Newsletter Sign-up

By MATTHEW BRODSKY, senior editor/Web editor of Risk & Insurance®

Let's not call Hurricane Earl a dud just yet, but the hype of the ill-informed, instantaneous media coverage of the event appears to have been all for naught.

The damage was minor enough for one of the modelers to not even provide its usual loss estimates after the event. Another modeler EQECAT Inc. did, however, provide a loss forecast the day after Earl passed North Carolina, on Friday, Sept. 3: potential insured losses in North Carolina and Virginia will be less than $100 million. Competing modeler AIR Worldwide announced on Friday that insured damage from Earl's brush with the southern Atlantic coast would be minimal. Earlier in the course of Earl's travels through the Caribbean, AIR estimated damages to the northern Leeward Islands between $50 million and $150 million.

By the morning of Saturday, Sept. 4, Earl was a mere tropical storm as it passed Cape Cod.

We probably should knock on wood. Tropical Storm Hermine is pouring on southern tip of Texas, and Gustav has slim hopes to re-form again behind that. Two other tropical waves have formed off the west coast of Africa and the Cape Verde Islands, with possibly more on the way. The semiautomatic clip of storm formation in the Atlantic is beginning to be eerily reminiscent of the record 2005 season.

What gives? Weren't there headlines in the news just a week or two ago about how the entire hurricane season was dud?

What gives is that we're in the traditionally scariest and most active moments of the hurricane season now. All of the hurricane forecasters reiterated their earlier predictions for a busy season in their August updates.

"We have maintained our forecast from early June and continue to call for a very active Atlantic basin hurricane season in 2010 due to unusually warm tropical Atlantic sea surface temperatures and the development of La Nina," Philip J. Klotzbach and William M. Gray wrote in their Aug. 4 update.

The two Ph.D.s from the famed Department of Atmospheric Science at Colorado State University are calling for 18 named storms and 10 hurricanes. Mind you, through July, the Atlantic basin only witnessed two named storms and one hurricane, so it has a lot of catching up to do, according to Klotzbach and Gray.

So also said the National Oceanic and Atmospheric Administration (NOAA). In its Aug. 5 hurricane forecast update, NOAA said the remainder of the storm season could pack 12 to 17 named storms, seven to 11 hurricanes and four to six major hurricanes.

"The atmospheric and oceanic conditions now in place over the tropical Atlantic Ocean and Caribbean Sea are very conducive to hurricane formation, as was predicted in NOAA's pre-season outlook issued in May," the NOAA authors wrote in their update, those main conditions being the continued upswing of the so-called multidecadal oscillation, the very warm ocean temperatures and the formation of La Nina in the Pacific, which leads to less vertical wind sheer in the Atlantic.

And more importantly for property insurance companies, the famed Klotzbach and Gray tandem in its August forecast prognosticated: "We anticipate a well above-average probability of United States and Caribbean major hurricane landfall."

Klotzbach and Gray give the entire U.S. coastline a 75 percent chance of a major hurricane making landfall after July 31--50 percent for the East Coast and 50 percent for the Gulf Coast.

Those are odds that the house would take. Anybody willing to bet against them? Appears so, per reports last month that the catastrophe bond market was seeing rising prices for weeks, according to a Bloomberg article from Aug. 23. That means investors are betting that catastrophe bonds will not be triggered by landfall and storm damage. This all supposedly because of the quiet start to the season and because NOAA, in issuing its August update, reduced the upper end of its total named storm forecast from 23 to 20.

September 3, 2010

Copyright 2010© LRP Publications