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Storms, earthquakes and wildfires: a record-breaking 2017

Environmental
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By Geoffrey Saville | October 31, 2017

A string of natural catastrophes in 2017 has broken records. How might this affect the insurance markets?

On 16 October the U.K. sky was suffused with a surreal sepia glow under a reddened Sun. It was the result of a combination of meteorological factors associated with the approach of Hurricane Ophelia. The rarity of such an unusual atmospheric optical effect for the U.K., was befitting as a harbinger for the peculiarity of Ophelia.

Storm development

The storm formed on the 9 October in the middle of the Atlantic, and barely moved for the first few days of its life, while developing a ragged eye late on the 11 October, and officially achieving hurricane status. This made it the tenth consecutive storm this season to make it to hurricane strength, tying the previous record set in 1878 (and also tied in 1887 and 1893). Over the next 24 hours it gradually strengthened to category 2 on the Saffir-Simpson scale. By the 14 October, Ophelia reached major hurricane status (category 3 or above), and became the most eastern category 3 observed since satellites gave us greater certainty about locations of storms at sea. Its peak winds of 115 mph (185km/h) were reached a few hundred kilometres from the Azores on the 14 October. The storm then started to accelerate northwards towards the Ireland, and although remaining a hurricane until the 16 October, it did weaken slightly. It transitioned to become an extra-tropical cyclone (also referred to as an ex-hurricane for ease of public communication) as it approached the UK and Ireland.

Warm air was dragged up from the south ahead of the storm and gave a sub-tropical feel to conditions in the UK, and at the same time this southerly flow brought smoke and dust from wildfires affecting Portugal and northwest Spain, turning the sky a moody shade of yellow and giving the Sun a red tint: an eerie prelude to the storm as it bore down on Ireland and the U.K.

Impact of Ophelia

Ophelia struck Ireland in ferocious manner. “Status Red” national severe weather warnings were in place with the longest lead time ever issued by Met Éireann: 48 hours in advance of the storm’s arrival, with weather warnings for Northern Ireland, Scotland, west Wales and western England also in force. Three people were killed in Ireland, with 300,000 losing power. Across the U.K. impacts were less, but still large numbers of homes lost power in Northern Ireland,. Early estimates for loss were up to €1.8bn, but generally around €500-800mn seems to be the average, although it will take a while to refine these numbers.

A season to remember

We still have a few weeks to go before hurricane season 2017 officially ends on the 30 November, but Ophelia adds more reason to make this year one for the records books. While the extreme rainfall records fell from Hurricane Harvey, shortly before major Hurricane Irma tied the record for the longest period spent at category 5 status. Irma also made it into the top five strongest Atlantic Hurricanes. These two storms made 2017 the first season to see two category 4 storms making landfall in the U.S.

Market impact

The impact of this Atlantic Hurricane season on the insurance and reinsurance markets appears mixed, with a range of views being expressed in the industry press. One view is that the high level of losses through the season from a number of severe storms affect the U.S. coastline may have the effect of increasing premiums. Compound this season’s hurricane losses with other catastrophic events, such as the Mexican earthquakes and the U.S. wildfires, and we have a catastrophe climate that is eroding reinsurance capital reserves for many reinsurers. Pay outs of over $100bn from this year’s events are expected to cause a hardening of the market from the reinsurance perspective, and associated increases in prices, seems a logical step.

However, the story isn’t quite so simple. Market perspectives from other sources suggest that to preserve competitive pricing, the reinsurance market has simply turned to alternative capital. In this way, the active hurricane season may be driving innovation in the market rather than necessarily shifting pricing or risk appetite. Previous years of with insured catastrophe losses over $100bn, such as 2005 and 2011, showed that rates slowly increased over the following few years. Perhaps, the growth of the capital markets and alternative capital will mean that any price hike will be a slower process, or may not happen at all? Perhaps it even encourages further growth in ILS and cat bond transactions, as these mechanisms are proving their worth, and having survived this season.

Analytical capability = greater insights

Greater analytical capability is also allowing for more detailed analysis of geographically diversified books. With the extra insights provided by improving catastrophe analytics and modelling, reinsurers that are relatively unaffected by the losses incurred from this year’s earthquake, wildfires and trio of hurricanes, may justifiably resist the need to increase rates, and this gain competitive advantage.

The Willis Research Network (WRN) remains on the front line of building new analytical capability. By partnering with academic researchers around the world and across disciplines, it can provide valuable insights from the latest scientific experts. A dedicated management team helps to guide this research into the insurance and reinsurance business units. Next week, the WRN will host a seminar to showcase a selection of our latest projects to an audience of underwriters, brokers and catastrophe analysts, as well as invited academics and industry press. 

Author

Head of Weather and Climate Risks Research

Geoff joined Willis Towers Watson in 2013, and works with the Willis Research Network stakeholders and academic partners to match business needs to the latest in scientific research, and derive tangible outputs for Willis Towers Watson to help advise its clients to advance their understanding of risk from weather and climate related hazards.

His background is in meteorology and climate science, having worked in forecasting for over a decade for the UK Met Office and Bermuda Weather Service, in all aspects of delivering forecast services from media broadcasting to delivering warnings and actionable guidance on extreme weather phenomena such as tropical cyclones and heavy rainfall leading to flooding.

He holds a BSc in Environmental Science from the University of East Anglia, and a Masters (with distinction) in Climate Change from University College London. He is also an active Fellow of the Royal Meteorological Society.


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