El Niño forecast to be stronger, last longer into 2016

by Artemis on July 10, 2015

The chances of the current El Niño conditions becoming stronger and also lasting longer into next year have increased, according to the latest update from the U.S. NOAA’s Climate Prediction Center, who now give an 80% chance it could persist into Spring 2016.

The stronger the current El Niño gets and the longer it last will exacerbate the chances that it impacts the insurance and reinsurance industry, as the expected changes to weather and climatic conditions from this ENSO cycle would be prolonged.

The U.S. NOAA says that the Pacific looks like a classic El Niño event, however it now gives that event a greater chance of being stronger than previously forecast and longer lasting.

El Nino sea surface temperatures SST's

The latest update on El Niño from the CPC says that there is now a “greater than 90% chance that El Niño will continue through Northern Hemisphere winter 2015-16, and around an 80% chance it will last into early spring 2016.”

The previous update only gave an 85% chance that El Niño conditions would last through winter 2015-16.

A longer lasting and stronger El Niño could depress Atlantic hurricane activity right through this season, which for the reinsurance sector could mean that further pressure on rates emerges at the January renewals if catastrophe loss impacts remained low.

The CPC updates says that models are showing a strong El Niño at peak strength, with forecasters favouring a significant El Niño.

The CPC explains the possible impacts:

Across the contiguous United States, temperature and precipitation impacts associated with El Niño are expected to remain minimal during the Northern Hemisphere summer and increase into the late fall and winter. El Niño will likely contribute to a below normal Atlantic hurricane season, and to above-normal hurricane seasons in both the central and eastern Pacific hurricane basins.

Again, the below normal Atlantic hurricane season is the one that can really affect which direction reinsurance rates move in January, and also next June. As despite an above-normal hurricane and typhoon season in the Pacific, typically losses from those events are likely to have a less dramatic impact on the reinsurance sector.

The Australian Bureau of Meteorology says that the 2015 El Niño is likely to strengthen in the coming weeks thanks to the already active tropical cyclone season.

The BOM explains:

Several tropical cyclones, including a rare July cyclone in the southern hemisphere, have resulted in a strong reversal of trade winds near the equator. This is likely to increase temperatures below the surface of the tropical Pacific Ocean, which may in turn raise sea surface temperatures further in the coming months.

All the climate models used by the BOM suggest El Niño lasting throughout 2015 with some suggesting further warming of SST’s is ahead.

Forecasters expect to have a better idea of how strong the 2015 El Niño could get in the next couple of weeks, as the presumed peak approaches. In forecaster circles there is an expectation that some strengthening of El Niño is to be expected.

The stronger the El Niño conditions are, the clearer cut the impacts are typically expected to be around the globe, which could exacerbate the potential for any El Niño related hit to insurance and reinsurance markets.

Also read:

Stronger El Niño could both help and hinder re/insurance: KBW.

“Substantial” El Niño event forecast, likely to impact re/insurance.

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