At this moment, you might expect a blog about European windstorms to be about recent Storms Ciara-Sabine, Dennis and Jorge causing wind and flood losses of a couple of billion euros in Europe. However, the losses this winter are modest in a longer-term context. Instead, I think the recent insights into longer-term variations in wind losses could have much more impact on how we price windstorm risk.
We first noticed multidecadal variability of European windstorm activity ten years ago, with 50 percent lower frequencies of damaging storms in the new millennium than in the eighties and nineties. This variability is important: a company’s length of loss experience is unlikely to match the model calibration period, which impacts model validation. It also held the promise of improved risk management, if the storminess changes could be anticipated. We needed to know more about it.
With annual windstorm losses in Europe ranging from a couple of hundred million to tens of billions of Euros, it is no wonder the insurance industry is interested in forecasting winter storminess. However, we cannot let the potential of good returns distract from a full understanding of what winter forecasts really say about future wind losses.
Over the past few years, RMS have been distilling the vast amount of research in this field into key insights for the insurance industry, with a series of annual blogs on the outlook backed up by a more detailed research paper (available to RMS licensing clients). Before we discuss the forecast for this year, we look back to last year’s forecast.