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Severe convective storms as risky to insurers as hurricanes | Canadian Insurance
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Severe convective storms as risky to insurers as hurricanes

Willis Re report says average annual loss from severe convective storms was US11.23 billion in 2016.

Severe convective storms (SCS) are as risky to the U.S. P&C industry as hurricanes, based on 2003-2015 loss statistics analyzed by Willis Re in a new report.

The average annual loss from severe convective storms was US11.23 billion in 2016 compared to $11.28 billion from hurricanes. “If we consider loss history from the last decade only, severe convective storm is the largest annual aggregated risk peril to the insurance industry,” according to Willis Re. “The latest science indicates that U.S. SCS frequency is relatively higher following La Nina and lower following El Nino, and storm location is affected as well.”

El Nino-Southern Oscillation (ENSO) is an ocean-atmosphere interaction in the tropical Pacific that influences weather and climate patterns around the world. El Nino events are characterized by warmer than usual sea surface temperature (SST) in the eastern and central tropical Pacific, and La Nina events are characterized by cooler than usual SST in the eastern and central tropical Pacific. Roughly half of all years are classified as ENSO ones (either El Nino or La Nina) based on the Oceanic Nino Index (ONI), with the other half being considered neutral.

The impacts of ENSO are strongest in the tropics, but even in the mid-latitudes ENSO is the most important driver of climate variability on seasonal and inter-annual timescales, other than the seasonal cycle itself, according to the reinsurer. ENSO impacts U.S. climate and is the main source of predictability and skill for seasonal forecasts of temperature and precipitation, especially during the cool season (fall and winter). El Nino is associated with reduced Atlantic hurricane activity, and La Nina with enhanced activity.

U.S. severe convective storm activity, as measured by the numbers of tornado and hail reports, was relatively low in 2015 and 2016 compared to previous years. From a climate perspective, 2015-2016 was marked by the strongest El Nino event since the 1997-1998 El Nino, with El Nino warming that began early in 2015, grew during 2015 and persisted into the spring of 2016.

Scientists and forecasters have long debated the impact of ENSO on SCS activity in the U.S., with the first solid findings being that there tend to be more cool-season tornadoes during La Nina conditions, according to Willis Re. “The ENSO-driven modulations of the atmospheric circulation (in particular, jet stream changes) that shift temperature and precipitation patterns over the U.S. are also expected to impact SCS activity. El Niño tends to shift the jet stream further south over the U.S., which blocks moisture from the Gulf of Mexico.”

Recent consideration of tornado and hail reports along with associated large- scale meteorological factors has provided a consistent picture of the impact of ENSO on springtime tornado and hail frequencies. The persistence of the ENSO state from winter to early spring provides a basis for predicting March-April-May (MAM) SCS activity based on the December-January- February (DJF) ENSO state.

According to the report, 60% of the annual aggregated loss from SCS is due to hail, 20% due to tornado and 20% due to straight-line wind. However, 45% of the 1:100 year industry loss is due to tornado and 35% is contributed by hail. On an aggregated annual basis the less intense, more frequent tornadoes and hailstorms cause significant loss to property insurance portfolios. Typically, about half of the annual severe storm risk occurs during spring (March-April-May) and 25% to 30% of the risk occurs during the summer (June-July-Aug) months.