Initial reports from the Bahamas suggest that the islands of
Great Abaco and Grand Bahama have been left devastated from Major Hurricane
Dorian, evoking memories of the destruction on the eastern Caribbean island of Barbuda
in the immediate aftermath of Hurricane Irma just two years ago.
A Record-Breaking Hurricane for the Bahamas and the Atlantic
Dorian underwent an unprecedented period of rapid intensification between August 31 and September 1, that took its maximum sustained wind speed from 150 miles per hour to 185 miles per hour. No other Atlantic hurricane on record has intensified as rapidly as this from such a high initial wind speed. Dorian joins an exclusive group of Atlantic hurricanes to attain wind speeds of 185 miles per hour or greater: Allen (1980), Wilma (2005), Gilbert (1988), and the Labor Day Hurricane (1935).
Dorian maintained this intensity on September 1, and then made a series of landfalls – first across Great Abaco island, and on September 2 across Grand Bahama. In doing so, Dorian became the strongest hurricane in modern records to strike the northwestern Bahamas. As the Category 5 hurricane traversed the islands, its forward speed slowed and it became near stationary over Grand Bahama for roughly 36 hours before gradually moving northwest. Dorian’s eyewall subjected some areas of these islands to destructive wind gusts of up to 220 miles per hour (354 kilometers per hour) and catastrophic storm surge in excess of 20 feet (6 meters).
Dorian looks set to pass over the northern Bahamas in the coming days as
potentially a Category 5 major hurricane, but forecasts regarding future U.S.
impacts remain significantly uncertain, with the latest guidance providing a
twist in the tale that no one anticipated a few days ago.
Understanding the Uncertainty: A Matter of Timing
The meteorological situation that Hurricane Dorian finds itself in is as fascinating as it is uncertain. Several days ago, Florida was bracing itself for potentially its third major hurricane landfall in as many years. Now, Dorian looks more likely to make landfall in the Carolinas, or, as some models increasingly suggest, it may recurve soon enough that is misses the U.S. entirely. So, why have the forecasts been so uncertain? It’s all to do with timing.
The recent allegations against General Electric (GE) read like a financial thriller: Bernie Madoff whistle-blower teams up with anonymous hedge fund to expose the alleged financial misdeeds of one of the most recognizable brands in American history.
But most people’s interest in this story ends abruptly when they hear about the crux of the allegations, which can be summarized in eight words: “… inadequate loss reserves for long term care (re)insurance.” This topic is esoteric at best, and sleep-inducing at worst. It’s impossible to spin into media clickbait. And it’s clear that media is struggling to describe exactly what Harry Markopolos, the whistle-blower, is alleging in his 175 page report.
Now that we’ve reached the halfway stage of the 2019 North Atlantic hurricane season, now feels like a good opportunity to review the season to date and look ahead to what the remainder of the season might have in store.
A Quiet Start to the Season
If you thought the Atlantic had been a little quiet through
the early summer, you’d be correct. The basin has had its quietest start since
2014. The strongest of these storms to date, Barry, made landfall near
Intercoastal City, Louisiana, on July 13 as a weak Category 1 hurricane. RMS
estimated that the insured U.S. losses from Hurricane Barry would not exceed US$500
million, inclusive of wind, storm surge, and inland flood damage, including
losses to the National Flood Insurance Program (NFIP).
Following Barry, the basin went 35 days without a named storm until Chantal formed over the open water in the far North Atlantic on August 19. It marked the first time since 1982 that the Atlantic had not generated a named storm in the period between July 15 and August 19.
Every twist and
turn of a real-time hurricane can affect global financial markets, public
safety, or government and international aid agencies that provide assistance. Within
the (re)insurance space, the ability to understand forecast track, timing, and potential
hazard and loss impacts before landfall helps entities to prepare and execute
their event response processes effectively. This includes having adequate
capital to cover claims, setting up claim centers and planning policyholder
outreach, securing and positioning adjusters in areas that are likely to be
impacted, and determining what, if any, risk can be ceded to reinsurance or
clients, the traditional approach to quantify potential impacts ahead of a
landfalling storm involves selecting similar storms from the RMS® North
Atlantic Hurricane (NAHU) stochastic event set. While this generates vital
insights that can be extracted quickly from internal databases, there are
opportunities to provide earlier and more comprehensive insights into the storm
ahead of landfall.
To date, RMS clients have also benefited from real-time analysis of hurricane events through RMS HWind Real-Time Analysis products. These observation data-based snapshots and footprints have provided the industry with a standard “ground truth” representation of tropical cyclone wind field size and intensity before, during, and following landfall effectively helping to describe what the storm is doing and what the storm has done.
The first half of 2019 had been unusually quiet in the western
North Pacific tropical cyclone basin. Following the dissipation of the
strongest-ever February typhoon – Wutip, there were no subsequent typhoons
until Francisco reached Category 1 strength on August 4. A few days later,
Typhoon Lekima strengthened significantly on its approach towards the China coastline
and then became the strongest landfalling storm of the year so far.
Lekima Enters the Record Books
Typhoon Lekima made landfall in Wenling City, Zhejiang Province (pop. ~1.3 million), at 1:45 a.m. local time on Saturday, August 10, with an intensity equivalent to a Category 3 hurricane on the Saffir-Simpson Hurricane Wind Scale according to the China Meteorological Administration (CMA). With two-minute sustained winds of 116 miles per hour (187 kilometers per hour) and a central pressure at landfall of 930 millibars, Lekima became the third strongest tropical cyclone to impact eastern China after Saomai in 2006 and Wanda in 1956.
Imagine, instead of trying to communicate the prospective climate change future, you could just time travel to experience the weather of 2050.
In place of having to convince the city engineers of Paris or Chicago to invest in better street drainage and passive-cooling architecture, you could take them to experience their city in thirty years, well within the lifetime of the facilities and infrastructure they are constructing today. Rather than having to factor in seemingly arbitrary modifiers to flood or heatwave risks, to stress test your future insurance losses, you could visit an insurer already experiencing and pricing those future climate extremes.
In evaluating climate, we already have an alternative to time travel – we can travel in latitude. You could accomplish all these tangible goals, if you could identify the place which today already experiences your future climate.
Terrorism is a global menace that spreads like a virus along social networks. On March 15, 2019, Brenton Tarrant killed 51 Muslims attending Friday prayers at two mosques in Christchurch, New Zealand. Terrorism is the language of being noticed. Shortly before his rampage, he emailed his white supremacist manifesto, The Great Replacement, to the New Zealand Prime Minister’s office and media outlets, and shared a link with 8chan, a counter-culture website associated with political extremism.
Ever since the Christchurch mass shooting, 8chan users have commented regularly on their desire to beat Tarrant’s high score of victims. On Saturday, August 3, 2019, 21-year-old Patrick Crusius posted a four-page document, The Inconvenient Truth, on 8chan, which has since gone offline.
This expressed support for the Christchurch shootings, and blamed immigrants and first-generation Americans for taking away jobs. He also called for the deportation of immigrants. Such a white supremacist tirade is not unusual on 8chan. However, shortly after this posting, he headed for the Walmart near the Cielo Vista Mall, El Paso, Texas, and opened fire in the parking lot and store with an assault rifle. Mid-morning on Saturday, Walmart was busy with shoppers. His twenty-minute shooting spree left 20 dead with 26 people hospitalized. He then surrendered to police officers.
From our numerous client conversations, climate change as a business issue has risen high on the agenda, and this has certainly escalated over the last twelve months. There is a growing recognition of the need to quantify the impact that climate change will have on your business. But – where do you start with this? One of the major challenges is knowing what question to ask. With the inclusion of climate change scenarios within the General Insurance Stress Test (GIST 2019), which the larger U.K. insurers and Lloyd’s syndicates are required to respond to, the Bank of England Prudential Regulation Authority (PRA) is outlining one approach.
RMS is particularly well placed to support insurers in responding to the “Assumptions to Assess the Impact on an Insurer’s Liabilities” portion of the climate change section within GIST, which examines how changes in U.S. hurricane and U.K. weather risk under different climate change scenarios may affect losses.
The revised earthquake coverages and caps proposed by the New Zealand Earthquake Commission (EQC) came into law as planned on July 1, 2019. As noted in an RMS blog back in February, these well signaled changes – to increase the building coverage from NZ$100,000 to NZ$150,000 and remove the NZ$20,000 contents cover, only had a small effect on the gross average annual loss for both EQC and the private market. Swapping the first layer of contents exposure for a larger, higher layer of building exposure produced a result that was close to neutral.
Examining the Exceedance Probability (EP) curve (see figure 1 below), the changes are small across all return periods. There are small increases in loss for the private market at short return periods (which produce the small increase in average annual loss reported earlier) but very little change at long return periods.
Critically, the modeled gross 1000-year loss to the private market is essentially unchanged, meaning there are no implications with regards to the Reserve Bank of New Zealand (RBNZ) solvency requirements. Further, these EQC coverage changes are not expected to affect the peril balance driving trans-Tasman solvency considerations where both the RBNZ and Australian Prudential Regulation Authority (APRA) standards must be met.