What could a La Niña mean for insured property exposure along the U.S. coast?

Source: What could a La Niña mean for insured property exposure along the U.S. coast?

June 1 marked the beginning of hurricane season in the Atlantic Basin for 2016. Willis Towers Watson Wire recently published a blog on our predictions for this season based on Colorado State University’s forecast.

With the hurricane season in mind, we recently held a webinar examining the current El Niño-Southern Oscillation (ENSO) conditioned event set we have developed. We also explored how it can help to estimate ENSO conditions on portfolio loss estimates within a vendor hurricane model.

Most El Niño-Southern Oscillation (ENSO) prediction models are currently predicting an end to 2015-16 El Niño and a brief period of ENSO-neutral by early summer.

There is 71% chance of La Niña during peak Atlantic hurricane season.

Consensus of ENSO prediction models favors La Niña by the time we move into the 2016 summer and fall. However, there is 71% chance of La Niña during peak Atlantic hurricane season (August-September-October). As with any probabilistic models, uncertainty exists with the estimate of the timing and intensity of a potential La Niña (strong or weak).

Many research studies in the past highlighted how ENSO could impact U.S. landfall hurricane activity. It has been observed that the number of landfall hurricanes during La Niña is significantly higher than El Niño.

The difference in landfall hurricane activity is even greater if we limit our observations to strong El Niño versus strong La Niña. Probability of major hurricane (category 3-5) impacting U.S coast is estimated to be

  • 27% during El Niño
  • 66% during La Niña
  • 45%, during neutral phase

Willis Re analyses using ENSO conditioned hurricane event frequencies indicates a 25% to 55% more loss during La Niña phase at 1 in 100 compared to long-term historical hurricane frequencies-based loss estimates.

We believe it is useful to understand the sensitivity in loss estimates to rapidly changing climate conditions and the deviation in ENSO index based loss estimates from vendor model’s long-term and/or near-term rates based loss estimates. We believe this gives us a more complete view of the catastrophic risk.

There are other climate factors that could influence Atlantic hurricane activity such as Atlantic Multi-decadal Oscillation (AMO), North Atlantic Oscillation (NAO). While these factors are not explicitly treated, we did implicitly include them in our event set.

If you would like a copy of the webinar recording, please email Prasad Gunturi.