Which way will the wind blow?

Allianz Commercial Hurricane season outlook 2019

Another hurricane season in the Atlantic is just around the corner. How disruptive will it be? After successive above-average seasons since 2016, will an El Niño year materialize to weaken hurricane production? Or, as was the case in 2018, will it fail to do so and end as another above-average year? The AGCS Catastrophe Risk Management Team reviews the 2018 season and previews 2019.

The Atlantic hurricane season begins on June 1 and ends on November 30. The Atlantic basin had three quiet hurricane seasons from 2013 to 2015, followed by a slightly above average season in 2016 and an extremely active season in 2017. The 2018 Atlantic hurricane season ended up being slightly above average and will primarily be known for two hurricanes that brought significant damage and loss of life to the continental US. Hurricane Florence made landfall as a Category 1 hurricane in southeastern North Carolina on September 14, but, like Harvey in 2017, it slowed down considerably, bringing record flooding to portions of North and South Carolina where over the course of four days it dumped as much as 36 inches of rain in some locations – the equivalent of around nine trillion gallons of water [1]. It was the wettest tropical cyclone on record in the Carolinas and at least 55 deaths were attributed to the storm, with economic losses reaching at least $17.9bn [2].

On October 7, Hurricane Michael formed and strengthened over the Gulf of Mexico, making landfall as a Category 5 hurricane in the Florida Panhandle with wind speeds up to 155 mph and storm surge up to 14 feet. Damages in the US are estimated to have exceeded $15bn [3]. It was the strongest hurricane to ever landfall in the Florida Panhandle and only the second recorded Category 5 storm to hit the northern Gulf Coast [4].

Extreme meteorological events such as these have the potential to generate significant onshore and offshore losses for the insurance industry. Two such past events – Hurricane Katrina in 2005 and the combined impact of Hurricanes Harvey, Maria and Irma in 2017 – belong to the costliest storm events (in terms of insured losses) in US history [5]. Hurricane Katrina has by itself been called “the worst insured loss event in the history of insurance anywhere in the world” – bigger than 9/11, the earthquake and tsunami in Japan and Hurricane Andrew – with losses of $41bn [6]; the dynamic trio of 2017 disasters – Hurricanes Harvey, Irma and Maria – collectively caused $92bn [7]. While 2018 wasn’t quite so active as 2017, it was still slightly-above average, characterized by above-average numbers of named storms and hurricanes and near-average numbers of major hurricanes [8]. Will 2019 continue the pattern – or are we in an El Niño lull?

Pre- and early-season forecasts predicted a near to slightly above average Atlantic Hurricane season. While 2018 was to be an El Niño year – one in which warming of surface waters in the eastern tropical Pacific Ocean occurs – but water temperatures remained closer to normal than expected, with only a slight trend towards warming. Therefore, later seasonal forecasts underestimated Atlantic hurricane activity. These downward adjustments were primarily due to anomalous tropical Atlantic sea surface temperature (SST) cooling. Despite a relatively cold tropical Atlantic, early September 2018 was extremely active and was the primary driver of the slightly above average season that occurred. In addition, six of the fifteen named storms that formed in 2018 were initially classified as subtropical, which usually do not respond to large-scale tropical climate drivers in the same way as tropical cyclones that form in the tropics [9].

The table below summarizes the predicted number of storm events for 2019 by several meteorological organizations. Regarding the predicted numbers of tropical storm events, taking all predictions together, the 2019 hurricane season is expected to be slightly above the long term average (1950-2018), with 12 to 16 tropical storms forecasted. A rather average season is indicated by five to seven of them reaching hurricane strength and two to four becoming major hurricanes. The predicted numbers for storms and hurricanes making landfall in the US by Tropical Storm Risk (TSR) are below the long-term norm with one hurricane landfall and modeled by only one institute with unprecise results. However, those predictions are associated with even higher uncertainties which is why most institutes refrain from issuing hurricane landfall projections. It should be stressed that the precision of hurricane outlooks issued in early April is low, and thus forecast uncertainties remain large for the 2019 hurricane season. These uncertainties apply already to the underlying projections for the El Niño Southern Oscillation and the North Atlantic Oscillation [11].

At present, the established research institutes have yet to form a consensus on the 2019 Atlantic basin hurricane season forecast. While scientists from Colorado State University (CSU) and TSR anticipate slightly below normal activity, North Carolina State University (NCSU) and AccuWeather predict slightly above normal activity and Global Weather Oscillation (GWO) a normal hurricane season.

It is important to consider that only one hurricane or a super storm like Sandy making landfall could have a catastrophic impact on the insurance industry. It does not require an active hurricane season for the insurance market to experience significant losses.

“With the start of the hurricane season looming, even as we go to press a low pressure system has formed north of the Bahamas and is the first named tropical system of 2019 – Andrea,” says Andrew Higgins, Senior Regional Technical & Expertise Manager, Americas, at AGCS.

“Is this a precursor of an active hurricane season ahead or will this be a normal year for hurricane activity? We truly do not know, of course, what the future holds, and therefore, it is extremely important that any business located in a hurricane prone area be prepared to mitigate against the risk of wind, water and storm surge and have an adequate continuity plan rehearsed and in place just in case – not only this season, but each and every year.”