Catastrophe modeling remains work in progress. With each upgrade we aim to build a better model, employing expanded data sets for hazard calibration, longer simulation runs, more detailed exposure data, and higher resolution digital terrain models (DTMs).
Yet the principal way that the catastrophe model “learns” still comes from the experience of actual disasters. What elements, or impacts, were previously not fully appreciated? What loss pattern is new? How do actual claims relate to the severity of the hazard, or change with time through shifts in the claiming process?
After a particularly catastrophic season we give presentations around ”the lessons from last year’s catastrophes.” We should make it a practice, a few years later, to recount how those lessons became implemented in the models.
With positive changes under way to improve both public and private carrier participation across the U.S. flood market, many are looking to seize the opportunity that the U.S. flood market presents. Insurers, reinsurers, and the capital markets are exploring this opportunity which, in turn, has created a thirst for knowledge. I had the opportunity to see this first-hand when I was invited by Trading Risk magazine to take part in a panel discussion at the Trading Risk ILS: Reloaded and Resurgent event in New York last month. Sofia Geraghty from Trading Risk served as our moderator, and Joanna Syroka, Director of New Markets at Fermat Capital Management, and Ian Hanson, Vice President of Willis Re, were also on the panel.
One point that the audience wanted to understand was the level of demand to take on flood risk from an investor’s viewpoint, and also whether U.S. flood risk can be a portfolio diversifier. From the insurance-linked securities (ILS) side, Joanna confirmed the demand is there, but as with any peril, the ILS market needs to be able to clearly understand and define the risk to get comfortable enough to invest.
I had the privilege of joining Property Casualty 360 for a Facebook Live video discussion last week, together with my colleague Wallace Hogsett, client manager at RMS. Danielle Ling, associate editor at PC360 was the host of the discussion, entitled “2018 Hurricane Season: Where Are We Now?”.
We began by providing a perspective on the impacts of this season’s hurricanes. The two big hurricane events to impact the U.S. in 2018 (so far) have obviously been Hurricanes Florence and Michael, but each possessed very different characteristics. Florence maintained Category 4 status on the Saffir-Simpson Hurricane Wind Scale (SSHWS) for around a week, before wind shear tempered it to a Category 1 as it made landfall near Wrightsville Beach, North Carolina on September 14. While many areas were subject to significant wind gusts and storm surge, Florence was primarily a flood event, causing historic rainfall and inland flooding throughout the Carolinas.
On the other end of the scale, Wallace stated how Michael was a classic intense hurricane — the most intense to make landfall in the U.S. since Andrew in 1992 — almost reaching Category 5 status upon its landfall in Mexico Beach on October 10. The scenes of structures reduced to their “slabs” with just their foundations left showed that this was primarily a wind and storm surge event. In total, damages stretched from the Florida Panhandle region through the Southeast and the Carolinas.
Hurricane Michael made landfall in the Florida Panhandle near Mexico Beach on October 10, 2018, as the strongest hurricane (by wind speed) to impact the area in recorded history. As a strong category 4 hurricane, Michael’s wind speeds were at or above the design-level wind speeds for this area specified by ASCE 7 and the Florida Building Code. Figure 1 below shows the RMS HWind 3-second peak gust footprint with the design wind speed contours from ASCE 7-16 for Risk Category II structures (e.g., single-family homes and most commercial structures).
Figure 1 : RMS HWind 3-second gust footprint for Hurricane Michael overlaid with the design wind speed contours in ASCE 7-16
The Florida Panhandle has historically considered itself less prone to intense hurricanes than other coastal areas such as the Greater Miami Area, where the probability of category 4 and 5 storms is much higher. As an example, in the history of the Florida Building Code (FBC), the Panhandle successfully lobbied for an exception to the windborne debris provisions that were introduced in the original 2001 FBC. This exception was ultimately lifted in 2007 but highlighted that this area contained many examples of pre-FBC construction side-by-side newer construction built to higher standards, featuring wind damage mitigation measures suggested by the engineering community and organizations such as the Insurance Institute for Business and Home Safety (IBHS).
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Standard and Poors (S&P) has been providing ratings for insurance carriers since 2005 by examining their risk management practices. They view effective Enterprise Risk Management (ERM) as a supporting pillar of their rating analysis, as ERM reaches across all the core attributes of a business.
This includes a carrier’s treatment of catastrophic events, and their preparation for the “unexpected”, with S&P laying out a method for carriers to establish best practices in this area. And, according to their recent findings, they concluded that carriers with stronger ERM programs weathered the 2017 natural catastrophes better than those with weaker programs.
In the last month or so, two significant North Atlantic hurricane events have brought the latter half of the current hurricane season into sharp focus — and what marks these two events out was how different they were. With Hurricane Florence making landfall on September 14 in North Carolina, this event was one of the most intense storms to go above 30 degrees north in recent history.
Co-authors: Michael Kozar, Senior Modeler, RMS HWind; James Cosgrove, Senior Analyst, RMS Event Response
Michael underwent rapid intensification in the two days leading up to landfall, reaching the Florida Panhandle coastline as a strong Category 4 major hurricane with maximum sustained wind speeds of 154 miles per hour (247 kilometers per hour), according to the RMS HWind real time service. At landfall, Michael had a tight inner core and its strongest winds were located just 14 miles (22 kilometers) south-southeast of the center of the storm near Mexico Beach. Tropical storm force winds extended up to 115 miles (185 kilometers) eastward along the Panhandle coastline to Pensacola.
Whilst the Saffir-Simpson Hurricane Wind Scale (SSHWS) is exclusively based on maximum sustained wind speeds, which often only covers a very small part of the system, the Integrated Kinetic Energy (IKE) metric conveys the intensity, size, and structure of the storm’s wind field into one number and has become a useful metric for comparing the destructiveness of storms. Using the IKE metric, we can compare and contrast Hurricane Michael to other events in the RMS HWind historic archive.
As an organization, it is always great to get recognition from the industry for the work that you are doing; and industry recognition does make a real difference to the teams that work so hard to produce robust, quality solutions that are solving the problems that the market faces. And so, on September 27, off we went to Cipriani 25 on Broadway in New York, for the Eleventh Reactions Annual North America Awards, with RMS receiving the “2018 North America Risk Modeler of the Year” award.
This award is decided by votes from the industry and it recognizes our reputation for providing best-in-class support and leadership to our North America clients, and especially at times when insight is so critical to a business — such as during the significant cat events that ran through 2017. It also provides an endorsement for the approach that RMS is taking more generally to anticipate and deliver on the needs of the North America market, to keep pushing the boundaries and break new ground, to help a growing client base across the industry ranging from reinsurers and carriers through to capital markets.
From first light yesterday (October 11), the full extent of the damage from Major Hurricane Michael across the Florida Panhandle and the wider region became clear — and it really was as catastrophic as we all had feared.
Although Major Hurricane Michael could be regarded as a more traditional “wind and surge” event compared to recent flood events of hurricanes Harvey and Florence, this was not just a coastal event. The trail of destruction extends far from the landfall location near Mexico Beach (pop. ~1,000) and neighboring Panama City (pop. ~36,000) and well into the state of Georgia. Whether it is from the destruction of homes in the towns near landfall, or the widespread power outages, felled trees, damaged roofs, and debris, the clean-up operation is going to be a long process. And tragically, as of Friday, October 12, eight fatalities have been confirmed, including four in Florida, one in Georgia, and one in North Carolina.
After the flood-driven impacts of Category 1 Hurricane Florence just under a month ago, yesterday’s unfolding drama from Major Hurricane Michael was dominated by damaging winds that were within touching distance of a Category 5 storm.
Major Hurricane Michael made landfall near Mexico Beach, Florida, at 17:15 UTC (12:15 CST) on Wednesday, October 10, as a Category 4 major hurricane — the first Category 4 or stronger hurricane to make landfall in the Florida Panhandle on record. At landfall, its maximum sustained wind speed was 155 miles per hour (250 kilometers per hour), just two miles per hour short of Category 5 classification.
Michael’s intensity at landfall has set numerous records. It becomes the strongest hurricane (by wind speed) to make landfall in the continental U.S. since Andrew in 1992 and the strongest (by wind speed) October landfilling hurricane in the continental U.S. on record. Its minimum central pressure of 919 millibars makes it the most intense hurricane (by minimum central pressure) to make landfall in the U.S. since Camille in 1969.
Michael had undergone rapid intensification of 35 knots and 46 millibars in the 24 hours up to landfall, benefiting from ideal development conditions — minimal wind shear and a warmer-than-usual Gulf of Mexico with sea surface temperatures one to two degrees Celsius above average. Its intensification was relentless right up to landfall and resulted in catastrophic damage in portions of coastline along Florida Panhandle.
Prior to landfall, more than half a million people were under evacuation orders, and more than 20 million people in five states were under either a hurricane or tropical storm warnings.