Matthew Nielsen, senior director, governmental and regulatory affairs, RMS
Daniel Stander, managing director, RMS
This blog was first published in The Hill
Breezy Point, N.Y., Oct. 31, 2012 – Street scene after Hurricane Sandy. Source: FEMA
Katrina. Sandy. Matthew. We tend to remember the big-name storms that take over the news cycle for weeks, offering up poignant images of rescued families.
Yet many of us barely notice losses racked up annually from flooding events all over the U.S.: flash floods in the Midwest and Northeast, torrential rains in bone-dry Houston, dam spillways exploding in formerly drought-stricken California.
After a blistering start to the 2017 U.S. severe weather season in which tornado, hail, and wind reports were at near or record levels of activity through to March, recent months have been closer to normal. As of early July, overall observations are still above the 10-year running average (2005-2015), but they’re slowly falling back into the expected bounds.
Nevertheless, the events that have occurred have certainly left their mark on the (re)insurance industry. Total U.S. insured losses from SCS events during the first quarter of 2017 (January-March) were $5.7 billion, the highest in the last 18 years. As of early July, losses were estimated to be greater than $14 billion, marking the tenth consecutive year that SCS insured losses have exceeded $10 billion.
In terms of news events, October 28, 2005 maybe wasn’t that eventful. It was National Chocolate Day in the U.S. – an obvious cause for celebration. But for 32 RMS clients sitting in conference rooms in RMS offices as far apart as Hackensack, NJ, through to Tokyo, history was about to be made. After extensive road testing using RMS employees, these 32 brave individuals were the first clients to take the RMS Certified Catastrophe Risk Analyst (CCRA®) exam. Nineteen passed the exam and became our first client CCRA designees.
Fast forward 13 years and 59 training program sessions later, to April 27, 2017 when the most recent CCRA exam was held at five global RMS offices. This exam sitting became a milestone in itself. As of the April 27 exam, we can celebrate passing the 500-designee mark and now have an alumnus of 505 CCRA designees.
What is the El Niño Southern Oscillation? More conveniently known as ENSO, it is the planet’s largest source of natural climate variability on interannual time scales. ENSO describes the interaction between ocean and atmosphere in the equatorial Pacific, but the results of this interaction are global, and can last for many months. There is a good level of ENSO awareness in our industry, such as that warm phases of the oscillation (El Niño) tend to suppress Atlantic hurricane activity, and that cool phases (La Niña) tend to enhance it. But how was ENSO discovered? And how does it work?
The second Mexico multi-cat securitization was launched at the end of 2012 to provide reinsurance for the Fund for Natural Disasters (FONDEN) – established by the Mexican federal government as a disaster fund for the poor, which also finances disaster-damaged infrastructure. This three-year bond had a series of tranches covering earthquake or hurricane, each to be triggered by parametric “cat-in-a-box” structures. For one hurricane tranche, this was based on the central pressure of a storm passing into a large “box” drawn around the Pacific coasts of Mexico and Baja California, with the length of the box spanning well over a thousand miles. With a “U.S. National Hurricane Center (NHC) ratified” hurricane central pressure in the box of 920 millibars (mb) or lower there would be a 100 percent payout or $100 million; for a central pressure of 932 mb to 920 mb a 50 percent payout of $50 million.
Michèle Lai, Product Manager, RMS
Contributors: James Cosgrove, Analyst – Event Response, RMS; Juergen Grieser, Director, RMS
The European severe convective storm (SCS) season has kicked off. The heatwave that scorched the continent for the best part of a week set the ideal conditions for deep convection. I am based at the RMS Zürich office, and as everyone enjoyed this heatwave, cooling off by going swimming after work, the potential risk of thunderstorms was never too far from our minds.
The season started with a series of supercells hitting France on June 13 and June 15, continued Thursday, June 22 in Germany and then moved on towards eastern Europe.
Although usually less severe than their U.S. counterparts, SCS in Europe can produce extensive losses, such as Andreas in 2013 with EUR 2.9 billion insured losses (2013 USD $3.9 billion) and Ela in 2014, EUR 2 billion insured losses (2014 USD $2.2 billion).
For Texas, it all began with Hurricane Ike in 2008. In the run-up and during the global financial crisis, between September 2006 and the last quarter of 2008, 780,000 jobs disappeared in the U.S. construction sector. Following Ike, with its generally modest levels of damage across a wide area, “two men in a pickup” teams turned up to get homeowners to sign “Assignment of Benefits” (AOB) forms. A signed AOB form gave repairers responsibility for dealing with the insurer over the claim, and the right to pass the case onto a lawyer assembling a class action lawsuit.
The original idea of contractors sourcing AOBs may have emerged after the 2004-2005 hurricanes in Florida, when lawyer Harvey V Cohen of Cohen Grossman met with restoration contractors to encourage them to employ “Assignment of Benefits” forms so they would deal directly with the insurance company for their payments.
We tend to think that critical systems responsible for managing oil rigs, power stations, steel production plants, are somewhat immune to what happens in the “wild west” of cyberspace. News of cyberattacks tend to focus on data theft, financial heists, or bringing down websites; they are contained within IT systems. If cyberattacks are contained in the cyber world, then the logic goes that only cyber insurers should be concerned by the risk.
There is also a sense of security in the belief that critical control systems for “real world” assets and processes would either be too mechanical, too old, not connected to the same network as the wider Internet, or would run on their own networks. The reality is that industrial control systems (ICS) that manage energy, water, transport, communications, and manufacturing plants, are increasingly managed and controlled remotely or need to be networked. Wherever the systems need to use a network, the systems are exposed to vulnerabilities on that network. For non-cyber insurers, this risk needs to be assessed and managed.
In what was an otherwise relatively quiet Australian cyclone season, Cyclone Debbie proved to be the exception, being the only severe tropical cyclone to make landfall. Although devastating for those affected, Debbie provided an opportunity to help better understand cyclones in the region and the damage they cause.
The Cyclone Testing Station at James Cook University (with collaborators from the Wind Research Laboratory at the University of Queensland) were able to deploy portable weather stations in advance of the event as part of its SWIRLnet (Surface Weather Relay and Logging Network) project, of which RMS is a benefactor.
If we’ve learned anything about forecasts and predictions (pick any recent event, sporting, political etc.) they give an indication of the situation, but cannot predict the absolute outcome, and surprises can most definitely happen. We are into the first weeks of the North Atlantic hurricane season, which officially runs for six months from June 1 to November 30, and a variety of forecasting groups and agencies have issued preseason forecasts. Continue reading