Figure 1. Seasonal predictions issued by various forecast organizations.

Furthermore, even the most precise predictions of basinwide activity (and they are far from precise) do not necessarily translate into similar expectations regarding potential damage-causing storms. What is most important to those concerned about insured hurricane losses—and markedly absent from most seasonal forecasts—is a projection of how many storms will impact land and property. This brings up another notable feature of the 2011 season. Of the seven storms that achieved hurricane strength this year, only one—Hurricane Irene—made landfall in theUnited Statesas a hurricane.

AIR's published research has shown that during years with warm sea-surface temperatures (which has been the case every Atlantic hurricane season since 1995), the storm-development pattern shifts to the east and north, closer to the coast ofAfrica. Storms that form in this region are more likely to curve north before reaching the U.S., thereby decreasing the probability of landfall. Thus, for an individual season, basinwide activity is not always a reliable indicator of potential high losses; six seasons since 1995 have experienced above-average tropical-storm activity with zero or just one U.S. landfall. In fact, with a long-term average of about two U.S. landfalls per year, only five seasons since 1995 have had above-average landfall activity.

Hurricane Irene

Caribbean

In late August, Hurricane Irene, the first hurricane of the season, wove through the Caribbean islands with maximum wind speeds of over 110 mph. Irene battered several islands, causing significant losses to the Bahamas, Puerto Rico and the Dominican Republic. AIR issued a final insured loss estimate of $400–800 million (U.S.) in the Caribbean territories.

As with all major events, AIR deployed an engineering team to conduct a post-disaster field survey of the worst-affected regions. The team found that building codes were stringent and well enforced, and the levels of observed damage from both wind and flood were consistent with AIR's expectations. Wind damage to well-built concrete structures was generally limited to the roof, while the less prevalent wooden structures suffered more substantial damage. Commercial properties suffered significant damage to signage.

Figure 2. As expected, wind damage to well-built concrete structures was limited to the roof (top) and, on commercial buildings, to signage (bottom left). Wood-frame structures, which are much less prevalent in the Bahamas, were more severely affected. The structure in the bottom right panel was virtually demolished by Irene's eye wall as it traversed Abaco. (Source: AIR)

AIR researchers also met with local insurance agents and building contractors and learned that, contrary to the default assumption of uniform take-up rates (insurance penetration) across the islands, there are significant differences among islands in the Bahamas. As with other findings from the field, this improved understanding of take-up rates gained from the survey will be incorporated into the model and will allow more accurate insured-loss estimates for future real-time events.

United States

After exiting the Bahamas, there was significant uncertainty regarding Irene's future track and intensity. Figure 3 shows the evolution of the risk to the U.S. insurance industry as Irene approached the U.S. coastline. As the scenarios show, most models early on expected Irene to make landfall at Category 2 or even Category 3 strength, with the potential for insured losses in excess of $10 billion (U.S.). While these more damaging scenarios were not realized, it reinforces the high sensitivity of loss to even slight changes in storm track and landfall intensity.

Figure 3. AIR ClimateCast^® Risk Index for Hurricane Irene (top) provides a real-time assessment of insured risk using operational model forecasts of storm track and intensity combined with AIR's sophisticated stochastic simulation techniques; selected track and intensity scenarios (bottom).

As Hurricane Irene came closer to the North Carolina coastline, the models reached some consensus that Irene would strike at Category 1 strength and then move into the Northeast. The Hurricane Risk Index value estimated just prior to landfall was about 2.0, corresponding to an industry loss of about $3.8 billion (U.S.). The latest industry loss estimate from Property Claim Services (PCS) is $4.1 billion.

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Closing Thoughts

While elevated sea-surface temperatures tend to increase baseline storm formation, there are a variety of complex factors that dictate whether storms will intensify to hurricane strength and ultimately whether they will be directed toward land at that strength. The 2011 hurricane season has demonstrated once again that a high level of basinwide activity does not necessarily translate into high insured losses. In line with AIR's perspective on U.S. loss potential during warm sea-surface temperature regimes, historical experience since 1995 has not justified dramatic adjustments to the modeled frequency of damaging storms.

The high variability in year-to-year activity means that the best approach to managing the risk from hurricanes is to prepare for events before they occur using a stable and robust hurricane model whose underlying assumptions reflect the reality of the physical phenomenon. This can be supplemented by a number of valuable tools to manage real-time risk as a storm is approaching the U.S. coastline.