Research quantifies changing pattern of U.S. severe thunderstorm risk

by Artemis on December 3, 2014

A new piece of insurance industry research, announced today by Verisk Climate a division of Verisk Analytics, seeks to explain the changing frequency of severe thunderstorm weather events in the U.S.

As part of the Emerging Risk research program run by Verisk Climate, the team has created new data sets and assessed the causal factors behind severe weather patterns.

The results could be invaluable to the insurance, reinsurance and catastrophe bond / ILS industry, as the research team claim to have developed a new view of severe thunderstorm weather events that systematically analyses and explains changes in the patterns of severe wind, hail, and tornado perils over recent decades.

“Susceptibility to hail in Canada and the northern United States is at historic levels since the 1990s,” commented Jason C. Furtado, Ph.D., staff scientist at Atmospheric and Environmental Research (AER), a division of Verisk Climate. “There’s also strong evidence that both annual and interannual hail frequency has been more variable in the central U.S. over the past one to two decades.”

Hail losses are a growing threat to insurers and increasingly severe hail events can result in impacts to reinsurers, as insurers eat through retention layers. The catastrophe bond market naturally has exposure to these severe thunderstorm, tornado and hail risks, with the recent news about the Gator Re cat bond eating into its retention demonstrating the need for insight and understanding of the changing frequency and severity of these severe weather events.

“In Canada, the threat of hail-producing storms has been more frequent over the past two decades,” continued Furtado. “This departure from the norm has been attributed to causal factors that are consistent with climate change scenarios.”

“We’re applying AER’s objective scientific research to help the insurance industry better understand why severe thunderstorm patterns have been distinctive in recent decades,” added Guy Seeley, Ph.D., executive vice president of Advanced Development Programs and Technical Operations at Verisk Climate. “These research results provide actionable data that insurers and corporations can use to gain additional perspective on recent severe weather that has made it more challenging for them to effectively predict and manage weather risks and related costs.”

Verisk scientists wanted to keep the research relevant to the needs of the insurance industry and so looked beyond correlations to quantify and communicate the fundamental factors driving severe weather activity.

The scientists applied cutting-edge data science methods to consistently assess atmospheric and storm data trends from the 1940s to the present. The results show regional changes in the frequency of severe weather events throughout North America in recent decades, enabling a new view of potential future activity.

Any new research on the frequency of severe thunderstorms, tornado, hail and related severe weather events is valuable to the ILS sector. Currently, severe thunderstorms feature in many U.S. multi-peril catastrophe bond transactions. U.S. multi-peril cat bonds currently make up more than a quarter of the outstanding cat bond market and so far this year seven cat bonds have been exposed to this peril.

There will also be a significant amount of fully-collateralized reinsurance or retrocessional limit at risk due to the impact of severe thunderstorms and weather events, thanks to ILS managers increasing participation in both national and regional U.S. reinsurance programs.

The research brochure can be downloaded via the Verisk Climate website here.

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