Monthly Archives: October 2016

Tracking Matthew – The Devil in the Detail

Hurricane Matthew aptly demonstrated that slight shifts in a tropical cyclone’s timing, track, and wind field extent can make a huge difference in its overall impact to exposures at risk.

As Matthew bore down on the U.S. after devastating Haiti, it had the makings of another industry-altering event. Had the storm made landfall along the Florida coast, likely as a category 4 storm, insured losses could have been ten times larger than the $1.5 billion to $5 billion range that is currently projected by RMS.

Given that Matthew’s strongest winds were confined to a small area within its inner core, its path proved to be critical. A difference in track of just a few dozen miles translated to a material reduction in wind impacts along the coastline and into interior portions of Florida. The fact that the storm stayed just offshore helped to minimize overall damages significantly throughout the state and the (re)insurance industry at large.

Storms like Matthew signify the importance of being able to track dynamic tropical cyclone characteristics, position, and damage potential accurately as the storm unfolds in order to help communities and businesses adequately prepare and respond.

There is a wealth of public and private data to inform real-time tropical cyclone wind field assessments and event response processes, but some data provides more insight than others. Commonly used public sources include worldwide and national tropical cyclone centers, numerical weather prediction models, and numerous forecast offices or research organizations.

In the U.S., one of the better-known public sources for tropical cyclone data is the National Hurricane Center (NHC) in Miami, Florida. A branch of the National Oceanic and Atmospheric Administration, the NHC provides a range of tropical cyclone data, tools, analyses, and forecasts to inform real-time tropical cyclone assessments in the Atlantic and East Pacific basins.

There are also private sources of tropical cyclone wind field data that span a wide breadth and depth of useful information, few of which provide insight that goes beyond what is provided by the NHC.

One exception to that is HWind, formally known as HWind Scientific. Acquired by RMS in 2015, the provider of tropical cyclone wind field data develops observation-based data products for both real-time and historical wind field analyses in the Atlantic, East Pacific, and Central Pacific Basins.

During a real-time event, HWind provides regularly-derived snapshots of wind field conditions leading up to and following landfall, as well as post-event wind hazard footprints 1-3 days after the storm impacts land. Each analysis is informed by access to an observational data network spanning more than 30 land, air, and sea-based platforms, all of which are subject to stringent independence and quality control testing.

On average, tens of thousands of observations are used for each event, depending on the availability and the storm’s proximity to land.

Figure 1: GIF animation of all RMS HWind snapshots for Hurricane Matthew (September 28 through October 9, 2016). Wind is represented as maximum 1-minute sustained winds over open water for marine exposure, and over open terrain over land.

HWind products tend to represent wind hazard characteristics with more frequency, accuracy, and granularity than many publically available sources, including the NHC.

From a frequency perspective, HWind snapshots are created and refreshed as often as every three hours throughout the event as soon as aircraft reconnaissance begins, allowing users to track changing storm conditions as the event evolves.

The data also discerns important factors such as storm location with a high degree of granularity and precision, often correcting for center-position errors and biases that are evident in some observational data sources, or adjusting wind speeds to account for the impact of terrain.

Each snapshot also includes a high-resolution representation of local wind speeds and hazard bands.


Figure 2: Preliminary wind hazard footprint for Hurricane Matthew (2016) based on the NHC (left) and RMS HWind (right), where winds are represented as maximum 1-minutes sustained in kts (left) and mph (right).

During events like Hurricane Matthew and the events that are yet to come, private sources like HWind can provide additional and timely insight needed to understand the aspects of wind hazard that matter most to a (re)insurer’s business and event response processes.

Using this information, risk managers can more accurately quantify exposure accumulations at risk during or immediately following landfall. Crucially, this allows them to anticipate the potential severity of loss claims with more precision, and position claims adjusters or recovery assets more effectively.

Collectively, it could mean the difference between being proactive vs. reactive when the next event strikes.

The Changing Landscape of Cyber Threats

The cyber risk landscape is constantly changing. In the last few weeks alone we’ve seen potentially game-changing events with the release of U.S. National Security Agency hacking tools through the shadow brokers auction, and one of the most significant Denial of Service (DDoS) attacks ever seen when millions of Internet of Things devices were hijacked to target a major piece of Internet infrastructure taking hundreds of websites offline. In this blog I’ll discuss some of the constant ebb and flow of attack verses defense through the lens of the five cyber loss methods currently modeled by RMS.

Data Breaches

The loss of 500 million records in a single cyberattack represents the largest data breach event in history – so far, at least. The recent Yahoo hack, and the potential impact on the proposed Verizon takeover, has sent another stark reminder to industry executives of the dangers surrounding data breaches.

It may have been the biggest single hack ever in terms of records lost, but it’s hardly an isolated one. The leak of the Panama Papers was significant in terms of size – but also led to huge political fall-out globally as politicians were implicated in secret offshore funds, with the resignation of the Icelandic prime minister.

Governments and public agencies themselves have also been targeted in the U.S., Mexico, and the Philippines, for example. One of the most significant breaches affected Turkey, with the release of nearly 50 million records from the country’s General Directorate of Population and Citizenship Affairs, which included addresses, birth dates, and most troublingly, national ID numbers.

These individual large events fit within the observed pattern for 2016 so far, with less frequent cyber data hacks, though ones of higher severity.

Denial of Service Attack

2016 has been another active period for Denial of Service (DDoS) attacks. Going into the year we’d seen signs of a downwards trend. However this was spectacularly reversed in the first quarter which saw 19 attacks greater than 100 gigabits per second. Gaming and software industries continue to be most heavily impacted. Furthermore, we’re seeing a growing number of companies attacked repeatedly – on average, each targeted company was attacked 29 times, but with one company being attacked 283 times!

Frequency aside, the increasing complexity of attacks is most disturbing. 59% in the first quarter of 2016 were “multi-vector” attacks which require unique mitigation controls for each attack vector, as seen in the recent DDoS attack on Dyn, the DNS provider. If this trend continues we can expect existing defenses to be less effective against DDoS, and therefore disruption to be increased.

Cloud Provider Failure

With the leading cloud providers continuing to achieve double and even triple-digit year-on-year growth, the clear trend of companies moving their services to the cloud is continuing apace. Though overall trends have seen a decrease in the annual downtime, 2016 has seen several small but significant failures including an Amazon Web Services outage in Australia, Salesforce in both the U.S. and Europe and a Verizon issue that impacted among others JetBlue Airways. As these cloud services become more popular, the accumulation of risk to both business interruption and data loss is becoming ever more severe as more companies become increasingly reliant on the cloud.

Financial Transaction Theft

Perhaps the most audacious cyber-attack of the past year was when almost US$100 million was stolen from Bangladesh’s central bank and transferred to accounts in Manila and the Philippines. Even more shocking, this money was stolen from the bank account at the U.S. Federal Reserve and was transferred using standard SWIFT financial transaction messages.

The largest cyber heist ever could have been even larger but for a misspelling, and it was this typo that raised the attention of the U.S. Federal Reserve Bank in New York. The perpetrators had attempted to withdraw $950 million over 35 separate transactions. A similar attack, using a vulnerability in the SWIFT messaging system, led to another multi-million dollar theft from a Ukrainian bank.

Perhaps more than any other sector, the interconnected nature of modern financial services leaves the industry open to large scale systemic cyber losses.

Cyber Extortion

Ransomware attacks are continuing to become more frequent and more complex in 2016. One alarming pattern has seen an increased targeting of healthcare institutions where we’ve seen multiple hospitals in California and Kentucky in the U.S. and in Germany, all being attacked. In one particularly un-ethical incident the Hollywood Presbyterian Hospital had to pay out around $17,000 to regain access to their systems.

The more sophisticated software now being used to perpetrate attacks is starting pay dividends for the hacking groups. The “Jigsaw” malware, for example, threatens to delete an increasing number of files after every hour of nonpayment. Encryption type malware has become the norm – and targeted, business-focused malware is growing as evidenced by the “Samsam” scheme which targets unpatched server software.

Incorporating Into the RMS Cyber Model

RMS is continuing to monitor the broad spectrum of cyber-attacks that are impacting thousands of companies every month. During a recent online seminar, the RMS cyber team shared some of these key trends outlined in this blog, and discussed the impacts on cyber insurers. Through the RMS Cyber Accumulation Management System, RMS is continuing to incorporate these insights into our modeling to provide the most comprehensive and accurate view of cyber risk.

After Matthew: Putting a Value on Natural Coastal Defenses

As coastal communities in the U.S. continue to clear up and count the costs following Hurricane Matthew, we already know things could have been much worse. So, had the storm not weakened and veered off into the Atlantic but made direct landfall as a major hurricane would the infrastructure and coastal defenses along the south-east coast of the U.S. have held up? Or could we have been better prepared? One element often overlooked is that of natural coastal defenses, such as salt marshes and wetlands.

While it’s still early days, it’s clear these natural ecosystems played a role in shielding Georgia and the Carolinas from some of the damage that Matthew inflicted. We can see these effects in the details of our reconstructions of Matthew’s storm surge footprint, but also because of some related research we’re publishing just today that for the first time puts an actual economic value on the protective effect of natural coastal defenses.

Matthew’s surge was greater than 6 feet (1.8m), according to the National Weather Service, when it made landfall about 55km northeast of Charleston on October 8 as a Category 1 storm. Wetlands – such as those around Savannah and Charleston – would have taken the brunt, slowing down the force of the water and offering urban areas some protection against inundation from the sea. Because of the new study we’re now able to express the value of this protection in dollars.

Hurricane Sandy flooding

The study, Coastal Wetlands and Flood Damage Reduction was led by the University of California, Santa Cruz, The Nature Conservancy, and the Wildlife Conservation Society in partnership Guy Carpenter, Lloyd’s, and RMS. We contributed cutting-edge modeling expertise. The research looks back to Hurricane Sandy, which hit New York and New Jersey particularly hard in 2012, although its effect was felt across large swathes of the Eastern Seaboard. The study concluded that:

  • Over $625m in property damage was avoided, with coastal wetlands providing a 10% reduction in property damages across states on average;
  • In New Jersey, wetlands prevented an estimated $425m in losses;
  • The protective value of wetlands during Sandy was nearly 30% in Maryland.

Although the protections offered by features such as wetlands, salt marshes and barrier reefs are already captured by RMS catastrophe models, this was the first time we’d extracted, isolated and measured their unique role. This capacity to better understand and quantify the economic value of natural defenses is a critical tool for policymakers, conservationists and the insurance industry, particularly in regions where wetlands are being degraded.

At RMS we anticipate that macro trends, such as sea level rise, will inevitably elevate the role of natural wetlands in the future. While the jury is still out on how climate change will impact the frequency and severity of hurricanes in the North Atlantic, the Intergovernmental Panel on Climate Change (IPCC) anticipates we will see more weather extremes by the end of the century.

In its 2013 report the IPCC predicted that it was “more likely than not” that the number of the most intense storms will increase in certain parts of the world. And even without any significant change in windstorm severity, sea level rise can be expected to drive up coastal storm losses.

According to Risky Business: The Economic Risks of Climate Change in the United States, a 2014 initiative led by former New York Mayor Michael Bloomberg and former U.S. Treasury Secretary Henry Paulson (and supported by RMS modeling), higher sea levels combined with storm surge will increase the average annual cost of coastal storms along the Eastern Seaboard and the Gulf of Mexico by $2 billion to $3.5 billion in just 15 years.

Better understanding the financial benefits of natural coastline features will ultimately help communities build greater resilience to future storms and floods and to attract more funding for sea defense conservation and restoration. The necessary response may be driven by science and gradual sea level rise. Or it may come only after major catastrophes have done their damage in the future.

Outcomes from The Solvency II “Lessons Learned” Insurance Conference in Slovenia

For insurers and consumers in the European Union, 2016 is a key year, since it is when the industry gets real experience of Solvency II, the newly implemented risk-based supervisory system. After a decade in the making, Solvency II officially came into force on January 1, 2016. While it had been a scramble by the industry to meet that deadline, ten months on as the road becomes less bumpy, what have we learned?

Insurers have met their numerous reporting requirements under the new regime, as well as calculated the Solvency Capital Requirement (SCR), prepared Own Risk and Solvency Assessments (ORSAs), and set out their risk management frameworks and rules of governance. Although this appears a straightforward task, in reality, the introduction of Solvency II has created a significant paradigm shift in insurance regulation, the biggest experienced in decades – with a corresponding cultural and strategic challenge to firms that do business in the European Union.

In September, I attended a conference in Slovenia’s capital Ljubljana, where industry participants gathered to assess where the industry has got to.

Has Anything Gone Wrong?

According Europe’s regulatory umbrella body, the answer to this question is an emphatic “no.” Manuela Zweimueller, the Head of Regulations at the European Insurance and Occupational Pensions Authority (EIOPA), added that although Solvency II is not quite perfect, regulators are continuing to refine the requirements. The main challenge according to EIOPA, is that Solvency II needs to be equally understood by regulators and (re)insurers over the next five years in order to close up the pockets of inefficiency and provide a level playing field for all those involved. EIOPA terms this “supervisory convergence.”

From the standpoint of European insurers and national regulators there are several core challenges. The German Federal Financial Supervisory Authority considers the combined demands of a complex internal model approval process, the need to work through complicated and lengthy reports and data, and appropriately train staff create challenges for supervised firms. From an industry perspective, Italian insurer Generali revealed that the main issues they face are around the complexity of internal model requirements and documentation. Both sides agree, however, that despite the burden of regulatory compliance and high level of technical detail involved, the use of an internal model for Solvency II to measure risk provides substantial benefits in the way of management, governance, and strategic decision-making. This makes Solvency II the only long-term solution for almost all insurers. For a brief discussion of the benefits of internal models, see my earlier blog post.

The additional demands of complying with Solvency II, however, have partly given rise to a surge in M&A activity. By going under the wing of a larger business, only one solvency return needs to be filed, which results in efficiencies and cost-savings. According to the Association of British Insurers (ABI), firms in the U.K. alone have already invested at least £3 billion (US$3.7 billion) to comply with the new solvency regulations. Strategic M&A activity is likely to rise, especially for small to medium-sized insurers which face problems maintaining the same levels of profitability as they did prior to Solvency II, and are seeking ways to defend their positions in the market.

What Does the Future Hold?

What’s needed next, according to EIOPA, is a period of stability for Solvency II – though there are still many more challenges that lie ahead. For instance, in the short term, insurance firms will undoubtedly feel the pinch, with many needing to invest more time and money into efficiently reporting their solvency ratios to the regulators. But there will be a preliminary review of the new directive in 2018 when EIOPA will address some of the complexities.

More widely, fears are increasing over the economic reality of low interest rates (which are hitting the life insurance market the hardest), decreasing corporate yields, and stock market volatility with Brexit. Although the consequences of Brexit have not been as bad as expected so far, these factors will still need to be managed in the balance sheet.

And despite all the difficulties that lie ahead for the industry as a whole, EIOPA stresses that we must remember that the ultimate goal of Solvency II is not just to unify a single EU insurance market, but to increase consumer protection – and adopting a consumer-centered approach is beneficial for all.

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)  [ http://iopscience.iop.org/article/10.1088/1748-9326/9/3/034018/pdf ]

2Shaffrey and Sutton (2006)  [ http://journals.ametsoc.org/doi/pdf/10.1175/JCLI3652.1 ]

3NOAA ESRL AMO data [http://www.esrl.noaa.gov/psd/data/timeseries/AMO/ ]

4Cusack (2016)  [ http://www.nat-hazards-earth-syst-sci.net/16/901/2016/nhess-16-901-2016.pdf ]

5Fink et al. (2009)  [ http://centaur.reading.ac.uk/32783/1/nhess-9-405-2009.pdf ]

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

09:30

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.

11:00

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.

12:30

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.

(END OF WEDNESDAY UPDATE 2)

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.

(END OF UPDATE)

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.”

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“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.”

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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.”

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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.