Tornado outbreak in U.S. Midwest set to continue

by Artemis on April 20, 2011

Tornado activity over the last week has eclipsed all records for the number of recorded tornadoes recorded and that weather trend looks set to continue for the next few days according to an informative report from risk modelling company EQECAT. A weather system tracking east across the U.S. has generated reports of 267 tornado touchdowns between the 14th and 16th April, making it one of the largest ever tornado storm clusters recorded.

EQECAT’s report shows that 2011 is heading to be a record year for tornado activity in the U.S.with activity to date representing about double the long term average. 2004 was the most active tornado season on record but EQECAT believes 2011 could eclipse that. The number of tornadoes recorded to date in 2011 shows that a record year is possible.

Tornadoes rarely receive the same coverage as hurricanes and other natural disasters, however they have the potential to cause a large insured loss once all damage is tallied. EQECAT note that the 4th May 2003 supercell outbreak (a major event) would cause around $6 billion in insured losses in todays dollars.

In the recent spell of tornadic activity one tornado was recorded at EF3 (see scale below) with winds in excess of 130mph and had a track almost 20 miles long and 1/2 a mile wide. A tornado of that magnitude can cause massive destruction if it strays into a built up area. Tornadoes are measured using the Enhanced Fujita scale, a measure of maximum winds observed:

EF0 – 65-85 mph
EF1 – 86-110 mph
EF2 –  111-135 mph
EF3 –  136-165 mph
EF4 – 166-200 mph
EF5 – greater than 200 mph

The forecast for the days ahead shows that conditions are conducive to high levels of convective activity with the highest risk seen in an area from the Arkansas-Missouri border through southern Illinois and Indiana. The NOAA say there is a high risk of strong tornadoes or a long-lived wind event with the potential for higher end wind gusts (80mph+) and structural damage.

For reinsurers this could become another loss event they can well do without given the catastrophic start to 2011. For catastrophe bonds, there is unlikely to be any impact unless losses are particularly high. There is some thunderstorm risk in the cat bond market (and thunderstorms go hand in hand with tornadoes), particularly in the Mariah Re Ltd. transactions (details here and here) from 2010 which provide American Family Mutual with cover against losses from severe thunderstorms. For that deal to trigger it would require American Family Mutual to suffer losses in excess of $725m from a combination of thunderstorm events which cost them over $10m each (and less than $300m). Could this tornado and thunderstorm season test Mariah Re? We’ll have to wait to see how the next few months pan out.

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