorism – except for when it comes to looking ahead at recovering from the catastrophic costs for rebuilding in its aftermath.

Terrorism insurance is facing a structural crisis: hundreds of terrorist attacks occur annually, but actual insurance payouts have been negligible. The economic costs of terrorism have skyrocketed, but demand for terrorism coverage has remained relatively flat. And despite a proliferation of catastrophe bonds and other forms of alternative capital flooding into the property insurance market, relatively little terrorism risk has been transferred to the capital markets. If terrorism insurance – and the insurers who provide it – are to remain relevant, they must embrace the new tools and data available to them to create more relevant products, more innovative coverages, and new risk transfer mechanisms that address today’s threat landscape.

The September 11th, 2001 attacks rank among the largest insurance losses in history at $44 billion, putting it among catastrophes with severe losses such as Hurricane Katrina ($70 billion), the Tohoku earthquake and tsunami ($38 billion), and Hurricane Andrew ($25 billion).

But unlike natural catastrophes, whose damages span hundreds of kilometers, most of the 9/11 damages in New York were concentrated in an area of just 16 acres. Such extreme concentration of loss caused a crisis in the insurance marketplace and highlighted the difficulty of insuring against such a peril.

Following the events of the September 11 attacks, most insurers subsequently excluded terrorism from their policies, forcing the U.S. government to step in and provide a backstop through the Terrorism Risk and Insurance Act (2002). Terrorism insurance has become cost effective as insurer capacity for terrorism risk increased. Today there are an estimated 40 insurers providing it on a stand-alone basis, and it is bundled with standard property insurance contracts by many others.

But despite better data on threat groups, more sophisticated terrorism modeling tools, and increased transparency into the counter-terrorism environment, terrorism insurance hasn’t changed all that much in the past 15 years. The contractual coverage is the same – usually distinguishing between conventional and CBRN (chemical, biological, radiological, and nuclear) attacks. And terrorism insurance take-up remains minimal where attacks occur most frequently, in the middle east and Africa, highlighting what policymakers refer to as an increasing “protection gap.”

Closing this gap – through new products, coverages, and risk transfer schemes – will enable greater resilience following an attack and promote a more comprehensive understanding of the global terrorism risk landscape.

What can you learn from Exposure?

Many RMS team members are active bloggers and speakers at speaking engagements, and contribute to articles, but to capture even more of our expertise and insight, and to reflect the breadth of our activities, we have created a new magazine called Exposure, which is ready for you to download.

The aim of Exposure magazine is to bring together topics of special interest to catastrophe and risk management professionals, and recognize the vast area that individuals involved in risk management must cover today.  There is also a theme that we believe unites the risk community, and that is the belief that “risk is opportunity,” and the articles within Exposure magazine reflect that this is a market seeking to avoid surprises, improve business performance, and innovate to create new opportunities for growth.

Within the foreword to Exposure, Hemant Shah, CEO of RMS, also reflects on an “inflection point” in the industry, a mix of globalization, changing market structures, to technology, data and analytics, offering a chance for the industry to innovate and increase its relevance.  In Exposure, there is a mix of articles examining perils and regions, industry issues, and articles discussing what’s coming up for our industry.

Within perils and regions, Exposure looks at opportunities for U.S. and European flood, the effect extra-tropical transitioning has on typhoons in Japan, and the impact that secondary hazards have, such as liquefaction, and the earthquake sequencing that hit the low-seismicity area of Canterbury, New Zealand in 2010 and 2011.

The magazine also tackles issues around Solvency II, the emergence of the “grey swan” event, why reinsurers are opting to buy or build their own insurance-linked securities fund management capabilities, and wraps up with Robert Muir-Wood, chief research officer for RMS, explaining how insurers can help drive the resilience analytics revolution.

Please download your copy now.

Fire Weather

Fires can start at all times and places, but how a fire spreads is principally down to the weather.

This week, 350 years ago, the fire at Thomas Farriner’s bakery on Pudding Lane, a small alleyway running down to the river from the City of London, broke out at the quietest time of the week, around 1am on Sunday morning September 2, 1666. London had been experiencing a drought and the thatched roofs of the houses were tinder dry. At 4 am the Lord Mayor, roused from his sleep, decided the blaze was easily manageable. It was already too late, however. By 7am the roofs of some 300 houses were burning and fanned by strong easterly winds the fire was spreading fast towards the west. Within three days the fire had consumed 13,000 houses and left 70,000 homeless.

In the city’s reconstruction only brick and tiles houses were permitted, severely reducing the potential for repeat conflagrations. Within a few years there were the first fire insurers, growing their business as fear outran the risk.

Yet big city fires had by no means gone away and the wooden cities of northern Europe were primed to burn. The 1728 Copenhagen fire destroyed 28% of the city while the 1795 fire left 6000 homeless. A quarter of the city of Helsinki burned down in November 1808. The 1842 fire that destroyed Hamburg left 20,000 homeless. The center of the city of Bergen Norway burnt down in 1855 and then again in January 1916.

Wind and fire

By the start of the 20th Century, improvements in fire-fighting had reduced the chance that a great city fire took hold, but not if there were strong winds, like the 1916 Bergen, Norway fire, which broke out in the middle of an intense windstorm with hurricane force gusts. In February 1941 the fire that burnt out the historic center of Santander on the coast of northern Spain was driven by an intense windstorm: equivalent to the 1987 October storm in the U.K. And then there is the firestorm that destroyed Yokohama and Tokyo after the 1923 earthquake, driven by 50 miles per hour winds on the outer edge of a typhoon in which, over a few hours, an estimated 140,000 died.

Wind and fire in the wooden city are a deadly combination. Above a certain wind speed, the fire becomes an uncontrollable firestorm. The 1991 Oakland Hills fire flared up late morning also on a Sunday and then surged out of the mountains into the city, driven by hot dry 60 miles per hour Diablo Winds from the east, jumping an 8 lane highway and overwhelming the ability of the fire crews to hold the line, until the wind eventually turned and the fire blew back over its own embers.  The fire consumed 2800 houses, spreading so fast that 25 died. On February 7, 2009 a strong northwesterly wind drew baking air out of Australia’s interior and fires took off across the state of Victoria. Fallen power cables sparked a fire whose embers, blown by 60 miles per hour winds, flashed from one woodland to another, overwhelming several small towns so fast that 173 died before they could escape.

Most recently we have seen fire storms in Canada. Again there is nothing new about the phenomenon; the Matheson fires in 1919 destroyed 49 Ontario towns and killed 244 people in a fire front that extended 60km wide. It was a firestorm fanned by gale force winds, that destroyed one third of the city of Slave Lake, Alberta, in 2011 and it is fortunate only that the roads were broad and straight to allow people to escape the fires that raged into Fort McMurray in summer 2016.

There is no remedy for a firestorm blown on gale-force winds. And wooden property close to drought ridden forests are at very high risk, such as those from South Lake Tahoe to Berkeley in California and in New Zealand, from Canberra to Christchurch. Which is why urban fire needs to stay on the agenda of catastrophe risk management. A wind driven conflagration can blow deep into any timber city, and insurers need to manage their exposure concentrations.

Launching a New Journal for Terrorism and Cyber Insurance

Natural hazard science is commonly studied at college, and to some level in the insurance industry’s further education and training courses. But this is not the case with terrorism risk. Even if insurance professionals learn about terrorism in the course of their daily business, as they move into other positions, their successors may begin with hardly any technical familiarity with terrorism risk. It is not surprising therefore that, even fifteen years after 9/11, knowledge and understanding of terrorism insurance risk modeling across the industry is still relatively low.

There is no shortage of literature on terrorism, but much has a qualitative geopolitical and international relations focus, and little is directly relevant to terrorism insurance underwriting or risk management.

As a step towards redressing the imbalance in available terrorism literature, a new online journal, The Journal of Terrorism and Cyber Insurance, has been established; its launch is to coincide with the fifteenth anniversary of 9/11. The journal has been welcomed and supported by global terrorism insurance pools, and its launch will be publicized at the annual terrorism pools congress in Canberra, Australia, on October 7, 2016.

Originally conceived as a journal of terrorism insurance, coverage has been extended to include cyber risk, recognizing the increasing insurance industry concerns over cyber terrorism and the burgeoning insurance market in cyber risk. The aim of the open access journal is to raise the industry’s level of knowledge and understanding of terrorism risk. By increasing information transparency for this subject the editorial board hopes to facilitate the growth of the terrorism insurance market, which serves the risk management requirements of the wider international community. The first issue is a solid step in this direction, and will include articles on the ISIS attacks in Paris in November 2015; terrorism insurance in France and Australia; parametric terrorism insurance triggers; non-conventional threats; the clean-up costs of anthrax, and the terrorist use of drones.

The four founding editors of the journal have extensive knowledge of the field. The managing editor is Rachel Anne Carter, who has terrorism insurance administrative experience with both OECD and U.K. Pool Re. Dr. Raveem Ismail, specialty terrorism underwriter at Ariel Re, brings to the editorial board detailed direct terrorism and political risk underwriting knowledge. Padraig Belton is a writer with extensive political risk expertise, having served as a correspondent in the Middle East and Pakistan. As chief architect of the RMS terrorism model, I will bring terrorism risk modeling expertise to the team and have the responsibility and pleasure to review all article submissions. I look forward to sharing insights from the journal with subscribers to this blog.