Monthly Archives: September 2018

How Risk Selection in California Can Be Affected by Earthquake Source Modeling Assumptions: A Spatial Loss Correlation Perspective

There used to be several ways to ensure risk diversification in a California earthquake insurance portfolio. You could select risks on the Peninsula and risks in the East Bay; or select risks in Ventura and Orange counties; or risks in Santa Barbara and Los Angeles counties. Better yet, it was considered that selecting risks in the San Francisco Bay Area and in the Los Angeles region was a perfectly good way of achieving risk diversification. This practice was largely based on an understanding of the spatial correlation of expected loss between counties in California and selecting risks for counties which decreased loss correlations in the insured portfolio.

While California and the large-scale plate motions that it is subjected to have not changed in recent years, the way earthquake sources are modeled has. The two main areas scientists are trying to explore are: first, whether there are preferential locations in a fault network where ruptures are likely to start or stop. The second area examines what the relationship is, if any, between the timing of the latest events on a fault network and the timing of the next event that will overlap with those events. A third avenue of research that is relevant for California is the behavior of aseismic faults — faults that deform without making felt earthquakes, and what happens to them when large ruptures propagate in their direction.

RMS led a study to quantify the impact of these three major modeling assumptions on spatial loss correlations. The study used sixteen county portfolios made using the RMS Industry Exposure Database (2017), and two vintages of source model: the Uniform California Earthquake Rupture Forecast 2 and 3 (UCERF2 and UCERF3). One major conclusion was that new and different risk selection strategies would be required by the spatial loss correlation study to ensure portfolio diversification with the most recent United States Geological Survey (USGS) model (UCERF3) as compared to the previous versions of the model (i.e. UCERF1 or 2).

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Hurricane Florence: Field Reconnaissance Findings

Introduction

After a major hurricane or a similar natural disaster, RMS routinely sends modelers and engineers into the affected region to survey the destruction. This field reconnaissance in the immediate aftermath of an event serves several purposes:

  • Provides an indication of the most prevalent type of damage (e.g. shingle loss, structural failures, flooded contents, etc.)
  • Provides an indication of the general frequency (e.g. one in five homes have shingle loss) and severity (e.g. 20 percent of shingles missing) of the damage.
  • Helps to understand the full geographic extent of the event including the subperils (e.g. wind, surge, inland flood, etc.). As part of this effort, RMS will measure flood depths (based on visible watermarks) that help provide a sanity check for the surge and flood modelers developing the event footprints.
  • Talking with locals (both homeowners and businesses) provides a better understanding of the severity of the storm and the conditions immediately after an event that may have already been cleaned up before our team arrived.

Of course, RMS is always concerned about the safety of its personnel and waits until it is safe to send anyone to the disaster areas. We also have to make sure that we can travel to the different areas affected by the disaster without too much difficulty.

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Hurricane Ike: A Cross-Country Event

It’s just over ten years to the day since Hurricane Ike made landfall near Galveston, Texas. Looking back at the 2008 North Atlantic hurricane season’s activity, it was above-average with 16 named storms, eight of which reached hurricane strength, and five became major hurricanes (Cat 3 or greater). Hurricane Ike did reach Category 4 over the warm waters of the open Atlantic, but later weakened as it tracked along the Cuban coastline, never to fully regain its strength. At around 0710 UTC on Saturday, September 13, 2008, Ike struck the Texas coastline as a strong Category 2 hurricane (on the Saffir-Simpson Hurricane Wind Scale), producing maximum sustained winds of 110 miles per hour (175 kilometers per hour).

It was by far the costliest event of that year, and today remains firmly in the top ten of most costly U.S. hurricanes. At the time, RMS loss estimates were in the range of US$13 to US$21 billion, excluding NFIP (flood) losses. Ike was blamed for at least 195 deaths, as it ravaged the Bahamas, Haiti, Cuba, and onward to the U.S. Ike did not make the history books for its wind speeds, it did not have the destructive wind intensity of more recent events such as Hurricanes Irma and Maria. It was the sheer geographic extent and inland penetration of Ike that makes it stand apart from most other hurricanes.

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Mapping 500 Trillion Dollars of Insured Exposure

RMS has just completed a two-year exercise documenting all the different types of insurance that are available in the market and a classification system for all the assets that they protect. This is published as a data definitions document v1.0 as a standardized schema for insurance companies to have a consistent method of evaluating their exposure.

This project, in collaboration with research partners Centre for Risk Studies at University of Cambridge, and a steering committee of RMS clients, involved extensive interviews with 130 industry specialists and consultation with 38 insurance, analyst, and modeling organizations.

The project will enable insurance companies to monitor and report their exposure across many different classes of insurance, which globally today covers an estimated US$554 trillion of total insured value. The data standard will improve interchanges of data between market players to refine risk transfer to reinsurers and other risk partners, reporting to regulators, and exchanging information for risk co-share, delegated authority, and bordereau activities.

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Typhoon Mangkhut: A Weekend of Destruction

From the small city of Baggao, Cagayan Province in the Philippines, to Hong Kong and further into China — locations across these two countries look to recover after Typhoon Mangkhut (25W). After landfall in Guam on Monday, September 10, Mangkhut — known locally as Ompong in the Philippines, made landfall again at 2 a.m. Saturday local time (18:00 UTC, Friday, September 14) near Baggao, as the equivalent of a Category 4 hurricane on the Saffir-Simpson Hurricane Wind Scale (SSHWS).

Maximum sustained wind speeds at landfall were 133 miles per hour (214 kilometers per hour) according to the Japan Meteorological Agency (JMA). The Philippine Atmospheric, Geophysical and Astronomical Services Administration (PAGASA) reported similar results to the JMA with maximum sustained wind speeds of 134 miles per hour (215 kilometers per hour), but the Joint Typhoon Warning Center (JTWC) reported 166 miles per hour (268 kilometers per hour), equivalent to a Category 5 major hurricane on the SSHWS.

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Hurricane Florence: Rainfall up to a 1,000-year Return Period

Florence’s much anticipated landfall occurred at 11:15 UTC (7.15 a.m. local time) today, Friday, September 14, near Wrightsville Beach, North Carolina, as a Category 1 hurricane. Florence remains just within the Category 1 hurricane classification on Saffir-Simpson Hurricane Wind Scale (SSHWS); as of the 18:00 UTC National Hurricane Center (NHC) advisory today, maximum sustained winds were 75 miles per hour (120 kilometers per hour). Previous observations showed that at Cape Lookout there were sustained winds of 83 miles per hour (133 kilometers per hour) and gusts of 106 miles per hour (170 kilometers per hour). Florence is now moving slowly toward the west at near five miles per hour (7 kilometers per hour).

Over the coming 36 hours, Florence is expected to meander into northern South Carolina and then progress further inland across the western Carolinas and into the Appalachian Mountains through the early part of next week.

The expectation that surge and inland flooding, rather than wind, would be the primary hazards associated with Florence was quickly realised as the storm approached the Carolinas coastline yesterday.

Excessive rainfall and dangerous storm surge present the greatest threat over the next few days. The potential for heavy rainfall has extended to the south and west given the change in projected track over the last 48 hours. Projections of over 15 inches (380 millimeters) of rain now cover much of southern North Carolina and northeast South Carolina — much of North Carolina is expected to receive in excess of six inches (152 millimeters) of rain.

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Super Typhoon Mangkhut: Destination Hong Kong?

Super Typhoon Mangkhut (26W) — the twenty-fourth named storm in the western North Pacific this year, was tracking over open ocean around 321 miles (516 kilometers) east-northeast of Manila, Philippines at 0000 UTC Friday, September 14. Mangkhut, named as Ompong in the Philippines using the Philippine Atmospheric, Geophysical and Astronomical Services Administration (PAGASA) naming system, is the first storm of typhoon strength to impact the Philippines since Typhoon Nock-ten on December 25, 2016, after 2017 proved relatively quiet, typhoon-free year for the country.

With the Philippines currently in the monsoon season (south west monsoon), which brings rain to western parts of the country, Typhoon Mangkhut is enhancing this monsoon system (termed as a “Hanging Habagat” locally) to bring heavier rains to the western side of the Philippines including Palawan, the Visayas, and northern Mindanao. Mangkhut is the strongest storm of the year so far — currently a category 5 equivalent storm (on the Saffir Simpson Hurricane Wind Scale — SSHWS) with 1-minute sustained winds of 166 miles per hour (267 kilometers per hour) as reported by the Joint Typhoon Warning Center (JTWC).

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Florence Update: September 13

Over the last 24 hours, the structure and forecast track of Hurricane Florence has evolved significantly as the storm begins to impact the Carolinas, but the material wind, storm surge and flood threat it poses to the Southeastern and Mid-Atlantic U.S. remains.

As of 1200 UTC yesterday (September 12), Florence’s wind field was large and powerful as the storm inched closer to the U.S. coast through favorable environmental conditions. According to RMS HWind analyses, which utilize more than 30 public and private observational data sources to generate objective, ground-truth-based tropical cyclone wind field analytics, maximum 1-minute sustained winds were estimated to be 124 miles per hour (199 kilometers per hour) (Figure 1 below), placing the storm squarely in the Category 3 range on the Saffir Simpson Wind Scale.

In addition, the Integrated Kinetic Energy (IKE), an indicator of tropical cyclone strength and damage potential, was estimated to be 104 Terajoules (TJ), putting it on par with historical events like Frances (2004), Gustav (2008), and Isabel (2003).

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Shaping Insurance Portfolios to Manage High Risk from Natural Disasters

In its recent “Global Risks Report”, the World Economic Forum (WEF) provided a comprehensive analysis of the risks and threats that the world faces, from economic, environmental, to geopolitical. Now in its thirteenth report, each year it publishes tables of the top ten risks in terms of their likelihood of happening, and potential impact. Although “newer” risks such as cyberattacks and data fraud do feature in the top five in terms of likelihood, it is extreme weather events and natural disasters that are in the top two or three in each list. In fact, in the view of the WEF, only weapons of mass destruction are ahead of extreme weather and natural disasters in terms of their impact on the globe. Nat cat events have not always topped the table — maybe the scale of the events of 2017 have brought the impact of nat cats to the fore.

There is also a recognition from the WEF that the failure to adapt and mitigate to climate change is rising as a threat. The World Weather Attribution coalition of scientists stated that 19 trillion gallons of rainfall from Hurricane Harvey that hit the Houston area was three-times more likely to occur due to climate change, and 15 percent more intense.

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Florence: A New Twist in the Tale

No hurricane landfall forecast is simple. But looking back at the forecast tracks for Hurricane Florence from the National Hurricane Center (NHC) and the ensemble members of the leading global forecast models a couple of days ago, what stood out was how relatively straightforward they were. Florence was anticipated to make a steady, assured progress directly towards the Carolinas, make landfall, and move directly inland.

In a somewhat remarkable turn of events that few, if any, models predicted 48 hours ago, Florence is now expected to stall over, or very near to, the Carolina coastline.

The huge shift in the forecast guidance is the anticipated result of a reduction in Florence’s steering flow due to two competing areas of high pressure. The hurricane is currently being steered across the southwestern Atlantic Ocean towards the southeastern U.S. around the southeastern periphery of a mid-level ridge centered northeast of Bermuda. As the system approaches land, it will come under increasing influence from a competing mid-level ridge that is forecast to begin building over the east-central United States later today. The net result of these competing steering flows will see Florence slow, meander, or even become stationary for possibly 48 hours before the system moves ashore.

This possibility could bring prolonged hurricane-force winds and storm surge throughout Saturday and Sunday, to coastal areas along North and South Carolina, and significant inland flooding to whole region.

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